Join our community of smart investors
OPINION

SEVEN DAYS

SEVEN DAYS
July 24, 2014
SEVEN DAYS

Consumer concern

Fizz goes flat

The corporate earnings season has got under way in earnest in the US and this week saw two iconic consumer companies issue less than sparkling results, although questions remain as to whether disappointing figures from McDonalds and Coca Cola reflect internal issues more than external demand factors. McDonalds saw same store sales in the US drop by 1.5 per cent in the second quarter with global revenues up just 1 per cent at $7.2bn and profits down marginally at $1.38bn. Coca Cola also suffered in the US, which contributed to group sales falling from $12.7bn to $12.5bn and profits down from $2.67bn to $2.59bn.

Lagging behind

UK finances

Despite the rapidly improving UK economy, the public finances do not appear to be keeping pace. The latest borrowing figures for June showed the government borrowed £11.4bn, which is only down by £100m on last year when economists had been expecting a fall to £10.65bn. Over the past three months, government borrowing has risen by 7.3 per cent compared to the same period last year, although this is being blamed by Whitehall on unusual patterns of tax receipts last year. Nonetheless, the reported cancellation of the sale of the government's student loan book could put a further dent in deficit reduction plans.

Apple looks east

China growth

The rapid uptake of Apple products in China, and in particular iPhones and iPads, since it launched its products there in partnership with China Mobile helped to shore up the tech giant's latest quarterly results as consumers in more established markets delayed purchases ahead of what Apple has claimed will be its most exciting product line up for years, expected to launch in the autumn. With a new iPhone coming, and potentially an iWatch, Western consumers have held back. But in China revenues grew by 28 per cent with unit sales up by 48 per cent. Better margins meant the overall net income rose by 11.6 per cent to $7.7bn. Third-quarter revenues are expected to come in the $37bn-$40bn range.

Rate rise coming

Carney hints

Another month, another unanimous 9-0 decision by the Bank of England's Monetary Policy Committee to keep interest rates unchanged at their record low of 0.5 per cent. But what mattered more was the tone set by the governor, Mark Carney, in a speech in Glasgow this week when he said the UK economy is "starting to head back to normal" and that "the bank rate will need to rise" in order to keep inflation within its target range. However, he also repeated his call for any such rises to be gradual and proportionate, and admitted that the economy would not be able to stomach a rapid increase in interest rates with a return to historical norms of 5 per cent a long way off.

Hotting up

Sales rise

The recent spell of warm and settled weather has proved to be a boon for the UK's retailers, according to the latest monthly snapshot from the Confederation of British Industry (CBI). The gap between retailers saying sales rose in July, who accounted for 46 per cent of those surveyed, and those who said sales had fallen, 25 per cent was significantly wider than the +4 score of June. The most promising element was the broad-based uptick in sales with clothing, grocery, furniture and carpets all seeing growth.

Forex probe

SFO acts

The Serious Fraud Office (SFO) has launched an official investigation into manipulation of foreign exchange rates within the dealing rooms of some of London's biggest banks in the latest potential blow to the credibility of the troubled banking sector. The move, which follows on from US investigations and those of the Financial Conduct Authority, came after months of evidence gathering by the SFO. The Forex market turns over around $5.3trn a day and London has a 40 per cent share. RBS chief executive Ross McEwan has already said he fears Forex-related fines for banks could surpass the $6.5bn levied worldwide for Libor manipulation.