Friday 01/02/19

1. In MACRO AND COMMODITIES NEWS, a Trump/Xi summit seems to be on the cards, the Eurozone slows, Italy falls into recession and central banks buy gold
2. In TECH NEWS, Samsung suffers, Facebook consolidates and Nintendo’s profits soar
3. In RETAIL NEWS, Amazon announces record profits and a debate starts on UK business rates
4. In OTHER NEWS, I bring you some interesting earrings and a cute puppy. For more details, read on…

So another US/China summit looks likely, the Eurozone slows right down, Italy falls into recession and central banks buy gold…

Trump floats fresh Xi summit to settle trade war (Financial Times, James Politi) heralds the latest development on the US/China trade wars after two days of negotiations in Washington between Robert Lighthizer, US trade representative, and Liu He, China’s vice-premier appeared to go well, although no-one gave any specifics. In Trump gives upbeat assessment of trade talks with China (Wall Street Journal, Lingling Wei, Bob Davis and Michael C. Bender) the President even bigs up the next stage by saying “This isn’t going to be a small deal with China…This is either going to be a big deal or it’s going to be a deal that we’ll just postpone for a while” but if neither side can come to an agreement by March 1st, tariffs on $200bn of Chinese goods will rise from 10% to 25%. * SO WHAT? * The stage is set for Trump the Statesman to make a dramatic – and potentially defining – deal with the Chinese on trade. He wants to be at the centre of it all and if the past has proved anything, no deal is worth the paper it’s written on until Donnie T gets properly involved. If he manages to negotiate something decent, he will increase his chances of a second term in office exponentially IMHO.

Meanwhile, over in Europe, Eurozone slowdown fears mount as growth fails to recover in 2018 (Financial Times, Claire Jones) follows on from what I said on Tuesday as figures from Eurostat, the European Commission’s statistics bureau show that the Eurozone economy grew just 0.2% between the third and fourth quarters in 2018 –

the lowest growth rate for more than four years and Italy back in recession after economy shrinks by 0.2% (The Guardian, Phillip Inman and Graeme Wearden) highlights Italy’s official fall into recession (defined as showing falling GDP growth for two consecutive quarters), making things even harder for the country’s shaky centre-right coalition to put right. As James Athey of Aberdeen Standard Investments put it, “The growth forecasts on which the budget was based have already been blown out of the water and eurozone growth continues to weaken. Italy is going to have to face up to some real problems”. * SO WHAT? * Italy continues to be a basket case living in its own fantasy land with its leadership playing political games, Europe is in a right state and I would NOT be very surprised to see the ECB backtracking on plans to increase interest rates above zero to paper over the cracks. The Eurozone’s top three economies (Germany, France and Italy) are having an absolute nightmare at the moment, so I don’t expect the situation to improve any time soon. Add Brexit into the mix and you’ve got complete chaos!

In Gold stocks up 74pc as central banks build their reserves (Daily Telegraph, Helen Chandler-Wilde) we see that central banks bought more gold last year than they have done since 1971 – and the only time that gold stocks have been higher was in 1967! They have bought for various reasons like hedging against volatile currencies and reducing counterparty risk between banks. * SO WHAT? * Gold is seen to be a safe haven in uncertain times because of its intrinsic value and so concerns about Brexit, currency weakness and wavering stock markets – among other things – have fuelled purchases. The gold price is often seen as a contrary indicator of economic sentiment – i.e. a rising price equates to weakening sentiment and vice versa.

Samsung’s profits weaken, Facebook consolidates its apps and Nintendo’s profits soar…

Samsung Electronics warns of weak earnings after 30% drop (Financial Times, Song Jung-a) heralds tough times for the consumer electronics giant as it warned of weaker earnings in 2019 following the announcement of a 30% drop in fourth quarter net profit due to weakening chip prices and smartphone sales. The company said that it expected weakness in chip prices to continue for the first half as tech companies cut budgets and the US/China trade war continues. It did, however, say that the outlook would improve in the second half on a recovery in demand for chips and premium displays. Samsung will pour more money into Bixby, its voice assistant, and plans to release a foldable phone this year that it hopes will turn things around on the handset front. * SO WHAT? * Tough times, but I think they have been well-flagged by the company. If Trump and Xi get their act together on trade negotiations, this company’s share price is among the many that could shoot right up as an agreement could unlock delayed investment and turn consumer sentiment.

Facebook seeks to knit Instagram and WhatsApp with core app (Financial Times, Hannah Murphy) follows on from what I said yesterday about Facebook’s results and sounds like a perfectly logical progression as it aims to integrate Instagram (which it bought in 2012) and WhatsApp (which it bought in 2014) by sharing more tech and resources.

“Whatsabook” is, however, garnering criticism from those who believe that it could invade privacy by allowing Facebook to cross-reference user information on the different apps. Zuckerberg tried to head off such criticism by saying that he wanted the integrated WhatsApp, Instagram and Facebook Messenger to become one encrypted system by 2020 and that encryption was “the direction we should be going in”. * SO WHAT? * From a company point of view, I think that this makes absolute sense and will make Facebook an even more integral part of our lives as it could reduce the need for people to go outside the Facebook “walled-garden”, meaning that users will spend more time on it which in turn will no doubt lead to even greater ad revenue potential. However, end-to-end encryption could cause problems with law enforcement and concerns about data privacy in a large-scale app integration will also be very real given Facebook’s conduct to date. The other thing is that barriers to entry for any new start-up in the space will be prohibitively high and will stifle hope of any kind of competition. All of this just goes to show how integral companies like Facebook have become in our daily lives. IMHO, as long as Facebook continues to add users at a decent clip, ad revenues will continue to roll in and it will just get bigger and bigger. Yes, there will be bumps in the road but I just think that Facebook is an entity that is too powerful to stop.

Nintendo profits soar despite revision of Switch console sales (Daily Telegraph, Tom Hoggins) highlights a strong performance by the games giant as its operating profits were up by an impressive 40.6% and net sales were up by 16.4% on 2017 as Switch console sales had a strong third quarter. It did, however, lower its sales forecasts for the console from 20m to 17m for the financial year, which is a mild concern.

Amazon announces a strong performance but a weaker outlook and UK business rates are up for discussion…

Amazon notches third record profit in a row (Wall Street Journal, Laura Stevens) shows that the e-tailer put in another great performance (profits increased by 63% versus the same quarter a year earlier) but added that uncertainty in the Indian market due to incoming government restrictions and a potential increase in spending on infrastructure could cut the winning streak short. * SO WHAT? * The restrictions in India will make growth in that market more difficult and spending on infrastructure was inevitable after a pause in 2018, but there are still plenty of areas where Amazon is continuing to see strong growth – sales for Amazon Web Services were up by 45% for instance, and it is also seeing a decent uptick in the digital advertising business, so there’s still plenty to be optimistic about.

I thought I’d mention Business rates inquiry amid fears for shops (Daily Telegraph, Ashley Armstrong) because MPs are about to embark on an inquiry that could have big repercussions on UK retailers. Traditional retailers have been saying that online retailers have an unfair advantage in that they don’t have to pay the same taxes so it is impossible to compete on price and that this is a major factor in the current parlous state of the high street. * SO WHAT? * It’s difficult to say at this stage whether this will really save the high street or whether it’ll just delay its demise. As I keep saying, I believe that retailers need to invest in customer experience in order to tempt customers to part with their cash in a shop rather than online. Having said that, it seems to me that business rates create an unlevel playing field between offline and online retailers and so if this balance can somehow be redressed it would at least give some retailers a fighting chance of survival.

And finally, in other news…

I thought I’d leave you today with a very enterprising Twitter user in A Twitter user cleverly turned their AirPods into earings so they’d never lose them (Insider, Daniel Boan https://tinyurl.com/yaa9recf) and a super-cute story about a little doggy in Bet she was dog-tired! Marathon competitor runs 19 miles carrying a puppy after finding it in the road during her race (Daily Mail, Danyal Hussain https://tinyurl.com/y8ng38fo).

Have a great weekend!