It’s kind of like Glastonbury.
Our newsroom for November 1st 2018: The UK autumn budget is announced, the stock market is trembling, and Lufthansa can’t seem to take off.
Spending some coin.
Parliament is buzzing these days with the heavily anticipated Autumn budget. It’s like opening day at your favourite music festival, but for accountants and lawmakers.
The UK budget is delivered by the Chancellor of the exchequer, Sir Philip Hammond, and outlines how the UK gov’t will collect and spend its money. So, what did we learn on Tuesday?
The digi-tax is here. For a long time, companies such as Amazon and Facebook have been criticised for the small amount of tax they pay in the UK. But new taxes are being put in place that will apply to big tech firms. What else was announced? A £500mln Housing Fund has been created to tackle the UK’s housing crisis, and an extra £20.5bn for the NHS over the next five years.
The dog days are over? This budget as “an end to austerity” and that the gov’t was ready to invest in vital services like education, security and healthcare.
Mixed reviews. Many think this budget is like a tiny band-aid on haemorrhaging wounds like affordable housing and the NHS. Others are more optimistic and think this is a step in the right direction. And finally, some believe this is irresponsible spending that will lead to deficits and higher taxes (probably the accountants).
Want to read a neat little summary? Check out this neat little summary here.
It’s scary out there.
Oh god… please… make it stop. Halloween horror stories haven’t been the spookiest part of October for many investors. The stock market though, now that’s been scary.
In fact, it’s been one of the worst months for investors since the financial crisis of 2008. The STOXX50E, Europe’s benchmark index, dropped over 6% in only a month.
Why is this happening? This is part of a bigger trend, where developed markets are slowing down as interest rates increase alongside fresh fears over trade wars, volatile oil prices, and uncertainties across Europe.
Why is the Fed increasing interest rates? The US Federal Reserve (ie. US central bank) is intentionally cooling off the US economy by making borrowing more costly. The US labour market and stock markets have been piping hot for a long time, and the Fed wants to cool things off before inflation creeps up.
Why does this impact UK/European stock markets? The US economy often acts as a bellwether for the world economy. So if Wall Street takes a hit, stocks from London to Frankfurt to Tokyo can take a hit too. In layman terms, it’s one big interconnected global economy.
Lufthansa needs a bit of jazz.
In 1957, Frank Sinatra rocked the music world with his hit single “Come fly with me”. We’ve all heard it, and boy is it catchy.
If only Lufthansa had Franky’s style and could magically convince you to fly more often and spend more money on your tickets. The German airline had a rough quarter, announcing that it was less profitable than anticipated. The stock dropped 9% on the bad news. Ouch.
A rough landing? Lufthansa is struggling in a competitive market and couldn’t adjust to rising oil prices and other unforeseen costs (Read more here).
Business 101… Just hike your prices. Right? Well, it’s not that easy. The airline sector operates on razor thin margins. If you increase your prices too much, without materially upgrading your service, you risk sabotaging your business altogether. It’s delicate, which is why Lufthansa has delayed price increases several times in recent quarters and now telling investors they’ll be increasing them by 2019. The proof will be in the pudding (or strudel).
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This was originally sent to members of our waitlist on Thursday November 1st and prepared by the talented team at Fountain’s London office. Every week, we deliver three amazing stories from the world of business and investing.
