Every week we round up the world’s biggest business stories. This week: volkswagen cheats emissions standards, revised growth boosts the US, the Fed will raise rates, president Xi visits the US, the loonie hits a low, and Greek bank deposits are up.
Volkswagen in trouble
Volkswagen has admitted that 11 million of its vehicles worldwide have an emissions test “defeat device”. Using this device Volkswagen rigged their emissions controls system to comply with environmental regulations in Canada, the United States and Europe. Last Monday the company’s stock price tumbled by 20% and an additional 17% the following day, on Wednesday CEO Martin Winterkorn resigned and the company hired the same law firm that represented BP after the Deepwater Horizon oil spill. Environmental watchdogs fear that other automakers may also have employed similar regulation dodging tactics. BMW has already been implicated in a similar scheme and others may follow.
New CEO incoming
Porsche executive Matthias Mueller is expected to replace Martin Winterkorn as CEO of Volkswagen. He will be responsible for heading the German automaker through one of its largest crises in its history. Consumer and shareholder confidence have been rattled by the emissions scandal and Mueller will have to work hard to restore both, as well as negotiating a growing number of lawsuits. Following the sacking of Winterkorn VW has promised further consequences for employees linked to the scandal.
Growth in the US
Good news for the United States as revised figures indicate the world’s largest economy grew at an annual rate of 3.0% between April and June. Previous figures had suggested that growth was closer to 3.7%. The Commerce Department has attributed this increase to an unexpected surge in consumer spending.
Rate raise still to happen
Despite surprising investors by holding rates earlier this month, the Fed is still on track to raise rates this year according to Janet Yellen. Yellen’s decision to delay a rate rise was the result of fear over the health of the global economy. The US is edging closer to its 2% inflation target. Inflation has been suppressed by diminishing commodity prices, especially oil. Yellen, 69, delivered the decision during a speech at the University of Massachusetts.
Japan’s Nikkei index recovered from 3% losses on Thursday by ending Friday 1.8% up. Shares in Japanese electronic manufacturer Sharp fell 10% following an announcement that the company is likely to report a half-year loss of 30bn yen or $250 million. The USD rose against the yen following Yellen’s announcement that the Fed could raise rates.
Xi visits the USA
Chinese President Xi Jinping has been visiting the United States in a bid to strengthen economic and diplomatic ties. China’s economy has faltered recently but the country remains an economic superpower. In addition to meeting with President Obama Xi delivered a speech to tech executives including Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg and Apple’s Tim Cook. Xi promised to strengthen protections on intellectual property in China – a contentious issue of late – and to make it easier to invest in China.
Sportswear giant Nike reported a 23% increase in profits in the 3rd quarter of this year. Rocketing sales in China have boosted profits to $1.18bn USD. The rise comes despite concerns over the future of the Chinese economy. Nike has now beaten profit expectations for 9 consecutive quarters. Shares in the company were up 7.5%.
Blackberry will release its first Android phone called the Priv – a reference to the company’s reputation for preserving privacy. Previously the Canadian tech company had utilised its own operating system but the Priv will give the user the option to run on either Android or BB10. Similar to past designs phone will have a touchscreen as well as a keyboard. The announcement follows a 46% revenue drop from $916 million last summer to $490 million this summer well below the $611 million predicted by analysts. Despite disappointing revenue the company posted a $51 million profit compared to a $207 million loss in the same time period last year.
Loonie hits a low
The Canadian dollar hit an 11 year low on Thursday before rebounding to close the day at 75.09 cents US. The loonie has been in decline since May due to falling commodity prices and rate cuts by the Bank of Canada.
Greater deposits in Greece
Share deposits into Greek banks rose 0.25% in August. A small number but it ends a 10 month run of falling deposit figures. Household and business debt meanwhile rose by 305m euros but remains at decade-low levels.
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