9 August 2019

Adam Shaw

9 August 2019

Good morning,

According to various studies, the human brain peaks around the age of 25 years-old. Disconcerting reading since I had always assumed, or rather hoped, that I would become smarter over time.
 
However, upon further investigation, it appears that all is not lost. Although the brain does indeed stop developing around your mid-twenties, it is at this point that it begins to rely on experience to respond to situations which require judgement.
 
The Queen will be relying on all the experience she has mustered over her 93 years if, as is reported today, we are heading for the constitutional crisis that could be brought about by Boris Johnson’s pursuit of a no-deal Brexit.
 
Whether or not there is a mechanism that would allow opponents of a no-deal Brexit to prevent such an outcome has been subject to debate.
 
Under the current constitutional arrangements, MPs could pass a vote of no-confidence in the government in the first week of September when they return from the summer recess. In this scenario, Johnson would have 14 days to win another vote. If he fails, a general election would have to be called. However, the key issue is that it is the prime minister who controls the timetable for the vote.
 
It has been widely speculated that Johnson is preparing for a 1st November election – after the UK has left the EU but before any significant turmoil, allowing him to meet his commitment of leaving the EU “come what may” by 31st October.
 
Labour leader Jeremy Corbyn has today written to Sir Mark Sedwill, the cabinet secretary, to say that such a move would be “unconstitutional” and “anti-democratic abuse of power”. He calls on Sir Mark to rule that if the UK was due to leave the EU with no deal during an election, the government should seek another time-limited extension to Article 50 to give voters the choice.
 
Quite a conundrum. Technically, prime ministers are appointed by the monarch, and, come October, the Queen could find herself in the unenviable position of having to make a pretty big decision.
 
I’ve always considered myself a “pragmatic royalist”. That is to say that I don’t particularly like a system of government that bestows power and wealth based on heritage. I certainly do not favour spending £500 million to build a new royal yacht, as advocated by some Brexiteers to meet some kind of yearning for the days of the empire.
 
However, I recognise the benefits the royal family bring to the UK in the form of tradition, as a unifying force and international stature. Not to mention that there appears to be little desire for an elected head of state – particularly when the current generation of politicians is held in such low esteem.
 
And, if such a huge decision is required, I can think of few people more qualified than the Queen.
 
On second thoughts, maybe she does deserve that boat…

News

The chancellor of the exchequer has announced a one-year “fast-tracked” spending review. Typically, spending reviews happen every two or three years, however, announcing the move, Sajid Javid said he wishes to provide government departments with “financial certainty” as they prepare for Brexit. The Financial Times reports that this spending review will also allow Javid to meet commitments on health, education and police recruitment that Boris Johnson made in his leadership campaign ahead of a possible general election.
 
The Guardian reports that hundreds of school children have been brought in to produce Amazon’s Alexa smart speakers in China as part of controversial and often illegal attempts to hit production targets. According to leaked documents from Amazon supplier Foxconn and interviews with workers, teenagers classed as “interns” have been brought in from schools and technical colleges in and around the city of Hengyang and are working nights and overtime, with their teachers paid to accompany them. Foxconn has admitted that students have been employed illegally and said it was taking immediate action to address the situation.
 
Pro-democracy protesters in Hong Kong have begun three days of rallies at the territory’s airport in the hope of winning the support from arriving passengers. Hundreds of demonstrators have gathered in the arrivals area of Chep Lap Kok Airport. Extra security measures have been put in place and the Hong Kong Airport Authority says it expects the airport to operate normally. Meanwhile, as the protests enter their third month, it has been reported thatformer deputy police commissioner Alan Lau Yip-shing, who oversaw the pro-democracy umbrella movement demonstrations in 2014, has been recalled from retirement – suggesting a lack of confidence in the current police leadership.

Business & Economy

Interrail passes will continue to be valid in Britain after a U-turn. On Wednesday, the Rail Delivery Group (RDG) announced that UK train operators would stop accepting Interrail and Eurail passes from 2020, following its exit from the Eurail Group of railway companies due to a dispute over the RDG’s decision to stop selling Eurail passes in favour of the BritRail pass. The RDG said it had renewed talks with Eurail Group after "strong reaction to news of our departure".
 
Uber disappointed investors by reporting its largest ever quarterly lossyesterday – continuing the disappointing run of results since its stock market flotation in May last year. Shares in the ride hailing company fell by more than 11% after it posted a net loss of $5.24 billion dollars on revenues of $3.17 billion. It had been anticipated that revenues would come in at $3.3 billion. Uber continues to face intense competition in all its divisions, meaning it needs to spend considerable sums to stay ahead of its rivals, and there are fears that the company will never be profitable.
 
William Hill saw profits fall during the first six months of 2019 as it seeks to reposition the business following limits to stakes on fixed-odds betting terminals, which had previously made up to a third of profits in some shops. Operating profits at the FTSE 250-listed bookmaker fell 33% to £76.2 million and total revenues rose one per cent to £811 million, marginally behind consensus estimates.

Markets

What happened yesterday?

Better than anticipated Chinese trading data released yesterday, showing that exports unexpectedly rose in July, helped ease investors’ fears over a slowdown in global growth. As a result, all major indices made gains, with US stocks making their biggest jump in two months.
 
The S&P 500 was up 1.88% to 2,938.09, the Dow rose 1.43% to 26,378.19 and the Nasdaq climbed 2.24% to 8,039.16.
 
Closer to home, the FTSE 100 was up 1.21% at 7,285.90 and the FTSE 250 gained 1.04% to 19,137.61.
 
Hargreaves Lansdown shrugged off recent negative publicity over its close links with Neil Woodford to be the biggest riser on UK’s the main index, ending the session up 11.84%. In its full-year results, the investment firm reported strong growth in clients, assets under administration and profit. Chief executive Chris Hill took the opportunity to apologise again for his company’s role in the Woodford affair, and confirmed that he and three other senior executives had waived their annual bonuses this year.
 
Meanwhile, FTSE 250 constituent Funding Circle gained 6.87%, despite reporting that losses had widened in the first half after increased revenue was more than offset by higher costs. The peer-to-peer lender had warned investors in an unscheduled update last month that revenue growth would slow in the second half as it tightened lending criteria and cut forecasts for investor returns on its existing loans.
 
At the other end of the spectrum, TI Fluid Systems was the biggest faller across two indices, with the FTSE 250-listed manufacturer of fluid storage and delivery systems shedding 14.94% thanks to falling revenue and earnings in a “challenging” market.
 
Away from equities, positive investor sentiment led to the appetite for haven assets falling, which helped to push the yields on government bonds back up. German 10-year Bund yields were largely unchanged at minus 0.56%, however, yield on the US 10-year Treasury increased 2.5 basis points to 1.7155% and UK 10-year gilts rose marginally to 0.535%.
 
On the currency markets, the pound was up 0.11% against the dollar at $1.2144 and unchanged against the euro at €1.0849.

What's happening today?

Interims
Hikma Pharmaceuticals, William Hill
 
AGMs
Adams, Samuel Heath

International Economic Announcements
(07:00) Balance of Trade (GER)
(07:00) Current Account (GER)
(13:30) Producer Price Index (US)


UK Economic Announcements
(09:30) Balance of Trade
(09:30) Industrial Production
(09:30) GDP (Preliminary)
(09:30) Index of Services
(09:30) Manufacturing Production
(09:30) Gross Domestic Product

Columns of Note

In The Telegraph, Jeremy Warner asserts that, contrary to popular belief, a no-deal Brexit actually weakens the case for Scottish independence. He argues that if the UK makes a clean break from the EU, an independent Scotland would be forced to choose between the internal markets of the UK and EU – putting it in a similar situation to the one the Republic of Ireland currently finds itself. It is, Warner says, a case of the politics of no-deal, meaning independence is more likely, versus the economics, which makes it less so.
 
Simon Jenkins takes the opposing view in The Guardian, contending that Scottish independence is all but inevitable due to the government’s pursuit of a no-deal Brexit. He outlines how Scottish separatism has been a growing issue since the introduction of the poll tax, and that Brexit has shown that national identity and self reliance will likely trump economics when the inevitable independence referendum that follows a no-deal Brexit takes place.

Did you know?

If you were to write out every number (one, two, three, etc.), you wouldn’t use the letter “b” until you reached one billion.

Parliamentary highlights

House of Commons
In recess until 3rd September
 
House of Lords
In recess until 3rd September
 
Scottish Parliament
In recess until 2nd September.