World Finance speaks with ING’s chief economist Mark Cliffe on the risks and opportunities this presents.
Year: 2015
Malmgren: Diversifying away from China key to global retail success
World Finance speaks to economist about her new book Signals. In it, she highlights how even Chinese manufacturers are diversifying their production in the face of another geopolitical crisis.
Chang: Japan will hurt if Western-style governance reforms adopted
Ha-Joon Chang, author of Economics: The User’s Guide, speaks to World Finance about key corporate governance reforms in Japan, including dismantling the old boys’ network.
Malmgren: China not the endgame for luxury goods – sell to Texas
World Finance speaks to Dr Pippa Malmgren about her new book Signals that highlights the signals luxury goods firms should focus on when appealing to high net worth individuals.
SDR and the new yuan
The IMF is currently considering including the RMB into its special drawing rights basket however should the organisation even be looking beyond the Yuan?
Lloyds moves towards privatisation
Overnight, HM Treasury has sold an estimated £600m worth of its shares in Lloyds Banking Group. Through the sale of 734 million shares, the British government has reduced its stake in the bank by one percent to 16.87 percent.
George Osborne…will continue selling shares in Lloyds as quickly as possible
During the financial crisis, Lloyds Bank was rescued by the UK Government at a cost of £20.5bn to taxpayers. Between 2008 and 2009, shares were bought at 63.1p; they were sold yesterday at 87.08p per share, thereby reducing the taxpayer bill to £11.5bn.
The group is celebrating the move, which it sees as a closer step towards total privatisation – a goal it has set for 2016. “Today’s announcement shows the further progress made in returning Lloyds Banking Group to full private ownership and enabling the taxpayer to get their money back,” a Lloyds representative said in a statement, according to the BBC.
The opportunity for the British government to raise capital through Lloyds is ripe given the growing investor interest in the Bank and its rising share price. According to a quarterly statement published by Lloyds Banking Group, its underlying profit for Q1 2015 totalled £2,178m, an increase of 21 percent from the first quarter of 2014. Total income grew by 3 per cent to £4,644m.
Reportedly, Chancellor of the Exchequer, George Osborne, will continue selling shares in Lloyds as quickly as possible over the next year in order to raise capital for the spending plans committed by the incumbent government. Osborne aims to raise around £23bn through the sale of various public sector assets, including the government’s stakes in RBS, the Royal Mail and the student loan book.
French private sector expansion at 46-month high
According to Markit Economics, a global financial information company that provides independent economic data, the French private sector has seen strong growth in June 2015. Using its Markit Flash France Composite Output Index, private company output saw growth rise from 52.0 index points in May to 53.4 in June. While France’s private sector output has expanded in each of the past five months, this was the strongest rate of expansion in 46 months.
French manufacturing output remained largely unchanged
The Composite Output Index is the weighted average of Markit Economics’ Manufacturing Output Index and the Services Business Activity Index. Within the French economy, the services industry has fuelled much of this private sector growth, with its increase at its sharpest since 2011. In contrast, French manufacturing output remained largely unchanged, although this brought an end to a 12-month long period of falling output among manufactures.
Employment increased for a fourth consecutive month within the private sector, although growth was modest with little increase from the prior month’s data. Much of the job growth also came from the services industry, with manufacturing employment still declining. New business opportunities also grew for service industry firms, while manufacturers suffered a marginal decline. Business expectations were also reported to be at a 39-month high.
According to Jack Kennedy, a senior economist at Markit, “The French economy gained further growth momentum in June, driven by a stronger service sector performance and a stabilisation in manufacturing. The figures bode well for second quarter GDP, following the 0.6 percent expansion recorded in the opening quarter of the year. With service sector business expectations standing at the highest level for over three years, it seems firms are becoming increasingly optimistic of a convincing upturn in activity.”
Malmgren: Fidelity justified in attacking FSB’s Too-Big-to-Fail Rules
Dr Pippa Malmgren, author of Signals, highlights how Western governments’ intense preoccupation with preventing the next financial crisis is leading to more inequality and suffering rather than protecting the public’s interest.
Gazprom and Shell fuse together
Gazprom, the world’s largest extractor of natural gas, has signed a strategic deal with oil and gas producer Royal Dutch Shell. Termed The Agreement of Strategic Cooperation, a Gazprom press release claims it will ensure cooperation between the two countries “across all segments of the gas industry, from upstream to downstream, including a possible asset swap.” The deal will help Gazprom penetrate new markets as those in Europe become saturated.
The deal will help Gazprom penetrate new markets as European markets
become saturated
Alexey Miller, Chairman of the Gazprom Management Committee, and Ben van Beurden, Chief Executive Officer of Shell, at the St Petersburg International Economic Forum, signed the document. The two energy giants have a history of cooperation. “Documents of such significance are signed only once every five years or maybe even 10,” Miller said at the forum, reports Reuters. “Many of our traditional partners are positioning themselves as strong regional players… Shell is a global player. And as the global gas markets develop… we will be creating a global strategic partnership.”
Gazprom is officially an Open Joint Stock company, however the Russian state has the largest share of ownership. Many western firms are divesting or steering clear of Russian firms due to continuing sanctions and hostility between the west and Russia. While the US has placed sanctions on the company as punishment for Russia’s actions in Crimea, the EU has been reluctant to do so due to its members’ reliance on its gas output.
The deal will take time to come into effect. Shell is waiting for anti-monopoly clearance from authorities in a number of countries after its recent purchase of rival firm BG.
Fitbit shares sprint ahead on first day
Opening at $20 a share, having originally priced them at $14 and later $16, wearable technology brand Fitbit has once again surpassed market expectations, with its shares having soared almost 50 percent on its first day of trading. The much-fancied San Francisco-based company is a leader in the connected health and fitness market, and makes wristbands that count calories and footsteps.
[T]he initial day’s showing puts Fitbit out front as the top-performing debut of the year so far
NYSE’s Global Head of Capital Markets said in a statement: “Fitbit’s IPO demonstrates the powerful role technology will continue to play in the health and fitness movement.” He added, “With the power of capital markets fuelling their innovation, Fitbit will be even better positioned to help people lead more active lives through wearable technology, data and inspiration.”
Founded in 2007, the brand has capitalised on a thriving wearable technology market and a budding interest in health and fitness applications. A recent BI Intelligence report on the wearable computing market conducted recently estimates that the market will grow at a compound annual growth rate of 35 percent in the next five years.
At the end of Fitbit’s first day of trading it was valued at approximately $6bn, having fast become the leading name in the global wearable market. In this year’s first quarter alone the company shipped 3.9 million devices, accounting for 35 percent of the market, and far and above second placed Xiaomi with 25 percent.
Early signs show that 20 million shares traded hands in the first 10 minutes of trading, and the initial day’s showing puts Fitbit out front as the top-performing debut of the year so far. The company said that it would use the capital to boost financial flexibility and invest a fair portion in research and development, adding also that an acquisition may also be on the cards.
Woman to appear on $10 bill
Following growing demand by the American public, on June 17, the treasury announced that a woman’s portrait will feature on the US $10 bill. Symbolically, the new note will enter circulation in 2020, the 100-year anniversary of the Nineteenth Amendment to the Constitution, which gave every US citizen, including woman, the right to vote.
The woman, whom is yet to be named, will replace the current resident of the paper note, Alexander Hamilton, the founder of the US financial system. Hamilton, who has been the face of the $10 bill since 1928, will still feature somewhere in the new design.
The Secretary invited people to share their ideas, symbols and designs for the new ten
Jacob Lew, Secretary of the Treasury, made a video statement to announce the bold move, saying, “This historic endeavour has been years in the making.” Lew explained that democracy will be the theme for the next currency series and is integral to the new design of the $10 note.
“The woman’s suffrage movement was propelled by the fundamental truths that have animated this nation since our founding, that we are all created equal, that we are born with certain alienable rights,” Lew said in the announcement, which can be watched on YouTube. “Those ideals and our striving to make them a reality, define the United States of America”.
Lew then asked the general public to make suggestions on a new website or via Twitter with the hashtag #TheNew10 as to who should feature on the new bill. The Secretary invited people to share their ideas, symbols and designs for the new ten and “how it can reflect our representative democracy”.
The last woman to feature on US paper currency was over a century ago when Martha Washington graced the $1 Silver Certificate for a short stint between 1891 and 1896.
Legislation dictates that no one living can feature on a bill, while George Washington’s staple place on the $1 cannot be removed. Slavery abolitionist Harriet Tubman seems to be at the forefront of public favour, following a high profile petition that was given to the US president Barack Obama just last week to have her portrait on the $20 bill. Other potentials include Eleanor Roosevelt and suffragette Susan B Anthony, as indicated by an informal vote carried out by the “Women on 20s” campaigning group.
US Fed halts interest rate hike
The interest rate set by the US Federal Reserve has been at a historic low for a record amount of time. The latest statement from the Federal Open Market Committee, released June 17, suggests this is to continue for some time still, but lending rates may gradually increase later in the year.
US economic performance has gradually improved in the second quarter of 2015
The FMOC claims that US economic performance has gradually improved in the second quarter of 2015, in contrast to its last statement in April, which conceded economic expansion had been poor for the first quarter. The latest statement notes that the US economy has seen some increased job growth, a moderate increase in household spending and an improvement in the housing sector. At the same time, it points out that net exports and business fixed investment remain low, while inflation remains below the Fed’s long run target.
This below-target inflation rate, along with an unemployment considered too great for full employment, means that an interest rate rise was not seen as justifiable as of yet, with the low level of 0.24 percent maintained. “To support continued progress toward maximum employment and price stability,” the FMOC noted in its statement, “the current 0 to 0.25 percent target range for the federal funds rate remains appropriate.”
To determine how long to hold rates, the FMOC says it will continue to monitor progress towards its objectives of maximum employment and an inflation rate of two percent. A rise in interest rates is expected sometime later this year, with the FMOC claiming it is “reasonably confident that inflation will move back to its two percent objective over the medium term.” However, even once its employment and inflation targets are reached, any raise, owing to US economic conditions, will be moderate, below what would be considered normal in the longer run.
Is the tech-heavy NASDAQ valuation bubble ready to pop?
Clemens Aichholzer, founder of Mind Agilis, tells World Finance that a billion dollar valuation is no longer unique in a positive financing environment that exists globally for tech firms.
How to manage the people’s wealth
World Finance speaks with The Public Wealth of Nations co-author Dag Detter on what public assets can do for the economy.
World’s largest private equity firms join forces
The two biggest private equity firms in the world have made a joint bid of $10bn to acquire ATM and checkout manufacturer NCR Corp. The news of the possible acquisition by Blackstone Group and Carlyle Group has sent NCR’s share price soaring from $4.15 to $35.52 per share. The $10bn offer, which if completed will be one of the biggest acquisitions since the financial crisis, is inclusive of debt.
NCR’s weak position could leave the board with little choice but to buckle under shareholder demands
With the auction still open for several weeks, other firms are also vying to purchase the company that made the world’s first mechanical cash registers. Still in the run are Apollo Global Management LLC and Thoma Bravo LLC, while the possibility of NCR backing out of any such deal could also transpire.
NCR’s move comes as a result of increasing shareholder pressure, with Marcato Capital Management in particular being cited as calling on the company to consider its options going forward. NCR recently announced that revenue had fallen by 25 percent in the first quarter of this year as a result of currency pressures and weakening sales. Slow growth has afflicted the firm as more individuals use mobile banking to carry out transactions as opposed to traditional methods.
In a bid to cater to new spending behaviour, NCR is entering the emergent market for smart ATMs and turning its attention to cloud-based software. In April, the firm launched its Kalpana software, a programme based on the Android operating system that streamlines functions at ATMs. NCR promises that Kalpana could reduce costs by 40 percent, while also helping to reduce fraudulent behaviour. NCR’s futuristic cash points allow users to withdraw money via their mobiles or using fingerprint identification, thereby removing the need of a bank card.
As new technologies and ventures have yet to take effect, NCR’s weak position could leave the board with little choice but to buckle under shareholder demands and accept the generous bid by Blackstone and Carlyle.
