Another £20bn
Savings sought
George Osborne is relentless in his zeal for cutting back the scope of the state. After one parliamentary term of fairly savage cuts to public spending, the chancellor has begun this term in enthusiastic mood. This week he will set out where he thinks there is another £20bn-worth of fat to be trimmed from the public sector. Despite already slashing the government's property footprint - since 2010 it has vacated more than 2,000 buildings - public property is a focus of the latest cost-cutting plan, with Mr Osborne asking local authorities and central government departments to identify property that could be sold off, with a view to making enough land available for 150,000 new houses.
Tarnished
Gold price slump
Gold is normally regarded as a safe haven in times of strife, so why are investors avoiding the yellow metal despite the ongoing uncertainty in the markets? The price of gold suffered what many described as a 'flash crash' at the beginning of this week as it slumped to a level not seen for five years. Year to date, gold has slipped more than 6 per cent as demand from emerging markets has waned and its age-old safe-haven role has been shunned by investors. Analysts are struggling to see where the next catalyst will come from, and few are predicting a rapid return to recent highs.
Bric bank
New launch
Watch out World Bank. A second source of investment funding for emerging markets was created this week in Shanghai. There, Russia, India, China, Brazil and South Africa launched the New Development Bank with $100bn of seed funding and equal voting shares for its five founders. It matches the lending power of the recently launched Asia Infrastructure Investment Bank but will lend outside of Asia wherever in the developing world funding is required. Both institutions are aiming to supplant institutions such as the World Bank by aiming to be more nimble in their decision making.
Toshiba shock
Chief goes
The reputation of corporate Japan had only just been getting over the scandal of concealed losses over many years at Olympus. But now another venerable Japanese technology name, Toshiba, has dealt it a further hammer blow. This week, its chief executive, Hisao Tanaka, stepped down after an investigation found that he had contributed to what he called "the biggest erosion of our brand image in our 140-year history". The investigation found that Toshiba's profits had been overstated to the tune of $1.2bn over a period of seven years from 2008 with the knowledge of Mr Tanaka and vice-chairman Norio Sasaki, who joined five other board members in stepping down this week.
Greek relief
Banks reopen
Greeks were finally allowed into their banks this week as the banking system was reopened, but restrictions remain on the amount of money that can be withdrawn. After weeks of queueing at ATMs, the banks reopened their doors on Monday but capital controls remained in place, which meant no one could withdraw more than €420 a week from their account as the government sought to keep a lid on capital flight. The system was unblocked by the release of funds from Europe after the Greeks agreed to push on with talks over a third international bailout, although much of the money released to Greece was immediately moved on to satisfy anxious creditors elsewhere.
Deficit delight
New low
Improved tax receipts and a stronger employment market contributed to the UK government's borrowing falling to its lowest level in seven years in June. In a boost to the government, public sector borrowing fell to £9.4bn, which was £800m less than last year, although some economists had forecast it would fall below the £9bn level. Meanwhile, the government's total tax take rose to a new high of £13.5bn for the month, the highest recorded since records began in 1997, helped by a near-14 per cent uplift in corporation tax during June.
Chart of the week
Latin American currencies including the Brazilian Real, Chilean Peso and Colombian Peso have fallen substantially over the past six months due to weak commodity prices and a slowdown in their trade with China. This is bad news for UK-listed companies with Brazilian operations. As the graph shows, the value of major Latin American currencies relative to the US dollar have deteriorated over the past six months. The real has performed the worst, losing 17 per cent of its value relative to the US dollar. Over the past two months the Colombian peso has dropped most sharply, now valued at 9 per cent less against the dollar than it was in mid-May. As our recent Brazil sector focus noted, a diverse set of companies – including Aggreko, Aveva and HSBC – with operations in Brazil have suffered as a result of the slowdown.
