In this week’s Commercial Awareness update, we discuss interest rates and employment, Apple’s strong quarter, an end to the Sainsbury's-Asda merger, Spotify’s 100 million paying subscribers and sponsorship in sport.
US is working
The unemployment rate in the US fell to its lowest since 1969, with 263,000 jobs created in April. With wages also rising - currently at 3.2% annually - it shows strength in the US economy. Hiring gains were observed across the economy, with professional services adding 76,000 new jobs last month. Despite these positive figures, the US Federal Reserve didn’t believe the economy was growing quickly enough to raise interest rates (the base rate at which banks lend to each other and customers). Inflation is currently below their target of 2%, which led to the Fed voting to hold interest rates last week. Commentators believe they will be held for the rest of the year.
In the UK, interest rates are also being held, but the governor of the Bank of England, Mark Carney has hinted rises could be on the way. With Brexit worries still prevalent, raising the interest rates could be a risk for the fragile economy. However, figures suggest the economy and inflation could rise quicker than expected over the next two years. In this case, interest rate hikes could be much more likely. Currently, the markets are forecasting only one rise in the next two years.
Questions to ask yourself... Is employment rate the best indicator of economic performance? How could a rise in interest rates impact the economy?
Companies to watch
Technology giant, Apple, had riper than expected quarterly results, with shares rising by 5%. This news came as the sales of iPhones fell, marking their biggest decline yet. Sales of the iPhone fell by 17%, compared with the same period the year before. However, there was positive news for Apple as the previously cool demand for iPhones from China has begun to reheat. This was a result of iPhone prices in China being cut in order to boost demand. These positive results meant that Apple has lifted its outlook for the next quarter inspiring investors and sending share prices up. In addition to China’s demand growing, investors are hoping that Apple’s expansion into new services including video streaming, gaming and credit cards will keep their investments rising. The increase in share prices represent what investors think Apple’s potential holds, and it is clear that there is confidence in the technology giant.
After the recent merger between Sainsbury’s and Asda fell through, the supermarket giant Sainsbury’s, has asserted that the failed bid cost them £46m. The proposed merger was blocked last month after the UK’s competition watchdog feared it would raise prices for consumers. The two supermarkets wanted to merge as they believed the arrangement would have cut their costs, allowing them to lower prices for consumers. This design could have helped the two supermarkets to combat the rise of discount retailers such as Aldi and Lidl. However, the watchdog was concerned as together the two supermarkets would have jointly owned 2,000 stores in the UK, consequently reducing competition in supermarkets which they believed would lead to higher prices or other potential unwelcome changes. The chief executive of Sainsbury’s, Mike Coupe, stated that the blockage of the merger was “effectively taking £1bn out of customers’ pockets.”
Music streaming service, Spotify, reached a landmark result in its better-than-expected first quarter as it reached 100 million paying subscribers. In their last quarter, the Swedish company added 4 million paying subscribers to their customer base - more than the 3.3. million originally anticipated. This news is a welcome start to its annual target of 127 million paying subscribers by the end of 2019. However, free users who listen to adverts between songs still outnumber paying subscribers, allowing ample opportunity for the service to reach their goal. The premium tier provides for 90% of Spotify’s earnings. However, despite their exciting growth, Spotify is still in the red, with an operating loss of €47m for the quarter, after making a profit of €94m in the final three months of 2018.
Questions to aks yourself... How can Spotify start becoming profitable? Should the compeition watchdog have blocked the merger between Sainsbury's and Asda?
Global sports sponsorship from businesses is set to reach £35 billion in 2019, but new research by Two Circles suggests leagues, teams and tournaments could modernise their practices to make more. In the UK, financial services firms make up 19% of the total spent on sponsorship, while the automotive and airline industry make up 14% and 13% respectively. The report comes as tighter restrictions are being introduced for gambling firms’ sponsorship of sport. They currently make up 12% of the UK market, and it would be a significant blow for sports if that revenue was curtailed. However, some see this as a good opportunity to branch into new markets.
The £35 billion of global sports sponsorship represents a growth of 4% year on year, but the report by Two Circles suggests £14 billion extra revenue could be made if sports teams and leagues were to update rights packages, embracing the power of digital and data to support firms to hit their objectives. Nonetheless, Two Circle believes spend on sports sponsorship will rise 6% year on year between 2020 to 2024.
Question to ask yourself... Should gambling firms be restricted on their sponsorship of sports teams?