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In this week’s Commercial Awareness update, we discuss the chance of a Brexit deal, a slowdown for the global economy, Facebook’s cryptocurrency, the firms who’s bought Thomas Cook’s 555 shops and the new £20 note.
Pound surges as Brexit deal looks on (then not on)
On Friday, the pound rose by 1.9% against the dollar after optimism spread about a last minute Brexit deal with the European Union. The pound reached close to $1.27 against the dollar and €1.15 against the euro, making it a three month high. Across Thursday and Friday, it gained 3% largely down to chief EU negotiator describing talks as “constructive”. Days earlier British Prime Minister Boris Johnson set out a new plan for the Irish border, which many saw problems with, but suggested Britain were willing to meet in the middle to come to some sort of compromise before the 31st October deadline. The European Council is set to meet on 17th and 18th October, which many see as the last chance for any deal to be done before the end of October.
Despite the market optimism, a deal is looking increasingly unlikely after weekend talks didn’t lead to as much progress as hoped. The PM is still hoping to get enough of a breakthrough to hold a vote on a very rare Saturday session in the House of Commons - many have coined the day “Super Saturday”. The markets on Monday haven’t reacted negatively to the spectacle rhetoric from leading EU figures, keeping the pound steady throughout Monday trading. However, if a deal looks unlikely and the PM continues to push for a no-deal Brexit on 31st October, the pound is likely to dip - the markets have reacted poorly to the prospect of a no-deal Brexit and the uncertainty it would bring.
Question to ask yourself… Will the markets respond better to a deal before 31st October or a delay until the end of the year? Does Johnson have any chance of convince parliament to vote for a deal?
World Bank expects slower growth this year
Ahead of a meeting between the World Bank and International Monetary Fund (IMF), the President of the World Bank, David Malpass, has said that global growth is set to be lower than the 2.6% it was predicting back in June. He cites three key reasons for this, which have all been covered in previous updates, which are:
- The US-China trade war: Trump has delayed his most recent plan to increase tariffs, as talks are set to continue over a trade deal; but figures suggest that the current tariffs have started taking its toll over US and Chinese growth
- Brexit: Investment in the UK and Europe has stalled in recent months as many individuals and companies wait to see the next steps in the process ahead of the 31st October deadline
- Europe: Many indicators suggest Europe is struggling within manufacturing and the service sector. Germany, as the key economy, is having a troubling time avoiding a recession
Malpass also noted the $15 trillion of bonds being held with zero or negative yield, which in effect are tied up capital which is moving nowhere. This could alternatively be used to fund growth across the world. The IMF is due to release a forecast next week, so look out for that.
Question to ask yourself… What can the World Bank do to encourage economic growth?
Companies to watch
Facebook’s cryptocurrency project, Libra, has been dealt a fresh blow last week, after a report from the G7 group suggests it has work to do to become safe and secure. Facebook has plans to create a global currency, but before it can gain widespread approval, it will have to pass regulations set by governments across the world. The G7 group has set up a taskforce, which has come back with nine major risk areas associated digital currencies and the risk to the global financial system. The report doesn’t name the Libra directly but does highlight “global stablecoins” has having many potential problems. In recent weeks, the Libra has been dealt some big blows as major payment companies (Mastercard, Visa and Ebay) have withdrawn support for the project citing its regulatory concerns and have especially highlighted the possibility it could be used for money laundering.
In the UK, Facebook also received criticism last week over the amount of tax it is paying. It’s a story which comes up frequently with some of the big international tech firms, with other big names having been singled out in recent months. Facebook paid just £28 million tax on UK revenues of £1.6 billion last year. Facebook has grown their UK operation by 50% in the last year and is contributing more to the economy, but many critics still think their tax bill in the UK is far too small. Many big businesses find ways to account for profits in countries which have lower corporation tax, therefore saving them money.
Local estate agent, Hays Travel, have bought all of Thomas Cook’s shops in a deal which could save as many as 2,500 jobs. Set up 40 years ago, the Sunderland based firm, want to rebrand all of Thomas Cook’s shops, so they can gain presence in areas where they aren’t currently reaching. Some of the shops will create overlap with Hays Travel’s current stores, but this shouldn’t stop most of the old Thomas Cook stores being saved. Hays Travel had a revenue of £379 million last year, with £10 million of profits, so it is a big step to take on the Thomas Cook operation. The deal was done with the travel industry regulator, The Civil Aviation Authority, who reviewed the plans Hays Travel had for the shops. The hope is that this deal provides a re-employment opportunity for Thomas Cook employees who lost their jobs with little notice in recent weeks.
Questions to ask yourself… Why are governments so nervous about cryptocurrencies? What’s important for Hays Travel to get right while integrating Thomas Cook shops?
And finally… the new £20 notes
The most forged note in the UK is due an upgrade as the Bank of England continues to improve the security of sterling. The newly designed £20 note, featuring artist JMW Turner on it, has two see-through windows, which will make it harder to forge. Figures show that the £20 note is the most circulated in the UK, with two billion in the system, and they make up nearly 90% of all notes forged in the UK. The new note will follow the £5 and £10 to be made from polymer, which is more durable and waterproof. The new note will enter circulation in February 2020.