Our editors give us a breakdown of the week’s biggest news stories
United Kingdom: Ross Alexander Hutton
Edging further out of lockdown, England’s indoor gyms and pools started to reopen alongside the compulsory use of face coverings in shops. Whilst the UK’s retail sales have returned to pre-crisis levels, the ONS deputy national statistician warned of “some really big changes under the surface” as the retail recovery has been ‘asymmetric’ with online sales vastly outperforming the high-street. Although the reopening of major sectors of the economy reduced dependence on the furlough scheme, June’s borrowing was still £35.5 billion (slightly lower than in May). Of course, the key to escaping the Covid-crisis is a vaccine. Hence, the findings from a trial of the University of Oxford vaccine are quite promising as it appears the vaccine is safe and triggers an immune response – raising hopes of an exit from Covid unlocked by British ingenuity.
Following the latest round of post-Brexit trade negotiations, both sides have acknowledged the deadlock impeding the progress of the talks. Michel Barnier, the EU’s Chief negotiator, said a deal looked “at this point unlikely” as agreement is yet to be found on fishing rights and post-Brexit competition rules. As with past negotiations, the EU may be holding concessions up its sleeve until the eleventh hour. However, the idea that the EU’s reputation automatically translates to a deal being struck in the winter is quite frankly ‘for the birds’ as no-deal remains a distinct possibility.
The metaphor used by the Intelligence and Security Committee to describe how the UK Government and intelligence agencies handled the threat of Russian interference was a “hot potato”. Further allegations detailed in a damning report released this week were that the Government was “fully aware of the significant and enduring threat” posed by the Kremlin but “actively avoided looking for evidence” to confirm interference.
Europe: Peter Hourston
The European Union agreed a €750bn recovery package at a marathon summit in Brussels – the longest in nearly twenty years. This marks a major milestone in the European project – the first time that member states have permitted the Commission to undertake large scale joint borrowing, to be then distributed to member states, of which €390bn is non-repayable grants. Ratings agency S&P welcomed the package, suggesting that it would take forward the EU’s desire to become a “fully fledged fiscal union.” Such joint borrowing has always been fiercely resisted by Germany – but German Chancellor Angela Merkel, who holds the rotating EU Presidency, is no longer up for re-election which may explain her development. The scale of the measures faced opposition from more ‘frugal’ members in the north, such as Dutch Prime Minister Mark Rutte, who demanded that southern beneficiaries like Italy undertake internal reforms. At one point French President Emmanuel Macron banged his fist on the table and accused Rutte of behaving like former British Prime Minister David Cameron, who lost his referendum on EU membership. The reinvigoration of the Franco-German alliance between Merkel and Macron was key to the summit’s success, after a crisis where the EU had a low profile back in March and April.
The Spanish region of Catalonia has reimposed restrictions as cases of Coronavirus rise in the region. The situation in Spain is prompting fears of a ‘second wave’ to hit Europe later in the autumn and winter.
Asia Pacific: Satyajit Mohanan
Goldman Sachs has reached a $3.9bn settlement with the Malaysian government in the 1MDB corruption scandal. The firm was charged with misleading investors when it helped the Malaysian government raise $6.5bn for the country’s 1MDB state fund. Prosecutors allege that billions of dollars were embezzled to buy art, property, a private jet, a super-yacht and even helped to finance the movie, ‘The Wolf of Wall Street”. This deal is seen as a gesture to recover the money stolen from the fund. The 1MDB scandal played a role in the election defeat of Malaysia’s former Prime Minister, Najib Razak, who was accused of embezzling $700m from the fund.
China-US tensions escalated after the closure of each of its embassies in both countries. The Chinese Consulate in Houston has closed following the US’s order to do so after American officials alleged that it was a part of the larger Chinese espionage effort. In a retaliatory move, China ordered the closure of the US embassy in the southwest Chinese city of Chengdu. These developments come as a new low in the relations between the two powers.
India’s Reliance Industries Ltd, controlled by Asia’s richest man, overtook America’s ExxonMobil Corp. to become the world’s second largest energy company after Sauidi Aramco. The Indian energy company gained 4.3% in Mumbai by adding $8 billion and taking its market value to $189 billion. Reliance’s share jumped 43% this year in comparison to a 39% drop in Exxon’s shares.
Africa & Middle East: Camille Capelle
Tensions between the US and Iran are at another high after a near-collision incident between an airliner and an American F-15 military plane. Iran claims that the passengers of the Mahan Air Flight could sue the US military, as some passengers were injured in the rapid altitude change which was supposedly necessary to prevent the collision.
Due to health protocols to help curtail the current global pandemic, Saudi Arabia has limited the Hajj to be performed by only roughly 1,000 people residing within the country. The annual religious pilgrimage usually attracts 2.5 million people globally, often including many elderlies. This year, people over the age of 65 or with serious health risks will be barred from participating. Further health measures will help ensure that the pilgrimage can occur in a controlled and safe way. Resistance from the Zambian government has caused Mopani to resume some operations in the Mopani copper mines. Activities had been suspended due to market instability related to the global health crisis. While Mopani is planning to appeal the decision, until then it will resume activities within the mines despite high costs of production.
North America: Amelia Brown
The Major League Baseball season finally started on Friday after being shut down in the midst of spring training due to coronavirus in March. The league has made numerous changes this year, including no fans in the stadium (cardboard cutouts of player’s dogs are welcome though), ejection for coming within six feet of an umpire or other coach, quicker extra-inning games, a 60 game regular season, and an extra six teams advancing to the playoffs. The $10 billion industry has been hard hit by the forced shutdown, and though games are back on, the loss of fans in stadiums and the shortened season leaves uncertainty over financial recovery.
As most US colleges make plans for at least an online fall 2020 semester, students are pushing for lower tuition rates given the likely limited access they will have to on-campus resources. While many schools maintain the tradition of annual tuition increases despite the different delivery mode, top tier schools Georgetown, Princeton, and Williams have reduced tuition by 10%.
A four-night GOP convention supposed to take place in Jacksonville, Florida was called off by President Trump as the rise in cases in Florida puts it only behind California and New York in total. The Republican nomination will still go ahead in Charlotte, North Carolina, where delegates vote for the official party candidate, of which Trump is the only one.
South America: Annie Smith
China has offered Latin America and the Caribbean a $1 billion loan for COVID-19 vaccine access. The vaccine in question in currently being developed in China, and Chinese Foreign Minister Wang Yi noted that it would be “a public benefit of universal access.” Several South American world leaders, including Mexican President Andrés Manuel López Obrador, had asked China for support with medical equipment and aid as the region becomes the new epicentre for COVID-19.
Fires in Pantanal, the world’s largest tropical wetlands, have tripled in 2020, according to Brazil’s national space agency, Inpe. The agency identified 3,682 fires so far in 2020, an increase of 201 per cent compared to 2019. The wetlands span three South American countries, Brazil, Paraguay, and Bolivia, and are one of the most biodiverse areas in the world.
After testing positive for COVID-19 on July 7, Brazilian President Jair Bolsonaro announced this week that he is now negative for the virus. He cited hydroxychloroquine, an antimalarial drug not proven to be effective against COVID-19, for his recovery. Brazil has become the epicentre of the coronavirus, with 2,396,434 total cases and 86,496 total deaths, the second-worst behind the United States.
Science & Technology: Paula Plechschmidt
Since the announcement of Google’s acquisition of Fitbit in November, there has been strong opposition to it due to concerns over disadvantaging other fitness tracking apps sold through the Google Play Store and worries about how Google might exploit user’s sensitive data. This has led the EU to demand Google to pledge that it will not use the information to enhance its data advantage and that third parties will have access as well.
Intel has been suffering serious blows over the summer. First, Apple dropped them as their supplier for Mac processors, instead switched to an in-house chip based on ARM technology. Then, Nvidia overtook Intel as the US’ most valuable chipmaker and TSMC overtook Intel in market cap. This, in combination with the announcement that the launch for their new chips would have to be pushed back by six months, has caused their shares to fall by 17%. There are two main factors playing into Intel’s demise; the various manufacturing problems the company has faced in its latest generation of chips and the rise of machine learning. This extremely relevant part of the market is where Nvidia is far ahead.
Both Twitter and TikTok have taken action against the conspiracy theory phenomenon QAnon. QAnon is a conspiracy that links Hilary Clinton and many other Democrats to a powerful ‘deep state’ that supposedly only Donald Trump can combat. They have released theories including mistrust in vaccines, government surveillance and pedophile rings in the establishment, the central idea being that these are caused by the Democrats. In response Twitter has taken down thousands of QAnon related accounts and TikTok has blocked QAnon hashtags.
Business: Tom Woods
US investors have made an optimistic attempt to buy TikTok from its Chinese owners ByteDance. The effort is being led by VC firms General Atlantic and Sequoia Capital and seeks to address growing security concerns about the app emanating from the White House. Trump recently claimed that TikTok was “spying” on its American users and is reviewing the option of placing it on a “banned entity list” that would severely limit its accessibility in the USA. The investors are reported to be speaking with the US Treasury to assess if introducing certain security restrictions on the app would satisfy the demands of the more hawkish figures in the US government. At this point however, the price of a bid seems uncertain and its chances of success even more so, with the Financial Times describing the investors as “ambitious.” This latest development fits into ongoing tensions between China and much of the world over digital security. Last month India banned TikTok,while the UK has recently moved to forcibly phase Huawei out of its mobile networks.
UK retail sales were revealed to have approached near-pre-lockdown levels in June. Statistics from the Office for National Statistics revealed that the amount of goods sold had increased by 13.9% compared to their May levels. Although the total volume of purchase has returned to a “normal” level, different industries have emerged with different market shares and levels of success in the post-COVID economy. Since February, food sales are up 5.3%, while non-store retailing has grown by 53.6%. Conversely, the high street is struggling, despite the gradual re-opening of non-essential shops. Department stores have particularly struggled, and John Lewis now plans to close eight stores.
Theory: Cassi Ainsworth-Grace
As the pandemic continues throughout July, listed firms across the world are looking at dividend suspension as profits continue to look uncertain. Rather than cutting earnings, a number of firms appear to be set on cutting dividend pay-outs instead, saving their cash for investment and job retainment. This harks back on the dividend irrelevance theory, which states that dividends can limit a company’s competitiveness in the long-term, as they fail to reinvest into the company and generate higher profits down the line.
In the US, dividends dropped significantly on the S&P. Dividends in quarter two this year totalled $119 billion, compared to $127 billion in the first quarter. Net change in quarter two pay-outs of dividends for all domestic common stock in the US witnessed a decline of $42.5 billion from 2019. This represents the largest decline since the first quarter of 2009 during the Global Financial Crisis.
Shell was previously the biggest dividend payer on the FTSE 100 in 2019. However, the company has decided to cut its dividend pay-out for the first-time since World War Two, as its quarterly pay-out fell from 47 cents per share to 16 in April 2020. Australia has followed, with ANZ Bank suspending dividends in April, as their profits fell by 60%. The bank’s board was hesitant to pay out AUD 1 billion in capital in dividends to shareholders amid the peak of the crisis, and have instead chosen to exercise caution and suspend pay-outs for the time being.
This dividend suspension has reminded investors worldwide that dividend pay-outs are not a guarantee as a shareholder, and that cutting pay-outs are the cost for some firms to remain viable.