The week’s news included; Italian government collapses, Hasbro buys Peppa Pig owner for $4 billion, Alibaba delays Hong Kong listing over protests, Deutsche Bank fined for corruption
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 – Why Tech Giants Are Getting Harder to Dethrone
- Forbes – Are Law Firms Sustainable? It’s The Model That Matters.
- Fashion Law – How Do You Sell Luxury in a Recession? You Ditch the Logos.
- CNBC – Top tech analyst says electric vehicles from Jaguar and Audi are stealing market share from Tesla
1. ITALIAN GOVERNMENT COLLAPSE
The Italian Prime Minister Giuseppe Conte resigned last week, collapsing the populist coalition government. The coalition between the Five Star movement and the League has been plagued by infighting. The far-right League is pushing for curbs on immigration and tax cute whereas the Five Star has urged for political reform and welfare spending. Following the resignation, the League has said it will now call a motion of no confidence. What is clear, however, is that both sides have neglected fiscal responsibility and this government collapse puts the country at greater risk of economic failure.
This has spread significant concern across the global markets. Italy has the largest sovereign debt burden in the EU apart from Greece and its economy is shaky. If Italy’s economy collapses, this will undoubtedly rock if not collapse the Eurozone economy, given the size of Italy’s contribution to the bloc. A Eurozone collapse could create a huge global economic downturn. TIME looks closer at the government collapse and why its so important.
2. US CHINA TRADE WAR ESCALATES
The US-China trade war has escalated as China put tariffs on an additional $75 billion worth of goods. Donald Trump immediately retaliated with increased tariffs on all $550 billion worth of Chinese imports. $250 billion worth of goods will see tariff rates increase from 25% to 30% from October. The other $300 billion will see an increase from 10% to 15%. The latter increase shall take effect mainly from September onwards although many have been delayed until December. The trade war is rattling markets and the global economy is suffering. Unfortunately, there is no real sign of an end to tensions and further escalations in the dispute.
3. HASBRO BUYS eONE
Hasbro will acquire the creator of Peppa Pig, Entertainment One Ltd, for $4 billion. The acquisition will give Hasbro the ability to create toys and benefit from eOne’s big brands, namely Peppa Pig. Hasbro also predicts over $130 million in synergies from the delay within the next 4 years. The deal is expected to be closed by end of 2019. The toymaker spent roughly $520 million in 2018 alone on children’s merchandise franchises. Hasbro makes toys such as Powers Rangers and Nerf.
4. ALIBABA LISTING DELAY
Chinese e-commerce giant Alibaba has delayed plans for its $15 billion list on the Hong Kong stock exchange due to the protests. Protests have been raging in Hong Kong for 12 weeks with millions taking on the streets over the proposed extradition bill. Two weeks ago, its airport was shut down by protestors and over 700 people have been arrested. Alibaba has now said it will delay its listing until protests die down. Market conditions are not ideal, and they concerned about the Chinese government’s reaction to listing at this time. Alibaba is worth over $400 billion and aims to raise $15 billion from the listing.
5. DEUTSCHE FINED
Deutsche Bank has been hit with a $16 million SEC fine over corruption breaches. According to the US SEC, the bank hired underqualified relatives of government officials in Asia and Russia to gain and retain business. The SEC said this conduct, which took place between 2006 and 2014, breached the Foreign Corrupt Practices Act. Deutsche Bank neither admitted or denied the findings but has taken remedial action since then.
Deutsche Bank has however, been at the centre of numerous scandals in recent times. Deutsche Bank’s offices were raided, and employees were charged for allegedly assisting tax avoidance and the bank was also fined for involvement in a Russian money laundering scandal. Deutsche Bank also posted its worst quarterly loss since 2015 this year, with a €3.1 billion loss. To help make €7.4 billion in savings, the bank has planned to cut over 17000 jobs by 2022.
6. KRAFT HEINZ WARNING
Credit rating agency S&P Global has warned that Kratz Heinz Co. could see its credit rating fall to junk within 2 years. The consumer goods manufacturer has a weak debt to earnings ratio and is struggling financially. Amongst other issues, the financial downturn sparked from its failed bid to acquire Unilever in 2017 and earlier this year it wrote down its brand value by over $15 billion. S&P says Kraft Heinz must cut its debt or potentially face a junk rating.
If Kraft Heinz did fall into junk rating it would become one of the largest high-yield debt issuers with over $30 billion in long-term debt. Kraftz Heinz currently has low investment grade credit ratings. A junk bond is not considered investment grade so is a high risk product and therefore provides better returns for investors. Ultimately, the cost of borrowing goes up for any company whose debt falls into junk. Kraft Heinz manufactures products such as Heinz ketchup, Capri Sun, Kool Aid and Philadelphia.
7. US HUAWEI BAN
The US trade ban on Huawei has been delayed by another 90 days. The delay allows US companies to continue to deal with Huawei on a temporary basis. This provides more time for Huawei suppliers to transition to a life without Huawei. Sensitive equipment will still be banned.
The US action on Huawei are starting to bite as now over 100 subsidiaries and related individuals have been sanctioned. President Trump cites national security concerns as the reason for the ban. The US claims Huawei could be used as an instrument for spying by the Chinese government.
8. AIRLINE STRIKES
BA pilots also announced strikes mid-next month. The pilot union was said the strike was a last resort over a long running pay dispute. There is total gap of £5 million between the package offered by BA and the position of the union. Pilots rejected a pay increase of 11.5% over 3 years and BA lost the lawsuit to block the strike action. Over 93% of the British Airline Pilots Association (Balpa). The trouble was compounded by emails wrongly informing some customers that their flights had been cancelled.
RyanAir also lost its court to block pilot strike action in the UK and strikes went ahead last Thursday and Friday. Pilots from other European countries were drafted so flights were largely able to run as normal. Pilots were striking over pay and conditions and another strike is planned for early September. The airline won its bid to block Ireland-based pilot strike action.
9. ASOS SLUMP
ASOS has requested a 3% discount from suppliers following two profit warnings. The discount will apply to all clothes and accessories it buys. The company is desperate to improve profitability. ASOS has been struggling in recent months largely due to expansion costs. New warehouses in Germany and the US have faced a plethora of IT issues. ASOS issued its second profit warning in seven months in July. The company now expects profits of just £35 million this year, substantially less than the £102 million posted last year. The company has lost 60% of its value since December.
10. SUPERMARKET SHAKE UP
Lidl is eating up ground in the supermarket sector. The retailer hit a record market share of 5.9%. The rise was spurred by a 7.7% increase in sales and 500,000 new customers in the quarter. Despite this, Ocado grew the fastest in the quarter, boating a 12.6% increase in sales. All of this spells trouble for the big four as customers are now turning to the smaller retailers. All lost market share, with Tesco losing 0.4% in the period. Morrisons also saw sales down 2.7% as it announced the closure of four supermarkets, putting 400 jobs at risk.