BREXIT TALKS MERRY-GO-ROUND AS UK AND EU REMAIN STUCK ON FAMILIAR PROBLEMS
This week we’ve had to suffer through another tedious ‘deal or no deal’ charade on Brexit. With at least three final crunch talks held already, the absolute final final crunch talks are scheduled for the weekend. A deal is still possible, but there are no good choices left for the government. A possible win on fishing and capitulation on a level playing field seems like the only option other than no deal. It wouldn’t be popular with Tory MPs and highly engaged Brexit enthusiasts, but Boris might gamble that he can sell it to the general public. With his popularity battered by Covid, he might decide to play to his parliamentary party rather than the public. It really could come down to the shallowest of political calculations.
Regardless of any deal, businesses and consumers should prepare for weeks if not months of disruptions as new border rules come into force. The challenge of implementing complex new IT systems, recruiting and training thousands of people to use them, and making sure everyone fills in the right paperwork to avoid gridlock at Britain’s ports is immense. These problems will be worked out over time but we’re in for a rough few weeks.
UK: STERLING FALLS ON RISING CONCERNS OF NO DEAL WITH EU
It has been a volatile week for markets as fears grow that the UK and EU will fail to agree a trade deal. Currency markets have been particularly sensitive and the value of the pound has been falling against most major currencies as last-minute talks failed to make headway. The two sides have said a decision on whether a deal can be reached will be taken on Sunday, but Boris Johnson has said there is now ‘a strong possibility’ there will be no agreement.
Despite its recent decline the pound remains close to its year high against the dollar and is more than 8 per cent above the low seen in the aftermath of the Brexit vote. In contrast, sterling has been falling steadily against the euro all year and it is close to its five-year low. The drop in sterling this week has been modest in the context of longer-term movements and suggests there could be a greater drop if no deal can be reached.
US: INVESTOR APPETITE FOR GROWTH TECH STOCKS UNDIMINISHED
The bumper year for US technology stocks continued with the successful IPOs of DoorDash and Airbnb. Both companies saw their share price rocket on their first day’s trading. DoorDash shares jumped 86 per cent, while Airbnb’s share price more than doubled as investors piled in to the latest high growth tech companies to list in the US.
Although the popularity of US tech remains undiminished, there are signs of growing regulatory risks to big tech. This week in the US, the Federal Trade Commission and 46 US states brought a lawsuit against Facebook alleging long-term anti-competitive behaviour, while the EU is set to publish legislation next week threatening to fine tech companies up to 6 per cent of annual turnover if they fail to properly moderate content or vet third-party suppliers. Tech companies are also facing the prospect of greater taxation. France is already working on plans to make tech companies pay more income tax, while the UK is considering adding VAT to the cost of services supplied through platforms like Uber and TaskRabbit.
EQUITIES: TUI HOPES COVID-19 VACCINES WILL SEE IT BOUNCE BACK IN 2021
Travel agent and tour operator TUI is looking to the successful roll-out of coronavirus vaccinations to help it recover in 2021. The company announced a €3.2bn annual loss in its results for the year to end September. It also announced further refinancing from investors and a third aid package from the German government to bring its total government aid to €4.8bn. Earnings for 2020 fell 58 per cent but it is hoping that vaccination programmes will be completed in time for next summer. It plans to operate at 80 per cent of capacity in 2021 and expects to be back to pre-coronavirus levels by 2022.
It has already sold 50 per cent of its May holidays and says prices will be around 14 per cent higher than 2019. Although travel and leisure stocks have produced some of the best performance in the vaccine rally, TUI’s shares remain around 58 per cent down on the year.