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Week in review: The end is nigh for Libor

This week: Libor gets dumped, Purplebricks soars, and Trump attempts another ban.

The notorious benchmark lending rate is set to be dropped in 2021, according to UK Financial Conduct Authority (FCA) boss Andrew Bailey. Regulators will aim for a more reliable marker, but the scandal-hit Libor days are numbered. Elsewhere, the International Monetary Fund cut its growth forecasts for both the U.S. and UK, despite the latter seeing gross domestic product (GDP) growth edge up over the second quarter. In company news, drug-maker AstraZeneca saw its shares tumble 15% in Thursday trading, while shares in online real estate broker Purplebricks continue to soar.

The London interbank offered rate (Libor), introduced in 1986, used to be one of the most important components in the financial world. But the so-called “risk-free rate” has come under scrutiny over the years, with unscrupulous traders becoming embroiled in a rigging scandal that led to hefty fines and criminal charges. This week’s landmark announcement was widely welcomed by the UK’s government and financial centers (the City and Westminster), as both parties look towards a more steadfast, transaction-based benchmark that removes the subjectivity of Libor.

Fed signals wind up

The U.S. Federal Reserve (Fed) left rates on hold, stating that it’s ready to begin wrapping up its crisis-era stimulus program as early as September. Federal Open Market Committee members remain confident in the U.S. outlook, with supportive financial market conditions helping counterbalance weak inflation readings. Treasuries rallied while the dollar fell to its lowest level against the euro in two years. A weak dollar is no bad thing, however, and it gives the Fed some wiggle room by keeping financial conditions loose. The market is now reflecting a 39.7% chance of a rate rise in December, down from 45.4% before the Fed statement.

Purplebricks sailing high

Solihull-based Purplebricks has seen its share price rise over 400% since December. The online real estate broker has seen revenues rise 150%, building a commanding 72% market share of online agents in the process. Investors are clearly excited about the international expansion to the U.S., with California the next target after already setting up shop in Australia. The company’s success is at odds with current trends among the more traditional real estate brokers; both Foxtons and Countrywide reported slumping profits this week as transaction levels plummeted thanks to Brexit-related uncertainty.

In other company news, Nissan received a boost from its home market of Japan. Improving sales helped the car manufacturer grow revenues, although profits took a hit as a result of rising raw materials and currency fluctuations. Pharmaceutical giant Astra Zeneca saw its share price plummet 15% on Thursday after trials of a lung cancer treatment had not met expectations. Amazon also surprised markets by delivering a huge miss on its second-quarter earnings. Shares in the U.S. tech giant were down 2% in after-hours trading following the news.

And finally…

Donald J. Trump made headlines once again, this time for attempting to ban transgender people from serving in the military. Trump argued that the Pentagon cannot be burdened with the “tremendous medical costs” of covering trans military members. But the cost is far from “tremendous.” In fact, according a study by the Rand Corporation last year, the Pentagon spends nearly five times as much on Viagra than it does on military care for transgender troops. Go figure.

Important Information

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.

Indexes are unmanaged and are included for illustrative purposes only. You cannot invest directly in an index.

Image credit: Jurgen Schadeberg / Contributor / Getty Images

ID: US-280717-38552-1