Friday 02/05/25

A dangerous stand-off between India and Pakistan (Financial Times, the editorial board) highlights a very tense situation between India and Pakistan at the moment following the killing of 25 tourists and a resident last week in Indian-administered Kashmir. * SO WHAT? * This was the worst attack on civilians in India since 166 were killed in Mumbai in 2008. New Delhi is blaming it on Pakistan but Islamabad is denying involvement. Both countries have nuclear bombs and things are getting tetchy. Kashmir is claimed by both India and Pakistan but is divided between them and it’s already been the subject of three wars. Relations between the two sides have deteriorated significantly. Mediation is urgently needed here but America and China don’t really seem to be particularly motivated to do anything. It looks like it will down to New Delhi and Islamabad to sort this out…

Fresh from his electoral victory, Why Mark Carney needs Britain to ride to Canada’s rescue (Daily Telegraph, Emma Taggart) suggests that the UK could be a good place to start for Canada to improve trading relationships. We’re already Canada’s third biggest trading partner, so enhancing this existing relationship would be pretty easy to do. Still, for now, Carney needs to smooth things over with Trump because about 75% of Canada’s exports head to the US and supply chains are very intertwined. It is thought that tariffs are going to cost Canadians $2,000 per year and the OECD said that a trade war will hit growth there. It would be very interesting to see how much of our trade could switch more easily to Canada from the US.

Meanwhile, back home, Interest rates ‘to fall at fastest rate since UK’s financial crisis’ (The Times, Oliver Wright, Jack Barnett and George Nixon) shows that Morgan Stanley analysts reckon that the Bank of England will cut interest rates by 0.25 percentage points at each of the next five meetings, meaning that they’ll be down to 3.25% by November. However, a larger 0.50 percentage point cut is a possibility and the team believes that the sooner the rate cuts speed up “the better”. Given what’s going on with tariffs and the generally more uncertain economic environment at the moment, we’ll need all the stimulus we can get! That being said, London Stock Exchange prospers amid tariff-related market turmoil (The Times, Patrick Hosking) shows that market volatility caused by tricky macroeconomic conditions is helping the exchange to rake it in as it makes money from every trade – and trading activity has gone bananas. On the downside, the lack of flotations and other issuance has been a drag. London Stock Exchange Group confirmed earlier guidance for 2025.

In terms of ongoing tariff impact, McDonald’s and General Motors say Trump’s tariff war is harming business (The Guardian, Joanna Partridge) reflects weakness from McDonald’s which experienced a 3.6% drop in sales in its US home market over Q1 thanks to lower customer numbers as many reined in their spending. This was the biggest fall in sales since the Covid lockdowns in 2020! Meanwhile, General Motors cut its profit guidance for the year and projected that Trump’s tariffs would cost it up to $5bn in 2025, Hershey Expects Tariffs to Cost Up to $20 Million in 2Q (Wall Street Journal, Katherine Hamilton) also counted the cost of tariffs as its Q1 earnings fell and Trump tariffs cause fastest slump in British factory export orders in five years (The Guardian, Phillip Inman) cites the latest S&P survey which shows that export orders for British manufacturers were weaker, dragging business confidence down to its lowest point since November 2022. Will the Bank of England ease the pressure with interest rate cuts??

In more Trump-related news, Donald Trump sacks national security adviser Mike Waltz (Financial Times, Demetri Sevastopulo and James Politi) shows that the president fired national security adviser Mike Waltz and his deputy over the embarrassing Signal private messaging app security leak (aka “Signalgate”) a month ago, but don’t worry – Waltz will be OK as he has been nominated to serve as US ambassador to the UN. Will defence secretary Pete Hegseth be next to get the chop??

In US watchdog says plan to axe agency would damage global audit quality (Financial Times, Stephen Foley) we see that this administration’s eagerness to axe bureaucracy now stretches to oversight as there is a Republican plan to abolish the US regulator the governs accounting firms, the Public Company Accounting Oversight Board. Republicans want the PCAOB’s responsibilities to be folded into the SEC. Meanwhile, Donald Trump says he will impose secondary sanctions on buyers of Iran’s oil (Financial Times, Myles McCormick) shows that the president is keen to turn the screws on Iran, saying that anyone buying Iranian oil or products will be banned from doing business with the US. This will put even more pressure on China, which is Iran’s biggest importer. * SO WHAT? * This pretty much means that China will have to choose between pursuing commercial relations with Iran or with the US. If China stopped importing Iran’s oil, it would make life extremely difficult for Iran who would find it difficult to send the oil to alternative destinations.

Moving on to “Musk things”, Private firms are trying to fill research gaps, but their ‘puny’ budgets are no match for federal funds (The Guardian, Jessica Glenza) highlights the huge impact that cutting federal grants from institutions like the National Institutes of Health (NIH) is having. * SO WHAT? * The NIH is the world’s biggest public funder of biomedical and behavioural research and when Trump came to office it had a $48bn budget. Fast forward to now and DOGE has fired 1,300 NIH employees, cancelled $2bn in grant funding and slowed down grant approval by almost a third. There’s talk now of further reductions and real concern that the gaping hole being left by the funding cuts won’t be filled by private money. This could ultimately lead to less innovation.

Following on from yesterday’s Wall Street Journal article suggesting that the board of Tesla had been thinking about bringing in a new CEO, Tesla sales rout underlines Elon Musk’s struggles in Europe (The Times, Martin Strydom) shows that the board was forced to deny that it had taken such action. Meanwhile, Tesla sales fell in France and Denmark as Europeans continue to swerve the brand. * SO WHAT? * I’ve said for years now that the Wall Street Journal seems to have a thing against Musk and Tesla and if you ever want to find anything negative about either, this would be your primary go-to resource! Still, I would certainly not blame the board for doing this! Duncan and I did a podcast about this yesterday and talked about the difficulties of succession planning, especially when a founder is involved 🎙️

On a related note, Half an Elon Musk is still better than none (Financial Times, Lex) acknowledges that having some Musk in your company is better than nothing, which has been something shareholders have had to consider while he’s been BFF to Trump. Despite recent weakness, Musk is still a tremendous force and is now too big to oust because he’s too valuable.

Amazon warns on trade war hit as profit outlook misses forecasts (Financial Times, Rafe Uddin) highlights Amazon’s concerns about the impact of Trump’s trade war and announced weaker-than expected guidance for Q2, mainly thanks to tariff and trade uncertainties. It sounds like it is yet to suffer from the tariffs and it has been busy negotiating discounts with vendors to minimise the dent it is bound to take. The next quarter is going to make for very interesting reading as it imports about 25% of items it sells from China!

Meanwhile, E-Commerce Sellers Brace for End of De Minimis (Wall Street Journal, Liz Young and Shen Lu) shows that while Shein and Temu will be suffering from the end of the “de minimis” loophole from tonight, smaller rivals just may not be able to cope. Most shipments will be subject to the new 145% base tariff on all Chinese products – and perhaps more, depending on what they are. Many firms have tried to re-jig their supply chains. The article mentions orthopaedic-shoe seller Kuru Footwear and bra maker Thirdlove who have manufactured their product in Asia, shipped it to warehouses in Canada and then taken it over the border to the US. That isn’t economically viable any more, though, because of the tariffs. This is going to be painful for all sorts of businesses! Mind you, Shein’s London IPO ‘on hold’ after Trump’s crackdown on China (The Times, Isabella Fish and Tom Howard) implies that Shein has given up on plans for a London flotation as it has decided not to renew contracts with two corporate communication companies that had been hired to support the IPO. The contracts with Brunswick and FGS Global ended this month. * SO WHAT?* I really think that we may have dodged a bullet there. I am of the opinion that Shein is a poor quality company with massive litigation risk given the somewhat relaxed view it has about copyright. It seems to collect lawsuits like parking tickets and I’m amazed that not more was made of its dodgy behaviour. Yes, it would have been great for investment bankers and everyone in the IPO food chain – AND the London Stock Exchange – but if even the Americans rejected it, surely that’s got to say something? I mean, they float all sorts of 💩.

Back home, Harrods is latest retailer to be hit by cyber-attack (The Guardian, Sarah Butler) shows that the luxury department store had to shut some systems down after it suffered from a cyber-attack. The website and shops are still able to operate, though. It first realised it was being targeted earlier on this week. Fortunately, it seems that data had not been accessed and the retailer said that “We will continue to provide updates as necessary”. M&S cyber attack disruption expected to drag on for weeks (Daily Telegraph, Hannah Boland) shows that M&S

has not been so lucky as it turns out that it is having to rebuild, repair and replace IT systems in order to recover from the ransomware attack that struck it almost two weeks ago. Some sources reckon it could take M&S weeks to get over. What a nightmare! I wonder whether we’ll see some “revenge spending” going on when everything is given the all-clear??

Elsewhere, Moët Hennessy to cut 10% of workforce as luxury slowdown bites (Financial Times, Adrienne Klasa) shows that actions are being taken at LVMH’s weakest division to cut headcount back to 2019 levels at the wine and spirits division. A timeline was not given for the job cuts. Tough times.

Then in leisure news, Airbnb Revenue Rises, but Sees Bookings- Growth Slowdown in Second Quarter (Wall Street Journal, Kelly Cloonan) highlights stronger revenues in Q1 but warned of weaker growth in Q2 thanks to ongoing economic uncertainty. Most bookings were made by domestic travellers while bookings for Canadians travelling to the US slowed down at the end of the quarter. * SO WHAT? * FWIW, I think that the US is going to see a major weakness in the number of international tourists as people decide to avoid the US due to actions by its administration and potential problems at the borders.

On the other hand, Live Nation Says It Is on Track for Record Summer Concert Season (Wall Street Journal, Anne Steele) shows that the world’s biggest concert promoter is pretty upbeat about the coming summer season as concertgoers continue to pay up for more shows in bigger venues. Although Q1 revenues were 11% down from the previous year, this was actually a lot better than analysts had been expecting. * SO WHAT? * Following lockdown, people have been very willing to spend money on experiences – and concerts have done very well as a result. Although some concert ticket prices have gone to the stratosphere, consumers continue to be willing to pay up!

Then in Profits fall at Premier Inn owner Whitbread on drop in UK bookings (The Guardian, Julia Kollewe) we see that profits at Whitbread, which owns Premier Inn, have dropped thanks to higher costs and a fall in UK bookings. On the plus side, though, the company announced a share buyback and more hotel openings, which seemed to mitigate the negative news. It remains mildly optimistic that bookings could rise as Europeans avoid the US and holiday in places like the UK instead.

I thought that Big investors borrow against private equity holdings amid cash crunch (Financial Times, Amelia Pollard and Antoine Gara) was a very interesting read because I have previously mentioned private equity funds having difficulty offloading their assets in a flotation-phobic market – well according to this article, the underlying big pension funds and other institutional investors that have put money into private equity funds have now started to use their “stakes” as collateral in order to borrow money! * SO WHAT? * Investors have increasingly had to use “net asset value loans” to get cash at a time where a lot of their assets are locked up in PE, VC and property funds that haven’t returned much cash. They need the money to pay for acquisitions and dividend payouts so I this sounds like a good idea – and it means that they can get liquidity without having to sell off assets at fire-sale prices. The only thing is I’d say this is a stop-gap measure and could end up being an expensive way to get liquidity. If the institutions do too much of this and current economic uncertainties persist, there could be the mother of all collapses IMO. I’d recommend you read this article in its entirety if you have access to it – it is a fascinating area.

Staying with the subject of private equity, KKR reports first quarterly loss since 2022 (Financial Times, Antoine Gara) shows that US private equity group KKR has had a ‘mare in Q1 with the shocking performance of its Global Atlantic insurance business which lost over $1bn over the quarter thanks to markdowns on its wide-ranging fixed income portfolio. The value of these

portfolios has been tricky given volatile market conditions but in the long term the insurance division is expected to become a major source of asset management and transaction fees. It was interesting to hear that co-chief exec Scott Nuttall is ploughing money into investments because he believes that tricky markets “always end, and we typically look back and wish we had invested more when the world is most uncertain”.

In banks news, Lloyds Banking Group profits slip 7% amid Trump tariffs concern (The Guardian, Lauren Almeida) shows that profits at the lender have weakened as it set aside more than expected to address potential bad debts coming from Trump’s trade war. On the positive side, its Net Interest Margin (NIM), which is the difference between the interest it earns from loans and what it pays out to customer deposits actually went up from 2.97% to 3.03%.

Then in Morgan Stanley weighs move to offer crypto trading on ETrade platform (Financial Times, Joshua Franklin) we see that the American bank is looking at offering crypto trading on its ETrade platform given the increasingly pro-crypto backdrop of Trump’s administration. * SO WHAT? * It’s still looking into it and it may decide to team up with a trading firm that’s already active in crypto. ETrade is Morgan Stanley’s retail trading division. Given the current mood music, I’d say this is a smart move.

In a quick scoot around some of today’s other interesting stories, Apple beats forecasts as fearful consumers stock up on iPhones (The Times, Louisa Clarence-Smith) shows that Apple’s latest results came in slightly above market expectations last night thanks to customers buying iPhones ahead of the tariff-powered price rises but Apple says Trump’s tariffs will boost costs by $900mn in June quarter (Financial Times, Michael Acton) suggests that there are tricky times ahead because of the tariffs.

In consumer news, Middle-Income Consumers Feel Pinched. That’s Bad for Some of America’s Best Known Brands. (Wall Street Journal, Theo Francis and Heather Haddon) highlights the

current state of mind of Americans as it seems that the recent results have generally shown weaker sales across the board while UK mortgage lending at four-year high amid rush to avoid stamp duty rise (The Guardian, Rupert Jones) reflects an active UK housing market as Bank of England data shows that mortgage borrowing ramped up significantly to beat the stamp duty deadline. This is not surprising, but I would have thought the market will regain its mojo again soon enough when the Bank starts to cut interest rates…

I’m going through a bit of a private jet phase at the moment as Kolin from Amalfi Jets creates compelling content IMO 🤣! This time, Becca decides to go for an expensive lunch…