On Wednesday a “new phase” of trade relations between the US and the European Union (EU) was hailed as a breakthrough. US President Donald Trump and European Commission Chief Jean-Claude Juncker announced that they would work towards zero tariffs and increase trade in services and agriculture between the US and EU.
The meeting helped to defuse rising transatlantic trade tensions, and resulted in European equities edging higher on Thursday morning. Over the week to Thursday’s close, the FTSE World (ex UK) Index climbed 1.3%.
Shares in UK companies were less impressive, with the FTSE 100 Index falling 0.2%. Dominic Raab, the new Brexit secretary, told MPs this week that the UK will remain under EU laws for an additional 21 months after leaving the union. He argued that maintaining EU law through the implementation period was necessary to give “businesses greater certainty, giving the public finality with respect to our relationship with the EU and it provides for the appropriate means for paying the financial settlement”. The move has led to further criticism that the UK’s exit from the EU at the end of March next year will be ‘Brexit in name only’.
From accommodative to active
Next week’s meeting of the Bank of Japan has become a global must-watch as speculation grows that it may tweak the country’s monetary policy, moving away from its current accommodative status to a more active position. It’s likely that the change would be an effort to reduce the side effects of the current easing on Japan’s struggling banking sector. In recent years, Japanese investors have tended to favour US and European markets, as domestic returns have been low. The potential policy tweak therefore carries implications for global bond markets, as higher domestic yields may weaken Japanese investors’ appetite for foreign assets. Japanese equities performed well, with the Topix Index finishing up 1.2% at Thursday’s close.
Not so fly
Turning to corporate news, Ireland’s Ryanair announced that it will cut its Dublin-based fleet by 20% as a result of strikes over pay that have seen hundreds of flights grounded. The decision is thought to affect as many as 100 pilots and 200 cabin crew, with the budget airline suggesting it may move roles from Ireland to Poland. Investors were unenthusiastic about the news and Ryanair’s shares were down more than 9% over the week.
Facebook’s executives revealed disappointing second-quarter earnings and future forecasts this week. Shares fell by 24%, in one of the largest-ever after-market drops, reflecting investors’ surprise at the news. David Wehner, Facebook’s chief financial officer, forecast a significant slowdown in user growth for the rest of 2018. Wehner said that there were several factors that could be attributed to this slowdown, including privacy, new advertising formats and currency.
Heinz had a bit of a stinker this week. An advert for their trademark product, Heinz Beanz, has been banned for a second time in the UK, after breaching advertising regulations. The commercial in question features a man bragging to his family that he is being healthy by drinking a protein shake, to which his wife responds by eating a bowl of Heinz Beanz. The advert ends with a caption “High in protein. High in Fibre. Low in Fat”, followed by “Good for you, without going on about it”. Heinz has bean here before, however. The original advert was prohibited for making a comparison between the nutritional qualities of the baked beans and a protein shake – a no-no under UK Advertising Standard Authority rules. The regulator says the new version still doesn’t meet its standards and Heinz has responded by saying it does not plan to run the advert again. Seems like it’s going to become a has-bean.
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