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Week in review: Manchester May-day
British Prime Minister Theresa May used her keynote speech to deliver a powerful message to the Conservative Party’s annual conference in Manchester this week. That message? “Bui_ding a c__ntry tha_ _orks _or ___ryon_”.* Mrs May’s speech continued against a backdrop that was literally falling to pieces, one letter at a time, and was accompanied by a prolonged coughing fit and an interruption from ‘comedian’ Lee Nelson.
That aside, the PM’s speech contained elements that moved markets. Most notably, she promised action on soaring household energy bills, with the publication of a draft bill for an energy cap as early as next week. A minority of savvy consumers in the UK switch energy suppliers frequently to take advantage of the best deals on offer at any time. But most do nothing, and are rewarded for their loyalty (or apathy) by being placed on the ‘standard variable rate tariff’ – usually the most expensive plan offered by the supplier. News of the proposed cap on such tariffs sent the energy sector sharply lower. Shares in British Gas owner Centrica lost 6.5% in the wake of the speech, while rival SSE fell 3.5%.
Meanwhile, sterling was set to deliver its worst weekly performance in a year after Mrs May’s speech sparked uncertainty over the prime minister’s future. The pound was down nearly 2.5% against the US dollar in early trading on Friday.
Stand-off in Catalonia
The ramifications of last weekend’s referendum in Catalonia have been keenly felt in Spain’s equity and bond markets. The vote – which was ruled illegal by Madrid – was overwhelmingly in favour of independence, and the Barcelona-based Catalan government has threatened to secede in the coming days. The Ibex-35 index hit lows last seen in March early in the week, while the yield on Spanish 10-year government bonds climbed to its highest level since March. Financial stocks have been hit hardest, with banks based in Catalonia – notably CaixaBank and Sabadell - feeling the pain most acutely. Sabadell has decided to move its legal headquarters out of the region, and CaixaBank is thought to be considering its options.
Taxing times for Amazon and Apple
Tax avoidance by multinational companies moved back into the spotlight. This week, the European Commission ordered Amazon to pay €250 million in back taxes after its competition watchdog ruled that the online retailer had benefited from nearly 10 years of illegal state support from Luxembourg. Margrethe Vestager, the European competition commissioner, said that under a ‘sweetheart’ deal, Amazon had been allowed to pay four times less tax than other local companies. Luxembourg issued a statement rejecting the ruling.
Apple’s favourable tax treatment courtesy of Ireland also hit the headlines again. More than a year after the commission ordered Apple to pay a record €13 billion in back taxes, no action has been taken. Ms Vestager is now taking the case to the European Court of Justice to force Ireland to implement its decision. Ireland described the ruling as “regrettable”, and Apple is set to appeal. This week’s actions are also likely to rekindle tensions with the US Congress, which said last year that the decision could undermine foreign investment.
US stocks hit new high
All three benchmark US equity indices touched record highs this week, after a report showing that an index of services sector activity hit its highest level since 2005, boosting optimism on the strength of the US economy. The S&P 500 index finished 1.30% higher in the week to Thursday’s close. In the UK, the FTSE 100 index rose 1.83%, while the FTSE World Europe Ex UK index finished the week up by 0.74%.
And finally…
Professional rugby union players are a hardy breed, and injury lists are accordingly lengthy. But last week, Ospreys hooker Scott Baldwin joined the ranks of rugby’s fallen for the most unlikely of reasons. A clip shared widely on social media shows Baldwin sticking his hand through the bars of a cage to stroke a lion at a South African game reserve. The Wales internationalist was subsequently rushed to hospital where he had to swallow his pride and have some stitches. He missed an upcoming game against (ironically) the Cheetahs, who mauled his team 44-25. Ospreys’ coach Steve Tandy commented: “I don't know what sort of wildlife show Scott has been watching where you can pat a lion on the head as if it's a kitten.” Perhaps he’ll have a new claws added to his contract banning such activities. Meanwhile, Baldwin’s Wikipedia page has been amended to reflect his painfully-won status as ‘amateur lion tamer’.
*(For those who are not Wheel of Fortune fans, the backdrop to the conference stage originally read: “Building a country that works for everyone”.)
