6 February 2019

Iain Gibson

6 February 2019

Good morning,

Disruptor. It’s an overused word nowadays, usually applied to companies seeking to dramatically overhaul their chosen industry. It can also become attached to people – think Elon Musk or Jeff Bezos. Less well known, but perhaps not for long, is David Malpass.
 
The news, leaked to The New York Times this week, that Donald Trump plans to nominate Malpass, an undersecretary at the Treasury, to head the World Bank, has caused a bit of a stir. Because when it comes to disruption, this might have us all scrambling for front row seats.
 
The reason? Malpass is a huge critic of the World Bank, which lends money to smaller countries to assist with their infrastructure and development projects.  He has previously vowed to dramatically overhaul the institution, believing – much as Trump does – that it has become too cosy with a liberal international order that can trace its roots back to the end of the second world war and the formation shortly afterwards of NATO.
 
Malpass’s selection is not guaranteed, although the US, as the bank’s largest shareholder, normally gets its way and its preferred choice tends to be nodded through by the World Bank’s board. It will be interesting to see if that tradition holds this time around, given the clear antipathy Malpass feels toward his potential future employer. We can expect to see opponents briefing against him in the weeks ahead, reminding people of his tenure as chief economist of Bear Stearns in 2007 and 2008, when the bank collapsed at the onset of the financial crisis.
 
However, others will argue that it is the right time to overhaul the World Bank. The organisation was caught on the hop by the shock resignation of Jim Yong Kim just days into 2019 and three years short of his tenure expiring. It is in clear need of new leadership and direction. Also, it is difficult to argue with Malpass’s assertion that the organisation is out of date in terms of its focus, that it fails to understand that many of the nations to which it continues to lend money – such as China and India – have grown enormously in recent decades and no longer need the cash. Why not divert more of this capital to today’s true emerging markets, in Latin America, Africa and South East Asia?
 
That’s the most optimistic view. The reality is that this potential appointment feels very familiar, following on from the rough treatment dished out by Trump to NATO and last week’s news that the US had suspended a nuclear arms treaty with Russia negotiated over 30 years ago. The fact Mr Malpass is close to the president probably tells us all we need to know, as to whether this is a long term strategic move aimed at strengthening the World Bank or merely a statement of intent from an administration that likes its senior appointees to be critical of those entities they are asked to lead.
 
We will apparently know later today whether the NYT’s sources are correct. If they are, the World Bank should prepare for a disruptive period.

News

Donald Trump has delivered his delayed state of the union address to congress, much of which was trailed in advance. The US president reaffirmed his commitment to a border wall with Mexico and announced that he will hold a second summit with North Korean leader Kim Jong-un at the end of February.
 
Facebook chief executive Mark Zuckerberg has announced that the company will determine employee bonuses based on progress made regarding social and ethical issues. The move represents a significant shift from previous metrics, which were related to user growth and product quality, and comes after a torrid two years in which Facebook has come under fire for how it uses people’s data and inadvertently promotes hate speech or misinformation.
 
Theresa May has said that her commitment to avoiding a hard border between Northern Ireland and the UK is “unshakeable”, as she prepares for further talks with the EU later this week. Speaking in Belfast, the prime minister suggested a time limit to the backstop might be a potential solution to the issue.

Business & Economy

The CBI has warned that the UK could “crash out” of 40 trade agreements across five continents if there is a no-deal Brexit. These are the EU free trade agreements that cover more than 70 countries and account for about 11% of the UK’s total trade. The industry bdy’s president, John Allan, added that whilst most UK firms might understand the implications of no deal in relation to the EU, they are unaware of the potential impact to their business relations globally.  
 
According to data from cargo-tracking company Kpler, the US has become the biggest exporter of oil to the UK for the first time since the Suez crisis more than 60 years ago. In January 2019, America supplied 264,000 barrels to these shores, around a quarter of the overall total. The main reason given for this developing trend is the increasing prominence of shale production.  
 
Unilever has agreed to buy UK healthy snacks firm Graze for a reported £150m. Graze has been owned by private equity firm Carlyle Group since 2012, which had originally hoped to get closer to £300m for the company. Pepsi and Kellogg’s were also said to be interested in the sale.
 
BP released extremely positive quarterly and full-year financial results, recording an annual profit of $12.7bn, more than double the previous year and almost $1bn more than analyst expectations. Profits for Q4 2018 were $3.48bn, significantly above predictions. The key driver of the numbers was strong growth in both oil and gas output, following its acquisition of BHP Billiton’s onshore US oil and natural gas assets.
 
Bill Gross, the so-called ‘Bond King’, has announced he is to retire from his role at Janus Henderson Group. Gross spent most of his career at Pimco, where he garnered a reputation as one of the best bond managers in the world. He left Pimco following a management clash in 2014 and joined Janus Henderson, where his annualised returns of less than one per cent did not match his past performance. The Pimco Total Return Fund, which he founded in 1987, became the world’s biggest mutual fund with assets of £300bn and annualised returns of almost eight per cent by 2013.

Markets

What happened yesterday?

The S&P 500 recorded a fifth successive daily advance, gaining 0.5% and now standing at 16% more than on Boxing Day 2018. There were also gains for the Dow Jones Industrial Average and the NASDAQ Composite, as markets stayed relatively calm ahead of President Trump’s state of the union address.
 
In the UK, the FTSE 100 was boosted by BP’s earnings and the slight fall in sterling, following a weak UK services sector report. BP’s results also had a positive impact on European energy shares and the Stoxx rose by 1.4% overall, to reach its highest level since early December 2018.
 
In forex, the dollar index was up 0.2% and the euro slipped 0.2% against the dollar. The pound fell below $1.30, mainly as a result of the aforementioned weak UK services sector report.

Interims
Barratt Developments
Frontier Developments
Redrow

Trading Announcements
CYBG
DP Poland
Electrocomponents
S&U
Severn Trent
Victrex plc

AGMs
Daily Mail and General Trust
Income & Growth VCT
Imperial Brands
Premier Asset Management Group
Port Erin Biopharma Investments Ltd
Stride Gaming
Victrex plx
Zytronic
 
International Economic Announcements
(09:00) Factory Orders (GER)
(12:00) MBA Mortgage Applications (US)
(13:30) Balance of Trade (US)
(15:30) Crude Oil Inventories (US)

Columns of Note

Writing in The Times, Danny Finkelstein explores how a Jeremy Corbyn led UK government might work, principally by reading a copy of hard-left newspaperThe Morning Star, which the Labour leader is still known to follow. One of his key takeaways is that, in order to achieve a return to overbearing state aid and restrict free movement of capital, which are core Bennite beliefs and frequently espoused by The Morning Star, leaving the EU offers the best chance of success, which might help explain Mr Corbyn’s ambivalent stance on the issue.
 
In the Financial Times, former World Bank president Robert Zoellick argues that the institution’s next leader needs to be more aware of how the financial crisis affected developing markets as opposed to the more affluent economies of the west. He notes that emerging markets helped lead the recovery in world trade, some of them even becoming net exporters to the developed world for the first time. But with global dynamics changing, and the boost from China’s post-crash stimulus slowing down, Zoellick urges the next president to identify those countries that can help make the difference when the next downturn hits, and prioritise their development.

Did you know?

According to Welsh folklore, fairies prefer to ride corgis into battle.

Parliamentary highlights

TODAY  

House of Commons
Oral Questions
Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office (including Topical Questions)
 
Prime Minister’s Question Time
 
Ten Minute Rule Motion 
Armed Forces Covenant (Duty of Public Authorities) – Gavin Robertson
 
Motion
Comptroller and Auditor General – Ms Theresa May
 
Social Security – Sarah Newton
 
Adjournment
Prostate cancer – Simon Hoare
 
House of Lords
Oral Questions
Total cost charged by the Ministry of Defence for the use of HMS Mersey and naval assets in the Channel since 1 January – Lord West of Spithead
 
Dealing with online abuse by people using anonymous social media accounts – Lord Kennedy of Southwark
 
Improving the resilience of the railway line at Dawlish towards south Devon and Cornwall – Lord Berkeley
 
Legislation 
Financial Services (Implementation of Legislation) – Third reading – Lord Bates
 
Scottish Parliament
Ministerial Statement
Brexit – Preparations in the light of recent developments
 
Portfolio Questions
Rural Economy and Connectivity Committee Debate: inquiry into Salmon farming in Scotland
 
TOMORROW 
 
House of Commons 
Oral Questions
International Trade
 
Women and Equalities
 
Business Statement
Leader of the House of Commons
 
Select Committee Statement
Fourteenth Report of the Science and Technology Committee on the impact of social media and screen-use on young people's health
 
Backbench Business
Anti-social behaviour
 Beer taxation and pubs

Adjournment Debate 
Closure of Santander banks
 
House of Lords
Oral Questions
Ensuring the Cross-Government Prosperity Fund is being used to achieve UN Sustainable Development Goals - Lord Collins of Highbury
 
Number of additional food inspectors to ensure EU food imports are checked at transit ports in the event of a no-deal Brexit - Baroness Jones of Whitchurch
 
Protecting patients from counterfeit medicines after the UK has left the EU - Baroness Walmsley
 
Assisting Venezuela in holding a free, fair and democratic presidential election
 
Legislation
Finance (No.3) Bill – Second reading and all remaining stages – Lord Bates
 
Orders and Regulations
Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 - Lord Keen of Elie
 
Electronic Communications and Wireless Telegraphy (Amendment etc.) (EU Exit) Regulations 2019 - Lord Ashton of Hyde
 
Human Fertilisation and Embryology (Amendment) (EU Exit) Regulations 2019; Human Tissue (Quality and Safety for Human Application) (Amendment) (EU Exit) Regulations 2019; Quality and Safety of Organs Intended for Transplantation (Amendment) (EU Exit) Regulations 2019 – Baroness Manzoor
 
Scottish Parliament
General Questions
 
First Minister’s Questions
 
Ministerial Statement
Glasgow City Region Deal
 
Stage 1 Debate
Management of Offenders (Scotland) Bill