FCA’S mini-bond ban proves too little too late for retail investors
Mini-bonds are essentially loans to fund small business. They were portrayed by FCA recognised London Capital & Finance (LCF) as offering returns of between 7-9%, that were both tax and risk-free in the form of a HMRC approved ISA. An alluring prospect to most retail investors but as the 11,600 who bought the mini-bonds quickly found out, complete hogwash in reality. To make matters worse, none of these clients are protected by the Financial Services Compensation scheme.

It’s not the first-time customers have been short changed, but the size of this latest scandal has finally made the FCA sit up and completely ban promotion of mini-bonds to retail investors. Regulation only applies to mini-bonds if an authorised firm has approved a promotion for them. But if a firm offers unregulated products, they can also be bought without advice and subsequently without any right to compensation. Widening the perimeter to ensure mini-bonds fall under complete regulation by the FCA would go a long way in fixing this loophole.

Companies: LVMH Targets expansion in Hard Luxury Market
By buying Tiffany and Co for $16.2bn this week, luxury group LVMH announced a serious intention to increase its market share within the hard luxury market (watches and jewellery). The world’s largest luxury group with a market cap of $200bn will look to put a squeeze on current incumbents like Cartier while closing the revenue gap (€4.2bn, 2018) to market leader Richmont (€9.16bn, 2018).

Elsewhere, private equity firm Silver Lake who specialise in technology investments signed one of the biggest deals in sports history. Silver Lake subject to regulatory confirmation bought a 10% ($500m) stake in City Football Group (CFG), parent company of Manchester City. The deal values CFG at $4.8bn. Abu Dhabi who bought the football club as an oil diversifier back in 2008 will continue to retain majority ownership. Other listed football clubs like Manchester United also benefited from the news with share price surging 10 per cent following the announcement.

Global: Economy continues to show tentative recovery
As long-term growth figures are being revised down, in the short-term, the global economy is continuing to show green shoots of recovery. Global manufacturing growth is stabilising while consumer confidence in key markets like USA, Germany and Korea were all positive. Singapore, often seen as a bellwether for global growth as the size of industrial trade dwarfs the local economy, revised third quarter growth figures upwards. However, the one main detractor to global growth is China.

Falling consumer spending alongside bruising trade tariffs have led to industrial profits taking a hit as production, which accounts for 40% of GDP, continues to deteriorate. Weakening data also puts China in a bind as it gives the US the upper hand in trade negotiations. That’s why expectations of phase one of the trade deal being completed remain high even if President Trump signed a bill backing the civil rights of Hong Kongers.

Latam: Chilean Riots Destabilish Peso
The political temperature in Chile is close to boiling point as violent protests over stark wealth inequality continue to escalate this month. President Sebastian Pinera attempts to appease the nation by sacking his entire cabinet has done little to quell the unrest. At least 23 people have died, more than 13,000 people injured and 25,000 arrested.

So great is the social unrest, that Chile’s central bank had to announce two separate currency interventions this month to arrest a falling Chilean Peso. The first earlier this month was a liquidity injection in both dollars and pesos to the tune of $4bn lasting until January 2020. The second injection announced this week was five times greater and is expected to run until the end of May next year.

Corbyn’s Manifesto may not be as radical as first thought
This week the launch of the Labour manifesto brought gasps of shock and horror from all but the most ardent Corbyn fans. We were hoping we wouldn’t need to talk about it. Given Labour’s chance of forming a majority is practically zero, this is little more than socialist fan fiction, but there is so much that stands out we can’t help ourselves. In isolation many of the proposals are not that extreme; in most of Europe utilities are state owned and the lights stay on; higher rates of tax on dividends and capital gains are also quite common. When corporation tax was cut by George Osborne it had little impact – so a hike will probably not matter much either; and so on and so on.

The cumulative effect of changing the tax treatment of dividends, gains and profits all at once is almost unfathomable however. While we think a lot of the “tax prevents growth” story is overdone, and indeed the evidence has always been shaky, it does change behaviour. How investors, businesses, and indeed the whole economy would react is a complete unknown and is the real danger behind the proposals.

M&A: Saudi Aramco IPO Valuation Downgraded
Months of work pitching Saudi Aramco shares to big institutional investors ahead of one of the most anticipated initial public offerings (IPO) this year, all came crashing down in one meeting this week – that lasted ten minutes. Aramco chairman Yasir al-Rumayyan chairman was disappointed that the $2trillion dollar valuation of the state oil company failed to garner enthusiasm. The valuation of the company has subsequently been revised down to $1.1-1.2tn. Investment banks would have been hoping for a bumper pay out from the floatation. Instead they may have to settle for a paltry $90m when compared to other large IPO’s such as Alibaba which generated $300m in fees.

Fund managers were concerned with both the governance of the state oil company and infrastructure security following the attacks on Saudi Aramco plants a few months ago. Rather than a global listing, the company will instead turn to, and in some cases lean on, local investors in order to beat the $25bn raised by Alibaba in 2014.

Global: OECD urges Governments to spend
With global GDP growth expected to be 2.9 per cent this year, its lowest annual rate since the financial crisis in 2008, the OECD is urging governments to act in order to avoid long-term stagnation. The intergovernmental economic organisation believes that if governments were to combine structural reform with targeted spending and tax policies at lower interest rates, growth will pick up over the long term. But in order for that to happen a coordinated effort is required, and it’s required now.

Economic uncertainty has been the main detractor to growth as trade talks and Brexit noise weakened manufacturing and squeezed global investments. The offsetting effect of strong service sector performance has also started to wane. The organisation was also bearish on the prospects of UK growth, predicting GDP to fall to one per cent next year regardless of whether a No Deal Brexit is avoided.

US: Housing Market Rebounds Sharply
Lower mortgage rates boosted US homebuilding last month. The number of privately-owned new houses on which construction has been started on was up 3.8 per cent in October, greatly exceeding the 0.9 per cent forecast. Building permits (proxy for future construction plans) increased five per cent to 1.5 million units, its highest level since 2007. Permits for single-family housing projects increased 3.2%. The number of houses being completed also spiked up 10.3 per cent to reach 1.1 million units.

Elsewhere, the betting markets now have President Donald Trump as odds-on favourite for impeachment. So far hearings haven’t gone Donald’s way and this week Fiona Hill, a former White House official, added more fuel to the fire, telling the congressional impeachment inquiry that Trump’s narrative that Ukraine rather than Russia interfered in the 2016 election was actually false.

Corbyn’s Free Broadband Plan Dials up popularity with Millennials
This week we got a new twist in what is turning out to be a very strange election campaign so far. Despite Jeremy Corbyn’s desire to return to an era of state-run industry being well known, this week’s announcement of a plan to nationalise BT and provide free broadband for everyone still came as a major surprise. While the actual policy should be ignored, as Labour’s chances of forming a majority government are close to zero, early indications are this policy is likely to prove popular with the large section of the electorate that didn’t live through the 1970’s. Increased state ownership might not be ready for a return to UK policy mainstream yet, but it probably will be soon.

Elsewhere we got to see talk of “green shoots” of a recovery in global growth figures, in a nostalgic throwback to 2010. Positive data from Germany suggesting it is has escaped a recession along with increased chance of a resolution to the US-China trade war gives some hope that the global economic slowdown experienced for much of the year could be bottoming out.

Private Equity: KKR prepares record Walgreens Boots Bid
This week, one of the largest leveraged buyout deals (acquisition of another company using a significant amount of borrowed money) in history is gathering pace. Private equity firm KKR, flush with cash after selling its stake in Trainline following its successful IPO last summer have set their sights on taking Walgreens Boots Alliance, who owns Boots in the UK, Walgreens and Duane Reade in the US private.

Rising competition from online retailers such as Amazon (who are also starting to muscle in to the pharmacy space) have hurt the company. With over 200 store closures expected for Boots in the UK, a period of rebuilding and some time away from intense quarterly earnings scrutiny may prove beneficial for the company. With a market value of $56bn and $16.8bn in debt, the price to take the company private would top the largest leveraged buyout in history which was the sale of utility firm TXU to KKR and private equity investment firm TPG back in 2007.

Global: Equity and Bond Markets Diverge on Trade Talks
Optimism of a US-China trade deal and better-than-expected earnings from multinational corporations appear to have tempted investors back into riskier assets recently. Conversely, safe-haven assets have endured a torrid time with precious metals (Gold and Silver) last week suffering one of their worst falls of the year. In addition the Yen, which investors tend to turn to during times of uncertainty, also took a hit.

While equity markets are optimistic that phase one of the trade deal will be rubber stamped in the near term, bond markets remain sceptical. At the crux of the matter is agricultural purchases. The Americans have been pressing the Chinese to explain exactly how they expect to reach $50bn in agricultural imports annually, asking for monthly and quarterly breakdowns. So far the Chinese remain elusive. China have also insisted on both sides rolling back tariffs in phases before striking a final trade deal, something which President Trump denies ever agreeing with.

Eurozone: Germany Narrowly Avoids Recession
Germany defied expectations this week as the economy avoided an expected technical recession in Q3 this year. Europe’s largest economy grew by 0.1 per cent (Source: Destastis) and in turn also helped boost wider Eurozone GDP growth by 0.2 per cent from July to September. Rising household consumption was the main positive contributor with a notable mention to rising exports. Imports remained neutral.

However, the positive growth story for the export orientated model could be short lived. Weak economic data came out this week indicating that China, a country that is a key importer of German cars and machinery, announced factory output, consumption and exports all slowing. Economist believe the Chinese malaise will continue and with German car companies recently admitting tougher EU emissions regulations will hamper profitability in the near term, expect recession fears for Germany to remain high.

US Election 2020: Don’t Trust the Polls just yet
This week while the UK election got off to a blundering start, with a series of gaffs and candidate resignations, the US election is gaining momentum despite being a full year away. New polling showing Donald Trump losing to all major Democratic candidates caused a great deal of excitement, with even normally sensible fund managers we talk to actively discussing how they think future president Warren will impact their portfolios. The peculiarities of the US electoral system means national polls are much less relevant than we may think.

The 2016 election was decided by 4 states and just 77,000 voters. Among this group, president Trump remains more popular. It is also extremely early to be considering potential matchups against Trump despite the media attention; Warren has had a good run in the polls vs. front runner, former vice president Joe Biden, but at this point in the 2007 Democratic primary most opinion polls had Hillary Clinton as heavy favourite over Barack Obama. A lot will change once primary voting begins in Iowa in February.

UK: Brexit Uncertainty Hampers Service Growth
The latest soft data for the UK showed activity for the dominant service sector practically static, rising from 49.5 points in September to 50, a level where the sector is neither contracting or growing. Business levels were supported by existing contracts, but with fewer service contracts coming in and existing backlogs starting to dwindle, there is real concern that the sector could remain stagnant for a while longer. Meanwhile, manufacturing and in particular construction, (which forms the remainder of the PMI composite) remains in contraction.

According to Markit, new service work has declined seven times in the first ten months of 2019. In turn, workforce numbers continue to fall as firm’s lower headcount to deal with the drop-in demand. However, the outlook for the sector is slowly improving albeit from historically low levels. Political uncertainty has been the foremost concern, and there is hope this could be reduced if Brexit is resolved in early-2020.

Oil: OPEC Struggle to cope with US Shale oil rise
OPEC, an intergovernmental organization that controls a meaningful portion of the world’s oil supply, this week announced that its mulling further cuts. The US is now the world’s largest oil producer due to rising output from shale oil as the process of hydraulic fracturing (“fracking”), becomes ever more refined. This oversupply means that OPEC’s slice of the global oil pie is expected to shrink from 37 to 31 per cent by 2024.

The glut in oil also means that the price continues to hover at low levels, great for consumers but a headache for OPEC members, the majority who rely on oil revenues to cover their national spending. OPEC and its allies have lowered supply this year in order to boost the current price of oil which has been holding at around $60 dollars per barrel. But with US oil output expected to increase by 40 per cent over the next six years, the cartel’s current strategy of continual cuts may end up backfiring in the long term.

Retail: Mothercare falls into Administration
This week, Mothercare became the latest high-profile casualty on the high street, appointing administrators to wind down the business after it became clear that its journey to profitability was never going to reach a conclusion. 79 shops are expected to close, putting 2,500 jobs at risk. Mothercare’s highly profitable international business will not be included in the administration. The 58-year old company joins the likes of Bonmarche, Toy ‘R’ Us, Maplin and HMV in the list of retailers who have succumbed to administration since 2018.

Mothercare has struggled to cope with both the consumer rotation to ecommerce and intense competition from supermarkets who have muscled in to Mothercare’s niche, often offering cheaper alternatives. Factor in consistently high overheads its more surprising that retailer, who has only had two years of positive earnings (before tax) since 2013, lasted so long.

Markets Shrug off No-Deal Fears and Turn to US Jobs Data
This week the UK learned it is going back to the polls, not for a referendum, but for a general election – to decide Brexit. The chances of it deciding anything aren’t great, with most betting markets having a hung parliament the most likely outcome. Markets didn’t react much to the news, while elections usually add to uncertainty, uncertainty in the UK economy is pretty much maxed out. The resulting Article 50 extension removed the final lingering threat of no-deal that was still priced in and has been a slight boost. The main positive we can see is the chance to report on something else until after the election.

Elsewhere surprisingly strong US jobs figures helped back up Jerome Powell’s decision to signal a halt to future US rate cuts. His stated logic was confidence in a US-China trade agreement which it should be noted currently doesn’t exist. Previous trade agreements have previously been terminated at the last minute by both sides, making it a very unstable basis for interest rate stability.

Global: Riots turn up the heat on Chile
While many of the headlines this week have been dominated by the general election in the UK, over in Chile a different political storm has been brewing. What started as mere grumblings over a 30 pesos (£0.03) metro fare price hike quickly descended into mass protests over inequality in Latin America’s wealthiest country. While the protests had been mostly peaceful, spiralling violence has left eighteen people dead so far.

President Sebastian Pinera, in an attempt to appease the nation and heed calls for reform, requested the resignation of his entire cabinet last week. However, this appears to have done little to quell the unrest with riots and looting escalating this week. As an indirect consequence, the government has also been forced to cancel the Apec trade summit planned for November. It was hoped that President Trump and President Jinping would have used the summit to rubber stamp phase one of a long-awaited trade deal.

US: Fed Cut Rates as Economy Falters
US economic growth fell to its lowest level of the year last quarter but still managed to beat economists’ expectations. GDP grew at an annualized rate of 1.9 per cent between June and October, 0.3 per cent greater than economists predicted.

Consumer spending eked out a modest gain offsetting the decline in business activity and public spending. The effects of the $1.5tn tax cut package appear to have waned which, coupled with the ongoing trade war is depressing business confidence.

Meanwhile, in a widely anticipated move, the Federal Reserve (Fed) continued down the dovish path cutting rates by a quarter percentage point. However, there was a marked shift in tone with the Fed chair Jerome Powell potentially signalling a halt to further cuts in the near term. Powell said in the press conference that central bank officials “see the current stance of monetary policy as likely to remain appropriate.”

M&A: Peugeot and Fiat Chrysler on the Brink of Merger Deal
This week Peugeot (PSA) announced that they were close to completing a merger with Italian-American car maker Fiat Chrysler. The car industry faces an expensive move away from fossil fuel powered cars towards electric vehicles and Fiat Chrysler have been keen to pool resources with other car companies in order to keep pace with the changing landscape. The deal would see the combined group on par with industry giants Nissan (allliance) and Toyota in terms of car sales and have a market cap of £35bn (based on 2018 figures).

However, the merger is by no means a done deal. Fiat Chrysler’s attempt in the summer to merge with Renault failed with the carmakers blaming the French government, who own a considerable stake in Renault, for stopping the merger. While the state also owns a 13.7 per cent stake in PSA, this time it’s expected that there will be less resistance.

European Markets Rebound While Brexit Momentum Stalls
This week Brexit has returned to the status quo, popular in principle but impossible in practice. The complexities of leaving the European Union, or the cost of doing it simply, requires a degree of compromise that seems impossible to achieve. Factions that were united around the vison have splintered over the detail; without external guidance over what the public prioritise, either from an election or referendum, we see no end to the impasse. Despite being in limbo markets are mostly up. Limbo is a marked improvement on recent conditions.

Elsewhere possible positive signs for the French economy and improving sentiment in Italy have seen European markets surge this week, despite lacklustre data out of Germany. While this might prove temporary, it does offer hope that the global economy might get away with merely slowing rather than contracting. Much of the gains for the week come from improving expectations however, one bad headline could see them evaporate.

Global: Infosys Share Price Drops Following Complaint
This week allegations of aggressive accounting rocked Indian software service giant Infosys with shares plunging 16 per cent after the news broke. A group of employees allege that both the CEO and CFO of Infosys worked in tandem to “boost short term evenue and profits”. Infosys was launched in 1981 by six engineers and a $250 loan and has since grown to become the second largest software company in Asia employing 125,00 people worldwide with revenues of $10.9bn last year. The company is investigating the claims.

Elsewhere the planned merger between Just Eat and its Dutch equivalent Takeaway.com threatens to be gate-crashed by Prosus. The Amsterdam-listed offshoot of South African tech giant Naspers have their eyes set on Just Eat and this week offered an all cash bid of £4.9bn. Just Eat has already rebuffed three prior offers but with shareholders starting to voice their opposition to the Takeaway merger, a higher bid may swing it in Prosus favour.

Eurozone: German and France, A Tale of Two Diverging Economies
This week’s soft Eurozone data made for compelling reading with the PMI data showing a contrasting tale of two key economies. While recession fears mount in Germany, as the private sector struggles to offset manufacturing weakness, France continues to grow. Business activity beat expectations rising to 52.6 points from 50.8 last month driven by the service sector. Interestingly, French manufacturing also defied the global downward trend up by 0.4 points from the last reading (50.1). With the ECB maintaining rates at ultra-low levels, pressure is starting to mount on the German government to spend more in order to keep their economy growing.

The two stock markets however, are surprisingly correlated. So far in 2019, despite the diverging economics, the French CAC 40 index is only around 3% higher than the German Dax, with the two markets converging more recently.

China: Central Bank Pumps Money into Markets
China’s central bank pumped in 250bn Yuan (£27.5bn) into its market this week. The government is keen to navigate the expected spike in demand for cash as companies rush to meet the tax deadline (Oct 24). This was done via a seven-day repurchase agreement (buying securities from banks with an agreement to sell them back in the future) at an interest rate of 2.55 per cent. In addition to ensuring a healthy liquidity supply, the government is also seeking to keep credit growth at an appropriate pace while minimising debt build-up as the economy slows down. GDP growth was six percent last quarter – its weakest rate in almost three decades.

Meanwhile the Chinese Communist party is on the hunt for a new chief executive for Hong Kong. Following months of unrest, the popularity of the current incumbent Carrie Lam has waned, and Beijing would like to find a leader that is both popular in Hong Kong but it can also trust. That their track record has been poor so far. Two out of their first three leaders stepped down early and the fourth, Carrie Lam is proving equally disappointing.

When Hubris meets Nemesis
This week we saw the Woodford saga come to an end as fund administrator Link wound down the Equity Income fund. While it’s easy to jump on “blame the manager” bandwagon, some of it should be shared to those who continued to recommend fund even as the level of unlisted stocks held within the portfolio crept up. Yes, funds will open and close, but ultimately it will be the investors who get burnt. At the very least they should have been made aware that their star manager had turned, betting on lottery-like stocks rather than the large cap companies that had built his reputation in the first place.

Another thing investor should be aware off is that daily dealing open-ended funds aren’t always a place where you can withdraw your cash at any moment. While this is the case for most equity funds it may not be a case for all asset classes: after all it is difficult to sell a building within a day. And while there are cash buffers within physical property funds, during the bad times when there is a rush to exit, those reserves tend to quickly evaporate.

US: Banks Kickstart Earnings Results
Earnings season kicked off this week with the big US banks disclosing their results. JP Morgan led the pack as bumper investment banking fees helped the bulge bracket (comprising the world’s largest multi-national investment banks) beat expectations. It was a similar story for Citibank, but Goldman’s profits dropped 26 per cent as a string of bad investments including the likes of WeWork whose IPO collapsed and Uber whose share price has taken a U-turn since its launch in May. Broadly speaking, it’s been a mixed bag for banks struggling to adapt to a low interest environment.

While consumer America looks relatively rosy there are still fears that the corporate earnings recession could continue this quarter. The US-China trade war continues to play out but there appears to be a glimmer of hope. The latest round of tariff talks ended late last week with the US announcing it will halt its planned hike which was due to come into effect this week. However, there is a separate tariff hike that will come into effect in December which hasn’t been addressed so expect trade talks to rumble on for a while longer.

UK: Boris’s Brexit Deal is bad for the economy
Prime Minister Boris Johnson’s proposed deal, essentially a tougher version of Theresa May’s deal is estimated to cost the UK close £130bn in lost GDP growth over the next 15 years. The Department for Exiting the European Union calculated that a Canada-style free trade agreement would shave off 6.7 per cent of GDP growth leaving people £2,250 poorer per year. But this depends on if the settlement passes through parliament. Given that May’s deal was rejected three times, passing a variation of the same deal through the Commons seems to fit Einstein’s definition of insanity perfectly.

Meanwhile, Brexit uncertainty has depressed housing sales volumes as buyers and sellers alike sit tight and aim to ride out the uncertainty. In turn building supplies companies have also suffered with one of the largest groups Grafton issuing a profit warning this week. Grafton which sells timber, bricks and paint amongst other things blamed weak sales on “softening activity” and expects profits to be four to eight per cent lower than expected. Shares of Grafton fell ten per cent following the announcement.

Eurozone: Broadcom hit with antitrust order
Semiconductor manufacturing company Broadcom, a stock held by fund managers and sovereign banks, was this week slapped with an antitrust order by the European Commission (EC). Last summer the watchdog opened an investigation into the hipmaker to determine whether it held exclusive purchase obligations with its customers. This would mean the customers would either have to buy only their products or would have to maintain a minimum volume of orders. In turn they would receive healthy rebates/bundling offers.

Much like Google learnt last year, the EC doesn’t take too kindly to companies attempting to stifle innovation and competition and has put in a request to cease these additional provisions with six of its main customers this time before the investigation has even been concluded. Shares of Broadcom fell 1.3 per cent following the announcement.

All Brexit Signs Point towards a General Election
This week has seen a flurry of Brexit headlines, each one both calling an end to the process and somehow extending the whole saga at the same time. While trying to guess what the government is actually doing in these talks is difficult, not least for the government, we’re of the view that despite the noise nothing has changed. The Good Friday Agreement will require more alignment to EU rules than the Brexiteers are happy with to keep the Irish border open, and the Benn act makes talk of no-deal meaningless.

We think all the activity now underway is just theatre. Talk of a work around to force no-deal ignores the illegality of such an attempt and is solely designed to keep the base from turning on the PM. There will most likely be an extension at the end of the month, followed by a general election. All of Westminster knows this, and almost everything you see and hear from now on is just election campaigning.

Autos: China’s Love for Mercedes keeps Daimler in High Gear
As demand for cars declines globally, Daimler-owned Mercedes Benz’s quarterly figures show them battling against the tide. Year-on-year sales were up 13 per cent for last quarter with much of the demand driven by Chinese consumers. In addition, Germany’s enthusiasm for Mercedes hasn’t waned either as sales for the region were up 25 per cent for September compared to last year. Mercedes enjoyed similar growth in the US, only just losing out on being number one premium selling brand to BMW by 34 cars.

Mercedes can only do so much for the German economy however. While export figures remain in the doldrums buffeted by trade tensions, the labour market remains tight and real wage continue to grow fuelling consumer appetite for spending. The auto industry represents five per cent of the German economy and if consumers are happy to spend on the likes of Mercedes and BMW – Germany may just be able to stave off a recession this year.

UK: Recession Fears Subside Despite Weak August
Economic forecasts released this week predict that the UK will avoid a recession this year. A “technical recession” would require two consecutive quarters of negative GDP growth and while the economy contracted in Q2, GDP is expected to rise by 0.5 per cent in Q3 easing recession fears. Despite the Brexit uncertainty, the TV and film industry helped to boost the services sector, but manufacturing is expected to remain weak.

Meanwhile, Pizza Express may become the next casualty in the casual dining sector. The 54-year old business has a hefty £1.12bn debt pile of which £656m is owed to bond holders and the rest to its parent company Hony Capital. The emergence of disruptors like Deliveroo along with the changing taste buds of millennials, who prefer Middle Eastern and Caribbean food, has eaten into the Pizza chain’s profit margin. Of the £543m revenue generated last year, £93m went straight to pay off its debts leaving the company £56m in the red.

Global: OECD New Tax Proposals Set to Hurt Faangs
The Organisation for Economic Co-Operation and Development (OECD) this week proposed a global shake-up of taxation rules. The aim is to ensure multinational companies pay more in corporate tax; which is set to impact tech giants like Amazon, Facebook and Google. The current rules which have stood for close to 100 years inadvertently enables corporations to exploit loopholes to artificially, yet legally, shift profits to no or low-tax countries. In order to stop this, a global framework has been set out which all countries can abide by rather than going down the unilateral route such as the digital tax sales mooted by the UK and France.

The new tax proposals will ensure that more corporate tax will be paid in countries where the most profits are generated ensuring exchequers receive a fair share of revenues generated. G8 members and developing economies stand to be the biggest winners if these changes go through, while low tax jurisdictions like Ireland and the Netherlands are set to lose out.

Boris Reveals Brexit plans
This week we saw Boris Johnson outline his Brexit plans to the EU appeasing the Brexit hardliners while drawing frosty reactions from both the EU and Ireland. The new plan will see the removal of the backstop which Theresa May negotiated with the EU, only for it to be shot down three times in parliament. Instead we will see a prior borderless proposal between Ireland and Northern Ireland (NI) replaced by two borders. One between NI and Ireland and another with NI and the rest of the UK.

In reality Boris Johnson’s plans will most likely to be shot down by the EU. Implementing controls of any form goes against the EU’s frictionless trade mantra. And the EU isn’t keen on a technological border either having previously rejected a tech led customs declaration. The chances of a No Deal come deadline day continues to rise.

Japan: Sales tax comes into effect
This week Japan’s delivered on its long-awaited consumption tax hike from eight to ten per cent. The increase will apply to almost all goods and services bar most food items. Past hikes have had had an adverse impact on the economy as shoppers rushed to buy items before the deadline and subsequently cut back on spending sending Japan tumbling into a recession (2014). This time the government promises it will be different. New measures will include a rebate for some items if its paid for by card or other electronic payments.

While the timing of the tax cut amidst slowing growth and manufacturing weakness is inauspicious, Prime Minister Shinzo Abe is willing to potentially take a short term hit in order to help ease the enormous debt burden (world’s largest) as well as improving the social safety net. Currently a quarter of the Japanese are aged 65 or older and it is hoped that some of the additional revenues generated will be used to fund the elderly.

Eurozone: Germany Teeters on the Brink of Recession
Given the continued global headwinds it was unsurprising to see Germany’s manufacturing readings remain weak. The manufacturing PMI gauge fell from 43.5 in August to 41.7 – its lowest level since 2009. GDP growth continues to be revised downwards and inflation levels are falling. The two factors that may help Germany avoid a recession is that construction investment is rising, and a tight labour market and favourable interest rates has seen private consumption tick upwards.

The wider eurozone saw inflation rates fall by 0.1 per cent to 0.9 per cent for the month of September – well below the ECB’s two per cent inflation target. The ECB implemented a range of monetary stimulus packages last month, including slashing the key interest rate and restarting quantitative easing in order to kick start inflation. However, it’s important to distinguish the fact that core inflation (excluding volatile components like energy) actually grew from 0.9 to 1.0 per cent. Headline inflation fell because of cheaper energy prices.

Global; Corporate Bond Issuances Rises in September
Investors on the hunt for yields moved away from sovereign bonds after last summer’s rally and into corporate bonds. More than $430bn of corporate debt was raised globally in September with the bulk of it issued by US companies. Dollar-denominated debt accounted $159bn of bonds sold.

The central banks dovish tilt off the back of global uncertainty and muted growth led to lowered interest rates which has compressed sovereign yields. In turn this has made corporate bond yields attractive leading to a surge in corporate bond issuance during September. The firsttime issuance reached around $300billion in a month. Among the companies capitalising on favourable rates where the likes of Wirecard, Apple and Disney.

Boris and Donald Stir up Stronger Political Headwinds
This week much of the news has been dominated by two political scandals; the court ruling that Boris Johnson acted unlawfully by proroguing parliament, and the developing news that Donald Trump tried to pressure Ukraine into investigating a political rival by withholding military aid. While both could turn out to be fatal for their perpetrators eventually, the immediate impact is surprisingly little. MPs have secured an extra couple of weeks back in parliament but they may not be able to do much with it. Likewise, in the US, Democrats and Republicans remain at loggerheads over impeachment.

While these developments are just part of the background now, they may yet snowball. Both leaders enjoy popular support among their base and have so far been immune to things that would have easily finished off their predecessors; it’s easy to see a line being crossed where that support evaporates. Given the signature policies of both leaders, Brexit and trade wars, this could have a massive impact on markets.

UK: Thomas Cook Collapses
Thomas Cook entered liquidation this week, immediately ceasing all activities and leaving approximately 155,000 people stranded abroad, leaving the government to help ATOL fly the holidaymakers back home. While the news came as a surprise to many, if you look at their recent track record, it’s a wonder they managed to stay  afloat for so long. In a bid to stay ahead of a highly competitive market back in 2007 the 178-year travel provider entered a merger of equals with MyTravel. The problem was that MyTravel barely made a profit in the prior six years and didn’t generate the required revenue ultimately ending up with the group suffering heavy losses.

In 2011 with the internet revolution in full swing, Thomas Cook bought Co-op Travel saddling the company with 1200 stores. Within the same year, the company had a near death experience and needed short term funding which was provided but at high rates and its debt pile grew to £1.1bn. Over the last 8 years the company has paid out £1.2bn in interest.

US: Economy Grows at a Modest Pace
In the US figures for the second quarter paint a picture of a slowing economy propped up by consumer spending. The fall in business investment activity was revised from 1.1 per cent to 1.4 per cent indicating that the trade war continues to bite, and doubts are starting to set in as to how long consumer spending can stave off a recession. Overall GDP growth was at two per cent for the quarter.

However, not all the blame can be attributed to the trade war. Productivity, which is measured by the amount of goods and services produced against the number of hours worked, is also in decline. And given the labour market is tight, higher total output would have to be come via increasing the hours worked. Good luck telling the Americans that. Generally, a big spike in productivity tends to come from technological innovation like the transistor or the internet so unless we have another technological leap expect productivity rates to stay modest.

India: Government Cuts Corporate Tax Rates
India’s latest effort to combat sluggish economic growth this week was a cut to the basic corporate tax rates from 30 per cent to 22 per cent. The nation, which has lowered interest rates four times this year, will bring tax rates closer to the likes of China, UK and the US, with the aim of becoming more globally competitive and boosting its profile to foreign investors.

By complementing monetary policy changes with fiscal loosening, it is also hoped that consumers will spend more, taking advantage of reduced consumer goods costs and low rates. New manufacturing companies are set to reap the most from the reduced rates. Their corporate tax rate will shrink from 25 per cent to 15 per cent, but only if they incorporate the company at the start of October and commence production by the end of March 2023.