Key Central Banks Send Dovish Signals
This week we saw more central bank action, as the world’s major monetary policy makers try to cope with a slowing global economy. In the US the Federal Reserve cut rates by a quarter per cent, following the lead set by the European Central bank last week. The move wasn’t enough to please the president, who has been a vocal supporter of more aggressive action, but still enough to split opinion in the bank. While there is a real fear that a slowdown is coming, the US economy is stubbornly showing few signs of actually slowing down. Policy makers are wary of fighting a phantom recession but delaying might mean the slowdown coincides with the election, hence the tweets.

Elsewhere the Bank of England declined to join the party this time round, but rather set the scene for a rate cut in the near future. The bank is as clueless to how Brexit might turn out as the rest of us but is clearly getting ready with a range of policy actions just in case.

Oil: Who attached Saudi Arabia’s Supply?
Tensions within the Middle East dialled up a notch this week as Saudi oil facilities were attacked over the weekend. The strategic drone and cruise missile attack hit Saudi Aramco’s processing facilities at Abqaiq, whose key role is to stabilise crude oil for transportation. In turn, oil prices jumped as high as 20 per cent the day trading reopened.

Yemeni rebels claimed credit for the attack, but the US and Saudi Arabia are keen to pin the blame on Iran. Iran have threatened “all-out war” if the sovereign state is attacked.  Saudi Arabia quickly moved to reassure the market that it can recover quickly. Saudi’s energy minister Prince Salman confirmed that they would be able to fully restore production by the end of this month. Energy company stocks benefitted from the supply disruption while airline company shares took a hit with the likes of United Airlines and American Airlines down 2.5 and 7.0 per cent the day after the attack.

Global: Growth Figures revised downwards by OECD
The Organisation for Economic Co-operation and Development (OECD) revised down global growth figures this week. Rising trade tensions and policy uncertainty continues to plague growth for both developed and emerging economies. Global GDP growth is expected to slow to 2.9 per cent in 2019 and 3.0 per cent in 2020 – the weakest levels since the 2008 financial crisis. The Paris based think tank also believes growth could continue to remain in the doldrums unless “firm policy” action is taken by governments.

For the UK, the OECD predicts that losing unfettered access to Europe in the event of a NoDeal will shave close to three per cent off UK growth over the next three years (compared to continued EU membership). They also predict that crashing out of Europe would see living standards affected by what will effectively be a permanent “Brexit tax” that would be an economic deadweight for generations.

Central Banks: Fed Continues down Dovish Path

This week, in a widely expected move, the Federal Reserve (Fed) announced an interest rate cut by a quarter of a percentage point. The consecutive rate cut now sees the key interest rate fall to 1.75 per cent. One person who wasn’t happy with the Fed move is President Donald Trump. Trump would have liked to have seen a steeper cut to a level below or more aligned with interest rates seen across other developed countries.

However, the all-important rate news was partially drowned out by market confusion as to why the Fed had to pump money into the markets over three consecutive days. The spike in overnight rates lending and the Fed’s subsequent firefighting wasn’t a signal of an impending financial collapse like in 2008. It appears the mismatch in the demand for funding and availability of cash was caused by American companies dashing to withdraw from money market funds (a key component in the repurchasing market) in order to pay tax bills.

Draghi Urges European Governments to Increase Public Spending
This week while the UK might be paralysed over Europe, the same can’t be said for the European Central Bank, which announced a major change in policy in its attempt to stave off a recession within the Eurozone. The actual policy, a 0.1% cut in deposit rates and a resumption of QE is not so drastic but the language used points to a more fundamental shift in the banks approach. ECB President Mario Draghi made it clear that boosting inflation was now the banks main focus and the ultra-loose monetary policy could be here to stay. Draghi urged member states to capitalize on cheaper rates and spend more, a statement sure to irritate Germany who have so far resisted loosening the purse strings.

The German resistance to fiscal policy is now the key issue facing the Eurozone. The ECB has run out of ammunition and has resorted to begging governments to spend the free money it’s willing to print. With the German economy slowing and its governments popularity waning, it can’t be too long before they cave and go on a spending spree.

US: Flavoured E-Cigarettes set to be banned
This week, the US government unveiled plans to ban all sales of flavoured, menthol and mint e-cigarettes. Following six deaths and multistate outbreaks of lung disease claimed to be associated with e-cigarette products, the White House will follow in the footsteps of the state of Michigan who outlawed flavoured tobacco this month. Close to one in twenty people in the US use e-cigarettes of which around half are under the age of 35.

However, the link between vaping and the reported health problems remains tenuous. Nevertheless, if the ban does come into effect, big tobacco companies who are either developing e-cigarette products or have a significant stake in existing companies (e.g. Juul part owned by Altria) in order to diversify revenue streams will be in big trouble. In a case of unfortunate timing, British American Tobacco announced plans to streamline its business and focus more on growing its e-cigarettes and other new products the day after the White House announcement.

China: Woeful Import/Export Data could prompt central bank to act
This week China’s export figure for the month of August surprised analysts who expected to see the significant Renminbi currency depreciation offset the rising costs of producing the goods for export. Buyers of Chinese goods were also expected to bulk buy in advance of the 1st September tariff hikes. Instead exports fell one per cent (compared to the same time last year) indicating that demand for Chinese products has started to become sluggish.

In turn, import figures for components of manufacturing goods also weakened albeit masked by increasing liquified natural gas imports. Imports for the month of August fell 5.6 per cent. Last week the central bank cut banks’ reserve requirements in order free up more funds for lending purposes. The fresh set of negative figures could spark the Chinese central bank to potentially cut key interest rates in a bid to avert the danger of a sharp slowdown.

Eurozone: ECB cuts interest rates and restarts bond briefing
In one of his final acts as ECB President, Mario Draghi cut rates and restarted the bond purchasing programme. The new stimulus package which he set the stage for at a prior monetary policy meeting in Sintra will see the deposit facility rate, the rate paid by banks to deposit reserves at the ECB cut from minus 0.4 per cent to minus 0.5 per cent. Draghi left headline interest rate at zero per cent. In addition, the central bank will pump money into the financial system by buying an estimated €20bn of bonds a month from November.

By lowering funding costs, it provides an opportunity for European governments to take advantage of low rates and boost public spending, something which key countries have been reluctant to implement. The ECB has also revised its growth forecasts downwards and expects an initial dip in inflation before picking back up again towards the end of the year. GDP growth is expected to be 1.1 per cent this year rising to 1.2 per cent in 2020.

Boris has a Chastening week as opposition defy no deal Brexit

We mentioned last week the potential of fireworks in Parliament and so it came to fruition – with all of them aimed at Prime Minister Boris Johnson.  Boris has had a spectacularly bad week. Highlights include, MP’s successfully backing legislation to stop a No Deal Brexit, a member of his own party  switching sides mid speech and also politely being asked to leave the town of Morley. Not to mention the small matter of his brother Jo Johnson resigning from the Tory party and having to expel 21 rebel MP’s.

Boris is now looking to drum up support for a general election, something which will require support from Labour, who are highly unlikely to back it until the bill delaying Brexit has been passed. As fascinating as the politics has been this week, we are only a few weeks away from the deadline and while the prime ministerial merry go round may be set to continue, at the very least the chances of the UK crashing out without a deal looks to be diminished.

UK: are we in for a recession?

While politics dominates the headlines this week, the UK economy looks to be teetering towards its first technical recession since the financial crisis in 2008. The Service Purchasing Managers’ index fell from 51.4 in July to 50.6 August – barely growing or contracting. With both manufacturing and construction PMI’s in the doldrums since May, the services sector has been effectively carrying the UK. IHS Markit who compile the PMI’s predict that Q3 GDP data will show a consecutive contraction, this time down by 0.1 per cent.

Elsewhere, M&S dropped out of the FTSE 100 for the first time since the index was created in 1984. The retail chain has struggled to keep up with the changing fashion landscape, outpaced by the shift to online stores and undercut by the likes of Primark. Its food division was its one bright spot, but the company could only rely so much on meal deals bringing customers in.  M&S will lose its blue-chip status later this month (23rd).

Asia: HK Market Rebounds Following Chinese Bill Repeal

The Hong Kong market rose 3.8 per cent this week following a repeal of the Chinese bill which would have allowed criminal suspects to be extradited to mainland China.  The bill is evidence of tightening Chinese control over the region which currently operates under a One Country Two Systems model, essentially allowing the territory to maintain its own border and legal system.

However, the protests which began in March this year may not subside following the repeal. The withdrawal met one of the key demands, but as protests have escalated so have the demands of protestors. These include allowing the people to elect their own leaders alongside the release of all imprisoned demonstrators. Meanwhile, credit ratings agency Fitch Ratings downgraded the semi-autonomous state for the first time in 24 years from AA+ to AA with a negative outlook due to the consistent conflicts as well as the increase in the regions ties with China “which will present greater institutional and regulatory challenges over time”.

Commodities: What is spurring the recent oil rally?

Oil prices have been on a recent upward trend due to a combination of supply fears and improved economic data. US crude oil stockpiles have been falling in recent weeks. In addition, the nation will look to implement a new round of tough sanctions for Iran, a key member of the OPEC cartel further restricting Iran’s ability to export oil.

China’s service sector activity picked up last month. The Service Purchasing Managers’ index rose to 52.1 for the month of August (51.6 in July) indicating an improving economy. However, US-Sino trade tensions continue to be a drag to both Chinese and US growth, two of the biggest consumers of oil. And as long as tensions continue to linger demand for oil could well remain constrained. But at the very least it does look like trade talks are back on the table. Discussions are set to resume in Washington in October.

Boris Moves to Suspend Parliament

As we march towards the Brexit deadline, Prime Minister Boris Johnson has decided to play his hand and take an unprecedented step by attempting to suspend parliament for five weeks. Much like in football when a team holds the ball close to the corner flag, Boris Johnson is simply running down the clock. By muzzling Parliament, he is either confident that the opposition is weak enough not to oust him and form a replacement government, or if they do, he will play the role of the conductor, championing the will of the people in the ensuing general election.

While proroguing parliament until 14th October shows shades of despotism, it also sends a message to the EU to either accept his deal or progress to a no-deal divorce. In the meantime, the opposition will have to come up with an effective strategy to stop Boris’s plan. It’s now close to two and half years since Article 50 was triggered and next week looks like the only opportunity to challenge a No-Deal Brexit.

US: Equity or Bond Market for income seekers?

This week the relationship between US bonds and equities turned on its head. For the first time since the financial crisis of 2007/08, income from US dividend paying stocks is higher than long-dated government debt. Dividend yield for the S&P 500 stood at 1.98 per cent marginally greater than the 30-year US Treasuries (1.94 per cent). This indicates investors looking for a steady income stream may be better off looking towards the US equity market.

However, companies will look to grow their dividends annually and will struggle to cut them even in bad times as that would be a signal to the market that the company is in trouble. This factor along with recession fears fuelled by global uncertainty may make companies susceptible to big swings in share price, in turn proving troublesome for investors who made the switch from US treasuries into equities.

M&A: Investors unhappy with Altria and Philip Morris Merger Talks

Over a decade ago Altria spun off Philip Morris [PMI]. Altria focused on improving sales in America while PMI targeted overseas markets. However, both companies were caught out by tightening regulations on tobacco, subsequently having to raise prices and trim costs in order to remain profitable. Given that PMI’s rival, British American Tobacco, became the largest publicly traded tobacco company three years following its acquisition of Reynold America, a merger between PMI and Altria would help both companies keep up amidst intense competition.

However, the planned merger, which would create the world’s largest tobacco company wasn’t well received by investors – and the devil is in the details. A ‘merger of equals’ approach could see a potential ‘take under’ for Altria. PMI has been outperforming Altria driven by its international exposure. An additional concern is Altria’s heavy investment into e-cigarette company Juul, whose popularity with young people increases the risk of PMI getting burnt by a regulatory crackdown on tobacco alternatives.

Healthcare: Johnson & Jonhson ordered to pay for Opiod Crisis

This week, drug making company Johnson & Johnson has been ordered to pay £468m for its role in adding to Oklahoma’s opioid addiction crisis. As this is the first case to
go to trial, it could open the floodgates for similar rulings on other opioid makers and distribution companies. Opioids were involved in almost 400,000 overdose deaths in the US from 1999 to 2017 and since 2002, 6000 people have died in Oklahoma alone. (Data and chart source: National Institute for Drug Abuse)

Judge Thad Balkman ruled that Johnson & Johnson bore responsibility for its part in creating the worst recorded drug epidemic in US history by pushing false claims about the safety of its range of narcotic painkillers. Surprisingly, the share price for the company went up five per cent after the ruling. Investors had feared that the cost would be much higher as the state of Oklahoma had asked for a $17bn fine.

Businesses Expecting a Recession
This week there were no end of strange headlines, from Trump tries to buy Greenland to Trump declares himself the chosen one, but its likely they were all an attempt to obscure the one headline that really mattered; the latest survey of purchasing managers that suggests US businesses are expecting a recession. The PMI survey is an indicator of sentiment, but if enough people believe there will be a recession it can become a self-fulfilling prophecy. The markets and industry are now expecting a recession, if this pessimism spreads to the consumer, one could be here sooner than we think.

Elsewhere another strange headline has been spreading suggesting that Angela Merkel has given Boris Johnson 30 days to figure out the Irish Border issue in order to drop the backstop. It’s odd because anyone who has read the transcript knows she said nothing of the sort and the issue is as intractable as ever. It’s spread might well be connected to the fact that Boris Johnson keeps saying it despite it being obvious nonsense. Any Brexit negotiations now are probably just theatre and designed to help in the inevitable general election campaign.

Italy: Populist Coalition Collapses
Giuseppe Conte resigned as Italy’s Prime Minister this week bringing an end to a coalition between far-right Eurosceptic party the “League” and the anti-establishment party “Five Star Movement”. Conte, leader of Five Star, blamed deputy Prime Minister Matteo Salvini of putting his own and party’s interest ahead of the country’s as the reason for resigning. Salvini’s popularity has been on an upward trajectory after he refused to comply with the EU’s plans on curbing the country’s budget deficit. With Salvini starting to push for a new election to capitalise on his party’s growing popularity, Conte avoided a no-confidence vote.

It’s now up to President Sergio Mattarella to form a government. Potential scenarios include a tie up between centre left Democrats and Five Star, or if there is no political will to form one, a snap election will be called which would favour the League potentially creating the second most hard right, Eurosceptic party in Europe. Italy’s sovereign yields marginally rallied this week despite the political crisis.

US: Retail Earnings Remain Robust
Retail earnings this week proved US consumer spending is still going strong despite global headwinds. Following on from last week’s robust US retail sales report and Walmart (a bellwether of consumer spending) beating market expectations, this week both clothing store Target and home improvement chain Lowe’s followed up with more positive news. Target beat every earnings estimate with quarterly profit up 17 per cent driven by growth in same-day fulfilment services. Meanwhile, Lowe’s managed to minimise both the impact of a fall in lumber prices and mixed weather by “capitalising well on spring demand”.

Elsewhere, Federal Reserve (Fed) minutes published this week didn’t offer any clue as to whether the central bank will cut rates further at the next meeting in September. It did however show a growing divergence in opinions amongst committee members with some having preferred a cut twice as deep last July and others resisting any change at all. With trade tensions rising back up again, it is unclear if Jerome Powell will cut rates further.

UK: Turkish Pension Fund Set to Rescue British Steel
This week, Oyak, the Turkish Armed Forces Assistance Fund announced its intentions to buy British Steel, which currently languishes in compulsory administration, by the end of the year. The deal could save 5000 British Steel jobs and also ensure minimal disruption to another 20,000 jobs in the supply chain. Although there are conflicting reports stating that the pension fund could cut hundreds of jobs as the group look to boost productivity.

Oyak confirmed it will plan to boost steel production to 3m tonnes a year as well as seeking taxpayers support to push steel production from a coal to hydrogen gas-based model.  Elsewhere and with a few months to go before the Brexit deadline, the UK has signed a “continuity” trade deal with South Korea. Trade between the UK and South Korea was worth £14.6bn last year. The terms of the agreement remain mostly the same as the existing agreement between the EU and South Korea.

Markets Amplify Global Headwinds
This week was another eventful one for global markets. They fell at the start of the week on news that Trump was going to ramp up his trade war with China, rose when he decided not to and then plummeted again when weak data out of China and Germany stoked fears of a global recession. So far global GDP is slowing rather than falling, but markets worry that a slow to act Fed and a needlessly disruptive trade policy will make the difference between stalling and falling. Hence the extreme reaction to every bit of news in either direction.

Elsewhere, although not unrelated, markets have also begun fretting about negative interest rates. While they aren’t exactly new, the Swedish central bank has pursued a negative rate policy since 2015, they are uncommon. With a possible recession on the way and most interest rates at or near zero already, we might see a much wider adoption. How effective they’ll be is still unknown, however, while the central bank might be willing to directly pay people to borrow, the same is unlikely to be true of your mortgage lender.

EM: Peso Plummets Following Surprise Election Poll Results
Argentina has a turbulent economic history. It’s a nation which experienced rapid development at the start of the 20th century but suffered a reversal in fortune by the end of it. Since the 70’s, the nation has undergone two sovereign debt defaults, periods of chronic inflation and a succession of governments who have had debatable impact on the country’s economic growth.

This week, a new chapter was written when the Buenos Aires stock exchange’s main index the Merval plunged to record lows. The Merval fell 37 per cent in local terms in one day triggered by opposition candidate Alberto Fernandez’s strong showing against President Macri in the primary elections over the weekend. Markets believe an impending victory for Fernandez will see much of Macri’s previous work to transform Argentina come undone. More troubling is the renewed volatility in the Peso, further depreciation could impact its debts of which 80 per cent is denominated in foreign currency, raising the possibility of another sovereign default.

Companies: Will Uber ever become profitable?
Uber’s share price tumbled ten per cent this week after the company’s earnings result failed to live up to market expectations. Following Lyft’s beating revenue expectations as well as trimming costs last week, it was hoped that Uber would do the same. Instead the company posted a quarterly loss of £4.3bn and costs grew by 147 per cent signalling that the company is still very much stuck in traffic. The bulk of the losses stemmed from stock compensation following the IPO in May.

It is understandable that growing companies will need to be given time to become profitable – it took Amazon 14 years to turn green post IPO. What is worrying investors is that the company’s growth has almost stalled. Uber’s core ride sharing business only grew by two per cent compared to the same quarter last year. One bright spot was Uber Eats whose revenues jumped up 72 per cent (year-on-year).

Global: Yield curve inverts for the first time in over a decade
This week a major part of the yield curve inverted for the first time in over a decade, when the rate on 10 year US Treasuries briefly dropped below the rate on 2 year bond. A yield curve inversion has historically been used as a warning of an impending recession. The curve threatened to invert last year and came very close over the Christmas break, but just about managed to avoid it, suggesting markets believe we’ve been close to a recession for a while.

Economic data seems to support the case. Following on from weak industrial production data, it wasn’t surprising to see Germany’s economy contract last quarter but more troublingly, Singapore, a nation which acts as a bellwether for global growth given that international trade dominates its domestic economy downgraded their GDP growth figures for the year. The US is also starting to feel the pinch. Manufacturing fell 0.4 per cent for the month of July.

The Shifting Trade War Landscape
First, it was the tariffs wars which saw commodities slapped with additional levies, eventually ramping up to all imports from China. Then the focus shifted to technology with US companies considering moving their production lines out of China, with Huawei and Chinese drone companies blacklisted. We now appear to have entered a new chapter focusing on currency wars.

The US claims that China is manipulating its currency to the detriment of other nations by letting the Yuan slide past the 7 to a dollar limit. However, while China may have been accused of currency manipulation in the past, the nation has simply been propping up the Yuan over the last few years and letting it fall was an acknowledgement of weakening exports for the nation rather than an act of malice. Nevertheless, the US Treasury department were quick to add China to the currency manipulation list. Whilst the move is largely symbolic, it gives President Trump the legitimacy to hike tariffs further.

Eurozone: German Industrial Output Shrinks Amidst Trade Tension
German industrial output fell by more than the 0.4 per cent month by month figure predicted by economists to 1.5 per cent for the month of June, driven by weaker intermediate and capital goods production. The manufacturing sector continues to remain weak as a pivot away from diesel to electric cars and a slowdown in demand from China has stalled the country’s key engine for growth. And with Sino-US trade tensions rumbling on, expectations of an economic contraction last quarter have risen.

The longer this continues the more likely industrial production woes will start to affect other sectors of the German economy. Energy production was down for the month of July by 1.6 per cent and this week, Commerzbank announced it will set more money aside (doubled to €178m in Q2) in case struggling firms are unable to pay back their loans.

Global: Central Banks Follow in Dovish Fed Footsteps
Central banks across India, Thailand and New Zealand all followed the US’s dovish path and lowered interest rates this week. What threw investors off kilter was how aggressive these cuts were. India dropped their interest levels to their lowest level in nine years cutting rates by 0.35 of a percentage. New Zealand reduced theirs to a historic low by slashing rates by half a percentage point – greater than the expected quarter of a percent reduction. And Thailand keen to weaken its currency to remain competitive, lowered rates for the first time in four years by a quarter of a percentage point.

Rate cutting to prop up domestic economies could be seen as a sign of a recession in the near term. A signal which investors haven’t ignored pilling into safe haven assets and government bonds. German and UK yields dropped to their lowest levels while US 10-year yields dropped to
1.74 per cent – their lowest in three years.

Oil: Prices Approach Bear Territory
Global slowdown and recession fears have also spilled over to oil. Trade tensions in the Middle East hasn’t stemmed the fall in oil prices by 8.7 per cent this month. Admittedly an oversupply in shale oil in the US would help push down prices but OPEC supply cuts and Venezuela’s and Iranian oil sanctions should have kept oil prices on track to hit the $70 mark by 2020.

Instead oil languishes at $52.8 indicating the commodity isn’t so immune from global headwinds. In turn oil stocks have also struggled this week with BP and Royal Dutch Shell down 2.3 and 1.4 per cent this week respectively. Meanwhile China’s flagrant disregard of oil

sanctions levied against Iran by the US could put further downward pressure on prices. It’s estimated that between 4.4 million and 11 million barrels of Iranian crude were imported to China last month indicating the market wasn’t as tight as first thought.

Did the FED cut rates too soon?
Positive US payroll numbers, strong corporate earnings, and modest growth isn’t normally used as a base case to cut interest rates but this week, the Fed cut interest rates by a quarter percent. The Fed cited muted inflation pressures and implications of global developments as the reasons for its first rate cut in over a decade. Chairman Jerome Powell also left the door slightly ajar for further rate cuts in the near term. The markets which had priced in a rate cut where looking for a more dovish tone from Powell and subsequently reacted negatively when none was forthcoming.

Nevertheless, the Fed could be forced to cut rates further if President Trump’s antics continue. Like a kid in a giant candy store, he is unable to maintain a temporary truce with China. And while we know most G20 agreements are not worth the non-existent paper it is written on, the continued struggle will adversely affect global growth. China has yet to respond to the latest import threats but expect this to dominate headlines for the next few weeks.

US: Earnings recession fears fade away
Fears of an earnings recession are slowly ebbing away as tech results, a key component of the US economy posted positive results. Last week saw Google soundly beat earnings expectations, Facebook performed well albeit a $5bn fine. Only Amazon spluttered after five consecutive quarters of beating market expectations. This week, tech giant Apple reported higher than expected profits boosting its share price by three per cent.  Apple’s wearable segment was the main driver for the uptick in revenue. The smart wearable device sector is booming, around 117 million devices are to be shipped this year with Apple commanding the bulk of sales. Sales for this sector are expected to double by 2022 to become a $27bn market.

Free spending consumers have also helped restaurant, car makers and packaged-foods companies defy expectation. Nestle’s profited from its exclusive rights deal with Starbucks and pet care sales while Proctor & Gamble’s was buoyed by strong detergent and skincare demand. Finally, consumer’s new-found appetite for high end SUV’s drove General Motors results.

UK: Bank of England Leaves Interest Rates Unchanged
The Bank of England (BoE) in a widely expected move this week held interest rates steady. Brexit uncertainty and US-Sino trade tensions being the main reason for maintaining rates. An orderly Brexit could see the central bank hike up rates to stop the economy from running away. On the flipside, a No-Deal could see the BoE cut rates in the near term. The BoE also published its inflation report where it predicts a one in three chance of the economy shrinking by 2020 and inflation is currently at its two per cent target.

Elsewhere, Neptune Investment Management is set to be acquired by Liontrust Asset Management. The deal will see Neptune CEO Robin Geffen step down to spend more time on leading the investment team and the team will be moved over to Liontrust’s London office. As a result of absorbing Neptune, Liontrust’s assets under management will grow by £2.8bn to £17bn.

M&A: The Rise of the Terminals

Recently it has been rare to see a British firm acquire a foreign company but this week, the London Stock Exchange (LSE) bucked the trend by acquiring Refinitiv. The £22bn deal will see the LSE expands its presence in North America and Asia, and more importantly – it will step up its rivalry with Bloomberg. Refinitiv like Bloomberg also produces terminals to be used for trading and research purposes. By purchasing Refinitiv, LSE will become less reliant on transactions-based purchases and move towards a financial data service orientated model. In addition, it will also gain Refinitv’s stake in bond trading platform Tradeweb.

However, this deal is far from wrapped up and is subject to regulatory approval. The antitrust investigation is expected to be lengthy and if the deal isn’t approved, the LSE pay Refinitiv a break fee of £198m.

Will Boris Johnson’s new Brexit Deal Placate both Parliament and Brussels?
This week saw the appointment of the new Prime Minister of the United Kingdom of Great Britain and Northern Ireland – Boris Johnson – just one more bit of evidence that we’re in the timeline where Biff still has the sports almanac. Whilst the rotation of personnel in the government has made a lot of noise, it hasn’t done much to alter reality. Theresa May has already proven that there is no parliamentary majority for her deal, which won’t be substantially different from any other, or No-Deal.

There is a hope that a more enthusiastic and charismatic PM might be able to win more support for whatever plan the new cabinet come up with, but with a working majority of three, a committed block of trouble makers and now a dozen former ministers that he’s just sacked, a can-do attitude is unlikely to be enough. The only chance to force through the sort of Brexit the hard leavers are after, is if the Conservatives can win back a majority in a general election, probably before the end of the year when Johnson finds himself in the same stalemate as his predecessor.

Autos: Almost one in ten Nissan workers to be made redundant
Falling sales in Japan and the US, rising costs and tighter emissions regulations have all contributed to Nissans profits falling off a cliff last quarter. Operating profit fell 99% to £11.9m. In turn the car manufacturer will more than double its planned job cuts to 12,500 over the next three years – close to a tenth of its workforce. And while it’s unclear where the cuts would fall, it is anticipated Nissan’s Sunderland plant which produces around 2,000 cars a day and employs 7,000 people won’t be affected. But this would be heavily dependent on continued smooth trade with Europe.

Elsewhere, Tesla shares fell 11 per cent after it announced a £328m loss despite record sales and rising revenue. Producing the cheaper Model 3 (£39,000) to its flagship model S (£80,700) has proved popular with consumers but in turn squeezed profit margins. Long term Chief Technology Officer JB Straubel also stepped down after 15 years with the company and will transition to a senior advisor role.

Eurozone: ECB Signals Willingness to help boost growth
The European Central Bank (ECB) left interest rates unchanged at the latest policy meeting and all but committed itself to further easing at its next review in September. ECB President Draghi commented “if the medium-term inflation outlook continues to fall short of our aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim”.

This could mean that the next meeting will see the ECB implement a package of measures, including a rate cut as well as restarting the sovereign bond buying scheme. The central bank hope by combining both monetary (interest rate) and fiscal (bond buying) policies they can boost growth and hit or even overshoot it’s two per cent target inflation target. Following the announcement, the euro strengthened but equities fell marginally.

Tech: DOJ Targets big tech in Antitrust Probe
It has been an interesting week for Facebook. The social media company beat expectations for both earnings and revenue but at the same time settled a record £4bn fine from the Federal Trade Commission (FTC) following an investigation into multiple privacy breaches. And while it’s the FTC’s highest ever fine, it equates to roughly around a months’ worth of revenue for the social media giant.

Meanwhile, there is a different probe spearheaded by the US Department of Justice (DoJ) investigating the anti-competitive behaviour of online search, e-commerce and social media companies. From a legal standpoint, the Big Tech companies haven’t broken the antitrust law which is designed to protect consumers from unfair price hikes. However, politicians are concerned over the sheer influence these companies have on all aspects of the US landscape from the markets to political and social issues. Over in Europe, antitrust laws are backed by an administrative system which issues fines against companies whereas the US antitrust operates around criminal laws with penalties meted out to individuals

Why it’s time to time to review Monetary Policy Indicators

This week the world has been focused on those two hardy perennials, Trump and Brexit. The former for being racist and the latter for parliament acting to contain the new prime minister. At this point however, these events hardly qualify as news. Instead we’ve been taking a closer look at the finer points of monetary policy. Following the Fed Chairman’s admission that the link between economic growth and inflation might not be what it was, we find multiple instances of central banks rethinking their approach. The European Central Bank is looking at revising its 2% or below rule to be more accommodating of above target inflation, while there is also speculation a Labour government could increase the BofE’s 2% target in the future.

While the acknowledgement that perhaps an overzealous approach to inflation has been detrimental is welcome, New Zealand have gone a step further and dropped GDP as a measure of the economy in favour of a happiness and wellbeing index. While this isn’t strictly monetary policy, it is another sign that the economic orthodoxy of the 20th century is coming to an end. Old models of rates and inflation, if not broken already, will need to be scrapped.

China: is slowing GDP growth Bad News?

Much attention has been paid to China’s recent slowdown, growth in Q2 slipped to 6.2 per cent, with many commentators attributing falling growth figures to the impact of the trade war. This is too simplistic however; Chinese growth was expected to slow before Donald Trump was even elected. It has been transitioning from export orientated growth model to one of nurturing a burgeoning domestic economy over the few decades. While growth is at its lowest level in close to thirty years, maintaining this rate for the rest of the year would add $1.4tn to the $13.2tn economy – equivalent to the size of all the Scandinavian economies combined.

Even so, the question remains as to whether domestic growth can continue to offset export woes. So far, a growing middle class (400m) with increasing spending power have helped boost retail sales and consumer confidence remains high. However, trade tensions have started to bite. Both imports and exports have been declining on a quarterly basis and foreign demand looks set to be weak in the second half of the year.

US: Will we see an earning recession this quarter?

The big banks this week kicked off this quarter’s earnings season and so far, the results have been fairly positive. Goldman Sachs and the Bank of America both beat expectations with the formers strong showing in the equities and lending divisions helping to offset the drag in the fixed income division, the latter benefiting from higher retail lending figures. In addition, Morgan Stanley profited from rising markets with its wealth management division beating analyst expectations by $60m with revenues last quarter from its investment arm coming in at $839m.

Only JP Morgan suffered, as low interest rates slashed away at lending margins. But with possible upcoming rate cuts, those banks whose income primarily derives from interest income (JPM, BoA, Wells Fargo) will most likely have to revise profit forecasts for 2019 downwards. Market sentiment towards corporate earnings remains cautious given the current weak outlook and a consecutive quarter of falling profits would lead to the first earnings recession since mid-2016.

Asia: Japan-South Korea Trade War is not all about Chemicals

A new trade war is brewing between two of the US’s closest allies, Japan and South Korea. Tensions kicked off when Japan restricted the exports of certain chemicals to South Korea over “national security concerns” leaving the likes of SK Hynix and Samsung who require the materials for memory chip production in trouble. Memory chips accounts for a fifth of South Korea’s exports and an extended embargo would squeeze the nation further. As a result, the central bank has moved for the first time in three years to cut interest by a quarter percentage point to 1.5%.

In reality, the row has nothing to do with national security concerns but is caused by a longer running dispute. South Korea feel that Japan haven’t atoned enough for its occupation of the country between 1910-1945. Last year South Korea ordered Japanese companies to pay $90,500 to each forced labour worker. Japan believe the compensation issue has already been resolved in the 1965 treaty when it provided $300m in economic aid and further loans totalling $800m.