5 July 2019

Juan Palenzuela

5 July 2019

Good morning, 

We have rules in society, and these rules allow us to live peacefully. We are not about that nasty, brutish and short life that Hobbes described. We follow rules because we value the benefits of society, but even when we cannot see the link to the benefit for ourselves, there are authorities in place that will help us out for the common good. 

The international system has no overarching governing authority, and so it is extremely difficult to create rules. After the traumas of the 20th century, the international community finally came to grips with something to help solve the issue and so a rules-based international order was slowly instituted involving a fragile network of agreements and institutions including the World Bank, the United Nations and the International Monetary Fund, among others. It took a superpower to build and uphold this system, to help craft the rules and, more importantly, help enforce them.  

With the recognised superpower of the US retreating from its previous role of guarantor, the international order appears increasingly fragile. After breaking several UN resolutions regarding their uranium enrichment program in 2009, Iran was not punished for breaking the rules. Later, in 2015, a deal was struck between the Islamic Republic and the major powers, the last solid attempt at bringing the country closer to the rules-based order. We know what happened after. 

Far from working around preestablished rules, the two countries are now engaging in a dangerous tit for tat. In their latest row, British authorities in Gibraltar –at the request of the Americans– seized an Iranian oil tanker heading towards Syria. Iran summoned the British ambassador in Tehran and called the action “a form of piracy”.  

Iran has repeatedly declared their intention to keep the nuclear deal alive, in exchange for sanctions relief. Nonetheless, this week the isolated republic will start refining its stock of uranium beyond the permitted levels in the deal, after announcing that they have also accumulated more low-enriched uranium than allowed. Perhaps Iran is looking to increase its bargaining power before switching strategy. However, the risk of miscalculation is great, and now the ball is in their court. 


Commercial whale meat sold quickly in the streets of Tokyo yesterday for the first time in over 30 years after the country officially resumed commercial whaling earlier in July. Members of the International Whaling Commission, of which Japan was a member until June 30, agreed on a memorandum in 1986 that restricted whale hunting and helped to save some species from the brink of extinction. Nonetheless, little will change. Since the agreement Japan has used a loophole that allows whale hunting for scientific research purposes, effectively enabling the country to hunt whales for their meat. 

The Office of the United Nations High Commissioner for Human Rights released a report on the state of human rights in Venezuela after the Chair of the Commission, Michelle Bachelet, visited the country last month. The report details many of the well-known human rights abuses occurring in the country, most notably the alleged extrajudicial killings by the special action forces FAES, legitimising accusations made by NGOs and the independent press for years. The Maduro government moved quickly to tag the report as “biased”, while criticising the methodology and data used; data that has not been officially published for years. 

Britain’s foreign secretary Jeremy Hunt warned of “serious consequences” if Chinese authorities from mainland China use excessive force during the current wave of protests in Hong Kong. Hunt also called to sustain the “one country, two systems” arrangement. China, meanwhile, accused the UK of meddling in its internal affairs. Protests in the territory erupted in June over a bill that would open the door to the extradition of Hong Kong residents to mainland China

Business & Economy

William Hill warned about the closure of nearly 700 locations, facing pressure from less costly online gambling and tougher regulation. In April the regulatory body reduced the maximum stake on fixed-odds gambling terminals from £100 to £2. Due to the situation, the jobs of nearly 4,500 people are at risk; but I bet that the regulatory move will be beneficial over the longer term: the Centre for Economics and Business Research (CEBR), a consultancy, estimates the cost of gambling terminal addiction to be around £1.5 billion

Nigeria announced yesterday that it will join the African Continental Free Trade Area (AfCFTA). The group is set to lower trade barriers to boost inter-continental trade, which in turn could potentially pave the road to a single market, freedom of movement and even a single currency. Of 55 African States, 52 had signed the agreement with only Benin, Eritrea and Nigeria not doing so. The absence of the latter, Africa’s most populous country and second largest economy, was worrying the believers of the bloc. 

Deutsche Bank’s board is expected to authorise a dramatic restructuring of the bank that could see as many as 20,000 jobs lost and a withdrawal of large areas of its investment banking business. Top executives have fled the bank amongst the crisis, most notably Tom Patrick, head of the bank in the Americas. The restructuring efforts will notably involve the creation of a “bad bank” made exclusively to hold problematic assets. (£) 


What happened yesterday?

London stocks remained mostly unchanged on Thursday as traders were left in the market partially alone due to the 4 July holiday in the US. The FTSE 100 fell just by 0.08%. European stocks traded slightly higher on Thursday, following the record highs reached by Wall Street's main market gauges on the day before. 

Meanwhile, oil prices declined amid concerns of slowing economic growth, despite the fact that a confrontation between Iran and the US or its allies may threaten supplies and drive prices up. 

What's happening today?

Final Dividend Payment Date
Animalcare Grp, Balfour Beatty, Billington, Christie, Cineworld, Downing Strate., Global Ports, Gore Street En., Judges Scientfc, Nasstar, Restaurant Gp, SIG, Synthomer, Tarsus, Whitbread

Interim Dividend Payment Date
Afh Financial, AB Foods, Countryside Properties, Grainger plc, HSBC Holdings, Jpmorg.gbl.g&i, Jupiter Emerg., Shaftesbury

Value And Inc

Quarterly Payment Date
Aberdeen Di&g, Cineworld

Special Dividend Payment Date

UK Economic Announcements
(08:30) Halifax House Price Index

Int. Economic Announcements
(07:00) Factory Orders (GER)
(13:30) Unemployment Rate (US)
(13:30) Non-Farm Payrolls (US) 

Columns of Note

The monetary policy that has guided the Fed to achieve low inflation rates in the US over the past decade has been remarkably successful: since 2010 annual inflation has averaged 1.5%, very close to the Fed’s target of 2%. The Taylor rule has been pointed out as the chief explanation. It stipulates that when inflation increases, the Fed should raise nominal interest rates by a slightly higher amount. This will encourage the public to save, as the cost of holding money decreases. Although the Fed no longer makes drastic changes to nominal interest rates as it used to do, the credible threat of extreme responses keeps the public’s expectations –and thus inflation– in line. This explanation is perhaps too simplistic, argues economist Robert J. Barro on Project Syndicate. While expected and real inflation usually go in hand, this view suggests that the Fed’s current monetary policies have little to do with inflation. 

Writing for the Times, Ed Conway favours Christine Lagarde for the position of president of the European Central Bank. Conway dismisses worries of Lagarde’s lack of formal economic training, and points to her experience and skills acquired as head of the IMF. As much as professional economists might like to boast on their expertise, their record in Central Banks remains meagre, he says. 

Did you know?

Bananas are berries and they grow on large herbs, not trees. 

Parliamentary highlights

House of Commons
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House of Lords
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Scottish Parliament
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