Category: Uncategorized

1. In MACROECONOMIC AND MARKETS NEWS, Brexit divides and markets react
2. In RETAIL NEWS, Black Friday kicks off early, Walmart posts solid sales but UK retail sales fall
3. In MISCELLANEOUS NEWS, the FDA seeks a ban on menthol-flavoured cigarettes and Aston Martin sees rising sales
4. In OTHER NEWS, I bring you some unusual dating websites. For more details, read on…

So the Brexit “deal” stirs things up and UK markets slide whilst US markets rebound…

Theresa May vows to fight for her Brexit deal (Financial Times, George Parker, Jim Packard and Laura Hughes) heralds the beginning of a massive bun fight following the PM’s hammering out of a divorce deal with Europe. A number of high profile resignations followed (Dominic Raab, Brexit secretary; Esther McVey, work and pensions secretary plus two other junior ministers) and some are expecting Michael Gove, environmental secretary, to resign given he fronted the 2016 Leave campaign with Boris Johnson. Eurosceptics led by Jacob Rees-Mogg called for a vote of no-confidence in Theresa May as soon as possible – in “not months, but weeks”. * SO WHAT? * Despite all the hoo-ha, the PM’s critics at the pro-Brexit European Research Group did not manage to gather the 48 signatures needed to kick-off a confidence vote. Still, the pound had its biggest drop versus the pound for two years and companies with exposure to the UK saw their share prices weaken in trading yesterday. May is saying that if MPs reject the deal, there would be a “no-deal” Brexit or no Brexit at all and some are talking up the prospect of a “People’s Vote”, which would open up the possibility of Brexit being reversed. This glimpse of market panic might scare politicians away from the abyss of a no-deal exit (The Guardian, Nils Pratley) poses the theory

that market reaction to MPs voting down the deal would be so violent that the real possibility of a “no-deal” would temper Brexiteer frustration enough to actually let it go through with some minor adjustments.

Meanwhile, Brexit turmoil hands UK markets a chastening day (Financial Times, Laurence Fletcher) shows the effects of the Brexit drama, with the pound losing 2% against the dollar and 1.9% vs the Euro with some analysts believing that the pound has further to fall. Stocks have also suffered from Brexit fallout and this week’s BofA Merrill Lynch fund manager survey showed that the proportion of UK stocks in global fund manager portfolios is near its lowest in 20 years. As Newton Investment Management global equities portfolio manager Paul Markham put it, “While the economy has been OK, there are big questions over the outlook” and Richard Buxton, head of UK equities at Merian Global Investors pointed out that “People have sold out in spades. There’s tremendous value in some UK domestic and financial stocks. They’re extremely undervalued on any longer-term view”. But then again, as head of UK equities, he would say that, wouldn’t he ;0)

Meanwhile, on the other side of the Pond, US stocks close higher following tech rebound (Wall Street Journal, Riva Gold and Jessica Menton) highlights the reaction to reports that US Trade Representative Robert Lighthizer has put the next round of Chinese import tariffs on hold, with the implication being that the US-China trade discussions could be making some headway. I personally wouldn’t get too excited by this as there are bound to be a few more false dawns.

In retail news, Black Friday swings around, Walmart puts in a decent performance but UK retail sales trend weaker…

Black Friday comes early as retailers aim to stay out of red (The Guardian, Zoe Wood) heralds the beginning of the run-in to Christmas as Black Friday comes early as retailers fight over consumers. Black Friday is actually supposed to be on November 23rd, but Amazon has tried to steal a march on everyone else by starting early along with the likes of Argos and PC World. Zoe Mills, a retail analyst at the GlobalData consultancy, commented that “we have seen more clothing retailers participating in the event each year and while a number of big names such as Marks & Spencer are not participating, online stores such as Asos, boohoo.com and Gymshark are encouraging customers to move online to get a discount”. * SO WHAT? * When Black Friday first hit UK shores five years ago, we were treated to frenzied scenes on instore camera footage of customers fighting over the latest deals, but this ungainliness has calmed down somewhat since then as more shoppers have sought deals online. Some retailers have decided not to participate in Black Friday as they feel that it forces them to discount at the most crucial time of the year and consumer behaviour has adapted such that they have started to hold off on purchases in October to see what deals they can get when Black Friday rolls around. Will consumers spend??

Walmart posts strong sales gains ahead of holidays (Wall Street Journal, Sarah Nassuaer and Suzanne Kapner) highlights some good news for America’s largest retailer as the outlook for the forthcoming holiday season is looking pretty good with lean inventories and more products online to attract younger and wealthier customers. The company reported a 3.4% rise in sales in the latest quarter at stores open for at least a year, including an impressive 43% jump in e-commerce sales. Fortunes at other retailers remain mixed with Macy’s and Nordstrom seeing higher sales, but JC Penney continued to suffer with lower sales and a quarterly loss. * SO WHAT? * This is good news in itself, but retailers have been sold off a bit recently as investors have become increasingly concerned that profits losing pace with sales because companies are having to hike up wages to keep staff in a tight market and cutting prices to stay competitive with the e-tailers. I don’t see this going away any time soon, but I would have thought that any downside will be limited as long as sales continue to rack up. 

Retail sales down despite falling prices and pay rises (Daily Telegraph, Tim Wallace) cites the latest data from the Office for National Statistics which showed that sales volumes fell 0.5% on the month versus an expected 0.2% rise, making it the second monthly drop in a row and the biggest decline since March’s 0.8% fall when the cold weather scared shoppers away from the high street. That said, HSBC economist Elizabeth Martins observed that “with wage growth pushing higher and inflation dropping fast – particularly for retail goods – UK shoppers should be feeling a bit more bullish, despite the weather…yet the summer strength seems to have faded out and consumer confidence surveys also suggest a subdued mood”. I must say that, on balance, I would have thought there is room for upside here given recent wage data, but we’ll just have to wait and see.

The FDA cracks down on menthol ciggies and Aston Martin unveils strong sales…

Further to the stuff I’ve been saying about Juul Labs this week, FDA seeks ban on menthol-flavoured cigarettes (Financial Times, Alistair Gray and Andrew Edgecliffe-Johnson) heralds the FDA’s official announcement yesterday that it will follow through on its threats to choke off sales of menthol-flavoured cigarettes and new e-cigarettes that are deemed to be responsible for getting a new generation addicted to nicotine. Figures from the National Youth Tobacco Survey said that 3.6m middle and high school students in the US were currently using e-cigarettes – a massive rise of 71% in just one year – and that over half of child smokers between the ages of 12 and 17 used menthol cigarettes versus less than one-third of smokers aged over 35. The FDA proposes to severely restrict the sale of most flavours of e-cigarettes and completely ban menthol in cigarettes and cigars. * SO WHAT? * Funnily enough, Altria, which generates about

20% of its profits from menthol cigarettes said that “a total ban on menthol cigarettes or flavoured cigars would be an extreme measure not supported by science and evidence” and analysts believe that the FDA will have trouble on pushing the menthol ban through. If these proposals go through, though, they could represent the biggest restrictions on Big Tobacco since the 1990s. 

Aston Martin sales soar as sports carmaker doubles revenue (Daily Telegraph, Alan Tovey) signals the company’s first set of numbers as a quoted company and it trumpeted a near-doubling of revenue and car sales. Chief exec Andy Palmer boasted that “these results give us confidence that we will meet our full-year targets with sales at the top end of the range. This will pave the way for future growth as we prepare to begin production of the breakthrough DBX model at our new plant at St Athan, and as we receive further orders for new models including the DBS Superleggera and special editions”. * SO WHAT? * Very nice, but the fact remains that the shares are now 20% below their flotation price and they still have a lot of convincing to do to approach the valuation of rival Ferrari.

And finally, in other news…

As regular readers know, I’ve always got your best interests at heart here at Watson’s Daily. And it is with that in mind that I thought you might be interested in some unusual dating websites.  If you are a fan of clowns, what about www.clowndating.com? Those who like hairy should perhaps peruse www.hirsutedating.com or if you trust your nose more than your eyes, how about https://smell.dating/? And finally, for those who like a bit of soft rock, https://nickelbackpassions.com/ could be the answer to your dreams, although this website bears a striking resemblance to https://mulletpassions.com/, which bills itself as “100% free dating & social networking for singles sportin a mullet”. Coincidence? I think not! Happy Friday!

1. In MACROECONOMIC NEWS, the Eurozone slows, Italy continues to rebel, Sweden can’t agree on a Prime Minister, the Brexit treaty is ready for debate and UK inflation stays steady
2. In UK HIGH STREET NEWS, woes at House of Fraser and Debenhams continue, there’s a U-turn on fixed-odds betting terminals and British Land suffers retail fallout
3. In INDIVIDUAL COMPANY NEWS, Tencent’s profits shine despite games restrictions, Uber slows down and Macy’s reports solid sales growth
4. In OTHER NEWS, I show you how to celebrate New Year’s Eve TWICE and some impressive Rubik’s cube art. For more details, read on…

So Europe’s in a tizzy, a Brexit deal gets hammered out and UK inflation is flat…

Wow! It’s all going on in Europe at the moment, eh?! Fall in German output adds to slowdown in eurozone growth (The Guardian, Angela Monaghan and Larry Elliott) highlights Germany’s first economic contraction for three years as weaker car sales, lower consumer spending and sluggish exports made the eurozone’s biggest economy contract by 0.2% in the third quarter of 2018, which had the effect of dragging down EU growth from 0.6% to 0.2%. Goods exports account for 40% of Germany’s GDP (way more than #2 economy France and #3 economy Italy), which makes it more vulnerable to the current US-China tariff shenanigans.

As if that wasn’t bad enough, Italy remains defiant over government budget plans (Financial Times, Miles Johnson and Mehreen Khan) shows that the populist coalition government is standing firm on its refusal to bow to European Commission pressure to change its anti-austerity budget, meaning that it will be slapped with sanctions from Brussels like a fine of up to 0.5% of GDP. If imposed, it would be the first time for Brussels to enforce such a measure.

This is then compounded by Sweden’s parliament rejects centre-right candidate for PM (Financial Times, Richard Milne) which shows that the country’s parliament has just rejected a prime ministerial candidate for the first time in modern history. Sweden’s normally rock solid stability is being buffeted by anti-immigration forces which have continued to divide opinion causing some observers to conclude that new elections are a real possibility.

* SO WHAT? * Europe is in a right two-and-eight at the moment, don’t you think? Anti-immigration and far right forces seem to be gathering momentum once more, eurozone growth is slowing down by pretty much any measure you care to mention, the eurozone’s engine of growth – Germany – is having an existential crisis with a weakened leader and fractious government, Italy is threatening to destabilise the whole bloc by ignoring orders not to spend its way out of its economic rut and even the formerly “safe” Sweden is having problems. On top of that, you’ve got an ECB which is feeling increasing pressure to reverse its decision to relax QE (which will be very

embarrassing for them) and then, of course, you have Brexit – not to mention the mother of all trade wars with the US and China. I’ve always thought that QE was masking a whole load of underlying problems and it seems that a lot of them are coming to the fore right now. Also, it seems that the tide of extreme right-wing anti-immigration populist parties is returning once more – but this time the eurozone is in a much weakened state. Will all of this discord have come in time for Theresa May to negotiate something decent? Or is she going to let this opportunity of a weakened opponent go begging??

There’s going to be a ton of comment on this, but for the moment, I thought that Brexit treaty: what the EU and UK have agreed (Financial Times, Alex Barker) would be a good place to start and have less “noise”. March 29th next year is Brexit day and the Brexit withdrawal treaty will be the only legal agreement with the EU after 45 years of deep integration. This Brexit deal has to get approval from the UK cabinet, then an EU summit, then the House of Commons and, finally, the European Parliament. It will decide how Brexit is conducted and what the future relationship with the union will look like. In terms of financial settlement, Britain will probably have to pay Brussels somewhere between €40bn and €60bn and will have to pay into EU budgets for 2019 and 2020 as if it were still a member. Regarding citizen rights, the agreement protects all existing EU residence and social security rights of over 3m EU citizens in the UK and about 1m UK nationals living on the continent. The agreement also outlines a transition period for the UK until the end of 2020 which can be extended by mutual agreement which will leave us subject to EU rules but have no say in making them. Northern Ireland is obviously one of the big sticking points, but the agreement will protect the peace process and avoid a hard border between the Irelands, allowing free circulation of goods. There are obviously loads more things in this treaty, but I just thought I’d give you some of the main ones.

On the domestic front, Rising energy prices hit families, but weekly shop gets cheaper (Daily Telegraph, Tim Wallace) cites the latest figures from the Office for National Statistics (ONS) which show inflation being held steady at 2.4% as higher energy prices for gas and electricity were offset by lower food price inflation and apparel prices. * SO WHAT? * Well this means that rising wages are likely to be felt in real terms – which is good news short term for shaky consumer confidence. Ultimately, this will feed through to power inflation once more, but it doesn’t look like doing so for the moment.

In UK high street news, department stores House of Fraser and Debenhams continue their downward spiral, fixed-odds terminals get their come-uppance and British Land is another casualty of a tough retail landscape…

Hundreds of jobs to go as stores crisis deepens (The Times, Dominic Walsh) heralds the closure of four more House of Fraser stores after Mike Ashley, chief exec of Sports Direct which now owns the struggling retailer, decided to swing the axe after being unable to come to an agreement on rent with landlord Intu, which owns stores in Lakeside in Essex, the Metrocentre in Gateshead and two other sites in Norwich and Nottingham. Ashley warned that “We had multiple meetings with Intu, but we were no further forward after 14 weeks. Unfortunately, these stores now face closing in the new year. I urge other institutional landlords to be proactive to help save the [House of Fraser] stores in their schemes”.

And it’s not only House of Fraser that’s suffering as Debenhams’ woes deepen as suppliers abandon chain (The Guardian, Rob Davies) shows that Debenham’s share price fell by over 21% yesterday following reports that it was being shunned by suppliers. This was the biggest one-day share price drop for the retailer in over ten years. The shares closed yesterday at 5.27p versus 40p a year ago and over £1 five years ago. One supplier said “They owed us so much money at any one time, we decided it was too risky” and another supplier said that it had become more cautious on doing business with Debenhams because of the financial hit it took recently on doing business with House of Fraser.

* SO WHAT? * UK department stores are continuing down the road to terminal decline as they are currently failing to change fast enough to match evolving customer behaviour. Landlords are getting increasingly jumpy about being forced into accepting lower rents to keep retailers afloat and it is starting to really weigh on them as per British Land laid low by high street woes (The Times, Louisa Clarence-Smith) where British Land is being adversely affected by the corresponding fall in the value of its properties. Landlords face a conundrum – do they take their trousers down and accept far worse terms or do they chance it to entice new tenants? I think that if I was a landlord, it’d obviously be painful to let a department store go, but then again if I had the money I would use the opportunity to redevelop and change the identity of my space. Ideally, I’d be looking to attract retailers that need a lot of square footage in city centres – what about Ikea, for instance? They are currently on the lookout as they are changing their out-of-town model – but you just don’t know do you. Other than that, I think that it would be wise to split it up into smaller units and maybe even consider converting it into more residential or office space.

I also thought it was worth mentioning Theresa May signals climbdown over fixed-odds betting terminals (Financial Times, Jim Pickard) as this is an important U-turn that will cut the maximum stake of fixed-odds betting terminals from £100 to £2 from April 2019, overturning a decision outlined in the recent budget to delay it by six months which had been a victory for betting industry lobbyists. * SO WHAT? * The gambling industry has said that this move will result in mass job losses, but TBH, the gambling industry has been in a right state anyway and delaying the cap on FBOTs was just briefly postponing the inevitable. Gambling companies are currently looking closely at the opportunities in America anyway as a new source of revenue after a recent change in the laws.

Tencent unveils profits despite having its wings clipped, Uber has a slowdown and Macy’s reports strong sales growth…

Tencent profits top estimates despite China’s games ban (Financial Times, Yuan Yang and Louise Lucas) shows that it’s still possible to thrive as it unveiled a very healthy 31% rise in profits for the third quarter after online advertising, mobile payments and cloud services helped to mitigate the impact from the Chinese government’s crackdown on new internet games. It was also helped by a whopping 81% net gain from its investments in things such as Meituan Dianping, the food delivery and ticket booking app that listed in Hong Kong in September. Having said that, the company’s gaming division has slowed down somewhat due to the government crackdown on new releases and time spent playing online games as its revenues now accounted for around 25% of turnover in the third quarter versus 40% last year. Still, Tencent is marching on regardless and Douglas Morton, head of Asia research at Northern Trust Capital Markets, contended that “Advertising is the absolute blue sky for Tencent in the long run – the options are vast, especially compared with Facebook”. * SO WHAT? * The company’s share price has fallen by 43% since its peak at the beginning of this year, so maybe investors will look at it less harshly now that it has shown it can generate a lot of cash elsewhere despite its gaming division being in a bit of a holding pattern right now. Its potential in advertising may also be enhanced by observing Facebook’s woes from afar and implementing any lessons learned.

Then in Uber posts slower sales gains, widening loss as it prepares for 2019 IPO (Wall Street Journal, Greg Bensinger) we see that the ride-hailing company announced a pretty solid 38% jump in revenues in the third quarter, which only looked disappointing because it had a 63% year-on-year jump in revenues in the second quarter.

The company continues to consolidate its finances by tidying up its expenses and disposing of unprofitable business units ahead of its proposed IPO next year. It is concentrating efforts in food, freight, electric bikes and scooters and investing in the potential growth markets of India and the Middle East.

In direct contrast to what I’ve said above re House of Fraser and Debenhams, Macy’s reports strong sales growth, raises guidance (Wall Street Journal, Suzanne Kapner) shows that it is possible to survive as a department store as it announced solid sales growth for the quarter and raised guidance for the full year. The shares fell by 2.4% in morning trading but then again they have shot up by 85% over the past year, so investors can be forgiven for taking some money off the table. Chief exec Jeff Gennette said that the company was seeing improved results both online and offline and increased sales by double digits versus a year ago. * SO WHAT? * What are they doing that our department stores aren’t? They’re bringing in measures that enhance the retail experience and appeal to their customers’ changing behaviour, that’s what! They have rejigged stores into renovated “magnet” stores, added a discount concept to their existing offering (called “Backstage”) and rolled out new ways for their customers to shop – including allowing them to order online and pick-up in store. Shoppers tend to spend an additional 25% when they pick up their online orders in-store, so this has been an important development. This is great, don’t you think? It just goes to show what can be achieved if a department store really listens to its customers and adapts appropriately. According to research firm GlobalData Retail, two-thirds of Macy’s customers rate their shopping experience with the retailer as good or very good – up from 59% a year ago – so clearly they are doing something right!

*** BY THE WAY – HAVE YOU SEEN BITCOIN’S MASSIVE FALL?? I’ll try to find the reason and get back to you on it. ***

And finally, in other news…

Do you love celebrating New Year? Do you have 20 grand knocking around that you don’t know what to do with? Well then I would suggest you take a look at this – it sounds pretty awesome: Celebrate New Year’s Eve twice with a £20,000 flight from Toyko to Las Vegas (Metro, Faima Bakar https://tinyurl.com/y8knwylz).

Failing that, maybe you feeling like sitting back and admiring the artistry in the video on Artist painstakingly creates giant portraits of celebrities using hundreds of twisted Rubik’s cubes (Daily Motion, https://tinyurl.com/y7d4e3tl). Wow!

1. In MACROECONOMIC AND OIL NEWS, EU worker numbers fall sharply in the UK and the oil price hits new lows
2. In RETAIL NEWS, Sainsbury’s and Waitrose lag, Aldi sales soar, Farmers say “no” to Sasda and B&M is waiting for the crumbs
3. In INDIVIDUAL COMPANY NEWS, Apple targets a tricky Indian market, WeWork gets a boost from SoftBank and Juul quits social media
4. In OTHER NEWS, I bring you a man attempting eternal youth. For more details, read on…

So the number of EU workers in the UK is falling sharply and the oil price hits a new low…

Fall in EU workers is UK’s steepest since records began (Financial Times, Gavin Jackson) highlights the sharpest drop in the number of EU nationals working in the UK since records began in 1997, according to figures from the Office for National Statistics published yesterday. This is exacerbating an already-acute problem in the availability of suitable employees as unemployment rates hit lows not seen since the 70s. Senior ONS statistician Matt Hughes pointed out that “With faster wage growth and more subdued inflation, real earnings have picked up noticeably in the last few months…however, real wage growth is below the level seen in 2015, and real wages have not yet returned to their 2008 levels”. Brexit fears are likely to continue to bite UNLESS Theresa May manages to achieve

some kind of miracle deal AND get it past her colleagues. Until then, uncertainty will reign.

In Oil falls to lowest price in 12 months (The Times, Simon Duke and James Dean) we see that oil has continued its downward path despite Saudi Arabia saying that it was considering production cuts at the next OPEC meeting in December as there are signs that supply is starting to overtake demand. * SO WHAT? * There are many forces at work here. On the one hand, you’ve got Trump tweeting things like “Hopefully, Saudi Arabia and Opec will not be cutting oil production. Oil prices should be much lower based on supply” and then you’ve got the oil producing countries on the other baying for production cuts to stem the oil price slide. That is then complicated by Saudi Arabia having to look like it is prioritising its fellow OPEC members whilst simultaneously keeping the US happy by ensuring the oil price doesn’t go through the roof due to its recently-reimposed sanctions on Iran. A tricky situation indeed, but a production cut certainly looks more likely at the next OPEC meeting although market prices don’t seem to be reflecting that at the moment.

In retail news, incumbents lumber on while Aldi reaps more sales, Farmers say “no” to “Sasda” and B&M is ready to benefit from the deal’s disposals (if it goes ahead)…

Sainsbury’s and Waitrose sales lag rival supermarkets (Daily Telegraph, LaToya Harding) cites the latest industry figures from Kantar Worldpanel which reveal Sainsbury’s to be the worst-performer of the UK “big four” supermarkets for the last quarter whilst sales at Tesco, Asda and Morrisons all rose. Its market share also fell from 16.3% to 15.8%, versus Asda which has a 15.3% share. Sales and market share also fell for Waitrose while German discounters continued to attract more punters. Aldi’s market share shot up by 0.9% – the biggest year-on-year gain by any retailer in almost four years – to 7.6% with sales up by 15.5%. Lidl’s market share also increased from 5.1% to 5.5% with sales up a very healthy 10.2%. * SO WHAT? * The German discounters are just killing it at the moment, and it seems that our incumbents are just watching customers slip through their fingers. The good news, from Sainsbury’s point of view, is that these figures strengthen their argument that the merger with Asda SHOULD go through given the changing grocery retailing landscape although Farmers give thumbs down to Sainsbury’s merger with Asda (The Times, Deirdre Hipwell) shows the flipside as suppliers are concerned that they are just going to get screwed over by the bigger

entity. The National Farmers Union has voiced its worries in a submission to the Companies and Markets Authority as part of the latter’s investigation of the proposed merger.

Uncertainty puts brakes on B&M’s sales (The Times, Deirdre Hipwell) highlights a slight bump in the road for the Liverpool-based discounter with sluggish UK sales but solid profits (profits were up by 33% in the six months to September) one month after expanding into the French market with the acquisition of the Babou chain for £80m. B&M plans to buy stores jettisoned in Sainsbury and Asda merger (Daily Telegraph, Ashley Armstrong) reflects the ambition of the company as it announced 58 store openings this year, which would take it to 630 versus chief exec Simon Arora’s ambition of having 950 across the UK. It sounds like he was taking the credit for the demise of Homebase and Toys R Us as increasingly price-conscious customers flocked to the discounters and said that the chain has already moved into some of their old shops. He is also looking to snap up outlets that will have to be sold off if the Sainsbury’s-Asda merger goes through. * SO WHAT? * This looks like a retailer that’s going places. With expansion into Germany in 2014 via the purchase of Jawoll, a £152m acquisition of Yorkshire-based budget chain Heron Foods, the Babou purchase in France and the potential opportunity of buying Sainsbury’s/Asda cast-offs at presumably close to fire-sale prices, B&M look well-positioned to make a massive step-up. However, all I would say is that many a UK retailer has failed badly when expanding abroad so although it sounds boring, I think they really should concentrate on getting the domestic offering spot-on otherwise they run the risk of spreading themselves too thinly.

Apple aims for India, WeWork gets a hand from Softie and Juul abandons social media…

Apple tries to take a bite out of blossoming Indian market (Daily Telegraph, Matthew Field) takes a look at the conundrum facing Apple as it tries to appeal to nation that will be more populous than China within four years whilst simultaneously maintaining its huge (in some cases, 64%) margins. After years of growth elsewhere, mature markets are showing signs of “peak smartphone” meaning that makers are having to seek out other markets to get that growth feeling again. In the UK, for instance, smartphones account for 87% of the market – with 50% of these being Apple, so you can see that there’s not a whole load of scope for upside. India, on the other hand, is a market where the number of smartphone users is expected to grow to 442m by 2022 but you can’t really justify selling an iPhone for $1,000 when the average per capita income is $2,000, which is why companies selling cheap-and-cheerful offerings, such as China’s Xiaomi and locals such as OnePlus, are cleaning up. * SO WHAT? * Apple’s pricing means that it can target only 1% of the potential smartphone market, but it needs to do something sooner rather than later to get a proper foothold as Counterpoint Research analyst Neil Shah pointed out that “If Apple continues to lose its grip on the Indian market it will be difficult to attract a smartphone user on their third or fourth Android phone”. Mind you, some observers suggest that Apple may not NEED to sell more iPhones as they have been supremely good at squeezing more revenues from their installed base via more services and apps. Although I get this, I don’t buy the argument fully – so Apple is going to have to find a way of cracking this potentially highly lucrative market whilst simultaneously protecting its brand. After all, if it made a cheaper iPhone for the local market it would have to make it impossible for those phones to work elsewhere otherwise there could be pandemonium as Indian phones haemorrhage from the country to be sold on black markets worldwide. I think that Apple has to move manufacturing over to India as a starter otherwise it’s just not going to be feasible IMHO. Conversely, if it manages to

do this successfully, it could maybe increase its margins by exporting from there to developed countries which could then effectively subsidise the Indian market.

WeWork raises $3bn from SoftBank as losses balloon (Financial Times, Judith Evans and Eric Platt) highlights a welcome cash injection by SoftBank into the flexible office provider as the latter’s losses skyrocket to $2bn per annum. SoftBank will hand over the cash next year in exchange for a warrant that will allow it to by new WeWork shares by the end of September 2019. WeWork’s vice-chairman Michael Gross shows no sign of slowing down when he said “Our view is that there is tremendous wind at our back – we are the only serious global player out there…our growth is actually accelerating as our product offering continues to go deeper and reach not just small-sized companies but Fortune 500 companies and everything in between”. * SO WHAT? * This all sounds very exciting but highly risky. The company is targeting opportunistic growth but I am of the opinion that this is brilliant right now but when the wheels fall off global growth and banks start calling in the loans companies like WeWork are going to be massively exposed to a potentially fatal double-whammy of falling real estate prices and higher numbers of tenants leaving (which they can do given the short term nature of the contracts) as they go under or seek cheaper premises. It’s all good now, but definitely worth monitoring.

Following on from what I have been saying earlier this week, Juul says it will quit social media (Wall Street Journal, Jennifer Maloney) is a further major concession for the e-cigarette company after allegations that it is encouraging underage e-cigarette use. It says that it is closing down its Facebook and Instagram accounts in the US and cutting down its use of other social media. * SO WHAT? * This is pretty big IMHO. Given that social media advertising – both direct and indirect – has been a huge influence on the product’s popularity amongst young’uns it does put into question where Juul’s future growth will come from. It seems that the company is very serious about curbing its activities as its CEO Kevin Burns said that “our intent was never to have youth use Juul…but intent is not enough, the numbers are what matter, and the numbers tell us underage use of e-cigarette products is a problem. We must solve it”. The drama continues.

And finally, in other news…

There certainly comes a time in your life where you wish that you could be transported back to those headier carefree days of youth. Well someone is waging a one-man battle on age in the courts in Man, 69, who identifies as 20 years younger begins legal battle to change age (SkyNews https://tinyurl.com/yamsflj8). I’m not confident of his chances, but wouldn’t it be funny if he won??

1. In MARKETS AND OIL NEWS, Wall Street takes a tumble while the Saudis talk less oil and the IEA talks peak oil
2. In TECH NEWS, Apple’s shine is dulled by suppliers, Amazon picks its HQ2 and SAP buys Qualtrics
3. In INDIVIDUAL COMPANY NEWS, tobacco shares suffer from menthol withdrawal, SoftBank plans a float, Tesla UK makes money and Beyond Meat brings its vegan burgers to the UK
4. In OTHER NEWS, I bring you some pet photos. For more details, read on…

So Wall Street wobbled and there’s some chat on oil…

Technology jitters sends Wall Street tumbling (The Times, James Dean) highlights weakness in the US markets as shares in the likes of Amazon, Apple and others fell on bits of bad news (which I’ll go into later). * SO WHAT? * Some observers see this as the end of tech’s long bull run but I still believe that the drivers that got them to those dizzy heights are still there. Clearly there are some ongoing data privacy issues and trade-war related bumps in the road, but I don’t see there being any fundamental change in what they are doing.

Oil prices recover after Saudis say production needs to fall (The Guardian, Adam Vaughan) heralds the likely short term (at least) direction for the oil price as Saudi Arabia’s energy minister, speaking after the weekend’s OPEC meeting, talked about cutting production. Khalid al-Falih said that US sanctions on Iran didn’t cut out quite as much capacity as originally expected because the Americans issued sanction waivers for eight Iranian crude importers, plus US oil production is currently hitting new

records. Any formal production cuts are likely to be announced at the next meeting of OPEC, scheduled for 6th December in Vienna.

Oil use in cars set to peak within seven years (Financial Times, Anjli Raval and David Sheppard) is an interesting article that highlights the International Energy Agency’s prediction despite the number of vehicles on the road increasing as populations grow and wealth being spread more widely. The IEA contends that peak oil will occur because of the increased adoption of EVs and more fuel-efficient cars, which will offset bigger driver numbers. In another interesting prediction, it said that total consumption for all motor vehicles, aeroplanes, ships, trucks and the petrochemicals sector between now and 2040 will grow at half the rate it has done over the last twenty years. * SO WHAT? * Sounds interesting, but as I’ve said many times before, everyone needs to get their charging networks sorted for EVs to get proper widespread adoption. In the meantime, I would expect more fuel-efficient cars and hybrids to ramp up in popularity. Battery-makers, battery raw material suppliers and charging network installers should be making a ton of money in the next few years. They will either do it under their own steam or be bought out by oil majors looking to futureproof themselves.

In tech news, Apple suffers supplier blues, Amazon announces its HQ2 and SAP buys Quatrics for a tidy sum…

In Apple shares sink after iPhone suppliers lower outlooks (Wall Street Journal, Tripp Mickle) we see further weakness in Apple’s share price after suppliers Japan Display (which supplies screens for the iPhone XR) and Lumentum Holdings (which makes facial recognition components for iPhones) lowered earnings forecasts due to shipments being reduced, although neither mentioned Apple by name. * SO WHAT? * Everyone has looked at Apple supplier shipments as a lead indicator to Apple device unit sales for quite some time now. Given that consensus is that the smartphone market is maturing, it is unsurprising that suppliers will be feeling the heat. Some say that the maturing smartphone market led to Apple’s recent decision NOT to release unit sales data any more and I believe that this will mean that investors will be monitoring suppliers much more closely in order to make their own best guesstimates which will, in turn, make for very wide variations in company valuations.

It’s boring (unless you are a landlord in these locations, in which case you’ll be wanting to party), but Amazon picks New York City, Northern Virginia for its HQ2 locations

(Wall Street Journal, Laura Stevens, Keiko Morris and Katie Honan) brings a close to the massive guessing game that started when the e-tailer announced last year that it wanted another HQ. The official announcement is expected today. Other big projects for cities outside these two are also expected to be announced. 238 candidates threw their respective hats in the ring at the beginning, they were narrowed down to 20 in January since which time there has been a lot of jockeying for position. The main surprise here is that the company chose two locations and not one and will spread the 50,000 jobs equally between the two locations.

SAP snaps up US survey firm Qualtrics for $8bn (Daily Telegraph, Matthew Field) highlights the rather dramatic news that Europe’s most valuable tech firm SAP bought US survey company Qualtrics for $8bn just days before the US company was to float at an estimated valuation of $5bn. Qualtrics makes survey and research software for 9,000 enterprise customers. Qualtrics’ proposed float was due to follow its biggest rival, Survey Monkey, that went public in September for a $1.25bn valuation. * SO WHAT? * This seems to be the latest in a string of acquisitions by software companies of fast-growing start-ups in a frenzied bid to make sure they stay relevant. IBM recently bought open-source provider Red Hat for $34bn and Microsoft bought GitHub for $7.5bn whilst Adobe bought secured marketing software company Marketo for $4.75bn.

BAT suffers a menthol hangover, SoftBank prepares to float, Tesla UK makes money and Beyond Meat comes to the UK…

Tobacco shares go up in smoke amid US crackdown plan (The Guardian, Mark Sweney and Jasper Jolly) brings attention to the falling share prices of both British American Tobacco (which makes Lucky Strike, Dunhill, Rothmans and Benson & Hedges etc.) and Imperial Brands (which makes Lambert & Butler, Davidoff, Gauloises and John Player Special etc.) as US regulators make moves to restrict the sale of flavoured e-cigarettes and menthol cigarettes. They fell by over 10% and 3% respectively as the market digested the news that came out over the weekend. Philip Morris International (which makes Marlboro) and Altria Group (which runs Philip Morris brands) were also weaker in trading yesterday as the US Food and Drug Administration (FDA) announced that it will ban most flavoured e-cigarettes in shops and bring in a future ban on menthol cigarettes, which will take longer to be finalised. * SO WHAT? * There certainly seems to be a tightening trend in tobacco regulation at the moment and it will be interesting to see whether this approach is adopted in other international markets.

SoftBank plans £16bn float for its mobile phone arm (Daily Telegraph, Matthew Field) brings us news of the Japanese tech company’s intention to float its mobile business, SoftBank Corp, on the Tokyo Stock Exchange.

This is likely to be the biggest share listing in Japan’s history. It will list on December 19th, but the price is to be announced on December 10th. * SO WHAT? * The float will provide SoftBank with more funds to put into its tech investments and ease its transition from legacy internet company to investment giant.

Tesla UK drives into profit as British buyers choose electric (The Times, Harry Wilson) highlights the doubling of revenues last year at Tesla’s British arm after the company delivered 4,500 vehicles to its customers. This helped it to a profit of £809,835 in 2017 having made a loss of £154,619 one year earlier. * SO WHAT? * This is just incremental good news, but good news nevertheless.

Vegan start-up Beyond Meat launches UK expansion (Financial Times, Emiko Terazono) heralds the arrival on UK shores of US plant-based “meat” start-up Beyond Meat as it is to start selling its chilled and frozen products through 350 Tesco stores. Beyond Meat is one of an increasing number of alternative protein companies surfing the vegan wave and includes players such as Impossible Foods (which is, like Beyond Meat, plant based) and Memphis Meats (which makes meat from animal cells). The burger will also be made available in Honest Burger and All Bar One in the UK. * SO WHAT? * This sounds amazing, don’t you think? I guess it will all be about the taste, and I’ve never had one myself so I can’t comment. When I have one, I’ll do a little review and let you know! If it lives up to its hype it could be amazing.

And finally, in other news…

Sometimes, I think you need to give in to your inner fluffy bunny. Today is such a day, so I thought I’d bring you Animal lovers share adorable photos of ‘what their pet’s dating app picture would be’ (Evening Standard, Jacob Jarvis https://tinyurl.com/ybzumkou). Ahhhhhhhhh!

1. In CONSUMER-RELATED NEWS, UK wages and house prices rise
2. In RETAIL-RELATED NEWS, Alibaba sets a new record for Singles’ Day, US fast food chains run out of puff and hedge funds bet against the UK high street
3. In INDIVIDUAL COMPANY NEWS, SoftBank sniffs around UK banking unicorns
4. In OTHER NEWS, I bring you an unusual house. For more details, read on…

So UK wages and house prices are getting stronger…

More employers forced to line up inflation-busting pay increases (Daily Telegraph, Tim Wallace) cites a survey from the Chartered Institute of Personnel and Development (CIPD) which found that 65% of employers believe they will have to hike pay by over 2% next year, versus 52% asked the same question last year. Given that this is against a backdrop of inflation expected to rise at 2.1% next year, this could actually mean that we actually feel the wage increases. * SO WHAT? * This just goes to show the ongoing tightness of the UK labour market as unemployment remains at its lowest levels for 40-odd years. Couple that with dwindling numbers of non-UK

workers in the market and you’ve got a squeeze on your hands.

House prices return to growth (Daily Telegraph, Matthew Field) cites stats from estate agent Your Move which say that average house prices in England and Wales have gone up for the first time since February as they edged up by a modest 0.4% in October. Having said that, the annual price increase was still on a weaker trend of only 1%, the weakest price rise since 2012. Your Move MD Oliver Blake put a positive spin on the current situation when he said “Whilst price growth has slowed considerably in England and Wales, the fact that there is a relatively strong economic backdrop, and there have been three consecutive months of growth, means it’s not all doom and gloom”. * SO WHAT? * The ongoing weakness is pretty much due to economic and Brexit uncertainty as punters get increasingly reluctant to splurge large amounts of cash in case Brexit proves to be a disaster.

In retail-related news, Alibaba wins big, US Fast Food chains hit tough times and hedge funds short the UK high street…

Alibaba pulls in record Singles Day sales (Wall Street Journal, Shan Li) heralds some good news for the Chinese e-tailing behemoth as it swatted aside slowing Chinese domestic growth and US trade tensions to break all previous sales records in the annual online retail frenzy. Alibaba’s Executive Vice Chairman Joe Tsai conceded that the trade war would probably have an effect in the short term, but added that “There are 300 million [in China’s] middle class. In the next 10, 15 years, that number will double to 600 million. That number is not going to stop, trade war or no trade war”. * SO WHAT? * This will no doubt come as welcome relief to Alibaba given that it recently reduced its full-year forecasts due to a slowdown in some sales categories as National Bureau of Statistics figures also reflected online retail sales growth slowing down from 36% in the last quarter to 24% in the current quarter. I would have thought that Chinese consumers are spending less freely at the moment, but this could well be offset in future as it rolled out the Singles’ Day event to six Southeast Asian countries including Singapore, Vietnam and Thailand.

US fast-food chains struggle as poorer consumers tighten belts (Financial Times, Alistair Gray) highlights problems being faced by fast-food outlets despite a booming economy. Restaurant industry data provider MillerPulse found that footfall for US fast-food outlets fell (now there’s a bit of tongue-twister for you) by 2.6% versus a year ago – way worse than the 0.8% year-on-year drop the previous month. Apparently, this is due to increasing consumer demand for healthier alternatives to burgers and pizzas and lower construction activity, which means fewer construction workers buying fast food on lunch breaks (!).

Last week, the owner of Papa Gino’s and D’Angelo Grilled Sandwiches, Papa Gino’s Holdings Corporation, filed for bankruptcy protection and closed 95 of its restaurants and Taco Bueno, which has 169 outlets, also filed for Chapter 11. Wendy’s chief executive Todd Penegor remarked last week that poorer customers were not getting as much benefit from the strong US economy as the more affluent saying that “We are seeing the lowest unemployment levels in a long time, high consumer confidence…but as you look at that income growth, it skewed significantly to higher-income households. On the low end, you start looking at folks with rent and healthcare costs starting to rise that are really eating into some of the headway that they are making”. As a result of this, some chains are offering more customer discounts with Burger King advertising 10 chicken nuggets for $1, McDonald’s introducing a $6 meal deal and Applebee’s offering $1 cocktails. * SO WHAT? * Although the US economy has been cooking on gas, this does go to show that there are still areas that are in difficulty. I would have thought that this will result in accelerated consolidation in the industry as “winning” chains pick up outlets from troubled companies on the cheap or just buy other chains outright to benefit from economies of scale.

Meanwhile, back in the UK, Short sellers bet £1.4bn on tough Xmas on the high street (Daily Telegraph, Tom Rees) shows just how pessimistic some investors are going into the crucial Christmas period as Pets at Home, Marks and Spencer and Debenhams turn out to be the most shorted stocks on the London Stock Exchange as even more data – this time from Springboard, which shows slowing footfall – piles on the pressure. Wickes owner Travis Perkins and B&Q owner Kingfisher are also targets for the short-selling hedge funds as punters keep their hands firmly in their pockets on big ticket items. * SO WHAT? * It’s not looking good for the high street retailers but then again if everyone is saying the same thing, the “upside risk” will be huge (i.e. there will be a massive rebound if the high street confounds the naysayers). Will the consumer have one final hurrah before Brexit?? Given that wages are going up, it is not outside the realms of possibility. 

SoftBank goes unicorn-hunting in UK fintech…

UK fintech unicorns in talks with SoftBank (The Times, Harry Wilson) shows that Japan’s Softie is sniffing around UK fintech unicorns Revolut and Oaknorth as potential recipients of truckloads of cash from its $100bn Vision Fund. Talks with Revolut are at the very early stages whilst those with Oaknorth are said to be more advanced, but a final decision for either is not expected for a number of

months. * SO WHAT? * If SoftBank gets involved, this would be a massive boost for London’s financial technology sector as the Vision Fund looks at investing AT LEAST $100m into its target companies and last year turned Improbable, a British virtual reality tech company, into a unicorn as it ploughed in $520m to bring the company’s valuation to over $1bn. So far, SoftBank’s biggest investment in UK tech is in Arm Holdings, which it bought for £24bn in 2016. Both Revolut and Oaknorth have only been in existence for three years but have attracted huge backing and a big injection like this could help Revolut’s application for a full banking licence that would enable it to provide far more services than its current pre-paid card.

And finally, in other news…

I thought I’d leave you today with the suggestion of a possible photo opportunity in Britain’s first upside down house opens its upside down doors (Metro, Harley Tamplin https://tinyurl.com/ya6vpn8k). Nice.

1. In MACROECONOMIC AND ENERGY-RELATED NEWS, China exports strengthen despite tariffs, the Europeans forecast the UK to have the slowest growth into 2020, oil goes bear, renewables’ costs fall and Toshiba abandons Cumbrian plant
2. In RETAIL NEWS, Sainsbury’s puts the pressure on and Halfords changes gears
3. In INDIVIDUAL COMPANY NEWS, Ford moves into e-scooters and Disney takes on Netflix

So Chinese exports are shrugging off tariffs, Europeans forecast low growth for the UK, the oil price continues to falter, renewables’ costs fall further and Toshiba abandons its plant in Cumbria…

Trump’s tariffs have fully kicked in – yet China’s exports grow (Wall Street Journal, Liyan Qi ad Grace Zhu) cites the latest customs administration data which shows that China’s exports surged again last month – by 15.6% versus a year earlier – on the back of rock-solid demand. Some economists believe this has happened because businesses have frontloaded orders before the tariff deadlines. Imports to China were also up by a healthy 21.4% in October year-on-year and crude oil imports were up a whopping 89%. The trade war continues.

In what has to be a bit of a no sh!t Sherlock moment, UK forecast to have slowest growth in Europe by 2020 (The Guardian, Richard Partington) looks at the latest forecasts from the European Commission which say that, even in the event of a “soft” Brexit, Britain will join Italy to become the slowest-growing economy in the EU next year. Eurozone growth peaked out in 2017, but in recent quarters Britain has overtaken the eurozone. * SO WHAT? * Predicting any European country’s growth right now is a bit of a mug’s game given the problems facing the eurozone’s biggest and most important economy – Germany – and the basket case of Italy, which could yet destabilise the whole shebang. Clearly, so much can happen between now and Brexit that will hugely influence any kind of growth, but I think that most people would expect UK growth in particular to be weak at the start – it’s just how long that weakness will last that is the key.

In energy-related news, US oil enters bear market on rising inventories, worries of oversupply (Wall Street Journal, Dan Molinski) highlights that the WTI crude oil price has now fallen by over 20% since its $76 a barrel peak on October 3rd, taking it into bear market territory. The weakness this week was driven by the Energy Information Administration’s weekly inventory report,

released Wednesday, which showed that US oil inventories rose for the seventh consecutive week with crude oil production in the US reaching a record high. * SO WHAT? * OPEC is meeting this weekend and may decide to cut production to shore up oil prices. Russia, Saudi Arabia and some other OPEC countries have been producing more oil to offset lost Iranian capacity due to US tariffs, but it seems that they overestimated how much to open the taps given that the US granted a number of waivers that mitigated the suddenness of the drop-off.

New wind and solar generation costs fall below existing coal plants (Financial Times, Ed Crooks) heralds an important moment in power generation as a report by Lazard, the investment bank, contends that the cost of new wind and solar power generation has now fallen below what it costs to run existing coal-fired plants in the US. Retirements of US coal-fired plants are expected to hit new highs this year as the older ones reach the end of their working lives and some of the younger ones are no longer economically viable. * SO WHAT? * Trump has actually been looking at subsidising coal and nuclear plants in order to minimise the risk of blackouts that can occur with gas and renewable energy in severe weather conditions but his efforts have been scotched so far. The tide seems to be turning very much in favour of renewables and the cheaper it gets to squeeze power from these sources, the more compelling they will become as economic viability has always been a bugbear for renewables.

Meanwhile, back in the UK, Toshiba pulls plug on plan for nuclear plant in Cumbria (The Guardian, Adam Vaughan) sounds the death knell of the Moorside nuclear plant that was supposed to generate about 7% of the UK’s electricity. Toshiba decided to wind up its NuGen subsidiary after failing to find a buyer. * SO WHAT? * The writing was on the wall when Toshiba’s US nuclear unit Westinghouse went bankrupt last year. South Korea’s Kepco came close to taking on NuGen but then fell back due to new company leadership and a change in the way that nuclear power is financed in the UK. Given that the cost of renewables continues to fall, the long term viability of nuclear looks increasingly tenuous. I must say that I did not expect myself to be saying that even as recently as two years ago, but technological developments in renewables have advanced so quickly that their mass adoption is fast approaching reality.

In UK retailer news, we see arguments for and against “Sasda” and Halfords changes gear…

Funnily enough, debate continues on the merits or not of the merger between Sainsbury’s and Asda in Sainsbury’s boss issues warning over Christmas competition (Daily Telegraph, Ashley Armstrong) as Sainsbury’s chief exec Mike Coupe appealed to the Competition and Markets Authority (CMA), which is reviewing the plans at the moment, to let the merger go ahead by saying “Ultimately the CMA tests if there is consumer harm and we think that there is an overriding case this will benefit consumers as the synergies that will be passed on will mean lower prices for consumers”. As if to underline his point, Sainsbury’s announced a huge 40% drop in pre-tax profits in the six months to Sept 22nd after a number of one-off costs. Sainsbury’s merger ‘will hit shoppers’ (The Times, Deirdre Hipwell) looks at the other side of the argument as Wm Morrison warned that the merger could have a “significant impact” on shoppers and Aldi added that it would “create the largest retailer of fuel in the UK by volume of fuel sold…reduce consumer choice both locally and nationally and have a detrimental impact on suppliers across all categories”. * SO WHAT? * I’m going to stick my neck out here and say that this is all noise. Basically, the CMA is looking at the “Sasda” merger and anyone not involved in it is saying what a bad idea it would be 

(surprise, surprise). I think that the Tesco takeover of Booker last year makes this merger far more likely (that was a melding of two of the top companies in their respective fields and there was a LOT of objection to that) and the fact that it comes as the UK incumbents are all feeling the pinch also feeds into the case for letting it through. No doubt there will be necessary disposals (there always are in these cases) but I would be very surprised if the merger didn’t go through. It would certainly up the ante with both Tesco on the one hand and the discounters on the other. I would, however, be concerned for suppliers, however, as surely the temptation would be there for the enlarged group to screw them.

Profits fall as Halfords changes gear (The Times, Dominic Walsh) highlights woes at Britain’s biggest bike retailer as profits for the first half fell by 23% due to rising costs and investment in its new strategy. The company is looking at no growth until 2021 as it targeted investment in its stores, services and digital offering. The company is going to put more focus on motoring and cycling and shift away from camping equipment, power tools and toys. Other new initiatives include an agreement to sell Brompton foldable bikes, the provision of financial services in its autocentres enabling MoT customers to pay for more expensive repairs and increasing emphasis on cross-selling. * SO WHAT? * It sounds to me like these are all good areas to focus on and decent-enough initiatives. I say thank God they didn’t buy Evans Cycles as that would have put even more pressure on a business that is trying to drag itself out of a rut.

Electric scooters get a boost and Disney takes the fight to Netflix…

There’s quite a lot of chat about electric scooters today as Ford to launch global fleet of e-scooters (Financial Times, Tim Bradshaw) highlights the car company’s efforts to broaden its business horizons by investing in fleets of electric two-wheelers that will be rolled out in 100 cities by 2020 by buying Spin – a Californian scooter rental start-up. Basically, Spin gives you an on-demand electric scooter where the scooters are unlocked and rented out using a smartphone app and can be dropped off anywhere. The French fall in love with scooters (Daily Telegraph, James Cook) makes the case for electric scooters and why it’s taken a while for the UK to let them on the road. * SO WHAT? * This pits Ford against the likes of Bird and Lime that have attracted huge amounts of funding in the last couple of years. It seems to me that this is another big bubble – a bit like the one that seems to be bursting at the moment with bike-sharing – and is liable to be a fad that fades away. The fact that anyone can travel up to 15mph on these things and not be on the road sounds like an accident waiting to happen IMHO. Conclusion – it sounds like fun but I think it will ultimately implode. After all, walking is free (and, I would argue, much safer).

Disney to take on Netflix with TV spin-offs of its hit films (Daily Telegraph, Wil Crisp) shows how Disney is

nearing its goal of taking on the mighty Netflix as it revealed more detailed plans for its TV streaming service. It will be called Disney+ and aimed squarely at the family market. It will have a load of new spin-off programming from its own famous franchises and will include content from its recent $71.3bn acquisition of 21st Century Fox’s entertainment assets. Beginning in 2019, all of Disney’s movies will be removed from Netflix as it vies to become a direct competitor.  * SO WHAT? * I think that this is a very big risk on Disney’s part. I have said before that streaming has been going great so far as original content and bought-in content alike continues to see some deep investment but that there will come a point where consumers will reach a streaming saturation point. After all, how many streamers are you really going to subscribe to? For instance, I already have Amazon Prime because of all the other services it offers and I have a Netflix subscription. Although I have young kids, I’m not going to subscribe to Disney+ because it would just get too silly. When you have “normal” cable or satellite telly, all the channels are bundled together so you don’t really notice them that much. Separating them out just highlights their intrinsic value to your viewing experience and if you bore of watching superhero movies after one month, you will just unsubscribe. Big as though Disney is, I just don’t think it has the power to beat Netflix at its own game. Or Amazon, for that matter. I would be willing to bet you 50p that they will be back on Netflix (at least in part) within the next three years. Yes, wild, I know.

1. In MACROECONOMIC NEWS, we look at the impact of yesterday’s midterms in the US while wage rises in the UK put pressure on employers
2. In UK HIGH STREET NEWS, M&S and Mulberry disappoint while smaller retailers provide hope and London restaurants shut at a record rate
3. In INDIVIDUAL COMPANY NEWS, Samsung brings us a foldable phone, BMW takes a big profit hit and Sophos has a nightmare
4. In OTHER NEWS, I bring you an interesting new ad. For more details, read on…

So life could get a bit harder for Trump whilst UK employers face wage pressures…

Donald Trump now faces an almighty battle with Congress (Financial Times, Edward Luce) takes a look at the implications of yesterday’s midterm election results. The fact that his opposition, the Democrats, now have control of the House of Representatives will mean that Trump is more likely to have to face criminal investigations into his administration and make any kind of measures he wants to pass more difficult to get through in their original form. On the other hand, Republicans increased their majority in the Senate, making it easier for Trump to appoint his favoured candidates to top judicial posts. * SO WHAT? * Democrats are taking control of the House at what looks like the peak of economic growth and any slowdown will be blamed on them although, in reality, this is what is expected to happen anyway as the rosy glow of tax cuts fades away. They are likely to search for evidence to prove Trump is a criminal and that he colluded with Russia in the 2016 presidential campaign so it is eminently possible that the next two years of his term could see impeachment, the firing of special counsel Robert Mueller (who is the one heading the Russia report) and a Supreme Court defending the right of Trump to keep his tax returns 

private. This election has opened a whole new can of worms for Trump so things are likely to get quite interesting.

UK’s rising wages eat into companies’ profits (Financial Times, Sarah Gordon and Naomi Rovnick) shows how many employers are feeling the pinch of rising wages. Shares in JD Wetherspoon fell by 12% after it issued a profit warning due to the wage hike it was implementing from this week and G4S shares took a 17.5% tumble in trading as it joined other companies like Royal Mail and Ryanair in blaming profit misses on higher labour costs. * SO WHAT? * These profit warnings just go to show how salaries have started to rise in the UK after years of going nowhere. The rate of wage growth hit its highest level since the financial crisis in the three months to the end of August and it is the first time that the headline rate of pay growth has exceeded 3% in ten years. If you couple that with the fact that unemployment, at 4% in August, is at its lowest rate since the mid-70s, you can see why labour costs are rising. Despite this, though, higher labour costs have NOTbeen passed on to consumers as consumer price inflation fell from 2.7% in August to 2.4% in September. The other interesting thing to point out as well is that despite this recent upturn in wages, they actually remain below their pre-crisis peak when adjusted for inflation – so there is, in theory, plenty of upside potential. But will it feed through to the embattled high street soon enough to breathe new life into it??

In UK high street news, M&S and Mulberry disappoint, small retailers could spark a revival and London restaurants are closing down at a rapid rate…

Marks’ turnaround fails to spark as sales fall (The Times, Deirdre Hipwell) highlights some pretty anaemic results announced yesterday and showed that the performance of its once-reliable food division was particularly disappointing. Despite having been in a seemingly perpetual state of being revamped over the last ten years, the company’s annual profits have almost halved from £1bn to £580m over that time period. In the latest turnaround plan, its top management team has been almost completely changed and there are plans to close at least 100 stores by 2022, although it sounds like this number could go higher. The new initiatives in the food business include cutting prices, broadening its family appeal and removing confusing multibuy promotions. In clothing, they include a review of which sub-brands need to be culled. It is also investing in its online business and targeted £350m of cost savings. * SO WHAT? * These all sound like good ideas, but they need to come to fruition fast IMHO otherwise this “turnaround” will prove to be as beige as all the others. It was a long time ago, but I remember a very dramatic revamp at the beginning of the 2000’s where M&S started exciting “new” sub-brands such as Per Una and Autograph which were very well received at the time and helped to get the company out of a rut. It doesn’t sound to me like we’ll get such a dramatic kick-start, which is a pity because I think that’s what it needs. FWIW, I believe that M&S needs to dramatically refresh its format (which I think should include simplifying its offering), decide EXACTLY who its core customer is and make a real statement with a co-ordinated ad campaign that gets away from what has become the rather formulaic food soft-p0rn-with-massive-hit-of-the-moment (surely it must have cost loads to use Bruno Mars and Ed Sheeran hits, no?). I worry that if they don’t make a real distinction between the past and present that customers will just make assumptions on their offering and go elsewhere.

Mulberry blames hard times on high street as loss widens (The Guardian, Zoe Wood and Sarah Butler) shows another story of gloom on the high street as the UK’s biggest manufacturer of leather goods reported an £8.2m loss before tax in the six months to 30th September versus a small profit of £600,000 in the same period a year ago. Chief exec Thierry Andretta observed that “the group’s UK business remains profitable although sales have been

affected by the House of Fraser administration, softer UK demand and lower tourist footfall”. The shares are currently down 72% since the start of this year, but rose by 4.5% in trading yesterday as it struck a new deal to open concessions in John Lewis stores.

There is a glimmer of hope for the future of the high street in Small retailers expected to lead revival on the high street (Daily Telegraph, Sophie Christie) as a piece of research from American Express and retail experts GlobalData suggests that small businesses, which are often more agile than their larger counterparts, will be able to meet increasing needs in entertainment services, beauty and fitness over the next few years. The report predicts various categories with growth potential including escape rooms (+81%), barbers (+22%), beauty salons (+24%), hairdressers (+13%) and tattooing and piercing (+20%) and GlobalData’s Maureen Hinton said that growth in online shopping means that the high street needs to make greater efforts to be a service-led and social space. * SO WHAT? * I couldn’t agree more. IMHO, just selling stuff isn’t enough any more. Online retailers often do it at lower prices and with ever-increasing convenience (delivery used to be a real sticking point, but this is much less of an issue nowadays) and so I think that high street survivors need to concentrate on providing what their online brethren can’t – and that’s the CONSUMER EXPERIENCE. Any retailer who can get THAT right stands a decent chance of long term survival in my opinion.

Further to all those chain restaurants having problems these days, London restaurant closures at highest level in decades (Financial Times, Conor Sullivan) would imply that this tide isn’t going to turn any time soon. According to Harden’s London Restaurants guide, 40% more independent restaurants closed in London in the 12 months to September 2018 than last year as the whole industry has suffered from overcapacity and increased costs (both in terms of labour and raw materials because of the weaker pound). The restaurant frenzy was driven in part by property developers who seized on restaurants as a sign of vibrancy, making developments attractive places to locate staff and offices. It has also been driven by the phenomenon that being a restauranteur is “cool”, meaning that there has been a glut of restaurant openings that has been driven by love rather than the bottom line, meaning that returns for everyone have been capped. * SO WHAT? * Although this doesn’t make for comfortable reading for budding independent restauranteurs, there still appears to be life in the industry as recent research from Visa showed that spending on restaurants, hotels and bars rose by 7.7% in September versus the previous year – which I think reflects the whole desire for “experiences” that I was referring to above. It’s just that you have to be extra good to survive a highly competitive marketplace.

Samsung announced a bendy phone, BMW unveils a profit slowdown and Sophos has a shocker…

Those of you who love the latest gadgetry might be interested in Samsung’s new foldable-screen smartphone is 7.3 inches when open (Wall Street Journal, Timothy W. Martin) as the South Korean electronics giant unveiled a new mobile phone with a foldable display – called “Infinity Flex” – that folds like a book and unfolds to reveal a tablet-sized screen. The company said it would be ready for mass production in the coming months. * SO WHAT? * Samsung makes 20% of the world’s mobile phones and it is, like everyone else, suffering from smartphone saturation. A new concept like this – which really breaks the design norm – is obviously intended to break consumer indifference and get them excited about something that is genuinely new (although bendy screens have been around for a while now). The company has held discussions with Netflix and YouTube to see how to optimise content for a folding screen device. Other companies including Apple and Huawei have sought patents for folding models, so it seems like we are definitely on for something new in the coming months and years!

Carmaker BMW suffers 24% decline in net profits (Financial Times, Patrick McGee and Peter Campbell) heralds disappointing news for the German carmaker as

spending on electric cars and costs related to new emissions rules (WLTP) start to bite into margins. This fall in margins has been expected since BMW warned back in September that it wouldn’t be able to sustain its 33-quarter streak of meeting its 8-10% automotive margin target, but the shares fell by 2% in trading yesterday as problems were “even more severe than the market expected”. I just wonder whether all the bad news is already in the price…

Sophos value down by 39pc as forecast bucks trend set by rivals (Daily Telegraph, Hannah Boland) shows a serious cratering in the share price as it shocked investors by cutting its forecasts for the second half of the financial year, having previously said it expected growth in the six months to the end of March to hit the mid-teens. This goes against the upward trend being experienced by competitors, which makes this contrast all the more stark. Sophos stated that “The year-on-year growth rate was impacted by a challenging comparable in our Enduser business [which sells software that guards against hackers], given the dramatic acceleration in demand we witnessed in the comparative period as customers urgently invested in protection against high-profile, global ransomware outbreaks”. Basically, the company saw a MASSIVE boost in orders following the WannaCry outbreak in May 2017 and now they have come back to more realistic levels. I guess they need another big hacking incident to panic customers into spending…

And finally, in other news…

I thought I’d run this one by you today: Vodafone’s new Voxi advert looks like a ‘field of c***s’ say viewers (The Mirror, Steve Myall https://tinyurl.com/y9e47x5k). I don’t know what they’re talking about – it all looks perfectly innocent to me. What do you think??

1. In MACROECONOMIC NEWS, Italy edges towards recession, France and Turkey vow to defy US sanctions on Iran and the Europeans can’t agree on a digital tax
2. In UK HIGH STREET NEWS, New Look turns a corner, Primark gains ground and Prezzo feels the pressure
3. In INDIVIDUAL COMPANY NEWS, Papa John’s sales fall, Ralph Lauren fails to excite and Lloyds Bank cuts deeper
4. In OTHER NEWS, I bring you a teacher’s nightmare-come-true and a Lego machine gun. For more details, read on…

So Italy nears recession, France and Turkey rebel and the EU can’t decide on digital taxes…

Italy at risk of recession as eurozone economy suffers (Daily Telegraph, Tim Wallace) cites the latest IHS Markit Purchasing Managers’ Index (PMI) survey which shows that Italy could fall into recession territory due to a drop in private sector output in October. The Eurozone’s PMI is at its weakest in over two years as Germany’s growth now trails France and Spain, but Italy’s it at its weakest level for five years. Citi economist Guillaume Menuet observed that “Slowing external demand for manufacturers and increasing uncertainty on the domestic economic outlook and economic policies are clearly weighing on Italian growth”. * SO WHAT? * No doubt Italy’s government will use this as a reason to continue to flip the EU the bird on its budget demands and say that austerity is not what the country needs right now. We’ll see soon enough whether they remain defiant or whether they cave as the deadline for budget resubmission gets closer.

Following on from US threats to punish anyone who breaks its sanctions on Iran, France vows to lead Europe in defying US on Iran sanctions (Financial Times, Jim Brunsden and Michael Peel) shows that France is taking a bold stance by setting up a special finance channel (called a “special purpose vehicle”, or SPV) to keep trade with Iran going. French economy minister, Bruno Le Maire, said that “Europe refuses to allow the US to be the trade policeman of the world” and reflected Europe’s deep frustration with Trump’s scuppering of the Iran agreement that had taken so long to put together. The SPV would allow companies to trade with Iran while financial payments would be centralised in Europe. * SO WHAT? * This SPV sounds a bit tenuous currently and is not yet set up properly so, at the moment, it looks to me like Le Maire is all mouth and no trousers. Some may see this as a way for the Euro to chart its own course in a bid to be taken as seriously as the dollar, but I think there is a lot of room here for spectacular disaster or furious back-pedalling. It’ll be interesting to see if any major EU economy jumps onto France’s bandwagon.

Turkey’s Erdogan says he’ll defy US sanctions on Iran (Wall Street Journal, David Gauthier-Villars) is an interesting stance given the Turkish president’s recent efforts to improve relations with Washington as he was pretty unequivocal when he said “We do not want to live in an imperialist world…We will absolutely not abide by such sanctions”. * SO WHAT? * Turkey gets about 50% of its oil and 20% of its gas from Iran, so you can understand where Erdogan is coming from. Although it could get oil from elsewhere, Turkey gets Iranian gas via pipelines under very long-term contracts. Turkey has, in fact, got a waiver from the US for precisely this reason so Erdogan’s robust words are kind of academic. What WILL be interesting to see, though, is what will happen to non energy-related trade with Iran that ISN’T covered by the waiver. Although Erdogan’s words kind of give his countrymen licence to defy the US, I suspect many business leaders will be reluctant to do so. As Umit Kiler, Chairman of the Iran-Turkey Business Council put it, “We have trade relations with Iran and it’s impossible to cut this link at once. But we are taking the US warning seriously”.

In EU states fail to agree plans for digital tax on tech giants (Financial Times, Mehreen Khan and Jim Brunsden) we see that efforts to agree a temporary Europe-wide tax on big online companies by the end of the year have failed. Finance ministers from Denmark, Sweden and Ireland said that they couldn’t back the plan to impose tax based on revenues on the likes of Amazon, Facebook and Google, scuppering efforts by the EU to impose a 3% tax on revenues that would effectively rake in way more money than the current tax regime which bases tax obligations on profits. Spain, Italy and the UK have all said that they will implement their own national taxes if broader agreements cannot be reached by the EU or OECD. * SO WHAT? * I think this tax is destined to fail if it is not applied UNIVERSALLY otherwise the companies concerned will just up sticks and move operations to low-tax countries (or at least countries that give them concessions). It’s all very well now to say as a country that you’ll impose this or that tax, but if companies like Facebook just decide to up and move to another country, it will be very damaging. The EU (and OECD, for that matter) needs to grow a pair and get this done.

In UK high street news, New Look’s profitability improves, Primark gains ground and Prezzo has a tough time…

New Look sales fall but profitability improves (Financial Times, Jonathan Eley) shows that the company is continuing to make progress on turning around its fortunes as profitability is improving and the rate of sales decline is slowing, according to its first half results announcement. Sales in the key womenswear lines were strong and actually ahead of the market by 5.6%, but there was room for improvement in footwear and accessories. * SO WHAT? * This comes as welcome news given that the company entered into a Company Voluntary Agreement (CVA) earlier on this year, announced closure of its China operations and will embark on a further store closure programme after Christmas. The company appears to be delivering on cost savings and going in the right direction, but let’s not get too excited – there’s still a LOT of work to be done here. At least it is heading in the right direction.

And there’s more good news for another UK apparel retailer in Primark gaining ground as rivals suffer (The Guardian, Zoe Wood) as its “cheap chic” continues to strike a cord with shoppers. It posted a modest sales increase of 1.2% in the year to  15th September despite a

tricky second half where the summer heatwave repelled some shoppers. Primark is the UK’s #3 clothing retailer after Next and M&S and does NOT sell online (unlike everyone else). George Weston, chief exec of Associated British Foods which owns Primark, gushed that “The performance in the UK was striking, with a significant increase in our share of the total clothing market”. * SO WHAT? * In contrast to New Look, Primark is aiming to INCREASE its selling space by 1m sq ft over the next year with stores planned for continental Europe and the UK, where its planned 160,000sq ft Birmingham branch will be its biggest shop to date.

Prezzo feels the pain of restructuring process with losses (Daily Telegraph, Oliver Gill) looks at another company that is going through a painful restructuring process currently. After the company shut 94 of its restaurants in February as part of a CVA that also saw rents cut by 25-50% at 57 sites – and fending off an acquisition attempt by buyout firm Carlyle – Prezzo is focusing on 186 “profitable-only restaurants”. * SO WHAT? * Given that it posted a loss before tax of £64.7m in the year to December 2017 versus a profit of £5.3m over the same period in 2016, it still has quite some way to go before it can take its foot off the gas. Chief exec Karen Jones pointed out that “The 2017 results are a reflection of the effects of the headwinds facing the casual dining sector and the performance and shape of the business during that year, not as it is today”.

In other news snippets today, Papa John’s continues to suffer, Ralph Lauren fails to excite and Lloyds Bank cuts even more staff…

Papa John’s sales fall for fourth consecutive quarter (Wall Street Journal, Julie Jargon) shows that the company’s woes are continuing as it announced declining sales for the fourth quarter in a row, adding to pressure to do something drastic to turn things around. The company’s troubles all started late last year when founder John Schnatter made comments that were interpreted as being racist as he criticised the NFL’s handling of its players’ national anthem protests. He then stepped down as CEO from the pizza business he founded in 1984 in December and then relinquished his post as chairman after saying the “N” word during a marketing call in July. * SO WHAT? * The vultures are circling as they can smell blood here. OK, so the founder is toxic and still holds 31% of the shares, but there is surely upside to be had if an acquisition can be made at the right price. There are a number of potential buyers here, so this will be a story that will continue to unfold.

Ralph Lauren weighed down by sluggish store sales (Wall Street Journal, Suzanne Kapner) shows that, despite increasing marketing spend by 30% in the latest

quarter to celebrate its 50th anniversary, same-store sales actually declined in North America, although overall revenues were up by 1.6%. Although the shares fell 6.6% in trading yesterday following the news, they have actually gone up by 32% on the year. The company is trying to reposition itself to appeal to a younger audience and is expanding its sales channels currently. Chief exec Patrice Louvet said that these moves are showing signs of working as online searches for the “Ralph Lauren” brand were up strongly, according to Google Analytics.

Meanwhile, back home in Blighty, Lloyds sheds 6,000 roles in digital overhaul (The Times, Katherine Griffiths and Patrick Hosking) makes for unwelcome reading if you are an employee of the bank, as the bank tries to get more digital. So far, it has axed 65,000 staff since 2009 – which excludes the 9,000 they got rid of when its TSB offshoot was sold off as part of the taxpayer bailout. The bank said that it would, on the other side, create 8,240 jobs in digital banking that would create a net 2,000 jobs over time and thinks that about 75% of the new roles can be filled by existing staff (although that has been described by critics as “totally unrealistic”). Since the bailout following the financial crisis, Royal Bank of Scotland has cut headcount from 200,000 to 70,000, Barclays from 135,000 to 80,000 and HSBC from 295,000 to 234,000. On the other side, Standard Chartered has increased headcount from 75,000 to 86,000 over the same period. * SO WHAT? * You can see why being a bank manager is not quite the career it once was…

And finally, in other news…

Today, I thought I’d bring to your attention what must be many teachers’ nightmare scenario in Teacher accidentally plays p0rn to entire class full of students (Metro, Harley Tamplin https://tinyurl.com/yakv2u6o). Oh dear. On a slightly higher brow note (but it’s only slightly higher brow), this is pretty impressive: Japanese Lego genius rigs up a working machine gun made of plastic blocks (SoraNews24, Katy Kelly https://tinyurl.com/yarzybyn). I must confess that I watched “Lego Masters” on Channel 4 last night – they should definitely set THIS as a challenge!

1. In TARIFFS AND SANCTIONS NEWS, US farmers express disappointment, China’s neighbours look to benefit and Iran expresses defiance in the face of major US sanctions
2. In UK NEWS, the services sector, retail sales and car sales all slow down
3. In INDIVIDUAL COMPANY NEWS, SoftBank backs the Saudis and Lidl puts the pressure on others by raising wages
4. In OTHER NEWS, I bring you Mo Salah/Leo Sayer. For more details, read on…

So US farmers are p!ssed off, China’s neighbours are quietly hopeful and Iran remains defiant in the face of sanctions…

I thought that there were some interesting points of view in today’s papers on the effects of the current US/China/rest of the world trade war and Farmers round on Donald Trump as demand for soybeans dries up (Financial Times, Demetri Sevastopulo) paints a picture of disgruntled farmers who voted Trump into office because they believed he would protect them, not torpedo their biggest buyers of soybeans. China imposed retaliatory tariffs on US soybean imports after Trump started his trade war and so demand for their product dried up overnight. Their losses may be mitigated in the short term because they have crop insurance and forward contracts to sell soyabeans plus the government created a $12bn buffer to reimburse them. However, these protections will fade away the longer the trade war drags on – and China may, in the meantime, find other long-term markets.

China’s neighbours could win from US tariff tussle (Wall Street Journal, Mike Bird) takes a look at which countries are actually benefitting from the trade war as US importers look to source elsewhere in the Asian region. Bank of America Merrill Lynch economists point to Taiwan, Vietnam and South Korea as countries with the most to gain as they have similar export profiles to China. Countries in the region could also benefit from investment being diverted away from China – a survey conducted by the American Chamber of Commerce in South China and published last week indicated that about 70% of companies are considering relocating some or all of their manufacturing out of China, with Southeast Asia being the preferred alternative destination. In terms of which sectors might benefit, tech companies in Vietnam and Malaysia could be winners while Thailand could benefit from its expertise in auto parts production. Other imports such as shoes, toys and textiles could all be sourced from Vietnam, India, Bangladesh and Indonesia whilst electrical

equipment and machinery can also be sourced in Mexico, Turkey and South Korea. * SO WHAT? * I have found in the past that the often skewed nature of supply chains only becomes apparent when something major – like a natural disaster or, in this case, a major trade war – causes a breakdown. There is then a realisation by industries and individual companies that they have been overly reliant on only a narrow range of suppliers, which then forces them to look at other options. We are now in such a situation and this may prove to be a real long term boon to countries in the region. Guessing which countries, industries and companies will benefit is always a bit of a game, but it is an exercise worth doing as the upside for some of the affected parties can be enormous and long-lasting.

Trump warns world against breaking Iran oil embargo (Wall Street Journal, Ambrose Evans-Pritchard) underlines the serious intentions of Trump’s reimposition of sanctions against Iran, with US Secretary of State Mike Pompeo warning that “doing business in Iran in defiance of our sanctions will ultimately be a much more painful business decision than pulling out of Iran”, with violators facing “swift and severe” penalties. The intention is to force Iranian exports to zero and the US justifies the action by alleging Iran’s links to terrorists, its supply of missiles to the Houthi rebels in Yemen, the use of Shia militia to destabilise Iraq and its support for Assad in Syria. Funnily enough, this hasn’t gone down well in Iran as per Iran vows to ‘break’ sanctions as US reimposes ban on oil (Wall Street Journal, Asa Fitch, Ian Talley and Courtney McBride). * SO WHAT? * This has serious implications for EVERYONE because it means that a chunky amount of oil supply is just going to disappear at a time where supply has already been dented for one reason or another. Although oil demand is slowing as global economic growth cools, this hole in supply will be difficult to replace even if the Saudis say that they can plug it. David Fyfe, former chief oil analyst for the International Energy Agency warned that “…if crude prices go durably above $100 it will push the world into recession, given all the issues in emerging markets right now”. Basically, no-one can afford to p!ss off the Americans, so Iran is going to have a very tough time. However, if it turns out that Trump has overcooked it, we are ALL going to have a very tough time.

In UK news, the services sector, UK retail sales and new car sales all take a dive…

In incredibly uplifting news (not!) on the UK economy today, Services sector close to stalling amid concerns over Brexit crash (The Guardian, Richard Partington) cites data from the latest report published by IHS Markit and the Chartered Institute of Procurement and Supply (CIPS) which shows that business activity for the last month has experienced a marked slowdown in the last quarter of 2018 which would imply that we’re getting a dose of reality after what proved to be a decent summer. * SO WHAT? * The UK services sector – which includes hotels, restaurants, transport and finance – accounts for 80% of our GDP and expanded at its slowest pace since March. CIPS group director Duncan Brock observed that “Many of the respondents attributed this poor performance and the biggest softening in new order growth since July 2016 to continuing ambiguity around the Brexit negotiations”.

Then there was even more unbridled joy for the UK

economy in Sluggish sales as shoppers play it cool (The Times, Deirdre Hipwell) which cites figures from the British Retail Consortium (BRC) and accountant KPMG which show that total UK retail sales actually rose this month, taking us above the three-month average but falling short of the 12-month average. Helen Dickinson, chief exec of the BRC, warned that “Brighter weather and the anticipation of better deals in the Black Friday November sales have dampened demand for discretionary purchases”. * SO WHAT? * Retailers are now in the run-up to the crucial run-up to Christmas where they make the majority of their annual profits. They’ve got everything to play for, but the signs aren’t looking particularly encouraging at the moment.

New car sales down despite electric surge (The Times, Robert Lea) looks at the latest figures from the Society of Motor Manufacturers and Traders which show that new car sales are still falling overall despite a rise in the purchase of electric and plug-in hybrid vehicles, which now account for almost 7% of all sales. The main reason for the overall fall is the continued tail off in demand for diesels. In terms of marques, Ford remains #1 (accounting for 10% of the sales of new cars), VW is #2, Vauxhall is at #3 but Mercedes-Bend and BMW are snapping at the latter’s heels.

SoftBank reiterates its support for the Saudis and Lidl ups staff wages…

In SoftBank reaffirms investment ties with Saudi Arabia (Financial Times, Kana Inagaki) we see that SoftBank reaffirmed its loyalty to Saudi Arabia as the company’s quarterly profit shot up over fivefold due to massive returns from its Saudi-backed $100bn Vision Fund. SoftBank’s chief exec Masayoshi Son condemned the Khashoggi killing but confirmed that the Vision Fund would continue to manage the money that had already been accepted (funny that, eh?), although he did not commit to accepting more. Shares in SoftBank itself have fallen by 22% since

the whole Khashoggi episode came to light. * SO WHAT? * Doubt surrounding a “Vision Fund 2” comes at a time when SoftBank’s traditional “cash-cow” Japanese telecoms business is suffering a slump. Son said he would cut the company’s headcount by 40% (!) to remain competitive but really this is a sideshow compared to what’s going on with Saudi Arabia. It will be nigh on impossible IMHO for SoftBank to sever ties with the kingdom given that the Saudis have committed $45bn to the flagship fund as part of its overall strategy to wean itself off reliance on oil revenues.

Lidl piles pressure on rivals with boost to hourly wage (Daily Telegraph, Sophie Christie) shows that the discounter is turning the screws on its rivals by boosting wages for its staff. The new rates will come in to force from March 1st next year and are in line with the new voluntary Real Living Wage rates I talked about in yesterday’s Watson’s Daily.

And finally, in other news…

I thought I’d bring you an interesting objet d’art today in Mohammed Salah statue: Football fans ridicule bizarre depiction of Liverpool star (Sky.com, Ajay Nair https://tinyurl.com/y93xf2o6). OMG. It would be interesting to know what the subject himself thinks of it!

1. In TARIFFS NEWS, US and Chinese companies alike suffer from the Trump tariffs
2. In TECH NEWS, Apple changes tack and one insurer taps into health devices
3. In RETAILER-RELATED NEWS, the Patisserie Valerie chief cuts some of his jobs, the Wagamama deal gets panned by some and the living wage recommendation rises
4. In OTHER NEWS, I bring you an interesting new museum. For more details, read on…

So companies on both sides of the trade war are suffering…

Companies face the tariff pinch (Wall Street Journal, Theo Francis) shows that US companies are currently managing to cope with rising tariffs by putting through price increases and rejigging their supply chains – but warn that this can’t continue indefinitely. Tariffs have slowed US timber and grain exports right down and raised prices for many other goods. Even heavy-equipment maker Caterpillar, which is still doing pretty well because it has assembly operations in both countries, faces higher raw material costs. * SO WHAT? * The fact is that Trump’s tariffs are going to affect all companies differently with winners and losers at either end of the scale. Interestingly, data from Refinitiv suggests that Q3 earnings for S&P500 companies will rise to 27.1%, the third consecutive quarter of 25%+ earnings increases, but analysts say that as much of a third of that is due to last year’s US corporate tax cut and is likely to tail off next year. The question is, will Trump just ride the wave he instigated by the tax cuts and continue to put pressure on the Chinese, or will he take action before he is forced into doing so? I think he’s got a bit of a window between now and the end of the first quarter of next year during which he will have more of the initiative, but if he leaves it too long he will get increasing pressure from industry to clarify the long-term situation.

Alibaba cuts revenue forecast, citing uncertain economy (Wall Street Journal, Yoko Kubota) looks on the other side of the tariff divide as Chinese e-tailer behemoth Alibaba decided to cut its full-year revenue forecast by

between 4 and 6% due to a China economy slowing to its weakest pace in almost ten years. It seems that the uncertainty engendered by the trade war is having a negative effect on Chinese consumers, hitting Alibaba directly, but it is also facing increased domestic competition from the likes of JD.com and Pingduoduo. The latter phenomenon means that its grip on online advertising isn’t quite as strong as it has been, which is bad news for its non-retailing earnings. Last week, Chinese tech giant Baidu, blamed a slowing Chinese economy for potentially holding back its revenue growth. * SO WHAT? * I suspect that the US-China trade war is going to be the most common excuse for companies falling short of their earnings targets. If the big boys are using it, I’m sure that everyone else won’t be averse! Alibaba’s exec chairman Jack Ma said that he expects the trade war with the US to continue for up to 20 years and that businesses in both countries would feel the pain. Although I don’t think it will last anywhere near that long, I guess that what he is really saying is that companies need to dig in for the long haul and any agreement will at least provide some upside. IMHO, the thing with China is that it can hide its pain better than the US can because the Chinese government is far more able to fudge the figures than the Americans so it can perhaps look stronger for longer. For instance, if it does not manage to hit its year-end GDP growth target, I think that an outside observer could look at it as a win for Trump. China would not want that, so I would bet my mortgage that it somehow, miraculously, manages to hit it. And it can keep doing that – whereas Trump doesn’t have that luxury. At least he has an economy running on jet fuel currently – but even that won’t continue forever. If Trump wants a second term, a good way of ensuring that would be to do a trade deal with China that’ll make both leaders look good.

In tech news, Apple gets coy and an insurer looks at health trackers…

Facing iPhone troubles, Apple tries to change the story (Wall Street Journal, Tripp Mickle) carries on the chat from Apple’s results last week where it said that it will no longer report unit sales of its devices – a metric that it has provided since the 1980s. Basically, this has come to pass because punters are holding onto their smartphones for longer resulting in a major slowdown in sales growth. Apple has so far responded by pushing software and services and raising prices on its new gadgets. * SO WHAT? * Investors generally don’t like surprises, and this is something that will make their spreadsheets harder to update given that this is a data point they’ve had access to for quite some time. From the company’s point of view, though, this gives it more breathing room and will mean that investor focus will shift to margins as well as the rapidly-expanding services business over time. It does look to outsiders, however, that the company has something to hide – but I guess Apple being Apple, it will just get away with it as long as it maintains or grows its margins. Overall, I think that this move makes Apple more opaque but then it is probably a reasonable way to force investors to look more at the services business which it hopes will continue to grow at a rapid clip. It won’t stop investors grumbling, though – and it may actually mean that other handset makers will go down the same road given that the WHOLE smartphone market is maturing.

Insurer taps into trackers to reward healthier consumers (Daily Telegraph, Robin Pagnamenta) heralds the potential future direction of things as one South African insurance company, Vitality (a division of the £6bn Johannesburg-listed insurer Discovery) is starting to use steps recorded by apps and fitness devices included Fitbits and Apple Watches, to reward consumers who can show that they have improved their lifestyle. Much in the same way that car insurers lower insurance to drivers who install telematics to monitor their driving, now health insurers are trying to do the same with people. Vitality offers life and health insurance globally via partners including Generali, Sumitomo and ASA using a tiered programme of “financial incentives” to customers who attain specific fitness objectives. Incentives include free coffees at Starbucks (that presumably exclude cake), free monthly subscriptions to Amazon Prime and Premier League footy matches. Members who can demonstrate a sustained lifestyle improvement can then qualify for a platinum, gold or silver membership scheme whilst enjoying lower premiums. * SO WHAT? * Although this sounds great in theory, I think it sounds highly intrusive and thus only for those who “trust” that they won’t be hacked somehow. Mind you, if the only data that can be hacked is your heart rate and the number of steps you did then maybe it’s not so bad. The problem would be is if this gave hackers a gateway into your connected devices somehow with more sensitive information. Having said that, I really think that this is going to be a major area of growth as more people get access to and use health trackers of various kinds. It means that customers are incentivised to live healthier lives and insurance companies get a “less risky” client base. If one were to invest in this kind of thing, I would have thought that companies that provide software that increases data security of these devices will be hot property.

Patisserie Valerie’s boss gives up some of his side jobs, the Restaurant Group gets stick over its purchase of Wagamama and there’s a recommendation for the living wage to rise…

In a quick roundup of some of the latest news on the UK high street, Patisserie boss gives up pay and some jobs on boards (The Guardian, Sarah Butler) shows chairman Luke Johnson, who clearly wants to avoid watching daytime TV in his pants, making some fairly obvious concessions to turnaround the business at his troubled cake shop. He has waived his £60,000 salary and has promised to reduce his outside activities. Just to give you an idea of how broad his outside interests are, in addition to being the chairman of Patisserie Valerie, he is on the board of 17 companies, over half of which he is also chairman. The list is long and impressive, but given the car-crash of Pat Val, you can understand why investors want him to focus more on the job at hand.

Further to last week’s news, Investor doubts growing over Wagamama takeover deal (Daily Telegraph, Oliver Gill) shows that investors expressed their displeasure by sending shares of the Restaurant Group down by around 20% on the news mainly because they think the price for Waga’s was too high and that it didn’t make any strategic sense. This could put the deal under threat, but we’ll just have to wait and see.

Just as retailers and other low-payers were getting used to the new minimum wage, Living wage increase brings pay rise for 180,000 workers (The Guardian, Richard Partington) shows that the Living Wage Foundation, which over 4,700 companies are signed up to, has increased the UK living wage by 2.9% outside London and 3.4% in it. The foundation is encouraging employers to introduce the new rates immediately, but companies will in actual fact have until May next year to implement the pay rises. * SO WHAT? * This sounds great for employees but will pile the pressure on to employers who have just about got used to the latest wage hike and are having to contend with Brexit uncertainty, consumer sluggishness and increased competition. I suspect this could tip some over the edge.

And finally, in other news…

I thought I’d bring you news of a lovely new museum you might want to go and visit: Rotten shark made you queasy? A vomit bag for every guest at the Disgusting Food Museum (Reuters, Marie-Louise Gumuchian https://tinyurl.com/yawns6k4). Casu Marzu cheese riddled with insect larvae, anyone? Yummy.

1. In TECH NEWS, we see the ups and downs for Apple and Spotify
2. In CARS NEWS, Volvo commits to shipping driverless cars and Subaru and Toyota announce an expensive recall
3. In REAL ESTATE-RELATED NEWS, the UK’s north/south divide continues on prices and WeWork ditches the bottomless keg
4. In INDIVIDUAL COMPANY NEWS, Starbucks delights and Patisserie Valerie survives
5. In OTHER NEWS, I bring you a giant effigy of Boris Johnson. For more details, read on…

So Apple fell despite record revenues and Spotify took a beating…

Apple shares slide despite record result (The Times, James Dean) highlights Apple’s fourth consecutive quarter of record results, but it seems that investors were more focused on iPhone sales that were weaker than expected. The services business, which includes Apple Pay and Apple Music, put in another strong performance. Apple touts this as being a future growth driver – and I believe this as it is the glue that makes Apple products so “sticky” – but it still pales into comparison with handset sales. * SO WHAT? * Given that the company makes two-thirds of its revenues from its iPhones, you can see why the share price lives or dies by numbers of units sold, despite the average selling price rising from $793 versus the forecast of $751. Maybe I’m wrong, but I think that jacking your prices up to increase average selling prices can only work for so long before people start to abandon your product because it just becomes too darn expensive. Given the alternatives on 

offer, I don’t think that Apple can rely on this tactic for too long because there will be a limit on how much people are willing to pay for a phone.

Spotify shares fall more than 9 per cent (Financial Times, Anna Nicolaou) shows investor disappointment with the music streaming company’s announcement that it had not been able to hire enough people to keep up with its ambitions. The company has been throwing money at R&D with machine learning being a particular focus in a bid for the world’s biggest streamer to stay ahead of rivals Apple and Amazon, but the company feels that it just hasn’t been able to hire people fast enough. Spotify added 4m new paying subscribers in Q3 to make a total of 87m paying subscribers out of a total of 191m total users. * SO WHAT? * This is clearly a bit of a disappointment, but there could be more trickiness to come as negotiations with large record labels regarding royalties are due to begin in the coming months and could have a major impact on Spotify’s gross margins. Spotify has been rattling the cages of some music labels recently by approaching artists individually, but I guess there’s a delicate balancing act because they won’t want to alienate the labels for the sake of eeking out a better margin.

In car news, Volvo announces plans to ship driverless cars to Uber and Subaru and Toyota announce an expensive recall…

In Volvo to start shipping self-driving cars to Uber next year (Financial Times, Peter Campbell) we see that Uber and Volvo’s driverless ambitions are back on following that fatal accident in March this year, which effectively stopped development in its tracks. The companies agreed a deal last year to sell up to 24,000 XC90 SUVs to Uber to be fitted with self-driving systems but testing halted abruptly after one of its cars hit a pedestrian. Volvo also said that it was engaging with China’s Baidu to develop vehicles for the internet group’s self-driving programme. * SO WHAT? * This is obviously good from Volvo’s point of view, but unsurprisingly, there’s not been much further detail on the exact timing of the deliveries to Uber. The Baidu thing is a positive development, though, given that China is the 

world’s biggest car market and that this marks the first time that a foreign company has worked so closely with Baidu, which has developed the open-source autonomous driving platform called Apollo. Interestingly, this comes a day after Ford announced it is using Apollo to test its own vehicles in China. Mercedes is also using Apollo.

Subaru and Toyota to recall more than 400,000 vehicles globally (Wall Street Journal, Sean McLain) highlights an expensive recall for Subaru that will affect its popular Forester sport-utility vehicle, the Impreza compact, the BRZ sports car and the Subaru-made Toyota 86 sports car. The company is recalling vehicles to repair an engine part that could cause stalling and could take 12 hours to perform. * SO WHAT? * This is worse for Subaru than it is for Toyota as Toyota’s vehicles only account for 80,000 out of the 400,000 to be recalled. Subaru’s operating profit expectations have almost been cut in half to take into account the recall costs and the company promised more detail to come. As long as this doesn’t escalate and more problems don’t occur you would have thought that this admission will put a line under the recall impact. Let’s hope for Subaru’s sake that there are no more surprises.

In real estate news, we continue to see the north/south divide in UK property prices and WeWork ditches the bottomless beer…

There were two separate reports out that commented on UK house prices. House prices in north of England forecast to rise fastest in next five years (The Guardian, Julia Kollewe) cites data from Savills, the posh estate agent, which predicts that property prices will rise fastest in the north-west of England over the next five years, by 21.6% and Property prices growing at slowest rate for five years (Daily Telegraph, Sophie Christie) looks at data from Nationwide, the mortgage lender, which shows that uncertainty about the economy and tightening household budgets is taking its toll. * SO WHAT? * This just tells us what we already know – that consumers are getting increasingly reluctant to fork out huge amounts of money at a time of economic uncertainty. I’m not entirely sure as to what the catalyst is going to be for strong house prices oop north, but maybe its just a case of playing catch-up with the south.

Some of you may be aware that WeWork offices have offered tenants in their serviced offices free beer as part of the whole trendy shared-office vibe. Well WeWork puts four-beer limit on once-bottomless kegs (Wall Street Journal, Eliot Brown) shows that the (beer-fuelled) good times are coming to an end as it has started to limit the amount of free beer on offer. WeWork, which was founded only eight years ago, leases big office spaces from landlords and then sublets them to start-ups and divisions of large companies. The beer thing has been part of its culture from the off and some are saying that the limits are being imposed to appeal more to the larger customers who may have been scared off by the party culture the free beerage has engendered. * SO WHAT? * I think this is just a case of a company growing up. Bad behaviour is bound to follow the provision of limitless amounts of alcohol (resulting in needless and expensive litigation) and so this could actually help to broaden WeWork’s appeal. At the end of the day, if you’re a tenant who likes beer, I say just go to the pub like anyone else! Breakout areas feeling less like a frat party should definitely help to attract more tenants and stimulate continued growth.

In individual company news, Starbucks unveils stronger sales and Patisserie Valerie survives…

Starbucks satisfies investors with stronger sales, but traffic still weak (Wall Street Journal, Julie Jargon) signals some good news for the coffee giant as higher prices helped it to deliver its strongest quarterly sales gain in over a year, but its domestic market continues to look quite sluggish in terms of attracting more customers. The new chief exec Kevin Johnson is concentrating on finding the preferences of more visitors so the company can better target them with offers that coincide with their ordering behaviour via its mobile app and its loyalty programme. He’s also trying to rejig how his employees spend their

time so they can better focus on customer service as well as experimenting with healthier Frappuccinos and closing underperforming stores in crowded areas with high rents. The company is also slowing the growth of licenced stores in airports and supermarkets. * SO WHAT? * I think that all these measures show Starbucks’ admirable attention to detail and willingness to really focus in on what its customers really want. Charging higher prices will help them for a bit, but giving customers more of what they crave is what is really going to power the company IMHO.

Just to square off a story that’s been going on for the last three weeks, Patisserie Valerie £15m rescue deal is approved (Daily Telegraph, Oliver Gill) shows that the troubled baker managed to get shareholder approval for a vital bail-out yesterday amid a heated general meeting yesterday. One shareholder said “Why are you holding a gun to our heads?”, to which the company’s executive chairman Luke Johnson replied, “This was the only solution we could come up with”. Nice. The rescue package was approved by 99% of investors.

…And finally, in other news…

I thought I’d leave you today with ideas for bonfire night in Boris Johnson effigy to go up in flames on bonfire night in Edenbridge (Sky News, https://tinyurl.com/y9xno5dh). There are various examples of previous celebs who have gone up in flames over the years – and it’s not just politicians who get the heat treatment!

As always, thank you for reading Watson’s Daily!

1. In UK RETAIL NEWS, Next delivers but Mothercare eyes job cuts
2. In CAR-RELATED NEWS, JLR considers drastic action and Panasonic gets hit by increased battery demand from Tesla
3. In INDIVIDUAL COMPANY NEWS, Samsung unveils record profits, GSK raises profit guidance and Coca-Cola holds back on marijuana beverages
4. In OTHER NEWS, I bring you two optical illusions – one of which you just can’t unsee. For more details, read on…

So Next sees a contrast between online and offline and Mothercare’s troubles continue…

Wolfson ponders next step as high street fails (The Times, Deirdre Hipwell) illustrates just how important online shopping is to Next as it unveiled quarterly results yesterday that showed a stark contrast between online and offline channels. Sales at its physical shops continued to fall by 8% in the quarter and 6.3% over the year whereas its online directory business showed sales up by 12.7% in the quarter and 14.8% on the year. Chief exec Lord Wolfson observed that “what’s changing is the way people are ordering, are buying clothes, and we’ve just got to be adaptive enough to make sure that we continue to be front of mind when people are buying clothes”. * SO WHAT? * Next is seen to be a bellwether of the UK high street, so its fortunes are closely watched. The contrast in fortunes between online and offline just provides further evidence of the continued shift in customer behaviour. I really think that it’s important for the company not to neglect its stores, though, as decent formats and an exciting offering should help to keep Next uppermost in customers’ minds when clothes shopping on either channel. This is also something that Next has that online retailers, such as Amazon and Asos for instance, don’t have and it can serve to be their distinctive feature.

Mothercare cuts jobs in head office overhaul (The Times, Deirdre Hipwell) heralds bad news for Mothercare

employees as 200 jobs are due to be cut at head office as the troubled retailer continues to cut costs only months after being rescued by creditors. There are currently 500 staff employed at Mothercare HQ. Mothercare is one of Britain’s biggest maternity and children’s retailers – it still has a 40% market share in pushchairs – but it has been suffering in recent years with expensive store leases, rising costs, weaker footfall, an unpredictable overseas business and a sub-par online business. * SO WHAT? * Maybe I’m wrong in thinking this but I tend to believe that cutting jobs at head office is often symbolic more than anything. In taking such action, the company is trying to convey the message that it is serious about shaking things up – so much so that it is willing to cut from the heart of the business. In Mothercare’s case, I think that this is the equivalent of rearranging the deck chairs on the Titanic and that they need to do much more to avoid that iceberg. It has a great name that people know and if it can rejig its offering to take advantage of that I am sure that it can do well because, to my mind, the main shoppers are parents who are generally knackered and looking for an easy life. If they know that they can go to Mothercare for all their needs and have a positive experience, then I think they will continue to come back for more – and for many years. I mean, there aren’t exactly loads of other direct competitors are there? Jojo Maman Bebe and perhaps kids’ sections of other brands (e.g. GapKids) are around for clothing, but I can’t think of anyone else that has the range that Mothercare has. Yes, you can get bottles and bibs etc. online, but if you can tempt the punters in when they are wandering around the high street in a state of exhaustion they will buy IMHO!

In car-related news, JLR takes further action and increased demand for Tesla’s Model 3 dents Panasonic…

In More Jaguar jobs at risk in £2.5bn cost-cutting drive (The Guardian, Jasper Jolly) we see that the 40,000 employees at Jaguar Land Rover face further threats of job losses as part of a £2.5bn plan to cut costs and free up cash that was announced yesterday. The company has also imposed a freeze on all recruitment and non-essential travel as it continues to face up to falling demand for its cars. This comes after it announced 1,000 job losses at its Solihull plant in April and only shortly after the Castle Bromwich plant in the West Midlands went to a three-day week as the company continues to struggle with Brexit uncertainty, the anti-diesel backlash and a weaker Chinese market. * SO WHAT? * It never rains but it pours for poor old JLR as it seems to be a victim of forces beyond its control. In the meantime, it’s time to hunker down and 

weather the storm – which isn’t going to be of much comfort to JLR’s employees. For things to turn around at JLR, the needs to be more clarity on Brexit and the government’s stance on diesel (I can’t see that happening any time soon) and/or the whole US/China/world trade tariff thing being ironed out (which I think is more likely to happen in a reasonable timeframe). Until then, JLR will continue to get a hiding IMHO.

Tesla’s Model 3 rush costs battery maker Panasonic (Wall Street Journal, Sean McLain) highlights losses for Panasonic, the company that makes the batteries for Tesla’s Model 3, because of the sudden increase in demand for the electric sedan. Panasonic said that it had to up production more quickly than anticipated, necessitating the hiring of more workers at the Nevada “Gigafactory” that it jointly runs with Tesla. This pushed up fixed costs and edged the business into the red. * SO WHAT? * This sounds like a short term problem to me – and the company itself believes that it will benefit from increased Tesla sales in the second half of the financial year. Tesla is Panasonic’s main battery customer, but obviously it plans to sell more to other manufacturers to ensure it doesn’t put all its eggs in one basket.

Samsung announces record profits, GSK ups its profit guidance and Coca-Cola mellows on its marijuana beverages…

Samsung warns on outlook as profit hits another record (Financial Times, Bryan Harris) shows a stellar performance on the one hand as the company benefitted from strong global demand and high prices for semiconductors which boosted its operating profits by 20% on the year for Q3, but then on the other hand warned of an upcoming slowdown. The downbeat outlook is due to an expected decline in memory chip prices, China’s ramping up of capacity and lower seasonal demand – and given that 80% of the company’s profits come from its memory chips, you can see why the company is painting a pessimistic picture. * SO WHAT? * Prices for memory chips have boomed over the last two years, powered by burgeoning demand for high-powered computer servers as well as gaming and cryptocurrency mining devices but state-supported Chinese competitors want a piece of the action, meaning that supply is now increasing. The company is also facing potential fallout from the US-China trade war and Shinhan Investment analyst So Hyun-chul observed that “China’s economy is faring worse than expected now and Korean companies are largely dependent on the Chinese market. The issue is now whether Samsung is likely to have a hard or a soft landing”.

GSK raises profit guidance as its shingles vaccine outperforms (Daily Telegraph, Julia Bradshaw) highlights the good news for Britain’s biggest

drug maker as it raised its full-year profit guidance by 8-10% on the back of strong sales of its Shingrix shingles vaccine in the US which proved to be more popular than expected with the over-55s. CEO Emma Walmsley continues her efforts to streamline the company but reiterated the company’s commitment to the UK market, which is responsible for 25% of its R&D and manufacturing. GSK’s HIV business also put in a good performance and there is further potential for upside as it submitted a new HIV drug that combines two treatments to US and UK regulators.

Coca-Cola to take it slow on Marijuana (Wall Street Journal, Jennifer Maloney) announced that it won’t use cannabis-derivatives in the US or elsewhere until they are legal and generally accepted as being safe for daily consumption. * SO WHAT? * There’s been a lot of excitement about Coca-Cola getting involved in this area as it’s a blimmin big beverages company looking to broaden its drinks portfolio into “wellness drinks”. Given that companies like Constellation Brands and Molson Coors have announced development plans for cannabis-infused beverages in Canada and Heineken’s Lagunitas brand launched a pot-infused hop-flavoured sparkling water in California (where else?!?) you can see why everyone was getting hot and bothered. Chief exec James Quincey poured cold water on the notion that Coke is on the verge of something by saying “There’s no way we’re going to put something in unless there’s a high degree of consumer acceptance. We like a broad swath of consensus science and public opinion behind things before we’re going to put them in our drinks”.

And finally, in other news…

I thought I’d bring you the latest is-it-or-isn’t-it-optical illusion in People are baffled over latest optical illusion – but is it a cat or a crow? (The Mirror, Robyn Darbyshire https://tinyurl.com/y9n2q9vn). However, once you see the next thing, you won’t be able to unsee it: Woman’s flesh-coloured leggings cause embarrassing optical illusion – and it looks indecent (The Mirror, Nicola Oakley https://tinyurl.com/ydbhq7c5). I’ll warn you now – make sure you’re not drinking something whilst reading this as you might end up spitting it out. Just sayin’.

1. In UK RETAIL NEWS, the high street continues to look shaky, Amazon makes moves into fashion, WH Smith goes stateside, Sports Direct buys Evans Cycles and Wagamama gets a new owner
2. In TECH NEWS, Apple unveils shiny new stuff, Sony and Nintendo look to new games launches and Facebook user growth slows down
3. In INDIVIDUAL COMPANY NEWS, VW and General Electric disappoint
4. In OTHER NEWS, I bring you the origins of Halloween. For more details, read on…

So the UK high street continues to look dodgy, Amazon fashions a new service, WH Smith makes an overseas acquisition, Sports Direct buys Evans Cycles and Wagamama gets a new owner…

Retail sales growth cools as company insolvencies rise sharply (The Guardian, Richard Partington) cites the latest figures from the Confederation of British Industry (CBI) which show that UK retail sales growth slowed down markedly after a mini-spending spree over the summer. Reasons to be fearful on the high street (The Times, Patrick Hosking) appears to back up this sentiment as the closely followed GfK consumer confidence index continued to fall in October, which doesn’t bode well for the upcoming Christmas season. * SO WHAT? * We already know this anyway, but the two surveys just provide further evidence of a slowdown and sets the scene for a not-particularly-great Christmas.

Amazon takes on UK retail sector with ‘try before you buy’ fashion service (The Guardian, Sarah Butler) is a story that should make other fashion retailers quake in their winter boots as the online retailing behemoth is bringing its “try before you buy” fashion service to the UK. Basically, its Prime Wardrobe service delivers a bag of between three and eight items of clothing with no upfront charge and the shoppers are then offered discounts relating to the value of the items they keep – 5% on orders worth £100+ and 10% on orders worth £200+. Unwanted items can then be returned for free. The Prime Wardrobe service was rolled out in the US in June, then Japan last week and now it’s come to the UK. * SO WHAT? * Amazon has been selling clothing in the UK for the last ten years and, although it doesn’t specifically split out fashion sales in its reported numbers, it is thought that they are rising at a rate of over 7% per year as high street operators are closing down. Could Amazon do to fashion retailers what it has done to bookshops, I wonder?

Having talked about a US retailer making further inroads over here, WH Smith acquires US presence (Daily Telegraph, Jack Torrance) highlights WH Smith’s first foray into the American market as it announced the acquisition of InMotion for $198m which will, at a stroke, double the size of its international business. InMotion is the largest airport electronics retailer in the US (it sells

things like headphones, plug adaptors and various travel accessories) and its acquisition will also help WH Smith to launch its own stores in the US. * SO WHAT? * This deal represents further evidence of WH Smith’s evolution away from its traditional high street shops towards airports and railway stations where they have a captive audience!

Meanwhile, in Ashley buys Evans Cycles and plans to shut half its stores (Daily Telegraph, Jack Torrance) we see that Sports Direct CEO Mike Ashley has successfully added to what I term as his “Retail Bag of Cr@p” (because he seems to like buying troubled retailers that no-one else would touch with a barge-pole) by buying the troubled bike chain out of a pre-pack administration. Rather ominously for the employees, he said that “in order to save the business we only believe we will be able to keep 50pc of stores open in the future”. * SO WHAT? * The bike boom that followed London 2012 has definitely been coming off the boil in the last year or so and Evans is not the only one to suffer difficulties – Halfords is not having a great time of it at the moment and Rapha, the operator at the luxury end of the cycling scale, had to sack 15 people at its London HQ last month. I’m glad for Halfords that it didn’t end up buying Evans as I really think that would have been a recipe for disaster what with the fact that BOTH companies were exposed to cycling. At least with Ashley buying it there may be a slightly better balance. Still, it’ll be interesting to see how he manages to boost sales after doing the easier bit of selling off real estate. As an ex-cyclist myself, I would have thought that Evans could try to shake things up by making outlets less of a showroom and provide better value-added services like PROPER bike-fitting and other services. Rather than having a load of bikes taking up floor space you could have the bikes fitted to the customer using a sizing jig and then they order it offline for delivery to the shop. This means that Evans could have smaller and less-cluttered shops whilst providing a better customer experience. But hey, that’s just my opinion!

And then, following on from what I was saying yesterday, Noodle restaurant Wagamama sold to Garfunkel’s owner (The Guardian) shows that the Restaurant Group, which owns Frankie & Benny’s, Garfunkel’s and Chiquito, has been successful in its bid to broaden its culinary expertise and will finance the £357m acquisition via a mix of cash, debt and a rights issue. Current owner, private equity firm Duke Street Capital, bought it in 2011 for £215m. * SO WHAT? * Cost synergies of £22m have been mooted, but it’ll be interesting to see how that pans out.

In tech news, Apple unveils new stuff, Sony and Nintendo are hoping for gaming hits and Facebook suffers slower user growth…

Apple raises prices on new MacBook Air by 20%, iPad Pro by about 25% (Wall Street Journal, Tripp Mickle) highlights Apple’s efforts to reinvigorate sluggish sales of PCs and tablets by introducing even more expensive versions to tempt customers to part with their cash. The new MacBook Air is the first real re-design of its most popular laptop model since 2010 and Apple has given it a high-res retina display, narrower screen borders, Touch ID and made it thinner and lighter. It starts at $1,199 versus $999 for the existing model. The new Mac mini desktop gets better processors making it five times faster, but then the price for that is $799 versus the current $499. The new iPad Pros start at $799 and $999 for the different sizes. * SO WHAT? * All of these price rises are expected to raise the average sale prices of Macs and iPads and increase revenues just as the higher-priced iPhones did when they introduced them last year.

Sony and Nintendo pin hopes on new games launches (Financial Times, Leo Lewis and Kana Inagaki) takes a look at both companies’ focus on their new game pipelines as they aim for another year of record profits. Both companies reported results for the July-September quarter yesterday and both head into the key Christmas season

under new leadership – Kenichiro Yoshida, who became Sony’s president in April and Shuntaro Furukawa who took over the leadership of Nintendo in June. Nintendo reported a 30% increase in operating profits in the July-September quarter despite a not-particularly-impressive games pipeline and Sony is also expecting a 30% increase in operating profits for the year ending 2019. * SO WHAT? * Game pipelines are absolutely key in terms of driving console sales and it would appear that the near-term line-up for both the PS4 and Switch are strong.

Facebook growth slows as the EU’s data laws begin to bite (Daily Telegraph, Laurence Dodds) highlights the social media giant’s latest financial results which show that its revenue growth has continued to slow down in the three months ending in September as it gained users in the US, lost them in Europe and remained flat everywhere else. * SO WHAT? * The number of daily active users in Europe fell for the second quarter in a row as GDPR continues to have an effect, but CEO Zuckerberg identified video and commerce as areas for future growth. Given that Facebook’s data-related ethics have taken a bit of a pasting with the Cambridge Analytica scandal and its mojo has been chastened by the new European GDPR legislation over the last year, I guess things could have been worse. I still believe that the company is very difficult to compete against and offers services in a way that rivals can only dream of. If you also throw the company’s ongoing strength in digital advertising into the mix, it still makes for a compelling growth story IMHO and I believe that it can emerge from its current difficulties even stronger than before.

VW gets hit by a China slowdown and GE’s nightmare continues…

Volkswagen profits hit by China slowdown and new regulations (Financial Times, Peter Campbell) shows that the carmaker’s share price rose after beating expectations for Q3 despite falling profits due to a slowdown in China sales and new tighter testing regulations in Europe (the Worldwide Harmonised Light Vehicle Test Procedure – aka the WLTP). The group, which owns Seat, Skoda, Porsche and Audi, published an 18.6% fall in operating profit before special items, which wasn’t actually as bad as analysts were forecasting, hence the 5% share price rise. * SO WHAT? * I think that these issues of China and the WLTP are industry-wide and not VW-specific and the fact that VW hasn’t done as badly as everyone was expecting is a positive. VW’s CFO Frank Witter said that he expected the WLTP effect to be a drag on sales until the early months of 2019. 

General Electric cuts dividend to 1 cent after $22bn writedown (Financial Times, Ed Crooks) highlights the continued nightmare at GE as it has had to cut its dividend for the second time in under a year and unveiled a drastic restructuring of its power equipment division which is currently under investigation by the Department of Justice (DoJ) and Securities and Exchange Commission (SEC) for various accounting-related issues. The Q3 earnings are the first to be reported under new chief exec Larry Culp, who took over earlier this month after the departure of previous chief exec John Flannery after only a year in the role. The power equipment division has been hit by the rise of renewables and a slowing of demand in developed countries. * SO WHAT? * GE is in a whole world of trouble and it is up to Larry Culp to ensure a smooth exit from some of its businesses whilst maintaining its existing strengths. It sounds to me like things will get worse before they get better.

And finally, in other news…

Given that today’s Halloween, I thought I’d leave you with a piece explaining Halloween’s origins.

1. In MACROECONOMIC NEWS, we see Hammond’s giveaway, Merkel’s farewell bow and Bolsonaro’s challenges
2. In CAR-RELATED NEWS, car makers get a Chinese boost but UK punters keep their hands firmly in their pockets
3. In INDIVIDUAL COMPANY NEWS, Hitachi Chemical gets naughty, HSBC beats estimates, Wagamama’s closes in on a sugar daddy, Walmart tries checkout-less and Apple’s new iPad and Mac gadgetry is to be unveiled
4. In OTHER NEWS, I bring you some very creepy shoes and a Halloween game. For more details, read on…

So Hammond hands out the presents, Merkel says farewell and Bolsonaro is faced with some big challenges…

You’ll no doubt be bombarded with Budget stuff today, but I think that the quick blast from Budget 2018: key points and summary (Financial Times, Mark Odell) does a decent enough job of giving you the overview. Chancellor Philip Hammond was able to access a windfall from better-than-expected tax receipts and promised that the end was in sight for austerity as he talked about lower taxes and higher public spending, with the caveat that the public sector could get it in the neck if Brexit goes badly. Almost all of the money from the extra tax receipts went on the NHS and he painted a picture of an economy that was “stable but unspectacular”, gave a big boost to defence spending by more than doubling the extra £800m earmarked for the military earlier this year, introduced measures to stimulate business investment, announced a new digital services tax to come into force by 2020 that was aimed at big US tech and he also heralded the staggered ending of the Private Finance Initiative (PFI) as well as Help to Buy. Clearly there’s a shedload more detail, but those were some of the headlines. If you want to get a quick view of how you might be affected, then have a look at the chart in What the Budget means for you (Daily Telegraph, Blick Rothenberg). * SO WHAT? * Just by way of a knee-jerk reaction, you would have thought medical equipment makers and defence equipment manufacturers will get a decent boost from this as pent-up demand is allowed to be sated to some extent on the one hand, but then on the other I don’t think that the business investment measures, the digital services tax or the ending of the Help to Buy scheme are going to have particularly positive effects on their respective areas. Whatever measures are put in place, as far as I see it, business investment will stall until the implications of Brexit become clearer, the digital services tax sounds like it could be used by Big Tech to leave the UK and the ending of Help To Buy is probably going to mean less new houses being built. Overall, it seems to me that this Budget was designed to take the wind out of the sales of a potential Labour onslaught at a time of government weakness as the measures seem to me to be a bit “un-conservative” on the surface. I also think that the digital tax, although admirable, will ONLY work if loads of other countries get on board otherwise there will just be a tech-sodus from the UK to places where taxes aren’t as onerous.

Following on from what I said in yesterday’s Watson’s Daily, Germany’s Angela Merkel steps down as CDU leader (Financial Times, Guy Chazan) shows that Merkel

has decided to take Fate in her own hands and stand down as the leader of Germany’s ruling Christian Democratic Union after 18 years in the post and saying that she would exit politics completely in 2021. * SO WHAT? * How much of this was actually of her own volition is unclear given that she had previously indicated that she WOULD stand for party leader again this December. This now means that not only has Germany got a very fragile coalition, the main party is going to be distracted by an internal party leadership frenzy. Given that she has previously argued that the roles of party leader and chancellor go hand-in-hand, you do wonder how long she is going to last as chancellor – surely she will not make it to the end of her fourth term in power? I guess that a lot of that depends on how “Merkel” the next party leader is. If it turns out to be someone with a Merkel-sized chip on their shoulder, she will be toast pretty quickly, but if it is an ally, she may well be able to engineer a smooth transition (if the electorate allows her to do so). Another scenario could play out though – the SPD took an even bigger hit to its popularity in the recent regional elections than her CDU did and this could prompt it to leave the government and reposition itself as being in opposition. If it did that, a new general election would have to be called – and if that happened, Merkel said that she would not stand again.

There’s more detail on what lies ahead for a new Brazil in Brazil puts its faith in Bolsonaro’s free-market conversion (Financial Times, Joe Leahy and Andres Schipani) as it paints a picture of a leader who has spent almost all of the last 28 years arguing against things like privatisation and pension changes but ran for office under the banner of liberal economic reform, which is the direct opposite of what he’s been about for most of his political life. Bolsonaro has got his work cut out for him, though, as Brazil is struggling to extricate itself from its worst recession in history, has a big budget deficit and public debt standing at 80% of GDP – which is high for an emerging economy. His appointment of Paulo Guedes, a Uni of Chicago-trained economist and co-founder of BTG Pactual (which used to be the biggest domestic independent investment banks but itself got caught up in the corruption scandal that ended many careers – including former president Dilma Rousseff’s) has been generally welcomed by investors who hope that he will maintain a freeze on fiscal spending, reform the state pension system and cut privileges and perhaps embark on a privatisation programme of government assets. * SO WHAT? * Bolsonaro has one hell of a lot to do to turn things around and although many investors want to give him the benefit of the doubt given the market-friendly noises he’s been making, there is doubt as to whether he really will be able to follow through on his promises given that his historical political stance and his current one seem to be majorly at odds with each other. He could be ultimate proof that a leopard CAN actually change its spots. Or maybe not.

In car-related news, manufacturers got a little China boost but poor sales in the UK are continuing…

Car industry boosted after reports of China tax cut (The Guardian, Jason Deans) highlights share price strength in car maker stocks yesterday in response to indications that the Chinese government could halve the tax on car purchases in order to boost demand. Shares in individual US and European car manufacturers strengthened between 2 and 4% and the automotive sector as a whole was the strongest sector across European markets yesterday. * SO WHAT? * I think that there are far bigger unsolved problems lurking in the background (the US vs 

China/the World trade war and related tariffs) that will take the edge off any kind of sustained upside. More clarity is needed, IMHO, for this upward shift to develop into anything more than a blip.

Back in the UK, Car finance slows as borrowers hit brakes (The Times, Philip Aldrick) cites the latest Bank of England figures which show that growth in consumer credit has slowed down to its lowest level since June 2015, with a fall in car finance being the biggest reason behind it. This could also have been due to the new tighter emissions rules that recently came into force. * SO WHAT? * The Bank of England has been keen to rein in consumer borrowing, so it seems it has got its wish as consumers appear to be tightening their belts ahead of the uncertainty of Brexit – at least on big ticket items.

Hitachi Chemical makes an admission, HSBC beats estimates, Wagamama gets closer to selling itself, Walmart flirts with checkoutless and Apple is due to announce some new gadgetry…

Hitachi Chemical admits to improper quality testing (Financial Times, Kana Inagaki and Leo Lewis) highlights the latest Japanese company to admit to falsifying data after scandals involving poor quality controls at other companies such as Kobe Steel, Subaru and Mitsubishi Materials have emerged over the last year. It centres on poor testing for a material used to protect chips used in cars and home electronics (so pretty key stuff) and the shares fell by as much as 14% in trading yesterday but eventually settled down 7.6% at the close of trading. * SO WHAT? * This really is quite disconcerting as Japan has long traded on a reputation for quality. Over the last few years, there have been laptops spontaneously combusting (Sony), recalls because of “sticking” accelerators (Toyota) and dodgy airbags (Takata Corporation) as well as all the recent stuff. I still find it astounding that more has not been made of Kobe Steel’s admissions given that they provide a raw material that is structurally key to so many things. Anyway, call me cynical, but what usually happens in these situations in Japan is that a load of old duffer execs bow 

deep and make tearful apologies before resigning in front of the cameras, the company gets someone new in that generally doesn’t do anything that different fundamentally and the whole shebang carries on. Meanwhile, the tearful old duffers pop up somewhere as directors in another company. Japanese companies always used to look down particularly on other Asian companies – especially Chinese ones – and boast about the superior quality of their product. All I have to say to this is Pot. Kettle. Black. Glass houses. Stones. Broken glass everywhere.

In UK company news, there’s HSBC quarterly profits beat estimates as bank cuts costs (Financial Times, David Crow and Alice Woodhouse) which provides cheer for investors who are hopeful that the company can power growth without spending getting out of hand and Wagamama on menu for Restaurant Group (The Times, Dominic Walsh) shows that the company behind Frankie & Benny’s and Chiquito is emerging as the front-runner to buy Wagamama, but this is ongoing.

In US company news, Sam’s joins club with no checkouts (The Times, James Dean) shows Walmart experimenting with the concept at one of its shops in Dallas where customers scan and pay for products via a phone app. The difference with this and Amazon’s Go, however, is that a shop assistant will check their app at the end of the shopping trip – so they won’t just be able to stride out. And then in Apple expected to unveil update iPad and Mac at New York event (Wall Street Journal, Tripp Mickle) we see that new gadgetry upgrades are to be announced later on today. More on that when it all gets announced.

And finally, in other news…

I thought I’d sign off today with news of some really weird shoes in Fashion label launches ‘human skin boots’ in time for Halloween (The Week, Gabriel Powerhttps://tinyurl.com/yamw67mo). Those things give me the heebie-jeebies. And then for something less controversial, how about having a go at this: Fiendish Halloween puzzle features 10 hidden pumpkins – can you spot them all? (The Mirror, Richard Jenkins https://tinyurl.com/y9dg26ol). 

1. In MACROECONOMIC NEWS, Merkel gets mullered and Brazil takes a right turn
2. In TECH NEWS, IBM buys Red Hat, Facebook and Google come under focus for more tax payments and Epic Games earns a chunky valuation
3. In INDIVIDUAL COMPANY NEWS, Tesla gets probed by the FBI but praised by Baillie Gifford
4. In OTHER NEWS, I bring you some baby/celeb lookalikes and scary toilets. For more details, read on…

So Merkel’s nightmare continues and Brazil gets a new extreme-right president…

Angela Merkel’s CDU humbled in German regional vote (Financial Times, Guy Chazan) piles on the pressure for Germany’s creaking grand coalition as Chancellor Merkel’s Christian Democrats suffered a chastening blow-back in elections in the Hesse region yesterday. The Social Democrats also lost big time in the election as voters swung to the greens and the Alternative for Germany anti-immigration party (aka the AfD, which now has representation in all 16 regional parliaments). Having said that, the CDU still won, albeit by a much reduced margin. * SO WHAT? * This puts further pressure on what has 

proved to be a very fragile coalition that has been dogged by infighting, mainly centring around immigration policy. However, because Merkel’s CDU did not actually lose the election, she survives to fight another day. She will stand again as chairwoman of the CDU at a party conference in December.

Extreme rightwinger takes power in Brazil (The Guardian, Tom Phillips and Dom Phillips) heralds a new dawn in Brazil as it says goodbye to a largely socialist era and hello to far-right, pro-gun, pro-torture populist Jair Bolsonaro who made pre-election pledges to wage a war on corruption, crime and a perceived communist threat. * SO WHAT? * This promises to be quite a departure from the approach of the Workers’ party – in power from 2003 until 2016 – which has been seen to be very much to blame for years of economic recession and corruption. This really is quite a regime shift and so I suspect there will be a lot of surprises to come when he gets his feet under the table. 

In tech news, IBM makes a big acquisition, Facebook and Google face further tax scrutiny and Epic Games looks at a rather epic valuation…

In IBM to acquire Red Hat for about $33billion (Wall Street Journal, Jay Greene and Robert McMillan) we see that IBM has embarked on what is its biggest ever acquisition in an effort to boost its cloud computing power – seen as being essential to sparking the giant back into life. Both Amazon and Microsoft have leap-frogged it in recent years in that department but IBM chief exec Ginni Rometty believes that the market is now moving towards having multiple cloud providers, which should present decent business opportunities. Red Hat is a leading provider of open-source software and services which helps to knit together different software platforms and is a major provider of an enhanced version of the Linux operating system to corporations, called Red Hat Enterprise Linux. *  SO WHAT? * Rometty had to do something drastic as her bid to turn the company around by cutting slower-growth areas and focusing much more on more cutting-edge tech like AI and cloud computing has so far just led to six years of falling revenues. IBM’s proposed price of $190 per share in a cash-and-shares offer represents a MASSIVE 63% premium to Red Hat’s closing price on Friday, but the theory is that the marriage of Red Hat’s freewheeling style and IBM’s selling power will make for a powerful combination. The acquisition has been approved by both boards and is expected to close in the second half of 2019.

Facebook, Google may face billions in new taxes across Asia, Latin America (Wall Street Journal, Timothy W. Martin and Sam Schechner) highlights the efforts of a number of countries that are looking to implement new taxes on tech behemoths such as Alphabet and Facebook in order to get a slice of the online pie. The European Union has proposed to tax such companies based on revenues rather than profit – and now South Korea, India and at least seven other Asian-Pacific countries along with Mexico, Chile and other LatAm countries are looking at doing something similar.

These taxes are effectively a levy on the digital services sold by these companies and are designed to catch services that are sold from one country to another and could add billions to their respective tax bills. * SO WHAT? * Unsurprisingly, interested parties (Google, Facebook et al.) and the countries who depend heavily on their presence (e.g. Ireland) are opposed to this move but those getting increasingly p!ssed off with watching billions of tax dollars/pound/euros walking out of the door are keen to keep the pressure on. Currently, US tech companies often report low profits, leading to small income tax bills in overseas companies where they SELL their digital services because customers in those countries are actually BUYING from a unit that is often based in a low-tax country (e.g. Ireland). The EU is proposing a tax on the digital REVENUE of very large companies from customers within the eurozone in addition to the conventional tax paid on PROFITS after expenses. The US is, funnily enough, not in favour and calls it a “unilateral and unfair” tax aimed at US tech companies.

Interestingly, Creator of Fortnite, most popular video game in the world, is valued at $15bn (The Guardian, Rupert Neate) shows how the company behind Fortnite, Epic Games, has just been valued at almost $15bn after receiving a $1.2bn cash injection from KKR, the private equity firm. Epic counts the likes of China’s Tencent Holdings and Walt Disney amongst its early investors and has seen its value skyrocket from $660m when Tencent took a 48% stake in 2012 to $4.5bn in May and now $15bn! Epic’s impact has been so huge that two rival makers Activision Blizzard (responsible for the Call of Duty franchise) and Take-Two Interactive (which makes Grand Theft Auto) have lost billions on their own valuations because of the impact of Fortnite. * SO WHAT? * That the company has been incredibly successful thus far is not in doubt, but there have been so many one-hit wonders in the world of gaming that you can’t help but think that this is ripe for being the latest example. Examples such as Tomb Raider back in the day and then more recently Candy Crush, Angry Birds, Farmville etc. etc. have all attracted huge investment and attention, but the problem has always been that the companies have been unable to follow up such a hit with another one of the same magnitude. There is no doubt that there’s more upside to come yet, but I suspect that the potential crash when gamers move onto The Next Big Thing will be huge.

Tesla continues to be under scrutiny but Baillie Gifford reiterates its loyalty…

Tesla faces deepening criminal probe over whether it misstated production figures (Wall Street Journal, Dana Cimilluca, Susan Pulliam and Aruna Viswanatha) is worth keeping in mind as the FBI’s criminal investigation into whether Tesla misstated production data on its Model 3 cars from as early as 2017 remains ongoing. The

company’s share price surged following its earlier-than-expected earnings release last week, but the stock is still off its highs. * SO WHAT? * The ramifications of a negative result in this investigation could be huge, so it is likely that it will cap any major upside until it is resolved as investors might have to temper their enthusiasm. Mind you, Tesla backer set to put more cash behind Musk (The Times, Simon Duke) shows that there is at least one major investor willing to back the embattled company – Scotland’s Baillie Gifford, which is the company’s second largest shareholder with an 8% holding. Ah well, there’s nothing like talking your own book ;0)

And finally, in other news…

I thought I’d leave you today with something hilarious I saw on my Facebook feed yesterday – 10+ babies who look just like famous celebrities (Sharebaby, D.G. Sciortino https://tinyurl.com/y8cefrpm) – it’s not new, but it is amusing. Then there was this: There’s a viral Facebook page that just posts pictures of scary toilets (msn.com, Jacob Shamsian https://tinyurl.com/y9lg6wfo). Who knew that people could get so creative?!?

1. In CIGARETTES AND ALCOHOL NEWS, Altria is pulling most vaping products in the US and Budweiser brewer suffers a massive hangover
2. In SOCIAL MEDIA NEWS, Twitter shares fly and Snap gets better at monetising
3. In RETAIL NEWS, Amazon unveils record quarterly profits, Debenhams slims down for survival and Halfords backs away from the bidding for Evans
4. In INDIVIDUAL COMPANY NEWS, WPP has a shocker
5. In OTHER NEWS, I bring you an invention to help dads breastfeed (!) and a home-made attempt to recreate the Haribo ad. For more details, read on…

So Altria moves away from vaping and Budweiser’s brewer tries to reduce its huge debt…

You may recall that I referred to a story about a month ago that the FDA was looking at cracking down on vaping. Well Malboro maker to pull ecigarette pods from market (Financial Times, Alistair Fray and Camilla Hodgson) shows the effect as Altria, which makes Malboro cigarettes and is the parent company of Philip Morris US, has decided to stop selling most flavoured vaping products in the US following US Food and Drug Administration (FDA) threats to ban all such products due to “epidemic” levels of teenage vaping. * SO WHAT? * The future of vaping, in the US at least, sounds uncertain as the FDA said in a

statement that “The agency has taken a number of steps to address the growing epidemic of youth ecigarette use and will be taking additional action very soon”. TBH, this is no great shakes for Altria because vaping products only account for a very small percentage of its current offering and the ecigarette market as a whole, which is dominated by the start-up Juul Labs. However, there is obviously the possibility that other countries will look at the lead the US is taking and potentially follow suit.

In Budweiser brewer halves its dividend to pay down debt (Daily Telegraph, Oliver Gill) we see that shares in the world’s #1 brewer, Anheuser-Busch InBev, fell to a five-year low after it cut its dividend in half to pay back some of the eye-wateringly large $109bn in debt that it accrued as a result of its 2016 deal to buy its South-Africa-based rival SABMiller. * SO WHAT? * The shares fell by 11% overnight on the news, but given that this dividend cut will free up “only” $4bn a year, there’s a lot more the company has to do in order to put a proper dent in that $109bn number.

In social media news, Twitter surprises on the upside and Snap sees a solid rise in revenues…

Twitter shares climb 18% after profit tops forecasts (Financial Times, Shannon Bond) highlights positive investor reaction to the company’s better-than-expected third quarter revenues on the back of improved advertising sales. It is interesting to note that this happened despite there being a record drop in the number of monthly users, but as Pivotal Research Group’s analyst Brian Weiser pointed out, “Investors need to come to appreciate that a reduction in the user base might be a very positive thing if they are eliminating not only inauthentic accounts but hateful accounts. The more aggressive they are at doing that, the more advertising-friendly a platform Twitter will become”. Twitter itself said that the monthly drop was due to the reduction of bots and trolls as well as the impact of GDPR. * SO WHAT? * IMHO, Twitter should have purged the trolls and spam long ago – but better late than never, I guess. I would have thought that this will make Twitter a much nicer place to be and something that advertisers will feel increasingly comfortable associating with, meaning 

that it will become increasingly revenue-generative. The only tiny concern I have in my mind is how Twitter can ensure that it continues to be relevant and that it doesn’t lose its place to some funky new start-up or a rival with deep pockets.

Funnily enough, Snap loses users but wrings more money from those who stayed (Wall Street Journal, Georgia Wells) shows another social media company that is seeing a downtrend in users but making more money as its revenues rose by 43% in the third quarter, exceeding market expectations. This is made all the more impressive because it is the second consecutive quarter since Snap came to market that its number of users declined as the effect of its much-derided relaunch in February, designed to broaden its appeal from its core teen and young adult audience, took hold. Having said that, the company expects even higher revenues for the next quarter. * SO WHAT? * I’ve said it before and I’ll say it again – IMHO Snap is a one-trick pony that consistently faces threats from rivals such as Facebook nicking its good ideas as well as the very real possibility that it could just lose its appeal to a fickle audience eager for The Next Big Thing. And what about Spectacles, eh?? The company has yet to make a profit as a publicly traded company but chief exec Evan Spiegel believes that it will achieve profitability in 2019. Hmmm.

In retail news, Amazon unveils record profits, Debenhams wants to get fitter and Halfords backpeddles on Evans…

Amazon unveils record quarterly profit of $3bn but share prices sink (The Guardian, Dominic Rushe) shows that announcing a fourth consecutive quarter of profits exceeding $1bn just wasn’t enough to satisfy Wall Street, which was more concerned about lower-than-expected revenue growth. Shares fell by 6% in after hours trading, but then again the shares had rocketed up by 49% so far this year – so I don’t think this is disastrous. Amazon Web Services, the company’s fast-growing cloud services business, was once more the star performer as its revenues surged by 45.7% to $6.7bn. * SO WHAT? * Amazon has had a very good run and I guess that it’s now at a stage where costs are going up what with self-imposed rising minimum wages on the one hand and increased spending on media as it vies with Netflix in streaming on the other. Mind you, giving the continued strength of its Web Services business and, to a lesser extent, its b2b Amazon Business segment you would have thought that momentum will continue, albeit at maybe a slightly slower pace.

Debenhams aims for fewer but better shops (Daily Telegraph, Jack Torrance) adds a bit more colour to what I was saying yesterday about Debenhams, as it announced an annual loss of almost £500m, a closure of 50 shops with potentially 4,000 jobs on the line. It also announced a

big cut in capital spending and increased efforts to cut costs. Former-Amazon-executive-now-chief-executive of Debenhams Sergio Bucher said that “We want to have fewer stores but better stores, we want to have investable stores, we want to have a bigger online business, and we want the whole lot to be more profitable”. No further detail has been given, as yet, to which 50 will close, but he said that they are “primarily located in fairly distressed shopping destinations…with empty units that have been under-invested in by landlords and local councils”. * SO WHAT? * I see nothing here to alter my opinion that Debenhams is in terminal decline. Although I often say that you can’t polish a t*rd, but you CAN roll it in glitter – I would say that in Debenhams’ case, the glitter is sadly lacking.

Halfords backpedals on Evans (The Times, Robert Miller) contends that Halfords has now pulled back from potentially buying Evans to leave the way clear for Mike Ashley’s Sports Direct to snap up the bike retail specialist. Evans is trying to raise millions to secure its future and Halfords had been seen as the main contender to do the decent thing, but it appears that this is no longer the case. No deal has been signed yet, so it’s still all up in the air for the troubled retailer. * SO WHAT? * I don’t know for sure about this, but maybe it was a timing issue as Halfords is itself facing tough times. TBH, I’d question the logic of two retailers exposed to a potentially cooling bicycle market getting together right now as, after the initial excitement of asset disposals and supplier consolidation, they’d still be in a market that seems to have peaked out. Rapha (which is at the “luxury” end of the scale in terms of bike related stuff) is also having problems, so Evans and Halfords aren’t the only ones struggling. It looks like Mike Ashley’s Bag of Retail Cr@p is going to get bigger soon…

In individual company news, WPP has a nightmare…

Profit warning knocks £2bn off WPP (The Times, Simon Duke) shows that the embattled media behemoth continues to have a tricky time of it months after the departure of founder Sir Martin Sorrell as it limps on in the face of the likes of Google and Facebook eating its lunch. WPP owns advertising, PR, media and market research companies including Ogilvy, J Walter Thompson, Young & Rubicam, Burson-Marsteller and Hill & Knowlton amongst others and has, according

to new chief exec Mark Read, been “slow to react to the changes that have been happening” in a fast-changing industry. The share price fell by 25% initially, but then recovered to end 14% down on the day. * SO WHAT? * Mark Read has inherited a massive oil tanker and he’s got to turn it into a speedboat before it gets sunk by Google and Facebook torpedoes. The stakes are high and he won’t be able to achieve this overnight, but I suspect he will continue to dispose of non-core assets in order to shore up and improve the main advertising business. All this tinkering is very well, but the fact is that advertising newbies are turning the market on its head and WPP can no longer rely on its size and diverse interests to survive for the long term. Fundamental change is needed and it’s just not cutting it at the moment. I suspect that there will be more industry consolidation to come.

…And finally, in other news…

I thought I’d leave you with a rather unusual invention in Dads may soon be able to breastfeed their newborn babies with first ever ‘chestfeeding kit’ (The Mirror, Courtney Pochin https://tinyurl.com/ychc99xx) and the homespun efforts of a few guys trying to recreate the Haribo advert in this LadBible video https://tinyurl.com/yazu2xla. Something to recreate at the weekend perhaps??

As always, thank you for reading Watson’s Daily!

1. In MACROECONOMIC AND MARKETS NEWS, Eurozone growth slows, Merkel faces problems, Italy cosies up to Russia, South Africa cuts its growth forecasts and markets give up 2018 gains
2. In AUTOMOTIVE NEWS, Ford disappoints, Tesla delights, Geely and Daimler announce a ride-sharing JV and UK car manufacturing hits new lows
3. In UK HIGH STREET NEWS, Patisserie Valerie faces more problems, GBK puts its hands up, Taco Bell returns to the UK and Debenhams faces a record annual loss
4. In OTHER NEWS, I bring you David Schwimmer’s riposte. For more details, read on…

So Europe’s in a spin, South Africa signals weakness and markets continue to tumble…

There are quite a lot of stories today on a turbulent Europe, so I thought I’d kick off with Eurozone growth at its weakest for two years (Daily Telegraph, Tim Wallace) which cites the latest IHS Markit’s Purchasing Managers Index (PMI) as showing the Eurozone’s slowest rate of growth for 25 months as manufacturing orders fell across the board for the first time since 2014.

The story’s not much better in the Eurozone’s biggest economy with Merkel fights for future as German voters’ mood turns ugly (Financial Times, Guy Chazan) as the upcoming regional elections in Hesse have the potential to spark the beginning of the end for Chancellor Merkel. Her CDU party, which has been in power in the region (which includes the finance capital of Frankfurt) since 1999, is facing voter dissatisfaction and a loss here could further dent her fragile authority and bring into question her leadership of the party. As things stand, it looks like the Green Party is most likely to benefit – as it did in the recent Bavarian elections – further increasing its influence, or as the local party candidate Tarek Al-Wazir put it, “We’re not just the herbs sprinkled on the meal…we are the meal itself”. No doubt the anti-immigration AfD will also benefit from deepening voter dissatisfaction with the traditional parties.

Meanwhile, Italy is trying to rattle European cages in Italy lauds Putin and sets up Brussels battle (Financial Times, Miles Johnson and Michael Peel) as Giuseppe Conte, Italy’s PM, sucked up to Vlad on his visit to Moscow yesterday. Conte’s visit has followed recent visits by deputy PM Matteo Salvini and foreign minister Enzo Moavero Milanesi. * SO WHAT? * Italy has always been the most Russia-friendly country in the Eurozone but the difference now is that the current government is more willing than predecessors to break through the established niceties and stir things up, as they are now doing with their budget spat 

with Brussels. It seems to me that Italy’s government is using the threat of getting closer to Russia to force concessions out of the EU given that they look far more likely than previous administrations to actually do so. The question is whether the EU will cave (at least to an extent) or stay strong and risk Italy going rogue.

Elsewhere, South Africa slashes growth forecasts amid deficit warning (Financial Times, Joseph Cotterill) shows the challenges facing new president Cyril Ramaphosa as his finance minister, Tito Mboweni, cut growth forecasts and warned about a growing fiscal deficit this year in Africa’s most industrialised economy. The country, which fell into recession this year is experiencing lower tax revenues, higher public sector wages and increasing debt from state-owned companies such as SAA, the national airline. Ramaphosa promised to revitalise South Africa after predecessor Jacob Zuma’s corruption-ridden rule but he has encountered resistance from Zuma’s allies in the revenue services and on boards in state-owned businesses. * SO WHAT? * Clearly, this is a work in progress and Ramaphosa has got a lot to do. Potential for privatisations, I wonder?

With all this stuff going on at the moment, Tech-led selloff tears through Asian stock markets (Wall Street Journal, Saumya Vaishampayan and Ben Eisen) is hardly surprising as tech stocks continued to fall in New York resulting in all the gains made in 2018 by the Dow Jones and S&P 500 being wiped out, with Asian markets following suit. Asian tech shares such as Sony, Fanuc (a Japanese industrial robot maker) Samsung Electronics, Tencent Holdings and Alibaba all fell 3-5% as investors fretted about toppy valuations and ongoing uncertainty regarding the US-China trade spat. * SO WHAT? * I know this sounds like a pipe dream at the moment, but when the US and China hammer out some kind of agreement (and they are going to have to), there is going to be one mother of a relief rally IMHO. Investors with balls and a long term horizon will no doubt be loading up right now. Obviously, the devil will be in the detail of any deal (and the timing) but something has to be done as everyone is suffering. We’ve not got long before the US midterm elections (November 6th) and I think that it would be ideal for Trump to get at least something done before then – but this is by no means a given.

In automotive news, Ford disappoints, Tesla delights, Geely and Daimler get together and UK car manufacturing slumps…

Ford profits sink 37% on weak China, Europe sales (Wall Street Journal, Mike Colias) shows the continuation of gloom at the troubled car manufacturer as chief exec Jim Hackett continues in his efforts to turn fortunes around. On the flip-side, America’s #2 auto maker announced particularly good results in North America due to solid truck and SUV sales which helped to push revenues up by 3% – which was above analyst expectations. The shares climbed by 7% on the news, but to put this into context, they are still 35% down for the year and near decade lows. * SO WHAT? * Clearly the domestic market is going quite well, but given that China is now the world’s biggest car market, the company clearly needs to get its act sorted over there. To this end, they announced a new head of China business earlier this week and the overall cost-cutting plan continues apace. Investors are getting impatient for Hackett to unveil more details on what parts of business he will be “right-sizing” but he said that they will get more specifics “in coming weeks and months” because “it’s a massive undertaking”. Fair enough, but you can only use that line for so long.

Tesla motors on with first profit in two years (The Times, Tom Knowles) follows on from what I was saying yesterday as the company revealed after hours that it had turned a profit for the first time in two years (to the tune of $312m in the third quarter) after a very turbulent time marred by production delays and Elon Musk’s erratic behaviour. The results came a week earlier than scheduled and they got a boost as a result. * SO WHAT? * This is clearly great news, but what the company’s achieved has to be consolidated and built upon quickly as the incumbent car manufacturers continue to gain ground in the electric vehicle market. Tesla will also have to address reliability issues as its cars increase in popularity as an annual survey released yesterday by magazine Consumer Reports, which ranks cars based on owner reviews, showed that Tesla fell by 6 places to 27th out of 29 brands.

Geely to launch China ride-hailing venture with Daimler (Financial Times, Peter Campbell) heralds a new joint venture in China offering ride-hailing services. It will offer premium ride-hailing using Mercedes cars initially and then electric Geely models. This is the first collaboration between the two companies since Geely took a 9.7% stake in Daimler back in February this year. Geely already owns Volvo Cars as well as black cab maker LEVC, British sports car maker Lotus and Malasian car maker Proton. It also runs CaoCao, a Chinese domestic ride-hailing operator which has over 17m registered users whilst Daimler owns a number of ventures including moovel and mytaxi, which combined have about 26m customers. * SO WHAT? * This is interesting news as it continues to show substance behind Geely’s overseas ambitions but I’m not sure how successful it will be on the revenue-generation front given that the Chinese domestic market is dominated by one player (Didi Chuxing) amongst a whole host of weeny (in comparison) also-rans. I think that scale is the most important thing in ride-hailing as you have more room to maximise margins, but I guess this move does get them a seat at the table either as a future consolidator or consolidatee.

Meanwhile, back in the UK, Car production at lowest level in three years (The Times, Robert Lea) cites the latest figures from the Society of Motor Manufacturers and Traders (SMMT) which show that car production has fallen by almost 17% due to weakening consumer confidence, plummeting sales of diesels, new pollution regulations and would-be investors holding off because of Brexit uncertainty. The UK car industry employs 170,000 people, is the 11th biggest car manufacturer but is the country that produces the most marques globally. 30% of UK car production comes from Jaguar Land Rover in the Midlands and Merseyside and another 30% comes from Nissan in Sunderland. * SO WHAT? * Given that 80% of UK manufactured cars are destined for overseas, it’s hardly surprising that Brexit is the biggest cloud on the immediate horizon. However, I have no sympathy for the continued bleating from manufacturers about the cratering of demand for diesels. The writing was surely on the wall years ago when various European cities started to ban them from city centres and then they had further warning when the VW dieselgate scandal broke a few years ago. 

There’s more carnage on the UK high street with Patisserie Valerie, GBK and Debenhams facing problems, although there’s some good news for burrito lovers…

In a seemingly never-ending sea of bad news on the high street, Patisserie Valerie owner fights off petition to wind up café chain (The Guardian, Sarah Butler) highlights the company’s continued travails as it is facing a winding-up petition from its principal trading subsidiary as well as a new investigation on share bonuses cashed in by its chief exec and FD amidst its continued battle for survival, Gourmet Burger Kitchen to shut 17 outlets, putting 250 jobs at risk (The Guardian, Sarah Butler) signals the latest restaurant chain going to the wall as it seeks to get support for a Company Voluntary Arrangement (CVA). Fun fact – GBK is owned by South Africa’s Famous Brands, which also owns Wimpey and posh bakery Paul. GBK’s demise follows in the footsteps of Jamie’s Italian, Carluccio’s and Cau.

Having said that, there is hope yet for lovers of casual dining in Burritos back on the menu for Londoners (The Times) as Taco Bell, the Mexican fast food chain, is about to make a return to London after abandoning the capital in the 90s. The chain is owned by New York-listed Yum! and has just given the go-ahead for franchise holders to open restaurants in west and central London before the end of the year. The new outlets will add to the 27 existing outlets dotted around the country.

The news for department stores continues to get worse in Debenhams scraps dividend after £500m loss (Financial Times, Naomi Rovnik) as the company announced a cancellation of its dividend, a full year loss of £500m and the closure of up to 50 of its stores, putting around 4,000 jobs at risk. The shares have fallen by 75% so far this year after a number of profit warnings, and this news ain’t going to do much to change the feeling of impending doom surrounding the company. * SO WHAT? * This is not the bottom IMHO. It will get worse before it gets better, but the question is whether it will be able to survive long enough to see any upside. No doubt Sports Direct’s Mike Ashley is calling his bankers in preparation for a bid in the not-too-distant future. Although he’s got a massive job on his hands with turning around the fortunes of House of Fraser, Debenhams could be reaching a price that will be too compelling to ignore. If he did manage to do it, the potential synergy benefits could be huge – although there will be a lot of work to be done.

And finally, in other news…

You may well have seen the whole Ross Geller is-he-a-beer-thief story doing the rounds yesterday, but I think he had a pretty good comeback in David Schwimmer tells police in Blackpool: ‘I swear it wasn’t me’ (The Guardian, https://tinyurl.com/yamvlsqh). HE WAS ON A BREAK!!!

1. In MACROECONOMIC AND MARKETS NEWS, the EU rejects Italy’s budget and markets take a bath
2. In MANUFACTURING NEWS, both US and UK manufacturing hit hurdles, Dyson goes to Singapore and Tesla gets a double boost
3. In OTHER NEWS, I bring you a grown-up version of the egg-and-spoon race and an annoying game. For more details, read on…

So the EU pushes back and markets continue their losing streak…

EU rejects Italian budget in unprecedented rebuke (Financial Times, Jim Brunsden, Mehreen Khan and Miles Johnson) should be unsurprising given the noises that have come from both sides since Italy submitted its draft budget. This is the first time that Brussels has refused to approve a member state’s draft budget and drives a further wedge between the European Commission and the populist government in Rome. The Italians now have three weeks to submit a revised plan as this one was rejected because it would have involved running a bigger deficit than Brussels is comfortable with. * SO WHAT? * This is currently a political p!ssing contest, but if it drags on as both sides dig their heels in, it is possible that the inevitable increase in the cost of debt could prompt another financial crisis for the eurozone. The EU is arguing that Italy needs to stay within its parameters to avoid a debt spiral and Italy is arguing that it needs to spend its way out of its latest economic rut. Italy is not Greece, but the consequences of a Greek-style crisis could be wider-reaching given it is the third largest economy in the eurozone.

Meanwhile, Oil price and markets fall amid global jitters (The Times, Louisa Clarence-Smith) highlights sudden oil price weakness – with Brent crude down over 5% at one point – along with falls in the US, Asia and Europe. The FTSE 100 is heading for its worst month in a decade and European stocks are at their lowest level so far this year. Oblivious investors finally get the news that it’s important to take stock of world events (The Guardian, Nils Pratley) expresses reasons behind the downward lurch in a more robust fashion, citing the US-China trade war, the unprecedented spat between the EU and Italy and Saudi Arabia’s killing of journalist Jamal Khashoggi – which could lead to all sorts of outcomes. * SO WHAT? * FWIW, I think that US markets have been disproportionately hit by a tech sell-off in that the FAANGS have grown to such an extent that any move – up or down – is magnified. As I have said before, these companies are still making/providing stuff that people want in areas that have very high and expensive barriers to entry – so I really don’t see a tech bubble burst a la early 2000s because back 

then one of the reasons why it burst was because many of them weren’t generating any profit. This is not the case now. On the other hand, I think that the US-China trade war IS having unintended consequences for Trump as the prolonging of his aggressive stance has certainly saved a few US steel mills, but it has also had the knock-on effect of hiking costs for major US companies that employ far more people. The spat between the EU and Italy has the potential to get quite tricky – being made more difficult given that Brexit negotiations are also ongoing – and the Saudi Arabia thing is proving to be a massive can of worms that keeps mutating. When all’s said and done on the latter, I believe that the ultimate effect will be a short-term ceiling on the oil price with Saudi Arabia likely to open the taps and increase oil output to appease outraged western governments who have conveniently turned a blind eye to the treatment of dissidents by Turkey’s Erdogan, Russia’s Putin and North Korea’s Kim Jong-Un. Khashoggi casts a shadow on crown prince’s show (Financial Times, Simeon Kerr, Anjli Raval and Ahmed Al Omran) sums up the cumulative effect of Erdogan’s drip-feed of salacious news on what was supposed to be Crown Prince Mohammed bin Salman’s flagship annual investment conference – that a lot of major Western players didn’t turn up, that the numbers were pumped up by more locals and participants from Africa, Asia and elsewhere in the Middle East than has previously been the case and that the deal chat was more skewed than the Crown Prince would have liked towards oil and oil deals when he’s trying to steer his country away from reliance on the black stuff. Some are saying that recent events highlight the need for someone to be in a position to balance out the power that the young Prince wields, but given that he’s spent the last two years consolidating it, this will probably be a tall order. I know that this may sound rather cold, but I think that there are too many parties with too much vested interest to let this affect relations with the kingdom for too long, so I believe that it will all blow over in the medium term with the Saudis getting nothing more than a slapped risk. What it does show, however, is how canny Erdogan is as a political operator! I’m not a fan of his (for many reasons), but you’ve got to admire the guy’s handling of this incident to put pressure on a country that has far more clout than his. Again, as I’ve said before, I think that Turkey is going to be the biggest beneficiary of this whole sorry saga as Erdogan will surely use this as a way to get concessions from all sides whilst at the same time clipping the wings (at least for the short term) of a major regional power.

US and UK manufacturing hit respective hurdles, Dyson goes to Singapore and Tesla gets a double boost…

In US manufacturers see signs of new risks (Wall Street Journal, Austen Hufford and Doug Cameron) we see that industrial shares are experiencing a sell-off at the moment as both Caterpillar and 3M highlighted rising costs, a stronger dollar and increasing concerns over the US-China trade war as being factors hitting their third quarter results. This follows after a year of strong production and sales that have been driven by Trump’s tax cuts and rising consumer confidence. * SO WHAT? * The news from these industrial giants doesn’t make for comfortable reading for the moment, but if/when a US-China deal gets struck I would have thought manufacturing will get a huge uplift in a relief rally – although I’d expect some big losers to emerge once the dust has settled as I find it hard to believe that EVERYONE will benefit given that both sides are going to have to make some compromises. Until that happens I expect that more manufacturers will unveil increasingly downbeat forecasts.

UK manufacturing orders fall at fastest pace since 2015 on Brexit fears (Financial Times, Gavin Jackson) continues the gloomy mood as a survey published by the CBI business group shows that new UK manufacturing orders for the third quarter have fallen at their fastest rate for three years on wobbles over Brexit. Export order volumes fell even faster, with levels reaching their lowest in the same time period. In a statement-of-the-bleedin’-obvious, CBI chief economist Rain Newton-Smith said that “Aside from much-needed progress on domestic policy, the government’s number one priority on Brexit must be securing the withdrawal agreement, ushering in a much-needed transition period that will give businesses the breathing space they need”. No sh!t. Funnily enough, confidence continues to fall. * SO WHAT? * If US manufacturing’s major stumbling block is the US-China trade/tariff war, UK manufacturing’s Achilles heel is Brexit, simplistically speaking. TBH, of the two, I think that the US’s problem can be solved way more easily (and have a much more immediate effect) than the UK’s as no one has got any idea how Brexit’s going to turn out as things stand. Even if a palatable deal emerges on the Brexit front, I would have thought that the effects will take quite a while to come through given that nothing like this has ever happened before so all parties may not jump in wholeheartedly from the off. On the other hand, if Trump rolls back certain tariffs and gets some other agreements in place I would have thought that manufacturing (and the markets, for that matter) will react very quickly. The newsflow in Brexit is all over the place at the moment and 

until we get ANY kind of clarity, manufacturing is going to go further into the doldrums at least until we hit the transition deadline.

Dyson parks electric car plant in Singapore (The Times, Robert Lea) is a story doing the rounds today across the broadsheets as Sir James Dyson announced that his new electric vehicle would be manufactured in a car plant in Singapore rather than one in the UK. Dyson said that he chose Singapore because its where his company already makes millions of motors, it has an existing supply chain, access to a well-educated and highly-skilled workforce and is closer to what will arguably be the electric car’s biggest global market – China. Spare us the hot air over Dyson’s move to Singapore (Daily Telegraph, Christopher Williams) goes further and points out the additional practical attractions of Singapore’s pioneer certificate incentive, which sets the corporate tax rate to only 5% for companies “prepared to make significant investments in contribution to the economy or in advancement of capabilities towards globally leading industries” and the country’s existing trade deals with China, India, Japan AND, as of last week, the EU, which means that distribution will not suffer disruption by Brexit. Given that Dyson is targeting 2021 for the company’s first vehicle to hit the road, minimising the risk of delay is very important. * SO WHAT? * Given that Sir James was a highly vocal proponent of Brexit, the irony of him shunning the country he said should be “a powerful manufacturing nation making wonderful products and stop being in awe of the Japanese and Germans who are not better than us” is not lost! Still, we will have to wait a while until we see whether he was right to make the move or not. At the end of the day, he’s got to do what he feels is right for his company’s future.

Talking about electric cars, Tesla gets a lift as critic changes tune (The Times, Tom Knowles) highlights the major U-turn by a formerly fierce critic, Citron Research’s Andrew Left, who is now coming out in support of Tesla saying that it “appears to be the only company that can produce and sell electric cars” and Tesla shares soar on anticipation of third-quarter results (Wall Street Journal, Tim Higgins) shows that the company’s shares jumped by almost 13% as it said that it was bringing forward its third quarter results to after the market close today. Given that Elon Musk has promised a net profit and positive cash flow for the upcoming results, the fact of his bringing the results forward is making investors salivate in anticipation of some really good news. As Morgan Stanley analyst Adam Jonas put it in a note yesterday, “Game theory suggests the early/surprise reporting is good news…Tesla is at the most critical point in the ramp of its most important product (model 3) and is arguably at the most critical point of its liquidity/access to capital since it has been a public company. Why would Tesla pull forward the introduction of adverse news into the market now?”. Sounds like there’s good news a-comin’!

And finally, in other news…

There was a story out on the weekend of a fun-sounding race in Hundreds of waiters try not to spill any drinks in street race (Metro, Jen Mills https://tinyurl.com/ycz2wny3) but if you want something more sedentary (but actually far more frustrating), maybe you should have a go at the noodle version of “Where’s Wally” in Can you clear this impossible mini-game on Baby Star Ramen’s website? (SoraNews24, Krista Rogers https://tinyurl.com/y8zbekh3). Grrrrr.

1. In MACROECONOMIC NEWS, China growth slows down and the Italian budget hits a wall
2. In UK-RELATED NEWS, retail sales relent and New Look leaves China
3. In INDIVIDUAL COMPANY NEWS, Uber moves into the temp market, Unilever backpeddles and another European airline hits turbulence
4. In OTHER NEWS, I leave you with something AMAZING. For more details, read on…

So China growth slows and the Italian budget gets some stick…

Cue mass hysteria following China growth slows to 6.5%; Finance officials scramble to soothe investors (Wall Street Journal, Lingling Wei) as official statistics showed China’s weakest growth rate since the first quarter of 2009. Industrial output and consumption slowed down in the third quarter although exports have so far managed to weather the US-China trade war storm. Chiefs at the People’s Bank of China and the banking and insurance regulator issued statements before the data was released calling for calm. The Shanghai Composite Index has been the worst performer among global benchmarks, having fallen 25% so far this year and fell 1.1% on the news initially, but recovered in late morning trading. Some of the weakness is due to Beijing’s continued efforts to curb debt growth and risk appetite which has led to a drop-off in infrastructure spending, amongst other things. * SO WHAT? * No doubt everyone will be tearing their hair out at this news, but the fact is that China is still on track to make its full-year growth target of 6.5%. If there is further sluggishness, Chinese officials and government advisers say that they will implement further growth measures such as giving banks more funds to make loans, increasing spending on infrastructure and lowering corporate tax rates. Although such data can sap belief in China’s growth 

prospects, it seems to me that the government has a plan B and is ready to implement it, so I am not overly concerned. I guess it could blunt China’s power at the negotiating table with the US as the latter is firing on all cylinders at the moment, but only a bit.

Funnily enough, Rome rebuked by Brussels for breaking EU budget rules (Financial Times, Mehreen Khan, Jim Brunsden and Miles Johnson) has not gone down well in Italy as the EU issued a formal rebuke for breaking EU deficit rules in the populist government’s first budget. If this carries on, the European Commission will have to take the unprecedented action of rejecting a eurozone member’s spending plans. If Italy’s governing coalition does not come up with a revised plan by next week, Brussels will make a formal demand for one by the end of this month and if that doesn’t shock them into doing anything, the EU can fine them up to 0.5% of GDP. Italy’s PM Giuseppe Conte is arguing that he wants to use his budget to implement structural reforms to kick-start the economy, but other EU members believe that giving Italy a “free pass” puts the implementation of wider reforms of the bloc at risk. * SO WHAT? * Conte and his chums must have known this was coming as it has been well-flagged. When you reveal a target budget deficit triple the amount of the EU-mandated target, you are bound to ruffle feathers. Italy’s debt pile is second only to Greece in the Eurozone, where it is also the third biggest economy. Bailing out Greece is one thing, but doing the same for Italy will be on another level and could potentially have far worse consequences.

Retail sales take a breather and New Look abandons China…

Hopes for an economic boost falter as food spending dips by 1.5pc (Daily Telegraph, Tim Wallace) cites the latest figures from the Office for National Statistics which showed that families cut back on food spending last month after a bumper summer. Having said that, it wasn’t all bad as clothes sales volumes rose by 1.2pc and household goods volumes were up by 2.2% with the overall trend still positive. Ruth Gregory at Capital Economics observed that “Although September’s retail sales figures were weaker than expected, sales still rose strongly over the third quarter as a whole…and with sustained rises in

real pay now in prospect, this should pave the way for a gradual recovery in consumer spending growth in the year ahead”.

New Look to pull out of China after poor sales (The Guardian, Sarah Butler) shows that the Chinese dream has ended for New Look as it announced that it’s going to close all of its 120 shops there by the end of the year due to disappointing sales after giving it a go for four years. The closure of its Shanghai head office will bring the curtain down on the overseas expansion ambitions of the previous boss, Anders Kristiansen as the company continues its struggles with its domestic market. * SO WHAT? * New Look went through an insolvency process as recently as March so this latest development is hardly surprising. It has GOT to prioritise what’s going on at home first. As it is, that is going to be difficult enough without all this international distraction.

In individual company news, Uber tries something different, Unilever abandons plans to abandon and another European airline faces difficulty…

Uber takes a detour with plan to provide temporary staff (Financial Times, Tim Bradshaw and Shannon Bond) highlights a new area for Uber as it turns out that it is developing a new short-term staffing business called Uber Works. It is using its existing “on demand” model and is building a big database of contractors that will provide temps for events and corporate functions in a B2B service offering. The project has been in development for a number of months in Chicago after an earlier trial in LA, but there is no sign of an official launch date as yet despite the fact that it is stepping up recruitment. * SO WHAT? * This is an interesting concept that will no doubt have existing operators quaking in their boots. It also adds another string to Uber’s bow and further fuels the argument that Uber isn’t just a one-trick pony – which will come in useful when it comes to flotation next year. I would recommend you read this article in full if you can – there’s a really useful table at the bottom that summarises all of Uber’s business interests.

I thought I’d mention Unilever overhaul may be axed after backlash (The Times, Alex Ralph) because there’s been a ton of to-ing and fro-ing between the company and

investors about simplifying its structure and having one HQ (they currently have one in Amsterdam and one in London) on the one hand and creating uproar and discontent on the other by abandoning the company’s roots. * SO WHAT? * TBH a lot of this is noise and the whole structure thing gets wheeled out from time to time but it got a right kick in the pants after last year’s failed Kraft Heinz hostile takeover approach. However, it looks more likely now that the current dual structure will remain in place. The company still needs to slim down its offering and just get leaner generally – but it’s probably going to have to do that within its existing parameters.

Cobalt Air the latest airline to suspend operations (The Guardian, Julia Kollewe) heralds the demise of an airline that I’ve quite frankly never heard of (it was formed in the wake of the failure of state-run Cyprus Airways in 2015, had six aircraft and 200 staff), but following Flybe’s profits warning, it does make you wonder what’s going to happen with Europe’s smaller airline operators. After Cobalt, will more European airlines go bust (The Guardian, Gwyn Topham) does a decent summary of the story so far and mentions British Airways parent IAG as saying consolidation was on the cards as rising fuel costs and Brexit worries loom large on the immediate and near-term horizon respectively. * SO WHAT? * Consolidation of routes, planes and airports seems to happen from time to time, but at the moment, rising fuel costs are as good a reason as any for airlines to huddle together to avoid getting left out in the cold.

And finally, in other news, I propose a toast(ie)…

I must admit I was scrabbling around somewhat this morning, trying to find something to put in this section – and then I stumbled on this beauty: You need to check out this really cool coin that has an amazing hidden feature (Mashable, Xavier Piedra https://tinyurl.com/y78snhpf). This is super-impressive artistry!

1. In CONSUMER/RETAIL-RELATED NEWS, UK inflation calms down and Asos sees sales rise
2. In UK REAL ESTATE NEWS, UK house prices slow and Crest Nicholson has another profit warning
3. In AIRLINE NEWS, business fliers mitigate fuel price increases but Flybe has a ‘mare
4. In INDIVIDUAL COMPANY NEWS, eBay takes Amazon to court
5. In OTHER NEWS, I bring you a really cool TV advert. For more details, read on…

So UK inflation slows and Asos gains ground…

UK inflation rate falls more than expected in September (Financial Times, Gavin Jackson) highlights a broad-based fall after a sharp rise in August, according to the latest figures from the Office for National Statistics (ONS). The annual rise in the Consumer Price Index (CPI) fell from 2.7% to 2.4%, which was a steeper fall than consensus estimates. Mike Hardie, head of inflation at the ONS said that “food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak”. * SO WHAT? * Coupled with news of wage rises, this should ease pressure on the UK consumer for now.

Asos is sitting pretty on £102m profits (The Times, Deirdre Hipwell) heralds an impressive 28% rise in profits last year, even after the online fashion retailer invested £242m in the business over that timeframe. The investment is part of efforts to upgrade its infrastructure to give it a better base from which to launch further

expansion and it has earmarked a further £230-250m in capex over the next few years. Sales in the UK were up by 23% to £861.3m whilst international sales rose by 27% to reach £1.5bn and it continues to add new bits like a fragrance division and a gender-neutral label called Collusion. Chief exec Nick Beighton boasted that “Investors own us for growth. UK online penetration in fashion is 24 per cent. It’s forecast to rise to 32 per cent by 2023. Why wouldn’t we keep investing to capture that growth? You can easily see how Asos could become a £6 billion (sales) company”. The shares were up by 16.9% at the close yesterday. * SO WHAT? * Great news from this online retailer made all the more impressive by knocking it out of the park DESPITE spending a fortune on expansion. They have had a few wobbles in the past, but hopefully their hefty investment in an infrastructure upgrade will consolidate the company’s current position and help its future expansion. Asos now has a 7.5% market share in the UK, but in Europe and the US it is 1.6% and 0.5% respectively – so there’s plenty of room for upside. Asos: all-weather gear (Financial Times, Lex) points out that even with yesterday’s gains, the company’s share price is 25% down on the year – twice as big a fall as the MSCI Europe Retailing Index. This seems quite harsh considering the company’s strong performance.

In UK real estate news, house price growth slows and Crest Nicholson issues another profit warning…

UK house prices grow at slowest rate for five years (The Guardian, Angela Monaghan) cites the latest data from the ONS and Land Registry which show that the average price of a UK home increased by 3.2% in the year to August to £232,797, making it the lowest level of growth since August 2013. London was the only region where prices fell (they dropped by 0.2%) but the average price remained punchy at £486,304. Kevin Boa, property partner at law firm Pinsent Masons, observed that “Interest rate increases, government policy changes that have shrunk the buy-to-let market, Brexit upheaval and the reduction in EU and overseas buyers, particularly in London, all contribute to

this decline. Despite this, there remains a huge undersupply of housing, which will only become more acute over time”. If you love this kind of stuff, you should have a look at this article because there’s a really good map showing the regional breakdown.

Crest Nicholson issues third profit warning in two years (Daily Telegraph, LaToya Harding) highlights an altogether downbeat story as the housebuilder announced a profit warning and the departure of its CFO, Robert Allen. The FTSE250 company is more exposed to the south of England where buyers are being particularly cautious and the shares fell by 8.2% on the news. Stephen Stone, executive chairman, said that the company will now “focus on shareholder returns by prioritising cash flow and dividends, maximising the value in our portfolio and improving operational efficiency”. I would interpret this as meaning “OMG, we’ve had a ‘mare so we’re going to shut up and keep our heads down”.

In airlines news, business class passengers offset higher fuel prices and Flybe takes a nosedive (but you know, not literally)…

In United, Delta climb on business-class demand (Wall Street Journal, Alison Sider and Andrew Tangel) we see that airlines are using revenues from business class passengers to mitigate the 40% rise in jet fuel costs seen in the past year. Airlines are benefiting from the strong US economy and super-low unemployment rate with United Continental and Delta Airlines amongst those citing a rise in business class revenues.  United’s president Scott Kirby even went as far as saying “This is one of the best revenue environments we’ve ever seen” and the company believes that it is benefiting not only from raising prices – it’s filling more seats. American Airlines is due to report third-quarter earnings next Thursday and investors will be keen to see whether or not the world’s biggest carrier has also managed to boost revenues to cover higher fuel costs. * SO WHAT? * Great news for airlines, but fuel prices do not look like weakening any time soon so filling more business 

class seats is a real priority. No doubt seat manufacturers and companies that fit them (especially if they are being retrofitted) will be doing pretty good business themselves! 

Meanwhile, Flybe warns losses will be £18bn higher than expected (Daily Telegraph, Oliver Gill) heralds some rather bad news for budget airline Flybe as it announced a profit warning yesterday, blaming adverse currency movements and increased fuel costs, although Numis analyst Kathryn Leonard said it had more to do with weakening passenger demand. The shares fell by an eye-watering 40% in trading on the news. Flybe boss Christine Ourmieres-Widener said that “Stronger cost discipline is starting to have a positive impact across the business”, but clearly these efforts are just p!ssing in the wind. * SO WHAT? * This is just the latest lurch in what has been a white-knuckle ride for Flybe shareholders. Shares shot up in February when Stobart Group, the FTSE250 infrastructure and aviation conglomerate expressed an interest in buying Flybe, but then they crash-landed when this all fell through. Getting hit by rising fuel costs and adverse currency movements is particularly tricky for budget airlines as they can’t rely on revenues from higher-margin business passengers so they have to make up shortfalls elsewhere. Will they be able to survive this turbulence, I wonder?

In individual company news, eBay gets shirty with Amazon…

eBay sues Amazon, alleging sellers were illegally poached (Wall Street Journal, Laura Stevens) highlights the filing of a lawsuit against Amazon yesterday where the latter is accused of illegally poaching sellers for its own marketplace using eBay’s internal member messaging system. The lawsuit alleges that “Amazon has been engaged in a systematic, coordinated effort to infiltrate and exploit eBay’s proprietary M2M system on eBay’s

platform to lure top eBay sellers to Amazon…the scheme is startling in breadth – involving large numbers of Amazon representatives (“Amazon reps”) targeting many hundreds of eBay sellers, and spanning several countries overseas and many states in the United States including California)”. * SO WHAT? * The two sides have been competing for merchants and buyers for years and have been increasingly reliant on independent sellers to boost sales as Amazon, for instance, makes more money from these transactions because it takes a cut of the revenues to cover warehousing, advertising and other fees. A lot is at stake here, but I don’t expect this to get resolved for quite some time.

…And finally, in other news…

I thought I’d leave you with a very artful Japanese TV advert. Some of you will think I’m mad, but there’s something quite beautiful about it: Shiseido promises confidence for the lovelorn with their spellbinding new makeup ad (SoraNews24, Katy Kelly https://tinyurl.com/yaa5bc92).

As always, thank you for reading Watson’s Daily!

1. In MACROECONOMIC AND MARKETS NEWS, the Saudi drama continues, Macron reshuffles his Cabinet, UK wages are up and US markets surge strongly
2. In US COMPANY NEWS, Goldman Sachs and Morgan Stanley power ahead, Netflix unveils a great Q3 and the IPO race is on between Uber and Lyft
3. In EUROPEAN COMPANY NEWS, Aldi and Lidl continue to trounce everyone else and BAT cuts its vaping target
4. In OTHER NEWS, I bring you tidings of a new toastie shop. For more details, read on…

So the Saudi Arabian drama continues, Macron reshuffles the deck, UK wages get a lift and US markets make up lost ground…

Trump alleges rush to judgment in Khashoggi case (Financial Times, Demetri Sevastopulo, Katrina Manson and Simeon Kerr) heralds the latest in the murder/disappearance of the dissident journalist saga as Trump is now backpeddling like mad after his initial threats to punish Saudi Arabia as he said in an interview yesterday that “We have to find out what happened first. Here we go again with…you’re guilty until proven innocent. I don’t like that. We just went through that with Justice Kavanaugh and he was innocent all the way as far as I’m concerned”. Saudi Arabia pulls planned deal with Hyperloop (Financial Times, Simeon Kerr and Andrew Edgecliffe-Johnson) serves as a warning to the regime’s critics as it pulled out of a planned deal with Sir Richard Branson’s Virgin Hyperloop One after The Bearded One said he’d cuts ties with the kingdom until more details came to light about Khashoggi. * SO WHAT? * This whole charade is continuing apace with Trump’s assistance basically because he can’t afford to p!ss off the Saudis. My prediction is that once this whole Khashoggi thing gets buried, Saudi Arabia will magically increase oil production to ease prices as a “thank you”. On the other hand, things could get pretty entertaining if Khashoggi turned up alive and well spotted at the local Apple store buying an upgrade for his Watch OR if Turkey just decided to “leak” the footage of the alleged murder. If the latter happened, all hell could break loose as all sides scramble to discredit the source and big sanctions come into force (although I really wonder how long THAT would be sustainable) but I would be amazed if that happened because Turkey could gain so much more by NOT releasing it. Talk about having an ace up your sleeve.

Following on from recent reports of the French president’s flagging popularity amid a raft of senior resignations, Emmanuel Macron unveils new cabinet in long-awaited reshuffle (Financial Times, Harriet Agnew and David Keohane) highlights his efforts to give a “second wind” to his sputtering administration. He’s installed Christophe

Castaner as interior minister to plug the gap left by Gerard Collombe who resigned two weeks ago and ousted several others whilst bringing in eight newbies – one of whom is Gabriel Attal who, at 29, was named as junior education minister and became the youngest member of government in France’s modern history. * SO WHAT? * Clearly a refresh was needed, but it still won’t detract from people’s perceptions that Macron remains out of touch with the electorate. Mind you, in his first year in office, Macron has managed to push through reforms of France’s wealth tax, taxes on dividends and the labour market. Next up in his crosshairs will be pension reform and huge job cuts in France’s civil service – so he’s going to need all the support he can get.

UK pay growth reaches highest level since 2008 crisis (The Guardian, Larry Elliott) cites the latest data from the Office for National Statistics (ONS) which shows that regular pay excluding bonuses was 3.1% higher in the three months to August than in the same quarter in 2017. Having said that, it pointed out that real pay – which takes into account the impact of price increases – was £11 a week lower than it was before the financial crisis. As the ONS head of labour market statistics, David Freeman, put it “People’s regular monthly wage packets grew at their strongest rate in almost a decade but, allowing for inflation, the growth was much more subdued”. * SO WHAT? * Good news for workers, but there’s still room for improvement. Let’s hope that the Bank of England looks at the real rate of pay rather than the headline figure when it decides the next interest rate move.

Stocks surge, erasing some recent losses (Wall Street Journal, Akane Otani) highlights a solid market performance yesterday on the back of positive jobs data and continued strength in corporate profits. The Dow was up almost 500 points and the tech stocks that had taken a bath recently rebounded strongly. * SO WHAT? * Yes, there are some hurdles on the horizon but corporate America is on a winning streak at the moment. As I said the other day, tech stocks in particular as still producing real stuff that punters crave so any concerns about some kind of tech bubble bursting right now look a bit overdone. Having said that, trade war chat-related fears are valid because no-one knows what the outcome is going to be. It would be ideal for Trump if he could solve this before the midterm elections because I’m sure we’d see a major boost to the financial markets in a sort of relief euphoria – but it seems that we are not anywhere near a settlement at the moment.

Goldman Sachs, Morgan Stanley and Netflix announce strong figures while the IPO race is on for Lyft and Uber…

In Goldman, Morgan Stanley show Wall Street charging ahead (Wall Street Journal, Liz Hoffman) we see that both companies announced much higher third quarter earnings – profits up 19% and 20% respectively – after a week of big banks unveiling strong numbers. All six of the biggest US banks have now reported higher profits versus last year.

Netflix crowns excellent third quarter (The Times, James Dean) shows a company back on track after it suffered a 13% sell-off in its shares when it announced weaker-than-expected subscriber numbers in July this year. It added seven million new subscribers – a full two million more than it had forecast back in July – and announced a bullish forecast for the fourth quarter of 9.4m subscriber adds. The shares jumped by 14.3% in after-hours trading. * SO WHAT? * This is great news for the 

company. The fact that it is spanking the cash on more and more proprietary content is a given, which makes everyone super-sensitive to subscriber numbers, hence the wild share price movements when the company delights or disappoints. As far as I’m concerned there is still a lot of growth to go for here as I don’t think we’ve reached “subscription saturation point” just yet. That time will come, but not for a while longer.

I thought that Uber and Lyft in race for Wall Street listing (The Times, Tom Knowles) was worth mentioning because of the sheer amounts of money being bandied about. People are talking about Uber being valued at a whopping $120bn if it lists next year – which would make it bigger than General Motors, Ford and Fiat Chrysler combined!Its smaller rival Lyft is expected to float in the first half of next year for a more “modest” amount north of the $15.1bn it was valued at this year. Given that Lyft made 375 million rides last year versus Uber’s 4 billion, you can see why the valuations are a teensy bit different. Fun fact for you: Uber only has to offer around 21% of its shares to be the biggest IPO ever. If co-founder Travis Kalanick sold off his entire stake at that valuation, it would net him a rather nice $8bn! Think of the number of “Appropriate Behaviour in the Workplace” and Anger Management courses he could do for that ;0)

In European company news, it’s onwards and upwards for Aldi and Lidl and British American Tobacco cuts its vaping target…

Aldi and Lidl leap ahead as big four rivals struggle to make up ground (Daily Telegraph, Rhiannon Curry and Ben Woods) shows that the discounters are putting further clean air between themselves and the likes of Tesco and Sainsbury’s, according to the latest stats from Kantar Worldpanel. * SO WHAT? * Although this is obviously disappointing for the big four, in some ways Sainsbury’s and Asda might be secretly pleased because it is something that the Competition and Markets Authority 

(CMA) will have to take into account when scrutinising their proposed £15bn merger. Continued strength by the discounters and other newer players will make the deal more likely to go ahead and less likely to get scuppered because the enlarged entity would be too dominant.

BAT cuts vaping target and profit forecasts as new CEO steps up (Daily Telegraph, Oliver Gill and LaToya Harding) shows that the mighty BAT – the largest listed tobacco company in the world – has cut full-year vaping targets and overall profit growth due to problems in Japan and the US and adverse currency movements respectively. * SO WHAT? * The Food and Drug Administration (FDA) is currently looking to crack down on vaping, which could be highly problematic (and possibly terminal) for purer vaping players such as Juul – but could be an unexpected boon for Big Tobacco which has far deeper pockets and a more diversified earnings stream.

And finally, in other news, I propose a toast(ie)…

Here’s to the continued enjoyment of the toasted sandwich! Long may it live! Here’s somewhere to go if you get the urge: Toastie restaurant with completely bonkers fillings to open in UK – would you try any of them? (The Mirror, Robyn Darbyshire https://tinyurl.com/y7a5sx8y)…

1. In MACROECONOMIC AND CURRENCY NEWS, we see something funny going on with the US and Saudi Arabia, SoftBank suffering from its association with the kingdom and Bitcoin’s latest move towards legitimacy
2. In INDIVIDUAL COMPANY NEWS, Superdry’s not looking so super, Convatec takes a bath and Aston Martin plunges further
3. In OTHER NEWS, I bring you a talented man making sweet music on calculators. For more details, read on…

So Trump and Saudi Arabia set us up for a BS story, SoftBank suffers by association and Bitcoin gets a boost…

Trump signals backing of Saudis over Khashoggi disappearance (Financial Times, Andrew England, Tony Barber and Demetri Sevastopulo) shows us a prime example of the makings of what I think is an extremely clumsy cover-up. Trump sent his secretary of state, Mike Pompeo, to “get to the bottom” of the disappearance of dissident journalist Jamal Khashoggi whilst at the same time saying that “rogue killers” could be responsible for the killing. CNN and the Wall Street Journal have said that Saudi Arabia was thinking about saying that the journalist was killed “by mistake” in an interrogation by some mysterious operatives. Meanwhile, a joint investigation between the Saudis and the Turks has been instigated well after the incident was alleged to have taken place and apparently a few hours after what appeared to be a visit from a group of cleaners entering the embassy through the main entrance (although that could admittedly be innocent – or a double-bluff! Oooh, controversial…). * SO WHAT? * I will bet my mortgage on the fact that Trump will be satisfied with the findings of the investigation and do his level best to calm the increasing hysteria surrounding this incident – which is why he’s clearly softening everybody up with this theory of “rogue operators”. The fact that the Saudis have gone from outright denial of any incident to suggesting that it may have happened, albeit via the hands of some unidentified “rogue operators” AT A CONSULATE, sounds highly suspicious to me. I would also be willing to bet that the joint investigation by the Turks and Saudis will unveil no fault and that this whole thing will just drift away over time via a mixture of clever PR (probably bankrolled by the Saudis) and a willingness by everyone who makes money from dealing with Saudi Arabia to move on. The fact that Mohammed bin Salman (aka “MBS”) has consistently been jailing those who don’t agree with him has been successfully overlooked by the international community so far and I see no reason why this will stop, especially with the country’s enormous power over oil. Everyone just has too much to lose from p!ssing off the Saudis…

…which brings me to SoftBank/Saudi Arabia: present value (Financial Times, Lex) where SoftBank’s close association with Saudi Arabia saw the Japanese company’s share price sold off by 7% (almost half of its massive flagship Vision Fund comes from the kingdom) as investors feared the worst. * SO WHAT? * Unless this whole controversy goes away, the ability of the Vision Fund to do more deals will get trickier and any talk of additional investment by MBS – supposedly up to $45bn in a new fund – will go quiet for now at least. Having said that I personally think that, as far as SoftBank is concerned, this will prove to be a storm in a teacup and the share price will bounce back IF the whole Khashoggi thing gets swept under the carpet (which, unfortunately, looks likely). At the end of the day, everyone knows about the Vision Fund and I’m pretty sure that most businesses chasing big investment are not going to say no to getting finance from it.

I think that Fidelity says it will trade Bitcoin for hedge funds (Wall Street Journal, Justin Baer) is a major step in Bitcoin’s history as Fidelity Investments has announced that it will store and trade Bitcoin and Ether for hedge funds and other professional investors in the new Fidelity Digital Asset Services business.  This division will execute trades through various digital currency exchanges and platforms but there are no plans to broaden its coverage to retail customers at the current time. * SO WHAT? * Most large financial services firms thus far have turned their noses up at the prospect of trading digital currencies due to concerns about risk, regulation and volatility so this is a huge step towards legitimacy for Bitcoin and Ether. The new business will expand into other assets as time goes on, but this move by such a respected firm may well prompt others to follow.

JUST A LITTLE THOUGHT FOR YOU: I’ve been looking at the oil price since this whole Khashoggi thing exploded with evidence from the Turks and it seems that the price has not really moved as much as I thought it would have done given all the initial rhetoric, outcry and threats of sanctions flying about. This would imply to me that the market sees this event as noise – and interestingly enough I don’t know whether you’ve noticed, but the oil price seems to be weakening further – which suggests to me that the market may be thinking that the Saudis could increase oil production as a way to keep the Americans sweet – after all, this is what Trump asked the Saudis to do when he imposed sanctions on Iran. We’ll just have to see…

In individual company news, Superdry and Convatec crater and Aston Martin continues its downward slide…

Superdry profit warning knocks £1.5bn off shares (The Guardian, Julia Kollewe) highlights a bad day for the apparel retailer as it announced an £18bn dent in its profits due to warm autumn weather, generally tricky trading conditions and unexpected forex costs. The shares were walloped by 20% as a result. As chief exec Euan Sutherland put it, “Superdry is a strong brand with significant growth opportunities, backed by robust operational capabilities, but we are not immune to the challenges presented by this extraordinary period of unseasonably hot weather”.

Talking about big share price drops, Convatec shares

plunge as CEO departs and it cuts sales forecast (Daily Telegraph, Jack Torrance) details a one-day share price drop of over 30% as colostomy bag and catheter maker Convatec announced a major cut in forecasts and the “standing down” of its CEO Paul Moraviec with immediate effect. The downgrade was largely caused by its biggest infusion pump customer deciding to cut the amount of inventory it carries but Convatec also cited tougher trading conditions and price pressure in supplying the NHS.

Luxury cars left battered (The Times, Louisa Clarence-Smith) highlights a new low for the much-hyped Aston Martin Lagonda as selling pressure has seen the share price fall from a flotation price of £19 to the current £14.87. Jefferies had initiated coverage of the car maker with a £14 price target, saying that although it had a credible growth plan the flotation price wasn’t sufficiently pricing in execution risk as it entered into competitive areas. It argued that the £19 price put it up with the likes of Hermes and Ferrari, both of whom have more of a track record.

…and finally, in other news…

Every now and again you see something that makes you think “this person clearly has too much time on their hands”, but then you are rather glad they did. This is one such example: Japanese netizen kills time by learning to play a hit J-pop song on…calculators (SoraNews24, Dale Roll https://tinyurl.com/y9mxtvhf). That’s serious dedication to something completely pointless right there!

1. In MACROECONOMIC NEWS, Saudi Arabia threatens retaliation and Germany’s Merkel has a setback
2. In RESTAURANT-RELATED NEWS, Patisserie Valerie survives for now and UberEats plans virtual restaurants
3. In INDIVIDUAL COMPANY NEWS, military electronics companies L3 and Harris merge and Sears files for bankruptcy protection
4. In OTHER NEWS, I bring you one of those photo optical illusions. For more details, read on…

So Saudi Arabia gets nasty and Merkel suffers a defeat that could help her…

Trump, Saudis escalate threats (Wall Street Journal, Vivian Salama and Margherita Stancati) shows that the war of words between Washington and Riyadh is hotting up over the suspected killing of a dissident Saudi journalist. On the one side, Trump pledged “severe punishment” on Saudi Arabia if an investigation shows that it did indeed murder (and chop up, if you believe Turkish intelligence sources) journalist Jamal Khashoggi who disappeared after he entered the Saudi consulate on October 2nd – and then on the other, you have Riyadh threatening to retaliate in spades. Various companies and individuals (including JP Morgan’s chief exec Jamie Dimon and media companies such as Bloomberg and CNN) are starting to pull out of attending the kingdom’s premier business conference later this month in protest and one former State Department official said that “this is the most damaging blow for Saudi Arabia and the United States since 9/11…at a minimum MBS (Mohammed bin Salman, the Crown Prince) is damaged goods”. Riyadh says it will hit back at any US sanctions over missing journalist (The Guardian, Patrick Wintour) highlights a statement by Riyadh which said that “The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations…the kingdom affirms that if it is [targeted by] any action, it will respond with greater action” and Ledger on oil and arms gives kingdom huge global influence (The Guardian, Rob Davies) emphasises that, as the world’s biggest oil exporter, Saudi Arabia has enormous influence on the world economy. An editorial in the Arab News by Turki Aldhakhil claims that Riyadh is looking at up to 30 retaliatory measures if the US decides to punish them, including an oil production cut that could drive prices from around $80 a barrel to over $400 that would not only drive up pump prices – it would also jack up the costs of all goods transported by road. Saudi Arabia also supports huge numbers of American jobs via its arms purchases as it is the world’s #2 importer of arms (India is #1) and a massive 61% of those imports are from the US. Saudi Arabia was America’s biggest arms customer last year, with the $17.5bn-worth of deals looking set to continue after Trump signed a $110bn defence agreement with the country last year. * SO WHAT? * If what the Turkish intelligence sources are saying is true, this is truly a horrific reflection of a country that is trying to change under its

modernising Crown Prince – murdering a journalist in a particularly grisly manner is not the way to win friends and give them that warm cuddly feeling. However, I fear that there is b*gger all that anyone can do about it. At the end of the day, Saudi Arabia has the rest of the world by the balls with its oil – and it would not be that difficult for the country to switch from being America’s BFF to Russia’s new BFF (after all, they already have regular relations on the oil front), if Riyadh felt slighted. Call me cynical, but I suspect a massive stitch-up is on the cards – and Turkey could be the big winner here if President Erdogan plays his cards right. He has already agreed to a joint Turkey-Saudia Arabia investigation (can you imagine how impartial THAT is going to be??) and you would have thought that he could be incentivised by both the US AND Saudi Arabia to make this all go away. What a brilliant move by that old dog Erdogan – this  could well have saved his ailing economy. Unfortunately, you have one (probably) dead journalist on the one side and then MASSIVE repercussions for economies and jobs on the other – and I suspect that the latter will be prioritised over the former no matter how uncomfortable that is.

In rather less violent political developments, Bavarians deliver stunning rebuke to conservative Merkel allies (Financial Times, Guy Chazan) shows that voters in Germany’s southern state of Bavaria struck a huge blow to the ruling Christian Social Union (CSU), which saw its share of the vote collapse from 47.7% in the election five years ago to 36.2% yesterday with the Green party and extreme-right AfD taking advantage. The CSU has ruled in the region without a break since 1957 and had been trying to take the wind out of the sails of increasing support for the anti-immigration AfD by picking fights with Angela Merkel over asylum policy. However, it seems that this tactic has backfired in spectacular fashion as voters abandoned them for the Greens in their droves as the party saw its share of the vote increase from 8.4% in 2013 to yesterday’s 18.1%. * SO WHAT? * This result goes to show the rather fragile nature of Germany’s coalition government with the CSU and Social Democrats (SPD) all weakening along with Merkel’s Christian Democratic Union (CDU) and raises the question of whether it will actually be able to last a full term. Result may strengthen Merkel’s hand, but fear of alternative is what holds coalition together (The Guardian, Jon Henley) puts an interesting spin on the result in that it could act in her favour by forcing some of her fiercest critics to back down after such a chastening defeat because if they don’t, the danger is that they could end up handing power to the extreme-right AfD party, which would put Germany and the EU in a very difficult position.

Patisserie Valerie survives and Uber Eats is on the verge of launching 400 virtual restaurants…

Café chain could sue auditor over £40m hole (The Times, Dominic Walsh) heralds the latest development in Patisserie Valerie’s current drama as the exec chairman and 37% shareholder Luke Johnson staged a rescue bid for the company on Friday by providing a £10m interest free loan with a £10m bridging facility to be repaid after the completion of a £15.7m share placement with institutional shareholders in which Johnson will buy about £5m of the shares to be priced at 50p versus the 429.5p the shares were at before this news hit and the shares were suspended. This means that the company’s market cap will suddenly drop from £446m to £68m. Although Johnson has not directly referred to suing Grant Thornton, its auditor since 2006, for its failure to notice a £40m black hole in its finances, you would have thought that the auditors aren’t going to get away with it. * SO WHAT? * Well at least the company isn’t going to go under for now. However, this MASSIVE decline in value is going to be extremely painful and I suspect that there are going to have to be some pretty dramatic cuts in jobs and outlets for the sake of its ongoing survival.

There’s potentially good news for those who live in areas with few restaurant options in Uber Eats to launch 400 virtual restaurants in UK (Daily Telegraph, Matthew Field and Olivia Rudgard) as the company is planning on a roll-out of “virtual restaurants” which basically increase takeaway food choices by optimising the use of existing kitchen space. Basically, the way it works is this: UberEats finds out what foods people in specific neighbourhoods are searching for and if  that food isn’t served in that location, Uber will approach an existing restaurant and see if they want to serve the missing cuisine. If that establishment agrees to do so, Uber will “build” a virtual restaurant that only exists in its app (i.e. you can’t go to it in person) that people can order from. This means that, say, a restaurant will suddenly be able to utilise its existing equipment to make a whole host of other dishes whilst making more money by reacting to real-time demand. One of the great things here is that with a virtual restaurant, you can test individual menu items or completely new cuisines without having to build or invest in a real world presence. Pretty amazing, no? * SO WHAT? * I think that this is a very interesting concept indeed and is great not only for the consumer but also the restaurants in question as it gives them the ability to react to reliable customer “intelligence” and broaden their offering with lower financial risk. This could be particularly good at the moment (and possibly in the near future) given the tough times restaurants are experiencing as it will either offer existing restaurants a potential lifeline or will give customers a viable “replacement” for outlets that have to shut down.

In individual company news, L3 and Harris get together, Sears files for bankruptcy protection and Tencent continues to suffer…

In L3 and Harris merge in $33bn all-stock military electronics deal (Financial Times, Sylvia Pfeifer, James Fontanella-Khan and Eric Platt) we see that the two defence technology companies are merging in an all-paper deal to create the sixth biggest defence company in the US, with estimated combined net revenues of $16bn. * SO WHAT? * There’s a lot of consolidation going on at the moment in aerospace and defence as companies combine 

to get greater market share of Trump’s promised increase in military spend. The chairman and CEO of L3, Christopher Kubasik, has said that he wants to be a challenger to the likes of Boeing, Lockheed Martin and Northrop Grumman. 

Sears files for Chapter 11 bankruptcy (Wall Street Journal, Lillian Rizzo and Suzanne Kapner) follows on from what I was talking about last week as it filed for bankruptcy protection from creditors early this morning. Under a deal reached with its lenders, it will keep hundreds of its stores open for now although it will close 142 loss-making stores by year end with liquidation sales to begin shortly. Sears currently operates around 700 Sears and Kmart stores and employs about 70,000 people. Edward Lampert will step down as CEO but stay on as chairman. Talk about how the mighty fall!

And finally, in other news, I bring you one of those photo illusions…

I suspect this won’t be quite as viral as the whole blue/gold dress thing but this is quite amusing: Back or neck? Thousands baffled by optical illusion as they attempt to work out what they are looking at (The Mirror, Courtney Pochin https://tinyurl.com/y8zg6ytd). It’s definitely a back. Or a neck…

1. In MACROECONOMIC AND MARKETS NEWS, Turkey looks like it’ll release the pastor and markets take a bath
2. In NEWS ON CARS, China sales continue to slow and BMW ups its commitment in the country
3. In RETAIL NEWS, Amazon ups its pay to long-timers, an online trainer and bag market is coming to you, Coast gets rescued, Patisserie Valerie continues to look tricky and WH Smith has mixed fortunes
4. In OTHER NEWS, I bring you a genius invention that we could do with over here. For more details, read on…

So Turkey/US relations might be about to get better and markets continue to plunge…

You may recall that Turkey has been having a rather rough time of things recently as the country’s economic woes have been exacerbated by Trump imposing sanctions in protest against an American pastor being held in the country on charges of espionage. Well Turkey is expected to release American pastor on Friday (Wall Street Journal, Alan Cullison, Peter Nicholas and David Gauthier-Villars) shows that this deadlock may be about to end as a release looks likely today after a court hearing. North Carolina pastor Andrew Brunson has been held since 2016, but now it looks like he may be freed – although deals have fallen through at the last minute in the past. * SO WHAT? * Basically, Turkey could do with some allies right now as it doesn’t have that much support in the region and releasing Brunson could bring Trump back onside. It would also be a nice little PR boost for Trump in the run-up to the midterm elections to say that he had managed to solve the Brunson dispute. In addition to this I would have thought that, if this goes ahead and sanctions are lifted, Turkey will see a relief rally and recovery in its currency. This would in turn reduce pressure to make any further interest rate increases, which is something that President Erdogan is keen to avoid. Some may argue that the resulting relief could lift other emerging markets as well but I’m inclined to think this is a Turkey-specific thing rather than a wider emerging markets thing. The problems remain for the latter regarding their dollar-denominated debt getting more expensive because of rising US interest rates, but I guess that a Brunson release isn’t going to do any harm!

FTSE 100 ends 10% off peak as global sell-off continues (The Guardian, Larry Elliott) highlights the continued market sell-off as investors continued to show concerns

over ongoing trade tensions, higher inflation and Donald Trump’s attempt to rein in the US central bank’s intentions to continue to raise interest rates. He told reporters yesterday that “we have interest rate going up at a clip that’s much faster than certainly a lot of people, including myself, would have anticipated. I think the Fed is out of control”. The Federal Reserve (aka “the Fed”) is expected to put rates up again in December and then put through up to four more increases in 2019. * SO WHAT? * The US economy is chugging along nicely, unemployment levels are super-low and wages are trending higher. This makes Trump look good. HOWEVER, the Federal Reserve is independent and it has the power to take some of the heat out of the economy by hiking rates, which will slow everything down – making Trump look not-so-good. Basically, I think it all boils down to this: if the central bank is more concerned about rising inflation than stock markets, interest rates WILL continue to rise at a decent pace, but if it has any concerns about the effects of its actions on the stock markets then perhaps the rises will be more gradual – at the moment, the base case is one rise this year and four more next. Anything less/slower than that will bolster current sentiment and the weakness we are seeing now could be viewed as a buying opportunity.

In the meantime, Tencent Music pauses IPO amid market turmoil (Wall Street Journal, Julie Steinberg and Maureen Farrell) shows how the current market sell-off is affecting sentiment in the IPO market. According to people close to the offering, it will be postponed until at least the middle of November in what would be one of the biggest IPOs in the US this year. It was due to start off its investor roadshow next week and start trading on October 22nd. * SO WHAT? * This is definitely the right course of action for the company right now – especially given the carnage not just in the US but in its own home market. For instance, Tencent Music’s parent company – Tencent Holdings – fell by 6.8% in Hong Kong yesterday alone – its tenth consecutive day of decline. The share price is now 34% down so far this year.

Car sales in China slow down and BMW increases its hold of its Chinese joint venture…

In Global car makers rattled by stalling China market (Financial Times, Tom Hancock) we see that Chinese car sales have fallen in both July and August versus the previous year and it looks likely that they will continue to fall in September. * SO WHAT? * Given that China is the largest and most profitable car market in the world, this is clearly a concern for car manufacturers who see the country as key to their profitability. Bernstein analyst Robin Zhu says that “the auto sector has been under huge pressure in recent weeks and months, with existing cyclical and structural concerns being joined by worries about tariffs and China. Few of these concerns are going away”.

Meanwhile, BMW to raise stake in China joint venture to 75% in €3.6bn deal (Financial Times, Tom Hancock and Alice Woodhouse) shows a concrete reaction to Beijing’s recent relaxation of its restrictions of foreign ownership in the automotive sector. The previous arrangement put in place a ceiling of 50% ownership by a foreign firm of a joint venture with a Chinese manufacturer, but the government said in April that it will lift this restriction by the end of this year for electric vehicles and by 2022 for other types of vehicle. * SO WHAT? * This will give BMW greater control over its JV with Brilliance Auto Group and boost margins. However, BMW/China: Brill seeker (Lex, Financial Times) believes that this is a costly investment in a market that has its own risks. On the positive side, China represents a great testing ground where car companies can sell low-emission vehicles to see what works and what doesn’t but on the other side, such an investment increases exposure to the whims of the Chinese government who still have a great deal of control over the supply chain and the actual sale of the cars.

In retailer news, Amazon ups its pay again for some workers, an online bags and trainers “market” comes to the UK, Coast gets rescued, Patisserie Valerie continues to look shaky and WH Smith has a bit of a mixed bag…

Further to recent criticism that its recently much-trumpeted wage rises for US and UK workers actually made them worse off because the reduction in benefits actually negated the increase, Amazon adds to pay rise of longtime workers to address backlash (Financial Times, Shannon Bond) shows that Amazon has decided to give an extra boost to workers who have been there the longest. Analysts don’t believe this wage increase is going to have too much impact on the overall financials of Amazon, though, as an increase in net incremental costs of between $400m and $1.9bn represents less than 1% of the company’s $235bn in revenues it is forecasted to achieve this year.

Online marketplace to resell trainers and handbags hits Europe (Financial Times, Andrew Edgecliffe-Johnson) heralds the arrival in Europe of Stock X, an online marketplace that sells things like Yeezy sneakers, Supreme streetwear and Louis Vuitton handbags, as it opens a west London facility that will authenticate products sold in the UK and 30 other European countries. StockX differs from sites like eBay because it offers “bid” and “ask” prices like a stock exchange with ticker symbols. When a transaction is

agreed, the seller sends the product to the StockX warehouse for viewing by authenticators, which has meant that the rate of fake goods it detects has dropped from 15% to 2%. The company touts itself as being an alternative retail model for brands and has expanded the product categories in which it trades. Sounds exciting, no?

Elsewhere, things continue to be tricky on the UK high street in Karen Millen snaps up Coast assets as it faces administration (Daily Telegraph, Ben Woods) as women’s clothing retailer Coast went into administration, with parts of the business being bought out by sister company Karen Millen. It’ll save some jobs and department store concessions, but 24 of its high street shops are still set to close. Mike Denny, from the administrator PwC, said that “this sale puts the ongoing business on a firmer financial footing. Karen Millen will be working with the existing management team to continue to grow and develop the new business”.

Patisserie Valerie faces closure without immediate cash injection (Daily Telegraph, Oliver Gill) shows that things aren’t getting any better for the bakery chain, keeping the future of its 2,500 staff and 206 shops in limbo. The saga continues as various advisers are called in…

Costs take gloss off profit rise at WH Smith (The Times, Deirdre Hipwell) shows that although underlying profits and the dividend rose at WH Smith, higher restructuring costs for its high street retail business sent the company’s share price down by over 11.5% in trading yesterday. Its travel division (shops in stations, airports etc) continues to power the company and accounts for over half of group sales and two thirds of profits.