Category: Uncategorized

1. In MACROECONOMIC NEWS, we take a quick look at the Swedish election
2. In RETAIL NEWS, Wall Street cuts retailer profit forecasts, UK retail slows down, John Lewis sheds staff and Debenhams looks to rehab
3. In INDIVIDUAL COMPANY NEWS, Apple aims for larger screens, 888 goes to America and Royal Mail cites subscription as the way to go
4. In OTHER NEWS, I bring you a culinary monstrosity and an interesting way of restocking a lake. For more details, read on…

So the Swedish election nears a result…

I’m not going to dwell on this too long as the final result will be out soon enough but Sweden’s ruling party holds slender lead in poll (Financial Times, Richard Milne) looks at the current state of play in Sweden’s  

parliamentary election. Basically, the ruling centre-left party is just ahead of the centre-right, whilst the nationalist anti-immigration Sweden Democrats isn’t making as much ground as everyone had thought they would. * SO WHAT? * Although it doesn’t look like the populists will win outright, they have attracted a significant chunk of the vote so far (17.6%) which will give them influence in parliament and they look on track to be the biggest gainers since the 2014 elections. This election has been billed as one of the most important in generations as Sweden seems to be shifting from its usual liberal stance and reputation for having a generous welfare state to being more wary of immigration and less keen on subsidies.

In retail news, Wall Street downgrades retailers, UK retailers continue to struggle whilst John Lewis sheds jobs and Debenhams considers long-term survival…

Wall Street cuts profits forecasts for dozens of US retailers (Financial Times, Alistair Gray and Mamta Badkar) highlights the large number of cuts in analyst forecasts on US retailers, bringing into question their continued profitability despite a decent economic backdrop where consumers are spending. Simeon Siegel, an analyst at Instinet, remarked that “The pendulum swung too far: retail never died, but it’s likely not as healthy as people think, either. After a very strong first half, it would seem management teams feel the need to reset the bar, to bring hype back to reality”. Reasons behind the forecast cuts include higher costs of e-commerce and investment in store upgrades as well as a shorter financial year versus 2017 but they stand in stark contrast to Amazon, whose profit estimates for the current quarter have nigh on doubled in the last three months. Retailers who have seen their forecasts cut include department store Macy’s and home improvement group Lowe’s, but the biggest ones have obviously been in strugglers such as department store JC Penney and Victoria’s Secret owner L Brands. * SO WHAT? * It seems to me that the sector as a whole should benefit from a buoyant US consumer, but then every retailer has its own story to overlay on that as well. Those that are doing well, but using this upswing as an opportunity to enhance their offering (such as Tiffany, which is renovating its flagship store in Manhattan), will no doubt benefit in the not-too-distant future by enhancing the in-store experience whilst others continue to suffer with varying degrees of Amazonophobia.

On the other hand, Retailers left in a sweat as heat slows down shoppers (The Times, Alex Ralph) cites figures produced by the British Retail Consortium which show that footfall in physical shops fell by 1.6% versus August 2017 – double the fall in July. * SO WHAT? * It does go to show that there is such a thing as too much sun, I guess! These figures would seem to back up the ones I mentioned in Friday’s edition of the Daily from accountants BDO and show that the World Cup and sunny weather boosts were only temporary as consumers continue to have a cautious outlook.

The gloom continues for UK department stores in Profits slump sees 1,800 people made redundant at John Lewis (The Guardian, Sarah Butler) although the company said it also created new jobs, including the 600 for its new Westfield store in White City. In all, it employs 83,000 staff. It is expected to report zero profit when it announces its results this Thursday and is currently cutting costs at head office, freezing investment in new stores, reviewing its pension options and cutting marketing spend whilst also channelling £500m per year to refreshing its stores, website and new product and services development. Mind you, it could be worse as per Struggling Debenhams seeks restructure (The Times, Alex Ralph) as it turns out that the department store has asked KPMG to look at its strategic options which could include giving back excess store space to landlords or entering into a CVA. Debenhams is clearly trying to imply that this is all part of the daily retail rough-and-tumble (a company spokesperson said that “Like all companies, Debenhams frequently works with different advisers on various projects in the normal course of business”) but hedge funds smell blood as the company is currently the second most shorted stock on the London Stock Exchange. * SO WHAT? * I’d have John Lewis any day of the week over Debenhams as at least John Lewis/Waitrose has a properly defined niche (more affluent consumers who value service and the in-store experience). Debenhams, on the other hand, has b*gger all. It looks to me like it’s getting cheaper by the day as a prospect for Mike Ashley, who currently holds a chunk of the stock and recently bought House of Fraser in a fire sale for a bargain. Surely, it’s only a matter of time before we see “House of Debenhams”, no? FWIW, I reckon that he should wait until Debenhams gets REALLY cheap, buy it, merge it with House of Fraser, get rid of any extraneous store estate and sell the whole lot on. I still think that he could do something quite interesting with House of Fraser (or “House of Debenhams” if it ever happens) given the store locations and his other businesses in sports retail and gyms, but IMHO he could make a faster buck by not doing all the revamp himself. Having said that, I think that buying department stores now for someone like Ashley – while they are at very depressed levels – is a once-in-a-lifetime opportunity to get such a big prime-location footprint and could be the foundation for something quite transformational. For instance I think it’d be great if, say, he turned the massive floor space into a sort of a self-contained lifestyle zone where you have some of the traditional department store area turned into a mix of offices, gyms, residential and franchises. This would inject a buzz into tired city centres and make each location self-sustaining, which would have a halo effect on the surrounding area. Anyway, for now, things continue to look gloomy for UK department stores.

In individual company news, Apple looks at bigger screens, 888 goes stateside and the Royal Mail cites the subscription trend as a growth area…

Apple banks on bigger screens to drive iPhone growth (Wall Street Journal, Tripp Mickle) looks ahead to Apple’s announcement this Wednesday of its new iPhone line-up which is expected to include a “lower-priced” 6.1 inch device with an LCD display, a more expensive 6.5 inch model with OLED tech and an improved version of its iPhone X with a faster processor. The most notable feature of these phones will be the larger screen size – which is great for Apple because larger phones have a bigger margin (they don’t cost much more for Apple to produce, but they can charge around $100 more to the end customer) and it encourages people to use their phones more which, in turn, helps Apple’s services and apps business. According to Kantar Worldpanel research, users with smartphone screens of 6 inches or more tend to use twice as many apps as those with 5.5inch screens! They are also 62% more likely to play games and twice as likely to consume video on a daily basis than those on smaller screens. * SO WHAT? * This should keep the Apple machine chugging along nicely as phones continue to drive two-thirds of company revenues. However, smartphone sales are slowing overall as users hold on to their phones for longer, so keeping users engaged with compelling apps is going to be even more important as time goes on. Fortunately for Apple, its services business, which includes app sales, subscriptions and other offerings, is one of its fastest-growing areas to the extent that Morgan Stanley believes that this division will account for 60% of the company’s revenue growth over the next five years. This stands in contrast to the iPhone accounting for 86% of sales growth over the previous five years according to Morgan Stanley estimates.

Webb betting company 888 is latest to expand US activity (Daily Telegraph, Iain Withers and Oliver Gill) heralds the company’s launch of a sports site in the US as British gambling firms continue to expand their stateside interests following the May ruling in the US Supreme Court which overturned a nationwide ban on sports betting that had been in force for 26 years. Stocks in British firms such as 888, Paddy Power Betfair and William Hill rose sharply when the news came out as it represented a potentially chunky and relatively-unexpected growth area. * SO WHAT? * This is good news on the face of it, but the magnitude of the growth opportunity will depend very much on how far individual state legislation goes in interpreting this. Growth could be clipped, for example, if online betting is banned so that gambling can only go on at racetracks or casinos – but it’s too early to tell at the moment. Mind you, according to investment bank Moelis & Co, if gambling was completely legalised in all 50 states, the market could be worth between $20-25bn a year. Worth a punt, eh?

Further to my mild slagging off of the Royal Mail last week, Royal Mail sees beauty of new subscription delivery model (The Times) looks at an area of growth for the company as it forecasts that deliveries of goods via subscription (e.g. male-grooming stuff such as the Dollar Shave Club etc.) will double by 2022 and “offers an opportunity for existing businesses and budding entrepreneurs to get out there and offer their own services”, according to a company spokesman. * SO WHAT? * It certainly FEELS like a growth area for the Royal Mail (a recent survey said that 25% of consumers are already signed up to a subscription service and they are particularly popular in the under-35s age demographic), but my impression is that it’s more start-up driven – which is potentially more volatile. This sounds great, but Royal Mail ain’t the only delivery company on the block. In contrast to its apparent optimism, I would suggest that the momentum will move away from them towards their customers as continued expansion of Amazon’s fearsome delivery capabilities will lead to more intensified competition business that they CAN win (from the likes of UPS and FedEx etc.) which could result in pressure on margins.

…And finally, in other news…

I suspect that this is either going to make you want to gag or fill you with feelings of yearning: People are eating this ‘chippy tea pizza’ with mushy peas and curry sauce (Metro, Kate Buck https://tinyurl.com/yahjuv5r). I’m more in the former camp than the latter on this…

AND FINALLY, I thought I’d leave you with something quite surprising in Thousands of fish dropped out of planes to restock remote lakes (Metro, Lucy Middleton https://tinyurl.com/yacympbq). Wow!

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

1. In MACROECONOMIC AND CURRENCY NEWS, emerging markets fall into bear territory and Bitcoin takes a bath
2. In INDUSTRY NEWS, it looks like the US shale boom and Aussie property boom are on the wane as the UK high street has its worst August for three years
3. In INDIVIDUAL COMPANY NEWS, Apple gets Shazam approval, Facebook announces a Singapore data centre and Ford has a big recall
4. In OTHER NEWS, I bring you what could be a highly remunerative offer from Burger King and Bude’s top tourist attraction. For more details, read on…

So emerging markets dip into bear mode and Bitcoin gets a kicking…

Perhaps rather unsurprisingly, Emerging market stocks enter bear territory (Wall Street Journal, Mike Bird, Riva Gold and Ira Iosebashvili) highlights further weakness in the MSCI Emerging Markets Index yesterday, led by Russia and the Philippines, taking them 20% below the recent peak – the common definition of a bear market. Weakness in

Turkey and Argentina has turned the spotlight on emerging markets’ dollar exposure as US interest rates are in an upward trend, thus effectively making their debt increasingly expensive.

Bitcoin value plunges again (Daily Telegraph, Hasan Chowdhury) points out a big 12.5% drop in Bitcoin yesterday as it traded down to $6,450 last night having fallen through $7,000 on Wednesday. * SO WHAT? * It would seem that the sell-off may have been sparked by reports earlier this week of Goldman Sachs postponing the opening of a cryptocurrency trading facility although it’s probably got more to do with the fact that EU finance ministers will be commencing talks about potential cryptocurrency regulation TODAY.

In news on industry trends, booms in US shale and the Australian property market appear to be on the wane and the UK high street has a disappointing August…

US shale boom begins to cool (Financial Times, Ed Crooks) sounds a warning note on an industry that has been growing and growing over the last two years as logistical issues such as rising labour costs and pipeline capacity shortage continue to pile up. The chief execs of Schlumberger and Halliburton, the world’s #1 and #3 listed oilfield services companies, pointed to a slowdown in the number of new wells being brought online at a Barclays conference in New York earlier this week and Weir Group, a UK engineering company that makes pumps used by shalers, confirmed this by saying that there had been a “considerable softening” in US demand last month. * SO WHAT? * It would seem that the US shale oil industry has been developing at breakneck speed for the last few years and has now hit a sticking point because a lot of the efforts have been concentrated in one (albeit mega) oilfield – the Permian Basin – and labour and equipment costs have continued to rise. Other logistical costs associated with waste water treatment and a lack of pipelines to transport the oil from West Texas to the refineries have also proved to be problematic and ultimately a drag on progress. There are a lot of naysayers out there now, but I guess that the industry will just have to innovate its way out of this rut – at least the strong oil price will give them some sort of buffer at least for the near term.

In Australia’s property boom ends as credit squeeze begins (Financial Times, Jamie Smyth) we see that tighter credit and sky-high prices have led to the biggest fall in Sydney real estate prices for nine years – at almost triple the rate of the national average. Prices in Sydney have risen by 70% in the last five years and household debt has risen above 120% of GDP, one of the highest levels in the developed world. * SO WHAT? * The reining in of easy

credit and upward pressure on mortgage rates is starting to filter through and Paul Dales, of Capital Economics, believes that “the current housing downturn will probably end up being the longest and deepest in Australia’s modern history”, with house prices falling by 12% over the next four years. But it’s not just economists who have a rather downbeat outlook – Wesfarmers chairman Michael Chaney said on Wednesday this week that he believed house prices could drop by 20%, sparking a wider recession in Australia. With 40% of mortgages being interest-only at the peak of the market, there is going to be a lot of pain felt on the way down and it’ll get a lot worse if a sell-off gathers momentum. It just seems that the time is ripe for a big correction (did you know that Sydney is ranked as the second least affordable city in the world with house prices at 13 times the average income?) although one happy consequence of such a downward lurch would be a rebalancing of the currently highly skewed balance of wealth, although obviously that’s not really going to be of any consolation to those who will be adversely affected should this current move turn into a prolonged period of weakness.

Although some retailers got an uplift from the World Cup and sunny weather it seems that it’s still pretty depressing out there in High Street has worst August for three years (The Times, Philip Aldrick) as a survey by accountants BDO say that High Street sales fell by 2.7% – the seventh consecutive month of weakness. BDO’s high street tracker, which has been running for 12 years and is based on results from 85 mid-tier retailers with 10,000 individual shops, showed fashion retailer sales down by over 3%, homeware shop sales down by 6.1% – the worst August figures since 2012 – and sales in lifestyle (which includes beauty and gifts) just went sideways. BDO’s head of retail and wholesale Sophie Michael pointed out that “the high street hasn’t seen any notable growth since October last year. With inflation continuing to bite on the weekly shop and the heatwave driving discretionary spending to bars and entertaining, there is even less disposable income heading to the high street”. * SO WHAT? * The high street carnage – and migration to online consumption – continues. I think that the run-up to Brexit is going to get even more painful, but it all depends on what sort of deal we get! If it’s even a tiny bit better than our currently low expectations, then there could be a big uptick.

In individual company news, Apple gets the go-ahead for Shazam, Facebook goes to Singapore and Ford announces a big recall…

EU clears Apple to acquire song-recognition app Shazam (Wall Street Journal, Anthony Shevlin) heralds the approval of Apple’s acquisition of Shazam by the EU following an investigation by the European Commission which looked at the impact it would have on competition in Europe. There were also some concerns that Apple could get access to sensitive data about its customers’ competitors, but clearly they weren’t judged to be sufficient to scupper the deal. Apple Music is now the #2 music streamer in Europe and Shazam is the #1 music recognition app for mobile in the world. Nice combo.

In Facebook to build $1bn Singapore data centre to power Asia growth (Financial Times, Stefania Palma) we

see that Facebook is going to pour $1bn into Singapore to build its first Asia-Pacific data centre in a bid to expand in its largest market by active users and advance its data-intensive capabilities. The new data centre will be operational in 2022. * SO WHAT? * This is a really important move for Facebook as this will help it to grow in a market which is expanding way faster than Europe, the States AND Canada combined!

Ford recalls two million trucks after reports of seat-belt malfunction (Wall Street Journal, Allison Prang) quite literally makes for uncomfortable reading if you’re an owner of one of these vehicles as Ford is making this move following reports of a seatbelt malfunction that could cause smoke or fire! The recall is for the F-150 made between 2015 and 2018. * SO WHAT? * This is a real pain for Ford as its F-series product line is very popular (it sold 900,000 F-series pickups last year and it’s the industry’s best-selling vehicle) and accounts for the bulk of its profit. Mind you, it looks like a pre-emptive measure as it isn’t currently aware of any injuries caused by the defect and the company reckons it will cost about $140m this quarter to rectify. This comes at a tricky time for Ford, which is trying to cut about $25bn in costs over the next few years.

…And finally, in other news…

I thought I’d bring you news of a competition that could make you a lot of money if you’re prepared to look a bit silly: Burger King is offering someone £20,000 to be the first person to try their new Crispy Chicken Burger (The Mirror, Zoe Forsey https://tinyurl.com/yahsvrag). Could be worth it?

AND FINALLY, as it’s the weekend I thought I’d bring you a recommendation for if you want an exciting day out: Plastic tunnel outside Sainsbury’s is voted town’s best tourist attraction (Metro, Jane Wharton https://tinyurl.com/y7pc962e).

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

1. In MACROECONOMIC NEWS, the nightmare continues for emerging markets and UK services sector strength contrasts with construction slowdown
2. In VEHICLE-RELATED NEWS, Volvo plans to do away with domestic flights, UK car sales rise and Mobike abandons Manchester
3. In INDIVIDUAL COMPANY NEWS, Amazon moves to develop its delivery service and Gaucho restaurants are thrown a lifeline
4. In OTHER NEWS, I bring you some hope for us all in old age with some amazing world records! For more details, read on…

So the nightmare continues for emerging markets and the UK services sector trends up…

No respite for emerging markets as crisis grows (The Times, Tom Knowles) highlights the continued sell-off of emerging markets sparked by currency crises in Turkey and Argentina. Indonesia’s rupiah traded close to lows last reached in the 1998 Asian crisis and the Jakarta Composite index had its biggest one-day fall since November 2016. The South African rand also hit new lows after the latest data showed the country entering recession territory for the first time since 2009. Capital Economics economist Oliver Jones observed that “We think there is more to come. We doubt the main factors which have

caused equities across much of the emerging world to weaken together recently will go away just yet”.

Services sector strength offsets construction slowdown (Daily Telegraph, Tim Wallace) cites the latest Purchasing Managers’ Index (PMI) from IHS Markit which shows growth, strengthening orders and hiring activity returning to February levels – all good news given that the services sector accounts for 80% of the UK’s GDP. This survey also suggested that companies are having to pay higher wages to attract new talent and retain existing employees. Ruth Gregory, of Capital Economics put a positive spin on things pointing out that “the new orders index rose, while the increase in the employment index also indicated that firms remain confident enough in the outlook for demand to pick-up the pace of hiring” whilst Howard Archer, chief economic adviser to the EY Item Club, observed that “It looks unlikely that interest rates will rise again until after the UK leaves the EU in March 2019 given the major uncertainties that are likely to occur in the run-up to the UK’s departure”.

In vehicle-related news, Volvo targets domestic flights, UK car sales rise and Mobike gets out of Manchester…

In Dream ride: Volvo takes on air travel with car that drives while you sleep (Daily Telegraph, Alan Tovey) we see that Geely-owned Volvo has unveiled a concept driverless car that could replace short-haul air travel as it does away with things like, you know, a steering wheel to give its 360c autonomous vehicle more interior room which can have various configurations such as commuting, mobile office, entertaining (!) and sleeping. The company is aiming at trips of under 400km (roughly the distance between London and Newcastle) where flights can take up to four hours all-in if you take into account airport security and all the other bits and pieces. Robin Page, Volvo vice-president of design, suggested that “If we see dedicated lanes on roads for autonomous vehicles, then they could ‘platoon’ together at much higher speeds than when they share the road with conventional cars”. Don’t get too excited, though – this concept car isn’t expected to be on the road until the 2030s. Runners and riders in race for autonomy (The Times, Robert Lea) does a good job of summarising where we are at currently with driverless vehicles – Google’s Waymo is closest to getting a self-driving taxi service on the road with plans for launch either this year or next. Jaguar Land Rover has committed 20,000 of its all-electric I-Pace models to Waymo to be part of the project. Amongst the established manufacturers, General Motors has a lot of potential as it aims to have a driverless Chevrolet Bolt on the road in 2019 and in Europe, Daimler – the owner of Mercedes-Benz and Smart – is seen to have its nose just in front of the competition and has been testing the V-class van for its own autonomous product. There are many other side projects going on with Aptiv working with the Renault Zoe, Renault and Nissan providing leading driver assistance tech in volume cars like the Qashqai, Zoox working on a Toyoya Highlander and, of course, Tesla. * SO WHAT? * All impressive stuff and I like the idea of driverless-taxi-as-alternative-to-short-haul-flights, but surely it’s going to take a lot longer for this to become a reality. Sorry to sound boring, but all this kind of stuff is at the fringes – companies also need to be concentrating on what’s going on at the volume end of things. For instance, there is a widely-held belief that consumers will be less and less likely to own cars outright, which means that there are going to be problems in the resale market and then there’s the whole emissions/model electrification thing going on as well. FWIW, I think that there is a sea-change going on in the automotive industry at the moment as established players adapt to a world with increased competition (especially from China and “newcomers” such as tech

companies), changes in ownership models and a leap in technological advances that probably haven’t been since the early days of the automobile. Exciting times, but potentially dangerous ones for those who do not adapt successfully.

New car sales up 23pc as one in 12 buys electric (Daily Telegraph) cites the latest figures from the Society of Motor Manufacturers and Traders (SMMT) which show that new car registrations were up by a decent 23.1% in August with petrol car sales rising by 39% and one in 12 buyers buying a hybrid, plug-in hybrid or electric model. Car sales jump as manufacturers offload older models (Financial Times, Peter Campbell) shows that some car companies experienced a huge rise in August activity with Suzuki and Jaguar sales doubling while Honda saw sales up by 92%, Mitsubishi up by 79% and VW by 62%. * SO WHAT? * It sounds like this is probably a one-off as August is normally a quiet month and dealers were keen to shift older stock before the introduction of the new emissions test where ALL cars will have to have a CO2 test before being sold in order to give customers a more accurate picture of the vehicle’s actual emissions.

Moving on from four-wheeled transport to the two-wheeled variety, Mobike gives up on bike hire in Manchester (Financial Times, Andy Bounds) shows that one of the largest bike-hire companies in the world along with the likes of oBike, Ofo, GoBee and now Uber has decided to give up operations Manchester after too many of its bikes were stolen or damaged in the city. In July alone, it lost 10% – or about 200 – of its bikes. Users pay a deposit to hire a Mobike, use an app to get a location of the bike and a code to unlock it and then pay 69p per half hour to use it. It will continue to operate in London, Newcastle, Oxford, Cambridge and other European cities. * SO WHAT? * This is another example of an idea mushrooming and then attracting loads of investment capital whilst well-funded start-ups race to build market presence like taxis and food delivery businesses before them etc. etc. Mobike isn’t the only one to suffer from idiots taking the mick out of a service intended to enhance people’s lives – GoBee had to abandon France and Italy earlier on this year – in France, it said that 60% of its bikes were destroyed in only four months. To dock, or not to dock – that isn’t the only question. The fact is that whatever way you do this, security and tracking needs to improve A LOT and you also have to have a population who are generally law-abiding. I must say that I was sceptical about dockless bike-sharing not only because of vandalism concerns, but also because I thought that bikes would just get left all over the place, cluttering up our towns and cities. Given the enormous set-up costs, I just could not see how these things could be run at any kind of decent profit (well not for the moment, anyway). I expect there to be a lot of consolidation among the operators in the next few years – THEN things might start to get a bit more interesting as economies of scale start to kick in and the whole thing starts to get more profitable.

In individual company news, Amazon aims to further develop its delivery capability and Gaucho gets a lifeline…

Amazon orders 20,000 Mercedes-Benz vans for new delivery service (Wall Street Journal, Laura Stevens) highlights the announcement made yesterday that the e-tailing behemoth has ordered a ton of vans as part of a plan to juice up its existing delivery fleet and help entrepreneurs create delivery companies, with each employing up to 100 drivers and leasing between 20 and 40 vans with the Amazon logo. This is all part of its move away from reliance on services such as the US Postal Service and FedEx. Amazon hopes to have 100 vans on the road by year end and take delivery of all 20,000 vans by the end of next year. It won’t own them – it will supply them to fleet management companies who will then buy them and lease them to small delivery-service providers. * SO WHAT? * This is a VERY interesting development IMHO as Amazon is effectively going to be building up its own logistics business with almost zero downside as it won’t 

own the vans! It can achieve a goal of less reliance on the national postal  service and other delivery companies whilst bringing their own delivery drivers under one umbrella. Very canny – and I think all the competition should get VERY worried about this. For instance, growth in parcel delivery for the Royal Mail has been an important area of growth as the volume of letters continues its terminal decline. If Amazon take parcel delivery away from them, they will have (almost) nothing left. It’ll be interesting to see how the likes of UPS and FedEx respond to this move.

Gaucho’s lenders ride in to save restaurant chain and 750 staff (Daily Telegraph, Oliver Gill) sounds some good news for the troubled UK casual dining sector as Gaucho’s lenders, South African bank Investec and Hong Kong fund SC Lowry, have agreed to buy its 16 restaurants from administrator Deloitte, as long as its CVA is successfully implemented. Oliver Meakin, who was chief exec for only seven months (and who was previously CEO of Maplin – see a pattern forming anyone?? If you see him approach your company you need to run a mile!!!) will step down and be replaced by Martin Williams, chief exec and founder of M Dining and Bar. * SO WHAT? * This is great news for Gaucho and gives them a clean break from sister chain Cau. Mind you, they’ve still got to get customers through the door, so it’s not all rainbows and unicorns just yet!

…And finally, in other news…

Most of us get a little bit sadder at the prospect of aging, but Life begins at 80 for new world record breakers (Metro, Zoe Drewett https://tinyurl.com/y7tme7k8) gives hope for us all! The new 2019 Guinness World Record book is released today and ranks an 85 year-old trapeze artist and an 83 year-old club DJ as examples of oldies learning new tricks!

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

1. In MACROECONOMIC NEWS, South Africa goes into recession
2. In RETAIL NEWS, Amazon hits the £1bn mark, Halfords does OK on electric bikes but McColl’s, John Lewis and Fenwick have disappointing news
3. In AUTOMOTIVE NEWS, US auto sales stay steady and Goldman Sachs predicts a tough time for Tesla
4. In INDIVIDUAL COMPANY NEWS, personalised cancer treatment gets fast-tracked by the NHS, Deutsche Bank drops out of the Euro Stoxx50 index, Samsung joins the race to the bottom for smartphones and Lego sales suffer
5. In OTHER NEWS, I bring you the cracking new John Lewis advert. School plays from now on will have a lot to live up to ;0) . For more details, read on…

So South Africa goes into recession…

In South Africa feels chill of recession (The Times, Jane Flanagan) we see that the country has dipped into recession for the first time since 2009 and the South

African Rand fell by over 2% versus the dollar on the news,continuing its 19% fall versus the dollar as emerging markets continue to be hit by fallout from Turkey and Argentina. The economy contracted by 0.7% in the second quarter (versus the 0.6% expansion expected by economists) after a 2.6% contraction in the first quarter of this year. President Ramaphosa’s controversial land reforms are adding to existing investor worries.

In retail news, Amazon hits a new landmark, Halfords is buoyed by electric bikes but McColl’s, John Lewis and Fenwick confirm general gloom…

World’s richest man delivers Amazon to magic $1tn mark (The Guardian, Rob Davies and Dominic Rushe) heralds a historic day for the e-tailer as its market cap hit $1tn in trading yesterday on the Nasdaq. The company has expanded from selling books and CDs to hosting websites such as Airbnb, Netflix and Unilever and its Web Services division is currently in the running to win a $10bn cloud computing contract for the US Department of Defense. It is also expanding in other areas such as groceries and healthcare. * SO WHAT? * It’s just a level – that’s all. However, it does mark a notable moment showing just how far the company – and its founder – have come. Although Apple got to it first, I have to say that I think Amazon will overtake it at some stage in the not-too-distant future as it continues to expand into different and 

more lucrative areas that often have strategic overlap making barriers to entry for newcomers in certain areas even higher. At some point, I would expect Amazon to spin off different businesses as it continues to grow, but that probably won’t happen for some years yet. It continues to be a very interesting, albeit imperfect, company.

UK retail continues to be a bit of a mixed bag as Demand for electric bikes helps push Halfords’ sales up by 2.8% (Daily Telegraph, Ben Woods) shows that investors were cheered by its latest sales figures that were boosted by fitting services, electric bikes and new workshop and car cleaning products. It also benefited from the good weather and online sales were also strong, all of which helped to push the shares up by 6.9%. Good news was particularly welcome for the company following the May profit warning which sent its shares down by 10%.

On the other hand, McColl’s sales fall as Palmer & Harvey collapse keeps hurting (Daily Telegraph, Ben Woods) highlights disappointing performance at the convenience retailer as like-for-like sales excluding new store openings fell by 0.9% in the third quarter despite getting a boost from the hot weather and John Lewis and Fenwick add to high street woe with job cuts (The Guardian, Zoe Wood) continues the downbeat mood as they announced 270 and 408 staff cuts respectively, mainly in back office and ancillary areas. This all came out as John Lewis unveiled a rebrand yesterday with another impressive advert.

In automotive news, US auto sales maintain momentum but Tesla shares will take a near-term dive according to Goldman Sachs…

US auto sales maintain momentum for now (Wall Street Journal, Adrienne Roberts) shows that most major auto makers experienced a boost in sales in August – with the notable exception of General Motors – as customers took advantage of Labor Day discounts and continued to buy SUVs and pick-up trucks. Ford, Honda and Nissan reported sales increases on the back of their SUVs, as did Chrysler which saw sales of the Jeep Cherokee jump by 85% and its Jeep Compass by 76%. GM and Toyota sales were weaker. * SO WHAT? * These figures show that automotive companies are in good shape currently but it has to be said that the year-on-year figures were flattered by weak sales in August last year when Hurricane Harvey closed swathes 

of dealerships across southern Texas. Many analysts are, however, predicting that vehicle demand will slow down going into the end of this year as interest rates trend upwards and car prices get more expensive on increased material costs and tariffs.

Tesla shares to fall 30pc in six months, says Goldman Sachs (Daily Telegraph, James Titcomb) is an interesting one because although Elon Musk actually hired Goldman last month to advise on taking the company private, it has now come out with a note to investors saying that electric car launches from incumbent car manufacturers will dent Tesla’s halo and that its share price will fall from $302 to $210 in six months. This confirms Goldman’s original stance before it had to suspend coverage due to the whole being-involved-in-advising-on-Tesla-going-private malarkey. * SO WHAT? * I think Musk and Tesla need to keep their heads down for the next few months and nail those production targets. Mind you, that’s looking increasingly unlikely as he continues to rant about the British cave diver who helped rescue that Thai football team over the summer. Maybe this is an elaborate way of distracting attention from his production disappointment – a bit like Jose Mourinho distracting attention from poor team performances on the football pitch and making it all about him. Bizarre behaviour…

In individual company news, a new personalised cancer treatment gets the NHS go-ahead, Deutsche Bank falls out of the Euro Stoxx50 index, Samsung partakes in the downward spiral of handset prices and Lego sales take a hit…

Personalised cancer treatment wins fast-track NHS approval (Financial Times, Clive Cookson) heralds an incredible medical development as a new immune therapy treatment from Novartis, called Kymriah, got one of the fastest funding approvals by the NHS in history less than two weeks after receiving a European marketing licence. Kymriah is a pioneering treatment which is a bespoke treatment for each patient as his or her immune cells are extracted, genetically reprogrammed in the lab to respond to cancer and then put back into the patient. It normally costs an eye-watering £282,000 per patient, but the NHS has done some kind of deal. It’s a complex treatment and won’t cure everyone and there are currently three hospitals going through the required international accreditation process to provide the treatment in London, Newcastle and Manchester. The NHS will pay for Kymriah treatment for patients with a particularly rare form of leukaemia under the age of 25 and expects up to 30 patients per year to benefit from this. * SO WHAT? * Isn’t this an incredible development?? On a commercial basis, this is a positive for Novartis, but I’m not really sure whether it’s going to move the needle at this stage given how expensive it is. The real benefits will come when the price comes down and more people can take advantage of it – but in the meantime let’s hope it saves loads of lives.

If Apple and Amazon’s breaching of the £1tn landmark show how far the companies have come on the upside, Deutsche Bank to drop out of EuroStoxx 50 index (Financial Times, Olaf Storbeck) shows how bad things have become for Germany’s largest bank as it is about to drop out of Europe’s leading index of blue-chip companies later this month. Deutsche’s market cap has fallen by 39% this year after reporting continued losses and insufficient restructuring. * SO WHAT? * The EuroStoxx50 index covers 50 of Europe’s biggest companies across nine sectors and currently has seven banks, including Deutsche. The main effect of dropping out of the index will be that passive funds will be forced to sell the shares (because they track the index and if Deutsche Bank stocks aren’t in the index, they won’t be allowed to invest in them) so the share price is likely to suffer a bit. Still, on the other hand, second quarter earnings came in above market expectations and the company itself said that cost cutting was on track. Deutsche Bank has got a lot of convincing to do, but if it continues to deliver on increased cost-cutting targets I’m sure investors will get back onside. In short, I think this is a pain for the bank, but I’m sure it’ll get through it.

Samsung joins race to the bottom for global smartphone prices (Wall Street Journal, Timothy W. Martin and Eric Bellman) highlights Samsung’s plans on taking on Chinese smartphone makers such as Xiaomi, Oppo and Huawei by making cheaper smartphones. In recent years, the South Korean electronics giant has been concentrating its efforts on the high end of the market along with Apple, but it wants to make sure that it gets a big slice of the action in the future as the proportion of the world population that owns a smartphone goes from the current 50-ish per cent to 77% by 2025 (a prediction from mobile industry researcher GSMA). The company is building a new manufacturing hub in a New Delhi suburb that is scheduled to go online by 2020. Once it is up and running it is expected to make 120million handsets per year, with around 30% of them going for export. * SO WHAT? * This is a great idea IMHO as the company has to keep manufacturing costs down. Also, with India expected to become the world’s second largest smartphone market after China next year, it makes eminent sense to manufacture locally. Currently, only 22% of Indians own a smartphone so the market is ripe for some stellar growth.  If it can keep its costs down by manufacturing in India, it could potentially unlock access to all sorts of other emerging markets that have thus far been effectively off-limits due to pricing. As Tarun Pathak, an analyst at research firm Counterpoint, put it “The global smartphone market has peaked, but emerging markets are growing. The battle for the next billion customers is more important than the premium market”. 

Lego sales fall as new chief executive seeks stability (Financial Times, Richard Milne) takes a look at how “new” Lego chief exec Niels Christiansen (who was appointed in October last year) is doing as he tries to turnaround the company in the face of strong headwinds in the form of continued competition from tablets for children’s attention and the downfall of traditional toy retailers such as Toys R Us. Sales were down slightly for the first six months of 2018, but the company is continuing efforts to bring the analogue environment of plastic bricks closer to the digital world of apps and smartphones. * SO WHAT? * Toymakers around the world are all facing the same problems – with Mattel and Hasbro both performing poorly and our own Hornby continuing to face challenges, for instance – but Christiansen has marked 2018 as being a year for consolidation ahead of 2019 where it should get an uplift from the Lego Movie 2. If it manages to continue to meld analogue and digital worlds (it recently launched a Duplo train for toddlers that could be controlled with an iPad) it should really help sales. Given the success of other toys that do this – and I’m thinking of Nintendo’s Labo here in particular – I would have thought that Lego is well-positioned to do some impressive things.

… And finally, in other news…

I don’t normally do this, but I have to just alert you to John Lewis’ fantastic new advert! Normally only reserved for Christmas, here is their latest offering which coincides with its rebranding: https://www.waitrose.com/ 

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

1. In MACROECONOMIC NEWS, Italy flirts with recession, Argentina takes extraordinary measures and Turkey hints that it might increase interest rates
2. In INDUSTRY NEWS, coal is looking surprisingly perky, shipbuilding could be close to a turnaround but UK manufacturing is looking sluggish
3. In INDIVIDUAL COMPANY NEWS, China’s Meituan Dianping is looking for a chunky valuation, France’s Casino and the UK’s Footasylum get a kicking
4. In OTHER NEWS, I bring you some victorious air guitar moves. For more details, read on…

So Italy nears recession, Argentina puts in special measures and Turkey hints at using interest rates…

Italy edges to recession as it spoils for fight with Brussels (Daily Telegraph, A Evans-Pritchard) highlights trouble in Italy as its economy has slowed right down over the summer period and the industrial sector is a whisker away from recession which could tip the country’s already parlous state over the edge. IHS Markit’s manufacturing index is showing Italy teetering just above the boom/bust line as capital outflows are on the increase. In addition to that, Bank of America believes that Italy’s GDP growth for the third quarter could be close to zero, ratings agency Fitch put the country’s debt rating on negative watch last Friday and then there’s widespread unease regarding the new government’s push for tax cuts and increased welfare spending that is highly likely to put it on a collision course with the EU. * SO WHAT? * The EU will have to tread very carefully from here because Italy is the economic bloc’s third biggest economy and if it treats it too harshly by forcing it to comply to fiscal rules to the letter, it could inadvertently send Italy – and potentially the EU – into a tailspin. The bloc has survived the Greek crisis and is about to go through Brexit – it will NOT want to have to deal with a major Italian problem.

In Argentina unveils austerity programme to stem crisis (Financial Times, Benedict Mander and Robin Wigglesworth) we see that Argentina’s president Mauricio Macri yesterday unveiled a new austerity programme to placate international investors and bailout lenders as he admitted that the country faced an “emergency” following market panic on the collapse of its currency. The Peso has fallen by a massive 50% versus the dollar so far this year, but Macri’s actions thus far have failed to stem the slide and he conceded that “we believed with excessive optimism that we could go along fixing things bit by bit. But reality shows us that we have to move faster”.

Buenos Aires will increase taxes and cut bureaucracy to hit more aggressive targets to lower the deficit. * SO WHAT? * This sounds like Macri is moving in the right direction, but the currency fell further in trading yesterday as sceptical investors showed that they needed more convincing after several false dawns. Argentine currency crisis spreads to politics (Financial Times, Benedict Mander) shows just how far Macri’s star has fallen since his unexpectedly strong performance in the midterm elections 10 months ago and how far he will have to climb if he is to even stand a chance in next year’s presidential elections. He is going to have to stem a full-blown currency crisis and rampant inflation as well as political and social unrest in order to achieve this, but his approval ratings have been relatively robust throughout and a realistic opponent has yet to emerge. Mind you, as Medley Global Advisors analyst Ignacio Labaqui put it “The scenario is very fluid and there is a long time to go before the elections. Any electoral predictions at moments like this are an exercise in science fiction”.

In further developments in emerging markets, Turkey’s central bank hits at rate increase as inflation rises (Financial Times, Laura Pitel and Adam Samson) signals a potentially major shift in the central bank’s thinking thus far as it stated yesterday that its “monetary stance will be adjusted” after new data showed that inflation had risen to 17.9%. Turkey’s president Erdogan is a self-confessed “enemy” of high interest rates, so if the central bank raises them it will be at odds with his wishes. Even his newly appointed finance minister, son-in-law Berat Albayrak, seemed to hint that things might be going this way when he said that Turkey needed a “fully-fledged fight against inflation” in an interview with Reuters. * SO WHAT? * Everyone knows that the central bank just HAS to raise interest rates in order to stop its currency from sliding into oblivion but Erdogan’s influence casts a very long shadow. The longer it takes to implement, the higher it will have to be to get sceptical investors onside. In the meantime, some kind of solution between the US and Turkey re the release of Andrew Brunson (the American pastor accused by Turkey of espionage) in return for the US dropping an investigation into Halbank (a state-owned bank that is accused of breaching trading sanctions with Iran) could go a long way to help the situation. Given that such an agreement is looking very unlikely at the moment, a decent interest rate rise has got to be the way forward IMHO. 

In industry-related news, coal appears to be in rude health, shipbuilding looks like turning a corner and UK manufacturing growth hits a new low…

Coal shows resilience in global comeback (Wall Street Journal, Neanda Salvaterra) cites the latest stats from the Energy Information Administration (EIA) which show that Asian and African countries are expected to increase their use of coal in power generation through to 2040, despite climate change concerns and a tapering off of financing for projects related to the dirtiest of fossil fuels. US exports of coal more than doubled last year, showing that demand remains strong and Trump rhetoric about reversing US rules on emissions isn’t going to do any harm to the industry either. 38% of the world’s electric power generation last year was down to coal – the same level as 1998 – according to a report by BP and strengthening demand for the fuel has boosted business for the likes of companies such as Glencore. * SO WHAT? * Clean fuel ideals seem to be at odds with reality in some regions – for instance, Nigeria (which is Africa’s biggest economy) has loads of coal but 54% of the country’s 190 million citizens don’t have access to electricity so they are working towards a mix of the current hydroelectric dams and natural gas alongside coal. China and India continue to fuel (see what I did there) demand for coal, Vietnam is looking at quintupling its coal capacity through to 2035 and Bangladesh wants to up its use of coal in power generation from the current 2% to 50% by 2030. Given that the cost of constructing a coal-fired plant is roughly half that of constructing renewable energy facilities, you can understand the dilemma. As Nigeria’s minister of power, works and housing Babatunde Fashola put it, “I think it’s simplistic to begin to separate renewable energy from fossil fuel. What the world really needs is to achieve a balance”.

Korea’s shipbuilders look to rising tide of orders (Financial Times, Song Jung-a) heralds what could

potentially be a new dawn for an industry that has suffered enormously in the last few years as the country’s three biggest shipbuilders – Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries – are looking at a global recovery after years of restructuring and balance sheet clean-up. They are not out of the woods just yet – Hyundai Heavy is still planning on sacking 2,000 people at its offshore energy platform business and the sector is still reporting operating losses – but analysts expect a general return to profitability next year on the back of a 30% rise in new orders for high-end vessels (e.g. large container ships, oil tankers and LNG transportation vessels) for the first seven months of this year. Korean shipbuilders won 42% of new commercial ship orders in the same time period versus China on 32.8% and Japan on 10.5%, according to stats from market researcher Clarksons. * SO WHAT? * This is great news for the Korean shipbuilders, but although they’ve got the lion’s share of new orders right now, they will no doubt be wary of China’s rise in this area, as Hyundai Heavy vice-president Chang Kwang-pil said “China has become a big threat to us. They are catching up faster than expected, but they still lack technology on eco-friendly and energy-efficient ships, which will drive growth in the future”. Analysts think that Korean shipbuilders are 5-10 years ahead of their Chinese counterparts technologically and Chang observed that “Shipbuilding is a labour-intensive industry so it is difficult to compete with China on price. So differentiation through technology has become more essential for us. We may lose to China on volume but we will never lose our hegemony in the higher end of the market”. I’d be careful saying the word “never” there – the Japanese used to think this way and they’ve been overtaken in all sorts of things! All I’d say is enjoy it while it lasts, keep innovating and keep a very very close eye on China’s shipbuilders.

Meanwhile, back in the UK, Manufacturing growth hits 25-month low amid Brexit and trade fears (The Guardian, Phillip Inman) shows that British manufacturers are looking a difficult autumn in the face as Trump’s trade sanctions start to filter through to our exports. The latest IHS Markit/Cips purchasing managers index (PMI) survey shows that growth slowed in August to its lowest level since July 2016 because of a slowdown in exports – and if this trend continues, our manufacturing sector could remain in recession for the rest of this year. Not good.

In individual company news, Meituan Dianping seeks a high valuation, Casino slumps further and Footasylum gets a shoeing…

You’re probably used to Chinese tech companies demanding high valuations ahead of stock market flotations – so here comes the latest one: China startup Meituan Dianping seeks $55 billion valuation in Hong Kong IPO (Wall Street Journal, Julie Steinberg and Stella Yifan Xie). Meituan Dianping is one of China’s most popular internet start-ups and is due to launch its IPO in Hong Kong this week. $55bn is a chunky valuation for a company that only started in 2015 (!) via a combination of two online platforms and it now sells discount vouchers like Groupon, does online reviews and restaurant listings like Yelp and offers food-delivery services like Grubhub. It also sells movie tickets and offers hotel and other travel services but the company has yet to turn a profit. It is hoping to raise up to $4.5bn in the IPO. * SO WHAT? * Observers will be watching this very closely as sentiment on tech flotations has cooled slightly of late, as evidenced by the initial disappointment of mobile phone company Xiaomi’s flotation in July. Bulls on Meituan believe the IPO will be more positively received than Xiaomi’s because the

former is better placed to capitalise on China’s fast-growing internet consumer economy than Xiaomi, which is perhaps dowdier in comparison because it’s more about hardware. Meituan has some impressive backers, but I am concerned about its current profitability. However, if this goes well, I’d expect more tech flotations as those waiting in the wings will want to take advantage of any uptick in sentiment.

There are a few bits of disappointing news in retail today as Casino shares fall further after credit rating downgrade (Financial Times, Robert Smith) shows that shares in the French supermarket continued to go south as its credit rating was cut by S&P due to debt concerns, plunging the company further into junk territory. It lost 10% on Friday and a further 3% after news of the downgrade yesterday as its shares have fallen by a whopping 48% since the start of this year. Mind you, Footasylum given a kicking by investors after downgrade (Daily Telegraph, Ben Woods) highlights the MASSIVE 51% fall in the fashion retailer’s share price yesterday as it announced another profit warning against a backdrop of difficult trading conditions and narrowing margins. This 51% comes shortly after the 52% fall it suffered when it announced its previous profit warning in June, leaving its shares languishing at 40.9p versus the 164p price it floated at in October last year. What a mess! Despite all this, the company said that it will press ahead with plans to increase the size of its existing 66 sites and even add another 6 shops by December. Head in the sand or stroke of genius?? I’m erring towards the former given its dismal performance.

…And finally, in other news…

Do you sing karaoke into your hairbrush/showerhead and play to sell-out concerts in your mind? Well maybe this could be for you: Nanami “Seven Seas” Nagura wins 2018 Air Guitar World Championships in Finland (SoraNews24, Krista Rogers https://tinyurl.com/yaueezun). She’s got some moves! If you’re interested in participating in next year’s competition, then have a look at http://www.airguitarworldchampionships.com/en/entry/). YOU ROCK!!!

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

1. In MACROECONOMIC NEWS, Turkey faces more turmoil and Europe faces a major changing of the guard
2. In CAR-RELATED NEWS, Ford looks at ditching Mondeo and Tesla’s Musk continues to make life difficult for himself
3. In INDIVIDUAL COMPANY NEWS, Coke’s sip of Costa could be the first of many deals, Chinese bike-sharer Ofo gets sued and investors guess who might be next to exit the UK high street
4. In OTHER NEWS, I bring you an officially-approved way of nodding off and an amazing example of what Minecraft can do. For more details, read on…

So Turkey faces more drama, as does Europe with upcoming elections of senior bods…

Turkey braced for further turmoil amid signs of corporate distress (Financial Times, Laura Pitel) suggests that Turkish stock markets are going to be in for more trading tumult as cracks continue to develop in corporates which are creaking under the increasing strain of runaway inflation, causing cashflow problems and debt payment delays. The central bank is continuing to resist calls to increase interest rates to calm the situation (because President Erdogan is firmly against this – and he rules with an iron grip) and the release of annual inflation data is imminent. Jason Tuvey, senior emerging markets economist at Capital Economics, believes this release “will provide the first hard evidence of the impact of the lira’s collapse this month on the wider economy”. * SO WHAT? * Turkey’s currency has already fallen by 40% so far this year versus the dollar and many of the country’s companies have a lot of dollar-denominated debt. If the situation doesn’t improve soon, bad debts will go through the roof and Turkey’s banking system will start to look extremely shaky – and there are doubts that the banks themselves will have the ability to refinance. So far, only Qatar has offered concrete help in the form of a $15bn investment package, but they are the only ones who’ve stepped up. Turkey’s new finance minister, Berat Albayrak, continues to reiterate that Turkey has no plans to ask the IMF for a bailout.

Europe fires the starting gun in race for top jobs (Financial Times, Alex Barker, Jim Brunsden and Guy Chazan) highlights imminent changes for a lot of senior roles in the EU, which could have a sizeable impact on the European landscape. In 2019, there will be new presidents appointed for the EU’s four most important institutions – the European Commission, the European Council, the European Central Bank and the European Parliament. There will also be a whole host of other senior positions up for grabs in addition to these, such as the EU’s foreign policy chief, Nato’s secretary-general and various European Commission posts. Fredrik Reinfeldt, a former Swedish premier, observed that we are in a crucial period what with “Trump as president of the US, Brexit in the UK, Italy going from being one of the most pro-EU countries to one of the most anti, and nationalist sentiment raging in eastern Europe”. * SO WHAT? * As you can imagine, there’s a lot of jockeying for position as candidates position themselves for some juicy roles. However, as far as I can see it, this is a process that will take quite some time and comes at a crucial point in Europe’s history. I would have thought that British Brexit negotiators will want to string out talks to overlap with this period of European uncertainty in the hope of a better deal and that, on the other side, European negotiators will want to get them done and dusted before that in order to nail down the pesky Brits. We’ll just have to wait and see!

In car-related news, there are rumours of Ford abandoning the Mondeo (and even Europe) and Elon Musk just can’t help making things harder for himself…

Ford ‘to ditch Mondeo range and scrap thousands of jobs’ (Daily Telegraph, Lucy Burton) is a pretty dramatic headline for a story which highlights the mounting speculation that Ford is looking at slashing costs by ditching its Mondeo range and up to 24,000 workers as major cuts to its European operations – especially in Spain and Germany – are being considered. There are also rumours that the company will ditch the Galaxy and S-Max in favour of higher-margin SUVs and cut the number of dealerships. Another more dramatic theory is that it could move some or all of its European operations into a joint venture with a rival such as VW. * SO WHAT? * The company announced a few months ago that it was targeting $25.5bn in cost savings between 2019 and 2022 and these latest rumours would appear to be part of that. Ford has had a difficult year what with higher aluminium and steel prices, plunging demand for diesels and the increasing spectre of Brexit hanging over its most profitable market. I suspect that other car manufacturers will be watching Ford’s moves with great interest.

Musk dives into troubled waters with Tesla (The Times, Simon Duke) speculates at Elon Musk’s state of mind as

his recent Twitter outbursts (wrongly accusing British cave-diver Vernon Unsworth of being a “paedo guy” in July and then the following month saying that he was going to take Tesla private) have now been followed up with him going back to the subject of Unsworth and saying “You don’t think it’s strange he hasn’t sued me?” in his latest Twitter rant. He said in a recent interview with The New York Times that he was worn out following 120-hour weeks and it’s also been said that he hasn’t had a full week off since 2001. Concerns over his mental health well-being have led Tesla’s board to accelerate its plans to hire a second-in-command to work with Musk. Elon Musk faces his own worst enemy (Wall Street Journal, Tim Higgins, Tripp Mickle and Rolfe Winkler) notes that although his single-mindedness has helped him to great triumphs, it could equally be his biggest downfall. It also gives you a very interesting summary of how he’s got to where he is and his motivations – so if you need a refresher, have a read!  * SO WHAT? * Musk has just brought a whole heap of trouble to his own doorstep with some rather ill-advised Tweets and is currently under investigation by the US Securities and Futures Commission for his recent assertion that he had the finance in place to take Tesla private. If he is found to have been lying about this, he could be barred from serving as a company director – not great timing as he’s also fighting an investor lawsuit, working overtime to hit (self-imposed) production targets and burning through cash like there’s no tomorrow – Tesla went through $739m in the second quarter alone and now has $2bn of debts. Musk is sailing extremely close to the wind and if he gets ousted for some reason, Tesla will be in a whole world of trouble because as far as most people are concerned, he IS the company.

In individual company news, the Coke/Costa deal could stimulate more activity, Ofo gets a dose of reality and investors look at who could be next for the chop on the UK high street…

Coke’s Costa deal is a taste of things to come (Financial Times, Alistair Gray and James Fontanella-Khan) suggests that Coke’s £3.9bn deal to buy Costa Coffee could signal a growing willingness by food and drinks companies to makes changes to their existing business models to adapt to evolving consumer tastes for healthier and fresher products. Although £3.9bn is small beer versus Coke’s $191bn market cap, some observers believe that this is one of the most important strategic moves the beverage maker has ever made. Coke’s chief exec James Quincey says that the new combo provides “opportunity for great value creation, through the combination of Costa’s capabilities and Coca-Cola’s marketing expertise and global reach” as well as assistance in repositioning itself as a “total beverage company”. * SO WHAT? * There is a feeling that Coke has missed the boat regarding the coffee boom of recent years and has fallen behind the likes of Nestle and JAB, so this latest move suggests a major step in the right direction. Also, the fact that this acquisition is so small in comparison to Coke’s overall size means that it is a low-risk foray into a business (bricks-and-mortar retail) where it has a lot to learn. As one US-based adviser put it “If a large company does a smallish deal that doesn’t go well, it’s not the end of the world. But if they get it right, and it generates huge returns, they become geniuses”. This latest deal, though, will no doubt stoke the collective appetite of large consumer groups for companies such as Illy or Lavazza in Europe or Dunkin Brands in the US.

Chinese bike-share group Ofo sued for alleged $10m in unpaid bills (Financial Times, Gabriel Wildau) shows how the mighty fall as the once-funky start-up backed by deep-pocketed Alibaba is facing the ignominy of being taken to court by the venerable Shanghai Phoenix Bicycles for $10m in unpaid bills. This follows recent threats made by a smart-lock producer that it would freeze locks on Ofo bikes if it didn’t receive payment. * SO WHAT? * Bike-sharing has been a super-hot space for a while now and companies in this area have had to sink a LOT of money into it to get the necessary scale as the market has become more cutthroat. Meituan Dianping-owned Mobike has invested a ton in its fleets and is taking market share by selling rides below cost, for instance. All of this scramble for scale has led to an overcapacity in bikes, leading to a sharp drop for producers after the excitement of the last few years and now Shanghai Phoenix is calling it in. One possible escape route for Ofo is the possibility of being bought out by ride-hailing app Didi Chuxing, which has been in talks to acquire the company.

Markets ask who will go next on the UK high street (Financial Times, Jonathan Eley) takes a look at who might be next for the chop on the perilous UK high street as pound shops, fashion and homeware retailers and department stores all look likely contenders. Shares in UK food retailers have risen by 30% so far this year, but those of general retailers have gone down by about 10%. * SO WHAT? * Part of this parlous state for the general retailers could be something to do with the amount of debt they have. While food retailers have been reducing theirs, generals haven’t – making them far more vulnerable to a downturn. Stores that look particularly vulnerable at the moment include the likes of Debenhams, McColl’s, DFS and privately-owned holding companies for Goldsmiths and Oasis. Another problem they face is a weaker pound which has pushed up prices of imports. Retailers are certainly having a tricky time of it at the moment and Zelf Hussain, a partner at PwC, warned that investors should keep a close eye on retailers that have high debt levels and big store estates, particularly in fashion which can be very hit-and-miss re getting the product right.

…And finally, in other news…

Do you find it hard to nod off? Well maybe you should try this: Army’s sleeping technique that will get you to sleep in 120 seconds (Metro, Zoe Drewett https://tinyurl.com/ydx44j8r).

AND FINALLY, I thought I’d leave something amazing for those of you who like a bit of Minecraft: Japanese players spent more than four years building this modern Japanese city in Minecraft (SoraNews24, Koh Ruide https://tinyurl.com/yb97zo6w). I don’t play it myself, but even I can see how amazing this is!

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

1. In MACROECONOMIC NEWS, Argentina’s peso goes down the plughole
2. In VEHICLE-RELATED NEWS, BMW faces Korean scrutiny, Didi Chuxing faces the music and Uber looks to the sky
3. In TELECOMS COMPANY NEWS, China’s ZTE announces its worst ever loss and Vodafone does a big deal in Australia
4. In INDIVIDUAL COMPANY NEWS, Amazon braces itself for the Washington treatment, Apple looks at smart glasses, Grindr looks at a listing and Wonga goes into administration
5. In OTHER NEWS, I warn you about an incredibly annoying song heading your way. For more details, read on…

So Argentina’s having a ‘mare…

In Argentina lifts rates to 60% but fails to bolster currency (The Guardian, Richard Partington) we see that Argentina decided to lift its interest rates by a whopping 15% yesterday to 60% in a bid to arrest the fall of its currency, the Peso. The central bank pledged not to raise it again until December at the earliest.

* SO WHAT? * Argentina was already in a bad situation before the US/Turkey crisis happened, but the resulting fear of contagion in other emerging market countries has accelerated its demise. Argentina’s going to have to take a lot more action in order to restore confidence as I don’t think hiking the interest rate is going to be enough. We’ll have to keep an eye out for further developments.

In vehicle-related news, BMW gets Korean grief, Didi takes action and Uber has its head in the clouds…

It’s all going on with cars at the moment, isn’t it! Well Police raid BMW’s South Korea office in engine fire probe (Financial Times, Song Jung-a) shows that the German purveyors of self-styled ultimate driving machines aren’t immune to accusations of dodgy practices as the Seoul Metropolitan Police Agency has sent 30 investigators to BMW in Seoul to see whether the company hid vehicle defects. This action is in response to 40 BMW vehicles catching fire in South Korea so far this year which has resulted in 20,000 vehicles being banned from the road and 106,000 being recalled from August 20th. The recall covers 42 models produced between 2011 and 2016, but the government’s Transport Ministry has opened a separate broader investigation as BMW buyers have filed a collective lawsuit in Seoul against the company. * SO WHAT? * This is bad news for the luxury car marque and things have got so bad in the country that BMWs are being banned from some public car parks for fear of spontaneously combusting! I know this is going to sound flippant, but I suspect that ultimately complainants will be paid off somehow and this will all be forgotten in time – just look at VW which was responsible for one of the biggest corporate lies in history! It had a bad patch for a while, but it’s now enjoying stellar results! Or what about Samsung and their “exploding” Galaxy Note 7? No doubt BMW will have a rough patch in the short term but I think that the car industry is too important to Germany for it to be savaged too much and actions will no doubt be taken behind the scenes to ensure this all gets swept under the carpet.

Talking about scandal, China puts squeeze on Didi Chuxing after murders (Financial Times, Yuan Yang and Xinning Liu) shows that China’s Uber is in big trouble at the moment because of its involvement in two murders. A 20-year old woman was raped and killed last Friday after

using Hitch, Didi’s carpooling platform. This followed the murder of another woman who used the same service in May. Didi has 550m registered users (wow!) with 30m drivers serving 30m rides per day and Hitch is estimated to account for 10% of Didi’s bookings. Chief exec Cheng Wei and president Jean Liu said that “Didi will stop using scale and growth as our measurement of success. We shall prioritise safety as the single most important performance indicator” but the government has given the company until September to come up with a plan to address its issues and Chen Lin, assistant professor of marketing at China Europe International Business School in Shanghai, observed that although “customers are losing trust in the brand…there is no other better choice besides Didi. You can choose others, but you’d need to pick up the bill”. * SO WHAT? * This is bad for Didi – there’s no getting away from it. The government appears to be letting social media run riot on this as for three days this week “Girl murdered while riding Didi’s Hitch” was in the top ten trending topics on Weibo, the Chinese microblogging site that is a kind of Chinese hybrid between Facebook and Twitter. Although this is not great PR ahead of Didi’s potential IPO next year, there is clearly time for Didi to build that trust again in its brand, although compliance with new mandated behaviours is going to cost Didi money and dent its growth rate in the short term.

Uber shortlists five countries for flying taxi plan to take off (Daily Telegraph, Hasan Chowdbury) heralds the latest development for Uber’s ambitions to launch a fleet of flying taxis by 2023, shortlisting five countries – Japan, France, Brazil, Australia and India – that could host its UberAIR services at some point in the future. This is all part of Uber’s “Elevate” programme which it launched in 2016 and aims to provide “urban aerial ride-sharing” globally. * SO WHAT? * Sounds great, no? I also think that this is a load of rubbish and Uber’s attempt at diverting attention away from its core business. There are enough difficulties getting DRONES in the air, let alone flying taxis! What would you rather do – go somewhere in a driverless car or a flying taxi?? It will cost too much from a tech and regulatory compliance point of view and it is just a massive distraction. I like the idea, but I just don’t think it’s practical. 2023 my *rse. 3023 maybe ;0)

In telco-related news, ZTE’s nightmare continues and Vodafone does a bit of international tidying…

In Dogged by security concerns ZTE posts its worst ever loss of £877m (Daily Telegraph, James Titcomb) we see that the company that almost died because of America banning it – and then changing its mind – has dragged itself out of a deep grave via its fingernails and published some unsurprisingly disastrous numbers for the first half of the year, with revenues falling by 27%. ZTE, the maker of smartphones and telecoms equipment with the Chinese state as its largest shareholder, has been a veritable punching bag this year as various countries have hit it with bans or penalties amidst increasing national security concerns. However, it has managed to get through this via a presidential stay of execution and payment of some massive fines for flouting trading sanctions with Iran and North Korea. * SO WHAT? * ZTE said that it was in recovery mode and that it will return to profitability in the

third quarter this year with production levels normalising in recent weeks but given that Japan and Australia are just the latest countries looking at or actually restricting imports of telecoms equipment from China, I’m not sure how things can really go back to the way they were before. Corporate arrogance doesn’t necessarily pay but then again state backing can go a long way to ensure survival.

Vodafone makes splash in Australia with £8bn merger (The Times, Alex Ralph) takes a look at Vodafone’s £8bn deal to merge its Australian business with Aussie rival TPG Telecom that will combine their mobile and fixed broadband business to create “a powerful challenger to Telstra and Optus”, the other main operators in the country. Vodafone is also looking at completing its merger with Idea, a local rival in the Indian market, by the end of this month. * SO WHAT? * The telco sector often sees M&A like this as companies’ international interests wax and wane, but Vodafone is on a losing streak at the moment with its share price having fallen 28.7% so far this year and I suspect that this deal goes some way towards tidying up their international footprint. There is currently speculation that Elliott Advisors, an American activist investor, is building up a stake in Vodafone with a view to getting a voice and agitating for change so I suspect there will be more to come from Vodafone in the near future.

In individual company news, Amazon braces itself for scrutiny, Apple’s smart glasses could be the Next Big Thing, Grindr eyes a China listing and Wonga is no longa…

Washington to turn heat up on digital giant (The Times, James Dean) takes a look at how Amazon could be under increasing scrutiny from politicians as its power and influence continues to increase. Retailers complain that Amazon is eroding their business whilst simultaneously paying way less in taxes and politicians warn of consumers getting less choice. A series of public hearings is due shortly – the first of their type since 1995 – that will centre on the “identification and analysis of the collusive, exclusionary, and predatory conduct by digital and technology-based platform businesses”. * SO WHAT? * Increased scrutiny was bound to happen – chief exec Jeff Bezos said himself in an interview earlier this year that “Amazon is a large corporation and I expect us to be scrutinised. I think all large institutions should be scrutinised. I think we humans, especially inside democracies, are wired to be sceptical and mindful of large institutions of any kind”. Given that Bezos and Trump don’t get along that well, I suspect that there will be some interesting banter going on. Having said that, Amazon has been pretty impressive in the manner in which it has wended its way into the corridors of power and influence in Washington. Amazon has used 94 lobbyists and $6.9million on lobbying for things like tax, drone flight, and cloud computing for the federal government. Bezos has moved into a plush $23m residence in Washington with neighbours including Ivanka Trump and Jared Kushner, Amazon Web Services (the company’s cloud computing platform) is making increasing amounts of money from US government contracts ($2.8bn is expected this year, rising to $4.8bn next year according to GBH Insights) and Amazon Business (a procurement service for office supplies) is also trying to market itself to government agencies. Amazon will no doubt try to mitigate any accusations of tax dodging and increasing automation of the workforce by pointing to the number of jobs it creates both directly and indirectly as it expands but disgruntled retailers who feel disadvantaged by consistently having to pay more tax than Amazon will want to see the government take some action.

Apple’s deal puts smart glasses in the frame as the next ‘big thing’ (Daily Telegraph, Hannah Boland) highlights Apple’s latest acquisition, Akonia Holographics, which creates displays for augmented reality glasses and says that its technology enables “thin, transparent smart glass

lenses that display vibrant full-colour, wide field-of-view images”. It is thought that Apple’s purchase will help it overcome a common problem – how to make the tech light enough and thin enough to fit inside regular glasses frames so that they can be produced on a commercial scale. Apple’s chief exec Tim Cook believes in Augmented Reality and said that “this is one of those huge things that we’ll look back at and marvel on the start of it”. * SO WHAT? * This sounds genuinely exciting. Although I did feel sorry for Google and the demise of its Google Glass, I just think it was before its time and that if anyone can make “Glassholes” (the unofficial nickname for wearers of Google Glass) cool – it’s Apple with its “iGlasses” (see what I did there).

World’s most popular gay dating app Grindr to go public (Financial Times, Camilla Hodson and Hannah Kuchler) heralds a new era for the world’s most popular app for gay hook-ups as the app that was the forerunner of Tinder and Bumble has signalled its intention to float, although no further details were given on timeframe or listing location. Grindr is based in West Hollywood but is owned by Chinese online games company Beijing Kunlun Tech. In Grindr’s nine years of existence, the app has grown to serve over three million users worldwide. Online dating is currently dominated by Match Group, owned by IAC, which has over 45 dating brands including Tinder, Plenty of Fish and, of course, Match.com but the whole landscape is about to be disrupted by Facebook, which has stated its intention to create its own dating service. Grindr intends to use funds from the IPO to help finance the app’s development and expansion as well as making it more competitive. * SO WHAT? * I think it’s about time! Given that Grindr has really carved out a specialist niche for itself (I recall that the first I heard of it was when Stephen Fry mentioned it on an episode of Top Gear years ago!) you would have thought it would have a decent chance of surviving in an increasingly crowded market. China could also be an interesting market for Grindr as dating apps have exploded in popularity in recent years – with 43% of Chinese nationals having used internet dating, according to YouGov. Chinese social media app Momo acquired dating network Tantan (which has 30 million users) back in February for $760m, so this is clearly a fertile area.

And going from one way of getting ****ed to another, Wonga loses battle for survival (The Times, Harry Wilson) signals the collapse of the much-maligned payday lender as it went into administration. All new lending will be stopped, 500 jobs will be at risk but existing borrowers will still have to pay off their loans. * SO WHAT? * Oh how things have changed since it aimed for a $1bn stock market listing in New York less than ten years ago when it likened itself to companies such as Facebook and Amazon. Wonga subsequently attracted criticism from MPs and campaign groups for its outlandish interest rates (4,000%, anyone??) as well as its unfair debt collection practices. As if that wasn’t bad enough for the company, the FCA put a cap on the interest rates payday lenders were able to charge and they faced mounting complaints of loan mis-selling.

… And finally, in other news…

Regular readers of Watson’s Daily will know that I try as much as possible to stay at the forefront of trends – well here’s a slow-burning trend that is exploding right now in Baby shark takes a bite out of the UK Top 40 charts (bbc.co.uk https://tinyurl.com/ycz6c3yn). If you haven’t heard this already – it’s probably better not to click on this link, but if curiosity just gets the better of you, you know what to do!

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

1. In MACROECONOMIC NEWS, emerging market currencies get clobbered and Turkey’s banks get downgraded
2. In CAR-RELATED NEWS, Dyson plans an EV test site, Aston Martin and China’s NIO announce flotation plans and Waymo highlights driverless weaknesses
3. In TECH NEWS, Facebook goes global with “Watch”, Apple unveils a hugging seat and its CEO Tim Cook sells a chunk of shares
4. In OTHER NEWS, I bring you a weird hotel and the latest divisive optical illusion. For more details, read on…

So emerging markets get another kicking as ratings agency puts the boot in…

Fresh stress grips weakest emerging-market currencies (Wall Street Journal, Saumya Vaishamapayan and Mike Bird) shows renewed weakness of emerging markets currencies – particularly with the Turkish Lira and Argentinian Peso – as investors renew focus on the rising trend of US interest rates and the damage that will do to countries that have particularly large exposure to the dollar (higher rates effectively increase the cost of borrowing as the countries in question are borrowing in dollars). The Lira fell close to its all-time lows versus the dollar, with further weakness in the South African Rand and new lows for the Indonesian Rupiah, the Brazilian Real and India’s Rupee. I think that Eric Wong, a fixed-income portfolio manager at Fidelity International puts it best when he explained that “After what we saw happen in Turkey, the market started to ask what country was next: South Africa, Brazil, Indonesia. The market is still gripped at time by fear, trying to differentiate the good ones from the bad ones”. * SO WHAT? * Clearly this is a serious problem as around 48% 

of the world’s $30tn in cross-border loans are denominated in dollars and so some countries who are particularly exposed are suffering the double-whammy of a weaker currency (strong dollar) AND higher borrowing costs (interest rates going up).

As always, currency agency Moody’s makes its move well after the horse has bolted and is a fast-disappearing dot over the horizon in Turkish banks suffer downgrade (Daily Telegraph, Anna Isaac) as Moody’s decided to downgrade 20 of Turkey’s banks in (delayed) response to the central bank sticking doggedly to its stance of not raising interest rates amid ridiculously strong inflation and a freefalling currency. In its usual incisive style, the company said that “the downgrades primarily reflect an increase in the risk of downside scenario, where a further negative shift in sentiment could lead to a curtailing of wholesale funding”. * SO WHAT? * Regular readers of Watson’s Daily will by now be familiar with my view that ratings agencies are largely useless as predictors of the future – but they are great at telling us what everyone already knows. Maybe they would argue that predicting the future is not their primary role and that their job is to just come up with a credit-rating score that is “independent” and usable for others. Still, it’s like having someone tell you who won the Grand National a month after the race has finished – interesting, but would have been far more useful beforehand. However, Turkey’s cause will not be helped by this ratings change and there will be knock-on effects for other countries in the emerging markets universe.

In car-related news, Dyson looks to the future, Aston Martin and Chinese Tesla wannabe NIO announce flotation plans while Waymo shows that the way forward for driverless still has challenges…

In Dyson to build UK site to test electric vehicles (Financial Times, Peter Campbell and Michael Pooler) we see that Dyson its planning a purpose-built state-of-the-art facility to test prototype electric vehicles in a £116m expansion to its Hullavington site in Wiltshire. The site will include an off-road track, a racing circuit and office space for up to 2,000 extra workers. This is all part of the company’s plans to break into the nascent electric-vehicle industry. * SO WHAT? * This sounds very exciting and will no doubt fuel the ever-increasing hype surrounding the company that transformed the world of vacuum cleaners and made £500 hairdryers things to be lusted after. The fact is that they’ve produced precisely diddly-squat as of now, so although I’d like to get excited, I’m not really. The company is planning on bringing the first of its vehicles to market by 2021, but given that they don’t have expertise in cars, I’m thinking that the learning curve will be very steep indeed. Good luck to ’em, but they’ve got their work cut out. You would have thought that Tesla and all the other proper car manufacturers will have got their EV stuff sorted by that time so Dyson is going to have to come up with something truly revolutionary to get anywhere near competing. Even if they DO come up with something great, the next major hurdle is how they are going to produce in numbers sufficient enough to make the vehicles commercially viable. There is a looooooooong way to go!

Cool as Bond: Aston Martin shrugs off spectre of Brexit (The Guardian, Angela Monaghan) is a story that’s doing the rounds today as it is getting people shaken and stirred (sorry about that – the temptation to get a cheesy-Bond reference in there was just too great!) because Aston Martin has announced it intends to float on the London Stock Exchange with a potential £5bn price tag. The company says that will sell at least 25% of its shares, which will help it to invest in greater production volumes and new products. A prospectus is due out in September. * SO WHAT? * Although it does sound exciting, the fact is that we are fast approaching Brexit. CEO Andy Palmer argues that the company is truly global and so any sales 

weakness in one region will be compensated for by strength in others. However, Aston Martin IPO: boy racer (Financial Times, Lex) is a bit more measured in terms of enthusiasm as it warns that a £5bn is extremely toppy in valuation terms. The article points out the success Ferrari has experienced since the Fiat affiliate floated on the New York Stock Exchange in 2015 – the shares have more than doubled since then – but also says that Aston has more exposure to the UK and lacks the “free advertising” that Ferrari gets from F1 racing. Aspiration must be tempered, it seems, especially with Brexit around the corner.

Talking about cars, Chinese electric vehicle maker NIO targets £8bn New York listing (Daily Telegraph, Hannah Boland) despite concerns of slowing domestic growth and waning investor sentiment as the Tencent-backed Tesla wannabe looks to milk its hype to the max. An additional cloud hangs over the company in the form of potential trade tariffs as electric vehicles are precisely the sort of thing that Trump will be focusing on. However, a more pressing pain in the *rse for NIO is SoftBank pulls plug on plans to invest in Chinese Tesla rival (Wall Street Journal, Julie Steinberg and Mayumi Negishi) as the Japanese company that had been poised to take a sizeable stake (worth around $200m) in the company decided in the end not to do so. The reasons for pulling out were not forthcoming at this time. * SO WHAT? * There’s an awful lot of hype surrounding electric vehicle companies, but I fully expect most of them to lose out big time to the existing players given their rate of cash burn and current production limitations. I don’t care how good the tech is or how beautiful their cars are – if they can’t manufacture them in enough numbers with enough consistency, they will fail.

Waymo’s driverless cars ‘struggling to cope in traffic’ (Daily Telegraph, Hannah Boland) raises some very salient questions about the current and near-term capabilities of driverless vehicles – namely that there are far more problems than had originally been anticipated in their day-to-day functionality. A new report from The Information suggests that driverless cars are having problems with understanding the rules of the road and that their safety drivers are regularly having to take over (Uber’s safety drivers have to do so every 13 miles, apparently) – which would all suggest that we’re not as far along with the tech as we think we are regarding driverless vehicles. Waymo (owned by Google’s Alphabet) is thought to be furthest along with the tech and is aiming to have its cars on the roads with no safety drivers by 2020 when there is favourable weather and the routes are well known. * SO WHAT? * I still think we are way off having these things on our roads in any real numbers. Even when the tech gets more advanced, it will still have to overcome the hurdle of finding people brave enough to climb aboard. 

In tech news, Facebook tries to get a slice of YouTube’s action with a new service, Apple introduces a new cuddly car seat and its CEO sells off a nice chunk of shares…

Facebook goes global with ‘Watch’ feature in bid to take on YouTube (Daily Telegraph, James Titcomb) shows Facebook’s ongoing efforts to take on YouTube at videos by rolling out its “Watch” service globally. “Watch” is intended to be an alternative dedicated video hub that is tailored to individual user interests and will include things like sports, news bits and celeb videos. Watch has already been around in the States for the last year, but has largely been seen to be as a bit of a flop thus far but it has been making efforts to buy up some exclusive material such as Premier League football rights in a number of countries

and Major League Baseball in the US. * SO WHAT? * Facebook generally do quite well nicking other people’s ideas, pumping money into them and using its massive user base to boost the product, but the company is facing a tough task as a recent survey found that only 14% of Facebook users in the US tried Watch at least once a week and 50% had never even heard of it! It’s obviously possible to turn this around, but even Facebook isn’t going to find it easy.

There are two interesting stories about Apple in the press today – one of them being Shape shifting seat can warn motorists of danger ahead (Daily Telegraph, Natasha Bernal) which tells us that the company has just patented a new car seat that protects drivers by “hugging” them and vibrates to warn them of dangers on the road (aka the Haptic Feedback for Dynamic Seating System) – and Tim Cook sells $58m of Apple shares as stock hits new high (Daily Telegraph, Matthew Field), as his company continues to knock it out of the ballpark. * SO WHAT? * The seat thing is quite interesting as there’s a lot of secrecy surrounding Apple’s activities in electric cars – so any new snippet like this is always pounced on – and Tim Cook’s share sale is impressive. He’s now apparently worth something like $700m and plans to give away most of his wealth to charity.

…And finally, in other news…

Do you like horror films? Like to have the bejeezus scared out of you from time to time? Then maybe this is for you: USJ hotel’s horror-themed room is back, ensures customers won’t have a good night’s sleep (SoraNews24, Koh Ruide https://tinyurl.com/y72b4dx6). Travelodge this ain’t!!!

AND FINALLY, do you remember that whole blue/gold dress thing a while back that got everyone arguing? Well what about this one: Beach or a door? Optical illusion baffles people as nobody can work out what the photo is actually of (The Mirror, Zoe Forsey https://tinyurl.com/y7rn4qum).

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

1. In MACROECONOMIC AND MARKETS NEWS TODAY, Trump unveils a new accord with Mexico and the Nasdaq hits new highs
2. In AUTOMOTIVE-RELATED NEWS, Mexico’s manufacturers breathe a sigh of relief, Tesla hits reality, Toyota invests big in Uber and diesel parts makers face a bleak future
3. In POWER-RELATED NEWS, Asian battery growth threatens to drown out UK innovation and a lack of wind scuppers our clean energy revolution
4. In TECH NEWS, Amazon threatens food, cashiers and pharmacists as the Navy considers using un-jammable WiFi
5. In OTHER NEWS, I bring you London’s most expensive pint, an unusual tattoo and a chippy recommendation. For more details, read on…

So Trump does NAFTA 2.0 and the NASDAQ climbs to new highs…

Trump hails US-Mexico trade pact, says ‘We’ll see’ with Canada (Wall Street Journal, Jacob M.Schledinger, Josh Zumbrun and Robbie Whelan) heralds a new deal between the US and Mexico which will smooth relations between the two countries but Trump sounds a warning shot to Canada as he says it might be an exclusive party to which it will not be invited. The Trump administration will give Canada until Friday to sort out major sticking points that include things like making it harder for Nafta members to challenge US penalties. Mexico has caved on this point, whereas Canada has always said it would be “unacceptable”. In true Trump diplomatic style, he said that “I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in”. * SO WHAT? * All good headline-grabbing stuff and is no doubt designed to portray 

“tough negotiator” Trump in a good light ahead of the midterm elections. If he could sort out North Korea and tie-up China trade negotiations before then (beginning of November), well that’d be just swell for votes!

Meanwhile, Nasdaq hits new record as it passes 8000 mark (Wall Street Journal, Akane Otani) signals a new milestone as the tech index shows no signs of losing steam. It passed 7000 in January and this is the first time the index has breached two “thousands” in the same calendar year since just before the tech bubble in 1999 when it went from 4000 to 5000 in only 49 trading days. * SO WHAT? * People love this sort of thing but in of itself it just reflects the sheer strength of momentum of the tech stocks. Netflix has shot up by 90% so far this year, Amazon by 65%, Microsoft 28% and Google parent Alphabet by 19%. Naysayers will no doubt try to make parallels with 1999, but I think that while THAT bubble was powered by a “jam tomorrow” mindset with next to b*gger all in terms of concrete earnings for many, today’s tech is powered by “jam today, jam tomorrow and even more jam in the future” as each company seems to consolidate its supremacy in core areas before using deep pockets to expand into others. The current momentum looks likely to continue as gains are spread across the different indexes with the wider economy also in rude health. Sure, the tech sector influence has been outsize, but as things stand the road ahead isn’t looking too bumpy.

In automotive-related news, manufacturers in Mexico get some relief, Tesla hits reality, Toyota buys into the Uber dream but Diesel parts makers’ days look numbered…

In Mexico pact eases car makers’ concerns (Wall Street Journal, Chester Dawson and Mike Colias) we see that Trump’s new agreement with Mexico is calming concerns in the auto industry about a drawn-out trade war with its noisy neighbour. The new agreement, which is effectively replacing the old North American Free Trade Agreement (aka “Nafta”), requires a higher percentage of cars to be manufactured in the US or Mexico in order to qualify for free trade. Manufacturers will also have to commit to making sure that 40-50% of the vehicle’s content is made by workers earning at least $16 an hour (which is basically aimed at stopping Mexican workers undercutting their American counterparts). * SO WHAT? * If manufacturers don’t meet these requirements, their vehicles will have a 2.5% tariff slapped on them when they cross the border. One of the good things about this is that it gives the manufacturers something to work with, but it’s not ideal as the deal doesn’t yet include Canada. Shares of General Motors, Ford and Fiat Chrysler were up by between three and five per cent on the news. As we all know, companies don’t like uncertainty!

The whole Is-Tesla-going-private-or-not thing took a new turn at the end of last week (discussed with the Board last Thursday and announced to the market on Friday) as per Investors share the pain of Musk’s aborted Tesla bid (The Times, James Dean) which highlighted Tesla’s shares falling by 3.2% in trading yesterday as the market reacted to Elon Musk saying that he will not, in fact, be taking Tesla private after all. The shares have fallen by 18% since he threatened to take his company private back on August 7th in an apparent fit of pique and, as Jefferies analyst Philippe Houchois put it, “the only tangible results so far from that [take private] episode seem to be an SEC investigation, lawsuits and more damage to the standing of management and board”. Tesla: off road (Financial Times, Lex) says that he’s just created a whole load of needless kerfuffle when he should be more focused on production issues and that his wild actions need to be more tightly controlled whilst Tesla’s challenges are back in spotlight after going-private spectacle ends (Wall Street Journal, Tim Higgins) brings into focus the harsh reality of Tesla continuing to hit tough production targets and even exceed them given that they only managed to hit the 5,000 model 3s per week by setting up a massive tent next to their main production facility. * SO WHAT? * TBH, I think that Musk’s actions were stupid (or maybe to use the words he directed towards concerned analysts a few 

months back “bone-headed”). He should have considered what he was about to say before he opened his mouth, but on the other hand if there’s anyone who has the ability to sweep such matters under the carpet it’s Elon Musk as investors will no doubt get blinded once more by the man’s brilliance. If he manages to hit his targets consistently and in the not-too-distant future, investors will no doubt accord him hero status once more. I would have thought that some traders will see this as an interesting buying opportunity given the share price fall it has sustained in recent weeks, although one of the major risks with this company is Musk himself – if he goes, the company’s share price will crater badly.

In other car-related news, Toyota to invest £500m in Uber to develop autonomous cars (Daily Telegraph, James Titcomb and Hasan Chowdhury) shows how Toyota has put its faith where its mouth is by handing Uber a huge amount of wonga to develop driverless cars. You will recall that Uber suspended all development of such cars after a fatality in March and it has been dealing with all sorts of legal problems since then re intellectual property. * SO WHAT? *  Uber is a notorious cash burner, so the extra readies are going to come in handy as the two companies work together on driverless car safety systems. Uber already works with Daimler and Volvo – and rival Lyft has agreements in place with General Motors, Jaguar Land Rover and Google/Alphabet’s Waymo. This is a massive show of faith from Toyota in Uber and will come in very handy as the latter heads into 2019 with flotation in mind.

It shouldn’t really be a surprise to anyone, but Boom years over for diesel car parts supplier (Financial Times, Michael Pooler and Peter Campbell) looks at how falling sales of diesel-powered cars are not only hitting manufacturers such as Nissan and Jaguar Land Rover, but they are now filtering through to companies who manufacture parts for diesel engines after seeing years of growth. UK diesel sales have fallen by over 30% in the year so far, with diesels now making up 32% of new car sales. Downward momentum is continuing on the continent where diesels went from a 49% market share of new car sales in 2016-2017 to 42% in 2017-2018 but the main difference between the UK and Europe is that the UK diesel sales shortfall isn’t being made up by petrol-powered car sales. * SO WHAT? * Many parts manufacturers can switch to making parts for petrol engines, so it’s not going to be disastrous for everyone – and you could say that Brexit will mean that car manufacturers in the UK will have to source more locally (which will probably be good for some of the smaller suppliers) but then again Brexit uncertainty is leading to potential buyers sitting on their hands and not splashing out on big ticket items like cars. Tough times, but to be honest, they should have seen it coming not only from the general trend away from diesels in some of Europe’s most polluted cities, but also from the whole diesel emissions scandal sparked off by VW. I think that UK and European governments alike should be doing more to help car owners given the fact that they’ve been lied to for the last two decades about diesel’s eco-credentials. Still, that’d probably cost too much so I’m not going to hold my breath!

In power-related news, Asian batteries threaten to scupper UK innovation and lack of wind has hurt the UK’s green ambitions…

Asian battery boom threatens to pull plug on UK innovation (Daily Telegraph, Hasan Chowdhury) is an interesting article that warns about booming production of lithium-ion batteries in Asia potentially crimping innovation in the UK’s energy storage technology industry, according to Alex O’Cinneide, chief exec of Gore Street Capital which advises the Gore Street Energy Storage Fund – the world’s first energy storage fund. He says that huge take-up of electric vehicles in Asia is resulting in a ramping up of production of batteries, which is driving their production

costs down. This takes the shine off other innovations and O’Cinneide makes parallels between what is happening now with lithium-ion batteries now and innovations in solar panels a decade ago when he said “A lot of very good solar technology companies didn’t make it because you had so much product coming out from Asia at a very competitive price”.

Lack of wind puts UK’s green revolution into reverse (The Guardian, Adam Vaughan) identifies an unusual side-effect of our recent heatwave – that the resulting lack of wind has put the mockers on the UK’s “green revolution” and pushed carbon emissions up this summer, which has prompted renewed calls for more diversity in the current energy mix. Figures from National Grid show that although windfarm capacity increased by over 10% versus a year ago, the share of electricity actually supplied fell from 12.9% last year to 10.4% this summer, with some wind turbines laying idle for days at a time. I’m sure the wind will return. Now if we could somehow harness rainpower, we could be quids in ;0)

In tech news, Amazon continues to make advances and the Navy considers unblockable WIFI…

There are some really interesting articles on Amazon today! Whole Foods helps Amazon sink teeth into a tasty market (The Times, James Dean) looks at how it is continuing to make big inroads in grocery retail, which was boosted hugely by its $13.6bn acquisition of Whole Foods, the posh organic grocery chain. Shopping with no cash, cards or a checkout (The Times, James Dean) heralds the opening of its second Amazon Go store, where there are no cashier and tons of cameras and sensors (if you’re not aware of this concept, have a read of this story – it’s really interesting!) and The cure that pharmacies have been dreading (The Times, James Dean) looks at how Amazon is potentially going to be a pharmacy-killer as it entered the world of prescription drugs in June with its acquisition of Pillpack. Pharmacies can breath easy for now, because they are still protected by all sorts of legislation, but you can imagine the barriers could be lowered in the interest of providing cheaper alternatives to consumers. As Ross Mulken, an analyst at Evercore ISI pointed out, “The online experience for pharmacy is currently poor and there’s little in the way of pricing transparency in the US: people don’t know what they’re paying for drugs. That’s something Amazon could help fix”. He added that “the healthcare market has very high barriers to entry, though – partially because of legislation, partially because of the power of the entrenched players. Any incorrect delivery of a healthcare product can result in somebody dying. It’s not just about a package being late”. * SO WHAT? * Clearly, there will be a big learning curve involved here for Amazon, but if they can get that sorted, 

they will be formidable. Although I am a big fan of Amazon, its convenience and its overall cheapness, I do sometimes wonder what sort of company it will become. Without wanting to come over as some kind of weird conspiracy theorist, I believe it is building up an incredibly detailed picture of all of us as the days go by with book choices, food choices and now health. Facebook gets a lot of flak for building up creepy databases, but I think it’s nothing compared with what Amazon has (and will have). If Amazon ever suffers a serious data breach we could all be in trouble. I think I’ve said this before, but given the amount Amazon knows about us, I would have thought that insurance would be a great area for the company to develop as it would be very well placed to judge individuals’ behaviour much more accurately than your average actuary. But as far as “boring” old retail goes, given that the American grocery market alone is thought to be worth $800m per annum alone, the upside is clearly there. Walmart has a 26% market share, Kroger has 10.1% and Whole foods has 1.6%, but with Amazon’s logistics and massive customer base behind it, the growth potential is massive.

Although it’s only really tiny, I thought I’d mention Navy sees the light of unjammable Wi-Fi Technology (Daily Telegraph, Joseph Archer) because the tech involved is so impressive! Basically, an Edinburgh Uni spin-out called pureLiFi has recently attracted a £10m cash injection from Temasek, the Singapore investment fund, to further develop its tech that trasmits internet data via light rather than the current means of radio waves. Navy trials have found that this new tech is immune to interference from enemy jamming systems which means that sailors can still stream Love Island on their phones whilst in the head of battle amid claims that the tech is 1,000 times more powerful than current WiFi systems and uses less power. Cool, eh?

… And finally, in other news…

Do you like things that are “reassuringly expensive”? Well how about this: There’s a pub in London charging £22.50 a pint” (Metro, Kate Buck https://tinyurl.com/y8rp6mjx). Cheers!

Some rail commuters out there might agree with the sentiment but not go quite this far: Fed up commuter gets ‘Southern Rail are sh*t’ tattoed on his body (Metro, Tom Usher https://tinyurl.com/ybnmtmvy). Hmmm.

AND FINALLY, if you happen to be in the area, this place sounds pretty special: Chip shop is so good it has customers flying in by plane and queues can stretch for over an hour (The Mirror, Lucy Thornton and Daniel Sheridan https://tinyurl.com/ya2we296). WHAT?? It’s only fish and chips!!! Mind you, if I was in the area I think I’d have to go and see what all the fuss as about ;0)

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

1. In MACROECONOMIC NEWS TODAY, US/China talks end achieving sweet FA and Australia gets its latest PM
2. In UK CONSUMER/RETAIL-RELATED NEWS, there’s more evidence that the heatwave inspired spending, Fulham Shore shows that restaurants aren’t all disastrous and the Asda/Sainsbury’s merger gets closer scrutiny
3. In NEW BUSINESS NEWS, VW gets involved in car-sharing and Goldman Sachs brings its savings account to the UK
4. In INDIVIDUAL COMPANY NEWS, Alibaba sees a surge in revenues and gets a SoftBank injection while Qantas flies high
5. In OTHER NEWS, I bring you an unusual live performance and a potential new career. For more details, read on…

So the US/China talks achieve little and Australia gets yet another new Prime Minister…

US-China trade talks end with no sign of progress (Wall Street Journal, Bob Davis and Lingling Wei) shows how the mid-level trade talks between the two sides achieved b*gger all as they just repeated their respective stances and said nothing of a re-match. The saga continues…

Scott Morrison to be Australia’s next Prime Minister (Wall Street Journal, Rachel Pannett) tells us that Australia now has its sixth Prime Minister in ten years as 50-year old treasurer Scott Morrison ousted Malcolm Turnbull in a leadership coup. * SO WHAT? * The top job in Australia has been a revolving door as Morrison’s predecessors have been unable to hang on for a full three-year term since John Howard was in the hot seat in 2004-2007. Australia’s political situation runs at odds with its economy that has been on a 27-year run of economic growth, but uncertainty in the leadership has led to an inability to pass difficult legislation, which will become a problem at some stage. We’ll just have to see how this goes. If you are interested in a timeline of Aussie politics, have a look at ‘Brutal’ Australian politics behind demise of PM Turnbull (Financial Times, Jamie Smyth).

In UK consumer/retail-related news, there’s more evidence of heat helping us spend, Fulham Shore shows other chains how it’s done and the Asda/Sainsbury’s deal goes under the microscope…

Appetite for spending is boosted by heatwave (The Times, Tom Knowles) cites the latest findings by the CBI, Britain’s biggest business lobby, which show that retail sales in the year to August trended above the long-term average, with 29% of retailers saying that sales had improved versus the same month last year – which was better than the 13% expected by economists and the highest balance since November. * SO WHAT? * This sounds like reasonably good news for now, but the outlook for the year ahead was not so upbeat as retailers were expecting sales volumes and orders to flatten out as they cut back orders with suppliers at the fastest rate since October. In addition to this, employment expectations in this sector were at their lowest level since 2009.

On a more positive note, Restaurant group feasts on rival sites (The Times, Alex Ralph) shows that it’s not all nightmarish in the restaurant world as Fulham Shore, owner of Franco Manca and the Real Greek chains, reported a rise in revenues as it opened new outlets and

cherry-picked sites being sold-off by their less-fortunate former competitors. The company said it was due to a “slightly greater number of transactions” driven by changes to menus and the quality of its food. The shares were up by 6.8% on the news.

It’s boring, but I’ve got to mention Watchdog investigates £12bn Sainsbury’s and Asda merger (The Guardian, Rob Davies) as it signals the next inevitable step in the process as the two supermarkets attempt to get together. The Competition and Markets Authority is now launching an investigation to see whether the proposed £12bn merger could adversely affect consumers and small businesses that supply supermarkets. Chief exec of the CMA, Andrea Coscelli, said that “we will carry out a thorough investigation to find out if this merger could lead to higher prices or a worse quality of service for shoppers and will not allow it to go ahead unless any concerns we find are fully deal with”. * SO WHAT? * In days of yore (you know, before Aldi and Lidl rocked up in the UK), the UK supermarkets used to get investigated for precisely these reasons every few years it seemed. The competitive landscape has now changed considerably to the extent that deals that may have been dismissed years ago for concentrating too much power – like Tesco’s acquisition of the UK’s #1 wholesaler Booker – have gone ahead. Everyone and their dog are expecting something on these lines – CMA investigates, CMA advises that X number of stores need to close, “Sasda” strokes its chin and says that sounds like too many etc.etc., then the CMA says “well what about X number then” and “Sasda” mutters approval. Deal goes ahead after the requisite number of sites are sold and token concessions are made to suppliers. Job done.

In oil-related news, Saudi Aramco shelves its flotation plans and there’s an interesting alternative way to invest in fracking – water…

Saudi oil firm puts ‘largest ever’ flotation on hold (The Guardian, Martin Chulov) is a story doing the rounds today as stock exchanges around the world (but especially New York and London) had been salivating at the prospect of a partial float of the state-owned Saudi Arabian oil company Aramco – only for it to be “indefinitely postponed” due to concerns over its valuation. The valuation of the 5% stake was thought to be as high as $2tn at one stage – so you can see why the exchanges were falling over themselves to do the listing. * SO WHAT? * I think this is just noise – and possibly a negotiating tactic. Oil prices are relatively high at the moment and it looks like they aren’t going to weaken too much in the near future what with Iran sanctions and increasing costs for US frackers etc. so it means that there is less urgency for a flotation. Given that a sale of the stake was supposed to finance Prince Mohammed Bin Salman’s economic plan to reduce Saudi Arabia’s reliance on oil revenues, you do wonder why they are delaying – which is what makes me 

think this could be a negotiation tactic as it is in their interest to get on with it. Some say the delay is due to disagreement on the valuation, but I’d say that this is probably BS IMHO.

I thought that The next big bet in fracking: water (Wall Street Journal, Christopher M.Matthews) had an interesting angle on the fracking industry as it turns the spotlight on companies who support shale drillers. Fracking involves blasting a mix of water, sand and chemicals down big holes to release oil and gas from rock formations miles below he surface. This process also releases briny water that’s been trapped beneath ground and the problem frackers face is what to do with all this water. Just to give you an idea, energy consultancy Wood Mackenzie estimates that in some parts of the Permian Basin wells produce ten times as much water as hydrocarbons, so the race is on to invest in water waste disposal specialists. WaterBridge Resources is one such company and is building a network of pipelines that will transport water away from some of the area’s biggest producers. It announced plans for an IPO back in June and others are expected to go down the same road. Solaris Water Midstream is another company that is attracting investment from private equity firms and other investment management companies. * SO WHAT? * Given the likely increases in production, you can see why this area is red hot as wastewater firms are in prime position to benefit. I wonder whether this could be a backdoor way for ethical investors to invest in oil as they could argue that the recycling of waste water IS OK and look past the companies that they are helping.

In individual company news, Xiaomi, Avast and Target all report strong growth…

Xiaomi sees revenues rise 68pc in first results after float (Daily Telegraph, Matthew Field) heralds a return to form for the Chinese smartphone giant after a tricky float. These first results – the first since it went public in July on the Hong Kong Stock Exchange – showed strong revenue growth and profits of around $2bn – versus a loss in the same quarter last year. Just by way of reminder, Xiaomi makes cheap smartphones with thin margins – 8.8% per handset versus around 60% for some iPhones – but its cheap and cheerful phones have proved to be a hit in emerging smartphone markets like India. * SO WHAT? * Given the rocky ride it got to flotation, this was a much-needed performance. At one stage, the company bandied about valuations of $100bn but investors were having none of that and, in the end, the company had to settle for a $55bn valuation and postpone plans to list in mainland China. Shares in Xiaomi fell by around 20% in the lead up to the results versus where they were a month ago, but they gained on the positive results announcement.

In Avast secures strong growth in first results since listing (Daily Telegraph, Matthew Field) we see that the

company behind the world’s most popular antivirus software (AVG) reported a decent 10% earnings uplift versus the previous half year in its first set of results since floating on the London Stock Exchange in May. Revenues, the number of paying customers and average revenue per customer were all up and the company’s chief exec Vincent Steckler, said that “looking ahead, we are confident that we can continue to execute the strategy we outlined at IPO and we are on track to deliver on full-year guidance of high single-digit revenue growth, with slight Ebitda margin improvement”.

Following on from what I said yesterday about the success of up-market housing and furniture companies in the US, Target ‘hits bullseye’ with strong sales growth (Financial Times, Jessica Dye) shows the latest US retailer to announce a strong performance as it reported strong growth in digital sales and its best quarterly sales growth for 13 years! It topped its performance off by nudging up its full-year forecasts and its share price is now up by over 27.6% year-to-date. * SO WHAT? * This came after Walmart results knocked it out of the park last week and Lowe’s – the US home improvement chain – also had a good day yesterday despite downgrading its full-year sales growth forecast at the same time as announcing solid revenue growth for the quarter. If wage growth gathers pace, I would expect there to be more good news to come although it’s not all rainbows and unicorns – US department store chain JC Penney hit record lows last week and Macy’s got the cold shoulder from investors despite announcing generally positive results.

… And finally, in other news…

I love fireworks! Do you? When I lived in Japan, I saw some of the best firework displays I’d seen in my life at various venues although I think that fireworks here in the UK (especially the London ones at New Year) are catching up. They are a summer thing in Japan, so if you have a few spare minutes during the day, have a look at this display from a recent festival: Amazingly beautiful animated fireworks show Japan’s fireworks are on a whole other level (SoraNews24, Casey Baseel https://tinyurl.com/yd795r77). It’s quite relaxing to watch!

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

1. In MARKETS NEWS TODAY, the S&P officially has the longest bull run ever
2. In CAR-RELATED NEWS, Geely becomes China’s third largest car-maker and Continental hits the skids
3. In OIL-RELATED NEWS, Saudi Aramco gets shelved and we see another way of playing frackers – water
4. In INDIVIDUAL COMPANY NEWS, Xiaomi sees a jump in revenues, Avast has strong numbers and Target is the latest US retailer to report positive results
5. In OTHER NEWS, I bring you some impressive fireworks. For more details, read on…

So the US bull run continues…

Following on from what I said yesterday, Bull market sets record despite US turmoil (The Times, James Dean) shows how the S&P500 index, the broadest measure of American companies, reached the landmark of the 3,453rd

day of being in a bull market. A bull market is generally accepted as being a period where the stock market climbs without a drop of 20% or more (so it’s not the same as the market rising all the time), which gives leeway for “corrections” which are falls of between 10 and 20%. Trump was keen to Tweet his “congratulations” to the market by saying “Longest bull run in the history of the stock market, congratulations America”. Ironically, he might be the one to spark a correction (but not a bear market, surely – corporate is too strong at the moment for that IMHO) given what’s going on with his former cronies in the law courts at the moment.

In car-related news, Geely becomes China’s #3 and Continental hits a rough patch…

In Geely becomes China’s third-largest carmaker (Financial Times, Sherry Fei Ju and Tom Mitchell) we see that the Chinese owner of Volvo and Lotus has just overtaken Nissan, Toyota and Honda in terms of car sales in China – behind only GM and VW in the world’s largest car market. It unveiled profits at its latest results that were 36% higher than the previous year as car sales have been turning up since February when they had a bit of a blip. Other major domestic manufacturers such as Chang’an and Brilliance have, in contrast, suffered with sales falling by over 10% in the first six months of this year and Great Wall, BMW’s local partner, saw a massive 21.3% dive in sales last month. * SO WHAT? * Geely is a great success

story and it benefitted from an impressive 126% year-on-year hike in exports. Did you know that Geely now owns almost 10% of Mercedes-Benz owner Daimler and became its largest shareholder this year? Although they are doing well now, you do wonder how Geely will fare in the ongoing US-China trade war.

Continental shares suffer worst fall in almost a decade (Financial Times, Peter Campbell) highlights the German tyremaker’s second profit warning of the year as it slashed its forecasts for 2018 due to weakening sales and margins, forex fluctuations and increased warranty claims – all of which resulted in the stock falling by 14% in trading yesterday. The company has been hit by falling demand for tyres as well as higher costs involved in developing tech for hybrid and electric vehicles and increasing production in the US and Thailand. The company is due to publish third-quarter results on November 8th. * SO WHAT? * The tyre industry had been expected to perform strongly in the second half of the year as Northern Europeans buy winter tyres and demand rises in America. The industry also weathered higher raw material costs last year, so Continental’s gloom is particularly stark.

In oil-related news, Saudi Aramco shelves its flotation plans and there’s an interesting alternative way to invest in fracking – water…

Saudi oil firm puts ‘largest ever’ flotation on hold (The Guardian, Martin Chulov) is a story doing the rounds today as stock exchanges around the world (but especially New York and London) had been salivating at the prospect of a partial float of the state-owned Saudi Arabian oil company Aramco – only for it to be “indefinitely postponed” due to concerns over its valuation. The valuation of the 5% stake was thought to be as high as $2tn at one stage – so you can see why the exchanges were falling over themselves to do the listing. * SO WHAT? * I think this is just noise – and possibly a negotiating tactic. Oil prices are relatively high at the moment and it looks like they aren’t going to weaken too much in the near future what with Iran sanctions and increasing costs for US frackers etc. so it means that there is less urgency for a flotation. Given that a sale of the stake was supposed to finance Prince Mohammed Bin Salman’s economic plan to reduce Saudi Arabia’s reliance on oil revenues, you do wonder why they are delaying – which is what makes me 

think this could be a negotiation tactic as it is in their interest to get on with it. Some say the delay is due to disagreement on the valuation, but I’d say that this is probably BS IMHO.

I thought that The next big bet in fracking: water (Wall Street Journal, Christopher M.Matthews) had an interesting angle on the fracking industry as it turns the spotlight on companies who support shale drillers. Fracking involves blasting a mix of water, sand and chemicals down big holes to release oil and gas from rock formations miles below he surface. This process also releases briny water that’s been trapped beneath ground and the problem frackers face is what to do with all this water. Just to give you an idea, energy consultancy Wood Mackenzie estimates that in some parts of the Permian Basin wells produce ten times as much water as hydrocarbons, so the race is on to invest in water waste disposal specialists. WaterBridge Resources is one such company and is building a network of pipelines that will transport water away from some of the area’s biggest producers. It announced plans for an IPO back in June and others are expected to go down the same road. Solaris Water Midstream is another company that is attracting investment from private equity firms and other investment management companies. * SO WHAT? * Given the likely increases in production, you can see why this area is red hot as wastewater firms are in prime position to benefit. I wonder whether this could be a backdoor way for ethical investors to invest in oil as they could argue that the recycling of waste water IS OK and look past the companies that they are helping.

In individual company news, Xiaomi, Avast and Target all report strong growth…

Xiaomi sees revenues rise 68pc in first results after float (Daily Telegraph, Matthew Field) heralds a return to form for the Chinese smartphone giant after a tricky float. These first results – the first since it went public in July on the Hong Kong Stock Exchange – showed strong revenue growth and profits of around $2bn – versus a loss in the same quarter last year. Just by way of reminder, Xiaomi makes cheap smartphones with thin margins – 8.8% per handset versus around 60% for some iPhones – but its cheap and cheerful phones have proved to be a hit in emerging smartphone markets like India. * SO WHAT? * Given the rocky ride it got to flotation, this was a much-needed performance. At one stage, the company bandied about valuations of $100bn but investors were having none of that and, in the end, the company had to settle for a $55bn valuation and postpone plans to list in mainland China. Shares in Xiaomi fell by around 20% in the lead up to the results versus where they were a month ago, but they gained on the positive results announcement.

In Avast secures strong growth in first results since listing (Daily Telegraph, Matthew Field) we see that the

company behind the world’s most popular antivirus software (AVG) reported a decent 10% earnings uplift versus the previous half year in its first set of results since floating on the London Stock Exchange in May. Revenues, the number of paying customers and average revenue per customer were all up and the company’s chief exec Vincent Steckler, said that “looking ahead, we are confident that we can continue to execute the strategy we outlined at IPO and we are on track to deliver on full-year guidance of high single-digit revenue growth, with slight Ebitda margin improvement”.

Following on from what I said yesterday about the success of up-market housing and furniture companies in the US, Target ‘hits bullseye’ with strong sales growth (Financial Times, Jessica Dye) shows the latest US retailer to announce a strong performance as it reported strong growth in digital sales and its best quarterly sales growth for 13 years! It topped its performance off by nudging up its full-year forecasts and its share price is now up by over 27.6% year-to-date. * SO WHAT? * This came after Walmart results knocked it out of the park last week and Lowe’s – the US home improvement chain – also had a good day yesterday despite downgrading its full-year sales growth forecast at the same time as announcing solid revenue growth for the quarter. If wage growth gathers pace, I would expect there to be more good news to come although it’s not all rainbows and unicorns – US department store chain JC Penney hit record lows last week and Macy’s got the cold shoulder from investors despite announcing generally positive results.

… And finally, in other news…

I love fireworks! Do you? When I lived in Japan, I saw some of the best firework displays I’d seen in my life at various venues although I think that fireworks here in the UK (especially the London ones at New Year) are catching up. They are a summer thing in Japan, so if you have a few spare minutes during the day, have a look at this display from a recent festival: Amazingly beautiful animated fireworks show Japan’s fireworks are on a whole other level (SoraNews24, Casey Baseel https://tinyurl.com/yd795r77). It’s quite relaxing to watch!

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

1. In MARKETS AND CRYPTOCURRENCY NEWS TODAY, the S&P goes for a record bull run and the Winklevoss twins attempt to take Bitcoin mainstream
2. In RETAILER NEWS, India’s Flipkart makes an acquisition, House of Fraser’s Oxford Street store survives and Sainsbury’s falls behind its rivals
3. In INDIVIDUAL COMPANY NEWS, Slack gets a hefty valuation at its latest fund raising, Toll Brothers unveil storming profits and La-Z-Boy has comfortable sales
4. In OTHER NEWS, I bring you a chastened caped-crusader. For more details, read on…

So the US bull run continues and the Winklevoss twins try to make Bitcoin more widely acceptable…

S&P 500 hits new high on way to record bull run (Financial Times, Nicole Bullock) highlights continued strength in the S&P as it moves to within a day of being the longest bull run on record. Strong corporate earnings and the continued effects of Donald Trump’s tax cuts seem to be keeping the negative forces of trade wars and rising interest rates at bay but pessimists fear that this boom has just been fuelled by cheap money and unprecedented amounts of central bank stimulus. Some would also worry about the inordinate rise in influence of the FAANGS in recent years, but yesterday the Dow Jones Transportation index (which includes America’s largest airlines and freight railways) also hit new highs, as did the Russell 2000 index of smaller companies. * SO WHAT? * As the saying goes, even a broken clock is right twice a day. Consistent naysayers are bound to bang on about the cheap money etc etc but they’ve probably been “wrong” for a very long time. As I often say, being “right” is admirable but being able to spot the trend just before everyone else spots it and having the conviction to stick with it and ride the wave is far more impressive. Sure, the unusually long period of ultra-low interest rates and stimulus pumped into many of the world’s economies has had a boosting effect – but that’s what they were SUPPOSED to do! Solid corporate earnings, Trump’s tax windfall and rising wages are all 

playing their part in the rise of the index and although the tax windfall effect in particular will drop off, the other two could well compensate for it. As far as I’m concerned, there are two major risks – firstly, the effects of a global trade war and secondly, Trump getting impeached. On the trade war front, I am inclined to believe this will ultimately prove to be a storm in a teacup. Everyone needs resolution and so one will be found hopefully sooner rather than later – and when that happens there will be a sudden trading boom IMO. Re Trump’s potential to be impeached, the latest court shenanigans involving his national security adviser, personal lawyer, campaign chairman, deputy campaign manager and foreign policy aide could yet implicate him in unwelcome legal attention. I don’t really think this will happen but the more people closest to him get caught up the more pressure he will be under. If HE goes, then panic is likely to ensue.

In The Winklevoss twins move to take Bitcoin mainstream (Daily Telegraph, James Titcomb) we see that Cameron and Tyler Winklevoss, who famously sued Mark Zuckerberg over the creation of Facebook, have launched a self-regulating industry group called the Virtual Commodity Association to “promote fairness, transparency, risk management and liquidity” in the market. Four of the biggest cryptocurrency exchanges have signed up to the VCA. * SO WHAT? * The Winklevosses have tried and failed on two occasions to launch an Exchange Traded Fund (ETF) as the US Securities and Exchange Commission refused to approve it because it believes that trading could be open to manipulation. Although forming this self-policing association is certainly a way of moving Bitcoin closer to the mainstream, I think it’s unlikely to get an official seal of approval any time soon given the scepticism it faces from the Establishment. Less volatility via more openness is key here and I’m sure that’s what the twins hope the VCA will bring to the party.

In retail news, Flipkart makes an acquisition, House of Fraser’s Oxford Street Store is saved and Sainsbury’s lags its competitors…

Flipkart acquires speech recognition start-up Liv.ai (Financial Times, Simon Mundy) heralds an acquisition by Indian e-commerce group Flipkart of Bangalore-based start-up Liv.ai which develops AI-driven software enabling smartphone users to dictate texts in ten different local languages from Hindi to Malayalam. * SO WHAT? * This sounds like a canny move (although Flipkart didn’t say how much it cost) as a report published this month by Bain & Company found that only 40% of India’s 390m internet users made online transactions, with most of these being in a higher income bracket. The theory would suggest that in order to get access to the remaining 60%, companies need to look beyond affluent English-speakers – hence why this latest move could help Flipkart forge ahead of rivals such as Amazon. Currently, Flipkart’s interface is only in English. The Bain-led report estimated that this push for new users could add $50bn of sales to the Indian e-commerce industry, which is more than double last year’s revenues of around $20bn.

In other retail bits, Deal saves House of Fraser’s flagship Oxford Street store (The Guardian, Angela Monaghan) shows that the Oxford Street flagship store has managed a

stay of execution as its new owners, Sports Direct, managed to renegotiate things with the landlord to keep it going. It was due to close under the terms of the Company Voluntary Agreement announced back in June. * SO WHAT? * I think that James Keany, head of national agency at real estate group CBRE, put it best when he said “This deal only happened because all parties realised it was better to keep the store open and fully operational”. If I was being a cynic, I’d say that Sports Direct had the landlords over a barrel on this – which company in its right mind would want to take on retail space the size of House of Fraser in Oxford Street when retail spending isn’t exactly firing on all cylinders?? I am sure that Sports Direct will replicate this tactic up and down the country – lower your rent, landlords, or we’ll just pull out and leave a massive hole on your high street.

There’s a bit of gloominess on Sainsbury’s in Sainsbury’s trails major rivals despite heatwave boost (Daily Telegraph, Ayesha Javed) as a report published by Kantar Worldpanel showed that it was the worst performer of the major UK supermarkets in terms of sales and market share but then Mega-merger gets the thumbs up (The Times, Deirdre Hipwell) highlights a major Sainsbury’s shareholder as backing the £12bn merger with Asda saying that that it would help it catch up with Tesco. Martin Walker, UK equities fund manager at Invesco Perpetual (which is Sainsbury’s #3 shareholder) said that “There are some real positives here in this deal and when I appraise it financially the earnings accretion are huge. The synergy costs are conservative and could be much bigger, but what I am most interested in is that the deal would appear to offer returns in excess of Sainsbury’s cost of capital”. I’m still not convinced…

In individual company news, Slack gets a big valuation, Toll Brothers sees profits jump and La-Z-Boy has strong sales…

Slack valued at $7.1bn after new capital raising (Financial Times, Hannah Kuchler) highlights a huge rise in the perceived value of the workplace chat app as it raised $472m in its latest financing round which has effectively boosted its valuation by 40% in under a year. Slack has so far raised almost $1.3bn in its mission to become the backbone for businesses by replacing e-mail with a social media-like app that integrates with company software. Slack has 8m daily active users who use it for free and 70,000 who pay for it at customers including IBM,

eBay and BuzzFeed. Slack wants the money to help it expand the business. It now has 1,000 employees in eight offices around the world. * SO WHAT? * Wow! The more money it raises the more it will be able to make itself the go-to option for business. I just wonder whether WhatsApp’s new business platform (WhatsApp Business) will be able to spoil its party. I’m sure there’s room for both of them, Facebook-owned WhatsApp will have the spending power to bring it up to speed very quickly.

There are more signs that America’s economy is chugging along nicely as Toll Brothers profit jumps as wealthy Americans spend (Wall Street Journal, Laura Kusisto and Harriet Torry) shows that wealthy Americans are exuding confidence by buying new homes (Toll Brothers is one of the country’s biggest builders of high-end homes), with the company reporting a 30% rise in profit for the latest quarter and La-Z-Boy sales rise, helped by price increases (Wall Street Journal, Josh Beckerman) shows that they are flush enough to spend on new furniture. The company’s success helped to power the shares up by over 20% in after-hours trading!

…And finally, in other news…

We all know that crime doesn’t pay – and that even goes for superheroes too, apparently, in Amazing scenes as Batman lookalike is pulled over by cops for “speeding” in Batmobile (The Mirror, Laura Forsyth https://tinyurl.com/y9d52oxm). I wonder whether he pulled the “Do you know who I am?” card?!

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

1. In MACROECONOMIC NEWS TODAY, Venezuela gets drastic with its currency and Qatar steps in yet again for Turkey
2. In ELECTRIC VEHICLE-RELATED NEWS, Tesla’s nightmares continue and the City of London considers banning non-EVs
3. In M&A AND IPO NEWS, Pepsi buys SodaStream, Tyson buys Keystone and Ant Financial postpones its flotation plans again
4. In OTHER NEWS, I bring you some impressive mattress skills. For more details, read on…

So Venezuela ditches zeros and Qatar pledges more for Turkey…

Venezuela lops five zeros off the bolivar to halt economic collapse (Financial Times, Gideon Long) highlights some drastic action as the government devalued Venezuela’s currency by 95% as part of a desperate attempt to address an annual inflation rate of over 80,000% (which the International Monetary Fund thinks will hit 1m% this year). It is also slashing fuel subsidies and hiking up the minimum wage by 3,000%. From today, Venezuelans will see the introduction of new banknotes called “the sovereign bolivar”, with a 500 new bolivar note being worth 50,000,000 old bolivars (around $8 at the current black market rate). President Nicolas Maduro announced that the new bolivar will be pegged to the petro, a state-run cryptocurrency he launched earlier this year with an exchange rate of 60 new bolivars to the petro, which is itself worth $60. * SO WHAT? * Insane. Here are some fun facts: the petro is not recognised on any trading platform and the government can just pump them out whenever it wants to (“he [Maduro] might as well have chosen pegging it to unicorns”, according to Russ Dallen, head of Caracas Capital). Venezuela now has the highest inflation rate ever recorded in Latin America (beating Nicaragua in early 1991) and “the steepest plunge in activity endured by any Latin American country in the past 40 years”, according to 

London-based consultancy EM Funding. According to IMF data, Venezuela’s economic contraction of 47% over the past five years is worse than the deep recessions in Peru in the early 90s and in Argentina in the early 2000s. The massive rise in the minimum wage (from less than $1 to around $30) is supposed to help workers cope with the huge price increases, but employers are tearing their hair out and saying that job cuts are inevitable. Maduro said that he wants to increase pump prices to international levels by phasing in cuts to fuel subsidies that have made petrol virtually free in the country, creating a massive black market in fuel that is taken across the border to Colombia and sold at a profit. Extreme situations require extreme measures – but I hope that Maduro’s unfortunate countrymen can cope with the new moves.

Qatar agrees $3bn currency swap with Turkey (Financial Times, Andrew England and Laura Pitel) shows that Qatar is stepping up to help Turkey, by agreeing a $3bn currency swap (which will effectively give Turkey indirect access to dollars) to help the country’s financial system, as part of the $15bn it pledged to invest last week as Turkish authorities attempt to arrest the slide in the lira caused by concerns over monetary policy and an overheating economy. * SO WHAT? * Qatar’s show of solidarity with Turkey is payback for the time when the latter came to the former’s aid as Qatar suffered an embargo last year from Saudi Arabia, the UAE and Egypt. We’ll see soon enough whether this boost will be enough to bring Turkey back from the brink and save face for Erdogan who STILL refuses to hike interest rates.

In electric vehicle-related news, Musk continues to suffer flak and the City considers EV zones…

Tesla had a bad day yesterday as JPMorgan cuts Tesla target over lack of buyout funding (Financial Times, Mamta Badkar and Shannon Bond) highlights a dramatic about-turn by the analyst who raised his price target to $308 the day after Musk tweeted he had enough backing to take the company private and then cut it yesterday back down to $195, the level it had been prior to “tweetgate”. The analyst said, in his updated note, that he did not believe the funding had been secured and that he was reverting to valuing the company on its fundamentals. Doubt over Musk’s plan sees Tesla shares fall (Daily Telegraph, James Titcomb) shows further potential problems as there are rumours that Saudi Arabia’s Public Investment Fund (PIF) – the very one that Musk claimed was backing a buyout – is currently looking at putting as much as $1bn into Lucid Motors – a California car maker involving several ex-Tesla engineers. Some Tesla suppliers fret about getting paid (Wall Street Journal, Tim Higgins, Marc Vartabedian and Christina Rogers) puts the boot in further as it cites the results of a survey conducted by a well-regarded automotive supplier association (the Original Equipment Suppliers Association) which found that the

majority of respondents (admittedly, from a rather small sample) believe that Tesla is now a financial risk to their companies. * SO WHAT? * Tesla is definitely not having a fun time at the moment and if current investigations find that Elon Musk lied about having secured a backer, things will get a whole lot worse. Like I said yesterday, the shares could plunge to such an extent that the PIF DOES scoop it up for way less than $420 and bag itself a “bargain” of sorts. It could then, years later when everyone has moved on, put it back ON the market so that it can sell off a chunk to crystallise some of the value of its investment, keep a controlling stake and sit back and watch the money roll in! This is purely hypothetical of course! As far as these stories go, though, analysts change their target prices all the time (so nothing particularly surprising there), the PIF is probably just spreading its exposure to Lucid Motors (which it is perfectly entitled to do. Yes, $1bn is chunky, but then again so is its investment in Tesla) and the Tesla supplier thing is annoying, but the WSJ always seems to have something negative to say about Tesla and the survey it mentions is very narrow. I’m not particularly a Tesla fanboy – I’m just trying to give you a balanced view.

City of London weighs limited ban on non-electric vehicles (Financial Times, Leslie Hook) is an interesting article which shows that the City of London is looking at having a “low-emission” street and banning non-electric vehicles from it as levels of nitrogen dioxide have been above legal limits since 2010. * SO WHAT? * OK, so this is only slightly more than a twinkle in the eye of authorities, but it shows the way thinking is going. Stuff like this will continue to put the die in diesel as more and more cities consider going in this direction.

In M&A and IPO news, Pepsi gulps up SodaStream, Tyson buys Keystone and Ant Financial postpones its IPO again…

Pepsi’s $3.2bn SodaStream deal puts fizz into healthier drinks (The Guardian) is a story doing the rounds this morning as Pepsi tries to take the fight to Coca-Cola by buying SodaStream – the company founded in the UK in 1903 and now owned by Israelis – at a 10.9% premium to Friday’s closing price. The deal is expected to complete by January and Pepsi says that the company will benefit from its strong distribution power. * SO WHAT? * Sounds reasonable on a strategic basis and there is a lot of upside to go for! Given that it was the gadget to have in the 70s and 80s, there is some evidence that a market has been there in the past – it’s just whether newer generations will take it up. Apparently, 16% of Swedish households have a SodaStream currently according to PepsiCo/SodaStream: bubble economics (Financial Times, Lex), so if Pepsi could replicate at least some of that Swedish success elsewhere, then happy days!

Tyson Foods to acquire Keystone Foods in $2.16billion deal (Wall Street Journal, Jacob Bunge) heralds a deal by Tyson Foods to buy a top meat supplier to fast food chains including McDonald’s in an effort to boost sales and get economies of scale as tariffs squeeze US meat companies. This all-cash deal will push Tyson’s business mix towards higher-profit products like chicken nuggets and fish fillets and away from “commodity meat” whose margins are thinner and whose prices are more volatile. Tyson is the largest US meat supplier by sales.

In Ant Financial IPO plans pushed back again (Financial Times, Henry sender and Louise Lucas) we see that the much-anticipated Initial Public Offering (IPO) of Ant Financial, the electronic payment affiliate of Alibaba valued at $150bn in its recent June fundraising, will be delayed yet again as it continues to burn cash and come under increasing pressure from Beijing, which is cracking down on non-traditional financial institutions. * SO WHAT? * Big financial services companies are tiring of this non-bank behaving like a bank but not having to adhere to tighter restrictions and authorities are now starting to take a much closer look at some of Ant Financial’s core businesses such as micro lending and wealth management, according to Ant Financial: a bug’s life (Financial Times, Lex). It looks like Ant Financial has some growing up to do…

…And finally, in other news…

Yesterday, I brought you some impressive tempura-making skills – well what about something a bit more outdoorsy today: Man successfully surfs inflatable mattress over giant wave (Metro, Zoe Drewett https://tinyurl.com/ybh2twhv). Duuuuuude!

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

1. In RETAIL-RELATED NEWS TODAY, we see US companies pass costs on to consumers, how the Asda/Sainsbury’s deal stacks up and online vs offline growth
2. In CAR-RELATED NEWS, Tesla short-sellers are sitting pretty and car makers look at making money from data
3. In OTHER NEWS, I bring you an inadvisable cooking technique. For more details, read on…

So US companies pass higher costs on, the Asda/Sainsbury’s tie-up gets closer and offline suffers from online growth…

US companies push rising costs on to customers (Financial Times, Andrew Edgecliffe-Johnson) shows that big US companies are confident enough to pass on rising freight, labour and raw materials costs in the form of higher prices to the end-customer as everyone got a boost from Trump’s tax reforms in December whilst the labour market remains super-tight. Companies who have announced upcoming price increases include the likes of Coca-Cola, Kraft Heinz, Stanley Black & Decker, Whirlpool, Caterpillar, Kimberley-Clark (which makes Kleenex and Huggies etc.) and Newell Brands (which makes Rubbermaid containers and Sharpie pens, etc). Goldman Sachs analysts pointed out that “following the best earnings season since 2010, S&P 500 profit margins have now risen to an all-time high” but that a combination of the fading of the tax cut boost, slowing of global growth and likely rise in wage pressures and interest rates will eventually take the edge of the current euphoria.

Asda merger may force sale of 300 stores (The Times, Deirdre Hipwell) suggests store disposals that could be necessary to complete Sainsbury’s £12bn merger with Asda, with the enlarged entity being billed by Sainsbury’s chief exec Mike Coupe as “a vibrant company that can compete with the Amazons and the Lidls and the Aldis of this world”. On the other hand, a senior supermarket industry executive puts a rather different spin on it in A bargain buy, but does it actually stack up? (The Times, Deirdre Hipwell) when he said that the merger “is a complete bugger’s muddle…as these are two brands that have nothing in common. Asda is a one-club golfer whose club was nicked by Aldi and Lidl. Asda is not a better business for having been owned by Walmart and it will not be a better business by being owned by Sainsbury’s, which has not an ounce of discounter in its blood”. The Companies and Markets Authority (CMA) is likely to look at food prices, petrol prices (did you know that the Big Four supermarkets account for almost 45% of the fuel sold in the UK?) and clothing (with Asda’s George being the #2 in value clothing behind Primark and Sainsbury’s Tu being #6)

as part of its scrutiny of the deal.   * SO WHAT? * I’ve always thought that this “Sasda” deal comes more from desperation rather than aspiration, whatever Mike Coupe thinks. Both Sainsbury’s and Asda have suffered over the years from the continued onslaught of the German discounters and I wonder whether their combined new slogan should change from “Save Money. Live Better”/”Live well for less” to “If you can’t beat ‘em, join ‘em”. If the enlarged entity has to sell some outlets in order to go through, it’s not that obvious as to who the buyers might be as Waitrose looks unlikely to open new stores, M&S has scaled back its store openings and the Co-op, along with Aldi and Lidl, operate from smaller locations. Tesco and Morrisons could be in the frame, but they already overlap in around half of the 300 locations identified by The Times. FWIW, I think that disaster is likely as both supermarkets could lose their identity and potentially alienate customers with an ill-defined remit. I think that Sainsbury’s should put all its discount-related aspirations into Asda to really get it to take on the likes of Aldi and Lidl and keep Sainsbury’s as its more “up-market” offering. I think that making a distinct difference would be preferable to making some third wishy-washy identity that combines the two as the cultures are just so different.

High street suffers as online marketplaces triple in popularity (Daily Telegraph, Matthew Field) cites a report from payment provider Stripe which says that internet and app shoppers are increasingly spending on digital marketplaces like Deliveroo, Booking.com and Airbnb rather than going direct to retailers, with the growth rate tripling every year. This trend in spending is hitting food and restaurants, with a report from UBS saying that the global food delivery market was now worth $30bn, with “millennials” three times as likely to order via food delivery apps than their parents. * SO WHAT? * This is just further evidence of how online growth is hurting offline survival. I will say, though, that I think that food delivery will fall sharply at some point in the not-too-distant future as punters realise that ordering take-out is expensive versus making meals yourself, however cheap the delivery charge, and is an extraneous expense that can be cut very easily. Generally speaking, though, I think that high street retailers and restaurants will really have to concentrate on providing better experiences in order to keep customers coming in and spending because it’s something that they CAN do and the online retailers can’t. If they can make shopping more of an emotional experience, they will not only be able to get punters coming through the door – they may be able to make them part with more cash when they are there as well!

In car-related news, Tesla short-sellers are sitting pretty and we look at what your car is saying about you…

Despite Elon Musk’s best efforts to stick it to them with his mischievous/litigious recent tweet, Tesla short-sellers sitting on profits of $1.2bn (Financial Times, Shannon Bond and Robin Wigglesworth) shows how well the short-sellers have done since he made that fateful tweet. Although shares went 9% higher initially, they are now 19% below what they were beforehand. The market remains sceptical of his ambition to buy out existing shareholders at $420 a share and some, such as Crispin Odey, a prominent UK hedge fund manager, believe that “Tesla feels like it is entering the final stage of its life”. * SO WHAT? * You never know, but Musk may yet have the last laugh if he DOES find the backers. The thing is, though, if he REALLY had secured funding to take the company private why didn’t he come back with details when regulators asked him straight away? The fact that it is dragging on would suggest that he is desperately trying to backfill his promises and getting entities like Saudi Arabia’s PIF to stall things by saying that they were in the frame all along. At this rate, if Musk is found guilty of lying to the market in his tweet, he will not only get punched in the face with fines from the regulator AND payment of damages to investors who are taking him to court over it currently, he will also get kicked in the balls by the short-sellers he aimed to p!ss off in the first place as the shares plunge even further. This could potentially make his position untenable – and if he had to leave, I think the shares could plummet towards zero because in reality Elon Musk IS the company. No-one else will be able to raise money like he can and given that Tesla burns cash like there’s no

tomorrow, it really could come to a sticky end. I hope it doesn’t go this way because it is an innovative company and its leader is a very impressive individual – but if Musk has lied, he deserves everything he has coming to him. Hedge funds, on the other hand, will be laughing all the way to the bank. The Saudis could then buy the whole company at a fire sale price and perhaps reinstall Musk in a senior position, but do it all behind closed doors.

In Talking about cars, What your car knows about you (Wall Street Journal, Christina Rogers) we learn that car makers are collecting increasing amounts of data from your car and that they are thinking about how to make money from it. Modern cars generate data that tracks everything from your location to how hard you are braking to whether or not your windscreen wipers are on – and then stores that somewhere on a cloud-based server. Manufacturers are using this data to improve car performance and identify problems early – but they are also using it to provide more personalised services to drivers. For instance, Hyundai is launching a programme that collects vehicle data on driving habits such as how hard you’re braking and how many miles you travel and using it to get owners discounts with car insurance. Other ideas include using the data to generate in-car adverts or selling it to mapping firms to get more accurate traffic info. GM is planning on introducing a new feature that can tell when you are running low on fuel, which then generates a coupon on the car’s display that you can used at a nearby petrol station! How amazing is that?!? * SO WHAT? * This is a very interesting area of potential growth for car manufacturers because at the moment they make money from the cars themselves and possibly finance and maintenance. Providing services like those described above gives them another handy income stream to the extent that McKinsey & Co believes that monetisation of such data will be worth up to $750bn by 2030. The major sticking point is going to be user buy-in as it is unclear how much drivers are willing to sacrifice in the way of privacy for convenience. Still, it looks like an interesting way forward!

…And finally, in other news…

I bring you an inadvisable yet quite impressive cooking technique in Master tempura chef in Hamamatsu uses his bare hands to cook with boiling oil (SoraNews24, Casey Baseel https://tinyurl.com/ydzalkyo). Yee-ouch! Do NOT try this at home!

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

1. In MACROECONOMIC AND COMMODITY NEWS TODAY, the US and China prepare to talk, Trump continues to turn the screw on Turkey and the gold price reaches new lows
2. In RETAIL-RELATED NEWS, American department store JCPenney has a shocker, Walmart unveils strong numbers, Amazon considers price comparison and UK retail sales show the contrast between online and offline
3. In OTHER NEWS, I bring you a bit of nostalgia. For more details, read on…

So there’s talk about talks between the US and China, Trump ups the stakes on Turkey and gold hits new lows…

US, China to resume trade talks as tariffs bite (Wall Street Journal, Chao Deng and Bob Davis) shows a mini-breakthrough in the current trade dispute as both sides have agreed to low-level talks later this month amid the ongoing tit-for-tat trade tariff war. If they go ahead, the talks would be the first that both sides have had for two months! * SO WHAT? * Talks about talks! Nothing to get too excited about here, although it’s a start. Will they be enough to stop/delay US plans to slap tariffs on $200bn-worth of goods in the next few weeks? My money’s on there being a delay (because surely this is a blunt tactic designed to get them to the negotiation table).

Far be it from me to say “I told you so” but Threat of new US sanctions hits fragile lira (The Times, Robert Miller) heralds renewed pressure on the Turkish lira after the US said that it would impose additional sanctions if it continued to refuse to release the American pastor at the centre of this, Andrew Brunson (and by the way, if you want to know more about him, you should really read this: The evangelical pastor at heart of Turkey’s dispute with US (Financial Times, Ayla Jean Yackley and Laura Pitel)). The lira had a bit of a respite in recent days following Qatar weighing in with $15bn-worth of assistance, but it fell back

again versus the dollar. The newly-appointed finance minister, Berat Albayrak (who is also President Erdogan’s son-in-law), talked a good game on a massive conference call yesterday, saying that Turkey was well aware of the challenges facing it but that his banks were healthy and the country could ride this out. * SO WHAT? * Horse-sh!t! Turkey is standing on the precipice of one almighty testosterone-induced **ck-up. The problem is that Erdogan continues to back himself into a corner and will  potentially do things like strike some kind of economic deal with Russia and stop accepting immigrants, creating headaches for both the US and Europe alike. My feeling is that this is something that is just getting blown up into something that it needn’t have become and neither side can back down without some kind of major shift. In this game of chicken (or should I say “turkey”) no-one is looking like blinking at the moment.

Given that global growth is said to be slowing down and that trade wars between the US, China and Europe are ongoing Gold hits 19-month low as dollar strengthens (Financial Times, Henry Sanderson) seems to be rather counter-intuitive in some ways given that investors tend to reach for the shiny stuff when they think things are going down the pan. Total gold demand for the first half of this year was at its lowest level since 2009, according to the World Gold Council, and it seems that there could be more weakness to come as central banks in emerging markets who are seeing their currency getting mullered become distressed sellers of gold to stem the slide. * SO WHAT? * The prospect of further weakness – coupled with the fact that the US economy continues to be going from strength to strength – will probably mean that the contrast in fortunes of the dollar and gold price will get even more pronounced as punters just plough their money into buying the dollar.

In retail-related news, JC Penney has a ‘mare, Walmart knocks it out of the park, Amazon scares the bejeezus out of price comparison sites and UK retail figures reflect a mixed bag…

Some readers will really think that I’ve got it in for department stores – and they’d be right ;0). Although some of the American ones are doing OK (Macy’s and Nordstrom, for instance) JC Penney shares plunge to record low as it cuts full-year outlook (Financial Times, Mamta Badkar and Eric Platt) is one that isn’t – and it lowered its full-year outlook after posting sluggish quarterly sales and deeper losses sending its shares down by a whopping 27.4% to a record low of $1.75 before recovering slightly to being down by “only” 25% on the day. The company has been without a chief exec since May. * SO WHAT? * Although JC Penney has tried various initiatives to turn things around – like introducing private labels, opening more Sephora beauty stores and broadening its range of home appliances –  it is still suffering from the wider malaise of consumers continuing to migrate to online shopping as well as paying the price for store over-expansion. To take an analogy I mentioned earlier this week (“you can’t polish a “t*rd, but you CAN roll it in glitter”), whilst Nordstrom and Macy’s may well be polishing t*rds, JCPenney is at the stage where it is trying to roll itself in glitter (but not much is sticking). They all need to wake up and shake up otherwise they’ll be gone in ten years IMHO. More on that in a soon-to-be published report!

In contrast, there’s good news in Walmart logs on for best sales leap in decade (The Times, James Dean) as Walmart’s online shopping business helped to power its

best sales performance in ten years! Store sales in the US – its home market – were almost double the level of market expectations – and even Asda (which is owned by Walmart) did well, posting its fifth quarter of growth in a row. The shares were up by 9.3% in New York trading.

Britain’s biggest insurance comparison websites were running for cover yesterday in Comparison sites left reeling by Amazon plan to launch rival (Daily Telegraph, Natasha Bernal) after reports suggested that Amazon was in talks to launch a rival offering. The UK market is dominated by GoCompare (whose shares fell by 10.2%), Moneysupermarket,com (down by 5.2%) and Confused.com (whose owner, Admiral, saw its shares drop by 2.4%) and the prospect of an entry by a deep-pocketed rival with a good track record is clearly unsettling for them. The top four insurance comparison websites in the UK (all of the ones above,plus comparethemarket.com) have 85% of the market stitched up but have rested on their laurels somewhat. Amazon is about to give them an almighty kick up the jacksy. * SO WHAT? * It certainly sounds like this market is ripe for a disruptor and Amazon’s massive customer base, cutting edge tech and very deep pockets will prove to be tough competition. However, it’s not a certainty that Amazon will smash it as Google launched Google Compare in 2015 to provide car insurance but it folded after a year as it failed to generate enough revenue.

Online retail sales soar but high street suffers (Daily Telegraph, Tim Wallace) cites the latest data from the Office for National Statistics which show that retail sales were up by 0.7% versus the previous month and by 3.5% versus July last year but internet sales saw an annual growth rate of 16.9% – the fastest increase recorded so far this year! Laith Khalaf, of Hargreaves Lansdown, observed that “Even if more traditional stores are switching to the online channel, that means they need less physical space to sell stuff from. That spells more store closures, which clearly does nothing to attract people to the high street and is likely to contribute to declining footfall”.

…And finally, in other news…

I thought I’d leave you with a bit of nostalgia today (or a look into a history that you never knew, depending on your age!) with 19 things everyone who grew up in the ‘90s will instantly recognise (Metro, https://tinyurl.com/ydhcs6vx)

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

1. In MACROECONOMIC NEWS TODAY, Emerging markets fall while the Turkish Lira rallies, sterling drops and UK inflation outpaces wages.
2. In REAL ESTATE NEWS, New Zealand bans foreign buyers and London sees a sizeable price drop
3. In INDIVIDUAL COMPANY NEWS, Tencent announces a rare profit fall, Tesla gets subpoenaed and Uber narrows its losses
4. In OTHER NEWS, I bring you KFC’s new clothing line and a bizarre city promo video. For more details, read on…

So emerging markets fall as Turkey gets a supporter, Sterling falls and UK inflation grows faster than wages…

Emerging markets index falls into bear territory (Financial Times, Robin Wigglesworth, Adam Samson and David Sheppard) sets the scene as emerging markets saw their steepest fall for six months on the back of weaker commodity prices, currency falls and disappointing results from Tencent (which we’ll go into later). The FTSE Emerging Index fell by 2.3% at one point yesterday taking the benchmark’s decline since peaking on January 26th to over 20% – the definition of a bear market. Markets
have been spooked by the Turkey vs USA shenanigans since last week and Tencent is the biggest member of the index, so disappointing results had a major effect.

In Turkish lira rallies as Qatar steps in with £12bn pledge (The Guardian, Sean Farrell and Graeme Wearden) we see that Qatar has swooped in to save Turkey (at least for the meantime) by pledging loans worth £12bn, which could help Turkey avoid having to go the International Monetary Fund (IMF) to ask for emergency funding (well, at least for the moment). The lira jumped up by 6% after the Qatari pledge and a separate move by Turkey’s central bank to shore up the finances of its banks. * SO WHAT? * This is all very well, but Trump could just 

ratchet up the sanctions and wait to hear Erdogan’s frustrated screams of pain. In the meantime, Erdogan remains defiant as his government more than doubled the tariff on rice to 50%, pushed up the coal tariff from 10% to 14% and tripled the car tariff to 120%! I don’t know how Erdogan thinks he can win a p!ssing contest against Trump, but I guess it makes him look feisty to the people who recently re-elected him. If he just released that pastor Andrew Brunson and let his central bank raise interest rates, this could all be over pretty quickly. The problem is that he’s made such a fuss about the whole thing, he is going to look like a right kn0b if he backs down – but then again, if he leaves it too long the simple measures mentioned above will be less likely to be effective. If I was in Erdogan’s position, however, I would cosy up to countries like Russia to annoy the Americans and make the Europeans nervous by getting awkward on immigrants – which is maybe why Merkel is getting involved in the background. IMHO, this could all be solved in a reasonable timeframe, but that would involve a lowering of testosterone levels on both sides.

Meanwhile, back in the UK, Sterling has its worst run since the crash (The Times, Philip Aldrick) points out that sterling has weakened for 12 consecutive days – something it hasn’t done since August 2008 – with Sunil Krishnan, head of multi-asset funds at Aviva Investors, observing that the fall “is not just a question of Brexit, it’s also a recognition that the UK economy has not been particularly strong”. The situation is unlikely to improve any time soon given Inflation outstrips wage growth as cost of living hits 2.5% (Daily Telegraph, Anna Isaac). The rise in the Consumer Price Index (CPI) was driven by higher prices for transport, computers games and possibly the “new” sugar tax.

In real estate news, New Zealand bans foreigners from buying existing properties and London house prices suffer a big drop…

New Zealand bans foreigners from buying homes (Financial Times, Jamie Smyth) is bad news for the uber-rich who’ve been buying property in the country as a place to escape to in the case of a global apolcalypse (!). The new law, passed by parliament yesterday following a public outcry against billionaire “survivalists” (not in the nuclear sense, but more in the sense that they want somewhere to escape to if rising inequality leads to revolution), will ban foreigners from buying existing residential property. Supporters of this law change argue that Chinese property investors are pricing locals out of the market to the extent that local home ownership is at its lowest level for almost 70 years as prices have risen by 60% over the last ten years. Critics of this, such as Dave Platter of Juwai.com, an online Chinese real estate portal, point out that “Foreign buying is just 3 per cent of the market and tends to be focused on new development, making clear again that foreign investment leads to the creation of new dwellings. That’s vital in a market with a housing shortage, like Auckland”. The new legislation will require foreign buyers to justify buying existing properties to New Zealand’s Overseas Investment Office by proving that their actions will benefit the country – but buyers from Australia and Singapore won’t be affected because of existing trade

agreements. They will, however, still be able to buy new housing, such as offplan apartments. * SO WHAT? * This only sounds like half a solution to me – and that what it is really doing is just playing to the crowds because there are still exceptions regarding existing property (I bet Australian and Singaporean property investors will love the fact that they will now have less competition!) and land, of course. New Zealand joins Canada, Australia and others in making efforts to limit the activities of overseas property investors who are being accused of skewing the local market, but I don’t think this goes far enough if the government REALLY wants to do something. This will probably be a boon to said Australian and Singaporean property investors and a dent to some of New Zealand’s realtors who specialise in this area.

If you need something boring to talk about at an upcoming dinner party, then maybe you could refer to London suffers largest fall in house prices since 2009 (Daily Telegraph, Helen Chandler-Wilde) which cites the latest figures from the Office for National Statistics (ONS) that show London house prices had their biggest annual fall for almost nine years. Worst hit were prices in the City of London (-23.8%), Kensington and Chelsea (13.9%) and the City of Westminster (-12.1%), but despite all this, average London prices were still the most expensive in the land at £477,000 versus £228,000 nationally. Paul Smith, chief exec of Haart estate agents said that “Middle England is thriving – prices in areas of Birmingham, Nottingham and Leicester rose by a huge 10% on the year, and families across the UK looking for a semi-detached home are having to pay almost £10,000 more than they were the same time last year. There remains imbalance between supply and demand, making now a good time to sell”. There you go – dinner party conversation sorted ;0).

In individual company news, Tencent disappoints, Tesla gets subpoenaed and Uber cuts its losses…

Further to what I said earlier, Tencent reports its first profit fall in 13 years as games sales slow (Daily Telegraph, James Cook) as its mobile gaming division reported disappointing results despite being the major player in the world’s biggest video game market. It blamed the slowdown on sluggish sales of some of its popular
gaming titles. * SO WHAT? * This is very disappointing for a company that has had a very strong track record but its constant battle with Alibaba for supremacy in other areas is taking its toll. Tencent: the game is up (Financial Times, Lex) highlights online gaming as the cash cow for the business which finances everything else and says that recent brushes with Chinese authorities, who are concerned about child addiction to some of their games, are delaying its progress. The resulting new games backlog and the potential for the authorities taking a closer look at their business model regarding in-game purchases, is not going to be good especially in the short term. Some will buy the shares on weakness, but it sounds like there will be more hurdles to come.

Another day, another story on Tesla in SEC sends subpoena to Tesla in probe over Musk tweets (Wall Street Journal, Emily Glazer, Mengqi Sun and Dave Michaels) which says that Federal regulators are ramping up an investigation into whether Elon Musk was lying when he recently tweeted that he’d found backers to take the company private. The issuing of the subpoena implies that senior SEC bods have decided there’s enough smoke to look deeper into the causes of the “fire”. Here we go…

Uber’s revenue growth keeps up fast pace (Wall Street Journal, Douglas MacMillan) shows that, one year into the top job, chief exec Dara Khosrowshahi has managed to maintain the company’s revenue growth rate whilst simultaneously cutting losses – all good stuff considering that he is preparing the company for an Initial Public Offering (IPO). On the one hand, he’s sold off the Asian and Russian operations and the US car leasing business, but at the same time invested in growth areas such as food delivery and scooters – all whilst dealing with the aftermath of a fatality involving one of its driverless cars in March. * SO WHAT? * Taking the top job from founder Travis Kalanick was never going to be easy and Khosrowshahi has been dealt a number of hospital passes (e.g. the London licence debacle, the driverless vehicle fatality etc), but seems to have done a decent enough job to take it nearer to IPO, pencilled in for the second half of 2019. Investors have valued it at about $70bn, making it the highest-valued tech company in the world.

…And finally, in other news…

There are times when companies come up with new products that you never knew you needed. KFC launches a new fast food inspired clothing line – including chicken nugget trackies (The Mirror, Robyn Darbyshire https://tinyurl.com/yahfpdgb) . The trackies helpfully have an elasticated waistband and you can up the classiness a notch by buying a necklace that says “finger lickin good”. Nice. If you could team them up with these https://tinyurl.com/hboayg8 you could be the king/queen of junk food!

AND FINALLY, regular readers will know how much I like to end on a bizarre song (who can forget “Chicken attack”, for instance https://tinyurl.com/y8w62qwy or even “Have A Nice Day” https://tinyurl.com/y7t32rx7 which is probably more notable for its unique dancing), but today I thought I’d bring you “Once In Your Life In Osaka” is this year’s song of the summer (SoraNews24, Oona McGee https://tinyurl.com/y8zzfnl4) which is a song in English by a Thai band about Japan’s equivalent of Birmingham. Oh yes. How about THAT, eh??

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

1. In MACROECONOMIC AND CURRENCIES NEWS TODAY, the Eurozone gets a boost from Germany and UK unemployment remains low but wage growth slows whilst Turkey’s lira weakness hits the rupee and crypto has a nightmare
2. In RETAILER NEWS, Kroger goes online in China and Home Depot has another quarter of growth as we see an alternative future for House of Fraser as Homebase and mall operator Capital & Regional confirm the broader downbeat trend
3. In OTHER NEWS, I bring you a very weird song that’s sprouting all sorts of memes. For more details, read on…

So the Eurozone gets boosted by Germany, there’s mixed news for UK workers and currency markets are seeing some action…

In Germany gives eurozone a boost (The Times, Tom Knowles) we see that the latest figures from Eurostat which show that the European Union expanded at a quicker-than-expected pace in the first quarter of 2018 despite seeing a fall in industrial production with GDP increasing by 0.4% versus market expectations of +0.3%. The growth was powered by particularly strong growth in German (+0.5% on strong consumer and government spending) and the Netherlands (+0.7% because of a bounce back in trade). France and Italy, on the other hand, saw disappointing growth as their respective GDP rates were +0.2% apiece. * SO WHAT? * There have been fears of a slowdown, but with Germany putting in yet another quarter of growth – its GDP has grown in EVERY quarter for the last four years – the Eurozone is still in positive territory.  It just goes to show that when you’ve got Germany in the engine room, you’ve always got a chance! Conversely, now that everyone expects Germany to put in a game-saving performance, if this winning streak comes to a stop it will shake Eurozone sentiment badly. Given the delicate nature of German politics at the moment and continued Trump tariff-related shenanigans, such consistent performance should not be taken for granted.

Pay rises slow despite fall in jobless and EU worker flight (The Guardian, Larry Elliott and Julia Kollewe) cites the latest figures from the Office for National Statistics which show that annual wage growth fell from 2.5% to 2.4%, although real pay growth – which is average weekly earnings adjusted for inflation – was up by 0.1% including bonuses and +0.4% excluding them. The stats also show unemployment falling from 4.2% to 4% – its lowest level since the winter of 1974-5 – and the biggest drop in workers coming from the EU since modern records began 20 years ago. * SO WHAT? * Bulls will point at real wage growth to back up their arguments (because that went up) and bears will use total or regular wage growth stats to back up their arguments (because they slowed 

down). Suren Thiru, an economist at the British Chambers of Commerce, observed that “Achieving sustained increases in wage growth remains a key challenge, with sluggish productivity, underemployment and the myriad high upfront business costs weighing down on pay settlements. As such, there remains precious little sign that wage growth is set to take off – undermining a key assumption behind the monetary policy committee’s recent decision to raise rates”.

Following on from what I was saying yesterday about Turkish lira contagion, Rupee’s dramatic drop prompts fears for the Fragile Five (Daily Telegraph, Anna Isaac) shows some of the latest fallout as India’s currency fell to an all-time low reaching 70 rupees to the dollar yesterday, prompting concerns of a return of the “Fragile Five” economies and wider emerging market sell-off. The Fragile Five, a phrase thought up by investment bank Morgan Stanley in 2013, refers to economies with a particularly high gearing towards growth funded by foreign investment – namely, Brazil, India, Indonesia, South Africa and Turkey. * SO WHAT? * As far as I can see at the moment, this is really more of a Turkey-specific issue than something broader, but some investors will use this as an excuse to sell up and move on elsewhere, which will actually perpetuate their initial concerns.

Cryptocurrency market plumbs new depths in 2018 (Wall Street Journal, Steven Russolillo, Paul Vigna and Akane Otani) highlights recent cryptocurrency weakness as the market for digital currencies is now 70% down from January. Bitcoin this week fell below $6,000 for the first time since late June and Ether, which is the second-most used digital currency, fell by 17% over 24 hours. * SO WHAT? * It seems that investors are becoming a bit more reticent about getting involved in riskier bets at the moment as even “legit” currencies of emerging market countries are taking a beating right now. The fact is that cryptocurrencies are highly risky and highly volatile – which is why trading them can be so attractive and why so much money can be made (or lost) in punting around in them. Bitcoin traded all over the place during 2017 as investors bet on it becoming a more mainstream currency and it oscillated between being a “bull market” or “bear market” – a rise or fall of 20% from a peak or trough – about once a month. In one trading session in December, Bitcoin rose by 40% in a 40 hour period – but then fell by 25% in a 24-hour period! There’s no sense in whinging about losses because, as the saying goes, if you can’t stand the heat get out of the kitchen don’t trade cryptocurrencies. Buying opportunity or sign of things to come??

In retailer news, America’s Kroger goes to China and Home Depot gets upbeat while over in the UK, Ashley’s got ambitions for House of Fraser, Homebase closes stores and mall operator Capital & Regional reflects the downbeat trend…

Kroger to sell groceries on Alibaba site in China (Wall Street Journal, Liza Lin and Heather Haddon) heralds a historic moment in the American retailer’s history as it announced that it would be selling its products via an e-commerce site owned by Chinese e-tailer giant Alibaba, it’s first foray into overseas sales. This is also part of a broadening of its strategy where it is increasing its online presence. Kroger said that the site, with its storefront on Tmall Global, will open for business today with an initial product line-up including dietary supplements and private label products. * SO WHAT? * Kroger’s domestic market continues to get increasingly crowded and so it is making a concerted effort to hawk its wares by other means and using other channels. By embarking on this deal, Kroger gets a crack at a massive market without having to go to all the expense of having a physical presence and Alibaba gets to enhance its online grocery market offering. Kroger’s share price rose 2.8% initially on the news.

I thought I’d mention Home Depot builds up sales outlook after second quarter outperforms (Financial Times, Mamta Badkar and Adam Samson) because the DIY retailer is often seen to be a bellwether for the US housing market and consumer confidence – so the fact that it reported strong sales for the quarter and an upgrade for its full year forecasts tells you what you need to know! As CFO Carlo Tome said on the earnings call, “We continue to expect strong economic growth with the backdrop of a healthy home-improvement environment. Homeowners continue to enjoy home price appreciation and rising wages and low unemployment have driven consumer confidence to record high levels”. The only cloud on its horizon was higher-than-expected transportation costs denting its profits.

Although Ashley’s bold leap to create ‘Harrods of the high street (Daily Telegraph, Ben Woods) takes an unexpectedly upbeat tone regarding the future of the newly-acquired House of Fraser (fewer store closures than had been expected and a concerted move to be more “upmarket”), the mood amongst most retailers is still pretty grim given Homebase to shut 42 stores, with more in balance unless rents are cut (The Guardian, Sarah Butler) – where the troubled retailer is trying to negotiate 90% rent cuts on almost 20% of its stores in order to survive –  and Capital & Regional counts cost of retail woe (The Times, Tom Knowles), which is warning that it expects to take a £1.2m hit to its rental income this year due to the amount of retailers going into administration and asking for rent reductions. The company has been moving away from fashion retailers – which had made up 30% of its portfolio – and towards discount retailers/those who would be less likely to be adversely affected by online shopping such as Primark, TK Maxx, Lidl and WH Smith.

…And finally, in other news…

I thought I’d mention a song that’s udderly ridiculous, where the singer is clearly milking the public’s need for the bizarre – Doja Cat’s “MOo”, as mentioned in I will never be the same after this s3xy cow song (The Cut, Madeleine Aggeler https://tinyurl.com/yatsrm7g). Be warned, weirdly amusing though this is, it is NSFW because of some of the moves and profanity, but if you listen to rap music you will be OK. As an alternative to this, how about copying the moves to this song that “Gangnam Style” Psy released last summer: https://tinyurl.com/yauja8m8

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

1. In MACROECONOMIC NEWS TODAY, Turkey’s nightmare spreads.
2. In TECH NEWS, India aims to protect itself from big US tech and Foxconn sees profits fall
3. In INDIVIDUAL COMPANY NEWS, Elon Musk expands more on the PIF discussions and Bayer drops on the weed killer ruling
4. In OTHER NEWS, I bring you some impressive creating writing skills and a new umbrella innovation. For more details, read on…

So Turkey’s nightmare sparks fears of emerging market contagion…

Turkish lira crisis starts to hit other emerging markets (Financial Times, Laura Pitel, Ayla Jean Yackley, Robin Wigglesworth and Demetri Sevastopulo) follows on from what I was talking about last week as the Turkish lira hovered around record lows, falling about 10% versus the dollar at one stage as President Erdogan continued to lash out against the US in an ongoing spat that all started with the arrest of American pastor Andrew Brunson. Trump has since taken a personal interest in this case and imposed sanctions on Turkey which have contributed to the 28% weakening of the lira versus the dollar since the start of this month and the 45% drop since the start of the year. Neither side appears to be in conciliatory mood and they are both digging their respective heels in. * SO WHAT? * Obviously, Turkish bank stocks took a pasting as the country’s stock exchange hit levels last seen at the depth of the financial crisis, but its plight is showing signs of 

spreading to other countries with Indonesia’s central bank intervening to support the rupiah and Argentina’s central bank making the surprise move of lifting its main interest rate by a whopping 5% to lift it to the quite frankly eye-watering 45% after six consecutive days of Argentine peso weakness. European stocks were also hit as banks with Turkey exposure, such as BBVA and UniCredit, also felt selling pressure. All of the noise and rhetoric aside, it boils down to the fact that Turkey needs to make a big interest rate increase to arrest the slide of its currency and Erdogan needs to wind his neck in over his insistence that they need to stay down in order to encourage growth. This is going to be easier said than done as Erdogan recently consolidated his power and broadened his influence by appointing his son-in-law as the finance minister, making it rather difficult to believe the independence of any decision. According to Emerging markets/Turkey: bond villain (Financial Times, Lex), this is more of a Turkey problem than an emerging markets problem as Turkey has massive borrowing denominated in dollars comparted to other emerging markets – 35% of GDP, according to Credit Suisse. In the meantime, something needs to give in Turkey otherwise it will have to impose capital controls which will probably lead to it losing emerging market status on the MSCI which will result in further losses as investors will be forced to sell out on the demotion frontier status.

In tech news, India moves to protect itself from big US tech and Foxconn sees profits fall…

India looks to curb US tech giant’s power (Wall Street Journal, Newley Purnell) shows how Indian policymakers are considering ways of restricting the growth of American tech giants such as Amazon, Apple, Google and Facebook by taking control of Indian citizens’ data and protecting home-grown start-ups. US companies are getting understandably antsy about this as they have invested billions in a growth market that has been more receptive thus far to foreigners than China. The draft of a new e-commerce policy calls for a “level playing field” and puts forward new guidelines for “encouraging domestic innovation and boosting the domestic digital economy to find its rightful place with dominant and potentially non-competitive global players”. * SO WHAT? * India has obviously taken inspiration from China, which has managed to develop world-beating companies, such as Alibaba and 

Tencent, by crimping the activities of bigger foreign rivals and clearly sees an opportunity to build its own behemoths in its own backyard. The problem is that US companies have already started to pour money into the country in a bid to benefit from its 390million internet users – more than the US and less than China – in an e-commerce market estimated to be worth $33bn, according to Bain & Co. It is not clear at the moment when or whether these policies will come into force, but the impact could be potentially quite considerable, especially if the data storage requirements come into play.

I thought that Foxconn posts unexpected drop in profit (Wall Street Journal, Yoko Kubota) was worth mentioning today as it is very closely linked with the fortunes of Apple, given that the latter accounts for 54% of Foxconn’s revenues. It said yesterday that its profits for the second quarter were down by 2.2% but did not elaborate very much on the reasons. This is surprising considering that Apple said recent demand for iPhones continued to be robust. * SO WHAT? * Foxconn (formerly called Hon Hai Precision Industry) is closely followed as an Apple bellwether given that it is the company that assembles the iPhone. Its fall in profits does seem to be somewhat incongruous with Apple’s recent statements about the iPhone, so maybe this is a blip. No doubt observers will look at results of other suppliers to make sure this isn’t the beginning of a trend.

In individual company news, Alibaba vies with Tencent for food delivery supremacy, Google continues to make inroads in China, a massive Saudi Arabian fund looks at a bigger nibble of Tesla and administrators of phones 4U build up some cash…

Alibaba and Tencent in battle for China’s food delivery crown (Financial Times, Louise Lucas and Archie Zhang) takes a look at the battle going on between the two giants (worth a combined $900bn) as they battle for supremacy in a very competitive market. At the moment, both sides are throwing cash around in a bid to win customers, subsidising diners to the extent that they are able to eat restaurant food for less than it would cost to cook themselves! Tencent is the backer of Meituan Dianping (a company that also offers hotel bookings, ride-hailing and other services), which is preparing for a $60bn Hong Kong listing despite not being profitable, whilst Alibaba is the owner of Ele.me, which recently partnered up with Starbucks to handle coffee deliveries. * SO WHAT? * Food delivery is just another example of an industry mushrooming with multiple wannabees jumping on the bandwagon only to be consolidated into a few major players. This has resulted in individual couriers getting more expensive as companies vie for their services, impact on the environment due to pollution and plastics packaging and a great deal of money being spent on a fickle customer base that will vanish as soon as the discounts disappear. It certainly seems that only the big will survive – and other food delivery companies around the world must be watching what’s going on in China with interest.

You may recall recently that I mentioned Google’s recent upping of the ante in its China charm offensive – well in Google woos partners for potential China expansion (Wall Street Journal, Douglas MacMillan, Shan Li and Liza Lin) we see that Google has been busy in the

background by providing app developers, manufacturers and advertisers with their software ecosystem to help them reach customers both domestically and internationally. It is currently testing a mobile version of its search engine that is censorship-friendly and will use its other Chinese activities to help convince authorities to open the door that is currently locked to them. This stands in contrast to rival Facebook which is also keen on China expansion but has been less active in other areas. * SO WHAT? * This is an interesting article which looks at how Google has quietly been consolidating and expanding its relationships in China in order to be able to argue that its presence is boosting the economy and so it should therefore be looked upon more favourably as it has done a lot of work to support some of its domestic champions. From the sounds of this article, it would seem that Google has as decent chance of getting a proper foothold in the country and, given that its Asia-Pac sales rose by 36% in the latest quarter versus the same time period last year, you can see that the growth potential is clearly there. If they could unlock this, it would be an enormous coup.

In other intriguing news today, Giant Saudi fund emerges as Tesla bid backer (The Times, Tabby Kinder) looks at how Saudi Arabia’s ginormous sovereign wealth fund (called the Public Investment Fund, or PIF) is in talks that would result in it being a major investor in Tesla if it is taken private. The PIF already owns 5% of the company. * SO WHAT? * This sounds quite interesting, but I’m not sure how that’s going to affect the two lawsuits that have been slapped on Elon Musk following his tweets last week. I guess that, if the talks started before last week and had progressed to the extent that Musk could have made those claims, he will be golden. If, on the other hand, it can be proved that he was only in the preliminary stages and that his claims of finding a buyer were exaggerated, he may be in trouble. Either way, it looks like he will be taking the PIF.

Then in Phones U administrators raise £130m to take on mobile giants (Daily Telegraph, Christopher Williams) we see that the administrators for Phones 4U have built up a £130m pile of cash to go legal on the a*ses of rival mobile operators who, they allege, colluded to bring down its collapse four years ago. O2, Vodafone and EE have all denied wrongdoing, but this could get interesting given the size of the warchest built up by PwC. One to watch!

…And finally, in other news…

Tinder is not the first place that comes to mind as a hotbed of creative writing, but it appears that we are all wrong according to Man writes Tinder match sweet sonnet about love – but his verse contains a very cheeky hidden message (The Mirror, Courtney Pochin https://tinyurl.com/y7e6n8e3). This is a serious talent!

AND FINALLY, you know that I always like to keep Watson’s Daily readers at the cutting edge – well you will love this I’m sure: Bizarre ‘umbrella jacket’ on sale for £11 – but you’d have to be bold to wear one (The Mirror, Robyn Darbyshire https://tinyurl.com/y8qbh7br). Innovative, tasteful and classy!

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

1. In OIL NEWS TODAY, Shell heralds the return of deepwater drilling but frackers are counting the cost
2. In UK CONSUMER/RETAILER NEWS, Visa and the BRC give us a snapshot of consumer behaviour and Mike Ashley is urged to pay more for House of Fraser
3. In INDIVIDUAL COMPANY NEWS, Alibaba and Tencent slug it out in food delivery supremacy, Google scopes local partners for China expansion, Saudi Arabia’s PIF eyes Tesla and the administrators for Phones 4U build up a £130m war chest
4. In OTHER NEWS, I bring you some fast food innovations in burgers and pizza. For more details, read on…

So we see the contrast between old school and new school oil…

In Shell hails bounceback towards deepwater drilling (Financial Times, Anjli Raval) we see that the company’s head of exploration and production, Andy Brown, is getting excited about the prospects of deepwater (projects that involve exploration to depths of over 300m) as it is an area which has suffered from an investment shift in the last few years towards short-cycle output such as US shale fields which have been yielding production faster and cheaper than conventional output. However, Brown argues that the trend is now shifting back as advances have been made in this area and Brown observes that “Deepwater can compete if not demonstrate higher returns because of fundamental cost reduction. Break-even prices in deepwater –  we are now talking $30 per barrel”. Good times.

Meanwhile, Frackers burn cash to sustain US oil boom

(Wall Street Journal, Rebecca Elliott and Bradley Olson) shows that costs are rising for oil frackers as they are having to increase their investment considerably in their bid to scale up. Two-thirds of US oil producers failed to profit in the second quarter despite oil prices rising above $70 per barrel as costs for raw materials such as sand and water (which are used in hydraulic fracking) have shot up due to sky-high demand. The pace of technological improvement in the industry is also slowing down as the chief exec of Laredo Petroleum, Randy Foutch, pointed out “You can’t continue to get 50% better every year. We will get better, but I don’t expect it to be at that kind of rate”. * SO WHAT? * Many observers are now predicting that US oil growth will slow due to higher service costs, less dramatic technological improvements, pipeline bottlenecks in the Permian Basin region and increasing pressure on US producers to put profitability ahead of expansion.  Leigh Goehring, managing partner of Goehring & Rozencwajg, warned that “many companies have promised to live within cash flow and grow by 10% or 20%, and it’s looking more and more like some are going to have to choose between the two. If the Permian growth engine slows, there aren’t many other easy sources of global supply”. Some analysts are saying that this could mean oil prices could go through $100 a barrel before year end.

In UK consumer/retailer news, we see UK consumer spending trends and an appeal for the new House of Fraser owner to do the right thing…

High street spending cools despite heatwave, says Visa (The Guardian, Patrick Collinson) cites the latest data from Visa which shows that spending in shops fell in July. The findings are not to be sniffed at given that Visa accounts for £1 in every £3 spent in the UK – and it said that the 0.9% fall in spending in July this year versus July 2017 was particularly pronounced in face-to-face spending in retail outlets, although online spend also fell. * SO WHAT? * Although warmer weather boosted spending on food, drink, restaurants and hotels it was not enough to make up for the shortfall in spending on transport and household goods. Mark Antipof, chief commercial officer at Visa, said that “retailers had a difficult time in early 2018, and while there was some respite in May and June, July’s fall in spending is concerning, particularly as we look ahead when the impact of the interest rate rise and back-to-school costs will likely put further pressure on Britons’ wallets”.

Department stores wilt as shopping habits shift (Daily Telegraph, Natasha Bernal) cites data, this time from the British Retail Consortium and Springboard, which shows that shopping centre footfall fell by 3.4% in July versus the same time last year and that the figures were even worse for department stores where footfall was down by 3.9% in retail trading hours.

None of this bodes particularly well for Sports Direct’s Mike Ashley, who bought House of Fraser last week – and now Ashley urged to pay £70m extra for House of Fraser (The Times, Deirdre Hipwell) shows that failed rival bidder Philip Day is saying that Ashley should “do the right thing” and make sure he pays all the suppliers and concession holders in full (who are owed around £70m in total) because he bought the company on the cheap. House of Fraser fell into administration on Friday morning before Ashley swooped in to hoover up the stores, brands and stock. Most of the £90m Ashley paid will be used by the administrators to pay off the banks and bondholders (as is always the way), with very little left over for anyone else. In addition to suppliers, there are 10,000 pension fund members who could be facing cuts to their retirement incomes. * SO WHAT? * Given what happened to BHS, you can imagine that the Pensions Regulator is going to be all over this and EVERYONE is going to be interested to see what happens to all the shops, concessions and employees. As things stand, he wants to make it the “Harrods of the high street”, close 31 of its 59 stores (as per the previous plan) and cut 6,000 jobs from the 17,000 who currently work there. As I have said before, I believe that department stores IN THEIR CURRENT FORM are an anachronism and are ripe for a huge change. Given how far these retail dinosaurs have fallen in recent years you would have thought that it is eminently possible that it won’t be too difficult to push through big changes, although it will still take time. I would personally like to see the spaces change to multi-usage retail/residential zones where you get mini-cities with a bit of office, a bit of residential and a bit of leisure under one roof. Funnily enough, Ashley owns gyms, has property interests (with his soon-to-be-son-in-law at the helm) and runs the notorious Sports Direct. If he does a good turnaround job quick enough, I imagine he will be able to pick up Debenhams (in which he already has a stake) for free (or £1) if he waits long enough – and then he really could be the king of the high street!

In individual company news, Alibaba vies with Tencent for food delivery supremacy, Google continues to make inroads in China, a massive Saudi Arabian fund looks at a bigger nibble of Tesla and administrators of phones 4U build up some cash…

Alibaba and Tencent in battle for China’s food delivery crown (Financial Times, Louise Lucas and Archie Zhang) takes a look at the battle going on between the two giants (worth a combined $900bn) as they battle for supremacy in a very competitive market. At the moment, both sides are throwing cash around in a bid to win customers, subsidising diners to the extent that they are able to eat restaurant food for less than it would cost to cook themselves! Tencent is the backer of Meituan Dianping (a company that also offers hotel bookings, ride-hailing and other services), which is preparing for a $60bn Hong Kong listing despite not being profitable, whilst Alibaba is the owner of Ele.me, which recently partnered up with Starbucks to handle coffee deliveries. * SO WHAT? * Food delivery is just another example of an industry mushrooming with multiple wannabees jumping on the bandwagon only to be consolidated into a few major players. This has resulted in individual couriers getting more expensive as companies vie for their services, impact on the environment due to pollution and plastics packaging and a great deal of money being spent on a fickle customer base that will vanish as soon as the discounts disappear. It certainly seems that only the big will survive – and other food delivery companies around the world must be watching what’s going on in China with interest.

You may recall recently that I mentioned Google’s recent upping of the ante in its China charm offensive – well in Google woos partners for potential China expansion (Wall Street Journal, Douglas MacMillan, Shan Li and Liza Lin) we see that Google has been busy in the

background by providing app developers, manufacturers and advertisers with their software ecosystem to help them reach customers both domestically and internationally. It is currently testing a mobile version of its search engine that is censorship-friendly and will use its other Chinese activities to help convince authorities to open the door that is currently locked to them. This stands in contrast to rival Facebook which is also keen on China expansion but has been less active in other areas. * SO WHAT? * This is an interesting article which looks at how Google has quietly been consolidating and expanding its relationships in China in order to be able to argue that its presence is boosting the economy and so it should therefore be looked upon more favourably as it has done a lot of work to support some of its domestic champions. From the sounds of this article, it would seem that Google has as decent chance of getting a proper foothold in the country and, given that its Asia-Pac sales rose by 36% in the latest quarter versus the same time period last year, you can see that the growth potential is clearly there. If they could unlock this, it would be an enormous coup.

In other intriguing news today, Giant Saudi fund emerges as Tesla bid backer (The Times, Tabby Kinder) looks at how Saudi Arabia’s ginormous sovereign wealth fund (called the Public Investment Fund, or PIF) is in talks that would result in it being a major investor in Tesla if it is taken private. The PIF already owns 5% of the company. * SO WHAT? * This sounds quite interesting, but I’m not sure how that’s going to affect the two lawsuits that have been slapped on Elon Musk following his tweets last week. I guess that, if the talks started before last week and had progressed to the extent that Musk could have made those claims, he will be golden. If, on the other hand, it can be proved that he was only in the preliminary stages and that his claims of finding a buyer were exaggerated, he may be in trouble. Either way, it looks like he will be taking the PIF.

Then in Phones U administrators raise £130m to take on mobile giants (Daily Telegraph, Christopher Williams) we see that the administrators for Phones 4U have built up a £130m pile of cash to go legal on the a*ses of rival mobile operators who, they allege, colluded to bring down its collapse four years ago. O2, Vodafone and EE have all denied wrongdoing, but this could get interesting given the size of the warchest built up by PwC. One to watch!

…And finally, in other news…

Were you excited by the Golden Ticket in Charlie and the Chocolate factory? Well it seems that there’s something along the same lines for hamburgers in McDonald’s is giving away a 24-carat McGold card – and it will get you free food for 50 years (The Mirror, Zoe Forsey https://tinyurl.com/y9flmjsp). I don’t think it includes a factory tour with Oompa Loompa equivalents (or maybe they are staffed by Little Ronnies, perhaps?) but they are serious about the lifetime supply.

AND FINALLY, here’s something I never thought I’d see: The first ever pizza-vending machine in Japan is now operating in Hiroshima (SoraNews24, Dale Roll https://tinyurl.com/ybgot8h2). OMG.

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

1. In MACROECONOMIC NEWS TODAY, Japan’s economy revs up again, China leaves oil out of retaliatory tariffs and the Turkish lira continues its plunge
2. In RETAILER NEWS, House of Fraser faces the brink, Topshop’s China relations sour, Poundworld gets a partial last minute reprieve and Ikea opens in India
3. In INDIVIDUAL COMPANY NEWS, Adidas unveils strong results, Dropbox drops a bombshell and Savills is the latest UK estate agent to have a shocker
4. In OTHER NEWS, I bring you an unusual potato. For more details, read on…

Japan gets perkier, China retaliates and the Turkish Lira continues its fall…

Japan’s economy revs up again after stalling (Wall Street Journal, Megumi Fujikawa) highlights the return to growth in the April-June quarter in the world’s third largest economy as it grew by an annualised 1.9% after a contraction of 0.9% in the first quarter, which ended Japan’s longest period of consecutive growth for 28 years. The latest figures would suggest that the first quarter was a blip and that Japan is now back on the growth track. * SO WHAT? * Prime Minister Shinzo Abe is coming up for re-election next month to win a new three-year term and this will certainly help his chances. The economy seems to be back on track with only the spectre of Trump tariffs hanging over it. Although wages are rising, consumers appear to be holding back from spending freely, which is resulting in sluggish inflation as the Bank of Japan remains well short of its 2% target.

In China’s tariff turnaround: US crude oil drops off the target list (Wall Street Journal, Chuin-Wei Yap) we see that China has indeed retaliated against the latest round of US tariffs by imposing 25% taxes on $16bn of US imports, but with one notable exception – oil. * SO WHAT? * The Chinese had threatened to put oil on the list as recently as June, so this is a noticeable omission from the latest move. Over the last couple of years, China has become the biggest buyer of US crude oil exports, accounting for 20% of capacity. Some are interpreting this omission as a sign of weakness on China’s part and that their resolve is showing cracks as its economy is slowing (but hey – not by THAT much in the scheme of things!) and its demand for foreign oil continues unabated. China relies on imports for 70% of its energy needs currently, but the International Energy Agency predicts that this could go up to 80% by 2040, so it would be cutting its nose to spite its face if it taxed oil. And if China doesn’t take any oil from America, it will be easy for the latter to find other customers in the

region. There are still many other ways for China to needle Trump – but taxing oil isn’t one of them (well not at the moment, anyway)!

I mentioned the falling Turkish lira the other day and it seems like it is continuing its downward trend in Turkey’s lira hits new low (Daily Telegraph, A Evans-Pritchard) which shows that the currency fell by another 5% yesterday against the dollar, pushing Turkey closer to a full-blown economic crisis as Turkish companies with $220bn of debt got completely hammered. Turkish president Erdogan is at loggerheads with Trump over the arrest of an American pastor being held on accusations of espionage, with Trump threatening sanctions (surprise, surprise) to emphasise his point and Lars Christensen, an emerging markets expert at Markets and Money Advisory observed that “The question for markets is figuring out whether Erdogan is turning into another version of Maduro in Venezuela – disconnected from reality and blaming everything on a global conspiracy – or whether he is more like Vladimir Putin. Putin has always understood that in the end an economic crisis could threaten his rule, and must be avoided”. Turkey’s currency has been sliding for a while now and usually the central bank steps in to raise interest rates making the currency more attractive which in theory attracts buyers and therefore arrests the fall and/or makes the currency bounce back up again. The recently re-elected Erdogan has been vociferous in his opposition to raising rates because he wants them to stay low to encourage businesses to expand etc. and he has been making moves to increase his economic influence by installing his son-in-law as finance minister. Investors don’t like the fact that Erdogan has more sway than the central bank and is getting jittery as a result – a situation that is being exacerbated by the whole Trump/pastor situation.  * SO WHAT? * Dollar exposure via debt is clearly a serious problem in Turkey but there is a wider problem. Emerging markets now have $7.2tn of dollar debt in loans, bond issues and derivatives. Turkey and Argentina are the most exposed, but with the cost of borrowing trending upwards as central banks raise rates from historic lows countries such as Indonesia, South Africa, Lebanon, Colombia and Hungary should be getting nervous as well. BTW, this is a really excellent article which goes into a lot more detail about the problems Turkey is currently facing and I really recommend you read it if you want to know more.

In retailer news, House of Fraser is close to the edge, Topshop sours on its China partner, Poundworld gets a reprieve of sorts and Ikea opens in India….

As far as non-chirpy headlines go, House of Fraser is just 10 days away from collapse (Daily Telegraph, Ben Woods) must be right up there as the company has admitted that it only has until August 20th to secure new funding – or face collapse, potentially taking 17,000 jobs with it. An announcement is expected to be made today regarding any bids. Four bidders table House of Fraser rescue proposal (Financial Times, Jonathan Eley and Javier Espinoza) identifies those in the running who include Sports Director founder Mike Ashley and the billionaire owner of the Edinburgh Woollen Mill Philip Day as well as turnaround specialists Alteri and Endless. At this stage, it seems like Ashley and Day are the more likely contenders, although Ashley seemed to cool in his interest most recently (although maybe this was just a negotiating tactic). * SO WHAT? * House of Fraser is clearly floating towards that troublesome creak and is in danger of losing its paddle, but it seems that Debenhams isn’t that far behind – the latter’s share price is now just a measly 11p, having fallen 74% over the last year. Surely there is a limit to how many cr*p retailers you want exposure to. Ashley already has 11% of HoF and 29% of Debenhams and is danger of being the meat in a sh*t sandwich. Mikey boy certainly likes a challenge! *** STOP PRESS – I’ve just seen a story on Bloomberg that says that the rescue talks have failed and HoF is going into administration. However, I’ve not seen it confirmed on other sources and I’m always wary of the accuracy of Bloomberg’s news as it can get a bit over-excited at times***

There’s more gloom in Green’s rift with Chinese hits Topshop’s global ambitions (The Guardian, Zoe Wood) as it turns out that Sir Philip Green, that fine selfless

gentleman who cares so much about his employees, has parted company with his Chinese franchise partner, putting a bit of a spanner in the works for his Chinese ambitions. Topshop’s parent company Arcadia partnered up with online retailer Shangpin in 2014 that made its merchandise available to Chinese shoppers. * SO WHAT? * In 2016, the two talked about plans to open 80 stores together, but that never materialised and Arcadia is back to the drawing board. China is still a key market for Arcadia, but it is going to have to get its thinking cap on about what to do next.

Irish family saves Poundworld at last minute (The Times, Tabby Kinder) is an interesting story as it tells of an Irish family that agreed to buy 50 Poundworld stores on the last day of trading for the collapsed business. Poundworld had 335 stores in the UK but it went into administration in June after revealing losses of £17m last year. The Dublin-based Henderson family has agreed a deal with the administrators Deloitte to buy the best stores, but we don’t know how much was paid. An agreement has been made in principle and the transaction is likely to go ahead next week. * SO WHAT? * This is a tiny smidgen of good news for the troubled UK retail sector, but it’ll be interesting to see what the new owners do with it.

Yesterday marked a momentous day for flat-pack supremo Ikea as Ikea unpacks first store in India after 12-year struggle (Financial Times, Amy Kazmin) shows the culmination of a $1.5bn investment in developing a retail business in the country as it opened its first store in Hyperabad’s Hitec City. * SO WHAT? * This is a great move strategically, but Ikea faces the challenge of catering for a customer base that is simultaneously demanding and thin of wallet. Still, it aims to expand into other cities, with work already under way on three stores on the outskirts of Mumbai, Delhi and Bangalore as well as launching smaller format stores in more central locations. I think this is great in theory, but success is all in the execution and I think they will have their work cut out. Mind you, if Ikea succeeds, this could be massive, especially if it manages to source more locally. If it does that successfully, I would have thought it could buy more stuff from India generally and supply its stores in other countries as well, thus increasing margins elsewhere.

In individual company news, Adidas races away, Dropbox drops a ball and Savills has a ‘mare…

Adidas investors shrug off €475m Reebok charge (Financial Times, Olaf Storbeck) highlights the group’s 4% sales uptick and profits boost of 17% against a backdrop of a chunky impairment charge relating to its 2016 acquisition of Reebok. Its shares rose by 8.5% on the news as it said that it was on target to meet its full-year guidance of 10% revenue growth. Adidas is the world’s second biggest sportswear maker.

Dropbox investors spooked as pivotal executive steps down (Daily Telegraph, Hannah Boland) says on the one hand that Dropbox announced revenues shooting up by 27% in the most recent quarter – ahead of analyst expectations – but on the other said that its COO Dennis Woodside, seen by many as being instrumental in its successful IPO in March, would be leaving by the end of the year. Shares were down by 10.5% in after-hours trading. Dropbox’s shares have risen a healthy 64% since it floated in March.

Savills’ profits plunge as home sales stall (The Times, Tabby Kinder) is worth mentioning as it is the latest UK estate agent after Foxtons and Countrywide to say that it’s having a ‘mare as profits at the company fell by 18% in the first six months. The figures represented a broad slowdown in the property market as prices have been rising “at their slowest annual rate for five years, which is discouraging homeowners from moving”.

…And finally, in other news…

I thought I’d leave you today with the unusual vegetable in Mutant eight-kilogramme potato that has grown into the shape of a human foot (The Mirror, Laura Forsyth https://tinyurl.com/yc5xowld ). Impressive!

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

1. In MACROECONOMIC NEWS TODAY, Saudi Arabia gets proper shirty with Canada and the pound’s weakness puts it back to October lows
2. In INDIVIDUAL COMPANY NEWS, Tesla’s the talk of the day with everyone trying to guess did he, didn’t he, could he, who could afford it etc, Samsung unveils some chunky investment plans and Ryanair gets tough
3. In RETAIL AND SPENDING-RELATED NEWS, France’s Casino has a shocker, Homebase announces closures and job losses and experts predict big rent rises
4. In OTHER NEWS, I bring you something to make bike riding a little more interesting. For more details, read on…

So the Saudi Arabia/Canada spat gets serious and the pound hits new lows…

In Saudi Arabia sells Canadian assets as dispute escalates (Financial Times, Simeon Kerr) we see that Saudi Arabia is not taking too kindly to Canada criticising the arrest of a female activist (Samar Badawi) and has decided to show its displeasure via its central bank and state pension funds ordering their overseas asset managers to sell their Canadian equities, bonds and cash holdings “no matter the cost”. Third-party fund managers are thought to invest over $100bn of Saudi money in global markets, with admittedly only a small proportion of it in Canada, but the sell-off started in earnest on Tuesday. So far in addition to the sell-off, in response to this criticism, Saudi Arabia has kicked out the Canadian ambassador, frozen new trade and investment with Ottawa, suspended a student exchange programme to Canada, stopped Saudi Arabian Airlines flying to Canada and ended all medical treatment programmes in Canada – pretty serious stuff, at least symbolically. The government media office denied giving the order for the sell-off, but it was confirmed by other sources. * SO WHAT? * This is obviously a pain in the *rse for Canada but such petulant actions by Crown

 Prince Mohammed bin Salman aren’t going to engender confidence from other countries thinking of investing in Saudi Arabia as part of the Crown Prince’s efforts to wean his country off reliance on oil revenues. Still, I guess he can afford to stick it to everyone else given the strong oil price and the fact that the US is in its pocket given that the latter needs Saudi Arabia to make up for the oil shortfall resulting from its recently re-imposed sanctions on Iran. Canada is taking a noble stance but I bet that no-one’s going to be rushing to be associated with them…

I said yesterday that if you are holidaying in Turkey at the moment or in the near future you will be enjoying yourself even more than usual given the lira has gone through the floor, but then again the pound isn’t doing particularly well as Pound’s weakness sends it back to October lows (Financial Times) shows that it really is weakening against the Euro as it fell below the 90p level for the first time since October when traders were getting excited about the European Central Bank unwinding its stimulus package. * SO WHAT? * The value of the pound versus the Euro is widely seen to be a bellwether of Brexit negotiations, which haven’t yet produced a deal. Jane Foley, a strategist at Rabobank, said that “if the market believes a hard Brexit is inevitable, we expect that [the] euro-sterling rate is likely to test and potentially break above parity” whereas others believe that the euro will also suffer in the event of a hard Brexit. The euro has had a mixed year so far after a good year last year as it is stronger versus the pound, the dollar bloc countries and the Swedish Krona, but weaker against the yen, Norwegian krone and the Swiss franc.

In individual company news, Tesla comes under the spotlight, Samsung announces some big investment plans and Ryanair gets shirty…

Following on from Elon Musk’s controversial tweet over the weekend about him potentially taking Tesla private, there’s been a LOT of debate! SEC probes Tesla CEO Musk’s tweets (Wall Street Journal, Dave Michaels and Michael Rapoport) says that US regulators are asking Tesla whether Musk was telling the truth in his tweet – if he wasn’t, he’ll get punished and potentially expose himself and the company to lawsuits; Tesla board say they knew of proposal to go private (The Guardian, Edward Helmore) implies that it is true because they had several meetings about it last week (but really – are they going to deny it?? Yes, they’re “independent” but really??); Doubts over Musk’s resources to fund buyout (The Times, James Dean) looks at the funding options the company could be considering – raising new debt (unlikely as it’ll be VERY expensive), private equity (tricky because you tend to need to generate cash for this, which Tesla doesn’t) or get sovereign wealth funds, big pension funds and tech investment funds to invest (such as Saudi Arabia’s Public Investment Fund currently has 3-5%, China’s Tencent has 5% and Japan’s SoftBank via its Vision Fund – which hasn’t yet invested in Tesla, rather one of its rivals). This article also suggests that there might be another ulterior motive for his tweets – that in March next year, one of Tesla’s convertible bonds, worth $920million, is due to mature and if Tesla’s share price goes above $359.90 at maturity, bond holders will be repaid in Tesla shares whereas if it ends up below that price the company will have to repay bondholders $920m in cash. Tesla: ride or die (Financial Times, Lex) says that there will be many investors who will be keen to sell up for a price that is 10% above the company’s all-time high but then it suggests that he should be careful what he wishes for because although private capital market investment has its upside in terms of less week-to-week performance scrutiny and more freedom to reach his longer-term goals, it’s private equity investors who got Uber founder Travis Kalanick sacked after they tired of his antics. The implication here is that he would be gleefully jumping out of the frying pan into the fire. If you want more on the pro’s and con’s of whether Tesla should go public or private, then you could do worse than have a look at Tesla’s big question: better or worse off as private company (Wall Street Journal, Mike Colias and Rolfe Winkler). Pro’s of going private include the ability to stop naysayers and short-sellers affecting the valuation of the company, the ability to shield its financial health from rivals and that it could focus more on the long term, giving him more creative freedom to achieve the company’s goals. Con’s of going private are that Tesla would be cutting itself off from a source of capital that has been largely favourable towards its over time despite its huge losses and production target misses, it wouldn’t be

completely free of scrutiny as it will still need to increase production at a reasonable clip, it might end up paying a lot for the privilege in terms of paying back the investment with interest and it would also take away an attractive recruiting tool – stock options. * SO WHAT? * There’s too much happening at the moment to know the actual outcome, but I am sticking with my initial conclusion – that Elon Musk is yanking our chain. Even if he WANTS to go private I just think that it will be an enormous uphill task for him to undertake at such a crucial stage in Tesla’s development. On balance, I think that if he is confident that he can hit and exceed the production targets he is better off staying public. If anything, I think that taking the company private could be interpreted as being a cop out and an indirect admission that he WON’T be able to meet the targets – which would make it more difficult for him to get private equity investment in the first place.

In Samsung outlines $160bn investment plan to underpin profits (Financial Times, Bryan Harris) we see that the company is planning a sizeable investment over three years in new technologies with the end goal of ensuring profitability against the backdrop of Chinese competition, and comes just days after Samsung Electronics, the tech division of the South Korean conglomerate, announced its first profit fall for seven quarters. $22bn will go towards tech including AI, automotive electronics components and biopharmaceuticals, with Samsung Electronics accounting for most of that spend. The remaining $138bn is earmarked for semiconductor and display manufacturing facilities in addition to external start-up projects. * SO WHAT? * This is a big deal from a big company – Samsung Electronics alone accounts for almost 20% of the value of korea’s main Kospi Composite stock index, but it has acknowledged that things will be getting trickier as time progresses as the likes of Chinese tech groups such as Xiaomi and Huawei continue their stellar growth momentum. As Sanjeev Rana, an analyst at CLSA put it, “Samsung needs to find new growth areas as their existing businesses are saturated. They are a little late to areas such as artificial intelligence but they don’t need to start from scratch. With that money, they can do M&A”. Punchy.

You’ll probably be hearing about this a lot at the moment, but Fresh crisis for Ryanair as more pilots take strike action (Daily Telegraph, Oliver Gill) highlights the chaos being caused by the prospect of one sixth of flights being grounded tomorrow in co-ordinated strikes as German pilots are joining action planned by their counterparts in Ireland, Sweden and Belgium – with the Dutch pilot’s union VNV considering its options. They are striking because they believe that their salaries are made up of an unusually high variable component based on their flying frequency. * SO WHAT? * This is clearly a pain for Ryanair, but the real issue is that this isn’t the first time that Ryanair has had problems in the recent past. If people start avoiding Ryanair because of a perception that it is prone to disaster, this could become a major long-term problem. Reputational risk is not to be sniffed at here. As for the pilot’s part, maybe they should head off to America as Facing a critical pilot shortage, airlines scramble to hire new pilots (Wall Street Journal, Robert Wall and Andrew Tangle).

Meanwhile, in retail and consumer-related news, Casino has a shocker, Homebase announces closures and losses whilse rents are likely to see chunky increases…

Casino shares plunge to 22-year low on valuation concerns (Financial Times, David Keohane) heralds some difficult times for the French retailer as concerns increase about its debt against a backdrop of tightening competition. A report from Bernstein said that the scale of Casino’s debt is undervalued by investors, which was obviously denied by the company. The shares fell by 10%, contributing to Casino’s shares falling by 36% so far this year.

There’s more bad news for UK retailers in Homebase jobs at risk as 60 stores face closure (The Times, Tabby Kinder) highlights the latest developments for the troubled

retailer as 60 of its 249 stores are to close as part of a company voluntary agreement to be announced next week with over 1,000 jobs hanging in the balance. Hilo Capital bought the DIY chain in May for £1 from Australian retailer Wesfarmers, which was hoping to rebrand the chain as Bunnings originally. * SO WHAT? * It’s just the latest retailer casualty in a sorry list that includes the likes of Carpetright, Mothercare and New Look. It’s funny,  though, because the number of store closures and job losses seem to differ considerably depending on which newspaper you look at. Homebase store closures put 2,000 jobs at risk (Daily Telegraph, Ben Woods) and Homebase set to announce closure of 80 stores with loss of 1,000 jobs (The Guardian, Sarah Butler) make you wonder what the actual figures really are! Still, we’ll get the detail next week.

There’s bad news for renters out there in Rents could go up by 15% in five years, experts predict (The Guardian, Julia Kollewe) as a report from the Royal Institution of Chartered Surveyors (Rics) forecasts that rents will go up by almost 2% across the UK over the next 12 months and by 15% by the middle of 2023, with East Anglia and the south-west are likely to see the sharpest rises. This is largely to do with small landlords selling up after the removal of tax breaks and higher stamp duty on second homes, which has made buy-to-let properties less attractive as an investment. Equally, renters are on the increase as they not able to afford to buy their own home.

…And finally, in other news…

Do you like multi-tasking? Feel that “just” riding a bike could be pepped up a bit? Well maybe you need to have a look at this guy’s set-up: Grandfather uses 11 smartphones attached to a bicycle to play Pokemon Go (Metro, Jimmy Nsubuga https://tinyurl.com/ycdmvc89). Nice.

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

1. In MACROECONOMIC NEWS TODAY, the US announces more China tariffs, Turkey feels the pressure to raise interest rates and UK house prices hit new highs
2. In CAR-RELATED NEWS, Elon Musk mulls taking Tesla private and India’s answer to Uber announces its expansion into the UK
3. In MEDIA NEWS, ITV announces a tie-up with Hollywood for smartphone video streaming and Snapchat loses users for the first time
4. In OTHER NEWS I bring you some amazing balloon animals. For more details, read on…

And so the US tariffs on China rumble on…

US to impose tariffs on another $16billion in Chinese imports (Wall Street Journal, Jacob M Schlesinger) highlights the latest tariff attack from the Trump administration covering 279 products (mainly chemicals and electronic parts) worth about $16bn, bringing the grand total of products covered by new duties to $50bn so far. China said it would be retaliating. And so it goes on…and on…

America’s protectionist policies have consequences, though, as US-China trade tariffs cast shadow over cloud computing boom (Financial Times, Richard Waters) shows that this latest round, which covers some key components used by data centres, will pale into insignificance if Trump goes ahead with a third round covering $200bn-worth of tariffs as this list covers digital infrastructure much more comprehensively to include things like routers, switches, servers, motherboards, memory modules and cabling. * SO WHAT? * A huge hike in costs for cloud computing comes at a time of major expansion, and so will hinder the pace of progress as data needs continue to increase. In the meantime, I suspect that US manufacturers of said components will be rubbing their hands at the prospect of making some easy money as they will pretty much be able to charge whatever they like. If I was a US component company at the moment, I would be jacking my prices right up as you just don’t know how long this tariff battle is going to last – so you might as well make hay while the sun shines!

US sanctions on Iran will leave oil market’s safety buffers near zero (Daily Telegraph, A Evans-Pritchard) highlights more downside for America’s protectionist policy shift, this time concerning their re-imposition of economic sanctions on Iran. The article argues that taking out Iran’s production capacity will basically leave no slack at all in the market at a time when oil demand and supply is finely balanced. * SO WHAT? * Westbeck Energy warns that any kind of supply shock or geo-political crisis in our 

current situation could mean that oil goes to $150 a barrel or more by the middle of next year. If that happens, I think we will all start walking to work!!!

Elsewhere, Turkey under pressure to raise rates as lira plunges (The Guardian, Larry Elliott and Kareem Shaneen) highlights how the lira’s dramatic fall against the dollar in the last 12 months (it’s fallen by almost a third) is piling the pressure on the central bank to raise interest rates in order to quell massive inflation (it’s now at a 15-year high). Turkey’s newly re-elected political strongman president Erdogan is very much against raising rates because he wants to keep borrowing costs low to encourage credit growth and economic expansion, although some would argue this is just fantasy as inflation is now running at over 15%! Unfortunately for Turkey, even more pressure has been applied this week to its creaking economy by Trump threatening to remove its eligibility for preferential trade treatment in retaliation for the imprisonment of US pastor Andrew Brunson. * SO WHAT? * The US is Turkey’s biggest export market and a threat to its duty-free access could be crippling and further weaken the lira by removing a vital source of dollars. Turkey’s consumers and businesses were already feeling the pain of a weak lira making their foreign-denominated loans ever-more expensive – and Trump’s pressure is now making it all worse. It sounds like anyone wanting to go on holiday to Turkey right now will benefit from a pretty generous exchange rate!

Higher pay drives house price rise (The Times, Callum Jones) cites the latest figures from Halifax, Britain’s biggest mortgage provider, which show that house prices rose at their fastest rate since November last month. Annual house price growth got to 3.3% – way above expectations of 2.6% – and monthly growth was 1,4% in July, with the average price standing at £230,280. Russell Galley, MD at Halifax observed that “Pressures on household finances are easing as growth in average earnings continues to rise at a faster rate than consumer prices”. * SO WHAT? * Sounds decent enough, but it’ll be interesting to see how the market behaves going into Brexit next year. I’m thinking that people will be sitting on their hands and not buying. Some may argue that the houses that ARE on the market will be in more demand as potential sellers hold off to wait until the dust settles, thus choking off supply. However, I think that the chances are buyers will just get ultra-cautious.

In car-related news, Tesla (or rather Elon Musk) gets dramatic and India’s answer to Uber makes moves into the UK…

In Elon Musk declares plan to take Tesla private (Financial Times, Arash Massoudi, Richard Waters and James Fontanella-Khan) we see that Tesla’s founder made a dramatic statement on Twitter yesterday lunchtime that he wanted to take the company private in a deal that would put a $70bn valuation on it (equivalent to $420 per share). The Tweet came shortly after news that Saudi Arabia’s sovereign wealth fund had taken a $2bn stake in it. The shares jumped by 11% to $379.57 when trading resumed as investors hoped to cash in if Musk actually meant what he said (“Am considering taking Tesla private at $420. Funding secured”). He later sent out a memo saying that a final decision has NOT been made yet. * SO WHAT? * It does seem to be a bit of a weird thing to do for Musk. Usually, companies that carry out leveraged buyouts (LBOs) tend to have a big reliable cashflow. Tesla, on the other hand, is still losing money and burning through tons of cash. Also, an “average” LBO candidate usually contributes a small amount of equity whilst funding the rest of the transaction with debt – but Tesla’s already got loads of debt and it’s not clear who would be willing to take this on by funding it.

According to Elon Musk tweets he is considering taking Tesla private (Wall Street Journal, Mike Colias and Miriam Gottfried), a $420bn buyout would make it the biggest LBO in history, eclipsing the current record holder Energy Future Holdings Corp at $32bn. Why is Musk even talking about this? Well according to Morningstar analyst David Whiston, taking the company private would mean that Musk would not have to “constantly worry about going to the public markets for more money. He can do what he needs to do behind closed doors and keep growing the company without all that extra scrutiny”. IMHO, given how many people and companies have invested in Tesla, I think that Musk would be doing them a disservice by going private. The fact that he is forced to justify his actions on a continuous basis to shareholders stops him from going completely off the rails and makes him address the hard questions. On the other hand, going private would certainly make his life easier in many ways but I’m not sure whether now is the right time to do it. On balance, I think he’s yanking everyone’s chain – but hey, you never know with this guy!

Indian Uber rival says hello to Britain (The Times, Simon Duke) heralds the arrival of Indian cab-hailing company Ola, which aims to provide services across the UK by the end of the year – starting with south Wales. It is one of India’s best-funded tech businesses and operates in 110 Indian cities. It will offer passengers the option of hiring a minicab or licensed taxi – which will distinguish it from rival Uber. * SO WHAT? * More choice should be great for the consumer, less so for rival operators who will have to fight even harder to attract and retain customers.

In media news, ITV teams up with Hollywood on streaming and snapchat loses users…

ITV joins Hollywood giants in backing video streaming service for smartphones (The Guardian, Mark Sweney) highlights ITV’s involvement in a $1bn investment to back an ambitious new video streaming service for smartphones, currently dubbed “NewTV”. The aim of the new venture is to provide content specifically for smartphones and backers include Disney, 21st Century Fox, Lionsgate, NBC Universal, Sony Pictures, Viacom, Warner Media, JP Morgan and Goldman Sachs. The new service is set to launch next year and will focus on creating quality programming in a 15-minute mobile-friendly format and is expected to offer two types of subscription – free

with ads and paid without. * SO WHAT? * I’m not really sure whether this is reinventing the wheel, but I suppose it’s interesting to the extent that it is focusing on smartphones as the main viewing platform in response to changing viewer habits. Also, the list of backers is pretty impressive – but then again, they’ve all got fingers in other pies as well. Good luck to ‘em!

Snapchat’s users slide in latest setback for social media (Wall Street Journal, Marc Vartabedian) shows that the number of Snapchat users has declined for the first time in its history in the most recent quarter. A redesign of the app launched earlier this year that was supposed to be more advertiser-friendly, was blamed as the main cause for this but on the other hand, the company said that its second quarter revenues were up by 44% versus the same time period a year ago. Its shares are now trading 46% below its flotation price. * SO WHAT? * Although there was good news in the results – strong revenues and Saudi Prince al-Waleed taking a 2.3% stake, for instance – investors are going to be fixated on sluggish user growth and the general cloud hanging over social media stocks at the moment.

…And finally, in other news…

I thought I’d leave you today with some very impressive balloon art in 10+ Unbelievable balloon animals by Japanese artist Masayoshi Matsumoto (www.boredpanda.com, Dominkya Jurkstaite https://tinyurl.com/yame8nm8). Amazing!

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

1. In MACROECONOMIC NEWS TODAY, the US reinstates economic sanctions on Iran
2. In HEALTHCARE-RELATED NEWS, China drug scandals highlight supply chain weaknesses and Spire has a profit warning
3. In UK CONSUMER SPENDING NEWS, alcohol and food provide a summer sales boost and UK car sales turn a corner
4. In M&A NEWS, IWG craters on the collapse of takeover talks and a Deutsche/Commerzbank combo could save both companies
5. In OTHER NEWS, I bring you the tasering of Ed Balls. For more details, read on…

So the US goes ahead with punishing Iran…

US reimposes economic sanctions on Iran (Financial Times, Demetri Sevastopulo, Mehreen Khan and Najmeh Bozorgmehr) shows that Trump has now followed through on his threats and has just reimposed the tough economic sanctions on Iran that had been lifted as part of the 2015 nuclear deal which the US officially withdrew from in May. The sanctions will prohibit Iran from using US currency and bring a stop to trading in cars, metals and minerals

(including gold, steel, coal and aluminium). They will also, crucially, prevent Iran from buying US and European aircraft. Trump has said publicly that he is willing to meet Iranian president Hassan Rouhani, but Rouhani has said that no talks will be held with sanctions in place. * SO WHAT? * Iran is in turmoil currently, what with rampant inflation, rising unemployment and a currency (the rial) falling by 50% versus the dollar this year. The Iranian regime may well be forced to the negotiating table despite their current protestations. European companies that have been falling over themselves since the 2015 accord to do business in the country are obviously going to be put in a tricky spot, but in theory they will be allowed to sue the US government for compensation according to the EU. This sounds like a complete mess at the moment, so we will have to just monitor developments as they happen.

In healthcare-related news, Chinese drug scandals shine a light on supply chain weakness and Spire announces a profit warning…

Following on from yesterday’s story on the evolution of Chinese pharmaceuticals companies, we learn that it isn’t all roses as China drug scandals highlight risks to global supply chain (Financial Times, Tom Hancock and Wang Xueqiao) takes a look at the effects recent drug safety scandals -involving lax controls at Chinese drug manufacturers – have had around the world given that Chinese manufacturers account for over 40% of the global production of active pharmaceutical ingredients (API). The European Medicines Agency (EMA) and the US Food and Drug Administration (FDA) issued warnings over a cancer-causing ingredient used in a blood pressure medication, supplied by Chinese company Zhejiang Huahai, which then led to a drug recall. Then there was the announcement that thousands of sub-standard vaccine doses had been sold in China, where Changsheng Biotech was accused of falsifying data during the production of rabies vaccines. The number of warnings that the FDA has issued to Chinese pharmaceutical manufacturers has increased from five in 2014 to 22 last year. Indian companies also get

regular warnings but Chinese companies have been on the end of more than their Indian counterparts for the last two years. * SO WHAT? * This just goes to show how reliant drug manufacturers have become on Chinese API producers. TBH there’s only so much that non-Chinese bodies like the EMA and FDA can do given their relative lack of staff in China, but authorities there are very keen on pushing their biotech industry to the forefront and have made moves, such as introducing a regulatory framework similar to that of developed countries, in order to improve things. Investing in Chinese biotechs, then, is still a bit of a crapshoot (but then again biotechs generally are) but given public backlash on the latest scandals, it will be wise to avoid them for the time being, although they will be worth looking at once more further down the line. At the end of the day, the global pharmaceutical industry needs the Chinese API manufacturers to succeed because there aren’t many alternatives!

Spire issues profit warning after NHS spending cuts (Daily Telegraph, Ayesha Javed) highlights a share price fall of over 20% to hit a record low for the UK’s second largest healthcare company after spending cuts at the NHS dealt a body blow. The NHS had been using Spire to help make up for shortages of beds and staff, but it has been cutting back latterly in a bid to cut costs. * SO WHAT? * There’s not much Spire can do in the short term to stop the rot because the NHS shows no signs of loosening the purse strings any time soon, although it said that it plans to move more towards the private sector and cut costs. Talk about the dangers of having too much exposure to one client!

In UK consumer spending-related news, we look at food and car sales…

Heatwave food sales hide trouble elsewhere on high street (The Guardian, Larry Elliott) shows that although food spending saw its sharpest increase in five years last month – with supermarkets, pubs and shops selling fans and other cooling equipment – it effectively cannibalised non-food sales. As the British Retail Consortium’s chief exec Helen Dickinson warned, “Total sales growth slowed as the heat laid bare the underlying weakness in consumer spending. Sales of non-food products struggled – three months into an extended period of summer weather, demand for many seasonal purchases has slowed while the heat has kept shoppers away”. She added that traditional high street retailers were also experiencing the double-whammy of weakening footfall and rising business rates and said that “Although changing consumer behaviour means we will have fewer shops in the future, the reality is that if we want to support a positive reinvention of our high streets, business rates cannot go on increasing”. * SO WHAT? * I think I mentioned this last week when Greggs and Next both said that they had been helped by landlords being willing to reduce rents on new contracts – that business rates need to be the next thing the government look at in order to help struggling retailers. If private operators are reducing the rent, you know that they are scraping the bottom of the barrel because this is the last thing they will want to do. The government needs to step up here otherwise our retailers will just disappear.

Diesel car sales are still going backwards (The Times, Robert Lea) cites the latest data on new car registrations from the Society of Motor Manufacturers and Traders (SMMT) which show that diesel sales fell by ANOTHER 25% last month and are down by 30% for the year to date. Sales of new diesel vehicles are down by 40% in the two years since the government crackdown on diesels in the ongoing aftermath of the VW emissions scandal. Having said that, July showed an uptick in new vehicle registrations overall by 1.2% versus the same month last year. At their peak, diesels accounted for 45% of total sales – they now account for 32%, whereas sales of hybrid and electric vehicles were up by 20% last month and now have a 6.5% share of all sales. * SO WHAT? * I think car manufacturers only have themselves to blame for this. The writing has been on the wall since major European cities started to ban diesel cars a few years ago. They need to stop bleating about it and get on with making cars that are better for the environment. As I keep saying, IMHO, exposure to battery technology and battery-related materials is the key to less potentially volatile share prices as you are then exposed to a broad base of manufacturers. Here is what I said about how investors may want to play this in the 2018 preview I produced at the beginning of this year: “chemicals companies that make batteries and battery-related materials such as Belgium’s Umicore, the UK’s Johnson Matthey and Germany’s BASF. If, however, you DO want exposure to electric cars as well, copper is a key material used in lithium ion batteries, motors, inverters and charging points and could thus be an area of growth. Some observers believe that the demand for copper is going to double over the next 20 years if electric vehicles go mainstream, so if you agree then companies like SolGold, Ivanhoe Mines, Nevsun Resources and Atalaya Mining are purer copper plays than commodities giants such as Rio Tinto. Bear in mind, though, investing in such companies is not simple as there are so many variables involved!”.

In merger and acquisition news, IWG loses it and a Deutsche/Commerzbank combo could be the phoenix rising from the flames of German banking…

In IWG shares plunge as it ends takeover talks (Daily Telegraph, Rhiannon Curry) we see that serviced office provider IWG (which used to be known as Regus) has walked away from talks with three major private equity firms (Starwood Capital, TDR Capital and Terra Firma) before a bid deadline on Wednesday because it thought that the offers that were on the table weren’t high enough. Shares in the company fell by 20.5% in response to the news, which put it back down to the level it was at before news of the talks emerged. Just to make things a bit worse, the company announced a 33% fall in pre-tax profits * SO WHAT? * This just goes to show how competitive things are becoming in the world of serviced offices as IWG has had to work harder to compete with upstarts such as American company WeWork, which has been

encroaching on its turf. It is talking a good game what with the expansion of its “younger” Spaces brand, but as analyst Andrew Brooke at RBC Capital Markets said “With the company continuing to embark on an aggressive expansion plan, and credibility still low, we believe it will be some time before the market will give the benefit of the doubt”.

The shotgun marriage that could revive Deutsche Bank (Daily Telegraph, Iain Withers) is a really interesting article that puts forward a potential solution that would help two of Germany’s ailing banks – that Deutsche Bank and Commerzbank could get together to form a bigger, stronger entity. Deutsche’s Chief exec Christian Sewing recently appointed one of its investors, New York-based private equity firm Cerberus which has a 3% stake, to the board to advise on strategy and some are now suggesting that a combination of Deutsche and Commerzbank (in which Cerberus also has a stake) could create a German banking behemoth with combined revenues of €35bn. * SO WHAT? * Although this might look good theoretically, analysts are sceptical as the team at Keefe, Bruyette & Woods (KBW) believe that cost cutting would be very messy and that an integration of two complex lenders would be too difficult. Still, it is something that hasn’t been dismissed out of hand and, given the troubles that both banks have had in the last couple of years, they could just decide to go ahead and do it anyway.

… And finally, in other news…

I’m not normally one to endorse TV programmes in Watson’s Daily, but I have to say that if you want to get an interesting perspective on what Americans think of President Trump, you really should watch Travels In Trumpland on BBC2 at the moment. There is one bit in it, however, that some people might enjoy more than others as per Ed Balls tasered: Former Shadow Chancellor stunned in shock police video – watch here (Daily Express, Rory O’Connor https://tinyurl.com/y9spqvjy). This is good, but I have to say it’s not quite as good as the taser scene in The Hangover: https://tinyurl.com/yd57zk66. This cracks me up every time!

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

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