• York Investment & Finance

Global Markets Overview: UK

By Hal Bartlett, Analyst at the York IFS Global Market Telegraph

FTSE 100 up this week, Covid-19 vaccine approved in the UK; Sterling appreciates amidst Brexit uncertainty whilst Arcadia falls into administration.

The FTSE 100 has had a stellar week, hitting a 9 month high of 6550.23, up from 6333.84 the previous week (3.42% increase). This is off the back of news that the UK will be the first country to implement the Covid-19 vaccine developed by BioNTech and Pfizer[i], as well as the continuation of Brexit discussions coming into the final month of negotiations before the deadline of December 31st, despite Michel Barnier saying that ‘significant divergences’ remained between both sides. As a result of these discussions, the Sterling has hit its highest value in a year, hitting $1.35 to £1 as a result of investors turning highly negative on the dollar[ii] (due to Biden election and coming out a recession in the US) and this could rise even higher if Brexit talks continue to cause uncertainty about Britain’s trade future.

Arcadia retail group fell into administration this week, becoming one of the most high-profile retail victims of the coronavirus pandemic resulting in over 13,000 jobs at risk[iii]. Arcadia, the umbrella corporation that owns Topshop, Burton, Evans and Wallis, will keep its high-street shops open with no redundancies being made as of yet. Deloitte has been put in charge of a ‘trading administration’ that leaves the existing management team in charge of the day-to-day operations. This isn’t a shut-down of Arcadia per se, they need to find buyers of the company to continue its future operations. Mike Ashley, the chief executive of Frasers Group has expressed interest and Boohoo is thought to be another likely bidder. Not only has the pandemic had a huge impact on Arcadia’s financial position, but the company had been losing market share to rivals such as H&M and Primark and has been slow to invest in e-commerce unlike its competitors. As a result, its share of the UK clothing and footwear market has shrunk by a third over the last decade, according to Euromonitor. This is yet another example of a retail store going into administration, following suit from TM Lewin, Harveys Furniture and Victoria’s Secret, potentially setting the tone for the future months. Given the lifting of lockdown into a tiered system on December 2nd, we will hopefully see a strong ending to Q4 which could salvage lost profits from previous quarters.

Tesco announced earlier in the week that they would be repaying a business rates relief of £535m[iv] granted by the Government earlier in March with other supermarkets such as Sainsbury's, Morrisons and Aldi following suit. This has since totalled to over £1.7bn being paid back to the Government[v]. This is due to the strong sales and profits that succeeded expectations as a result of food stores being able to stay open during Q2 and Q3. The supermarkets originally received a lot of criticism for taking the money whilst continuing to pay dividends to shareholders whilst receiving tax relief, so repaying the grant back appears to be the ethically right decision to make and further allows the Government to reallocate some of those funds elsewhere to smaller businesses and business support schemes.

Brexit discussions have resumed in Brussels after news broke of serious disagreements between the UK and the EU. Lord David Frost, Britain’s chief negotiator has been designated the role of resolving the biggest issue that is currently faced: ensuring fair competition between both sides after the transition period ends on December 31st. The talks are said to be in a ‘very difficult place’[vi], as Eurosceptic MP’s warn Boris Johnson that he should not accept any deal that undermines the UK’s sovereignty; yet France is holding its position on fisheries and competition and threatens to reject any agreement that doesn’t meet its requirements[vii]. Some have said that a no deal exit would be a disaster, as tariffs, quotas and excessive red tape would be added at the EU border when the UK leaves the single market and customs union. After reaching a stalemate on Friday, both sides are looking to come to some sort of mutual agreement before the end of the transition period where both parties are relatively satisfied; however, there are still demands to be met and it looks likely a deal will be made shortly before the deadline, if any deal is made.

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 13.1 in early December 2020.

Reference list: [i] https://edition.cnn.com/2020/12/02/uk/pfizer-coronavirus-vaccine-uk-intl-hnk/index.html [ii] https://www.ft.com/content/b9466baa-9c52-49e9-8c10-58b1abd873d6 [iii] https://www.ft.com/content/4ef13f0a-4815-4640-a4e1-f63ddf57c506 [iv] https://www.ft.com/content/13444e6c-4ed4-48eb-a86d-552158b2c62b [v] https://www.ft.com/content/3184ade2-deb4-4086-98e0-e2fabc5abc8d [vi] https://www.ft.com/content/af0a4b76-66ad-4166-b743-e190327fe42e [vii] https://www.ft.com/content/52b431ce-49d8-42dc-93cf-58e9ae2c7b0e

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