This week’s news includes; Apple hits $1 trillion, UK inflation rates on the rise, Amazon’s UK tax bill, House of Fraser rescue deals fall through , Lidl begins house building
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- Investopedia “Morgan Stanley Says Biggest Correction Since Feb Looming”
- CNN explains How Amazon Could Start Managing Money
- Bloomberg Is the Facebook flop a sign of market trouble to come?
- City A.M Curb your scepticism, cryptocurrency can solve society’s problems.
1. APPLE HITS $1 TRILLION
Apple’s strong financial results boosted its share price, making it the world’s first trillion dollar company. Apple’s share price hit a new high of $207.04 to take its market capitalisation above $1,000,000,000,000.
Apple’s closest competitor in terms of market cap is Amazon, valued at $866 billion. Despite the $140 billion gap seeming large, the competition for $1 trillion was quite close. In the first 6 months of 2018 alone, Amazon’s market cap has risen by over $260 billion. (City A.M)
Apple owes its success to strong financial figures boosting investor confidence. In the last quarter, Apple missed unit sales figures estimates but revenue was higher than estimates due to selling more expensive iPhones. In the last quarter, Apple sold 41.3 million iPhones, lower than analysts’ expectations. Despite this, total revenue however, rose 17% to $53.3 billion. This was fuelled by the success of its most expensive model, the $999 iPhone X. It boosted average iPhone price was $724, $30 above estimates. Apple has however, fallen to the 3rd largest smartphone seller, behind Samsung and Huawei. Despite lower sales figures, it is the world’s most valuable private company by market cap.
BBC News looks closer at Apple’s remarkable growth.
2. US – CHINA TRADE WAR
China has announced that it will impose tariffs on $60 billion worth of American goods. This move is in retaliation to Trump’s latest issue. The tariffs will range from 5%-25% across over 5,000 different products. China has acknowledged that there are no winners in trade wars. Donald Trump has threatened to impose tariffs on a total of $200 billion worth of Chinese products if China continues to retaliate. The total value of all Chinese imports in 2017 was $500 billion.
Trade war tensions are escalating at an alarmingly quick rate. The effects of the trade war are already being felt by businesses and consumers. The US has already had to issue $12 billion in subsidies to support its farming industry who have been rocked by the tariffs. Coca Cola has had to raise the price of some of its canned drinks due to increased aluminium costs. The Chinese government has been forced to step in to stabilize their currency, the yuan. They impose a reserve requirement of 20% on Forex forward trading. It practice, this makes it more expensive to short sell the currency, providing some price stability.
There has been minimal communication on both sides but there is an expectation that talks. The longer the trade war continues, the more damaging it will be for businesses and consumers. (BBC News)
3. UK INTEREST RATE RISE
The Bank of England has increased interest rates to 0.75%. This is up from 0.5% and is the highest rate since March 2009. The decision to raise rates was unanimous amongst the bank’s nine members of the Monetary Policy Committee. The Bank of England claimed the increase was necessary due to rising wage pressure caused by low unemployment. Unemployment currently stands at 4.2% the lowest rate in over 40 years. The bank also hopes to reign inflation in closer to it’s 2% target. Higher interest rates will temper consumer borrowing and spending, lowering price hikes.
The decision has been criticised as many feel this rise was premature. There is still significant economic uncertainty around Brexit and no deal scenario is becoming likely. Given the economic fall out that could occur in the event of no deal, critics argue the BoE should have waited for more clarity before hiking rates. The bank has however, stated that if there was Brexit-induced economic difficulty, it would lower interest rates again.
4. AMAZON TAX BILL
Amazon’s UK tax bill has nearly halved despite posting record profits in the last quarter. In the past year, Amazon’s UK business pretax profit tripled to £72 million yet its corporation tax bill fell from £7.4 million to £4.5 million. Revenue from Amazon’s UK retail sales are reported through a separate Luxembourg based entity. Tax is however, based on profits, not revenue.
Amazon has a company share scheme where employees, which significantly lowers its tax bill. The value of shares given to employees is deducted from its taxable profits. Amazon’s share price has soared and employees received £125 million worth of Amazon shares last year. Amazon currently employs over 27000 people in the UK.
Critics argue that Amazon should be paying more tax given its nearly £2 billion UK turnover. Amazon affirms that it is paying all taxes required in the UK. In 2015, Amazon also committed to stop using tax avoidance structures that divert sales and profits out of the UK.
For more on Amazon’s tax arrangements read The Guardian’s report.
5. DIXON CARPHONE DATA BREACH
The Dixon Carphone data breach is now much worse than previously thought. The company has announced that 10 million people have been affected by the breach that took place in 2017. Names, addresses and email addresses were all accessed by hackers. In June, Dixon Carphone announced that 1.2 million people’s personal data was affected.
Over 5.9 million credit card records were accessed but practically all cards were protected by chip and pin, preventing fraudulent use or access to details. There has been no evidence of any fraud occurring, directly resulting from this breach. The concern is that individuals whose personal data has been accessed are now at risk. Considering the investigating is still ongoing and the initial estimate was 10 times too small, further complications would not be unlikely. (BBC News)
6. HOUSE OF FRASER RESCUE DEAL FALLS THROUGH
A potential buyer for House of Fraser has abandoned its bid, throwing the future of the department store in jeopardy. Chinese firm C.banner had initially planned to takeover House of Fraser and inject new cash into the business. The rescue package would have seen a £70 million cash injection with the closure of 31 out of 59 stores and the loss of 6,000 jobs.
C.Banner had planned to follow through with the rescue deal but it is facing significant financial issues of its own. Its share price has fallen 70% in the last two months and it recently issued a profit warning. Analysts claim that the only hope of survival for House of Fraser is a merger with Debenhams. The sector is in desperate need of consolidation due to the significant overheads and falling customer footfall. House of Fraser currently employs 17,500 people in the UK. (The Guardian)
7. NEWSPAPER PROFITS SLUMPS
Reach, formerly known as the Trinity Mirror posted a £113 million lost in the first half of 2018. Reach owns the Daily Mirror, the Sunday Express and Star tabloid newspapers. The poor sales were blamed on an increasingly challenging market. Sales of all its newspaper over the first half of 2018 were down by between 9 and 16%. Overall, the UK tabloid was down by 9.3% on average. and Express Shares fell 2.6% in response to the news.
The company has had to cut operations to make £20 million in savings. The company is seeking to adapt to the digital age. Competitor Johnston Press which owns the Scotsman and the Yorkshire Post revealed a £95 million loss for the year 2017-18.
8. DEUTSCHE BANK MOVES ACTIVITIES TO FRANKFURT
Deutsche Bank has announced that it will be moving half of its euro clearing activities from London to Frankfurt. This is however, not a shift of jobs, only operations. Transactions will be cleared through Deutsche Borse’s clearing house in Frankfurt rather than the London Stock Exchange’s clearing house. This shift is in relation to clear of euro-demoninated interest rate derivatives. The London Stock Exchange’s LCH was a market leader for these derivates, clearing 1 trillion euros worth of deals every day. (Investment Week)
Deutsche Bank’s is notable as its another example of how businesses are adapting amid uncertainty about Brexit. A number of big banks have announced plans to shifting operations out of the UK due to Brexit. The total number of job losses are not however, expected to be as severe as first thought.
9. LIDL TO BUILD NEW HOMES
Move aside politicians, supermarkets will solve our housing crisis. Supermarket Lidl has announced plans to build 3,000 homes and a primary school. This is a new tactic to gain planning permission to build new stores. With development space particularly scarce in London, supermarkets are increasingly seeking alternative ways to expand.
Lidl has only built 335 new homes but It plans to increase investment in mixed use spaces. This move is certainly the most ambitious carried out by a supermarket to date. Deer Park primary school will now be located above a Lidl stores. It will have outdoor spaces with room for football and hockey. The school is under construction and will be completed next year.
Lidl hopes to open 50 stores a year and hopes to double its number of stores to 1,500 in the long term. Lidl is one of the fasting growing supermarkets, increasing its market share by 2% in the last 3 years. This new tactic of property development is likely to help it achieve its ambition. All the biggest 4 supermarkets have adopted this tactic to date. Morrison’s already built 600 homes during its redevelopment of its Camden store. (The Guardian)
10. E.ON JOB CUTS
Energy firm E.On has announced it will cut up to 500 jobs in the UK. The company is seeking to make £100 million in savings to improve profitability and sustainability. Bosses of the firm claim these cuts will make the business more agile and better equipped to deal with the challenges of the UK energy market. The complete plan for the locations of the cuts has not yet been finalised. E.On currently employs 9,400 across the UK.
E.On is one of the UK’s big six energy companies along with British Gas, N-Power, SSE, Scottish Power and EDF. In November 2017, SSE and N-Power agreed plans to merge to create the UK’s second largest energy supplier, behind British Gas. The deal is still awaiting approval from the Competition and Markets Authority. A decision is expected by the end of 2018/early 2019. (BBC News)