“At the heart of the deal was a great work of fiction,” said the man who could never be deemed a quiet American, President Donald Trump. He was talking about the Joint Comprehensive Plan of Action (JCPOA), a deal brokered by his predecessor’s administration between Iran, the European Union and six individual nations: the US, the UK, China, France, Russia and Germany. The deal stopped Iran from developing nuclear weapons in return for the relaxation of a raft of sanctions against the country.
President Trump believes that the JCPOA fails to adequately inhibit Tehran’s weapons-development ambitions. His decision to break ranks with his allies and withdraw from the accord pushed the oil price higher, because curbing Iran’s ability to export oil is likely to limit global supplies. Brent crude closed at $77.23 per barrel on Thursday, its highest level in three-and-a-half years. Shares in oil companies also benefited from the news. Energy was the best-performing sector in the S&P 500 this week, with the wider index gaining 2.2%.
Italian investors unsettled
Meanwhile, it appeared that Italy’s politicians are finally approaching the heart of the matter as they attempt to form a coalition government. They have been locked in sometimes acrimonious discussions since March’s general election in Italy failed to reveal a clear winner. Investors didn’t welcome the news, however, given the perceived extremist character of the two parties concerned, Five Star and League. The former has a populist agenda, while the latter is far-right in its policies; both are Eurosceptic in nature. Italian shares were slightly down, while the FTSE World Europe (ex UK) index could only muster a gain of 0.9%.
UK equities fared better, with shares in large companies, as measured by the FTSE 100 Index, rising 1.8%. Many of its constituents earn a high percentage of their profits abroad, so a drop in sterling gave them a boost, as a weaker pound makes their products cheaper for international buyers. The UK currency fell against the dollar and the euro after the Bank of England decided to keep UK interest rates on hold. Previously, the Bank has been likened to an “unreliable boyfriend” for hinting at increases ahead of its rate-setting meetings and then failing to deliver. This time, the Bank cited temporary weakness in the UK economy as a result of the “Beast from the East” as the reason for keeping rates on hold.
A bigger bite of the Apple
Shares in the world’s biggest company performed well this week, after Warren Buffet revealed that his investment firm owns a bigger stake in it than was previously thought. Berkshire Hathaway’s holding in Apple is thought to amount to around 5% of the latter’s shares, after it bought 75 million of them in the first three months of 2018. The iPhone-maker’s share price closed at $190.04 on Thursday, a record high.
Finally, Swiss food company Nestlé was celebrating having brewed up a deal with coffee shop-giant Starbucks. Bean counters valued the deal, which allows the Nespresso-maker to sell Starbucks’ products around the world, at $7.15 billion.
Trump-related sanctions on an altogether more effervescent liquid than oil also made the news this week. Irn Bru, the non-alcoholic beverage known to many as “Scotland’s other national drink” has been banned at Turnberry, the US President’s luxury golf resort in Ayrshire. It seems staff are worried about spillages of the famously bright orange-coloured soft drink staining expensive carpets in the hotel. Ralph Porciani, the general manager, told a local newspaper that he could no longer run the risk, saying “We can’t have it staining when to replace the ballroom carpet would be £500,000 alone.” Guests may have to resort to sampling some amber nectar instead. Slàinte!
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