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Seven days: 16 June 2017

Seven days: 16 June 2017

Government shuffle

Queen's Speech delayed

Just a week ahead of the formal commencement of Brexit talks and Theresa May revealed her cabinet, following last week's surprise election result. Liz Truss has taken over from David Gauke as chief secretary to the Treasury, while he has been appointed work and pensions secretary. Former Barclays (BARC) director Steve Barclay has been appointed economic secretary to the Treasury, the minister responsible for the City of London. The date of the Queen's Speech is uncertain, given that it could depend on Mrs May's negotiations with the Democratic Unionist Party. Mrs May had intended to make the Great Repeal bill an important feature of the speech, laying the ground for the UK's legal exit from the EU.

Coal-fired

Glencore wants Rio's coal assets

The differing attitudes of UK-listed miners towards coal production has been exemplified by Glencore's (GLEN) bid to buy Rio Tinto's (RIO) Australian coal assets. The former has launched a $2.55bn cash bid for Rio's Coal and Allied unit, trumping a bid from China's Yancoal. Glencore has given the Australian miner until 26 June to make up its mind about its bid, or it said it would walk away. The assets are in close proximity to Glencore's existing mine in Hunter Valley in Australia. Glencore is also seeking to buy Mitsubishi's stake in two Coal and Allied mines for $920m.

Punch deal in limbo

CMA steps in

Shares in Punch Taverns (PUB) rose more than three-quarters after Dutch brewer Heineken made a bid for it in December. However it has since been in limbo, after some publicans raised concerns that they would be strong-armed into stocking Heineken's products. Now the Competition and Markets Authority (CMA) has ordered Heineken to put forward proposals addressing its concerns that the takeover will reduce competition in 33 local areas. Heineken has until 20 June to produce its plan, or face an in-depth CMA investigation.

 

WHSmith on the go

Sales up at bellwether

WHSmith (SMWH) seems to be vindicated in its refocus towards travel outlets. The retailer - which is often seen as a bellwether for the health of the high street - reported a rise in sales at its on-the-go outlets of more than 5 per cent on a like-for-like basis during the 15 weeks to 10 June. That's in contrast to its high-street estate, which suffered a 4 per cent drop in revenue during the period. The travel boom is being driven by an increase in global passenger numbers through airports and railway stations as they stock up on drinks, snacks, books and magazines.

 

EU clears the way

Draft law announced

The European Union has announced a draft law giving it the power to move euro-clearing business from London to within the EU post-Brexit. London processes around three-quarters of trades at present, providing thousands of jobs in the city. The EU has proposed that its regulators have the powers to vet overseas clearing houses. Those deemed to pose a "systematic risk" to Europe's financial stability will have to meet a range of requirements to maintain access to the EU market.

 

Fed to raise rates

1.25 per cent in sight

As we went to press the US Federal Reserve looked set to raise the benchmark interest rate a further quarter percentage point to 1.25 per cent, following its two-day policy meeting. A rise would be the second interest rate increase so far this year, following a 0.25 basis point nudge-up in March. Unemployment has fallen to a 10-year low at 4.5 per cent at the end of March, while the economy also grew faster than expected. However, consumer prices grew 1.7 per cent in May, missing estimates of 2 per cent.

 

Oil price slides

Production up

Oil prices drifted lower as Opec revealed crude oil production rose 1 per cent to 32.14m barrels during May. The increase was led primarily by three of the cartel's 14 members: Libya, Nigeria and Iraq, according to Opec's monthly market report. Increases from Nigeria and Libya weren't too much of a surprise as they try to recover from disruption to their supplies. However, Iraq had agreed in December, and again in May, to some of the largest production cuts undertaken by the cartel.

With inflation back on the march there could hardly be a worse time for the wider UK economy for wage growth to begin to contract. But that is what appears to have happened, according to the latest ONS figures, which showed wages in April grew by 2.1 per cent including bonuses or 1.7 per cent on a basic level, compared with CPI inflation during the month of 2.7 per cent.

Inflation has kicked on again since then with May’s CPI figure of 2.9 per cent representing its highest level for four years. Thus yet another head scratcher falls into place for the UK economy, which is already bedevilled with low productivity despite employment being at a record low of 4.6 per cent. Economists will be closely watching spending figures and credit trends in the coming months for signs that a crunch is coming.

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By Emma Powell,
16 June 2017

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