Amazon made millions but paid no tax. You can substitute Facebook or Google for Amazon and, these days, you can probably substitute billions for millions but it remains a story that is told countless times. One of the tech giants has reported bumper revenues or profits, and while doing so paid less tax than a moderately successful small business.
With the G7 meeting in Cornwall agreeing plans for a minimum global level of corporation tax, perhaps June 2021 was the month when that finally started to change. There remains plenty of talking to be done and a similar agreement with the G20 which includes Russia and China will almost certainly be needed. However, the first step has perhaps been taken.
Away from the G7 summit, June was another month where countries seemed to be on and off the UK’s green list on an almost daily basis. With another surge in Covid infections among Scottish fans who attended the recent game at Wembley and more big crowds at the final games of Euro 2020, with Wimbledon going on at the same time, another spike in infections cannot be ruled out.
Will that prompt more companies to demand proof of vaccination before they allow staff to return to the office? Morgan Stanley was one of several household names to suggest that unvaccinated staff would not be welcomed in the great return.
June was a relatively quiet month on the world’s stock markets. Two markets in the Far East were down, but only slightly. The rest of the markets we cover made small gains or finished the month at roughly the same levels as they had ended May. As always, let us look at all the facts and figures in more detail.
Of late, it has generally been mixed news for the UK economy with a fairly equal split between good and bad news being the norm. June though, was a month when good news was in the ascendancy. The glass was not half full, it was full, and at times in danger of overflowing.
The month started with the Organisation for Economic Co-operation and Development (OECD) forecasting that the UK economy would grow by 7.2% this year, and by 5.5% next year. By the middle of the month, the CBI had upped the ante by 1%, suggesting that the economy would grow by 8.2% this year, and be back to its pre-Covid level by December.
Manufacturing growth was reported to be at a thirty year high and more than 150,000 new cars were sold in May, up eight times on May 2020 when, of course, showrooms were closed due to lockdown.
The UK signed a trade deal with Norway and Iceland, agreed “the broad terms” of a deal with Australia and is reported to be looking to conclude a deal with New Zealand by the end of August. Talks have also opened on the UK becoming a member of the CPTPP, the Pacific trading bloc which takes in eleven countries including Canada, Japan, Mexico and Singapore.
As you will no doubt be aware, the so-called “Freedom Day” was pushed back to July 19th. Despite this, consumer confidence remained resilient. The Institute of Directors reported that confidence among business leaders was at its highest since the Brexit vote, with the CBI reporting that the private sector was growing at its fastest pace since 2015.
If there was a cloud on the horizon, then it came in the form of worries about inflation. While we can joke about garden gnome shortages in the “And finally” section, there is a serious side to it. A surge in factory prices as firms struggled to source raw materials showed input costs rising at their fastest rate for thirteen years, with the Bank of England expecting inflation to overshoot its target and hit 3%.
There was disappointing news on the nation’s high streets as well. According to a KPMG survey, demand for workers in May rose at its fastest rate for twenty-three years, but the number of staff available to fill those jobs declined at the steepest rate since 2017. McDonald’s was just one example, saying that it wanted to open fifty new restaurants and create 20,000 jobs, but with boss Paul Pomroy saying “it is getting harder and harder to recruit.”
Where does that leave Nissan? The company ended the month with some really good news for the UK economy, announcing the creation of thousands of jobs with a major expansion of its battery plant in the North East. We hope they can find the staff.
Despite the news being overwhelmingly good in June, the FTSE 100 index of leading shares was in a rather more cautious mood, rising by just fourteen points in the month to close at 7,037. The pound fell by 3% against the US dollar, and ended June trading at $1.3805.
June was a relatively quiet month for European news. We have mentioned worries about inflation in the UK section, and it was the same story in Europe.
The BBC reported at the beginning of the month that Eurozone inflation had risen sharply in May to reach 2%, just below the European Central Bank’s target. Prices were pushed higher by a strong rise in energy costs, which pushed inflation to its highest level since October 2018.
With economic activity increasing as Covid restrictions are scaled back, inflation could emerge as a serious problem through the rest of this year.
Apple was the latest of the tech giants to come under investigation by the German regulators, with the Federal Cartel Office worried that Apple’s iOS system gave it undue influence “across several markets.” Apple said it looked forward to having an open dialogue with the FCO.
One market where Europe definitely would like undue influence is the car battery market. By 2030, 40% of all new cars sold are forecast to be electric, rising to 100% by 2040. The latest gigafactory is being built 125 miles south of the Arctic Circle in Sweden on a site as big as seventy-one football pitches.
Both the leading European stock markets had relatively uneventful months. The German and French markets were both up by 1%, closing June at 15,531 and 6,508 respectively.
We have just commented on the European economy gradually re-opening and clearly the same is true in the US. Despite this, the US economy added fewer jobs than had been expected in May. Analysts had been forecasting a figure in the region of 675,000, in the event, employers created 559,000 jobs, although this was still enough to bring the unemployment rate down to 5.8% from the 6.1% seen in April.
Despite the relatively modest increase, President Biden described the figures as “great news,” and went on to expand the investment ban on Chinese firms, stopping Americans from investing in dozens of Chinese firms with alleged military ties. That done, he promptly reversed Donald Trump’s ban on TikTok.
As we mentioned in the introduction, the debate on compulsory vaccinations is only going to intensify. Goldman Sachs has ordered its staff to disclose their vaccination status, while according to an internal memo reported by the Financial Times, Morgan Stanley will ban unvaccinated staff from entering the New York office. Unsurprisingly, the Federal Reserve said that the future direction of the US economy would depend “significantly” on the course of the virus.
One company where the path remains steadily upwards is Facebook, which ended June with a $1tn (£724bn) valuation for the first time. The Dow Jones index did not seem impressed though, and ended the month unchanged in percentage terms, down just twenty-six points at 34,503. The more broadly based S&P 500 index fared better and was up 2% at 4,301.
We have mentioned the G7 meeting above. One of the products of the meeting was an agreement between the UK and the US for closer ties in science and technological innovation in the face of growing competition from China.
This is almost certainly not good news for Huawei, a regular feature in this section, which saw revenue for its UK subsidiary slump 27.5% in 2020 to £913m, with pre-tax profits down from £48m to £36.5m.
Many readers will be familiar with China’s notorious one child policy which was in force until late 2015. The move to two children in early 2016 failed to produce a sustained increase in birth rates, and June began with a major shift in policy as Xi Jinping confirmed that couples would now be allowed to have three children. The cost of raising children in Chinese cities has, so far, deterred many couples from having more than one child.
China’s moves against the pro-democracy movement in Hong Kong continued, as the pro-democracy newspaper Apple Daily was forced to close after twenty-six years. Regulators also had Bitcoin in their sights, ordering banks not to support digital currency transactions and sending the virtual currency below $30,000 (£21,744).
China’s ride-hailing app Didi duly floated on the US stock exchange and ended its first day with a valuation of £68.5bn (£49.6bn), the biggest flotation by a Chinese company in the US since Alibaba. And what of Jack Ma, Alibaba’s co-founder and China’s most high-profile entrepreneur? He was reported to be “lying low,” having once again fallen foul of those Chinese regulators. “He has taken up painting as a hobby,” said his co-founder.
On the region’s stock markets China’s Shanghai Composite index did its best to lie low, ending the month down 1% at 3,591. The Hong Kong market was down by a similar percentage to 28,812, while Japan’s Nikkei Dow index was down just sixty-eight points at 28,792. In contrast, the South Korean index had a good month, rising 3% to close June at 3,297.
There were some interesting snippets of news from emerging economies around the world. Australia’s economy continued its rapid rebound. Boosted by soaring demand for commodities, it grew 1.8% in the first quarter of the year, and GDP is now bigger than it was before the pandemic.
If Australia was rooted in the old economy, El Salvador was firmly in the new, announcing that it would accept Bitcoin as legal tender. However, the World Bank refused to help the country implement the move, citing concerns over transparency and the environmental impact of Bitcoin mining.
Sadly, Brazil passed 500,000 Covid deaths, and in Russia a court banned political organisations linked to jailed Kremlin critic Alexei Navalny, classifying them as “extremist.”
June was a good month for the Russian stock market, which was up 3% in the month to close at 3,842. The Indian market was also up, albeit by only 1%, closing at 52,483, while the Brazilian stock market was unchanged in percentage terms, ending the month at 126,802.
Are you a fan of beef burgers? Then it was certainly ‘good news, bad news’ to start the month for you.
June opened with the news that Kraft Heinz is to invest £140m to allow tomato ketchup, along with mayonnaise and salad cream, to once again be made in the UK. However, a day later came the bad news. JBS, the world’s largest meat supplier, became the latest company to be hit by a sophisticated ransomware attack. Anxious burger lovers, and the FBI, quickly pointed the finger at criminal gangs in Russia. The future of barbecues remains unknown.
The year has seen a steady stream of shortages reported in this section of the Bulletin, ranging from pet food pouches to garden gnomes to chocolate flakes. Now it appears that however long July’s predicted heatwave lasts, we might not be able to enjoy it, thanks to the latest shortage: garden furniture. Richard, an interviewee, told the BBC he was “very upset” that his corner sofa, glass top table and three stools were in a shipping container somewhere, and not in his back garden.
Let us hope Richard was not looking forward to a burger whilst sitting at his new glass top table, too.
An unnamed millionaire, possibly billionaire, is also hoping for a purchase of theirs to prove worth it. They paid $28m (£20.3m) for a seat on Amazon founder Jeff Bezos’s first crewed spaceflight by his Blue Origin company. The winning bid was made at an auction, with the winner joining Mr Bezos, his brother and American aviator Wally Funk on the spaceflight.
May Market Commentary