In this week's Commercial Awareness Update we discuss the IMF's global forecast, Samsung's profit warning, Pinterest's upcoming IPO and JPMorgan's exciting results.
IMF global forecast
The International Monetary Fund (IMF) has downgraded growth forecasts for the global economy, describing the current economic situationit as a ‘delicate moment’. They haven’t predicted an imminent recession, something many have speculated about, but they have downgraded growth for 2019 by 0.2% to 3.3% and 3.6% in 2020 - slower than last year. This is largely due to a slowdown which started at the end of last year and has continued into this year. The IMF expects the economy to pick up again towards the end of the year.
Global trade tensions are a key reason for the IMF’s worries about growth, with Trump’s proposed new import tariff hike on cars particularly standing out. Last year, tension between China and America over trade took its toll. Other problems include worries surrounding Brexit, a potential decline in financial markets increasing the cost of borrowing, and finance available in the eurozone area.
America, Britain and many eurozone economies had their forecasts downgraded, with Germany and Italy fairing particularly badly. Italy is already in a technical recession and Germany’s economy has appeared to stutter.
Companies to Watch
Electronics company, Samsung, revealed disappointing sales with a consecutive quarter of declining profit. The company further revealed that its first-quarter profit is anticipated to be 60% less than what is was a year ago. Samsung, who is the world’s largest smartphone seller, warned of lower than expected profit back in January. This was to be expected since Samsung was facing challenges similar to Apple including a lower demand for smartphones in China. Additionally, the demand has stalled in memory chips for computers, smartphones and display electronics, which Samsung tend to supply a large amount of. However, demand is expected to pick up for memory chips in the second half of the year so the future is still promising.
Samsung have also released the world’s first 5G smartphone in South Korea where 5G is already prominent. It is expected to be released elsewhere as soon as infrastructure catches up.
There have been several stories in the past few weeks regarding tech companies undergoing IPOs and Pinterest is no different. Last week, the social media platform filed for valuation, however it is currently expected to be lower than its 2017 valuation of $12 billion. The upcoming share sale will value the company at around $10-11 billion. However, despite an increasing user base and sales increasing by 60%, like other similar IPO companies, Pinterest is still working at a loss, which amounted to $63 million last year. Valuations tend to increase over time, often as a lower starting price leaves room for improvement. The conservative valuation may be used as a way to prevent investors from selling early and keep them on board as they wait for stocks to rise. Furthermore, IPOs tend to be judged by the stock's first day performance, so if investors believe that the social media platform will be worth more than $12 billion later this month, they will be inclined to buy shares and give their stock that first day boom they will be looking for.
After months of negotiations, Debenhams finally fell into administration. The UK’s biggest chain department store, which has 166 stores across the UK, will continue to trade for now, however 50 outlets have been earmarked for closure at the start of next year. This comes with the news that the chain has amassed £621m worth of debt, making it the UK’s first big retail collapse of the year. Last week Debenhams rejected an £150m rescue offer from Sports Direct, which increased to £200m on Tuesday. The offer was rejected because Mike Ashley, owner of Sports Direct, wanted to be chief executive. Now the fate of Debenhams is in the hands of its lenders who will be looking for remuneration for the sales of its stores.
America’s biggest bank announced its first quarter profit on Friday which was better than investors had predicted, and, significantly, was higher than any other US banks ever. Last year, fixed income trading of products such as bonds and currencies were one of JPMorgan’s weakest areas. In a strong comeback, the bank’s fixed income revenues for last quarter actually exceeded forecasts. Consequently, shares in the American bank rose 5% last week. Keep an eye out as many banks are starting to follow suit and release their first quarter results.