Category: Uncategorized

1. In NEWS ON US TRENDS TODAY, profits gain for big US companies
2. In CHINA TRENDS, millennials’ love of credit cards stokes debt fears and drug companies transition from copycat supremos to impressive originals 
3. In UK TRENDS, accountants look like they’ll get more of a level playing field and the labour market remains tight. In INDIVIDUAL COMPANY NEWS, House of Fraser limps on
4. In INDIVIDUAL COMPANY NEWS, House of Fraser limps on
5. In OTHER NEWS, I bring you a domino topple fail… 

So corporate America sees booming profits…

Profits surge at big US firms (Wall Street Journal, Thomas Gryta) highlights the impressive performance of S&P 500 companies which have jumped up by around 23.5% in the three months through June, according to data from Thomson Reuters. This leap has straddled all sectors

with solid consumer and business spending along with rising commodity prices and fears of potential tariffs pushing companies to put up their prices. The slashing of the US corporate tax rate from 35% to 21% is also a big driver of profit gains – but the longevity of such a one-off boost will depend largely on how companies use the windfall. * SO WHAT? * It’s all good so far for the Americans. Although input costs are rising, there is enough confidence knocking around in the economy to raise end prices to customers, so there’s no need to panic too much. Couple that with unemployment at historic lows and rising wages and you’ve got enough slack to play with at least in the short term to weather any tariff shenanigans IMHO.

In news on China trends, debt concerns continue over millennials’ love of credit cards and pharma companies move from being notorious copycats to pioneers…

China millennials’ love of credit cards raise debt fears (Financial Times, Tom Hancock and Wang Xueqiao) takes a look at consumer debt in China as it seems that young people are increasingly reliant on credit cards to fund their lifestyle. According to figures from Chinese investment bank CICC, outstanding consumer loans used for things like vehicle purchases, holidays and household renovations etc., shot up by almost 40% last year and, along with massive growth in mortgage lending, consumer loans have helped to push household borrowing up to 40% of GDP by the end of 2017 – over twice the percentage it was at in 2011. * SO WHAT? * On the one hand, the Chinese government has been trying to crack down on burgeoning debt, but then again it has also been trying to shift the engine of economic growth to consumption. A study of 54 economies by the Bank if International Settlements found that household debt can be problematic when it exceeds the 60% of GDP threshold, but at 40% is it more than developing countries but still short of 60% in the EU and 80% in the US. Consumer loan growth has also been boosted by the mushrooming of online peer-to-peer lenders who collect money from retail investors and dole out small loans to consumers without collateral, with 

interest rates of up to 37%. There is a feeling amongst some that there is a ticking timebomb here as China doesn’t have much in the way of credit history on consumers – the average US consumers’ credit history goes back 14 years whereas your average Chinese consumers’ credit history only goes back a few months – making good lending decisions much harder and the proportion of non-performing loans consequently higher. If this situation continues unchecked, it could scupper growth in the future as households are forced to spend a higher proportion of disposable income on servicing debt, thus curtailing spending elsewhere. It’s not a disaster at the moment, but no doubt the authorities will be monitoring this situation.

How China is evolving from a maker of copycat medicines into a producer of complex drugs (Wall Street Journal, Preetika Rana) is a really interesting article that heralds a transition for Chinese pharmaceutical companies from blatant copycats to drug pioneers as it takes the example of start-up Nanjing Legend Biotechnology Co which received $350m at the beginning of this year from Johnson & Johnson for the global rights to co-develop and market an experimental treatment for blood cancer. In May, the US Food and Drug Administration (FDA) approved testing for Americans – the first time a Chinese-developed gene therapy has got the go-ahead – with trials scheduled to start later this month. This is just one example of how China is making big efforts to move away from its reputation of making cheap copycat medicines to complex ones. * SO WHAT? * Beijing has made scientific innovation a top national priority and has been targeting things like genetics-based therapies such as Legend’s CAR-T. It is a new field but it just goes to show what can be achieved by government backing. Big Pharma had better watch out as China is the new player in town!

In news on UK trends, accountants foresee a more level playing field and the labour market continues to be super-tight…

In Accounting rivals look forward to a more level playing field (The Times, Tabby Kinder) we see that recent scandals are putting increasing pressure on accountancy’s Big Four – PWC, KPMG, Deloitte and EY – to get their act together as politicians, investors and regulators are all calling for more competition in auditing. * SO WHAT? * The fifth and sixth biggest accountancy firms, Grant Thornton 

and BDO, have often complained of being shut out by their  larger rivals – BDO only audits one FTSE100 client and Grant Thornton said it would no longer bother pitching to large listed companies after consistently coming second to the Big Four. However, it seems that the top nine audit firms have got together ahead of a potential enquiry by the competition regulator to divvy up the auditing more equally, which could result in Grant Thornton and BDO taking on 20 to 30 FTSE250 audits. Given that Grant Thornton and BDO’s audits were deemed to be of higher quality than those of the Big Four by the audit watchdog, it would seem that previous arguments of the Big Four having better skills, tech and resources are baseless. As one institutional investor put it, “By bringing in smaller firms, you are increasing their skillset and improving overall choice. It is the only way to ensure better quality of audits. As we’ve seen, having a Big Four auditor is no guarantee that investors are getting a true picture of a company’s accounts”.

In individual company news, House of Fraser limps on…

House of Fraser left reeling as Ashley ‘cools’ on rescue plan for store chain (The Guardian, Zoe Wood and Miles 

Brignall) tells us two things: that landlords who were due to contest House of Fraser’s Company Voluntary Arrangement (CVA) this week have dropped their legal challenge leaving the company free to close 31 of its 59 stores. The other thing was that Sports Direct’s Mike Ashley’s interest is cooling on doing a deal with the embattled department store. * SO WHAT? * Getting the CVA will certainly make the company more attractive to potential suitors. However, caveat emptor – as the saying goes, you can’t polish a t*rd, but you can roll it in glitter ;0) 

… And finally, in other news…

If you are feeling the post-weekend blues, just think that things could always be worse. Sympathy goes out to all those involved setting up dominos with tweezers for two weeks in Fly single-handedly ruined domino world record attempt (Metro, Martine Berg Olsen https://tinyurl.com/y9dkarbh). Noooooooo!

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

1. In MACROECONOMIC AND GOLD NEWS TODAY, Trump takes aim at China (again), UK interest rates rise to a level not seen since 2009 and gold demand falls to new lows
2. In TECH-RELATED NEWS, Apple reaches $1tn and Google faces significant hurdles to China re-entry 
3. In UK REAL ESTATE NEWS, Countrywide has a complete shocker and house building sees strong growth
4. In OTHER NEWS, I bring you a great job opportunity and an inadvisable item of clothing. For more details, read on…

So Trump takes aim at China, the Bank of England raises interest rates and gold demand falls…

Here we go again in Trump zeroes in on China after trade truce with Europe (Financial Times, Demetri Sevastopulo and Shawn Donnan) which says that after his kinda-truce with Europe last week, Trump has donned his subtlest negotiating trousers and threatened to raise duties on $200bn of Chinese goods from 10% to 25%! * SO WHAT? * China describes this as “blackmail” but Trump has clearly got his sights on the mid-term elections in November. A little China-baiting will probably not do him any harm in the polls – and if he manages to negotiate something major with them before the actual vote then he is going to be sorted. Dennis Wilder, a former top China adviser to George W Bush, observed that “What was unpopular was a tariff war against the world. The administration realised that and shifted gears. What is popular going into the midterms on both sides of the aisle is China bashing”. He also made a very interesting point on Trump’s broader negotiation behaviour when he said “From the Chinese point of view, [negotiations] have to be between Xi and Trump. If they have learnt one thing [looking at] Juncker dealing with Trump and Kim Jong Un dealing with Trump, it is when you get a deal with Trump it sticks. When you get a deal with the others like Mnuchin and Ross, suddenly it’s gone”. Clearly, we will just have to observe from the sidelines to see how this plays out…

Bank of England raises interest rates to highest level since 2009 (Financial Times, Gavin Jackson and Delphine Strauss) highlights the outcome of a unanimous

verdict by members of the Bank of England’s Monetary Policy Committee (MPC) to raise the UK interest rate from 0.5% to 0.75%, the highest rate since 2009. Governor Mark Carney said that the strategy of cutting rates and keeping them low following Brexit had worked and that “Employment is at a record high, there is very limited spare capacity, real wages are picking up and external price pressures are declining” and that now was the time to focus on inflation rather than employment growth. * SO WHAT? * The rate rise had been widely expected by the market, but many businesses were still p!ssed off about it because they believe that it will damage confidence and investment prospects. Suren Thiru, head of economics at the British Chambers of Commerce said that “The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy…it risks undermining confidence at a time of significant political and economic uncertainty” and that the Bank was “overly focused on reinforcing an idealised direction for rates rather than on economic reality”, according to Business hits out at ‘ill-judged’ rate rise (The Times, Tom Knowles).

Losing its lustre: demand for gold falls to nine-year low (The Guardian, Julia Kollewe) cites figures from the World Gold Council which show that global gold demand fell to its lowest level since 2009 in the first half of this year as investors felt emboldened enough to buy riskier assets against the backdrop of a booming US economy, with both consumers and central banks buying less of the shiny stuff. Investment was weakest in America due to an upwardly-mobile economy and stronger in Europe because of political uncertainty. * SO WHAT? * The general rule of thumb is that gold prices soar when economic sentiment goes down the toilet because it is seen to be a physical asset that has intrinsic value, but then conversely the gold price falls when sentiment is buoyant and other asset classes look like they will get higher returns.

In tech news, Apple hits the trillion dollar mark and Google faces China hurdles…

Unless you spent all day yesterday in a cave with no WiFi signal, listening to white noise (which, let’s face it, we all do from time to time) news that Apple become first US trillion dollar firm (The Times, Robert Miller) will come as no surprise. Its market capitalisation has been flirting with this psychological level since it announced its third quarter results on Tuesday night and marks a 50,000% rise since it floated in 1980, with a 21% rise this year alone! For an excellent timeline of Apple’s journey, have a look at Apple wins race to be first trillion dollar company (Financial Times, Tim Bradshaw). Just to give you an idea just how big Apple is right now, there are only 16 countries with a GDP as big or bigger than Apple’s current market cap. Mad, eh? It isn’t the first company to reach this mark, however. Apple’s market cap hits $1trillion (Wall Street Journal, Tripp Mickle and Amrith Ramkumar) says that PetroChina Co’s market cap rose above $1tn back in 2007 and it is said that the state-owned oil company Saudi Arabian Oil Company (aka Saudi Aramco) was valued at

$2tn at the height of flotation speculation. * SO WHAT? * It doesn’t really mean anything to hit the $1tn mark in itself but is an interesting psychological level to reach. It may also give other FAANGS something to go for. Apart from that, well done and move on…

Talking about FAANGS, I meant to mention talk the other day about Google’s re-entry to the Chinese market via a censorship-friendly product after abandoning it in 2010. Google’s road back to China littered with obstacles (Wall Street Journal, Liza Lin and Shan Li) highlights some of the potential pitfalls of its mooted return. Namely, it could become a negotiating pawn in the increasingly tetchy trade war raging between China and the US as it would threaten local champion Baidu (whose share price fell 7.7% when the news came out on Wednesday) and it could also face resistance from regulators given that it left China in a huff criticising state censorship. * SO WHAT? * Google has been running a charm offensive in China for years (it opened an artificial intelligence lab in Beijing last December, for instance) and still currently runs offices in Beijing, Shanghai and Schenzhen employing about 700 people. It is currently aiming to increase its efforts on AI-related projects in the country and reintroduce its Google Play app store onto the Chinese market. There will definitely be misgivings amongst employees about effectively embracing censorship, but they might just have to swallow their beliefs if they want to make the REALLY big bucks in a MAHUSIVE potential market.

In UK real estate news, Countrywide has a massive shocker but housebuilding goes on strong…

In Countrywide shares fall 63% as it seeks emergency cash (Daily Telegraph, Rob Davies) we see that shares in the UK’s largest property services company – which operates under 50 different brand names including the likes of Hamptons International and Bairstow Eves and employs almost 10,700 staff – fell by an eye-watering 60% yesterday after it asked investors for £140m of emergency funds to stop it from collapsing. This would be via an offering of deeply discounted new shares (at an 80% discount to their previous value!) and echoes woes at rivals such as Foxtons, which announced a £2.5m half-year loss earlier this week. The company aims to use the funds to reduce its £212m debt that was racked up in an acquisition

frenzy in 2014 and 2015. * SO WHAT? * It does sound like Countrywide’s nightmare has largely been of its own making (and therefore company-specific) as it pursued a rather radical strategy under its previous chief exec – but it is also being affected by the wider malaise being experienced currently by estate agents. Nasty.

On the other hand, House building drives fastest construction growth in a year (Daily Telegraph, Helen Chandler-Wilde) cites the latest figures from the IHSMarket Purchasing Managers’ Index (PMI) which show that house building has risen at the fastest rate since December 2015 and that overall construction has experienced its fastest growth rate in over a year. Tim Moore, associate director at IHSMarkit, observed that “July data reveals an impressive turnaround in the performance of the UK construction sector, with output growth the strongest for just over one year…While the recent rebound in construction work has been flattered by its recovery from a low base earlier in 2018, there are also signs that underlying demand conditions have picked up this summer”. * SO WHAT? * This is good news for the sector as a whole but, as we know, things can change pretty darn quickly – especially with Brexit coming up.

…And finally, in other news…

Do you yearn for a different job? Always wanted to do the job you feel you were born for? Well how about Nutella is hiring taste testers – and the job sounds just as incredible as you would expect (The Mirror, Robyn Darbyshire and Nisha Mal https://tinyurl.com/ycxwywas). Nice!

AND FINALLY, it’s always best to do a final reality check before designs turn into product as per Awkward design issue with woman’s edgy ‘wildheart’ vest top has everyone laughing – can you spot why? (The Mirror, Robyn Darbyshire https://tinyurl.com/ybn8nex4). Surely someone would have pointed this out?

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

1. In UK RETAIL NEWS TODAY, House of Fraser is in danger, Debenhams gets its credit rating downgraded and Next announces strong sales
2. In VEHICLE-RELATED NEWS, VW unveils cracking results, Tesla targets profits and Didi considers buying bike-share start-up Ofo
3. In OTHER NEWS, I bring you an amazing new bridge. For more details, read on…

So House of Fraser’s future looks shaky, Debenhams gets a ratings cut and Next benefits from summer sales…

House of Fraser on the brink of collapse (The Times, Deirdre Hipwell) shows how the venerable department store is close to collapse after Chinese investor, C Banner (which owns Hamleys) pulled out of a deal to save it after issuing a profit warning yesterday. The race is now on to find someone willing to take it on – and Mike Ashley’s Sports Direct and turnaround specialist Alteri are rumoured to be in the running. * SO WHAT? * If House of Fraser fails to find a saviour, it could become the biggest casualty on the UK high street since BHS and Woolworths. Roughly 17,000 staff work at HoF – 5,000 employed directly by it and the rest who work for the concessions. House of Horrors is currently trying to negotiate a company voluntary arrangement (CVA) to shut 31 of its 59 stores – and you’d think that any potential suitor would want to know the outcome of THAT before fully committing. Sports Direct currently owns an 11% stake in House of Fraser and is said to have offered to invest £50m either via a loan or equity injection. It sounds like Mike Ashley’s ragbag of investments in cr*p companies is on the verge of getting bigger. He already owns a decent stake in Debenhams – another pile of cr*p! As I keep saying, I believe that department stores are an anachronism and that they are in 

terminal decline. IMHO, they need to drastically repurpose, concentrate on providing an attractive and compelling retail experience as well as downsize or diversify in order to survive in the long term.

Talking of which, Ratings blow for Debenhams (Daily Telegraph, Ben Woods) shows that ratings agency Moody’s has downgraded the troubled department store chain from B1 to B2 following a slew of profit warnings as it has continued to suffer from sluggish consumer spending and tough competition. * SO WHAT? * Moody’s is hardly reinventing the wheel by downgrading this retailer, but it just puts even more pressure on a company that has been getting a kicking for quite some time. More evidence of what I was saying above in the HoF comment.

In Next swimwear and online sales make a splash amid retail gloom (Daily Telegraph, Jack Torrance) we see that the fashion retailer put in a better-than-expected sales performance, with the “highest summer products” like shorts, t-shirts and swimwear selling particularly strongly. Investors sold the shares yesterday, however, as the share price fell by 7.1% on disappointment that the company didn’t upgrade its full-year profit expectations. Chief exec Lord Wolfson said that retailer turmoil had helped Next to negotiate rent cuts of about 25% on leases that have come up for renewal – something that Greggs talked about a couple of days ago as well. * SO WHAT? * The fact that landlords are willing to make such big cuts in rent just shows how desperate they are getting to hang on to existing tenants. All retailers are complaining about high business rates, but nothing has been done about those just yet. You’d imagine that this would have to come next in order to stop our retail destinations from becoming ghost towns.

In vehicle-related news, VW has strong results, Tesla targets profitability and China’s Didi mulls an acquisition of Ofo…

Volkswagen posts record second-quarter results (Financial Times, Patrick McGee) heralds some good news for the embattled car manufacturer as it announced solid second quarter results yesterday but warned of a more volatile path for the rest of the year due to changes in emissions test procedures and the current threat of protectionist policies. The core VW brand did a particularly good job of turning things around but investors continue to be nervous about the impact of aluminium and steel tariffs as well as taxes on imports. The new chief executive Herbert Diess also talked yesterday about producing solid-state batteries at scale by 2025, saying that they were the natural successors of current lithium ion technology, although he did say that investment in electric vehicles would put “a burden” on margins. * SO WHAT? * This seemed to be a solid performance by VW, but it was peppered with warnings that the road ahead would not be a smooth one.

Tesla doubles loss, but burns less cash than expected (Wall Street Journal, Tim Higgins) highlights a sigh of relief from investors as founder Elon Musk reassured them that profits would come later on this year due to a significant increase in the number of Model 3 sales in the second quarter helping the company burn less cash than everyone had been expecting. He also managed to calm fears that the company was running out of money, all of which sent the shares up almost 9% in after-hours trading and said that “It took 15 years to execute on our initial goal to produce and affordable, long-range electric vehicle that

can also be highly profitable. In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive”. Tesla managed, at last, to reach its 5,000 Model 3 production target in June after a number of delays, but the company now faces the challenge of sustaining and then increasing this number. * SO WHAT? * I guess investors were relieved by this more assured performance by Musk amid recent reports that he’d approached suppliers asking for money, which implied that Tesla might have to ask for more from investors. He batted that concern away yesterday, but you never know with Tesla! Let’s hope he’s right.

China’s Didi in talks to buy struggling bike-share start-up Ofo (Financial Times, Louise Lucan, Henry Sender and Yuan Yang) shows how difficult things are as the craze for dockless bike-sharing has mushroomed globally over the past few years with two companies – Alibaba-backed Ofo and soon-to-be-bought-by-food-delivery-company-Meituan-Dianping Mobike– now the last (big) ones standing. Vandalism, theft and badly maintained bikes have all been issues – as have “bike graveyards” that have proliferated across major cities. Chinese ride-hailing app Didi already has a stake in Ofo and has been rumoured to have made an offer said to value the whole company at $1.5bn. Both Ofo and Mobike have been burning cash like there’s no tomorrow ($25m and $50m per month respectively) as they have had to heavily subsidise their offerings to win new customers. * SO WHAT? * I don’t mean to sound boring or anything, but this all sounds like a disaster waiting to happen IMHO. You have two bike-sharing companies that torch huge amounts of cash every month chasing a very fickle customer base that won’t combine (because the founder of Ofo is against it) being considered for an acquisition by another company that burns cash by the truckload (Didi) in a very competitive business. Surely this could be a very precarious state of affairs, no? I would have thought that if anyone should be buying into this, it should be Alibaba. I’m just not convinced about the sustainability of this business model.

…And finally,  in other news…

I thought I’d leave you with news of this amazing bridge that opened in Vietnam in June: Whimsical new Vietnamese bridge looks like it’s held up by the hands of gods (SoraNews24, Dale Roll https://tinyurl.com/yb5mgvka). How amazing does this look??

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

1. In MACROECONOMIC NEWS TODAY, the Eurozone economy shows signs of slowing down
2. In RETAIL NEWS, Zara innovates and Greggs gets rent concessions 
3. In TECH NEWS, Apple gets within touching distance of being a $1tn company, Samsung suffers from cooling phone demand, Baidu unveils strong results and Sony gets a boost from its PlayStation
4. In OTHER NEWS, ee bah goom – it’s Yorkshire Day today! For more details, read on…

So things are getting a bit sluggish in the Eurozone…

Worry grows as colour drains from eurozone (The Times, Tom Knowles) cites figures from Eurostat, the eurozone’s statistics agency, which show that the 19-nation bloc is slowing down after a strong 2017 – so much so that Britain is now expected to overtake it in the second quarter – 0.4% GDP growth (expected) versus 0.3% for the eurozone. The eurozone benefitted last year from strong

exports amidst buzzing global trade. A separate report published by the European Commission earlier this week found that confidence in the eurozone economy fell to its lowest level in almost a year last month as export orders and production expectations fell. As Fabio Balboni, an economist at HSBC put it, “Last year’s growth was unsustainable, fuelled by a spectacular external environment, with net trade contributing for about half of the annual growth seen in the last quarter of 2017”. * SO WHAT? * This sort of news is coming at a rather inconvenient time for eurozoners as they are caught in the middle of a trade war with the US and Brexit negotiations. You can see why the ECB is holding off raising the zero per cent interest rate although the decision to rein in QE may prove to be questionable timing-wise.

In retail news, Zara continues to innovate by repurposing shops whilst Greggs gets rent cuts…

Out of stock online? Zara hopes shipping from stores will boost sales (Wall Street Journal, Jeannette Neumann) shows the retailer’s willingness to innovate in order to keep winning on the high street as it is tooling up its stores to ship online purchases in a bid to boost sales by getting items to customers more quickly than getting them delivered from a warehouse. This means that, for instance, if an item is out of stock online but is available at a store close to where the potential purchaser lives, the new ship-from-store option could speed the item to the online shopper’s address. This capability will be rolled out to 2,000 stores in 48 countries, making it one of the most ambitious attempts by an apparel company to rejig its physical shops to be able to fulfil online orders. * SO WHAT? * Some retailers, such as Gap and JC Penney, have already rolled out similar initiatives, but others have experienced difficulty in executing similar plans because they have lacked the requisite tech to track in-store and in-warehouse inventory accurately. This is a very interesting development instigated by the world’s biggest fashion retailer by sales (and by that, I mean Inditex – Zara’s 

parent company) that I am sure will be closely monitored by others. The thinking behind this is that the quick convenience offered by this new service will increase the likelihood of a full-price sale, whilst simultaneously streaming online and store inventory together more efficiently will result in lower levels of overstock which triggers markdowns. It’ll be interesting to see how well this all works in practice, but if it proves to be a hit it could revive the utility of having a physical presence on the high street.

Meanwhile, High street woes serve up rent cuts for bakery chain Greggs (Daily Telegraph, Ben Woods) gives us a snapshot of how things are going at the UK purveyor of naughty treats as business has proved to be robust in the face of extreme weather and tough conditions on the high street. Chief exec Roger Whiteside observed that “With retailing coming under pressure and more and more retail units becoming vacant, then that increases supply. People want us to stay and we are able to negotiate favourable terms to that. Of late, that has included substantial rent reductions”. Although the company remains cautious on its outlook, investors were loving it and the shares rose by 9.6% on the results. * SO WHAT? * Things continue to be tricky on the high street and Greggs is big enough to have sufficient customer drawing-power that it can get special concessions like this. Others won’t be so lucky, however – although if they know that rent concessions are out there, it might give others hope to try and negotiate something similar which could help. The fact that landlords are willing to do this just goes to show how desperate things are getting.

In tech news, Baidu has solid results, Apple edges closer to the $1tn mark, Samsung suffers smartphone fatigue and Sony benefits from its PS4…

On the one hand, US tech sell-off sweeps up China bellwethers (Financial Times, Louise Lucas and Hudson Lockett) paints a mixed picture of tech as it highlights the recent Facebook and Twitter sell off, which now appears to be spreading to Chinese giants such as Tencent, which has fallen a substantial 25% since the beginning of this year. The weakness in Chinese tech stocks is being largely driven by the current trade war with the US, weaker currency and tightening liquidity. On the other hand, Baidu reports strong quarterly results (Wall Street Journal, Maria Armental) showed a certain amount of robustness as revenues reached record levels in the June quarter due to an uptick in its search-engine business, which is driven by artificial intelligence (AI). AI is a major driver for Baidu as it powers search and newsfeeds, developments in autonomous driving and voice-activated internet. * SO WHAT? * I have to say that I’m not convinced that this slide is a long-term thing. At the end of the day, these are companies that operate in areas that the Chinese government are keen to promote and they are selling predominantly to a largely captive domestic audience hungry for their products. I think any current weakness is a blip in the scheme of things and given the stellar performance the respective share prices have had, it’s probably about time for a pause for breath.

Continuing on a positive note, Apple closes in on trillion dollar status (The Times, Robert Miller) highlights Apple’s results that were unveiled yesterday. Sales of the iPhone (which accounts for two-thirds of the company’s revenues) fell slightly short of analyst expectations, but revenues from its services business – which includes the App Store, Apple Music and iCloud – exceeded them. Shares were up by 3.7% in after-hours trading on the news, taking the market cap of the company to $960bn at $203.45 a share. Chief exec Tim Cook gushed “we’re thrilled to report Apple’s best June quarter ever and our fourth consecutive quarter of double-digit revenue growth. Our third quarter results were driven by continued strong sales of iPhone, services and wearables and we are very

excited about the products and services in our pipeline”. * SO WHAT? * Demand for high-end smartphones continues to stagnate, so it’s good news that Apple’s services business continues to fire on all cylinders. Phone sales are still key to sentiment and direction, but I am sure that the services division still has quite a lot of room for growth as Apple increases revenues from its installed user base.

In Cooling phone demand weighs on Samsung despite chip boost (Daily Telegraph, Margi Murphy) we see that Samsung Electronics’ mobile business recorded it steepest profit decline since the first quarter of 2017 as sluggish demand for expensive high-end mobile phones generally dragged down the sales of its flagship S9 and S9+ phones. On the other hand, the company experienced strong demand for its memory chips and high end TVs. Samsung announced that it is to push out a new phablet – the Galaxy Note 9 – earlier than expected to take advantage of the pre-Christmas boost. * SO WHAT? * This is Samsung’s first decline in profits for seven straight quarters. Although semiconductor sales were strong, there are increasing concerns that the price of Nand flash memory chips – used for longer-term data storage – have already peaked out as prices have halved from the level they reached in 2017. If this is the case, along with the maturing of the smartphone market – the immediate future could be tricky for the company. Investors don’t seem to be giving it the benefit of the doubt as it has already fallen by about 10% this year, making it one of the worst performers in 2018 among global technology shares. Let’s hope that the take-up of its Internet of Things products increases and that its new phablet doesn’t spontaneously combust like the Note 7 did!

Sony’s profit soars on PlayStation strength (Wall Street Journal, Takashi Mochizuki) heralds some good news for the Japanese consumer electronics company as it reported another strong quarter for earnings, driven by solid sales of electronics hardware, a good performance by its PlayStation videogame business and demand for smartphone camera components. The company’s earnings were also boosted this quarter by the sale of some its stake in Spotify. * SO WHAT? * Although Sony’s smartphone business remains a drag as it is way behind the likes of Apple’s iPhone and Samsung’s Galaxy phones, everything else seems to be on track under the stewardship of the company’s new chief exec Kenichiro Yoshida. It sounds to me like they should ditch the smartphone business and just discount it as a lost cause. If smartphone supremos Samsung and Apple are finding it hard, Sony certainly isn’t going to bring anything to the table. I think it’s better off providing content and parts for smartphones rather than making its own devices.

…And finally, in other news…

How will you be celebrating Yorkshire Day today?? There are a few ideas in: Yorkshire Day 2018: events to celebrate the occasion around the county (The Yorkshire Post, Claire Schofield https://tinyurl.com/ybv3vxx7). I must say that the flat cap flinging and Yorkshire pudding tossing sound quite good…

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

1. In TECH NEWS TODAY, Facebook faces a class action, Nintendo’s weakness continues and Tesla eyes up a major European factory
2. In INDIVIDUAL COMPANY NEWS, GE looks to sell off its digital business, Starbucks partners with Alibaba in China on delivery and Foxtons jolts as London slows
3. In OTHER NEWS, I bring you an annoying puzzle to crack. For more details, read on…

So there’s more negative news on Facebook, Nintendo gets hit by a massive short seller and Tesla considers European production…

In Facebook faces class action over targeted ads for EU referendum (Daily Telegraph, Margi Murphy) we see that a campaign group called Fair Vote UK is preparing a class-action lawsuit on behalf of Facebook members whose data was used without permission to create targeted political ads in the run-up to the EU referendum, alleging that the social networking giant breached the Data Protection Act. The group says that 1.1m people had their data harvested and that, as such, damages could be “in the billions of pounds”. * SO WHAT? * Interesting, but really? Good luck to ‘em, but I’m not sure we’ll be seeing billions in damages. This is just the latest headache in a long line of them for Facebook at the moment. This is worth monitoring, though, as it could be used as a template for elections in other countries. If THAT came to pass, it could get pretty serious.

Short sellers set sights on Nintendo amid share slump (Daily Telegraph, Matthew Field) sounds like a height-ist headline, but it’s actually referring to a New York hedge fund that has been building a $400m short bet against Nintendo (basically, this is a massive bet that Nintendo’s share price will go DOWN) ahead of its results and is the biggest such trade against the company since at least 2013, according to Bloomberg data. Nintendo’s share price has been falling since March, despite the company’s Nintendo Switch selling like hot cakes and profits rising by

73%. Serkan Toto, head of Japanese consultant Kantan Games, pointed out that “What many people don’t understand is Nintendo traditionally generates around 50% of its yearly sales in the holiday quarter, including Black Friday and Christmas, It’s way too early to ring the death bell for Nintendo”. * SO WHAT? * I think Toto is arrogant to think that “most people don’t understand” about the timing of when Nintendo generates sales – it’s public knowledge and NOT in any way some kind of dark secret. The main reason for the fall, as far as I can see, is that investors are increasingly of a mind that Nintendo will NOT be able to hit its target of console sales of 20m units in the year to March 2019. Either that or investors are looking for an excuse to crystallise the value of shares that have had a brilliant run – especially since enjoying the stellar boost it’s had following the unveiling of the Switch console that has been a major worldwide hit. There was some disappointment following E3 in June where there was a perception by some that the upcoming title lineup was lacking – giving the naysayers more ammo – but obviously the company rejected this notion. Historically, Nintendo has been quite up itself and lost out big time on its refusal to make games for any device other than its proprietary console. However, once that changed a few years ago, the company has been on the up. Nintendo is due to report first quarter earnings today.

Tesla explores building major factory in Europe (Wall Street Journal, William Boston and Tim Higgins) heralds what could be quite an interesting move by Tesla as authorities in Germany and the Netherlands are holding talks with the company to build its first major European facility, following its announcement earlier this month that it would be building its first overseas plant in China. * SO WHAT? * The talks are at an early stage but clearly people are getting quite excited about getting a Tesla Gigafactory on their doorstep! Germany is looking like a front-runner at the moment…

In individual company news, GE lines up its digital business for disposal, Starbucks teams up with Alibaba in China and Foxtons gets a kicking…

GE puts digital assets on the block (Wall Street Journal, Dana Cimilluca, Dana Mattioli and Thomas Gryta) sounds the latest of GE’s business disposals, which is part of the wider masterplan of slimming down the behemoth to focus on key areas. GE has brought in an investment bank to run an auction for the operations which accounted for around $500m in revenues last year but was actually loss-making despite having billions poured into it over the years in the former chief exec Jeff Immelt’s attempts to make GE a top 10 software company by 2020. * SO WHAT? * The disposal of this division is not going to do much to move the needle on a business that is worth over $100bn, but it is a symbolic step away from broader ambitions to more targeted ones by GE’s current CEO John Flannery. GE won’t move away from software completely as it will service its own customers and core businesses – it just won’t do it for other industries.

Starbucks ties up with Alibaba to deliver coffee in China (Wall Street Journal, Xiao Xiao and Liza Lin) highlights the deal between Starbucks and Alibaba for the latter to deliver beverages and snacks via its Ele.me food delivery unit from this autumn. * SO WHAT? * This is a decent enough move by Starbucks to enhance its offering which is 

taking a bit of a hit at the moment with a combination of Starbucks fatigue and hustling local competition from the likes of Luckin Coffee which has opened 660 outlets SINCE JANUARY!!! Starbucks has had it good since setting up shop in China back in 1999 but other operators are trying to get a piece of the action. British coffee chain Costa Coffee has 459 outlets in China at the moment but is targeting 1,200 by 2022 and Canada’s Tim Hortons very recently announced that it would open over 1,500 shops over the next ten years – and that’s in addition to the local upstart Luckin Coffee that achieved “unicorn status” earlier this month after raising $200m at its latest fundraising round. Starbucks China’s chief exec Belinda Wong talked a good game when she said that “while recent market entrants have chosen to capitalise on delivery, combined with heavily discounted offers, there are significant compromises at play in terms of quality, experience and business sustainability. They will prove to be short-lived”. Yeah right. Starbucks needs to wake up and smell the coffee cos they is going DOWN! I guess that’s the trouble with having the number one spot – everyone is gunning for you! All this competition is going to be good news for Chinese coffee drinkers, though!

Let’s all take a moment to sympathise with those much-maligned branded Mini-drivers in Foxton’s slips to £2.5m loss as London house market stalls (The Guardian, Patrick Colinson) as the company reported its latest profit warning at its first half results. This is a far cry from the heady days shortly after its flotation in 2014 where its share price soared to 399p – it’s now been “downsized” to 50p! It’s all down to weaker London sales and not-particularly-great prospects as economic uncertainty threatens to cloud the market even more in the near term. * SO WHAT? * Just another sign of the weaker property market and sluggish consumer sentiment. Foxtons will not be alone in their pain.

…And finally, in other news…

I thought I’d leave you with a “Where’s Wally/Waldo”-type puzzle to while away a few minutes in Can you spot the only identical twins on a busy beach in this fiendish puzzle? (The Mirror, Richard Jenkins https://tinyurl.com/ybgrpojp). Good luck!

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

1. In MACROECONOMIC NEWS TODAY, Trump talks about That Wall again and Pakistan looks likely to go begging to the IMF
2. In our latest TARIFF UPDATE, we see how tariffs are starting to affect end prices to consumers
3. In INDIVIDUAL COMPANY NEWS, China’s Ant Financial continues to dominate, we see more “afters” from the Qualcomm/NXP debacle and Ladbrokes gambles on the US
4. In OTHER NEWS, I bring you an interesting Finnish national celebration. For more details, read on…

MACROECONOMIC NEWS

So Trump brings up chat about that wall again and Pakistan’s newly elected PM considers aid from the IMF… 

Just when Mexicans thought it was safe to go outside, Trump again threatens to shut down government (Wall Street Journal, Siobhan Hughes and Peter Nicholas) highlights a tweet (what else?!) send out by Trump yesterday which said that “I would be willing to ‘shut down’ government if the Democrats do not give us the votes for Border Security, which includes the Wall!”. * SO WHAT? * The threat comes just before mid-term elections where Republicans (Trump’s party) are trying to maintain control of the House of Representatives. Many believe that turnout will be the deciding factor in the midterms and that nothing motivates Trump’s voter base more than immigration.

Pakistan set to seek up to $12bn IMF bailout (Financial Times, Kiran Stacey and Farhan Bokhari) shows that the initial euphoria over Imran Khan’s election as Pakistan’s PM is receding quickly as senior finance officials are putting together plans to appeal for the biggest ever bailout from the International Monetary Fund (IMF). Pakistan is in the middle of a foreign reserves crisis as higher oil prices have made imports much more expensive and any IMF bailout would immediately clamp down on any public spending. * SO WHAT? * This would make the incoming PM’s election promises (such as spending public money on providing healthcare access for all, investing in schools and creating an “Islamic welfare state”) much more difficult to fulfil. Pakistan has subsisted on loans from China so far, but many believe he will have to go begging to the IMF, who are likely to exact tough terms such as raising electricity tariffs, slashing agricultural subsidies and selling off lossmaking public companies. As Charlie Robertson, global chief economist at Renaissance Capital, put it, “This is the first time Imran Khan gets his hands on power and he is going to have to make some very tough decisions. He will have to break election promises, at least in the short term”.

TARIFF UPDATE

Soda, motorcycle prices rise as tariffs hit home for consumers (Wall Street Journal, Patrick McGroarty) shows the day-to-day impact that tariff wars are having on consumers as companies affected by tax-induced price rises have decided not to absorb the price rises themselves, but rather pass them on to the end customer. Manufacturers such as Coca-Cola, Polaris Industries (which makes boats, motorbikes, snowmobiles etc) and  Winnebago industries (which makes recreational vehicles) are all at it and, in the other direction, BMW raises prices as trade war hits consumers (Financial Times, Patrick McGee) highlights the fact that the German car manufacturer will be the first major to raise prices on US-

-built vehicles exported to China as a result of the tariffs imposed by Beijing in retaliation to Trump’s tariff salvo. * SO WHAT? * Although it might sound a bit perverse, if the tariff thing doesn’t go on for too long, it might actually be a blessing in disguise for some because if tariffs come OFF after companies put through price rises (because all sides resolve their tariff differences), they can then cut prices that consumers pay (but not quite as deeply as the initial price rises), look like consumer champions and make more sales than before as something that choked off demand could actually blossom into a catalyst. By way of example, if a car manufacturer put up a price now of one of its vehicles by 10% because of the tariffs and then cut it again by, say, 8% when the trade wars are resolved, they would still be putting through a net 2% price rise and I’d argue that you’d get a big volume boost as pent-up demand goes some way to making up for the lost sales in the interim between tariff introduction and resolution. That boost in sales could then be self-perpetuating and lead to a more sustained rise over a longer period. However, whether this eventually turns out to be good or not depends massively on how long the tariff thing will take to resolve. The longer it goes on, the more painful it will be for manufacturer and consumer alike – and some manufacturers in particular may not be able to survive.

INDIVIDUAL COMPANY NEWS

In individual company news, China’s Ant Financial continues its upward march, Chinese authorities say they aren’t responsible for the Qualcomm/NXP breakdown and Ladbrokes bets on the US…

In Jack Ma’s giant financial startup is shaking the Chinese banking system (Wall Street Journal, Stella Yifan Xie) we see that Ant Financial Services Group, founded by the Chinese billionaire chief of commerce giant Aliababa, has become the world’s biggest fintech company and is a major driver of tech innovation. China’s banks complain deposits are slipping through their fingers to Ant, forcing them to pay out higher interest rates to remain attractive, which has the added knock-on effect of them having to close down branches and ATMs. Chinese authorities are mindful of Ant’s incredible growth and have started to limit the activities it can get involved in – like stopping them from developing a national credit-scoring system or forcing them to reduce holdings in assets that help them to pay high (and therefore attractive) interest rates. Ant now has a quite staggering valuation of $150bn – over double what it was valued at in 2016, which makes it bigger than Goldman Sachs. * SO WHAT? * It seems that we might be at – or nearing – an inflection point here as Chinese authorities seem to have been quite happy to let it grow up until now, but are currently considering whether its status should be changed to that of a financial holding company, which would mean that it would have to meet far more stringent capital requirements that bind banks. For its part, Ant says that it doesn’t want to be a financial conglomerate but a tech provider or “lifestyle platform” with profits coming via fees from institutions using its technology. Given its history of financial disruption, you can guarantee that its traditional competition will be very keen to see its wings clipped a bit.

Talking about wings being clipped, China to Qualcomm: don’t blame us for failed NXP deal (Wall Street Journal, Liyan Qi) says that Chinese antitrust regulators are saying that the proposal didn’t get through because the companies didn’t properly address competition concerns, rather than anything more sinister. China’s State Administration for Market Regulation said in a statement that “Qualcomm and NXP decided to abandon the deal as the deadline the two parties agreed on expired. [We] regret this”. Neither Qualcomm nor NXP commented on this latest development. * SO WHAT? * I think that this sounds like a massive load of cr*p. Chinese antitrust authorities were the last of nine international regulators to have to sign off on the proposals – eight had already done so and China was dragging its feet. They deny that it had anything to do with the current trade negotiations but I think this is complete rubbish – it had EVERYTHING to do with them! Mind you, it does mean that, in theory anyway, the door is still open for the deal- albeit by a tiny tiny crack. It’s particularly interesting that neither company has commented – so you never know. It looks unlikely to get revived at this stage, though…

Ladbrokes group takes punt as US legalises sport betting (The Guardian, Rebecca Smithers) looks at the prospect of GVC Holdings, the owner of Ladbrokes and Coral, completing an imminent $200m tie-up with the world’s biggest casino operator – MGM Resorts – which would put it right in the mix with the newly liberalised US sports betting market. MGM Resorts (which owns casinos such as the MGM Grand and the Bellagio) and GVC will be putting $100m each into the joint venture that will be focused on US sports betting and will allow them to create gambling ventures within the US. * SO WHAT? * This could be massive for GVC as it will be able to apply its gambling know-how to America, where the Professional and Amateur Sports Protection Act of 1992 effectively outlawed sports betting in the US, which resulted in gambling going underground until it was liberalised this May. BIIIIIIIG potential upside here as domestic growth stagnates, but there will be lots of US operators trying to catch up

OTHER NEWS

… And finally, in other news…

I thought I’d leave you with a something that will give you a bit of a lift today if you can spare the 30 seconds it takes to watch: Chimpanzee can’t hide delight at being reunited with human foster family who raised him (The Mirror, Zosia Eyres http://tinyurl.com/y8r6wqyf). Ahh!!!

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

1. In TECH NEWS TODAY, we see Facebook getting trashed, the implications of the Qualcomm/NXP breakdown, success for Amazon and Spotify and British virtual-world unicorn Improbable
2. In INDIVIDUAL COMPANY NEWS, Starbucks benefits from price hikes, BAT forges ahead with its heated tobacco product and Nomura’s profits take a massive tumble
3. In OTHER NEWS, I bring you a Drake-dancing dog. For more details, read on…

So Facebook has a nightmare, everyone takes stock after the Qualcomm/NXP breakdown, Amazon announces strong profits, Spotify increases paid users and Improbable gets a Chinese boost…

Although I talked about this yesterday, I thought I’d follow up given how many column inches are being given over to this today, but Facebook has biggest stock fall in US market history (Daily Telegraph, Matthew Field and Natasha Bernal) highlights Facebook’s dramatic fall from grace as a stock market darling. As I said yesterday, investors took fright by the company warning of slowing growth, higher costs and missed revenue targets – and sold the shares in dramatic fashion. The one-day 20% fall was the biggest drop ever for a US listed company – yet despite this, the share price has only dropped back to the level it was at in May. * SO WHAT? * Facebook has had a turbulent time over the last year and this dramatic drop has prompted fears it is reaching the peak of digital advertising (I don’t think so myself – I think there’s still a long way to go yet), that the tech bull run that has powered FAANG valuations to dizzying heights is faltering and that Zuckerberg has too much power in his dual role as chairman and chief exec. That said, Facebook’s stock has shot up by 355% since it listed six years ago and Facebook: hard luck, Zuck (Financial Times, Lex) reckons it might be prudent to buy into this particularly sharp dip despite the fact that there will probably be more fallout to come from all the privacy breaches, fake news and harassment. IMHO, it’s still a powerful company that is well placed to continue to benefit from the digital revolution given the quality and sheer scale of its offering – and if it managed to crack China (which I have to say I can’t see happening anytime soon, but you never know) it could shoot into the stratosphere!

Following on from another story I mentioned in yesterday’s WIFI about the failure of the mega-deal Qualcomm/NXP combo due to Chinese regulatory refusal, China’s suffocation of the Qualcomm-NXP merger signals new era (Financial Times, Tom Mitchell, Tim Bradshaw and Don Weinland) suggests that Qualcomm just became the unwitting patsy in the escalating trade war between Trump and China. * SO WHAT? * In letting this deal slide, the future of M&A for US tech companies is now looking less clear and Scuttled Qualcomm-NXP deal is a win-win for Beijing (Wall Street Journal, Dan Strumpf) says that China achieved two things with the deal rebuttal – it showed that it had ways to hit Trump other than tariffs and that it has stopped a powerful rival in its tracks in the long-term battle for tech supremacy. Qualcomm is at the cutting edge of chip technology and by blocking the NXP deal it has bought its own chip companies time to play catch-up. China economist Christopher Balding observed that “Qualcomm has for many years been a real worry of

Beijing’s, so it’s not surprising – trade war or no trade war – that this deal got scuttled. To give Qualcomm that much more market dominance across an even broader range of chips I think was a very worrying issue”. Qualcomm/NXP: block trade (Financial Times, Lex) observes that “Qualcomm’s failed attempt to buy NXP is a reminder of China’s willingness to intervene in global M&A”.

Amazon announces record £1.9bn profit on back of growth in cloud computing (The Guardian, Julia Carrie Wong) highlights record profits for Amazon in the second quarter, with special plaudits going to its non-retail divisions of advertising and cloud computing for its stellar performance. The profit was double that expected by analysts and the shares were up 3% in after-hours trading, adding to the stock’s rise of 50% since the start of the year. * SO WHAT? * The fact that Amazon’s NON-RETAIL divisions did so well is particularly notable and its increasing dominance in cloud computing will no doubt serve it well as a support to ALL its business interests.

Eight million more dance to Spotify’s tune (The Times, James Dean) heralds good news for the music streamer as it beat forecasts for subscriber growth by adding 8million paying subscribers between the end of March and June 30th this year, bringing its subscriber numbers up to 83million in total – around one million more than analysts expected. * SO WHAT? * This is a solid performance from the company’s second set of quarterly results since flotation and takes the fight to Apple Music. Having said that, I think that Spotify should be doing better than this given its subscriber base and its first-mover advantage – so it should not rest on its laurels. Although it trumps Apple Music in terms of numbers, the growth of the latter is what should concern Spotify. As we all know, Apple is not known for being the first mover in most things – but it is often seen as having the most user-friendly offering and has a far wider reach in terms of user demographic than Spotify due do its iPhone user base. Spotify needs to continue to innovate to attract more paying users and convert existing freeloaders.

Virtual-world start-up Improbable valued at more than $2bn (Financial Times, Tim Bradshaw and Aliya Ram) highlights the success of a UK software developer that helps create virtual worlds for online games in attracting a $100m investment from Chinese internet group Netease. This has doubled Improbable’s valuation at a stroke to $2bn, one year on from when Japan’s SoftBank paid $502m for a significant minority stake in the company and Improbable is now up there amongst the likes of Deliveroo as one of the most valuable private tech companies in the UK. Improbable chief exec Herman Narula said of the partnership that it was a “sign of the maturity of the technology…one of the biggest games companies on the planet is deciding to use our technology for new games”. * SO WHAT? * This sounds like a great deal for a UK software developer (especially considering that it only generated £7.8m of revenues in the year to May 31st 2017!) and I suspect there is more to come in this sphere given the fragmented nature of the market and the continued need to have the best tech to generate the best content. Moves like this will perpetuate the buzz in this sector.

In individual company news, Starbucks has some good news, British American Tobacco targets the US and Nomura has a shocker…

In Starbucks US sales bump up after price hike (Wall Street Journal, Annie Gasparro) we see that the coffee giant saw its US sales rise in the most recent quarter amid top management changes, mini-scandals and tough competition via price increases put through in June. The company is trying to keep ahead of the game by boosting sales of its Frappuccino drinks, closing underperforming stores, opening stores in regions including the South and generally getting more focused on what customers are buying via using its mobile app. * SO WHAT? * Great news for a company that’s had a relatively rough time in the press of late. Having said that, their recent admission that China sales were slowing down continues to be a cloud on their future growth.

BAT targets US heated-tobacco market with its Eclipse device (Daily Telegraph, Oliver Gill) cites strong results from the world’s second biggest cigarette company which posted first half profits ahead of market expectations. The

owner of Dunhill and Rothmans also announced that it would be testing its Eclipse device in the US later on this year, which would put it ahead of its rivals in the world’s biggest vaping market. * SO WHAT? * Solid results, but the prospect of cracking a major market is getting investors excited.  Marlboro owner Philip Morris is the #1 in the tobacco heating market globally with its IQOS device and currently has an application in for approval to sell with US authorities, whereas BAT’s Eclipse device doesn’t. Both will be fighting over who gets first-mover advantage but I would have thought that the US market is big enough for both of them!

Nomura net profits tumble on slump in fixed income and equities (Financial Times, Leo Lewis and Kana Inagaki) says that Nomura Holdings has suffered its worst quarter since 2016 as Japan’s biggest investment bank fell behind its Wall Street rivals. The brokerage revealed a massive 91% drop in net profits year-on-year for the first quarter and blamed trade friction, increasing geopolitical tension and deepening caution by clients in emerging markets. Wholesale and fixed income were the worst performing divisions and its usually-reliable retail division also saw unusual weakness. * SO WHAT? * Nomura has been struggling with cost control since it bought Lehman Brothers in 2008 and has engaged in a number of business overhauls in the last few years. If it really wants to achieve its ambition of becoming the go-to global Asia-centric investment bank, it will need to do more to transform its current position as a Wall Street wannabe. More pain and job losses ahead, I fear.

…And finally, in other news…

Are you aware of the current dance craze, the #InMyFeelings challenge? This is where people get out of their car – while it’s moving – and dance along to Drake’s song, In My Feelings. Well this story goes one better: Dog beats everyone at the In My Feelings challenge by dancing on a scooter (Metro, Kate Buck https://tinyurl.com/y8g5yr5l). Quality! BTW, don’t try the challenge yourself – it looks very dangerous!

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

1. In TRADE WAR NEWS TODAY, Trump and the EU make moves to resolve differences as Ford, GM and Fiat Chrysler rein in expectations due to tariff impact

2. In TECH NEWS, Qualcomm abandons its takeover of NXP, LG Display pulls back on smartphone investment and Facebook hits a bump in the road.

3. In UK CONSUMER/RETAILER NEWS, household disposable income gets a boost, Joules defies high street gloom but retailers consider more job cuts.

4.  In INDIVIDUAL COMPANY NEWS , Mattel announces job cuts and Fiat’s former boss dies.

5.  In OTHER NEWS, I bring you an explanation of why the London Underground is so hot. For more details, read on…

So Trump and the EU try to make nice while Ford and GM join others in condemning tariffs…

US, Europeans agree to iron out trade differences (Wall Street Journal, Valentina Pop, Vivian Salama and Bob Davis) shows that Donald Trump and European Commission President Jean-Claude Juncker are at least making attempts to play nice in the trade war malarkey that’s going on at the moment. The two leaders have said that they are going to embark on discussions about eliminating the tariffs and subsidies that are disrupting trade at the moment, with the steel and aluminium tariffs getting a specific mention as well as other European retaliatory tariffs. * SO WHAT? * This all sounds great – and is at least a step in the right direction – but Juncker has got to get the approval of 28 countries to anything he manages to hammer out. As for Trump, a deal with the Europeans could help him to concentrate his economic firepower on China – and who knows, he might even be

able to persuade Europe to join in. We’ll just have to see how this progresses – trying to double-guess what Trump will do in negotiations is a very inexact science!

Trump has been facing pressure from fellow politicians and lawmakers to ease off the heat on tariffs, but he is also facing pressure from corporate America as well, as per Ford joins GM and Fiat Chrysler in trade war warning (Financial Times, Peter Campbell and Patti Waldmeir) where the three automakers cut profits forecasts in a clear sign that the global trade war is starting to damage the world’s largest car makers. GM and Ford’s shares fell by around 4%, but Fiat suffered even more with shares falling by 15.5% on a combination of the company stating that Chinese import tariffs were choking off demand and announcing that its chairman, Sergio Marchionne, had died. * SO WHAT? * GM had actually been on track for another record year for profits until Trump’s steel and aluminium tariffs drove up input costs, even though most of the steel and aluminium it uses is produced domestically. Fiat Chrysler had to cut vehicle prices in China to stimulate demand. If this trade war drags on for too long, there are going to be some serious repercussions for all involved as I get the impression that what we are seeing now is just a tiny glimpse of what could happen in the near future.

In tech news, Qualcomm abandons NXP, LG Display gets the wobbles and Facebook hits a bump…

Trade war fears are spreading into other sectors as well as per Qualcomm plans to abandon NXP deal amid US-China tensions (Wall Street Journal, Eliot Brown and Bob Davis) where Qualcomm, a US leader in the development of 5G tech, is planning on walking away from its proposed $44bn purchase of Dutch chip manufacturer NXP because it has failed to get approval in China. China was the last of nine markets that needed to approve the deal which would have been amongst the biggest tech deals ever. Instead, it plans on embarking on a big share buy-back programme and will have to pay NXP a $2bn termination fee. The deal had been expected to close by the end of last year, but China dragged its feet. * SO WHAT? * This is just smart negotiation by the Chinese as they are using all options to put pressure on Trump. They don’t need to rely on tariffs to punish the US – there are so many other ways to do it.

In South Korea’s LG Display slashes investment plans by $2.7bn (Financial Times, Song Jung-a) we see that LG Display, which supplies Apple, has cut its investment plans to the tune of $2.7bn due to an uncertain outlook for the smartphone market. The company is the world’s second biggest display maker and painted a very sombre picture of what it expects for the second half of this year, citing structural oversupply (especially from Chinese LCD makers) and stiff industry competition. CFO Don Kim said that “LG Display will invest ₩3tn ($2.7bn) less than

originally planned by 2020 by adjusting the timing and amount of investment, while continuing to speed up the shift toward an OLED-focused business. It is a conservative approach resulting from uncertainty around the mobile market”. * SO WHAT? * Premium smartphone sales have been slowing down for some time now and LG Display is just the latest company to build this into their forecasts. Another Apple supplier, Taiwan Semiconductor Manufacturing, cut its capex outlook last week. I suspect that there will be more downgrades to come up and down the supply chain.

Facebook shares plunge as security drive dents profits (The Guardian, Olivia Solon) highlights a massive 20% fall in Facebook’s share price in after-hours trading following the company’s CFO saying that revenue would “continue to decelerate in the second half of 2018” as it continued to ramp up investment in security and privacy. Facebook’s quarterly revenues and user growth fell just short of consensus estimates although it still made $13.2bn – a whopping 42% increase on last year. User growth was +11% although it was flat in the US and Europe and the company emphasised that future growth would come from its messaging apps and Instagram (especially Instagram TV) rather than its core Facebook platform. * SO WHAT? * 20% is a big drop, but it sounds like Facebook is making all the right noises. OK, so things are taking a bit of a breather in its core US and European markets in terms of user growth, but given the impact of various scandals and the introduction new legislation such as General Data Protection Regulation (GDPR) – not to mention all the “false news” stuff – it is hardly surprising. The company has clearly used this lull to highlight its other services such as Instagram TV, Facebook Messenger and WhatsApp – which should have the potential to be decent revenue earners going forward given the size of their respective user bases. Investing now in security is a good thing and will no doubt help Facebook’s image down the road – at the same time as raising barriers to entry for newcomers.

In UK consumer and retailer-related news, household disposable income has gone up, Joules bucks the gloom but then retailers talk about more job cuts…

Household disposable cash rises £2,000 since recession (Daily Telegraph, Anna Isaac) cites figures from the Office for National Statistics which show that British households have £2,000 more cash to spend this year than they did before the 2009 recession (yay!). It also showed that the average household has an extra £300 to spend in 2018 versus the same period in 2017. Having said that, disposable household income growth has slowed down, which would suggest that higher inflation and poor wage growth is continuing to put pressure on living standards. * SO WHAT? * Whilst it is kind of useless to know that we are now £2,000 better off than we were nigh on ten years ago, I guess that the slowdown in disposable household income that we are seeing right now is something that the Bank of England will be taking into account when it makes its decision to raise interest rates or keep them unchanged in the meeting scheduled for next month. Not great news for either consumers or retailers.

Talking about retailers, Joules defies high street gloom with handbags (Daily Telegraph, Ben Woods) heralds a

bright spot in an otherwise relatively gloomy area as sales of its handbags and purses helped it to beat analyst expectations in its results yesterday with pre-tax profits for the year to May 27th rising 29% as it built on its core clothing offering to diversify into homeware and lifestyle products. The company opened 17 stores over the last year and international sales shot up by 40% thanks to US department store Dillard’s rolling out Joules womenswear to 100 outlets this year. * SO WHAT? * It always seems to me that Joules is targeting that slightly-more affluent shopper with middle-of-the-road tastes which is probably a good thing right now. Certainly the Dillard tie-up is proving to be a good way to boost international sales with minimum hassle. It’s always good to see a bright spot on the UK high street anyway!

Unfortunately, A fifth of retailers consider job cuts as World Cup boost fades (The Guardian, Sarah Butler) shows that we are going back to full-on grump mode with a survey conducted by the British Retail Consortium showing that almost 20% of retailers are targeting job cuts in the next three months. This is particularly sobering when you consider that the number of people employed in the retail sector – the UK’s biggest employer – has fallen almost 3% in the last three months alone, with redundancies at triple the level they were this time last year. As Alpesh Paleja, chief economist of the CBI put it, “While the heatwave has boosted retail sales…we may be seeing some early signs of a cooling-off. Indeed, the long-term challenges facing the retail sector are significant. Continually subdued real wage growth means that households are still feeling the pinch, and retailers are still grappling with deeper structural issues, such as digital disruption”.

In individual company news, Mattel identifies more job cuts and Fiat Chrysler’s Marchionne dies…

Mattel to cut more than 2,200 jobs as toy maker battles losses (Wall Street Journal, Patrick Thomas) is just more evidence of the bloodbath going on in the world of toymakers (I referred to this last week with the attempted revamp of Hornby) as Mattel said it would cut over 2,200 jobs – equating to almost 25% of its current workforce – as the maker of Barbie dolls and Hot Wheels cars reacts to falling sales and deepening losses. The majority of the cuts will come from back office and support functions and are estimated to cost the company about $75m in severance

 but then save about $150m a year thereafter. * SO WHAT? * This is a serious move as the whole toy industry – makers and retailers – continues to fight against the ongoing popularity of “non-traditional” toys and changing customer behaviour re buying habits. Mattel is not on its own when it says that it has been adversely affected by Toys R Us’ downfall – Hasbro reported weaker profits and a 7% fall in quarterly revenue in an announcement on Monday.

I thought I’d take a moment to highlight Marchionne, the tough boss who revived Fiat’s fortunes, dies at 66 (The Guardian, Gwyn Topham) as Sergio Marchionne was the man who saved not only Fiat, but also Chrysler to complete two MASSIVE corporate turnarounds. When he took over at Fiat in 2004, revenues were close to €47bn. They are now over €140bn. Given that we live in times where actors who’ve done some movies or acted in soaps make the news headlines when they die (or even Demi Lovato with her overdose) I think it’s worth highlighting the far worthier contribution this man has made to the world over the years and the thousands of lives his decisions have affected.

… And finally, in other news…

I couldn’t find ANYTHING that made me laugh today in the “other press” so I thought I’d leave you with this instead: Why is the Central Line and other London Underground lines so hot? (Metro, Daniel Mackrell https://tinyurl.com/ya2wvgea). This probably won’t be any consolation to you if you’re reading this on the Underground at the moment – but at least you’ll be better informed!

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

1. In MACROECONOMIC NEWS TODAY, Trump pledges $12bn to farmers hit by the trade war, China aims to stimulate, Eurozone growth stalls and Venezuela faces 1,000,000% inflation.  

2. In VEHICLE-RELATED NEWS, Peugeot drags Vauxhall back on track and Harley-Davidson gets nervy over tariffs.

3. In INDIVIDUAL COMPANY NEWS, Facebook faces a potential decline in user numbers but tries to boost China presence – where Apple is vulnerable – and Fevertree mixes it with the best of them.

4. In OTHER NEWS, I bring you the latest in Crocs fashion. For more details, read on…

So Trump pledges a buffer for the farmers, China tries to stimulate growth, the eurozone has a wobble and Venezuela faces crazy inflation…

You will probably notice today that there’s a lot of comment related to the impact of Trump’s trade war. Trump administration plans up to $12bn in farm aid to ease concerns over trade disputes (Wall Street Journal, Vivian Salama and Jacob Bunge) shows that Team Trump is digging in for the long term as it announced yesterday that it would give $12bn in emergency aid to farmers of some of the hardest-hit commodities – including soybeans, sorghum, cotton, corn, wheat and port – amidst early signs that the US agricultural sector is starting to feel the pinch from Trump’s tariff rhetoric. * SO WHAT? * This is, as Agriculture Secretary Sonny Perdue put it, “a short-term solution that will give President Trump and his administration time to work on long-term trade deals”. Trump himself urged doubters to “Just stick with us – it’s all working out” but you can imagine how nervous the farmers will be feeling right now. The question is whether Trump can style this tariff thing out before a number of farmers go out of business.

Talking about digging in for the long term, China unveils measures to boost economic growth (Financial Times, Gabriel Wildau) shows that the State Council has announced a package of tax cuts and infrastructure spending to stimulate domestic growth as uncertainty increases re the impending US vs the Rest of The World tariff war. This announcement comes hot on the heels of an injection of $74bn on Monday into the banking system by the People’s Bank of China – the central bank’s biggest ever one-day cash injection via its Medium-term Lending Facility. * SO WHAT? * These moves are in direct response to the atmosphere of uncertainty engendered by the tariff threats being bandied about at the moment. There have been rumblings of a slowdown in the domestic economy as well, so the two combined probably prompted the government to take action. The only slight worry here is that cash injection – China is currently trying to wean itself off over-reliance on credit, so it will have to be careful not to fall into old habits.

Eurozone growth weakens amid gloom on export demand (Financial Times, Claire Jones) highlights the possibility that the eurozone economy could still be at risk of slowdown as the latest Purchasing Managers’ Index, which is closely followed by the European Central Bank (ECB) as an indicator of growth, shows that manufacturers across the Eurozone are getting nervy about the threat of a global trade war and that growth is likely to remain weak in the second half of this year after a strong 2017. Chief business economist Chris Williamson at IHSMarkit – the company that produces the PMI figures – observed that “manufacturers are not carrying as much unnecessary stock and investment decisions are also being scrutinised a lot more closely. At the same time, raw materials, especially steel, are becoming more expensive”. * SO WHAT? * Food for thought for tomorrow’s ECB meeting. The ECB only recently announced that it was going to phase out Quantitative Easing measures that were implemented in the wake of the eurozone crisis, despite a slowdown in economic growth (you’d expect a winding down of QE if things were going great guns on the eurozone economy – not really if it was losing momentum as it seems to be doing at the moment). Having said that, the PMI is still above danger levels, so there is no immediate need for the ECB to reverse direction – but it will be monitoring the situation closely.

We get all antsy when our rate of inflation starts edging towards 3% – but just think how different it could be in Inflation could top 1,000,000% in Venezuela this year (The Guardian) as the International Monetary Fund (IMF) made the prediction that it could reach this level by the end of this year and Alejandro Werner, director of the IMF’s western hemisphere department, warned that “the collapse in economic activity, hyperinflation, and increasing deterioration…will lead to intensifying spill over effects on neighbouring countries”. * SO WHAT? * Venezuela has fallen spectacularly from grace as the one-rich oil producing country is gripped by a five-year crisis that has left it short of medicine and food and resulted in shortages in electricity, water and transportation – driving many to cross the border into Colombia and Brazil to seek relief. If the IMF’s forecasts were borne out, the economy would have contracted by an eye-watering 50% in five years, which would make its economic downfall one of the biggest in the world for the last 60 years. President Nicolas Maduro, who won a second six-year term as president in May despite all his country’s massive economic and political problems, has blamed the horrendous performance of his economy on the trade spats between Europe and the US. He certainly has his work cut out for him – but then again, at least the oil price is trading at robust levels currently, so things could be worse.

In vehicle-related news, Peugeot drags Vauxhall back on track and Harley-Davidson warns about tariff impact…

Peugeot PSA drives struggling Vauxhall to first profit in 20 years (Daily Telegraph, Alan Tovey) sounds rather lovely after a long nightmarish period for Vauxhall-Opel ending with Peugeot-PSA taking over ownership from General Motors last June. Since then, group revenues have risen by 40% and operating profits by 48% versus profits at PSA’s existing brands, Peugeot and Citroen, rising by 30%. * SO WHAT? * Peugeot’s takeover had raised fears of mass job losses for Vauxhall UK’s 14,000 staff, but although the axe came down on a third of the staff at the company’s Ellesmere Port plant, it doesn’t look like things will get too bad from here. As Jose Asumendi, the JP Morgan analyst put it, “This is simply the quickest turnaround I have seen in the auto industry in many years”. 

That old chestnut of the US-EU trade war reared its head again in Harley-Davidson warns of bigger hit from tariffs (Financial Times, Cat Rutter Pooley and Patti Waldmeir) as Harley-Davidson cuts its profit margin  forecast for the full year as the motorbike manufacturer admitted that tariffs would hit it harder than it had originally thought. President and chief exec Matt Levatich said that “we are working with the [Trump] administration, with all the governments we can, to get these tariffs removed. We are very engaged; there is constant dialogue”. Despite all this, its results were actually pretty solid – and the shares were up by 8% in early afternoon trading. Levatich added that “Our manufacturing optimisation, demand-driving investments and commitment to manage supply in line with demand remain on target and continue to strengthen our business”. * SO WHAT? * It’s good that the company had robust results, but it really does need to get this tariff thing sorted as 39% of bikes sold are outside the US and it is ultimately aiming for 50%. Tariff chat is going to delay this growth – and I would have thought Harley-Davidson will be more targeted than most given that it is symbolic with America. If Trump decides to punish it for shifting some production capacity overseas, the company will get grief from both its domestic AND international business. It does seem to be unfortunate by being the piggy-in-the-middle in this case.

In individual company news, Facebook could have user number issues but is also trying to bulk up in China, Apple faces potential tariff-related hurdles and, back home, alcohol sales are up as Fevertree also benefits…

There’s a bit of news today regarding Facebook in Facebook user numbers to fall in Europe as tougher data laws bite (Daily Telegraph, Matthew Field) which says that user numbers in Europe could fall for the first time due to the ongoing impact of the General Data Protection Regulation that prompts users to opt-in to having data collected. But then maybe it can balance this negative news out a bit via Facebook setting up ‘innovation hub’ in China in bid to boost presence (Wall Street Journal, Liza Lin) which highlights the announcement made by Facebook yesterday that it could help develop and support China’s developers and start-ups as part of its plan to beef-up its presence in the country where it has been blocked since 2009. * SO WHAT? * China is obviously a massive potential market for Facebook and so it is having to adopt various means to try to wheedle itself into the government’s good books (I mean, Zuckerberg even wears suits when he goes to China – that’s how serious he is about it!). This will be a slow burn if these efforts ever work, but I do think that the Chinese will be using Facebook as one of the pawns in the whole trade war thing.

Talking of which, Apple vulnerable in US-China showdown (Wall Street Journal, Tripp Mickle, Yoko Kubota) highlights the vulnerability of Apple to the vagaries of the US-China trade negotiations as it not only manufactures there (making its most profitable product a Chinese export, and therefore subject to increased US

tariffs) – it is also Apple’s most important market outside the US (which means that the Chinese government could target it for “special treatment”). Smartphones weren’t included in the $34bn tariff package announced on July 6th or the second package expected to be announce this month, or even in the third round. However, with Trump now threatening to slap tariffs on virtually everything that China ships to the US – including iPhones – Apple is looking vulnerable. * SO WHAT? * Although China could just use Apple as an example, you would have thought that they are not going to be TOO hard on the company given the number of jobs it provides. 10,000 people are directly employed by Apple in China, but if you include all the related companies and operations, Apple estimates that it accounts for 3m jobs via its supply chain which includes the likes of Foxconn and 1.5 million app developers. Apple is probably more vulnerable than others re tariffs because it has not diversified its manufacturing base – so it can’t just reshuffle production. Samsung, on the other hand, makes over 80% of its smartphones outside China, so shouldn’t be affected too much. There’s not much Apple can do at the moment, so it’ll just have to see how the dust settles.

Nearer home, Football spurs record alcohol sales (Daily Telegraph, Sophie Christie) cites a report by Kantar Worldpanel that gives reason for good cheer as England’s unexpected run in the World Cup along with the sunny weather helped power booze sales. Apart from Christmas and Easter, more money was spent on alcohol in the week when England played Colombia and Sweden than ever before! Asda was the best performer of the “Big Four” supermarkets whilst Lidl and Aldi both saw strong sales.

Talking of booze-related stuff, Queen’s Club delivers chance for Fevertree (The Times, Dominic Walsh) highlights the continued success of Fevertree Drinks as it announced stellar results. The shares closed at record levels yesterday to £36.50 – versus the £1.34 it floated at in 2014! As Russ Mould, investment director at AJ Bell put it, “Fevertree is a true British success story, showing how it is possible to take a seemingly commoditised product, introduce a higher-quality version and shake up a market where the previous leader Schweppes had its eye off the ball”. Let’s hope Fevertree continues to stay ahead!

…And finally, in other news…

Are you a fashion-forward sort of person? Well you might have to change your views of the much-maligned Crocs brand of footwear because High-heeled Crocs are now a thing – and people have no idea what to make of them (The Mirror, Robyn Darbyshire https://tinyurl.com/ycx5w3vw). Nice.

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

1. In TECH NEWS TODAY, Facebook leases more office space in London, Alphabet shares rise despite the EU’s fine, Tesla’s shares falter as it asks for money and China Tower eyes a lucrative flotation in Hong Kong

2. In CONSUMER/RETAIL-RELATED NEWS, there’s a mixed picture of the UK consumer emerging and Tesco announces a new discount format.

3. In OTHER NEWS, I bring you the lowdown on workers’ rights in a heatwave. For more details, read on…

So Facebook believes in London, Alphabet shrugs off the fine, Tesla gets a dose of scepticism and China Tower could be the next biggie to float…

In Facebook announces King’s Cross arrival (The Times, James Dean) we see that the tech company is going to boost its London presence significantly as it becomes the latest US tech giant to invest here despite Brexit. The company announced yesterday that it had acquired enough space to house 6,000 employees – way more than the 2,300 it is projected to have by the end of this year. London is now Facebook’s biggest software engineering centre outside the US. * SO WHAT? * Although the company didn’t say how many people it’d employ or when, this is a significant move by the social networking giant as you don’t snap up this amount of space unless you’ve got something interesting planned.

Alphabet shares leap despite EU’s €4.3bn fine (The Times, James Dean) shows that a big fine can’t keep a tech giant down as the owner of Google announced stellar results last night for its second quarter which came in above market expectations. Despite taking into account a €5.1 bn charge to cover the cost of the European Commission’s record fine, underlying profits were almost 22% better than analysts were hoping, mainly on the back of particularly strong ad sales. One area to monitor for the future is Google Cloud, which is growing at a rapid pace. Its revenues aren’t reported separately at the moment – they are mixed in with the “other revenues” category, but they are rising fast. * SO WHAT? * For all the bleating, the EC’s record fine is just a tiny pimple on the backside of Alphabet’s massive @rse. Ad revenues continue to increase – and I don’t see what can slow them down at the moment. I think that with digital advertising, you win when economic confidence is low because companies are more likely to reduce ad spend via traditional means such as TV and newspapers etc. and at least maintain, if not increase their digital spend. I say that because I would argue that it is more targetable towards your perceived demographic and you therefore get more bang for your buck. You also benefit when economies are chugging along nicely because ad spend increases across the board and companies start to look at broader campaigns.

Facebook and Google really do have the digital ad market sewn up between them and even the biggest “analogue” advertisers will have difficulty in breaking this duopoly IMHO.

Following on from what I said in the WIFI yesterday, Tesla shares tumble on report it sought supplier refunds (Financial Times, Peter Campbell and Mamta Badkar) shows what investors thought about the allegation that Tesla was approaching suppliers and asking them for cash to help it remain profitable – the shares fell by 6.6% initially on the news to then recover to being 3.7% down by lunchtime. * SO WHAT? * The company made no comment on the story from the Wall Street Journal, but Elon Musk did – and he neither confirmed nor denied its veracity. If true, this move certainly smacks of desperation, but then it also seems to be a needlessly weird thing to do as the company could no doubt raise money via all sorts of other means in a far more subtle manner.

Chinese telecom giant could dial up the biggest IPO since Alibaba (Wall Street Journal, Joanne Chiu) highlights the intentions of China’s biggest cellphone tower company, China Tower Corp, as it looks to raise up to $8.7bn by selling 25% of its shares on the Hong Kong stock exchange in what could be the world’s biggest Initial Public Offering (IPO) in four years. If you then include the option to sell 15% more stock if demand is strong, the IPO could raise $10bn – which would make it the biggest IPO since Alibaba listed for $25bn in New York back in September 2014. China Tower Corp is the world’s largest telecoms tower provider and has a national market share of 97% (!) by sales. It is looking to raise money to fund a network expansion and to repay debt. The listing is slated for August 8th but comes along just as investors have turned more cautious given all the China-US Trump shenanigans. * SO WHAT? * Some could see this as a great way to get a piece of the action in China’s rapidly growing mobile market but Chinese IPOs: China Tower struggle (Financial Times, Lex) points out that the company is controlled by its clients – the three state-owned telecom providers: China Mobile, China Unicom and China Telecom – and the government, which controls all four groups, wants to keep consumer prices attractive, thus keeping a lid on potential profit. The other issue is that there is some doubt as to how well the company will do from the rollout of 5G as there may be more competition from smaller operators. Although the current valuation looks reasonable versus its global peers such as India’s Bharti Infratel and America’s Crown Castle, growth constraints will probably limit upside in the long run.

In consumer/retail related news, there’s a mixed bag re consumers and Tesco goes discount…

On the one hand, Booming labour market is just the job to boost consumers (The Times, Tom Knowles) cites findings from a survey conducted by IHSMarkit, which shows that consumers’ optimism about their finance prospects has risen for the first time since March 2016 because of Britain’s tight labour market and increased perception of job security – but then on the other hand you have Poor getting poorer as cuts to benefits bite and prices rise faster than pay (The Guardian, Phillip Inman) which cites the latest report from independent thinktank The Resolution Foundation. Its research has found that 30% of households saw their income reduced, widening the gap between middle and higher earners. * SO WHAT? * Given that the latter report comes from The Resolution Foundation, they are hardly going to publish a report that says “don’t worry everybody – everything’s going fine” – it would be like Turkeys voting for Christmas! However, I also think that a survey of people’s perceptions of how they are feeling about their finances going forward is also inherently a bit dodgy as well (as in I think it’s more of a rough guide than an absolute). What people say and what they do can be very different, so I would say that the real situation lies somewhere between the findings of the two

entities – cautious optimism with middle earners not feeling particularly rich at the moment. They will probably feel much more pessimistic if they work in retail, however, given the number of companies that are going down the toilet at the moment.

Tesco to launch new chain of discount stores (Financial Times, Murad Ahmed and Scheherazade Daneshkhu) heralds a new direction from the UK’s biggest retailer as it announced that it will be launching a NEW chain of discount stores as soon as this September to take on the likes of Aldi and Lidl, which have been eating everybody’s lunch for the last few years. It is planning on rolling out 30 such stores in the Autumn via refitting some existing stores and reopening mothballed alternative Tesco sites, and will probably call the chain “Jack’s”, which is a nod to Tesco’s founder Jack Cohen (although the name hasn’t been 100% finalised yet). Interestingly, Bernstein analyst Bruno Monteyne believes that this move “won’t be a copy of hard discounters. It will target the same price points and quality but will bring unique ranges and services”. * SO WHAT? * Yes, it’s good that Tesco is trying to take on Aldi and Lidl at their own game, but I am extremely sceptical about this as it smacks of smoke and mirrors to me. A rebrand costs more money and carries inherent risk of falling down. I would have thought they could better spend the money by putting more effort into rejigging their existing brand and putting the “discount” products next to their existing ones. I’d like to be wrong on this – because I’m all for consumer choice – but providing a properly differentiated offering will suck out a great deal of time, money and creative resource from the Tesco mother ship. It will also have twitchy shareholders to answer to – which is never great for a nascent business. If they don’t see proper returns sharpish, the chain will die before it can walk.

…And finally, in other news…

It’s a bit toasty at the moment, isn’t it! If you wanted to know what your employee rights are during this heatwave, have a look at How hot does it have to be to not work? Workers’ rights during the heatwave” (Metro, Tanveer Mann https://tinyurl.com/ydgnjcma). I would cross-check via other sources if I were you before you stride out of work, though!

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

1. In CHINESE FINANCE-RELATED NEWS TODAY, China’s overseas construction spree encounters problems and Chinese peer-to-peer lenders continue to fail.

2. In AUTOMOTIVE NEWS, Fiat hastily replaces its CEO and Tesla asks for money – this time, from its suppliers.

3. In UK DISCRETIONARY SPENDING NEWS,World Cup success hits the box office, the CO2 shortage hits Britvic and Hornby changes track.

4.  In OTHER NEWS, I bring you a dog singing Britney Spears and a rude cake (depending on your viewing angle). For more details, read on…

So China’s overseas construction projects hit snags and peer-to-peer lenders fail…

China’s global spending spree runs into trouble in Pakistan (Wall Street Journal, Jeremy Page and Saeed Shah) highlights some major problems for China’s Silk Road project that includes a $62bn upgrade of Pakistan’s infrastructure. Three years into the project, Pakistan is approaching a debt crisis which has been partially caused by a big uptick in Chinese loans and imports as the upgrade has relied heavily on Chinese financing which was often contingent on using Chinese contractors. A general election is scheduled for July 25th and it looks like the opposition is keen to spill the beans on the escalating costs of the various projects as part of a new transparency towards the electorate. * SO WHAT? * What started out as a Grand Plan risks turning into a nightmare for the Chinese as Pakistan is coming close to begging the International Monetary Fund (IMF) for money, which is likely to include restrictions on spending, including a curtailment of its Belt and Road programme with China (the official name of which is the China-Pakistan Economic Corridor, or CPEC). If this were to occur, it would give the US – the IMF’s biggest contributor – a major say in China’s plans for Pakistan, which would be embarrassing for all concerned. It may well be that China just continues to throw money at these 

countries to get the job done, but there is increasing concern that China is extracting some major concessions (like the handing over of major assets, as per the case in Sri Lanka where the government had to give a Chinese state company a 99-year lease on a major port because it couldn’t repay a loan) which will come back to haunt those concerned further down the road. If this becomes a major issue, Chinese construction firms, suppliers and banks exposed to these massive projects could come under increasing pressure. This won’t happen overnight, but it is worth monitoring which companies have particularly large exposure to the CPEC.

The fallout from China’s crackdown on lending and increasing debt continues in Collapse of Chinese peer-to-peer lenders sparks investor flight (Financial Times, Gabriel Wildau and Yizhen Jia) as about 150 online lending platforms have suffered instances of investors being unable to take their money out since the beginning of June (versus 217 cases for the entirety of 2017), according to Online Lending House, which monitors the industry. As of the end of the June there were 1,836 online lending platforms doing business in China and some say that the increase in defaults is due to regulatory failures, fraud and the crackdown by the government on debt which is throttling liquidity to weaker borrowers. * SO WHAT? * This is just symptomatic of the government’s efforts to put a lid on burgeoning debt but must be very nerve-wracking for investors and customers alike. If these failures continue, however, things could snowball dramatically – and if handled incorrectly, could jeopardise the future of P2P lending as an industry in China. No doubt there will be intervention before that happens, but confidence will take some time to return if investors get badly burned.

In automotive news, Fiat gets a new CEO and Tesla asks for cash-back from its suppliers…

Sudden CEO shift jolts Fiat Chrysler (Wall Street Journal, Chester Dawson) highlights Fiat’s hasty replacement of CEO Sergio Marchionne due to ill health. He went in for surgery recently and has suffered complications which meant that the company has decided to put the former head of the Jeep and Ram truck brands, Mike Manley, into the top spot. * SO WHAT? * Manley gets the job at a tricky time as Fiat Chrysler is trying to catch-up with the competition on new technologies such as electric and self-driving vehicles and is battling to build up its reputation following a spate of safety lapses, emissions cheating and allegations of bribery. He’ll also face issues with his supply chain which will be impacted by Trump’s tariff shenanigans on aluminium and steel. Marchionne is leaving big shoes to fill as he has dragged the company through recession and generally kept up with debt reduction and profit targets to the extent that the company’s share price has almost quadrupled since 2014.

Its profit margin of 6% is also higher than Ford’s at 5.2% and is approaching GM’s at 7.2%. 

In Tesla asks suppliers for cash back to help turn a profit (Wall Street Journal, Tim Higgins) we see that Tesla has asked some suppliers to refund some of the money it has spent in the past to help it become profitable, according to a leaked memo from at least one supplier. Funnily enough, Tesla declined to comment but the leakage of such a memo does call into question Tesla’s overall cash position which has been struggling from the delays of producing the Model 3. It is relatively common for automakers to ask for price reductions for a current contract going forward, but it is very rare to ask for cash on a retroactive basis. Tesla is burning cash at a rate of $1bn a quarter and will need to pay down a $230 convertible bond this November if its shares don’t reach a conversion price of $560.64. The current share price stands at $313.58. * SO WHAT? * This sounds like madness to me, but then again you can rely on the Wall Street Journal to produce a negative piece on Tesla! Tesla would argue that when it was a younger company, its suppliers probably didn’t give it their best terms but the suppliers would argue that Tesla’s focus on its own profitability is ignoring the profitability of everyone else! Surely, Musk is going to come to market yet again and ask investors for even more money – and probably get it as well, given that production appears to be on track after numerous postponements.

In UK consumer discretionary company news, cinemas lose out on World Cup success, Britvic suffers from the CO2 shortage and Hornby changes track…

There were a few interesting stories today on companies that vie for our discretionary cash – World Cup heatwave hit UK cinema ticket sales (The Guardian, Mark Sweney) shows that UK cinemas showed box office sales down by 20% between June 1st to 12th versus the same period last

summer, blaming the unexpected England performance and heatwave for punters’ absence; CO2 shortage takes fizz out of Britvic’s sparkling performance (Daily Telegraph, Oliver Gill) contends that Britvic lost out on what would have been a fantastic heatwave-driven boost to drinks sales because of the CO2 shortage and Hornby calls in expert to fix broken model (The Times. Deirdre Hipwell) gives us the latest snapshot of what’s going on t the owner of Hornby, Scalextric and Airfix as the “new” chief exec Lyndon Davies, who started in November, is taking drastic actions to ensure survival of the much-loved toymaker. He has replaced the management team, agreed Hornby’s product line-up for 2019 with licences all arranged and schmoozed with wholesalers and suppliers. The next part of his plan in the turnaround is imminent, but he hasn’t given any details yet. Let’s hope that this traditional toymaker manages to get out of the rut and take the battle to the tablets and consoles!

…And finally, in other news…

It’s always uplifting to see talent amongst our furry friends. Just have a look at Dog singing Toxic by Britney is video you never knew you needed (Metro, Jen Mills https://tinyurl.com/yatokt5u).

AND FINALLY, it’s funny how taking a different viewpoint can change things quite dramatically (WARNING: THERE’S A SWEAR WORD INVOLVED): Mum shocked to discover rude word on her two-year-old’s birthday cake – until she realises what it is (The Mirror, Courtney Pochin https://tinyurl.com/yaskl7k9).

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

1. In TECH NEWS TODAY, we see Trump weighing in on Google’s fine and what its options are as Microsoft thanks the cloud for its brighter outlook.
2. In UK HIGH STREET NEWS, Sports Direct takes a hit from Debenhams, Gaucho closes Cau and Poundworld has one month to go.
3. In INDIVIDUAL COMPANY NEWS, Disney faces a clear road for Fox, Philip Morris has a smoking problem and Softbank teams up with Didi for ride-hailing in Japan.
4. In OTHER NEWS, I bring you news of a ninja shortage. For more details, read on…

So Trump sticks his oar in with Google and Microsoft benefits from the cloud…

Trump attacks EU’s decision to fine Google £3.8bn – and hints at reprisal (The Guardian, Dominic Rushe) highlights some vintage Trump as he tweeted his reaction to the European Commission’s fining of Google thus: “I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the US, but not for long!”. He is said to have referred to Margrethe Vestager, the EU’s competition commissioner, in a conversation with Jean-Claude Juncker last month, saying that “Your tax lady, she really hates the US”. WTF. I’m not sure how he’s going to follow through on his threat, but I’m sure he’ll find a way (or at least he’ll talk a good game). * SO WHAT? * Google said that it will contest the punishment, but Google faces uphill battle in appealing EU Android fine (Wall Street Journal, Daniel Michaels) suggests that although it is theoretically possible for Google’s parent Alphabet to appeal the EU’s decision –the European Commission (which is the EU’s executive arm that brought the case) has built up a formidable reputation in winning appeals since it got its act together in 2004 after a decade of embarrassing losses. Funnily enough, its record is particularly strong in the type of case that Google is fighting – abuse of dominance. Google has been accused of shutting down any competition by forcing handset makers to bundle its apps with Android, which it offers for free. According to Assimakis Komninos, a competition lawyer at White & Case in Brussels, the EC has won 11 out of the 15 abuse of dominance cases outright and faced partial annulment in four in the period between 2000 and 2016. Google’s lawyers sound like they will have their work cut out.

Having said that, Why the Android antitrust case may not trouble Google (Wall Street Journal, Sam Schechner) contends that, whatever happens, it might not matter anyway because if Google loses its appeals, antitrust cases drag on for so long that by the time the decision comes, the alleged monopolist has already become even more powerful or the entire market has evolved in a different direction. The fabulously – and may I say appropriately-named – Nicholas Economides, economics professor at New York University Stern School of Business, observed that “The main flaw of this decision is that it’s so many years late. It has allowed Google to use an illegal practice to become dominant”.

Microsoft thanks cloud for brighter outlook (The Times, James Dean) cites the continued strong demand for cloud computing and business software as powering Microsoft’s fourth quarter profit to levels exceeding analyst expectations. Sales at Azure, Microsoft’s cloud business rose a whopping 89% in the latest quarter versus the same quarter last year and sales of Office 365 rose by 38%. Revenues at Linkedin, which it bought for $26.2billion in 2016, rose by a very respectable 37%.  * SO WHAT? * Microsoft has always been seen as a one-trick pony powered purely by sales of its Windows operating system. However, it seems to be evolving quite nicely (although operating systems clearly remain key) and it actually looks like it will get a tailwind as PC sales have started to pick up after a long period of stagnation – PC sales grew at their fastest rate for six years in the second quarter of this year – driven by demand from business customers. When they upgrade their hardware, the tendency is also to upgrade their software as well, which is where Microsoft will obviously benefit.

Sports Direct takes a hit from Debenhams, Gaucho closes Cau and Poundworld has one month to go

Sports Direct takes £85m hit as value of Debenhams stake falls (The Guardian, Julia Kollewe) shows that Sports Direct’s investment in Debenhams gave its own profits a massive kick in the knackers as they fell by 72.5%, reflecting the drop in value of its close-to 30% stake in the troubled department store. There were a couple of one-offs in there as well, but the Debenhams thing was the biggie. * SO WHAT? * It just goes to show what happens when you buy a pile of cr@p like Debenhams. I think that Ashley, love-him-or-loathe-him, HAS to take more of an active role in turning Debenhams around otherwise he is going to continue to bleed profits – which is very unlike him. There have been a few suggestions so far – like charging for click-and-collect with added incentives – but it sounds like they are just tinkering around the edges. I think a root-and-branch approach is sorely needed in Debenhams’ case. Interestingly, Ashley is aspiring to move Sports Direct upmarket to become “the Selfridges of sport” – well he’s got the sports merch sorted and he’s (sort of) got a department store – what’s he waiting for?? He also owns a chain of gyms. SURELY, he could put it all together no? He could repurpose city centre prime real estate to house his sportswear in “classier” surroundings AND have a gym onsite with perhaps a bit of residential/offices to keep the steady cashflow rolling in. Easy for me to say, though – but don’t you think that sounds like a plan??

The gloom continues on the UK high street in Gaucho cuts 540 jobs with closure of Cau (Daily Telegraph, Ayesha Javed) as administrators at Deloitte have decided to close ALL of the UK Cau sites and “focus on maximising the value achievable in the Gaucho business, which is profitable and underpinned by a strong brand”. Matt Smith, joint administrator, said that “Unfortunately, the Cau brand has struggled in the oversupplied casual dining sector, with rapid over-expansion, poor site selection, onerous lease arrangements and a fundamentally poor guest proposition all being factors in its underperformance”.

And it’s not just restaurants that are having a rough time either – Last Poundworld stores will shut next month (The Times, Louisa Clarence-Smith) signals the death-knell of another high street operator as administrators announced the closure of the company’s remaining 190 stores that will incur another 2,339 job losses. Poundworld’s HQ and warehouse in Normanton in West Yorkshire will close today, which will involve 299 job losses. * SO WHAT? * An estimated 50,000 jobs have been lost in the UK retail sector so far this year – and there will be more. I believe that we are in a transitional phase where the high street is trying to find a new identity as consumer tastes and habits continue to evolve. I think that differentiation, finding true identity in themselves and the target customer, a laser-focus on costs and close monitoring of customer behaviour will all be keys to retailer survival. Anyone who just carries on as normal will be toast.

In individual company news, Disney faces a clear road for Fox, Philip Morris has a smoking problem and Softbank teams up with Didi for ride-hailing in Japan…

It seems like we’re getting closer to a conclusion in Disney ready to seize Fox after Comcast walks away (Financial Times, Arash Massoudi, Matthew Garrahan and Eric Platt) as Comcast has decided to pull out of the bidding war and concentrate instead on buying Sky. * SO WHAT? *  Comcast’s attempts to disrupt the Disney/Fox deal ended up adding $20bn to the price tag that Disney will have to pay. It just goes to show how scared these media companies are about digital disrupters Netflix and Amazon that they would be willing to pay such prices.

Philip Morris battles to maintain growth of IQOS ecigarette (Financial Times, Pan Kwan Yuk and Peter Wells) highlights a slowdown in the uptake of its smokeless devices as Philip Morris International – the world’s biggest listed tobacco company – lowered full-year earnings guidance with hopes for smokeless future taking a bit of a dent in the process. The company is taking measures to address the slowdown – spending more on marketing a cheaper version of IQOS (pronounced eye-koss) in its key Japan market, for instance – but the benefits are unlikely to appear overnight.

IQOS did well initially with younger smokers, but older smokers have been difficult to convert – whilst all the while, the competition was increasing in this space. * SO WHAT? * It’s a noble ambition to aim for a smokeless future, but if the profits aren’t rolling in, idealism will have to take a back seat to practicality. I think this is a pause for breath, on balance, but if this continues, more drastic measures will have to be taken e.g. squeeze the margins on the devices to increase sales volumes etc.

Given the prevalence of ride-hailing pretty much everywhere, SoftBank and China’s Didi to launch Japan taxi-hailing platform (Financial Times, Kana Inagaki) highlights the stubborn stance of the Japanese thus far on it as the country has stood alone in protecting its taxis from the likes of Uber et al. SoftBank’s founder Masayoshi Son remarked that “Today ride-hailing is prohibited by law in Japan. I can’t believe there is still such a stupid country. To protect the past, they are denying the future. It’s a crisis situation” whilst announcing at the same time that it has teamed up with Chinese Uber-killer Didi Chuxing to launch a taxi-hailing platform in Japan ahead of the expected surge in Chinese tourists in the run-up to the 2020 Tokyo Olympics. Didi will use SoftBank’s network and its Didi Mobility JV in Osaka to kick things off, followed by a rollout in Tokyo and other cities. * SO WHAT? * Japanese law currently demands that taxis have to be driven by licenced individuals, thus neutralising Uber’s (and other’s) usual business model. Companies get around this by having a JV with a local taxi partner, but it clearly adds another layer of expense to the whole thing – hence the bad feeling. Still, I suspect that pressure to relent will continue in the run-up to the Olympics and the floodgates will open.

… And finally, in other news…

Not satisfied in your job? Do you want to do something a bit different and have a job title in your passport that will get a bit of a reaction? How about becoming a ninja? For more details, have a look at Japan faces ninja shortage (Metro, Harley Tamplin https://tinyurl.com/yb5kkl8u). Good luck with the application!

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

1. In MACROECONOMIC NEWS TODAY, Trump threatens auto tariffs but the industry is planning to push back and UK inflation remains unchanged.

2. In TECH NEWS, Google’s record fine could herald a major shake-up and Samsung aims for a foldable phone launch next year.

3. In RESTAURANTS NEWS, Wendy’s and Papa John’s chat highlights consolidation opportunities in the US, but in the UK, Gaucho looks like the next chain to go under.

4.  In RETAIL NEWS, Amazon has a Prime Day and Hotel Chocolat continues to look delicious.

5.  In OTHER NEWS, I bring you some ideas for coping with our current heatwave. For more details, read on…

So Trump’s tariff threats get the auto makers riled whilst UK inflation remains unchanged…

Trump threatens auto tariffs despite widespread opposition (Wall Street Journal, Chester Dawson and Joshua Zumbrun) highlights growing industry opposition to Trump’s threats as a coalition of foreign and domestic auto companies, auto dealers and auto parts makers released a joint letter yesterday urging Trump to reconsider his tariff threats in addition to a bipartisan group of 149 House members who urged the same. Trump reiterated his threats for “tremendous retribution” against the EU if

it doesn’t play ball in meetings next week. * SO WHAT? * This could be a VERY big deal if the administration follows through with tariffs ranging between 20% and 25% as the US imported $176bn of passenger cars, $36bn of trucks and $147bn of auto components last year! Support for the tariffs has come from trade union groups such as the United Auto Workers union – which represents workers at GM, Ford and Fiat Chrysler – although the UAW was more in favour of a targeted – rather than blanket – approach, like focusing on investment in Mexican production, for instance.

Prospect of rise in interest rates wanes as inflation holds at 2.4% (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics which show that the consumer prices index has remained unchanged at 2.4% despite expectations that it would go up due to increased fuel prices. Rising prices for gas, electricity and petrol were offset by discounted summer clothing sales (which actually registered their biggest monthly drop since 2012) and the falling cost of computer games. * SO WHAT? * This is another stat that will put pressure on the Bank of England to keep interest rates on hold when they meet at the beginning of next month.

In tech news, Google’s fine from the EU could be a game-changer and Samsung promises a folding phone…

Google hit with €4.3bn EU fine over Android dominance (Daily Telegraph, James Titcomb) is a story that’s across all of the broadsheets today as, let’s face it, €4.3bn is a proper fine isn’t it! None of this token couple of grand rubbish (like the “fine” Facebook got last week!). Anyway, Margrethe Vestager, the European competition chief, slapped Google with the €4.34bn fine following a three year investigation after finding it guilty of illegally tying smartphone manufacturers into deals that forced them to install Google apps and said that it used Android as a “vehicle to cement the dominance of its search engine”. This is the second time that the EU has given Google a chunky fine – the company had to pay out €2.4bn last year for using the dominance of its search engine to promote its online shopping service. Google is also facing another potential financial penalty related to its online advertising network. Vestager also gave Google 90 days to break the contracts that force phone manufacturers to install its apps otherwise she will continue to impose fines worth 5% of its daily turnover! * SO WHAT? * Google can easily pay this fine (it’s equivalent to about two months of profit – so it’s not surprising that parent company Alphabet’s shares were pretty much unmoved in trading yesterday) but what is more damaging, according to EU threatens to smash Google’s Android dominance (Daily Telegraph, James

Martin) heralds an interesting development in mobile phone technology as the company announced that it is planning on releasing a foldable screen not surprising that parent company Alphabet’s shares were pretty much unmoved in trading yesterday) but what is more damaging, according to EU threatens to smash Google’s Android dominance (Daily Telegraph, James Titcomb), is that the free distribution model that the company has used so well for so long now looks to be very much under threat. Android has an 80% global market share in smartphone software, due in no small part to the fact that its operating system is GIVEN to handset makers for free, meaning that manufacturers tend not to bother to make their own software. Google will now have to go back to the drawing board as rivals such as Microsoft could PAY manufacturers to carry its search engine, Bing. Samsung could also benefit as it has the resources to build its own system (it’s tried and failed in the past, but this ruling could be a big opportunity). Amazon could also gain from this decision as it has its own system called “fork” that it could offer manufacturers – something that until now has been explicitly banned by Google. BTW, if you’ve got a few moments, have a look at this re Google vs Bing – it’s hilarious IMO https://www.youtube.com/watch?v=B759dzymyoc&t=29s)

Samsung plans to launch foldable screen phone early next year (Wall Street Journal, Timothy W. Martin) heralds an interesting development in mobile phone technology as the company announced that it is planing on releasing a foldable screen smartphone early next year. The prototype, dubbed “winner” (no word of the follow-up that could be called “chicken dinner”), has a screen that measures 7 inches on the diagonal which is about the same size as a small tablet. The idea is that you have something that has massive screen is that you can fold and put in your pocket like a wallet. It’ll be different to an old-school flip-phone because when you open it, it will be all screen. * SO WHAT * There are a lot of manufacturers out there trying to make such phones, but if this proved to be successful, it could be one of the biggest innovations in smartphone devices that we’ve seen for years as it could pioneer an entirely new product category. With people hanging on to their handsets for longer and sales maturing, a successful new product could be just what the industry needs! We’ll have to wait for a while before we see whether this pans out; though…

In restaurant news, there could be consolidation in the offing amongst American restaurant chains, but in the UK, Gaucho looks like it could be the latest one to go under…

Papa John’s founder recently held merger talks with Wendy’s (Wall Street Journal, Dana Mattioli, Julie Hargon and Cara Lombardo) highlights the deal that got away on the one hand (disgraced Papa John founder John Schnatter was having exploratory talks with Wendy’s until things cooled off following his well- publicised use of a racial slur during media training which in turn led to him resigning as chairman last week) but shows that there is a healthy appetite for restaurant consolidation in a competitive market on the other. * SO WHAT? * Papa John’s is the world’s #3 pizza delivery company after Domino’s and Pizza Hut and Wendy’s is the world’s #3 hamburger chain after McDonald’s and Burger

King – and the fact that the two were even considering a combo shows a broader trend of restaurants bulking up to benefit from scale in a fragmented market. I guess that such chains will be benefiting from the increasingly confident American consumer dining out more often and scale will enable them to maintain or improve margins – and could even be the springboard for overseas expansion should they decide to pursue this course (although to my mind this has been done before with varying degrees of success).

In contrast, Ailing Gaucho restaurant group faces closure with 1,500 jobs at risk (The Guardian, Sarah Butler) shows that high street restaurant chains continue to feel the pressure as the owner of the Gaucho and Cau brands is preparing to file for administration, putting 1,500 jobs on the line. There have been attempts at selling the group to various investors and private equity groups, but to no avail so far. The group had considered the now rather common Company Voluntary Agreement (CVA) under which it would have closed its 22 Cau outlets and continued with Gaucho, but then it got stung with a £1m tax bill. The company owes £50m to its banks. Gaucho will go into administration unless a buyer can be found within the next 10 days. * SO WHAT? * Although it IS possible for the Gaucho chain to survive it seems virtually certain that Cau will disappear as it has been particularly badly hit by tough competition and the squeeze on consumer spending. It seems that it will shortly be added to the list of restaurant casualties this year that include Jamie’s Italian, Byron, Barbecoa, Prezzo, Carluccio’s and Prescott & Conran.

In retail news, Amazon has a prime day and Hotel Choc continues to delight…

In Prime Day spurs online shopping spree on Amazon and beyond (Financial Times, Shannon Bond) we see Amazon’s increasingly successful shopping event has spurred record sales – overtaking the success of last year’s event as well as Black Friday and Cyber Monday. Other retailers also 

benefited from the online frenzy and Target said that its flash sale on Tuesday generated the highest single day of online traffic and sales this years as shoppers rushed to take advantage of deals on appliances, beauty products and Google devices. * SO WHAT? * Amazon’s manufactured shopping event continues to go from strength to strength, dragging other retailers in with it, but it has some way to go before it achieves the same success as Singles Day for Alibaba, which raked in a phenomenal $245.4bn in sales in 24 hours last year.

There’s good news on the UK high street in Chocolatier hits sweet spot with rising sales (The Times, James Hurley) as it enjoyed sales growth of 12% over the last year, benefitting from opening 15 stores over the period. Chief exec and founder, Angus Thirlwell, was understandably upbeat on the company’s performance and added “Our plan is that, we’ve learnt a raft of things, and now we’re going to apply them to a major market or major markets to become a global brand”. So, will they pay too much and flop to expand internationally, or is world domination on the cards??

… And finally, in other news…

Japan knows a thing or two about coping with heat (I remember when I lived there dealing regularly

with 40- plus degree heat and 100% humidity!) and so I thought it only appropriate to give you some ideas from over there in As heat wave grips Japan, demand spikes for

products aimed at staying cool (Japan Times, Chisato Tanaka). One of them involves drinking a beverage called Calpis. And yes, it does taste slightly salty…

As always, thank you for reading the WIFI!

So US consumers get spending, the French regulator looks at tie-ups and M&S managers are in the firing line…

US shoppers go on spree after Trump tax cuts (The Times, James Dean) shows the effect of Trump’s big income tax cuts – consumers spend more! Retail sales grew by 5.9% in June, according to the latest monthly report released by the Commerce Department, and economic forecasters are upbeat about the prospects for second quarter GDP. This was the fifth consecutive month of increased spending, with spending on motor vehicles, health and personal care and online retail being particular highlights. * SO WHAT? * Consumer spending powers about 2⁄3 of the US economy and Trump’s tax cuts, which came into the effect at the beginning of this year, have given Americans a significant boost. Continued strength is looking likely.

French supermarket tie- ups probed by competition watchdog (Financial Times, Harriet Agnew) highlights a potential spanner in the works for European retailers as France’s antitrust authority, the Autorité de la Concurrence, stated yesterday that it wanted to look at “the competitive impact of…purchasing partnerships on the concerned markets, both upstream for the suppliers, and downstream for the consumers”. There has been a trend of late for large European retailers getting together to cut costs and preserve margins in order to fight back against the likes of Amazon as well as the German discounters Aldi and Lidl. Purchasing partnerships, which help supermarkets boost volumes on commoditised items by getting lower prices from suppliers, have been

particularly popular in France where M&A has not really been an option (mainly because it is already relatively well-consolidated). Tesco and Carrefour’s tie- up, which was announced earlier this month, is just one example of such a purchasing alliance, but others that will also go under the microscope will include alliances between Carrefour and Systeme U and the one comprising of Auchan, Casino, logistics company Schiever and Germany’s Metro in France and International markets. * SO WHAT? * Although this is a bit of a pain for the retailers, it would seem unlikely that the regulator will do anything too drastic given that supermarkets aren’t having a great time of it at the moment – so there’s little to be gained from squeezing them too hard. If you are interested in knowing more details about the alliances, it’s definitely worth looking at this article which has a useful little table which identifies each alliance and exactly what areas are covered.

Managers in line of fire as M&S targets extra 350 jobs (The Guardian, Hilary Osborne) heralds more woes for M&S staff as efforts to affect a turnaround continue at the troubled retailer. It was only last week that it warned that its plans to close 100 stores did not necessarily signal the end of the restructuring. A review of the management structure showed that although sales activity across M&S stores has fallen by 7.5% over the last two years, management costs have actually gone up, which has “contributed to reducing store profitability, impacting on our ability to trade our existing stores and open future stores viably”. * SO WHAT? * Given chairman Archie Norman’s comments last week and the general shifting of management at the moment, M&S is clearly in a transitional phase. Having a management clear-out is an obvious way of cutting costs and will probably buy the company time (plus a bit of goodwill from shareholders) but it will need to come up with a proper plan sooner rather than later that will revamp its offering more dramatically – otherwise investors and customers alike will continue to abandon it.

In tech news, ZTE jumps, Netflix wobbles and Uber gets more grief…

In ZTE shares jump after Washington lifts ban on US purchases (Financial Times, Edward White) we see that shares in the Chinese telecoms equipment maker shot up by 16% in trading yesterday as the Trump administration gave the go ahead for it to resume operations. Wilbur Ross, US commerce secretary, lifted a ban on ZTE purchasing vital parts from the US following the company’s payment of a $1.4bn fine over breaches of US sanctions on North Korea and Iran. * SO WHAT? * The seven-year ban that was put in place in April and lifted on Friday by Ross, had brought the giant to its knees and almost killed it off completely until president Xi Jinping intervened personally to get Trump involved. In return for granting ZTE a stay of execution, the company had to pay a massive fine and has done a major overhaul of its top management. Still, emotion runs high amongst some about this volte-face – Florida senator Marco Rubio says that “ZTE should be put out of business. There is no ‘deal’ with a state- directed company that the Chinese government and Communist party uses to spy and steal from us where Americans come out winning”. Despite yesterday’s gains, ZTE’s Hong Kong share price is still 37% below the level it was at before the ban was announced. FWIW, I think this whole thing stinks! ZTE were just arrogant and they got their fingers caught fair and square in the cookie jar. Trump knows this and is clearly using it as a bargaining chip with the Chinese – after all, he can bring the ban back at any time. In the meantime, however, I think that ZTE needs to get busy on sorting out its supply chain to try and wean itself off using US parts for if Trump changes his mind again, but I get the feeling that this is not going to be easy for them. For now, they just need to play nice and not do too much spying 😜

Netflix reports weaker- than-expected number of new subscribers (Wall Street Journal, Shalini Ramachandran) shows how even the mighty can fall as the company fell short of its own forecasts in terms of subscriber numbers in the second quarter, which resulted in a 14% fall in its

share price in after-hours trading yesterday. The company blamed this on “faulty internal forecasting” and continues to believe in the potential of the business. * SO WHAT? * Let’s get some perspective here. The company has been a serial over-achiever, its share price has more than doubled so far this year and its success is scaring the bejeezus out of its industry to the extent that competitors are either trying to replicate its model in some way or consolidating as a way of protecting themselves (the current Fox/Disney/Comcast drama as well as the recently approved AT&T acquisition of Time Warner are very much examples of this). It is continuing to invest heavily in proprietary content and expansion in growth markets such as India. IMHO, although the “faulty internal forecasting” excuse is somewhat weak, the party ain’t over for Netflix – I believe that this is just a blip.

Uber facing enquiry in US over gender discrimination (Daily Telegraph, Natasha Bernal) highlights the fact that the US Equal Employment Opportunity Commission has been investigating Uber for alleged gender discrimination for almost a year. An Uber spokesman remarked that “We are continually improving as a company and have proactively made a lot of changes in the last 18 months, including implementing a new salary and equity structure based on the market, overhauling our performance review process, publishing diversity and inclusion reports, and rolling out diversity and leadership training to thousands of employees”. * SO WHAT? * Uber continues to garner negative headlines – and this is just another one in a long line. Given the problems the company has had with humans, it’s no wonder that it is looking to driverless cars for its future! No driver = far fewer personnel problems, but in order to get to that stage, the company needs to rely on them. All of this is bound to cost Uber loads in terms of admin (not to mention all the layers of procedures and other processes they have to implement to keep critics – and lawyers – at bay) and fines as disgruntled employees kick the company while it is down. Having said all that, the continuous stream of bad news cannot continue forever and I suspect that things will turn around in the approach to its Initial Public Offering (IPO), due next year. Obviously, if they don’t, the IPO could be postponed but I am sure that the company will do its level best to do what is necessary to keep it on track as it could no doubt do with the large lump of cash an IPO can bring.

… And finally, in other news… 

Well we’ve had some reasonably major sporting days recently, what with the World Cup and Wimbledon being prime examples, but surely nothing can compare to today, World Emoji Day.

Not heard of it? Learn more about this momentous occasion in https://worldemojiday.com/ and perhaps you could put the official song https://youtu.be/svBQjzLyMJ s on repeat to get people around you to join in! Yes, the song’s two years old now but it is a modern classic…actually, talking of modern day classics, I still love this: https://www.youtube.com/w atch?v=IfeyUGZt8nk Apologies to regular WIFI readers, but I love that last song and just thought I’d wheel it out today for no apparent reason!

As always, thank you for reading the WIFI!

1. In RETAILER NEWS TODAY, Walmart looks at selling off its Japanese supermarket chain, Asos warns on full year sales growth, DFS and Dunelm announce poor sofa sales and B&M does a roaring trade in paddling pools.

2. In UK CONSUMER SPENDING NEWS, credit card defaults are on the rise, as is home lending to first-time buyers.

3. In M&A NEWS, Broadcom gets a pasting after yesterday’s deal announcement.

4. In OTHER NEWS, I bring you a new Instagram pose. For more details, read on…

So Walmart eyes potential exit from Japan, ASOS reins in expectations, DFS and Dunlem get the sofa blues and B&M gets big boost from paddling pools…

In Walmart explores sale of Japanese supermarket chain (Financial Times, Kana Inagaki and Leo Lewis) we see that there is speculation that Walmart is about to continue to reshuffle its international business focus by exiting from the Japan market after 16 years via the sale of its struggling Seiyu supermarket chain, which it bought for $60bn in 2002. This is still in the early stages, but some believe it could be snapped up by a private equity buyer as there

is increased interest in Japan as a source of deals from these types of firms. Having said that, Seiyu might prove to be tricky, as an anonymous PE punter observed that “When you look at the list of failures by foreign retailers in Japan, it is quite tough to imagine bringing in someone to manage a great turnaround story for Seiyu. If Walmart cannot do it, you know it is tough”. * SO WHAT? * Walmart, for its part, has denied that it is in discussions with potential buyers, but it would be fair to say that it has had a bumpy ride since it made the purchase. Japan has been the graveyard of many a retailer in the past – Tesco pulled out in 2011 after 8 years and French retailer Carrefour pulled out after only five in 2005 (and I also remember how Boots tried and failed in the late 90s/early 2000s because I was involved in the launch!) – and Walmart has made some headline-grabbing moves of late in terms of shifting around its international business interests. It sold off a majority stake in its Brazilian business last month, merged Asda with J Sainsbury in April and recently announced its purchase of a $16bn stake in Flipkart in India. Selling off Seiyu sounds like it would make good strategic sense, but the buyer is going to be in for a rough ride methinks.

Asos investors take fright over sales (The Times, Deirdre Hipwell) highlights the 10% drop in Asos’ share price as investors panicked despite

the firm announcing a very healthy 22% increase in sales. The thing that spooked investors was the company’s announcement that full-year figures would be at the lower end of its previously announced range of 25-35% sales increase, citing slower overseas growth. The company even maintained the profit outlook for the year, but this couldn’t stop the rout. * SO WHAT? * Asos was founded in 2000 and has surfed the wave of online retailing ever since with a few blips here and there, notably overtaking M&S in terms of market value back in November last year (although it has fallen back since then). I would be inclined to agree with the conclusions in Asos: friction fiction (Financial Times, Lex), that this is a short term aberration and that the company is well placed to take full advantage of the continued growth of online retailing. It has been a victim of its own success as it keeps overachieving (hence the punchy valuation), so any disappointment tends to get magnified.

Elsewhere in the world of UK retailers, DFS and Dunelm blame the heat for bad sofa sales (The Guardian, Julia Kollewe) gives the companies’ respective excuses/explanations for their poor performance with DFS announcing its second profit warning in just over a year and Dunelm cutting its profit forecasts after issuing a profit warning in May. DFS, which also owns Sofology, Dwell and Sofa Workshop said in a statement that “in the fourth quarter to date, exceptionally hot weather, including over key trading weekends, has led to significantly lower-than- expected order intake”. * SO WHAT? * Some analysts are saying that this is all weather-related and not much to get concerned about, but it’s worth saying that these companies can also be seen as a sort of proxy on confidence in the economy as they sell big- ticket items. Sales generally correlate to the housing market as buying a sofa generally tends to happen when people move house. If that is the case, I would argue that sales could stagnate for even longer given our current political and economic turmoil, along with Brexit being around the corner.

Meanwhile, the weather has been GOOD for others, as per Paddling pools make a summer turnover splash for B&M (Daily Telegraph, Rhiannon Curry), where the discount retailer has sold an impressive 250,000 paddling pools, 200,000 water pistols and 50,000 patio sets this summer! The company had its best summer season yet and its overall revenues were up by 21.3%. Sales at its German brand Jawoll were up by 6.9% and revenues from Heron Foods, the convenience store it bought last August, were also solid. The chain is continuing to expand and intends to make a push in southern England.

In news on UK consumer spending, credit card defaults are on the rise and first-time buyers power mortgages…

Rise in credit card defaults stokes fears of a UK downturn (Daily Telegraph, Iain Withers) cites the latest findings of the Bank of England’s credit conditions survey that there was “a significant increase in default rates on credit card loans” between April and June this year, which would imply that consumer budgets continue to be tight. * SO WHAT? * Credit card spending is something that that the BoE has been keen to crack down on, and an increase in defaults is worthy of note because it can often be a leading indicator of an economic downturn.

Lenders have continued to cut the amount of unsecured credit they make available to customers for the sixth quarter in a row although overall demand for unsecured credit has remained unchanged.

Sharp rise in first-time buyers boosts home lending (The Guardian, Angela Monaghan) cites the latest data from UK Finance, a lobby group for the financial services industry, which showed that the number of first-time buyers increased in May whilst the number taking on new buy-to-let mortgages fell. Interestingly, the average first-time buyer in the UK is 30, has a gross household income of £42,000 and takes on a loan of £142,452 at a loan-to- value of 85%. Jackie Bennett, director of mortgages at UK Finance observed that “the mortgage market is seeing a pre- summer boost, driven by a rise in the number of first- time buyers and strong remortgaging activity. Meanwhile, purchases in the buy-to-let market continue to be constrained by regulatory and tax changes, the full impact of which have yet to be fully felt”.

In merger and acquisition news, Broadcom’s big deal goes down like a lead balloon…

Following on from the story in yesterday’s WIFI about Broadcom buying CA 

Technologies, Broadcom shares sink as latest deal puzzles Wall Street (Wall Street Journal, Ted Greenwald and Miriam Gottfried) shows that Broadcom’s shares tanked by 14% in trading yesterday as investors collectively thought “WTF did they go and do that for?”. Chief exec Hock Tan has a rep for doing deals as part of building the company into a chip powerhouse, but it seems that investors weren’t up for his latest wheeze as everyone thought it was a bit random. He’s really going to have to make this work otherwise this could be his downfall!

…And finally, in other news…

Fed up of the duckface, fish gape or squinch?? Well there’s a new selfie pose in

town that’s causing a kerfuffle: ‘Migraine pose’ is the new Instagram trend celebs love – but it’s making people very angry (The Mirror, Courtney Pochin https://tinyurl.com/y7zoy93l). Oh dear. Something tells me that people who dream these things up have FAR too much time on their hands!

As always, thank you for reading the WIFI!

1. In MACROECONOMIC NEWS TODAY, we take a look at the current Brexit/May chaos and the EU’s initial reaction.

2. In TECH-RELATED NEWS, Apple takes on Spotify, Microsoft takes on Apple whilst Twitter and Xiaomi take a bath.

3. In UK RETAIL NEWS, the World Cup provides a welcome boost and Mothercare takes action.

4. In OTHER NEWS, I bring you an unusual tattoo from an England football fan. For more details, read on…

So our PM loses ministers and the EU expresses dismay…

So it seems that things are hotting up Brexit-wise after Gove and BoJo quit yesterday, leaving our PM in a bit of a pickle in Theresa May vows to fight removal attempt after Boris Johnson quits (Financial Times, Henry Mance and Laura Hughes) as the “agreement” reached on Friday at Chequers was not quite as water-tight as she had thought. Jezza reacted with glee as he pointed out that the Brexit deal reached on Friday had taken “two years to reach and just two days to unravel” whilst one anonymous MP, remarking on the warm response Theresa May got from addressing the Tory backbench 1922 Committee when she spoke last night, observed that “The fact MPs stood up and applauded her for five minutes means she’s screwed”. Having said that, it looks doubtful that the Eurosceptics led by Jacob Rees-Mogg will be able to muster the 48 signatures needed to force a vote of no-confidence under Tory party rules as there’s no immediately obvious candidate (but you never know!). Which just means that no one knows what’s going to happen. 

Donald Tusk, president of the EU Council even cheekily suggested that we could even stay in the EU when he said “I can only regret that the idea of Brexit has not left with Davis and Johnson. But…who knows?”. EU reacts with dismay to British Brexit chaos (Financial Times, Mehreen Khan and Tobias Buck) shows that this kerfuffle is a cause of concern for the

Europeans and Christian Linder, leader of Germany’s liberal Free Democrats, tweeted that Europe should not feel “schadenfreude” at our plight as “Brexit threatens to become a fiasco that will also weaken the EU and Germany” although European Commission president Jean-Claude Juncker was more dismissive of the departures, saying that “What matters for us is the negotiating framework that our 27 member states have set for us”.

At this moment in time, the whole thing is in a right mess and Thorny questions on Brexit that Chequers summit failed to answer (Daily Telegraph, Anna Isaac and Tim Wallace) does a good job of identifying key areas of uncertainty such as borders, VAT, data flows, what will happen to financial services etc.etc. whilst Turmoil among Tories makes a sovereign Brexit possible again (Daily Telegraph, Ambrose Evans-Pritchard) makes some very interesting observations on possible outcomes. Evans- Pritchard says that anything is possible now from a “global” Britain trading with the EU on WTO terms via a snap election on the one extreme to a Corbyn government on the other. He basically argues that the agreement reached on Friday was far from ideal anyway and that, although much as been said about how much WE are going to suffer from Brexit, Europe is not going to get off it lightly either. He expounds the view that if the EU puts trade barriers in place in March 2019, it will suffer a lot itself and that “large parts of European industry would be paralysed”, that a resulting recession would stoke up an EMU banking crisis, which would in turn be followed by political and economic turmoil between EU member states. * SO WHAT? * The whole thing is a complete mess and there are so many moving parts to this it is impossible to predict what is going to happen. The UK (and the EU, for that matter) needs stability as it heads towards Brexit – and having major Cabinet ministers resign in the run-up, thus putting Theresa May’s leadership in question in the process, is not ideal for anyone (apart from Corbyn, obviously). Mind you, although Mario Draghi, president of the ECB, is talking a good game about the Eurozone’s economic prospects, I think that Europe is precarious at the moment and is being held together by zero- interest rate gaffer tape whilst many of its top economies – Germany, Italy and Spain – are facing some serious domestic problems that could cause aftershocks. The UK and EU are facing difficulties within whilst the US is tightening the screws on trade. Time for everyone to grow a pair and get back to the negotiating table before we all shoot ourselves in both feet, no?

In tech news, Apple takes Spotify share, Microsoft announces a new tablet, Twitter gives investors the jitters and Xiaomi has a disappointing market debut…

Apple slices into Spotify’s lead in US music market (Financial Times, Anna Nicolaou) takes a look at the current state of play in music streaming and shows that the gap between Spotify and Apple Music is narrowing in the US, the world’s #1 music market. One sign of this was Drake’s recent release of Scorpion – expected to be the biggest album of the year – which was streamed on Apple Music 170m times versus being streamed on Spotify “only” 130m times in the first 24 hours of its release. As of last week, Apple has between 21 and 21.5m subscribers in the US versus Spotify on between 22 and 22.5m and music executives expect Apple to go level with Spotify in the US by next month, overtaking them by the end of this year. * SO WHAT? * This is an impressive performance by Apple and I think that there is a lot more upside potential as its user base is much broader with more potential than Spotify, which has done well from soaking up many of the “early adopters”. Spotify’s still top dog on a global basis, but I don’t think that Apple’s growth is going to cause too much concern for Daniel Ek and his chums as I think that the market is big enough to accommodate at least a few streamers. It does go to show, however, the bright prospects for Apple’s “services” division revenues. Good news for cash- strapped tablet fans in Microsoft to sell low-cost surface to compete with Apple’s iPad (Wall Street Journal, Jay Greene) as Microsoft announced that it was going to cut prices on its Surface devices and introduce a $399 tablet that will take on Apple’s cheapest iPads. Microsoft’s 10-inch Surface Go, which ships on August 2nd in the US and 24 other markets, is the cheapest Surface model and is aimed squarely at the same customers as Apple’s 9.7 inch iPad. * SO WHAT? * Great news for

seekers of reasonably-priced tablets, but it seems to me that there is an air of desperation as tablet shipments continue to fall as the market matures. Worldwide shipments fell by 11.7% in the first quarter of this year versus last year, according to International Data Corp, although shipments of tablets with detachable keyboards grew by 2.9%. The fact is that this market is pretty sluggish now and with the trend for narrowing prices between laptops and tablets, there is less motivation for consumers to buy the latter. After all, if you are just using a tablet to do a bit of web surfing and streaming TV/films, you will probably hold on to your existing tablet for longer – and if you need something “proper” to use, you will probably be inclined to buy a laptop. I would expect tablet prices to continue to trend down over the coming years unless they find some exciting new tech.

Elsewhere, Twitter shares take a nosedive (Daily Telegraph, James Titcomb) highlights the 8% fall in the company’s share price yesterday after it announced a deeper-than- expected cull of fake accounts that will dent its recent growth in the number of users. The company will reveal its second-quarter results lar this month. * SO WHAT? * Yes, this is a kick in the teeth for the short term, but I think that the company is doing the right thing in culling fake accounts – and it may even benefit from higher ad revenues further down the road as it will be able to keep a straight face when it touts the quality of its user base to advertisers. The shares have almost doubled in the last six months, so I suppose some investors used this to lock in some profit. I would personally see it as a short term blip, but I would be interested to see the figures later this month.

Talking of disappointing news, Chinese smartphone maker Xiaomi falls in Hong Kong trading debut (Wall Street Journal, Dan Strumpf and Joanne Chiu) details the disappointing performance of a company that had put its shares on the market valuing itself at the lower end of its touted range at $54bn versus chat earlier this year that it would be going for $100bn. The company, founded only eight years ago to become the world’s #4 smartphone maker after Samsung, Apple and Huawei, decided to float in order to fund international expansion plans. * SO WHAT? * Generally speaking, you want an Initial Public Offering (IPO) to fly out of the door with chunky first-day gains that will get investors flooding back for more on subsequent flotations and create FOMO (Fear Of Missing Out) in the current offering. That didn’t happen yesterday, and if the sluggishness continues, it won’t bode well for subsequent listings such as China Tower Corp (which does mobile infrastructure) and Maituan Dianping (which specialises in local services). If it really continues like this, it is possible that these candidates could postpone their respective listings and wait for better market conditions.

In UK retail news, the world cup boost the high street and Mothercare makes some tough decisions…

There’s some good news in World Cup fever and heatwave aid retailers (The Guardian, Richard Partington) as warm weather and England’s unexpected run in the world cup are powering sales in beer, barbecue and big- screen TV sales despite underlying difficulties in the high street (not to mention the recent shortage of CO2!), according to the latest figures from the British Retail Consortium (BRC). Total retail sales rose by 2.3% last month – which is above average – and is better than the 2% rise experienced in June 2017, with particular strength in food and grocery sales. Mind you, the BRCs chief exec Helen

Dickinson, warned against getting too carried away when she said “The reality is that sales don’t grow on feelgood factor alone. Once the euphoria of sporting success subsides, without a deal on Brexit shoppers face the prospect of significant price increases and shortages of everyday goods”.

Reality bites in Mothercare takes baby steps to recovery after raising £32m (The Times, Deirdre Hipwell) as it launched a big £32.5m capital raising via a deeply discounted rights issue whilst simultaneously increasing the number of store closures to 60. The chief exec, Mark Newton-Jones believes that the current company restructure will allow the company to do “three years of work in one year” by improving its product range, investing in staff training and online sales whilst also keeping a lid on costs. It will also focus on international expansion as non-UK business now accounts for over 2/3rds of turnover and 100% of its profits! * SO WHAT? * Mothercare has been a complete basket case for a few years now, culminating in the rather ridiculous sacking and then rehiring (within one month!) of its chief exec. However, unlike some of its fellow high street players, it still has properly identifiable niche and DOES have upside – especially abroad. If it gets the domestic offering right, it will calm things down a bit and help it to focus on making all that overseas profit! Having said that, Newton-Jones has his work cut out – Mothercare’s share price closed at 27.5- a share yesterday versus the 164.25p level it was at when Newton-Jones took over a few years ago. 

…And finally, in other news…

I had an emotional couple of nights last week watching Japan vs Belgium and then England vs Colombia (I’m half-Japanese)

1. In MACROECONOMIC AND OIL NEWS TODAY, the EU threatens, Obrador looks like winning in Mexico and Trump gets his Saudi mates to pump more oil.
2. In UK HIGH STREET NEWS, Wagamama attracts suitors, Café Rouge gets a lifeline and Estate agents face serious downsizing.
3. In INDIVIDUAL COMPANY NEWS, Tesla hits its Model 3 production target at last, Travelodge unveils a new format and Monzo faces a long road ahead.
4. In OTHER NEWS, I leave you with a heart-warming chimpanzee moment. For more details, read on…

MACROECONMIC AND OIL NEWS

So the EU fights back, Mexico’s on the verge of getting a populist president and Trump gets Saudi Arabia to pump more oil…

EU warns of $300bn hit to US over car import tariffs (Financial Times, Jim Brunsden) highlights a written warning submitted by the European Commission to the US Department of Commerce which states that Trump’s threats to hit car imports with big tariffs could result in global backlash of retaliatory taxes that could affect as much as $300bn of US products. The document said that “As markets would become fragmented, US costs would rise, US automobile exports would

suffer, US consumers would pay higher prices, and jobs would be lost…this development harms trade, growth and jobs in the US and abroad, weakens the bonds with friends and allies, and shifts the attention away from the shared strategic challenges that genuinely threaten the market-based western economic model”. Trump said yesterday that the EU was “as bad” as China when it came to trading with the US “just smaller”, but added that he was seeking collaboration with the EU against the Chinese. * SO WHAT? * At the moment, it sounds to me like a load of hot air. The EU is threatening, but hasn’t actually imposed any MAJOR measures (I think that the ones they’ve imposed so far are largely 

symbolic) and God knows where they got that $300bn figure from (I’ll bet my mortgage on the fact that that figure will be wrong!). I guess that Trump is trying to use the EU’s current disarray to his advantage and press his superior bargaining power.

Mexican leftist projected to win presidential election (Wall Street Journal, Juan Montes and Robbie Whelan) heralds what could be a new dawn for Mexico as populist presidential candidate Andres Manuel Lopez Obrador (aka “AMLO”) looks set to win yesterday’s presidential election by a landslide, which would result in a major shift to the left in Mexico’s politics as the electorate sticks two fingers up to the established parties. * SO WHAT? *

by way of observation it would seem that the investment restrictions will have less impact than you’d think because there’s already been a huge drop-off of inward investment from China – but industry is probably more concerned about taking a dent in exports.

In Trump’s trade war ‘could trigger fresh downturn’ (The Guardian, Angela Monaghan) we see that the Bank for International Settlements (BIS) is getting in on the Trump-bashing as Agustin Carstens, the BIS general manager, says in the organisation’s annual report on the global economy that “One possible trigger of an economic slowdown or downturn could be an escalation of protectionist measures. Its impact could be very significant, if such escalation was seen as threatening the open multilateral trading system. Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting

If he gets a majority in Congress, he would be the first Mexican president since 1997 to have a legislative majority, which would make it much easier for him to push through his policies. Although Trump tweeted “I look very much forward to working with him”, Obrador’s administration is likely to have a more distant relationship with his noisy neighbour and Mexico’s free market model is likely to change as he puts more emphasis on helping the poor. He came close to winning in presidential elections in 2006 and 2012 but it seems that the Mexican electorate has tired of late of the growing number of corruption scandals during the presidency of Enrique Pena Nieto and given AMLO the top job this time around. Obrador is proposing to increase social spending and public investment by saving $25bn from ending corruption (!), with another $20bn a year from an austerity plan which will cut the salaries and perks for top public officials. Sceptics say that his figures are unrealistic and that he will eventually have to choose between watering down his promises or take on more debt, which could damage the country’s new-found financial stability. Leftists in the region – who have had a bit of a pasting of late – will take heart from Obrador’s victory.

Saudis ‘agree to US request to increase oil production’ (The Guardian) shows Saudi Arabia may have agreed to increase oil production by almost 20% (equivalent to 2m barrels of oil per day) in order to mitigate the supply squeeze that resulted from the US reimposing sanctions on Iran. So far we’ve only got Trump’s word for it that he managed to convince the Saudis to act in a telephone call he had with King Salman. * SO WHAT? * This is a big ask from Trump as Saudi Arabia currently produces about 10m barrels a day, with its all-time production record standing at 10.72m barrels a day – so asking for another 2m is rather punchy IMHO. Handily, Trump didn’t mention a time frame for the extra barrels. You can imagine this will go down like a lead balloon with other OPEC members who have just agreed to a relatively small increase to keep prices high-but-not-too-high (in their opinion, although I’d beg to differ given how much it cost to fill my car with diesel this weekend!).

UK HIGH STREET

In Wagamama attracts interest of private equity groups (Financial Times, Javier Espinoza) we see that the sale of the noodle restaurant chain is getting closer as groups such as Bridgepoint, CVC, KKR and L Catterton have all expressed interest in the group which could mean that the current owners could sell it for as much as £750m. The chain has 130 restaurants in the UK, five in the US and about 60 franchises around the world. Formal bids haven’t yet been submitted, but there is clearly interest. * SO WHAT? * The resilience of Wagamama in generally difficult times for restaurant chains is notable and a new US private equity owner might be just the thing the company needs to expand in America whilst also generating a very healthy return for the current owners, Duke Street. The intrigue continues…

Talking about restaurant chains, Café Rouge owner rescued by lenders (Daily Telegraph, Alan Tovey) looks at the rescue of the Casual Dining Group by US private equity giant KKR and Pemberton Asset Management over the weekend, which will be good news for the 7,500 employees who work at its 280 mid-market restaurants, which include brands such as Café Rouge, Bella Italia, La Tasca and Las Iguanas.

A chunk of the debts will be written off and £30m will be injected into the business as part of the deal. * SO WHAT? * No doubt KKR will have hammered out a very good deal in exchange for become a white knight, but clearly it sees some potential as high street restaurants have been having a right old ‘mare what with the likes of Carluccio’s and Jamie’s Italian (amongst others) having problems with higher overheads and lower footfall. Surely there will be closures and “right-sizing” of the business given what’s going on with the competition?

And it’s not just restaurants that are suffering as Thousands of estate agents at risk from weak market, online rivals and fee cuts (The Guardian, Patrick Collinson) cites a study by accountants Moore Stephens which shows that 153 firms went insolvent last year as they suffered from increasing online competition, a sluggish property market and a reduction in letting fees. * SO WHAT? * The 25% share price fall last week of Britain’s biggest estate agent, Countrywide Properties, is just symptomatic of the problems that are being faced by all estate agents at the moment. As Chris Marsden, restructuring partner at Moore Stephens, put it: “Insolvencies of high street estate agents are increasing as online competitors continue to chip away at their sales. With the ban on letting fees stated to come into force in 2019, estate agents will struggle to pass those fees on to landlords”.

INDIVIDUAL COMPANY

In individual company news, Tesla hits its target, Travelodge unveils a new brand and Monzo faces an uphill task…

Tesla reaches production goal for making 5,000 Model 3s (Wall Street Journal, Tim Higgins) marks a historic moment for the company as workers celebrated yesterday reaching their goal of producing 5,000 Model 3 sedans in one week – a target that has eluded them for some time. * SO WHAT? * This is fantastic news for the company (and its hard- working employees!) because the 5,000 vehicles a week mark represents the level at which Tesla will be able to be profitable. The next question is, will this be sustainable and then how soon will they be able to increase this level to make some serious money??

Travelodge upgrades with budget chic format (The Times, Louisa Clarence- Smith) brings our attention to a new “budget chic” format – called Travelodge Plus – that will be rolled out across the country, starting with sites in Brighton, York, Edinburgh, Gatwick Airport, London Waterloo and the City. The new brand will be funkier than their usual offering

with things like a distinctive choice of rooms and a bar café which will help customers work and relax outside their rooms. Travelodge currently owns 564 hotels in the UK, Spain and Ireland and is owned by Goldentree Asset Management, Goldman Sachs and Avenue Capital. * SO WHAT? * Interesting timing, I guess, given the fragile state of the UK economy, but I would imagine that it will depend largely on the price point and who it is targeting. If it is more of a business-traveller type offering then I believe it will be an attractive option as companies look to save costs on their mobile employees, but then surely it could have gone the whole hog and called it something else and got rid of the Travelodge reference. The initial locations would be reasonable for the business traveller and the leisure traveller alike, but again it all depends on how much it is going to charge.

Monzo losses surge amid ‘real progress’ with users (Daily Telegraph, Iain Withers) is a common story running in today’s broadsheets as Monzo, the UK’s fastest-growing digital bank, has trebled its user numbers to 750,000 in one year, but admits that profitability is its “next challenge” after its losses quadrupled to £33.1m due to expansion costs. The company only got its banking licence in April last year and is currently offering pre-paid debit cards, current accounts and overdrafts. * SO WHAT? * This sounds like the company is going in the right direction although it will obviously want to see profitability sooner rather than later if it is to achieve its goal of floating on the London Stock Exchange in as little as two to seven years.

OTHER NEWS

… And finally, in other news…

I thought I’d leave you with a something that will give you a bit of

a lift today if you can spare the 30 seconds it takes to watch: Chimpanzee can’t hide delight at being reunited with human foster family who raised him (The Mirror, Zosia Eyres http://tinyurl.com/y8r6wqyf). Ahh!!!

As always, thank you for reading the WIFI!

1. In UK HIGH STREET NEWS TODAY, John Lewis gets drastic, Costa looks lacklustre and the latest research suggests huge closures of bank branches.

2. In INDIVIDUAL COMPANY NEWS, the Disney/Fox deal gets closer, Twitter says it will validate new accounts and office space supremo IWG issues a profit warning.

3. In OTHER NEWS, I bring you a cure for sunburn and an amazing gesture that will warm your heart. For more details, read on…

So John Lewis is feeling the heat, Costa cools and bank branches could be an endangered species…

John Lewis looks to play to its strengths (Financial Times, Jonathan Eley) signals the venerable UK retailer’s acknowledgment of its current situation versus the competition and changing consumer behaviour and its willingness to take drastic action as it said that it will accelerate the “It’s your business 2028” strategy announced three years ago. The group warned that profits before exceptional items will be almost zero for the first half of the year and that it will fall short of 2017 by year end. Basically, it wants to differentiate itself

from the competition by emphasising its strengths – so it will concentrate more on service at its department stores and quality at its supermarkets. More specifically, in Profit close to zero, John Lewis chief warns (The Times, Deirdre Hipwell) we see that the company will pretty much stop any new store openings (barring exceptional circumstances) and will plough money into existing outlets, products and services. It will reduce some store sizes and utilise its freehold property space more effectively by looking into other uses for it. As Chairman Charlie Mayfield put it, “For us the relentless pursuit of greater scale is not the right course. Our plans put differentiation, innovation and partner-led service at the heart of our offer. The measures we have outlined today are an important next step in our strategy that will ensure we emerge stronger from this period of profound change”. * SO WHAT? * I would strongly agree with the chairman on this one. I think it is more realistic for his company to stick to what it does best and not sacrifice what makes it different to be everything to everybody, because in doing so it will blend into being like everyone else. Once that happens, consumers view you differently and they start to take more notice of price. And once they start doing that, you lose business to the discounters and the likes of Amazon – and then you will ultimately disappear. IMHO, given what’s happening in retail land these days, it is more important than ever for retailers to 

find their why and cherish their identity because that is one big reason why consumers will continue to set foot over the threshold of their stores. They need to focus their efforts on what Amazon and the discounters CAN’T (or will find very difficult to) provide – quality of experience being a big one, for instance – and build on that. I think there’s still space to co-exist with competitors, but retailers really need to listen to their customers and not get lazy. John Lewis is often seen as an important bellwether of the high street as it has been around for a long time and is a retailer that sells both food and non-food, so can give a broad picture of how consumers are feeling – especially the more affluent ones. It sounds like they have grasped the gravity of the current situation and are taking steps in the right direction.

The high street gloom continues in Vending machines prove profitable, but Costa feels pressure on the high street (The Guardian, Issy James) as parent company Whitbread blamed falling sales at Costa on lower footfall on the high street. Currently, it has 3,800 coffee shops (2,400 of which are in the UK) and over 8,000 highly profitable coffee vending machines. * SO WHAT? * Whitbread announced in April that it would be splitting the company into two separate businesses: Costa and the

Premier Inn hotel and restaurant chains (which would include brands like Brewers Fayre and Beefeater). The intention is for Costa to float on the stock market as a stand- alone by 2020. Again, I think this is a good idea as it will make each business more transparent. I’m not so sure about the coffee business overall, though, as it feels to me like we are reaching “peak coffee”. My worry for Costa is that consumers tire of big brands such as Costa and Starbucks and go to independents or small chains such as Joe & The Juice and Taylor St. Baristas etc. for a more interesting and less bland experience (it’s not just retailers that need to enhance the experience for their customers!). And if the vending machines are doing well, I would have thought that there isn’t much to stop its competitors from doing the same thing – and if they do, margins will shrink.

2,400 bank branches at risk (Daily Telegraph, Iain Withers) cites a report published by DJB Research on behalf of the mighty Nottingham Building Society which concludes that Britain’s top five banks could cut up to 2,400 branches (which would result in the loss of 12,000 jobs) in addition to the swathes they’ve already cut as it asserts that banks could give “effective nationwide customer coverage” with only 600 branches apiece. * SO WHAT? * More carnage in store for the banks. I imagine the unions will have something to say about this report! Mind you, it is more evidence of changing consumer behaviour. It’s all very well moaning about bank closures but if we don’t use them it’s bound to happen!

In individual company news, the Disney/Fox deal takes another step forward, Twitter gets more responsible and UK office space specialist IWG announces a profit warning…

In US approves Disney’s purchase of Fox’s entertainment assets (Wall Street Journal, Erich Schwartzel and Keach Hagey) we see that the US Justice Department gave its seal of approval for Walt Disney’s proposed $71bn acquisition of 21st Century Fox assets, as long as it sells off Fox’s regional sports networks, effectively helping Disney nose ahead in its battle with Comcast for control of Rupert Murdoch’s media empire. It would have 90 days following the completion of the Fox deal to sell off the sports networks. Comcast is currently tapping up potential partners that could help it scrape more cash together for another bid. * SO WHAT? * Comcast isn’t just going to let this go, so I expect to see continued fireworks. It just goes to show how important content is getting in a world that is long on networks. Building those networks takes time and a lot of money, but the best network in the work is nothing without content to pipe through just as great content won’t reach its potential without effective distribution channels.

Twitter users to submit email addresses in battle with bots (Daily Telegraph, Hannah Boland) shows that Twitter is making at least some 

effort to address long- standing criticism that it does b*gger all to stop trolling and spamming by saying that an update to be rolled out by the end of this year will require NEW USERS to confirm either e- mail addresses of phone numbers when signing up to “make it harder to register spam account”. Twitter founder Jack Dorsey said earlier this year that “We have witnessed abuse, harassment, troll armies, manipulation through bots and human coordination, misinformation campaigns, and increasingly divisive echo chambers…we aren’t proud of how people have taken advantage of our service, or our inability to address it fast enough”. * SO WHAT? * It sounds to me like Twitter is just p!ssing in the wind. The company needs to review its EXISTING user base to weed out the undesirables who remain anonymous, spreading their venom to often vulnerable targets. Maybe I’m just being cynical, but it seems that the roll-out of crowd-pleasing updates is occurring at the exact moment that subscriber growth is dropping off. When things were going gangbusters for them, the company didn’t give a sh!t! Let’s hope that Twitter continues to make moves in the right direction regarding sorting out its moral compass. If it makes meaningful advances in that arena, maybe subscriber number growth will start to accelerate again. 

WG issues profit warning following buying spree (Financial Times, Aime Williams) heralds the second profit warning in just over eight months for the world’s biggest serviced office group as the UK-listed company spent money on more leases to increase its office floorspace footprint. IWG runs offices in roughly 3,000 locations in 100 countries but is facing increasing competition from newcomers such as WeWork who compete with it in co-working spaces. * SO WHAT? * IWG, best known for its Regis brand, is obviously talking a good game but it sounds like the company is going to have to come up with something good soon otherwise the company’s credibility will be shot to pieces. Thus far it’s used profit warning explanation clichés such as Brexit and global disruption as well as the current “we invested a bit more than we had intended so bear with us”-kind of deal. IWG will have to do something sharpish otherwise the vultures will start circling and pick off its portfolio.

…And finally, in other news… 

It is quite hot at the moment, isn’t it! So just in case you get caught out, I thought you might be interested in this: Mum reveals miracle cure for getting rid of sunburn in just 30 minutes – and it

involves shaving cream (The Mirror, Amber Hick https://tinyurl.com/ycxpgs8q) This sounds a bit messy and I haven’t tried it – but next time I get sunburn I think I’ll give it a go!

AND FINALLY, I thought I’d end with a really positive story that will restore your faith in human nature: Cleaner overcome with emotion after students raise money to send him on holiday (Metro, Jane Wharton https://tinyurl.com/y83vjucc). How great is this??

As always, thank you for reading the WIFI!

1. In MACRO & MARKETS NEWS TODAY, Trump fights back against Harley-Davidson and Iranian oil buyers, Merkel continues to be in a tight spot and some economists reckon the US market has peaked.

2. In UK CONSUMER NEWS, spending power has increased, our love of wonky veg and gin has powered retailers but then serial returners are skewing sales figures and mortgage approvals are down.

3. In INDIVIDUAL COMPANY NEWS, GE continues to cut its limbs off and Uber gets the licence it craved.

4. In OTHER NEWS, I bring you a spot-the-difference and suggestions for the naming of some bin lorries. For more details, read on…

So Trump makes more threats, Merkel’s in a corner and US markets have hit their peak apparently…

Following on from Harley- Davidson saying that it would shift some of its production overseas due to EU tariffs, Trump issues tax threat to Harley- Davidson if it moves output (Daily Telegraph, Hannah Boland) shows that the President continues to be in combative mood as he warned the company that he will tax it “like never before” if it goes ahead with these plans whilst adding that its bikes “should never be built in another country”.

Trump’s also getting more punchy on Iran in US toughens stance on future Iran oil exports (Wall Street Journal, Ian Talley) as a senior US State Department official said that the US will go through with a threat to impose sanctions on countries that don’t cut oil imports from Iran to “zero” by November 4th. * SO WHAT? * Many buyers thought they’d get more time to reduce the imports – but no. Trump continues to flip his allies and China alike the bird.

Meanwhile, in Europe, Besieged Merkel seeks escape as rebellion mounts (Financial Times, Guy Chazan and Alex Barker) shows that the German chancellor is in a very tricky spot at the moment as she is surrounded by rebellious coalition “partners” and facing attack from outside her country from populists (Italy in particular) as she enters her 75th gathering of EU heads of government in Brussels tomorrow. Merkel has been the most powerful leader in the zone for the past 13 years, but her position has become so fragile that many are predicting that this meeting will be her last before she is ousted or resigns. * SO WHAT? * If countries see her as a dead-woman- walking, it is unlikely that she is going to get much in the way of support as other European leaders will deem any negotiations a waste of time as they will bring little or no benefit. If Merkel gets ousted, I think that it is highly likely that her replacement will be far less expansive on the immigration issue, which will really stir things up

with other EU members and perhaps prove to be a boon for all populists, resulting in more instability. Having said that, Merkel has been extraordinarily resilient in the face of impossible odds in the past, so she should never be underestimated – even when she is down. Europe could do without instability at its core given the current trade wars and imminent Brexit.

US markets at peak with bull run at tipping point, warn economists (Daily Telegraph, Tim Wallace) sounds rather dramatic as headlines go as it highlights that Bank of America Merrill Lynch analysts are predicting that the nine-year bull run in financial markets could come to a juddering halt due to a perfect storm of higher interest rates, trade war, falling profits, eurozone imbalances and a potential US recession. 

The report also says that the Faangs will be at risk, adding that “Peak asset prices in 2018 are consistent with peak investor positioning, peak corporate profit expectations, and peak policy stimulus in a late- cycle macro and market backdrop”. * SO WHAT? * It is notoriously difficult to call the top and bottom of the market and the analysts at BAML make some very salient points. However, for all the chunky valuations of the Faangs, I would suggest that actually they won’t do so badly in a downturn. Facebook and Google ad revenues would be relatively robust because although general ad spend is one of the first things to get cut in a downturn I would have thought that analogue ad spend (e.g. TV advertising, billboards etc.) will be slashed whereas digital ad spend will probably remain steady; Amazon continues to be the venue of choice for those seeking a bargain in an ever-broadening array of products; and a Netflix subscription is a perfect way to save money on going to the cinema or paying for cable/satellite. If the Faangs are OK, then I would argue that US market downside may be limited. I would also say that the current trade war and the trend for higher interest rates won’t last forever. I believe that the trade war issues will be solved within the next six months (because otherwise this thing is just going to spiral out of control) and that interest rates will be nudged up gradually (and they won’t go up forever either) so as to limit any dramatic loss. If the trade war issues, in particular, are resolved, I think that the market could go way higher as investor worries evaporate. Higher trending interest rates will limit upside, but I don’t think they will kill it.

In UK consumer news, spending power goes up, gin & wonky veg get popular but then serial returners are fudging sales figures and mortgage approvals are down…

Consumer spending power rises (The Times, Deirdre Hipwell) heralds a bit of good news for the British consumer as the latest Asda Income Tracker (!), which monitors what households have to spend after tax and basic living costs, shows that last month spending power experienced a MONUMENTAL rise in spending power of 2.1% – or £16.56 in monetary terms – versus a year ago. Wow. I might just go and buy myself an island. But hey, the good news is that this is the fifth month in a row of growth powered by rising wages and falling inflation despite stubbornly expensive fuel prices. Long may this continue!

Shoppers get a taste for gin and wonky veg (The Guardian, Sarah Butler) cites the latest research from Kantar which shows that the UK’s supermarkets have enjoyed a sales boost in recent weeks to the tune of £500m due to stellar gin sales (up a whopping 40% versus the same quarter last year!) and a tripling of wonky product sales at Morrisons. Kantar’s head of retail and insight Fraser McKevitt added that “The latest figures largely pre- date the soaring temperatures and newfound optimism for England’s World Cup chances but with the nation spending more than £500m in supermarkets this period compared to last year, it suggests that summer has already arrived for many”. Sales growth was positive Morrisons, Asda and Tesco – with Sainsbury’s being the only one to see contraction. Lidl continues to be the UK’s fastest-growing grocery chain. * SO WHAT? * It’s good to see that consumers are spending – and a lot of it has been powered by the weather. I know England have only played two games in the World Cup so far, but I would have thought that if they DO 

get much further, June could be a stellar month for sales as the feelgood factor filters through to the real economy (albeit briefly, I imagine!). This will be good for grocery retailers and probably electrical goods retailers as people decide to replace their old tellies with new ones to watch our ‘Arry winning the Golden Boot etc. Let’s just hope that the CO2 problem don’t persist for too long otherwise food and booze sales will not fully reach their potential over this period and it will prove to be a costly lost opportunity.

Rise of the serial returners adds to retail’s woes, says Barclaycard (Daily Telegraph, Sophie Christie) is something I mentioned a few weeks back as something that Amazon was clamping down on (the phenomenon of people who deliberately buy more items than they intend to keep and return them days later, aka “serial returners”), but it seems that this is creating problems for retailers as 25% of them have experienced an increase in returns in-store and online over the last two years, with fashion brands feeling the brunt of it. This has resulted in a “phantom economy” of lost revenues worth £7bn for retailers as a large chunk of their sales can’t be recognised. Barclaycard surveyed 2,000 people and found that of the £313 the average person spends on online clothes shopping per year, they end up sending back 47% of it. * SO WHAT? *  Fashion retailers may bleat about this, but TBH they only have themselves to blame because sizing is wildly different at every brand and customers don’t want the hassle of playing parcel tennis. It is perfectly logical to order a few sizes, see what fits best and then send the rest back. If retailers start charging for sending things back, I think consumers will stop spending – so I think that the retailers themselves have to come up with ways to minimise returns with tech like virtual changing rooms and customer avatars etc.

High prices push down mortgage approvals (The Times, Tom Knowles) cites the latest figures from UK Finance which show that high street banks approved more mortgages in May than they did in April but 4.3% less than a year earlier. Hansen Lu, an economist at Capital Economics, pointed out that “Much of the weakness in mortgage approvals is due to a stand-off between buyers and sellers. House prices are very high compared to incomes and that has priced out many would-be homebuyers, while discouraging others from accepting current asking prices. Yet, at the same time, sellers have also been reluctant to accept lower prices”.

In individual company news, GE slims down and Uber gets its London license…

GE break up intensifies with large-scale spin-offs (Financial Times, Eric Platt and Ed Crooks) shows how General Electric is continuing to slim down as it announced yesterday that it would be spinning off two of its biggest divisions as part of its overall strategy to be more focused, meaning revenues will be half the levels they were at ten years ago. The company will divest its healthcare division and its stake in Baker Hughes, the oil services company. * SO WHAT? * This is a big deal for a company that 

has been better known for its long list of acquisitions over the last two decades but this latest development just shows how difficult things have been for the company since the beginning of the financial crisis. The healthcare and oil services divisions accounted for 30% of group revenues and 25% of its industrial segment profit last year – so this is big. The company will now be left with three divisions: electricity industry equipment, renewable energy and aero engines & other aircraft parts.

Following on from yesterday, Uber wins 15-month London licence in court fight (Financial Times, Aliya Ram and Shannon Bond) will be cause for relief to the company that is gearing itself up for an Initial Public Offering next year. Although the judge ruled that TfL had been correct in refusing to renew its licence last September, she thought that the company had shown sufficient evidence that it had changed its ways.

…And finally, in other news…

We all love a spot-the- difference in a quiet moment, don’t we? Well have a go at this if you got a few spare minutes: Only a handful of people can spot the difference between these two photos – can you? (The Mirror, Zoe Forsey https://tinyurl.com/yarh4d48)

AND FINALLY, you’ve heard of the public being asked to name things like boats (resulting in suggestions such as the famously rejected Boaty McBoatface) – well Coventry City Council is asking Twitter users to name its new bin lorry fleet in Council asks for help naming its bin lorries – and some of the suggestions are absolutely hilarious (The Mirror, Courtney Pochin https://tinyurl.com/y9tfx8tp) Suggestions so far include Chitty Chitty Bin Bin, Dustbin Timberlake, Bin Diesel and Bin Kardashian. My own suggestion would be “I am Bin-Laden”, but then this might be a bit controversial…

As always, thank you for reading the WIFI!

1. In MACRO & MARKETS NEWS TODAY, the EU and China fight back on tariffs and equity markets continue to be powered by Faangs.

2. In UK HIGH STREET NEWS, suggestions are made regarding the future of city centres and estate agent Countrywide has a ‘mare.

3. In INDIVIDUAL COMPANY NEWS, Uber tries to save its London business.

4. In OTHER NEWS, I bring you a rather unfortunate magazine cover. For more details, read on…

So Trump’s tariffs have European and Chinese consequences and market performance continues to rely on FAANGS…

US trade war with Europe revs up as Harley- Davidson shifts production (Financial Times, Shawn Donnan, Jim Brunsden, Peter Campbell and Peter Wells) shows early consequences of Trump’s tariffs as Harley- Davidson said that it would move some manufacturing out of the US to avoid retaliatory EU tariffs. It said that it would increase production at its facilities in India, Brazil and Thailand to avoid paying taxes of up to $100m. Harley-Davidson is the first US manufacturer to cut domestic production in response to EU tariffs and Trump was obviously quite annoyed as he said in a tweet yesterday: “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. Taxes just a Harley excuse – be patient!”. Trump has been threatening 20% taxes on ALL imports of cars manufactured in the EU.

China’s Xi tells CEOs he’ll strike back at US (Wall Street Journal, Lingling Wei and Yoko Kubota) shows that China isn’t taking Trump’s actions lightly either and is likely to turn to measures other than tariffs to fight back as US exports to China only amounted to less than $200bn last year. It is likely that China’s retaliatory measures will include things like US companies having to undergo increased inspections, longer delays of regulatory approvals and a potential goal of getting Chinese consumers to avoid US products. Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington observed that “Apple’s $30billion market in China for iPhones, the largest in the world, could quickly collapse. Similarly, General Motors sells more cars in China than in the US, sales that could easily be disrupted by the Chinese government”. * SO WHAT? * How long is this p!ssing contest going to go on for?!? As I have said on previous occasions, I can see why Trump is trying to shake things up on the trade front because China does generally tend to take the mick in many ways (flouting patents, stealing valuable technology and copying it – all under the guise of local joint ventures – flooding markets with artificially cheap product because of its ridiculous overcapacity etc.etc.) and it has taken full advantage of being the world’s growth driver over some 

very lean years for everyone else. America’s economy is currently in a strong enough position to threaten in negotiation and you could argue that this is the time that Trump will be able to get the best deal – but still, the collateral damage could get increasingly painful. Conversely, WHEN this trade war comes to an end, I suspect that stock markets will skyrocket – but it does depend on how long this painful period lasts. If it goes on for too long, the skyrocketing could come too late for companies and industries that suffer terminal injuries as a result of Trump’s actions. FWIW, I think that Harley-Davidson’s actions are wholly understandable and, TBH, probably quite easy to do. It’ll be interesting to see how quickly other US manufacturers follow suit.

Equity investing in 2018 is all about momentum led by the Faangs (Financial Times, John Authers) is a really interesting article that highlights just how influential these “new” tech stocks are in dragging up the performance of the entire index. Generally speaking, stock selection is made on value (buying stocks that look cheap versus their

fundamentals) and momentum (buying stocks that are seeing upward movement and avoiding those that are on a continuous downer). Value has not been doing very well in the last few years versus momentum – and this momentum has been powered by the Faangs (which consists of Facebook, Amazon, Apple, Netflix and Google parent Alphabet). Their collective influence has in fact been so great that, without them, the US stock market would have fallen for the year so far! Expensive stocks keep getting more expensive and cheap stocks are getting cheaper as more and more investors jump on the momentum bandwagon. * SO WHAT? * When this kind of thing happens, people get twitchy and investors get severe bouts of FOMO (Fear Of Missing Out) despite being faced with very expensive fundamental valuations. A lot of people will probably draw comparisons with the dot-com boom of the beginning of this century, but I have to say that – expensive valuations aside – this is different. Back then, I remember having conversations with investor clients along the lines of “I know it’s expensive, but the fact is that everyone wants a piece”, which makes you feel uneasy because you know momentum can’t last forever, especially because these valuations were based on projections of what revenues these companies

would get in the future. Yes, I know that that’s how it works generally, but many of these companies were running at a big loss or weren’t even producing anything at all – whereas the Faangs of today are all producing very real revenues (although admittedly, many of them were in the red for years). I suspect that we are getting very close to the stage that some bright spark invents a “new” way of valuing tech companies based on some kind of whizz-bang maths, they’ll give it some fancy acronym-based name and everyone will adopt it to justify their buying of such expensive stocks. When that sort of things starts to happen it is usually time to head for the hills because valuation then becomes something based on complete BS…

In news about the UK high street, there are suggestions for new-look city centres and estate agent countrywide has a shocker…

More offices ‘can help to revive high street’ (The Guardian, Larry Elliott) is one of the conclusions reached in a report published by thinktank Centre for Cities which made the observation that evolving consumer behaviour that is negatively impacting our high street (resulting in increasing numbers of shop closures) needs to be addressed by changing the mix of retail, residential and office space in town centres. According to the report, successful city centres have a high proportion of their commercial spaces dedicated to offices (up to two-thirds in places like Bristol and Manchester), with retail outlets making up only 18% of this, with retail being helped by having large numbers of office workers to sell to (really? Maybe they will be telling us that bears sh!t in the woods as well). On the other hand, underperforming city centres have a lower proportion of offices making up their commercial space and are struggling as a result – for example, in Blackpool and Newport over 40% of commercial space is accounted for by retail versus less than 25% for offices. The thinktank recommended that cities with relatively high levels of shops should shift this 

mix towards having more office and residential. In places with weak demand for offices and homes, some demolition would be needed so that the land could be used to “improve the public realm”. * SO WHAT? * Unsurprising conclusions but the subject matter is very relevant given the current rate of shop closures. Action needs to be taken reasonably quickly as we could end up with empty high streets. I think this is particularly pressing given the continued demise of department stores in particular which occupy vast city centre locations where redevelopment is likely to be difficult and costly. Developers and councils might be reluctant to embark on anything major without the involvement of the government.

In Estate agent struggles to put house in order (The Times, Tom Knowles) we see that shares in the UK’s biggest estate agent, Countrywide, fell by a massive 30% after the company announced it would be asking for money to cut its debt. Countrywide owns 50 high street estate agency brands including Hamptons International, Bairstow Eves and Bridgfords and blamed a difficult housing market for its fourth profit warning in eight months. As Anthony Codling, an analyst at Jefferies put it, “The underlying second-hand housing market is dreadful and there is little to be done when homeowners stop moving. If times are hard for Countrywide, we can only imagine how the rest of the market may be struggling”. * SO WHAT? * Some have said that the company has suffered due to the rise of online competitors such as Purplebricks, but many others say that its troubles are actually self-inflicted and that its rising debt has been due to falling profitability, a lengthy period of buying up letting agents and the large amount of money that was thrown at its ultimately abandoned digital business. Given that the company is likely to want to raise about £125m (the debt currently stands at around £200m) and that market conditions aren’t the best, begging the market for cash is going to be a tough ask..

In individual company news, Uber makes a bid to keep going in London…

Uber seeking London private hire licence to keep it on the road (Daily Telegraph, James Cook) highlights the beginning of a hearing that started yesterday to get Uber its private hire operator licence to operate in London for the next 18 months following a September decision by TfL NOT to renew its licence. * SO WHAT? * If it wins, it will continue to operate as normal, but if it doesn’t, the service won’t disappear overnight as they will no doubt go through an appeals process.

…AND FINALLY, IN OTHER NEWS…

There are times when you wonder what goes on in people’s minds – especially when what they do can be very public: Arsenal’s new manager Unai Emery might want a word with the club’s magazine designer (Metro, Tanveer Mann https://tinyurl.com/yayklu4t). This is a classic. Maybe the designer was a Chelsea or Spurs supporter…

1. In MACRO & OIL NEWS TODAY, we see more trouble brewing on the US/China trade wars, Erdogan wins in Turkey and US shale oilers do well whatever OPEC decides.
2. In TECH NEWS, YouTube fights Facebook for creators, Amazon marches on in Japan and Commerzbank (yes, I know it’s a bank and not a tech company, but bear with me) has a dabble with AI to create research reports.
3. In INDIVIDUAL NEWS, there’s one restaurant chain that’s actually expanding on the UK high street.
4. In OTHER NEWS, I bring you some World Cup-themed interior design ideas and some shocking news about halloumi. For more details, read on…

MACRO & OIL NEWS

So Trump targets more areas to annoy China, Erdogan – surprise, surprise (NOT) – wins the election and shale oilers rub their hands…

Trump plans new curbs on Chinese investment, tech exports to China (Wall Street Journal, Bob Davis) shows Trump’s latest moves to p!ss China off as he is looking at banning many Chinese companies (specifically, firms with at least 25% ownership) from investing in US tech firms and blocking certain tech exports in a bid to slow down China’s progress in its “Made in China 2025” manifesto where it is aiming

to be a global leader in 10 areas of tech including IT, aerospace, electric vehicles and biotech. More details on Trump’s measures and their implementation are expected to be announced by the end of this week. *SO WHAT? * The final details are being hammered out, so the measures that are eventually announced could be different to those above. Just 

by way of observation it would seem that the investment restrictions will have less impact than you’d think because there’s already been a huge drop-off of inward investment from China – but industry is probably more concerned about taking a dent in exports.

In Trump’s trade war ‘could trigger fresh downturn’ (The Guardian, Angela Monaghan) we see that the Bank for International Settlements (BIS) is getting in on the Trump-bashing as Agustin Carstens, the BIS general manager, says in the organisation’s annual report on the global economy that “One possible trigger of an economic slowdown or downturn could be an escalation of protectionist measures. Its impact could be very significant, if such escalation was seen as threatening the open multilateral trading system. Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting

investment”. No sh!t, Sherlock. The report went on to congratulate central banks for helping to lead their respective economies out of the depths of the financial crisis ten years ago, but that a normalisation of monetary policy (i.e. raising interest rates and unwinding quantitative easing) was essential “to rebuild policy space”. *SO WHAT? * Nothing earth- shattering here, but this is just the latest report to back up the consensus opinion that Trade Wars Are Bad and that Getting Back To Normal Is Good. And they probably pay a lot of people a lot of money to come up with this stuff…

Erdogan claims victory in Turkey elections (Financial Times, Laura Pitel, Funja Guler and Ayla Jean Yackley) heralds another five years of Recep Tayyip Erdogan as he won in yesterday’s presidential and parliamentary elections with 52.5% of the vote, with main challenger Muharrem Ince getting 30.8%. Erdogan’s ruling Justice and Development Party (AKP) will have a majority in parliament when combined with its allies in the ultranationalist party. Ince has grudgingly conceded defeat and will make a statement at midday local time today. * SO WHAT? * Although the AKP garnered a reduced vote (42.4% this time around versus the 49.5% it got in the November 2015 elections), the ultranationalist

Nationalist Movement Party (MHP), which has strong links with the AKP, performed particularly well by getting 11.2% of the vote which, combined with the AKP, gives the government a majority. Erdogan can rest easy after Ince’s fiery rhetoric and campaign promises to restore Turkey’s checks and balances eventually came to naught. It’ll be interesting to see how he interacts with the Eurozone, especially on immigration, given his own particular style and his backing from the MHP.

US shale companies motor ahead despite OPEC (Wall Street Journal, Rebecca Elliott and Christopher M Matthews) shows how US shalers will benefit from OPEC’s decision on Friday to boost oil production by 600,000 barrels of oil per day as the prices will continue to be strong, given that the output rise was relatively modest. US oil production has been growing at record levels this year, hitting 10.9million barrels a day this month, making it the world’s second biggest oil producer after Russia but ahead of Saudi Arabia. * SO WHAT? * Increasing production to take the edge off the oil price is no bad thing given that high prices – although great for the oil producers in the short term – have long term costs in that they dent economic growth which then leads to reduced demand. Although OPEC tried to put

US shalers out of business by driving down oil prices from $100 a barrel in 2014 to less than $30 a barrel in 2016, US shale production has actually proved to be pretty resilient and they have survived to play a major part in making America OPEC’s biggest competitor in oil production.

TECH NEWS

YouTube fights to keep curators happy as Facebook circles (Financial Times, Tim Bradshaw and Hannah Kuchler) highlights YouTube’s current efforts to help its content creators make money as ad revenue (the “traditional” way for creators to earn money from their legions of subscribers) has come under pressure following numerous instances of companies having their ads placed next to content that, shall we say, doesn’t exactly reflect what their brands stand for. YouTube is looking at helping creators sell merch to their fans and adding new kinds of paid subscriptions as competition is hotting up from Facebook with its newly-launched IGTV on Instagram and Watch that aim to attract content creators. * SO WHAT? * YouTube is humungous in this area with 1.9bn monthly logged-in users (up from 1.5bn a year ago) and Neal Mohan, YouTube’s head of product, points out that “We have creators with viewerships bigger than many or most cable channels, that have followings that are bigger than the populations of many countries”. However, Facebook also has a rather large audience and, with the introduction of its new services, you can see that it is trying to keep traffic that it previously lost to YouTube – for instance, lots of Instagram creators have been directing traffic to their YouTube channels until now. For now it would seem that creators won’t be abandoning one platform for another. As Lele Pons, who has over 25m followers on Instagram and who will be launching a new cooking show on IGTV, put it, “I will still be posting on YouTube as much as Instagram – you never know what works. On the internet, you never know what will happen”. Still, YouTube would do well to watch out for Facebook – look at what it did to Snapchat.

Amazon’s scale in Japan challenges rivals and regulators (Financial Times, Kana Inagaki) looks at how Japan has become Amazon’s second biggest overseas market by revenues after Germany and how its growth has now attracted the attentions of the Japan Fair Trade Commission which is now investigating allegations that the company has forced suppliers to absorb costs when it offers discounts in its online marketplace. Amazon overtook local rival Rakuten in 2016 and had a 23% market share in Japan’s internet retail market versus Rakuten’s 18.5% but the latter is trying to up its game by creating its own logistics and delivery network within the next two years (Amazon has its own proprietary network). There will be intensifying competition between the two as Amazon increases its efforts to push groceries via Whole Foods and Rakuten turns on the pressure via its tie-up with US group Walmart in online grocery delivery. * SO WHAT? * Clearly, I have no idea what the investigation is going to bring up, but it is interesting how Amazon has done so well in Japan considering the fact that the country has often been a graveyard for retailers originating from outside Japan. Its cutting- edge infrastructure will be tough (and very expensive) to beat for any of its rivals, but they have to keep fighting otherwise Amazon will just pulverise them.

Although Commerzbank sets AI to work writing analyst reports (Financial Times, Laura Noonan) doesn’t sound exactly tech because Commerzbank is, well, a bank – the fact that it has announced that it is experimenting with using AI to generate reports is very techie. It’s generating

reports on sports at the moment, but the intention is to see whether it can write analyst reports as MiFID II forces banks around the world to cut research costs. The bank is partnering up with Retresco, a content automation company, and the project is at an early stage. The idea of report automation has been bandied around by other bankers as well and is particularly relevant given that MiFID II is applying increasing pressure on research costs. * SO WHAT? * Earnings reports are a real ball-ache for researchers to write as it is often the case that they just plug numbers into their model and send them out to clients with some kind of bland overview like “numbers were in line. No surprises”. They sort of have to send this stuff out because everyone else will be doing the same and, although fund managers complain about this limited value-add research, they still need the raw numbers. This area is obviously ripe for automation, but I think it will be years (if ever) that they will replace research analysts as it is the INTERPRETATION of the raw data that contains the real value.

INDIVIDUAL NEWS

In individual company news, I bring your attention to a restaurant chain that’s actually in growth mode at the moment…

Lounge suits diners as big names struggle (The Times, Dominic Walsh) highlights a company called Loungers that runs 126 outlets with the Lounge and Cosy Club brands, which has opened 12 new sites this year and is on track to reach 140 by the end of 2018. Loungers’ chief exec, Nick Collins, said this would be the third consecutive year of at least 25 openings and it has a healthy future pipeline.

* SO WHAT? * The chief exec says that Loungers’ has succeeded where the likes of Byron, Prezzo and Jamie’s Italian have failed because of its choice of locations and its “third space” formula which pits it more against the likes of Costa Coffee, Caffe Nero and local sandwich shops rather than dining operators. So it’s not all bad on the high street!

OTHER NEWS

… And finally, in other news…

Given England’s surprisingly strong win in the World Cup yesterday, maybe you could be inspired to indulge in a little light interior design as per the bloke in Woman Comes Home To Find Her Fella Has Turned Living Room Into Football Pitch (Ladbible, Claire Reid https://tinyurl.com/yaj723u c). Nice.

And then I thought I’d end on a warning note – Britain Facing Halloumi Shortage As Farmers In Cyprus Struggle To Meet Demand (Ladbible, Rebecca Shepherd https://tinyurl.com/ybjhpfza). Oh no! I love this stuff!

As always, thank you for reading the WIFI!

1. In MACRO & COMMODITIES NEWS TODAY, we see that Daimler and BMW will lose from Trump’s tariffs whilst LNG may benefit, that oil price talks highlight rifts, that the CO2 shortage isn’t just affecting beer and that the odds on an August UK interest rate rise are getting shorter.

2. In TECH NEWS, Faangs are riding high whilst Xiaomi disappoints.

3. In RETAIL AND CONSUMER-RELATED NEWS, Kroger benefits from a different approach and Dixons sees a dive in profits.

4. In OTHER NEWS, I warn you about flying hotdogs. For more details, read on…

So Dailmer & BMW are losers from Trump tariffs and LNG is a big winner, OPEC’s members are split on oil price talks, the current CO2 shortage could have wider implications if it continues and a UK interest rate rise looks slightly more likely…

Daimler and BMW face hard road in trade wars (Financial Times, Patrick McGee and Patti Waldmeir) highlights more fallout from Trump’s tariffs as SUVs built by BMW in South Carolina and Daimler- owned Mercedes in Alabama will be subject to a whopping 40% tax as China

retaliates in the latest round of the trade war between the world’s two biggest economies. US car manufacturers won’t be affected very much, however, as the majority of Ford and General Motors’ vehicles sold in China are being manufactured locally in well-established JVs. * SO WHAT? * Interestingly enough, Porsche and Audi will only see minimal impact as their imports will be subject to a lower 15% tax. Philippe Houchois, autos analyst at Jefferies pointed out that “Ironically, China is the only large market with which the US enjoys an auto trade surplus. Import duties could lead German [carmakers] to localise more production in China putting US exports and jobs at risk”. An anonymous source at one of the German 

carmakers added that “You have examples where countries have [used] tariffs and protectionism to nurture a strong automotive industry – take Korea, Japan or China as examples- and they have only lowered the barriers once the industry is competitive at a global level. That works. But Trump is doing something different. He is taking a highly developed, established industry, and then he is slapping tariffs on it. There is no empirical evidence that that creates jobs”.

On the other hand, it’s interesting to see US prepares for next wave of LNG exports (Financial Times, Ed Crooks) because this is one area that China has not yet threatened with retaliatory tariffs because its usage is key to Chinese government efforts to wean itself off reliance on coal. China’s demand for Liquefied Natural Gas (LNG) is rising rapidly and consequent imports of it from the US have also been growing apace – from 17bn cubic feet in 2016 to 103bn cubic feet last year – to the extent that now, China is the #3 destination for US LNG exports behind Mexico and South Korea and is predicted to account for over 25% of ALL global consumption growth between 2015 and 2040 by the US Energy Information Administration. * SO WHAT? * New LNG plants take about four years to construct and there hasn’t been a new one built in the US since 2015 because everyone was expecting there to be an oversupply. However, the growth in demand from China has increased so rapidly that it became evident that these concerns were misplaced and now Venture Global LNG, Qatar Petroleum, LNG Ltd. and Tellurian are all looking to invest in US LNG export plants, with companies like Baker Hughes (the General Electric affiliate which 

supplies products and services for the oil and gas industry) also looking to benefit from this unexpected demand. Even though other countries, such as Russia, Qatar and Mozambique are looking to increase LNG production in the future, the US could still be at an advantage because its LNG is “the lowest cost of supply…in the world”, according to Brian Gilvary, BP’s CFO. Oil cartel split amid pressure to raise supplies (The Guardian, Adam Vaughan) does a good job of summarising the key areas for discussion in the Opec meeting that is taking place today in Vienna. Basically, Saudi Arabia (Opec’s biggest producer) and Russia (the biggest oil producer outside Opec) are in favour of increasing production whereas Iran, Iraq and Venezuela want to keep he current production restrictions in place. The oil price has shot up by 55% since Opec and non-Opec countries agreed to reduce production in 2016. This is an interesting article with some useful charts – but anyway, we’ll see soon enough what the outcome is. * SO WHAT? * FWIW, I think that if the two biggies decide to increase production everyone else is going to have to follow suit whether they like it or not because if they carry on as they are at the moment and the Saudis and Russians open the taps, they will just make their profits bigger whilst looking a bit stupid themselves.

I thought I’d better mention Threat from CO2 shortage spreads to food producers (Financial Times, Camilla Hodgson, Laura Hughes, Scheherazade Daneshkhu) because it is a problem that could have a rather disruptive effect on our food and drink supply chains in the UK with the British Poultry Council warning that a “severe lack” of CO2 – which is used by meat producers to stun birds and pigs during slaughter – will threaten meat production with eight or nine factories that account for 50- 60% of all poultry produced in the UK running low on CO2. The shortage is European-wide and could potentially have a detrimental effect on the meat and fizzy drinks industries. * SO WHAT? * CO2 supplies have been below average this year and the situation has been made worse by technical difficulties at a few gas supply companies. At the moment, it sounds like a short-term problem that will have minimal long-term effect, but we’ll just have to wait and see. Maybe this will result in panic buying of chicken and beer – so it may even turn out to be a good thing!

Recent newsflow has been conflicting in terms of the future direction of the UK interest rate and Odds shorten for August rate rise but don’t bank on it yet (Daily Telegraph, Tim Wallace) highlights the fact that the Bank of England’s chief economist, Andy Haldane, has indicated that he would be up for an interest rate rise, adding weight to the argument that the next meeting of the Bank of England’s Monetary Policy Committee (MPC) will yield an interest rate rise.

* SO WHAT? * It has proved to be a bit of a “dangerous” game double-guessing what the MPC might do (everyone expected a May rate rise, but that didn’t happen) but you would have thought that Andy Haldane would be best-placed to see what’s actually going on in the economy and that his support for an upward move would carry a lot of weight. Stefan Koopman at Rabobank observed that “The market has been caught on the wrong foot too many times to blindly believe the Bank’s MPC and go all-in. A more sceptical view would for instance be that the Bank’s hawkish message is aimed at lending support to the pound and to keep a lid on cost-push inflation, which is expected to rise over the summer”.

IN TECH NEWS, FAANGS SHOW THEY’VE GOT TEETH AND XIAOMI DISAPPOINTS ON ITS IPO PLANS…

Share price records topple as Faangs power ahead (Financial Times, Robin Wigglesworth) highlights the stellar performance of the group of stocks known as “Faangs” (Facebook, Apple, Amazon , Netflix and Google’s parent company Alphabet) as four of the five hit new intraday records in trading yesterday. Just to give you an idea of scale, the Faangs alone have a total market cap of $3.35tn, which makes them bigger than the entire FTSE100, Hong Kong’s Hang Seng Index or France’s CAC 40!

On the other hand, Xiaomi dents expectations with float price of $6.1bn (Daily Telegraph, Matthew Field) represents a bit of a damp squib in place of the expected fireworks from Chinese smartphone giant Xiaomi as it has set its flotation price at a significantly lower level than had previously been indicated. It is targeting a raise of $6.1bn in its Hong Kong Listing versus the $10bn it was originally aiming to achieve. That said it will still be one of the biggest flotations of the year and will value the company at somewhere between $54bn and $70bn market cap although it’ll fall way short of the $100bn it was touting earlier on this year.

The company has had to delay its offering in mainland China due to a dispute with the regulator, but it will start trading in Hong Kong on July 9th. * SO WHAT? * Maybe a combination of being overly bullish in the first place on the valuation and an atmosphere of uncertainty due to the China-US trade war is denting Xiaomi’s own confidence, but at least this is still going ahead. I suspect that they will await more favourable market conditions before making a return. I suppose that in this sense, the HK listing is quite a good way of testing the water as i am sure that this company will continue its upward momentum after a bit of a speedbump in 2016. 

In retail/consumer news, Kroger reports solid earnings, Dixons announced a dive in profits and cannabis gets legit…

In Kroger’s new approach to stocking shelves is boosting earnings (Wall Street Journal, Heather Haddon) we see that efforts by America’s #1 supermarket chain (by stores and sales) to overhaul its operations are bearing fruit as news of its stronger-than-expected earnings sent the share price 9.7% higher in trading yesterday. Like everyone else, it has been taking a good hard look at its business and decided to implement various measures to compete against the growing threat of Amazon and other retailers. For instance, Kroger announced last month that it was taking a roughly $250m stake in British online grocer 

Ocado Group to run its warehouses and process online orders and that it was also buying Home Chef, whose meal kits will shortly be sold in its stores. It hopes that moves like this couples with keeping supplier costs down and culling its product line-up will continue to strengthen the company overall. * SO WHAT? * It sounds like the company is making some good strategic moves, but it will have to keep momentum going as the competition isn’t standing still. Amazon continues to broaden its services, Walmart is also investing heavily in changing its business and European discounters Aldi and Lidl continue to expand in the US. It’s a jungle out there! 

In yet another bit of evidence that the UK high street is having a ‘mare, Dixons blames UK market for profits dive (The Times, Martin Strydom and Robin Pagnementa) highlights the company’s downbeat assessment of its

prospects as it announced a 24% fall in full-year profits due to a shrinking UK market, squeezed margins and higher costs. This assessment was broadly expected as it came close on the heels of last month’s profit warning, which wiped over 20% off the share price. New chief exec Alex Baldock also blamed an uncertain economic backdrop that was adversely affecting consumer confidence in addition to a slowing housing market that has been responsible for decreasing demand for fridges, cookers, washing machines and dishwashers.

…And finally, in other news…

If you ever find yourself at a Philadelphia Phillies baseball game, then you should maybe read this cautionary tale: Philadelphia Phillies baseball fan shot in face with hot dog as mascot fires sausages from oversize cannon (The Mirror, Chris Kitching). Fortunately, she’s OK and isn’t going to sue! I suspect she’s not going to eat hot dogs for a while, though…

As always, thank you for reading the WIFI!

ABOUT ME: I was a stockbroker for 13 years in four different investment banks in both London and Tokyo where I advised some of the world’s biggest financial institutions on investments in the European and Japanese stock markets. I’ve also worked in the recruitment world with spells in HR, investment banking recruiting and headhunting in addition to founding my own career consultancy, Seiha Consulting, in 2014 where I help people get the careers they really want using my experience as an interviewer and an interviewee over a 20+ year period. This has given me a unique insight not only into the way stock markets function, but also how it all relates to the employment landscape. If you want to know more about my background, please have a look at my LinkedIn profile here.

I’m a one-man band so I apologise in advance for any grammatical or spelling errors! I hate making mistakes, but I am only human so please keep that in mind.

Watson’s WIFI is intended to be a guide to the most important economic and commercial news of the day with added colour in the form of opinion. It does NOT constitute investment advice and the intention here is to help subscribers read news in a different way whilst being interesting and useful. My mission is to help people read news more efficiently!

This newsletter forms part of the resources available on www.seihaconsulting.com (for careers-related matters) but can also be accessed via www.watsonswifi.com (that’s for if you are reading a printed version of this, or if someone’s forwarded this to you – don’t be shy! Have your very own login!)

1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…

US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.

Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.

1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…

US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.

Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.

1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…

US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.

Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.

1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…

US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.

Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.

1. MACROECONOMIC NEWS US interest rates unchanged, Eurozone growth slows
2. RETAIL NEWS Amazon joins the fray for India’s Flipkart, Ocado signs a Swedish deal and House of Fraser announces store closures and job losses
3. TECH-RELATED NEWS Tesla does OK, Xiaomi announces a $10bn Hong Kong IPO, Spotify and Snap disappoints and Square continues to bleed cash
4. OTHER NEWS I bring a trinket for all you would-be Meghan Markles out there. For more details, read on…

MACROECONOMICS

US interest rates remain unchanged for now and eurozone growth still outpaces the uk…

Eurozone leaves UK in its wake (The Times, Philip Aldrick) cites the latest Eurostat data which shows on the one hand that Eurozone growth continued to kick our UK *sses by expanding 0.4% in the recent quarter versus our measly 0.1%, but on the other the figures did nothing to allay suspicions that the ‘zone is slowing down after a surprisingly good year last year. First quarter GDP was generally in line with expectations but was the weakest quarter since the summer of 2016. Separate data from IHSMarkit’s Purchasing Managers’ Index for manufacturing shows factory activity falling to a 13-month low.

The Fed holds US interest rates steady, but indicates increases will continue (Wall Street Journal, Nick Timiraos) gives us the boring yet important news that US interest rates are going to remain unchanged in the 1.5-1.75% range, although they kept alive the possibility of a rise at the next meeting in June. SO WHAT? There had been some speculation ahead of the release of the minutes of the two-day meeting that rates would go up – especially as inflation hit the central bank’s 2% target – but the vote was unanimous to leave them as they were.

SO WHAT? Although we can’t really gloat on this side of the Channel, it’s interesting to see such weakness on the continent. You wonder whether the growth has all been a charade, propped up by artificially low interest rates and a strong Germany papering over the cracks with the ECB’s president Mario Draghi and the European Commission’s president Jean-Claude Juncker talking a good game. Still, maybe this is a blip – so we’ll just have to wait and see. I suspect that May and her team will be praying for more Eurozone weakness as it could make the UK’s bargaining position slightly better as we go into the final straights of Brexit.

Amazon takes aim at Flipkart, Ocado signs another European deal and House of Fraser makes cuts…

In Amazon in battle for its biggest Indian rival (The Times, Robin Pagnamenta) we see that the e-commerce giant looks like it has decided to turn the heat up in India’s booming market as it has offered to buy a 60% stake in its biggest local rival, according to a report on Indian TV channel CNBC-TV18. Walmart is already in talks to buy a majority stake in the Indian etailer, so this could prove to be a bit of a spanner in the

works. Neither Amazon nor Walmart commented on the alleged deal. SO WHAT? Walmart must be pretty p!ssed off as it looks like Amazon is crashing the nice little party that it has had going on with Flipkart – with the added irony that it is Amazon’s ass-kicking of Walmart in the US and other markets that has forced it to look at other ways of expanding. Both Amazon and Walmart have Indian credentials, with Walmart having a presence in India via its partnership with Bharti Enterprises since 2007 and Amazon entering the market in 2013 with $5bn of commitment so far. If Walmart was to succeed in its bid, it would be its biggest ever purchase of an online retailer and mark a significant shift in strategy from its usual preference for organic growth. On the other hand, Amazon is not likely to give up easily as its failure to make a dent in the Chinese market (it only has 1% market share due to local rivals muscling it out) is no doubt uppermost in its mind – especially when some observers believe that the Indian e-commerce market is set to hit $200bn within the next ten years.

Ocado strikes partnership with Swedish grocery chain (Financial Times, Jonathan Eley and Adam Samson) we see that the heralds Ocado’s third deal in six months (even the bullish analysts at Peel Hunt projected only three deals every two years!) to build an online grocery business – this time for Sweden’s biggest supermarket ICA. It is the first time that Ocado has nabbed a contract with a national market leader and the agreement is along the same lines as the deal it struck with Canadian grocer Sobeys and France’s Groupe Casino. Ocado’s shares have gone up by 40% so far this year as scepticism regarding its plans to get such licencing deals has done a 180.

SO WHAT? Although this is clearly great news, cash from the tech solutions division will take a few years to materialise and the UK online retail business still accounts for 90% of revenues. The company’s strategy of becoming a third-party supplier of systems to other grocers who want to up their game in online ordering, warehousing and delivery is all well and good, but it sucks up a lot of capital in the initial build phase. My impression would be that profits from its core UK retail business will continue to be under pressure given the competitive environment and that the company will become increasingly reliant on outside funding to finance the building of the “fulfilment centres” needed for its tech solutions business. Although deals like this are good in theory, I do wonder whether there will be such a thing as having too many deals from a financial perspective and whether there’s a danger of Ocado over-stretching itself.

House of Fraser to close stores and cut jobs in deal with Chinese firm (The Guardian, Sarah Butler) signals some bad news for employees of House of Fraser as a restructuring following transfer of ownership to Chinese retailer C.banner of a 51% stake could result in the potential loss of at least 20 out of its 59 sites, according to industry experts. House of Fraser employs 5,000 staff directly and has an additional 12,500 employees working at concessions including brands such as French Connection, Phase Eight and Ted Baker.

SO WHAT? Although House of Fraser has said that it has been making progress in a difficult environment, a new pair of eyes (in the form of Hamleys owner C.banner) and some more cash could help it step back from the brink and avoid the fate of other retailers. Like I keep saying, though, I think that department stores are an anachronism and have thus far failed to keep up with trends in consumer behaviour. Unless the cash is used to revamp the offering from the ground up, this is just going to be one massive money pit IMHO.

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