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Seven Days: 9 December 2016

Seven Days: 9 December 2016

Renminbi pressure

Reserves drop

The largest drop in China's foreign-exchange reserves since January has focused attention on the world's second-largest economy. The $69.1bn (£54.8bn) drop to $3.051 trillion in November was a decline of 2.2 per cent from the previous month but smaller than January's 3 per cent drop. The move by the Chinese is likely to prevent the renminbi depreciating too aggressively against the dollar and some analysts believe this could lead to a tightening of capital controls. Some of the drop will have been because of the appreciation of the dollar, which lowers the value of China's reserves in other currencies.

 

Invitation accepted

Microsoft now LinkedIn

Consolidation in the upper eschelons of the tech world went a step further this week after Brussels gave the green light for Microsoft 's (MSFT) $26bn takeover of LinkedIn. This means the deal should close in the coming days, a nice early Christmas present for the software company. Approval had already been granted by regulators in the US, Canada, Brazil and South Africa earlier this year. In return for its blessing, though, Europe has said Microsoft must give other professional social networks access to its Office software and PC users and manufacturers will have the choice to have LinkedIn installed rather than it already being on machines at purchase.

 

Cash back

ONS accounting error

The UK's Office for National Statistics has restated seven quarters of official balance of payments figures after finding a "processing error" linked to data surrounding gold, silver, precious stones, aircraft and ships. This means the UK's trade deficit for 2015 was £6.7bn lower than the £31.9bn previously estimated - equal to a 17 per cent drop. But it wasn't all good news as the error meant the third-quarter deficit this year was £5.9bn larger at £17bn. The revisions were not significant enough to affect headline numbers for economic growth, but the ONS said they would affect some components of the total GDP figures.

 

 

Waning appetite

Foreign capital cautious

The demand for British commercial real estate by foreign investors appears to be waning in the aftermath of the Brexit vote, according to the Bank of England (BoE). Several open-ended funds prevented investors accessing their money immediately after the referendum as the market's erratic movement made pricing assets particularly difficult. While the majority of those funds have now reopened, the BoE still struck a cautious tone in its Financial Stability Report. The value of transactions in the third quarter fell another 10 per cent compared with the prior quarter and is down 27 per cent from a year ago.

 

Oil bubbling

Price recovery

The price of a barrel of Brent crude oil rose above $55 for the first time since July 2015, with traders still optimistic after Opec agreed its first production cut since the financial crisis last week. The international benchmark has fallen back since, with the price hitting $53.9 a barrel at the time of writing. Last week saw the biggest rise in oil prices in more than seven years, with prices surging after the Opec cartel agreed to reduce output by more than 1m barrels a day in an attempt to end a two-year price rout that has hit oil producers' economies.

 

 

High-street runway

Co-op buyout

Tour operator Thomas Cook (TCG) is buying out the Co-operative Group from a 764-store joint venture the pair run together. The retail sites run under either Thomas Cook or Co-operative Travel brands at present but Thomas Cook will move to stamp its name on all the sites post November 2018, until which time it can keep using the Co-op's brand on some. The 30 per cent stake owned by Co-op and a 3.5 per cent stake owned by Central England Co-operative, will be purchased for £50m and £5.8m respectively. The joint venture was formed in October 2011. Chief executive Peter Fankhauser said the move would enable it to better "integrate our stores with our online offering".

 

Leaning tower

Italian banks

It was a dramatic week for Italian bank shares, which took a hit after the outcome of the Italian referendum. The country voted against constitutional reform that would have removed power from the Senate and left the Lower House as the key legislative chamber, which in turn made recapitalisation of its banks harder to achieve. Share prices responded in kind, but on 7 December, the most troubled bank, Monte dei Paschi di Siena, saw its shares rally more than 10 per cent in early trading on the back of reports that EU state aid could be tapped to shore it up.

 

Howard Schultz, chief executive of Starbucks (US:SBUX), has announced he will step down as CEO. As executive chairman, he will focus on developing the coffee giant’s high-end retail outlets. Our chart shows the remarkable rise in the company’s share price, revenue and pre-tax profit in his eight-year tenure.

Mr Shultz joined the company in 1982 and stepped down as chief executive in 2000, moving to the position of chairman, and then deciding in 2008 to return to the CEO role due to his view that the company had lost a bit of direction.

The shares fell 3 per cent on the news but have partially recovered, perhaps partly due to Starbucks’ insistence little would change under Kevin Johnson, the current chief operating officer who will assume the chief executive role. The company used the word ‘continue’ 10 times in its statement about the change.

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By Bradley Gerrard,
08 December 2016

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