Carney tells Trump: trade war will hurt US
Mark Carney has warned Donald Trump that the escalating trade war will cost the world economically and damage the US most.
The governor of the Bank of England said on Friday that further escalation would have serious consequences for global GDP and US growth could fall by up to five percent.
Speaking in Newcastle, Carney said that the import tariffs imposed by the US and other countries were already slowing the global economy.
“There is a growing possibility that trade uncertainty could crystallise the longstanding risks of a snap back in long-term interest rates, increased risk aversion and a general tightening in global financial conditions,” he said.
Recent figures revealed by Carney showed that the American economy would suffer a 2.5 percent drop in GDP. The world economy would fall just over one percent.
The hit to the UK would be “smaller, reflecting a greater exchange-rate driven boost to net exports”, he said.
On Friday, the US imposed US tariffs on $34 billion (£25.7 billion) of Chinese goods. China shortly retaliated and imposed with a 25 percent tariff on US goods.
Before the tariffs went through, China accused the US of “opening fire” on the world.
Carney also hinted towards a rise in interest rates next month.
“Domestically, the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate,” he said.
“Overall, recent domestic data suggest the economy is evolving largely in line with the May Inflation Report projections, which see demand growing at rates slightly above those of supply and domestic cost pressures building. An ongoing tightening of monetary policy over the next few years would be appropriate.”
Inmarsat shares plunge after rejection of EchoStar offer
Satellite company Inmarsat (FRA:IV4) saw shares plunge over 10 percent on Friday morning, after the group rejected a takeover from the US’ biggest satellite firm.
According to Inmarsat, the $3.2 billion bid made by EchoStar “very significantly undervalued Inmarsat and its standalone prospects”.
EchoStar already holds a small stake in Inmarsat, and said it will continue to pursue its interest in the group.
“EchoStar continues, however, to seek engagement with the board of Inmarsat on a constructive basis, with a view to agreeing the terms of a recommended offer,” the company said.
EchoStar’s offer valued the group at 532p a share, with many believing Inmarsat’s board will want a much higher offer in order to win over shareholders.
London-based Inmarsat employs more than 1,500 people and has 13 satellites in orbit. It has provided technology used by the British armed forces, although its largest single customer is the US military.
Shares in Inmarsat are currently trading down 7.74 percent at 5.48EUR (1000GMT).
Stobart Group boosted by five year partnership with Ryanair
Airport owner Stobart Group (LON:STOB) said it had started the year ‘trading satisfactorily’, boosted by the beginning of a new five-year partnership with Ryanair.
The group made the comments ahead of the company’s AGM, saying it remained on track to deliver its medium-term objectives, including growing its London airport in order to welcome five million passengers a year by 2022.
“Since stepping into my role last year, we have made significant progress across our business divisions, and continue to focus on delivering on our ambition to double the value of the business by 2022,'” Stobart Group said.
The company has set targets to supply over three million tonnes of renewable energy fuel per annum by 2022.
‘We have seen strong progress at London Southend Airport, with the announcement of a new five-year partnership with leading low-cost airline Ryanair,’ Stobart said.
The five-year agreement, extendable to 10, includes a $300 million investment on Ryanair’s part as as well as operating three planes out of the airport.
Shares in Stobart Group are currently trading up 3.94 percent at 237.50 (0947GMT).
Rolls-Royce sell marine business to Kongsberg
Rolls-Royce (LON:RR) shares sunk slightly in early trading on Friday, after the group announced that it had agreed to sell its loss-making commercial marine business to Norway’s Kongsberg for an enterprise value of £500 million.
Net proceeds are expected to be between £350 million and £400 million, after taking pension liabilities and other costs into account. The move comes as part of a wide-ranging restructuring plan for Rolls-Royce, which aims to save £400 million a year.
The business has about 3,600 employees, mainly based in the Nordic region, and the sale includes propulsion, deck machinery, automation and control, a service network spanning more than 30 countries and ship design capability.
“This transaction builds on the actions we have taken over the last two years to simplify our business,” Rolls-Royce chief executive Warren East said.
“The sale of our commercial marine business will enable us to focus on our three core businesses and on meeting the vital power needs of our customers.”
Shares in Rolls-Royce (LON:RR) are currently trading down 0.53 percent at 980.00 (0925GMT).
FairFX shares soar after reporting £1bn turnover
Payments service FairFX (LON:FFX) reported turnover of over £1 billion in the half year to June, saying it was confident it would meet full year expectations.
The group had already been boosted by an 146.2 percent year on year increase in turnover to £1.1 billion in the first half, and, excluding the acquisitions of Cardone and City Forex, turnover rose 22.8 percent.
Like-for-like turnover from prepaid cards and international payments, one of its most well-known services, rose 8.5 percent to £181.7 million and 39.1 percent to £334.6 million, respectively.
“The performance of FairFX during the first half of 2018 demonstrates the execution of the Company’s strategy to scale its core FX services whilst evolving the digital banking offering. The substantial growth in turnover has also been achieved without reduced margins and this gives us great confidence for the prospects for 2018 and beyond,” said FairFX CEO, Ian Strafford-Taylor.
Shares in FairFX are currently up 13.16 percent at 129.00 (0913GMT).
US-China trade war kicks off with the first round of tariffs
Donald Trump has signalled the start of a trade war by imposing US tariffs on $34 billion (£25.7 billion) of Chinese goods.
The US President imposed the 25 percent tariffs at 12:01 am Washington time on Friday. China soon retaliated with a 25 percent tariff on US goods.
Gao Feng, a spokesperson from the Commerce Ministry, said: “China will not bow in the face of threats and blackmail.”
“The Chinese side, having vowed not to fire the first shot, is forced to stage counter-attacks to protect the… interests of its people,” he added.
Trump initially threatened to impose tariffs on Chinese goods in March. He tweeted: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
The US has imposed tariffs on over 800 goods including medical devices, industrial goods and auto parts.
China’s tariffs will affect over 500 different US items.
The new tariffs have had little impact on Asian stocks. Shanghai fell in morning trade before recovering and ending 0.6 percent higher. Hong Kong and Tokyo rose by 1.3 percent.
Mark Weisbrot, co-founder of the Washington DC-based Centre for Economic and Policy Research, said the effects of the tariffs could remain fairly limited.
“I don’t think that a serious trade war is in the making. The quantity of goods affected is still small (about 1/6 of one percent of US GDP for the tariffs on Chinese imports). Trump has so far been mostly interested in promoting the interests of America’s biggest corporations, despite occasional rhetoric to the contrary,” he said.
“They don’t want a trade war and neither do the Chinese. Trump doesn’t even want anything that will push stock prices down. So, although Trump is unpredictable, if I had to bet, I would bet there won’t be any serious economic damage coming from trade wars in the foreseeable future.”
Trump threatened on Thursday to up the goods subject to tariffs to over $500 billion.
Glencore, Gertler and Government Corruption
Mineral extraction in Africa has been put in the spotlight over the last couple of days with mining giant Glencore plc receiving a subpoena from the US Department of Justice. This follows scrutiny by the UK Serious Fraud Investigation and allegations of the firm’s dealings with mining tycoon, Dan Gertler, breaching the US Foreign Corrupt Practices Act.
The firm’s partnership with Gertler was first brought to light in the Paradise Papers, with the company buying Gertler’s stake in Mutanda mines and holding an 86 percent stake in Katanga mining, which in turn has a 75 percent stake in KCC – a company Gertler is associated with.
In 2017, Glencore paid $1 billion to Gertler’s Fleurette Group, to boost its stakes in both Mutanda and KCC copper and cobalt mines. In return it was agreed that Glencore would pay royalties to Gertler’s companies at a rate of 2.5 percent.
This agreement ended last December, after the US Department of Justice imposed sanctions on Gertler for malpractice regarding alleged Human Rights abuse and promoting corrupt practice. Following this, Glencore stopped paying royalty fees and severed all ties with Gertler earlier on this year. Soon after, in March, Gertler sued two Glencore plc subsidiaries for a total of $2.9 billion worth of royalty payments.
The issue here is not the sum Glencore were being told to pay – rather – the firm were put into a Scylla and Charybdis scenario. On the one hand, they could not transfer money from their US-based accounts to pay off the backlog of royalties, as this would be in breach of the US sanctions, which blocked US institutions from having dealings with Gertler. On the other hand, the Democratic Republic of Congo is the largest exporter of cobalt, Glencore is the largest cobalt-mining company in the world, and Gertler has the power to decide who is able to mine in the Congo.
As stated by the US treasury, “Gertler has used his close friendship with DRC President Joseph Kabila to act as a middleman for mining asset sales in the DRC, requiring some multinational companies to go through Gertler to do business with the Congolese state“.
Gertler earned his fortune when he moved to the Congo in 1997, setting up a deal to mine diamonds with the current president’s father. Once this deal collapsed, Gertler maintained a close relationship with current president Joseph Kabila, and now has large stakes in the country’s copper and cobalt mining sectors, as well as sway to decide who else is allowed to mine in the country. Such an arrangement has persisted for almost two decades, with Gertler allegedly paying off ministers with sums reported to be in the tens of millions of dollars; though the Congolese state has lost an estimated $1.36 billion from the undervaluation and sale of mining rights to Gertler alone.
As such, Glencore was put in an impossible position. In the end they resorted to transferring funds to non-US accounts and paying off Gertler in euros rather than dollars. The result of this action was Tuesday’s subpoena by the USDOJ, which accused Glencore of money laundering.
The company “[…] is reviewing the subpoena and will provide further information in due course as appropriate”, said a Glencore spokesperson. However, their actions were most likely deemed necessary in order to protect their cobalt mining interests in the Congo. It is thought that Glencore will fare well during their trial, as they are a large firm with experience in dealing with legal disputes regarding mining in high-risk areas.
RBC Capital Markets have been questioned for their optimistic ‘Buy’ stance on Glencore stock. However, should the trial go their way, they will be able to continue with business as usual, with their share price currently sitting at below-normal levels due to the outcry surrounding the subpoena. However, if their business is somewhat disturbed by a negative result in the trial, their dominant stake in the world cobalt market means that cobalt prices will only rise past their current record levels, which will boost their earnings per share (EPS).
Gertler operates outside of US and UK jurisdiction but effectively has a monopoly on the largest national reserve of cobalt in the world. Glencore will do what they deem necessary to protect their interests – this not being the first time they’ve circumnavigated international law. In the 1990s they were criticised for allowing child labour in their African mines and trading with apartheid South Africa. More recently, the firm have come under fire for ignoring sanctions on Iran and trading with Iraq under Saddam Hussein’s leadership, thus their dealings with Gertler are almost overshadowed by the controversies they have escaped in the past.
Uranium trader Yellow Cake has AIM debut
Yellow Cake plc (LON:YCA) announced its first day of trading on the Alternative Investment Market of the London Stock Exchange.
Preceding this move, the firm raised £151 million through their IPO, with an oversubscribed placing and subscription of the 76.2 million ordinary shares, priced at 200p a share.
Yellow Cake plan to use the proceeds raised from the IPO to buy 8.1 million pounds of uranium from its supplier Kazatomprom. Their contract price is $21.01 a pound, which is 7.5 percent below uranium’s market spot price.
“Due to an exceptional set of circumstances, uranium is one of the few commodities yet to recover from the recent commodities bear market and we believe that uranium is currently fundamentally and structurally mispriced,” said Yellow Cake CEO Andre Liebenberg.
He added, “Yellow Cake’s long-term supply contract with Kazatomprom has allowed us to secure a highly significant and strategic position in physical uranium, at a competitive price, and to offer that exposure to a potential resurgence in the uranium price to investors, while avoiding direct exposure to exploration, development, mining and processing risk.”
Peter Bacchus, Chairman and Chief Executive of Bacchus Capital said, “The highly successful initial public offering of Yellow Cake demonstrates the depth and breadth of interest emerging in uranium as a commodity, and reflects the U.K. market’s continued strong support for the natural resources sector where an opportunity presented is on-theme, clearly articulated and compelling in nature.”
The company’s share price has remained steady throughout the day, ranging from 193-200p, the last five trades on LSE’s AIM were between 198-199p, and the stock is currently trading at 198p.
Purplebricks’ share price and profits fall following expansion
Purplebricks’ (LON:PURP) share price has dipped alongside another year of losses for a company playing a high-risk strategy, with large-scale investment to expand their operations on an international scale.
The hybrid agency reported a pre-tax loss of £26 million for the year to April, this is up on the £5.1 million loss the year before. UK figures showed an adjusted Ebitda of £8.1 million, which is up from £1.7 million the year before. However, their overseas ventures suffered losses of £11.8 and £16 million in Australia and the US respectively.
“Whilst the markets in the UK and Australia have been and continue to be challenging for the industry, with overall transaction volume and sentiment down year on year, we have managed to gain market share, increase revenues and grow customer engagement in all three countries in which we operate.” said Michael Bruce, chief executive of Purplebricks.
Figures haven’t yet been released for their expansion into the Canadian market, which was their opening gambit of 2018. This move came after the $29.3 million acquisition of real estate agents DuProprio. Also earlier in 2018, Purplebricks sold an 11.5 percent stake to German publishing group Axel Springer for £125 million.
“We are confident that Purplebricks’ market leadership will continue, given the strength of its brand, the continuing investment into team, technology and processes and our £153m war chest for global growth, following the strategic investment by Axel Springer,” added Mr Bruce.
The firm’s revenue increased from £46.7 million to £93.6 million in the last year. Their share price dropped 4.7 percent to 303.65p in the first hour of trading, and Peel Hunt reiterated their ‘Buy’ stance on Purplebricks stock.
Anglo American shares rally amidst Glencore controversy
Anglo American plc’s (LON:AAL) share price has rallied this morning, with talks to sell part of its African operations to Vedanta Resources (LON:VED) a stake sell-off to Royal Bafokeng Rasimone Platinum (JSE:RBP), and buyers moving over from rival Glencore plc (LON:GLEN).
Vedanta has made an offer of an equivalent £5.3 billion, via a shares swap, to take control of Anglo American’s South African business. Vedanta chair Amir Argawal already owns a 20 percent stake in Anglo American, and seeks to expand this after buying out Vedanta’s minority shareholders for £800 million.
“It could happen, whether it makes sense depends on the numbers. There will probably be a significant equity component given that Mr Agarwal is a big holder of equity but how that pans out is difficult to see,” said Hargreaves Lansdown analyst Nicholas Hyett.
Additionally, Anglo confirmed this morning that its subsidiary, Anglo American Platinum, has sold its 33 percent interest in Bafokeng Rasimone Platinum Mine for $135 million, in an effort to focus capital into its own-managed mining projects.
Further, it has been suggested that the ongoing investigation into the dealings of Glencore plc have pushed investors towards Anglo American, with the firm’s subsidiary, De Beer, reporting an increase of $34 million in diamond sales in its fifth sales cycle, compared to last year. The company’s share price has increased this morning, up 2.78 percent or R842.00. Analysts from JP Morgan Cazinove and Morgan Stanley have reiterated their ‘Overweight’ classification, while Citigroup and Credit Suisse reiterate their ‘Neutral’ stance.