Rolls-Royce reassures UK commitment
Rolls- Royce Holdings PLC (LON:RR) today released a statement confirming it’s continued commitment to the UK following Thursday’s vote to leave the EU.
The engineering giant said:
“Although this is not the outcome the company would have chosen, Rolls-Royce remains committed to the United Kingdom where we are headquartered, directly employ over 23,000 talented and committed workers and where we carry out a significant majority of our research and development”
The FTSE 100 firm also made clear that the UK’s decision to leave the EU will have ‘no immediate impact on day-to-day business’ but has warned that the medium to long term effect of the vote will be dictated by the negotiations and trade deals established between the UK and the EU in the next stages.
In its statement the company also said that overall trading in the first five months of the year has been ‘broadly’ in line with expectations set out in its annual results earlier this year.
The British company’s cost-cutting scheme is ‘on track’ as the company seeks profitable growth as its share price halved leading to changes in senior management. The scheme is expected to produce a stronger performance to the second half of the year.
The Company said:
“As outlined in May, underlying profit before financing charges and tax for the first six months of the year is expected to be close to breakeven, with our performance significantly weighted towards the second half”
28/06/16
UK Loses Triple- A credit rating
Yesterday the UK lost its top AAA credit rating from Standard & Poors and Fitch as a result of the vote to leave the European Union.
The decision arrived shortly after Chancellor George Osborne said that the UK is “about as strong as it could be” to confront future economic challenges.
The ratings agency Standard & Poor said:
“In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK,”
“The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence,”
Rival agency’s Fitch and Moody’s also downgraded the UK’s rating from AA to AA+ having already removed Britain’s status as an AAA rating before the referendum campaign started.
In a statement released yesterday Fitch said:
“Fitch believes that uncertainty following the referendum outcome will induce an abrupt slowdown in short-term GDP growth, as businesses defer investment and consider changes to the legal and regulatory environment.”
“Medium-term growth will also likely be weaker due to less favorable terms for exports to the EU, lower immigration and a reduction in foreign direct investment. An adjustment in the value of sterling and changes in the business environment could also affect growth.”
The loss of a Triple – A rating is the latest in a number of blows to the economy as sterling recently plunged to its lowest point in 31 years following the Brexit vote while the equity markets try to overcome the crisis.
The decision means that Britain’s position on the international market is at a greater risk as the move will inevitably effect how much the government can borrow on the international stage.
28/06/16
Redrow remains confident, shares up over 8 percent
Housebuilder Redrow remains confident in the wake of the European referendum, saying it expects this year’s profit before tax to come in above analysts’ expectations.
The company’s order book for private housing at the end of June stood at £870 million, over 50 percent higher than this time last year, with the average selling price of private homes up 10 percent to £328,500. On these figures, Redrow expects 2016 profit before tax to come in above the £240 million currently expected.
Redrow also confirmed that it expects the UK housing market to be largely unaffected by a Brexit vote, with housing sites remaining “busy”:
“The fact remains that there is a long-term underlying demand for new homes following decades of under-supply. This chronic shortage of housing leaves market fundamentals unchanged.”
Shares in Redrow jumped 8 percent this morning after the statement, and are currently up 2.82 percent at 302.80 (0949GMT).
28/06/2016
Morning Round-Up: FTSE stabilises, Osborne to raise taxes, German carmakers against Brexit
FTSE stabilises after Brexit volatility
The FTSE 100 has rebounded a little this morning after two days of negative trading in the wake of Britain’s vote to leave the European Union, with every stock up in early trading.
The key index slumped 5.6 percent over the last two sessions but is currently up 2.04 percent (0900GMT). Bank stocks, which tanked over 16 percent on the outcome of the vote, are trading up over 3 percent.
Whilst many hope this marks a start on the road to post-Brexit stability, economic figures are still fragile; the pound remains low, trading at around $1.33, and Britain has had its economic rating slashed by two ratings agencies since the vote. Both Fitch and S&P have downgraded the country by one level.
Osborne to raise taxes and slash spending in the wake of Brexit
UK Chancellor George Osborne confirmed on Tuesday that taxes would be raised and public spending cut after the vote to leave the European Union, saying that he had to focus on providing “fiscal security”.
In his first interview since the result was announced, Osborne told the BBC that “we are going to have to show the country and the world that the government can live within its means.”
“I will do everything I can to make it work for Britain in the difficult weeks and months ahead.”
German carmakers say free movement is essential for single market
German carmakers have taken a hard line against Brexit, arguing that free movement of people is a necessity to maintain access to the single market.
Matthias Wissmann, from the German Automotive Industry Association, called free movement of people a “bitter pill” that would need to be swallowed in order to maintain its place in the single market. This goes against the theory peddled by Leave campaigners that Germany would push for a generous trade deal with the UK in order to help their car export industry.
Wissmann continued, “We don’t like to build new barriers… but any bid to secure full access to the single market would necessarily come with conditions. Everyone who negotiates on the British side will understand that.”
28/06/2016
Poll shows post Brexit hiring freeze and redundancies
The majority of business leaders called for a remain vote and the shock outcome of Thursday’s Referendum result has left many feeling anxious about the future of their businesses and investment plans.
HSBC has recently announced that it will move a portion of its 48,000 UK based employees into Paris if the UK leaves the single market in post Brexit negotiations. Furthermore, financial giants such as Morgan Stanley, JPMorgan and BNP Paribas are reported to have already begun plans to reduce the size of their companies in the UK following the vote as fears over London’s status as the main financial capital in the world grow.
Amidst the uncertainty and a market, Chancellor George Osbourne made a public speech before markets opened this morning in an attempt to calm investors in the capital.
“Britain is ready to confront what the future holds for us from a position of strength. Growth has been robust and employment is at a record high. Our economy is now about as strong as it could be to confront the challenge the country now faces,” he said
His speech follows the release of a poll this morning conducted by the Institute of Directors (IoD) which began on Friday immediately after the result that has since polled over 1000 business leaders.
The results from the poll show that 64% of business leaders around the country feel that a Brexit vote will harm their business as results show that post Brexit plans are already on the table with 24% of members planning on freezing recruitment and 5% of companies saying they will make redundancies.
Simon Walker, director general of the Institute of Directors, said:
“Businesses will be busy working out how they are going to adapt and succeed after the referendum result. But we can’t sugar-coat this, many of our members are feeling anxious.
A majority of business leaders think the vote for Brexit is bad for them, and as a result plans for investment and hiring are being put on hold or scaled back.”
The concluding outcome of the poll showed that three quarters of Iod members said their top priority is to protect the British economy following the reaction of the financial markets that has seen the pound drop to it’s lowest since 1985.
27/06/2016
The Corbyn Crisis: who’s in and who’s out
Labour leader Jeremy Corbyn now heads a party in crisis, with nearly half of his shadow cabinet walking out in protest against his handling of the EU referendum.
The Labour leader stood defiant in his position on Monday, despite criticism of his weak leadership during the referendum campaign. Shadow health secretary Heidi Alexander resigned yesterday, with prominent frontbencher Stephen Kinnock following her lead this morning. In a statement, Kinnock expressed his respect for Corbyn as a leader, before saying that his “half-hearted and lacklustre role” in the referendum led him to the “conclusion that [Corbyn is] no longer able to lead our party.”
These resignations were then followed by latest shadow foreign minister Diana Johnson, shadow civil society minister Anna Turley, shadow defence minister Toby Perkins and Wayne David, the shadow Cabinet Office, Scotland and justice minister.
Despite his cabinet’s lack of confidence Corbyn will continue as Labour leader for the foreseeable future, stating on Sunday that he would not “betray the trust” of the people who voted for him and vowed to stand against anyone challenging him for the leadership.
Jeremy Corbyn has reappointed ministers as fast as they can resign, filling at least ten positions so far; these include the promotion of Diane Abbot to shadow health secretary, Emily Thornberry to shadow foreign secretary and Clive Lewis to shadow defence.
27/06/2016
Easyjet shares tank on post-Brexit profit warning
Easyjet shares continued Friday’s downward trend today after issuing a warning on third-quarter profit.
The company have seen demand hit by several issues this year, including French air traffic traffic strikes, congestion at Gatwick airport and the Egyptair tragedy, which led to 1061 flight cancellations.
Pre-tax profit in the three months to the end of June will be £28 million lower than expected, with revenue per seat falling 8.6 percent. The company will provide further guidance on full year profit expectations on July 21st, when it publishes its third quarter results.
“Following the outcome of the EU referendum, we also anticipate that additional economic and consumer uncertainty is likely this summer and as a consequence it is expected that revenue per seat at constant currency in the second half will now be down by at least a mid-single digit percentage compared to the second half of 2015,” easyJet said.
Easyjet are currently trading down 16.37 percent at 1099.00 (0938GMT).
27/06/2016
Post-Brexit Round Up: Osborne supports economy, global shares mixed, hiring will slow
Osborne expresses confidence in UK economy
Chancellor George Osborne said this morning that the result of Thursday’s EU referendum is unlikely to have major effects on the economy, but if it should, Britain is strong enough to cope.
Osborne spoke publicly for the first time since the vote, echoing the opinion expressed by Bank of England governor Mark Carney on Friday that the UK economy is well-equipped to deal with future volatility.
He argued that the UK is currently in a “position of strength”, continuing:
“Our economy is about as strong as it could be to confront the challenge our country now facts.”
Global shares start the day mixed
Global shares are mixed after Friday’s volatility, with Asian shares split and the FTSE opening slightly down.
Both the Shanghai Composite and the Nikkei 225 finished the day on a high, up 1.45 percent and 2.39 percent respectively. European shares opened largely down, with the DAX down 0.45 percent and the FTSE down 0.88 percent.
UK housebuilders have taken the biggest hit since news of the referendum results broke, with Taylor Wimpey and Barratt Developments tanking. However, given Friday’s extreme volatility and dire warnings for the markets in the event of a Leave vote, this range is likely to be a sigh of relief for many.
British companies slow down hiring
British companies are planning to freeze hiring in the wake of the EU referendum, according to The Institute of Directors.
The IoD surveyed 1,000 of its members to find that a quarter planned to freeze recruitment in the near future, with just a third maintaining their current hiring place. 5 percent of members planned to cute jobs, with two thirds saying the outcome would have negative repercussions for their business.
Simon Walker, director general of the Institute of Directors, told the BBC’s Today programme: “Business leaders are very, very concerned. Nearly half of them expect the other member states to punish Britain.27/06/2016
Brexit Leadership odds
In one of the most dramatic and historic nights in British politics, Britain has decided to leave the EU. Speculation has now begun over who will lead the Brexit after David Cameron steps down later this year.
Despite Cameron’s efforts to persuade the public to remain a member of the EU, the nation has voted against his plea by 52% to 48%. In an emotional statement made outside Downing Street this morning, Mr Cameron acknowledged that the country is in need of ‘fresh leadership’ and said he has informed the Queen that Britain should have a new Prime Minister arranged by the start of the Conservative conference in October.
As discussions begin over who will be the next conservative party leader, who are the bookies backing this morning?
Boris Johnson:
As leader of the leave campaign and one of the most recognisable personalities in British politics, former London mayor now stands on firm ground with many MPs backing his leave campaign to take the lead of the party.
Ladbrokes odds: 4/5
Theresa May:
One of few household MPs to keep her head down during the EU debate, the home secretary is regarded as a unity candidate and may be best positioned to challenge the leadership if a Brexiteer is in the running.
Ladbrokes odds: 3/1
Michael Gove:
A formidable figure beside Boris Johnson in the leave campaign, Mr Gove managed to rally plenty of support during his first live TV debate and led to leadership speculation. He has publicly stated that he is not interested in 10 Downing Street – but could he be Boris Johnson’s closest ally if he were to run for leadership?
Ladbrokes odds: 5/1
Andrea Leadsom:
The Conservative MP stunned remain campaigners after her successful live TV debate in Wembley earlier this week, sharing the stage with Boris Johnson. Her calm manner and financially literate speeches gave the former banker an in to a potential career move that could see her knocking on the door of number 11.
Ladbrokes odds: 10/1
George Osbourne:
In previous years he has been dubbed as the most obvious successor to David Cameron. However, a failed campaign alongside his colleges may see the chancellor’s hopes of moving into No 10 slashed. A post-referendum reshuffle may mean he needs to seek a new cabinet position to stand a chance of being a future Prime Minister.
Ladbrokes odds: 12/1
24/06/2016
China’s rising debt – New concerns post Brexit
As the UK decides to leave the Eurpean Union, markets plummet in Asia. This could be especially worrying for China after the country only recently, and as it looks now only for a short time, defeated great concerns about its rising debt levels.
China’s rising debt
Chinese rising debt first became a major concern in 2014 when debt levels reached US$ 28 trillion, nearly 282% of its’ GDP. Only Greece, Portugal, Ireland and Singapore saw greater debt to GDP ratios. China had fuelled its impressive economic rise since the 1990s through foreign investment and exports, but its’ economy had started to slow after a 2007 peak at 14 trillion GDP and fell below US$ 8 trillion in 2014 which caused concern over China’s ability to service its’ debt. Nether the less China has over the past two year managed to defend its’ market position and the first quarter of 2016 saw the highest rate of growth since the end of 2014. GDP has risen above US$ 8 trillion again, leading many to believe that the Chinese economy may be on a way to recovery. However, new gained strength in the economy was once again funded through borrowing, with bad loans being serviced by new loans and the Chinese government investing heavily in construction and investment through a further expansion of credit. Debt levels are still at 240% of GDP and public debt has further risen from 58% in 2014 to 65% in 2016. These figures may even be an underestimate of real levels as local governments, necessitated to borrow due to low tax incomes, often write of borrowing as corporate debt due to legal barriers to local government borrowing.Asian markets plummet
China may have hoped they avoided painful structural adjustments to decrease debt levels for a prolonged period of time, but last night’s Brexit results may destroy any hope that he country has for now escaped the critical stage. Asian markets have started to plummet with Tokyo, Hong Kong and Sydney loosing 7.2 percent, 4.7 percent and 3.18 percent respectively. The Chinese and communist party controlled news wire Xinhua had previously estimated that a Brexit vote would likely put downward pressure on global markets and could cause Chinese markets to drop 5 to 10% and first motions in the market have shown such fears to be true. This development may result in the debate over the concerns around Chinese rising debt to be wide open again, especially considering the costly venture of currency manipulation China was involved in throughout the past two years, which lost China US$ 8 billion of its impressive accrual of foreign exchange reserves.China’s foreing exchange reserves
Like many other Asian countries China started to accumulate foreign exchange reserve after the Asian Financial Crisis in the late 1990s and by 2014 its’ reserves stood close to US$ 4 trillion, which is more than the amount of all foreign exchange reserve of the next six biggest reserves held by other countries combined and equalled nearly half the Chinese GDP. But as of 2016 Chinese foreign exchange reserves stand at only US$ 3.2 trillion and in January this year alone a further US$ 99.5 billion. Much of these losses can be attributed to a miscalculation on the events and American actions post the Global Financial Crisis. Post the global financial crisis, the US greatly depreciated its’ currency through a number of waves of quantitative easing. China, trying to maintain its’ peg to the dollar and keep its’ competitiveness, engaged in major currency manipulation to hinder its’ currency from appreciating. However, the US did surprisingly well in soaking up the added liquidity and by 2014 the dollar was getting stronger again. Not having anticipated these developments, many countries such as Brazil saw themselves in trouble as their currencies suddenly started to plummet. In order for China not to follow Brazil’s path it had to use vast amounts of its’ foreign exchange reserves to prop up its’ currency.What this could mean for the future
The change in foreign exchange reserves, in respect to the 2014 position, may have major consequences for China, should rising debt levels become a concern again. While in 2014, the vast amount of foreign reserves may have calmed investors and assured that confidence in China could be sustained, by now China has already lost much of its’ reserves to prop up its’ currency. Should the talk about China’s debt spark up again in the eye of trembling Asian markets, China may this time not find itself in the position to defend its’ currency and economic position. It remains to see if last night’s Brexit vote is to cause long term downwards effects on world markets and how the Chinese Central Bank will deal with such events.Katharina Fleiner 24/06/2016