3 Aug 2018

Scott Reid

3 Aug 2018

Good morning, 

$1,000,000,000,000.
 
I think you’ll agree that’s quite a lot of zeros. And quite frankly a number beyond the comprehension for most of us mere mortals.
 
Not so for the darling of the tech world, Apple, who yesterday became the first US company to reach a stock market valuation of $1 trillion.
 
The numbers behind the milestone really do beggar belief. Apple’s stock has risen more than 21% this year following very healthy results announced on Wednesdayand by a total 50,000% since it became a public company in 1980. As The Times points out, there are only 16 countries with a greater GDP equal to or greater to Apple’s market valuation, including Britain which comes in at $2.6 trillion. 
 
So for the company that has it all, what next? I suggest that a couple of more remote headlines today could show the way, and might not indicate clear skies for our modern Icarus.
 
First, the news that the UK corporation tax bill of Apple’s closest competitor, Amazon, fell by 38% last year to £4.6 million after the operating profits of its UK division tripled. And second, is the announcement that a former Obama advisor, Jason Furman, has been appointed by the Treasury to probe whether big technology firms are affecting competition in the UK
 
Together these stories show that although Silicon Valley’s big beasts may be raking in the cash, some of them aren’t necessarily seen to be paying their fair share. And in as fickle a consumer market as ours, that could spell trouble further down the line. The affairs of Amazon, Google and Apple have long been under scrutiny as countries struggle to adapt tax codes written for a different era to the age of the technology multinational. Just last October, the EU ordered Amazon to repay €250 million over ‘illegal tax advantages’.
 
Ho-hum say the tech giants. And sure, from aloft their burgeoning war chests, I doubt whether the likes of Amazon (whose value stands at $900 billion) are really paying too much attention. 
 
But for companies whose worth relies on spotting the next consumer trend, I’d say it pays to at least be seen trying to make an effort.

News 

Theresa May will today meet President Macron in a bid to win French support for her Chequers vision for Brexit ahead of final talks with the European Commission in October. The prime minister has been critcised for her strategy which has been interpreted as a way of going above the head of the Comission’s chief negotiator, Michel Barnier. The Guardian reports of one Whitehall source that France has been the most “disobliging” of the EU27 in talks, and is likely to seek stronger guarantees for the backstop agreement if the UK leaves the EU without agreeing future arrangements.
 
President Emmerson Mnangagwa has won 50.8% of votes in Zimbabwe’s presidential election, avoiding a second run-off election against opposition leader Nelson Chamisa. The electoral campaign has been mired by widespread reports of electoral violence and voter manipulation, leading to six deaths in the capital of Harare on Wednesday. The chairman of Chamisa’s MDC Alliance has challenged the verification of the count.
 
Europe’s heat record could be broken over the weekend as parts of Spain and Portugal are expected to exceed temperatures of 48C from today. This previous record was set in Athens in July 1977 with Meteogroup putting the chance of this weekend’s temperatures equaling the Athens record at 40%, and at 25-30% of breaking it.

 

Business & Economy 

The Bank of England Monetary Policy Committee has voted unanimously to raise interest rates to 0.75%- their highest level since 2009. The unanimity of the vote was the first since May 2007 and was significant given economists had expected a split decision. In the Bank’s Inflation Report, GDP growth forecasts were also lifted slightly from 1.4% to 1.5% this year, and from 1.7% to 1.8% in 2019.
 
The Trump administration has threatened to raise duties on up to $200 billion of Chinese goods in the US from 10% to 25%, reigniting tensions barely a week after agreeing to a ceasefire. Beijing has called the hike “blackmail”, with commentators suggesting that the volte face is motivated by a desire for President Trump to focus his ire on China in the run-up to the US midterm elections in November. (£)
 
Heineken has entered into a $3 billion non-binding agreement with China Resources Beer in a bid to tap China’s premium beer category, the company has announced. Under the partnership, Heineken will take a 40% stake in CRH Beer, the shareholder arm of China Resources Beer, with a reciprocal stake purchase of 0.9 per cent in Heineken. (£)

Markets 

What happened yesterday? 
Investors reacted badly to the Bank of England’s decision to hike interest rates for the first time in almost a decade whilst trade tensions renewed between China and the US, leading the London markets to finish in the red. By close of trading, the FTSE 100 stood 1.01% lower at 7575.93 points, picking itself up from a five-week low of 7,550.
 
Despite the interest rate increase, worse-than-expected results meant that financials were not quick to make any gains. Insurer Aviva (down 1.57%) reported a drop in first-half profits and Barclays announced that it had paid out over £2 billion in litigation and conduct charges alongsie interim results, leading shares lower by 4.86%.
 
The mining sector saw the day’s biggest losses, however, inlcuding Glencore, Antofagasta, Rio Tinto, Anglo American, Fresnillo and BHP Billiton who were all down following a statement issued from Beijing ramping up retaliatory rhetoric, and Washington’s threat to raise a further $200 billion on Chinese import tariffs. Iron ore producer Ferrexpo reaped the worst rewards, down almost 20% on the spat.
 
The rate increase allowed sterling to recoup some of its earlier losses on the currency market, but still managed to finish down on the dollar by 0.84% at $1.30 and by 0.17% against the euro at €1.12.

 

Finals
Cobham
Essentra
International Consolidated Airlines Group SA (CDI)
JPMorgan American Inv Trust
Millennium & Copthorne Hotels
Millennium & Copthorne Hotels (Assd Agapier Inv Cash)
Mondi
Royal Bank of Scotland Group
RBS     
William Hill
 
Q2 Results
Royal Bank of Scotland Group
 
Trading Announcements
Gem Diamonds Ltd. (DI)
Millenium & Copthorne Hotels
S&U

GMs
Future

AGMs        
Challenger Acquisitions Limited
Grand vision Media Holdings
Ukrproduct Group Ltd
 
UK Economic Announcements
(09.30) PMI Services
 
Int. Economic Announcements
(08:55) PMI Composite (GER) 
(08:55) PMI Services (GER) 
(09:00) PMI Composite (EU) 
(09:00) PMI Services (EU)
(10:00) Retail Sales (EU) 
(13:30) Balance of Trade (US) 
(13:30) Non-Farm Payrolls (US) 
(13:30) Unemployment Rate (US) 
(14:45) PMI Composite (US) 
14:45) PMI Services (US) 
(15:00) ISM Non-Manufacturing (US)

 

Columns of Note 

David Aaranovitch writes in The Times to comment on a new book, The Perils of Perception: Why We’re Wrong About Nearly Everything. He looks over some of the book’s most suprising tidbits (such as that the average Italian thinks 49% of his countrymen are out of work), and suggests that human interaction with the world is actually just a hyper form of confirmation bias.
 
Simon English comments in the Evening Standard of his uneasiness to too quickly celebrate rising profits at Britain’s big banks. Despite recent suggestions that banks have learned their lessons ten years from the financial crash, English points out that banks will remain on uneasy footing until consumers start to see meaningful returns, including sustained growth in the housing and mortgage markets. 

Did you know?

When the London Underground was first proposed, engineers suggested filling the tunnels with water and using barges to float passengers between stations. Horses running along paved tunnels were also considered.

Parliamentary highlights 

House of Commons
In recess until September 4, 2018.
 
House of Lords
In recess until September 4, 2018.
 
Scottish Parliament
In recess until September 4, 2018.