G20 leaders meet, H&M Q2, Tories vote for PM
Daniel Garrahan looks at some of the main stories the FT is watching this week, including the gathering of G20 leaders in Osaka, results from retail giant H&M, and the Tory membership voting for a UK leader
Written by Simon Greaves and James Sandy. Produced by James Sandy, Edited by Jamie Han
You can enable subtitles (captions) in the video player
Here are just some of the stories we'll be watching this week. The leaders of the trade war superpowers, China and the United States, will meet at the latest G20 summit in Osaka; the final candidates in the Tory leadership race will go head to head; and there will be half-year results from Swedish retail giant H&M. First up, presidents Donald Trump and Xi Jinping are set to meet at the G20 summit of leading nations in Osaka this week.
The leaders of the United States and China have resumed talks ahead of the meeting even though tensions between the two countries remain high. The economic powerhouses have been fighting a damaging trade war for more than a year, and the dispute escalated in May when both sides raised trade tariffs further. The power of leading tech giants is also likely to be on the agenda.
Ahead of the summit, the chairman of the International Monetary Fund, Christine Lagarde, joined increasing calls to curtail big tax dominance amid worries about security and privacy.
There will be some very important bilaterals. Bilateral discussions is part of what these meetings allow one to have. And the US-China discussions will, in fact, include not just, of course, trade relations, but also security relations. I assume there will be quite extensive discussion of what's happening with Iran and with the Gulf. And right now, that looks very tense, even possibly on the brink of war. So naturally, people will be very anxious about that. Big oil price spikes following wars in the Middle East have led to global recessions before.
I think the key thing the world outside will want is some sense of normality, that people are going to act in a more responsible manner. But I suspect they can't be really very optimistic about it.
Now to UK politics. The Tory leadership race will enter a decisive phase this week. The next leader of the Conservative party and Britain's next prime minister will be elected by some 160,000 party members in a postal ballot. After four rounds of voting, the race is now between former foreign secretary Boris Johnson and his successor in the role, Jeremy Hunt.
So far, the leadership campaign has been dominated by Brexit. Leading candidates have criticised each other's plans to get the UK out of the EU by the deadline of October 31st. Mr Johnson and Mr Hunt have both pledged to strike a new deal with Europe before the withdrawal date, but they disagree on what should happen if a deal isn't reached in time.
Once the new leader and prime minister is in place at the end of July, it's going to be a very fraught period. Both of the contestants are talking about trying to get a deal of some sort by the end of October. Most people think that's totally unreasonable.
Mr Johnson is closer to saying that if we can't get a deal, we'll leave with no deal by October 31st. That raises a lot of problems about whether Britain is remotely prepared for a no-deal outcome. Most people would say it isn't.
Mr Hunt is leaving a little more leeway. He says that if you can't get a deal by October 31st, well, you still just need to go battling on. You don't want to plunge the economy into crisis just because you can't meet that date. But there's an awful lot they're going to have to do to try and somehow bring back a pact from Europe that is going to win a majority of MPs in the House of Commons. It's certainly going to be an extremely fraught period with Brexit absolutely front and centre with the new prime minister.
And finally, investors in family-controlled Swedish fashion retailer H&M will be looking for further evidence that its turnaround strategy is working when the company publishes half-year results on Thursday. H&M's CEO admitted that 2018 had been a challenging year. Despite strong growth in online sales, the company's profits were down for 2017 thanks to heavy investment in logistics during the fourth quarter.
In April this year, first-quarter results from the world's second largest clothing retailer beat profit and margin expectations. The group reported a smaller-than-expected fall in quarterly profits as a result of reduced discounting as margins held their grounds. In other good news for the company, sales increased by 11 per cent in the half year to May the 31st.
The main problem at Sweden's H&M over the past few years has been too much of everything except profits. The company has a large number of sub-brands which have consumed lots of management time, its main chain has rolled out too many stores, and it's had too much inventory. And that's required price cutting to clearance.
But there are signs that things may be starting to improve. The second-quarter sales updates last week showed sales growing 6 per cent, and there's been some evidence that margins have stabilised too. But we're not at the sunlit uplands yet. Most analysts think the company is still carrying too much inventory, and that teaches its customers to wait for sales.
Also, they note that the dollar has strengthened which will make purchasing more expensive. And consumer confidence in Germany, one of its biggest markets, is still quite soft. So for the share price to really make any headway, we'll need to see more evidence that those things are being managed well.
And that's what the week ahead looks like in the Financial Times in London.