May 8th – The BESA Times


Eighteenth Edition - Sunday, May 8th

Every week, a complete snapshot of what happened around the world in the past seven days

 

Notable Headlines

After both Ted Cruz and John Kasich withdrew from the Republican contest, Donald Trump is almost sure to secure the party nomination for this year’s presidential election. Their withdrawal came after they both suffered terrible defeats in Indiana, one of the last states to be contended. The New York billionaire currently has 1053 delegates and will almost certainly pass the threshold of 1237 needed to secure the nomination. However, his journey will not be easy as he struggles to rally the whole party behind him: a number of prominent Republicans including former presidents George H W Bush, George W Bush, House Speaker Paul Ryan and South Carolina Senator Lindsay Graham have already said that they would not back him. Earlier this week, the billionaire caused controversy when he accused China of trade “rape” in a renewed criticism of the Asian country’s trade policies. The billionaire businessman has long accused China of penalizing US trade by manipulating its currency to make its exports more competitive. Recent figures suggest the annual US trade deficit with China has hit a new record of $365.7bn last year. On the Democrat side, Bernie Sanders won the Indiana primary, but not by the landslide that would have allowed him to challenge Hillary Clinton for the Democrat nomination. Nevertheless, the Vermont Senator vowed to remain in the race until the very end.

Banking giant HSBC has reported a less than expected fall in profits of 14% in the first quarter of the year following “extreme levels of volatility”. Profits before tax fell by $7.1bn compared to the same period last year. The bank has cut almost a thousand jobs since January and, according to analysts, it may lay off even more people given this week’s results. However, losses have been less severe than expected given the high market volatility especially in the first two months of the year. The bank said that despite the results and the challenging environment, its core business in Asia was advancing. Other mayor financial institutions such as UBS and Goldman Sachs have also reported similar falls in profits. By contrast, French bank BNP Paribas reported a 3.4% rise in its pre-tax income in the same period.

The European Commission is set to back the extension of the Schengen passport-free travel zone to Turkey as a part of a wider agreement reached last month on the migration crisis. In order for Turks to be able to travel visa-free in the Schengen Area, the country has to meet 72 conditions including the introduction of tamper-proof biometric passports, reform of anti-terrorist laws and data protection. However, according to EU officials, ten of those targets still have to be fulfilled and human rights groups have already questioned the legality of the agreement in light of the country’s poor human rights record. Once approved, the proposal will be discussed by MEPs and national leaders at an EU summit on June the 28th, the day after the Britain’s referendum. Meanwhile, after PM Ahmet Avutoglu’s resignation, Turkish president Recep Tayyip Erdogan challenged the EU’s requests saying “We’ll go our way, you (the EU) go yours”.

 

What to remember of last week's news?

German airline company Lufthansa has said it will slow its growth plans for this year amid growing competition from low-cost competitors. The airline has reported a net loss of €8m in the first three months of the year. However, cheaper fuel prices helped pare the losses. Full-year capacity growth was cut from 6.6% to 6% and Chief Financial Officer Simonne Menne did not rule out further cuts. Despite this, Ms. Menne indicated the company was committed to maintaining its full-year guidance for improvements in earnings. Since the beginning of the year, the company’s stocks have lost 12% of their value. It is not uncommon for airline companies to post losses in the first quarter. However, Lufthansa’s competitor IAG SA, owner of British Airways, posted a six-fold increase in operating profit last week.

New York Stock Exchange owner Intercontinental Exchange will not make a takeover offer for the London Stock Exchange explaining it had been unable to “confirm the potential market and shareholder benefits” of a deal. In early March, the group said it was considering a bid for the LSE. LSE agreed to merge with Deutsche Börse on the 16th of March, which would create one of the largest exchange operators in the world. Earlier this week, ICE boss Jeffrey Sprecher strongly criticised the LSE management for lacking cooperation and said the LSE behaviour had an influence in his decision to abandon the possibility to challenge the merger. In a statement, the London stock exchange answered to his criticism by saying ICE had been provided with the same documentation as Deutsche Börse throughout the bidding process. Meanwhile, a Citygroup analyst claimed that “By stating publicly that the LSE has not engaged with it sufficiently, we believe ICE is putting pressure on LSE shareholders to demand answers from LSE management.” The two companies are currently preparing documents of the merger and a shareholder vote for both companies might come even before the EU referendum in Britain, which, according to some German politicians, might affect the value of this merger to Deutsche Börse. In particular, they fear Frankfurt’s position as a financial center might be damaged as a result of the new company’s headquarters going London, especially if Britain decided to leave the EU. Some big London-based institutional investors on the other hand insisted that Frankfurt could hardly compete with London as a financial center and that the British capital would remain a leading business hub regardless of the referendum result. They insisted the new company would be better-off if it settled there.

In the UK, this week’s local elections in England, Wales, Scotland and Northern Ireland have been marked by a setback for Labour, the largest nation-wide left-wing party. In Scotland, one of their traditional strongholds, the Conservatives came second after the Scottish Nationalists and in Wales both UKIP and Plaid Cymru have made big gains. In London, on the other hand, Labour candidate Sadiq Khan has become the first Muslim Mayor of the town, bringing the British capital back to Labour after eight years of Conservative rule under Boris Johnson. In other parts of south-east England, the Conservatives seem to have lost ground, which may have helped Labour to retain control of many councils and limit their losses. In recent weeks, the Labour party has come under fire after two of its members, including former London Mayor Ken Livingstone, were suspended over allegations of anti-Semitism.

 

A week in the financial markets

 

Our Homemade Article

Goldman Sachs – Follow the Money by Philipp Marties for BESA

 

Understand in pictures...

Moment when Leicester fans celebrated their team’s victory in the Premier League in what was their first win in a top level championship.

 

What to expect for next week?

Zimbabwe’s central bank will start issuing its own version of US Dollars shortly. The country first introduced the American currency in 2009 following a period of hyperinflation.

IMF head Christine Lagarde urges European countries to start Greek debt talks after defining the country’s budget surplus target for the year “unrealistic”.

Figures that will be published next week may show a slowdown of UK growth rate. This can be explained by Brexit fears as well as other regional factors.

 

Did you know?

This week, Australian entrepreneur Craig Wright has claimed he is Satoshi Nakamoto, the pseudonymous inventor of Bitcoin. This brings to an end years of speculation on who invented the digital payment system. At a meeting with the BBC, Mr. Wright supported his statement by signing messages using cryptographic keys used at the beginning of the currency’s development. He also said cryptographer Hal Finney helped him set up the digital payment system. Following his coming out, a number of individuals in the Bitcoin community including Bitcoin Foundation director Jon Matonis have stated they were convinced by the entrepreneur’s claims. Several media organisations had long tried to find out who the inventor of Bitcoins was and Craig Wright had been indicated as a possible candidate in December last year, after two magazines obtained documents allegedly proving his involvement in the project. However, some people expressed doubts about the veracity of his claims: Surrey University professor Alan Woodward said: “He claims to be displaying proof that he has the private key for some early transactions – principally I think he is claiming the first to Hal Finney – but no one seems to be able to decode the key to prove it independently.” To find out more about Bitcoins, take a look at our latest research paper: The Rise of a Digital Currency Era.

 

WRITTEN BY ANDREA STRAZZI LIVERANI FOR BESA

PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT

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