POUND RALLIES AS BREXIT TRADE TALKS RESUME

POUND RALLIES AS BREXIT TRADE TALKS RESUME

This week we have learned once again that a deadline is never really a deadline when it comes to Brexit. Boris Johnson’s self-imposed deadline of 15th October to agree a deal came and went without said deal, followed by a declaration that there was no longer any point in talking if the EU weren’t serious. Following a little manoeuvring by Michel Barnier, designed to appear to give a little ground to the UK, and the talks were back on this week. The pound duly rallied causing the export heavy FTSE 100 to fall.

Meanwhile, chancellor Rishi Sunak’s hopes of reducing government spending took a blow as he was forced to increase aid for businesses and employees due to the reintroduction of localised coronavirus restrictions. With government borrowing running at three times the previous record high level, the chancellor has also abandoned plans for a three-year comprehensive government spending plan. Instead Sunak has been forced to settle for a one-year plan to avoid any more finely crafted policies being put through the shredder due to the coronavirus outbreak.

The government continues to borrow money at record levels. Between April and September, the first half of the government’s fiscal year, the government borrowed almost three times more than for any period since records began. In total, the government borrowed £246bn over this period, pushing debt to GDP to 103 per cent, although this level of borrowing is less than the Office for Budget Responsibility had predicted as the drop in GDP and tax receipts have been smaller than expected.

Government borrowing is slowing down but only slightly. Borrowing for the month of September was £25.2bn, £10bn higher than last year and more than any September since 2008. The government’s furlough scheme finishes this month and this should have seen government spending begin to drop. With more areas of the country experiencing greater restrictions to counter the spread of Covid-19, the chancellor has already been forced to increase government financial support for businesses and employees and this is likely to increase again if more of the country is forced in to lockdown once more.

COMMODITIES: COPPER HITS 2-YEAR HIGH ON CHINESE DEMAND

Copper and other industrial metals are benefitting from China’s rapid recovery from the coronavirus. The price of copper hit $7,000 a ton this week, it’s highest level in two years, driven by strong demand from China and expectations that ‘green’ stimulus measures will see further growth in demand.

Last month China pledged to become carbon neutral by 2060 and this is expected to see a shift towards renewable energy, such as wind, solar, batteries and electric transport – which all need large amounts of copper for electric wiring. The price has also been boosted by disruption to production caused by coronavirus. Government restrictions have seen production by Chilean miner Antofagasta fall 4.6 per cent in Q3. Other industrial metals have also seen their prices rise in recent months. The price of metals such as zinc and tin fell sharply in March but they have regained those losses and are trading at their highest prices in 18 months.

EQUITIES: BOOHOO PAYS THE PRICE FOR POOR GOVERNANCE

Online fashion retailer Boohoo is facing more problems linked to oversight and management of its suppliers as its auditor abruptly resigned this week causing its shares to tumble 20 per cent. Boohoo had been one of early winners in lockdown

as it experienced a surge in sales. But its share price collapsed in July after it was alleged to use a number of suppliers which routinely underpay their staff. The departure of KPMG, which has been auditor since 2014, is the latest setback for the firm following criticism of the purchase of a rival firm set up by the son of one of Boohoo’s founders, as well as criticism of the very generous bonus structure for senior executives.

An independent report confirmed the underpayment of workers making its clothes is widespread but found that Boohoo was not benefitting from the practice and its share price had mostly recovered from the sell-off. With interest in ESG investing on the rise Boohoo is an object lesson for what can happen if a company has poor governance.