MARKETS AMPLIFY GLOBAL HEADWINDS

Working Week Financial Update: 12th – 16th August

This week was another eventful one for global markets. They fell at the start of the week on news that Trump was going to ramp up his trade war with China. They then rose when he decided not to; and plummeted again when weak data out of China and Germany stoked fears of a global recession. So far global GDP is slowing rather than falling, but markets worry that a slow-to-act Fed and a needlessly disruptive trade policy will make the difference between stalling and falling. Hence the extreme reaction to every bit of news in either direction.

Elsewhere, although not unrelated, markets have also begun fretting about negative interest rates. While they aren’t exactly new (the Swedish central bank has pursued a negative rate policy since 2015) they are uncommon. With a possible recession on the way, and most interest rates at or near zero already, we might see a much wider adoption. How effective they’ll be is still unknown. However, while the central bank might be willing to directly pay people to borrow, the same is unlikely to be true of your mortgage lender.

COMPANIES: WILL UBER EVER BECOME PROFITABLE?

Uber’s share price tumbled ten per cent this week after the company’s earnings result failed to live up to market expectations. Following Lyft’s beating revenue expectations (as well as trimming costs!) last week, it was hoped that Uber would do the same. Instead the company posted a quarterly loss of £4.3bn and costs grew by 147 per cent signalling that the company is still very much stuck in traffic. The bulk of the losses stemmed from stock compensation following the IPO in May.

It is understandable that growing companies will need to be given time to become profitable – it took Amazon 14 years to turn green post IPO. What is worrying investors is that the company’s growth has almost stalled. Uber’s core ride sharing business only grew by two per cent compared to the same quarter last year. One bright spot was Uber Eats whose revenues jumped up 72 per cent (year-on-year).

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