24 September 2018

Stuart Taylor

24 September 2018

Good morning,

For those who have yet to watch last night’s dramatic conclusion of BBC drama ‘Bodyguard’, fear not – this morning’s briefing is a spoiler-free zone. Instead, we look back at a prediction made yesterday which, if proved correct, could mean we are all in for a rocky 18 months.

A quarterly review by the Bank for International Settlements (BIS), a global forum for international bankers, established that advanced economies remain overstretched and that this is likely to generate further dramatic turbulence on global markets. The report found that there is still too much debt in the system and global market contagion is still a prominent threat. The fragility of the markets was perhaps summarised best by Claudio Borio, the head of the BIS’s monetary and economic department, who said “there is little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse.” 

It also pointed to a number of global factors for this economic brittleness, such as the rise of protectionism – spearheaded by the policies of Donald Trump’s White House – and the slowdown in Chinese growth. Both these elements are said to be adding strain to emerging markets, with collapsing currencies in Turkey and Argentina seen as early signs of the risks the bank fears are building across the world.

Coming on the back of both the OECD and credit ratings agency Fitch cutting their global economic growth forecasts, the report adds further fuel to fears that the world economy could be heading for a recession as early as 2020. The prime drivers for such a financial crisis would differ from 2008, with the global credit extension coming in the form of companies issuing debt as opposed to through bank loans. That doesn’t mean there aren’t signs of recurring behaviour from a decade ago, however, with securitisations – a form of debt that gained unwelcome notoriety in the last crisis – having returned with a vengeance by all accounts.

We’ve all been inundated over the past few weeks with opinion columns and analysis of the last financial crash, marking its 10 year anniversary. Perhaps it’s time we looked forward rather than back and paid closer attention to the emerging risks in order to avoid repeats of the most shocking episodes of the past decade. How’s that for a spoiler alert?

News

John McDonnell will today announce that a Labour government led by Jeremy Corbyn would force companies to hand over a 10% stake in the business to their workers. The policy, which would see any company in Britain with over 250 employees forced to implement the measure, was described as “draconian” by the Institute of Directors. 

Brett Kavanaugh, Donald Trump’s nominee for the US Supreme Court, now faces a second allegation of sexual misconduct as he prepares to face the senate judiciary committee later this week. Deborah Ramirez, a Yale university classmate of the judge, has joined Professor Christine Blasey Ford in making allegations against Kavanaugh, who denies both claims.

Senior Tory Brexiteers will today urge Theresa May to renege on an agreement not to enter formal trade talks with the United States before Brexit to force the European Union’s hand into offering Britain a better deal. Boris Johnson and David Davis are joining other Leavers in backing a plan that would tear up the commitment made in a proposal written by Shanker Singham, a lawyer who previously advised Liam Fox, the international trade secretary. (£)

Business & Economy 

Comcast, America’s largest television producer, has outbid Fox in a rare blind auction bidding process for broadcaster Sky, valuing the company at more than £30bn. Sky has recommended its shareholders accept the bid, saying it was an "excellent outcome" and "represents materially superior value". (£) 

Merger talks are ongoing between Canada’s Barrick Gold and London-listed Randgold Resources that would create the world’s leading gold producer. It is hoped the $18bn deal would spark a revival for the gold sector, which has struggled to attract the interest of investors of late. (£)

Holiday company Thomas Cook has attributed a drop in its full-year profit forecast to the summer heatwave in the UK. The firm said that "higher than usual levels of discounting" took place over the past two months after "many customers" chose not to book holidays abroad, instead staying at home to enjoy the sunshine. It now expects full-year earnings of £280m, significantly below the £323m it had forecast in July.

Markets

The week ahead

The French government will today publish its budget for next year. With the main economic forecasts already released, the focus will instead be on any clues about planned savings over the next 12 months.
 
On Tuesday, the United Nations general assembly will see world leaders come together in New York to discuss the biggest issues of the day. Nikki Haley, US ambassador to the UN, said earlier this month that the meeting would focus on Iran’s “violations of international law”. On Wednesday, Donald Trump will chair a meeting of the Security Council at the 193-member assembly.

On the same day, Next will report its first-half results, with analysts predicting that earnings will rise 3.4% to 430p per share and revenues increase 3.1% to £4.2bn. An announcement of store closures as part of cost-cutting measures is another early prediction.
 
The Federal Reserve will meet on Wednesday, when it is expected they will raise interest rates for the second time this year. The case for a rate rise has been strengthened by an increase in inflation and substantial employment gains.
 
Italy’s populist government will seek to reassure markets that it intends to stick to EU limits that require member states to maintain a budget deficit of less than three per cent of GDP when it unveils its budget on Thursday. H&M, the world’s second-largest clothing retailer, will unveil its third-quarter profits on this day too.

Finals              
Duke Royalty Limited
River and Mercantile Group
 
Interims          
Chariot Oil & Gas Ltd.
Deltex Medical Group
Dillistone Group
Gama Aviation
Instem
Kape Technologies
Maxcyte (DI)
Nasstar
Pennant International Group
Spectra Systems Corporation
Trinity Exploration & Production
XLMedia 

AGMs
Hidong Estate
Mortice Ltd. (DI)
PHSC

UK Economic Announcements
(11:00) CBI Industrial Trends Surveys

International Economic Announcements
(09:00) IFO Business Climate (GER)
(09:00) IFO Current Assessment (GER)
(09:00) IFO Expectations (GER)

Columns of Note

Kevin Pringle looks back at last week’s Holyrood vote to scrap numeracy and literacy tests for primary one pupils. Writing in The Sunday Times, Pringle says that although assessments aren’t ushering in an atmosphere of fear and loathing in Scotland’s schools, they aren’t boosting pupil performance either and the Scottish government should accept the vote and move on. (£)

Writing in the Guardian, Andrew Rawnsley says the Brexit debacle in Salzburg has made the choices confronting Britain clearer and starker, with hopes of a compromise becoming bleaker and an increasing chance of a no-deal Brexit or no Brexit at all. Rawnsley also says that last week exposed the fantasy of the UK government that the EU does not really mean it when it says its “four freedoms” are non-negotiable.

Did you know?

The verb 'futzing', meaning to waste time or effort on frivolities, comes from the Yiddish word 'arumfartzen', to fart about. 

Parliamentary highlights

TODAY
 
House of Commons
In recess until Tuesday 9 October
 
House of Lords
In recess until Tuesday 9 October

Scottish Parliament
No business scheduled

TOMORROW

Scottish Parliament
Topical Questions (if selected)

Ministerial Statement: Mental Health Strategy - 2018 Annual Report

Scottish Government Debate: Scotland’s Role in the Development of Future UK Trade Arrangements