In this week’s Commercial Awareness update, we discuss the markets and what data impacts them, the profits of the 12 biggest banks, the PPI deadline, the big firm to drop off the FTSE 100 and the Big Issue going contactless.
Markets and data
In the last week, there have been a series of new data releases which experts are using to comment on the state of the global economy. In this week’s update, we’ll take a look at what’s been happening.
New data released on employment in the US found the economy added 130,000 new jobs in August, 28,000 below the 158,000 jobs that were forecasted for the month, and an 18% decrease on the number of jobs created in July. The unemployment rate did stay at a low 3.7% and wage growth was at 3.2%, both positive signs, but many suggest the lack of job creation shows that the China-American trade war is starting to take its toll on the economy.
It hasn’t been confirmed but most believe the Federal Reserve (the Fed) will lower interest rates in an attempt to stimulate the economy by making the cost of borrowing cheaper. This move is something that President Trump has repeatedly called for, but the Fed is a separate entity, making decisions independently of the President.
Manufacturing and service sector
Across the world, there were some worrying figures within the manufacturing sector. On Tuesday, stocks fell in America after it showed US manufacturing shrank in August for the first time in three years. Like the employment figures, China’s slowing growth and worries about the global economy is taking its toll on manufacturing.
In the UK, sterling dropped to 1.209 against the dollar after a new report shows that the output of the manufacturing sector is dropping fastest that any point since 2012. Confidence has been tumbling due to uncertainty over Brexit. There was a boost a few months ago as firms stockpiled ahead of Britain’s proposed leave date from the EU, but it feels like this effect has now worn off.. The FTSE 100 did rise on the news, which has become a common trend when the pound dips.
It’s not just the manufacturing sector which is showing worrying signs, with the service sector across Europe also stagnating. Within the UK, confidence in the service sector is measured by data from the purchasing managers’ index (PMI), which asks managers across industries a series of questions before analysing the results to come up with a single number. The latest figure is 50.6, down from 51.4 in July - a figure lower than 50 represents a contraction.
Spotlight on Investment Banking
Within Investment Banking, the world’s 12 biggest banks have posted their lowest revenues since 2006, the latest figures show. In the first half of this year, revenues fell by 11% as equity-trading (stocks) has dipped and the low interest rates mean banks can’t make as much from lending money. Deutsche Bank has already moved out of the equities market to focus their business on other areas and others could follow suit.
We have covered some less than good news so far, but there was some positive data for the UK economy’s bid to hold off a technical recession. Gross Domestic Product (GDP) unexpectedly grew 0.3% in July, meaning that the economy didn’t contract in the three month to July-end. In Q2 of this year Britain’s economy shrank 0.1%, and if it does the same between July and September Britain would technically be in recession. The latest data suggests this will be avoided.
Questions to ask yourself... What data is key for indicating economic performance? How can big banks start making more profit?
Things to watch
After what has felt like an eternity, the deadline for people to claim back mis-sold Payment Protection Insurance on bank loans passed on 29th August, but the banks did see a significant spike in claimants in the run up to the deadline. Lloyds Banking Group is facing an additional bill of between £1.2 and £1.8 billion to cover this, with the total across the sector reaching over £50 billion in compensation for PPI overall. Lloyds said they were receiving around 700,000 new information requests a week in the run up to the deadline.
Many high street banks have been affected by the mis-selling of PPI which took place between 1990 and 2010. The insurance was meant to protect people who were unable to pay back their loan due to job loss or ill health, but it was deemed to be mis-sold. Lloyds have been the worst affected with a total bill for paying back PPI set to reach around £22 billion.
After being a member of the FTSE 100 since it was launched in 1984, M&S has dropped out of the UK’s top index for the biggest companies. The companies listed on the FTSE 100 is decided by their market value or market capitalisation. M&S has had a hard year, especially with their clothing arm, and their share price dropped 40%. The food business has been performing better, but has had a dip in fortune more recently.
M&S’s chief executive is aiming to change the fortunes of the business with an ambitious turnaround plan. The company also went into a joint venture with delivery company Ocado earlier this year, showing signs it is modernising and changing direction. If consumer spending drops in the coming year, it could spell a problem for many high street shops, but with M&S’s brand holding strength within the British market, it’s going to be exciting to see the future of this turnaround plan.
The big issue
Sellers of the Big Issue magazine will shortly be able to join a scheme to allow them to take contactless payments. The magazine, which helps people out of poverty, is responding to changes in how consumers pay for goods. Recently, Big Issue sellers have trialled contactless payments in five cities and found that 80% of transactions were contactless. Swedish company iZettle is selling contactless readers to Big Issue sellers for the much reduced rate of £9 and have also dropped their per-transaction rate when purchases are made. It’s new for the UK, but many European countries have trialed similar schemes with positive results.
Questions to ask yourself... How can traditional brands re-invent themselves in the modern day? Is market capitalisation the best way to judge a company's importance/size?