Brexit deal ‘stifling’ UK-EU trade; Microsoft announces huge $60bn share buyback

Introduction: Microsoft announces $60bn buyback; Apple hit by iPhone demand worries

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s a tale of two tech companies this morning, as Microsoft announces a monster cash return to shareholders… and Apple is hit by fears of weak demand for its new iPhone 16.

Microsoft surprised Wall Street last night by unveiling a new $60bn (£45bn) stock-buyback program – a way of returning excess cash to investors – and raising its quarterly dividend by 10%.

The plan matches Microsoft’s largest ever share buyback plan, according to Bloomberg.

The scale of the move was unexpected, as Microsoft has been ramping up its investment to support artificial intelligence. The company had also disappointed shareholders at the end of July when it reported a slight slowdown in growth at its Azure cloud computing arm.

Its net income in the last year rose 22%, to $88bn, leaving it with over $75bn of cash on its books.

Microsoft is currently the world’s second largest company, worth around $3.2tn, behind Apple (at $3.3tn).

That gap narrowed yesterday, as Apple’s shares fell by 2.8% following analyst report that demand for the iPhone 16 was weaker than hoped.

Early pre-order data from BofA Global Research revealed shorter global shipping times for the iPhone 16 Pro models compared with last year’s 15 Pro models, in the first three days of pre-order sales.

TF International Securities’ analyst Ming-Chi Kuo calculated that pre-order sales for the iPhone 16 are around 12.7% lower than for last year’s iPhone 15.

Having analysed data on pre-order sales, delivery times and shipments, Kuo explained in a post on Medium:

The key factor is the lower-than-expected demand for the iPhone 16 Pro series.

However, not every analyst was concerned by the lack of meaningful growth in iPhone pre-orders.

D.A. Davidson analyst Gil Luria points out that the phone’s AI features are being rolled out gradually.

… which means the upgrade cycle will likely materialize over the next 12-18 months.”

The agenda

10am BST: ZEW index of German economic confidence
1.30pm BST: US retail sales for August
2.15pm BST: US industrial production for August
3pm BST: NAHB index of US housing market

Key events

H&W boss: ‘Strong case’ to keep sites together

The future of shipmaker Harland & Wolff remains uncertain today, after the company announced on Monday it expects to fall into administration soon.

The company’s interim executive chairman Russell Downs has said there is a strong case for keeping the company’s four shipyards under a single owner.

He told the BBC’s Today programme that keeping the yards together was “sensible from an operating perspective”.

He added:

“Some yards may be owned by one owner with other yards owned by another, so we’ll just have to see where the process gets to.”

Downs said all the yards currently have work ongoing, and a “strong and capable business plan”, that will see them flourish again in future, once the current financial difficulties have been overcome.

After months of fraught negotiations as Harland & Wolff scrambled to find funding to upgrade the shipyards, the company announced yesterday that it is insolvent and expects to appoint administrators from Teneo soon.

Shares in Intel are up 8% in after-hours trading after it secured a deal to make custom artificial intelligence chips for Amazon.

CEO Pat Gelsinger announced the deal – under which Intel will produce an “artificial intelligence fabric chip” for Amazon Web Services – in a memo to staff last night.

Gelsinger also said Intel was more than halfway to hitting its target of 15,000 job cuts by the end of this year, warning:

We still have difficult decisions to make and will notify impacted employees in the middle of October.

Stocks have opened higher across Europe, as investors anticipate a long-awaited cut to US interest rates tomorrow.

In London, the FTSE 100 share index has jumped by 61 points, or 0.75%, to 8338 points. Financials, energy and healthcare are the best-performing sectors.

France’s CAC 40 index rose 0.5% at the open, with Germany’s DAX up 0.3%.

Enrique Diaz-Alvarez, chief economist at global financial services firm Ebury, says:

“The upcoming decision by the Federal Reserve stands on a knife’s edge, with the market almost evenly split on whether the cutting cycle will start on a 25bp cut or a 50bp one.

Market expectations for a jumbo cut have risen relentlessly over the past few days on little news other than statements from former Fed officials like William Dudley and are now at above 60%.

Demand for big-ticket items remains weak, retailer Kingfisher has warned this morning – something which will not please the technology sector.

Kingfisher, which owns various DIY chains including B&Q and Castorama, has reported a 2.4% drop in like-for-like sales at its stores in the six months to the end of July.

Kingfisher says it has seen a:

Recovery in seasonal sales since early July and weak ‘big-ticket’ sales as expected.

Comparable sales dipped slightly in the UK and Ireland, but tumbled by over 7% in France – which Kingfisher says is “broadly in line with the market”.

It also reported a 2.3% rise in pre-tax profits, and lifted its estimate for adjusted pre-tax profits this year to £510m to £550m, from £490m-£550m before.

Shares in Kingfisher have jumped 6.5% at the start of trading.

Brexit deal hurting UK-EU goods trade, and it’s getting worse

Red tape on British businesses created by the Brexit trade deal has led to a sharp fall in UK-EU goods trade, a new report shows.

Academics at Aston Business School have analysed the impact of the Trade and Cooperation Agreement (TCA) on UK-EU trade relations – and found that trade is down by over a quarter.

They say:

The findings reveal a sharp decline in both UK exports and imports with the EU, underscoring the enduring challenges posed by Brexit on the UK’s trade competitiveness.

Between 2021 and 2023, monthly data show a 27% drop in UK exports and a 32% reduction in imports to and from the EU, the report shows.

Photograph: Aston Business School

It also shows there has been a significant reduction in the range of goods the UK trades with the EU, due to the “profound and ongoing stifling” effects of the TCA.

This includes a “significant decline” in consumer goods exports to the EU and corresponding UK imports, which suggests the UK is dropping out of EU value chains.

However, the UK remains dependent on the EU for intermediate and capital goods.

And worryingly, these problems are expected to intensify.

The report says:

The study highlights that the negative impacts of the TCA have intensified over time, with 2023 showing more pronounced trade declines than previous years. This suggests that the transition in UK-EU trade relations post-Brexit is not merely a short-term disruption but reflects deeper structural changes likely to persist.

The key problem is that the TCA, agreed on Christmas Eve 202 by Boris Johnson’s government, has created many non-tariff measures (NTMs) – such as checks on goods – which have gummed up the flow of trade.

Agriculture and food products exports have been particularly impacted, the report shows.

Last night, we reported that planned post-Brexit checks on fruit and vegetables brought into Britain from the EU have been delayed for the third time, amid concerns from suppliers that they could lead to higher prices for shoppers.

Microsoft’s $60bn share buyback programme is the third-largest announced by any US company this year, Marketwatch reports.

The only companies to announce bigger share-repurchase authorizations so far this year are Apple ($100bn) and Alphabet ($70bn).

Chipmaker Nvidia and Facebook-owner Meta have both announced $50bn buybacks this year.

On the other side of the coin, though, Microsoft will still be one of the lowest-yielding stocks on the Dow Jones industrial average, even after raising its dividend by 10%.

Tech firms have traditionally paid lower dividends than average, focusing on using their cash to fuel growth and pay for acquisitions (although such large share buybacks shows they are strugging to pull this off).

Amazon mandates five days a week in office starting next year

Elsewhere in the tech sector, Amazon has announced it would require employees to return to the office five days a week, from the start of next year.

Andy Jassy, Amazon’s CEO, said in a note to employees.

“We’ve decided that we’re going to return to being in the office the way we were before the onset of COVID. When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant.”

The e-commerce giant’s previous office attendance requirement for its workers was three days a week. Amazon workers can claim “extenuating circumstances” or request exceptions from senior leadership, according to Jassy’s memo.

“If anything, the last 15 months we’ve been back in the office at least three days a week has strengthened our conviction about the benefits.”

He cited improved collaboration and connection between teams as reasons for the new requirement as well as the ability to “strengthen our culture”.