World stocks lower
It’s been a mixed week; some exceptional earnings results and positive data muted by rising geopolitical tension. US stocks closed on another high yesterday after mixed data; lower unemployment claims but lower new home sales. World markets were broadly down on Friday as tougher EU sanctions against Russia intensified weak confidence in Eurozone business. UK data boosted London’s Stock Exchange though, with official data showing that the country’s economy is bigger than pre-crisis levels. Asian markets saw some rises, driven by the positive US unemployment claims data; Japan, Shanghai and South Korea all gaining. Caution over the Ukraine crisis has eased for Asian investors.
Obama calls for action on tax inversions
The trend for large US companies to buy themselves into lower tax regimes abroad, known as inversions, is ‘wrong’ says President Obama. Speaking at an appearance at a college in California, the President called for action from Congress to halt the practice of “cherry-picking” tax laws and denying revenue to the Treasury. Mr Obama questioned the morality of companies renouncing US citizenship for lower taxes, saying: “I don’t care if it’s legal — it’s wrong.” There is cross-party agreement that inversions need to be tackled, although any legislation is likely to be short term as Republicans are not supportive of a lower corporate tax rate. There is also disagreement about whether any legislation should be retroactive to May, which would mean the recent AbbVie/Shire deal among others would not be allowed to go through. Read the full story.
Murdoch deal in Europe frees cash for another Time Warner approach
Rupert Murdoch’s 21st
Century Fox is set to get a boost for its bidding war chest, with the disposal of its stake in two European pay-TV businesses. The deal would give Fox more than $9 billion with the sale of its stake in Italian and German SKY TV businesses. They would become part of BSkyB, the UK pay-TV company in which Fox holds 39 per cent. It would appear to be a win-win deal for Murdoch and Fox; creating an extra pot of cash for another Time Warner bid, while retaining a large share in an enlarged and more powerful European operation. Read the full story.
Argentina heads towards default
Argentina is set to default on its $1.5 billion payment to creditors in a few days time. Negotiation may be an option, but if that fails the country will miss its July 30 bond payment. With Argentina in recession, a default is not going to help, but the President believes the country could be flooded with multi-billion dollar claims if it negotiates a settlement with the holdouts; meanwhile no payments can be made to those bondholders who agreed restructuring until the debt is paid. There are benefits to both sides in avoiding a default however, so an eleventh hour deal may yet be reached. Read the full story.
Gold set to stay weak for months
Experts are predicting that the price of gold will continue to be low for some months. Chinese demand is weak and gold futures are at a five month low, having seen some highs this year. While tensions in Russia/Ukraine, Iraq, Syria, Israel and more have sent investors to safe havens, such as gold, from time to time recently; they have been tempted back to equities by positive economic data from the US, UK, China and occasionally Europe. However some analysts predict a ‘delayed reaction’ to geopolitical risk and a rebound for gold later in the year. Read the full story.