Friday 01/03/19

  1. In MACROECONOMIC NEWS, the US has solid growth but India’s growth slows right down
  2. In RETAIL NEWS, online retailer Zalando puts in a good performance and Gap splits off Old Navy
  3. In CAR NEWS, Tesla launches its cheapest Model 3 while Aston Martin rues the cost of its IPO
  4. In REAL ESTATE NEWS, US home ownership hits new highs but in the UK, Nationwide charts sluggish house prices and Foxtons reports its first annual loss since 2013
  5. In OTHER NEWS, I bring you the new toast scale. For more details, read on…



So growth continues for the US and Indian economies, but at a slower pace…

US economy grew 2.6% in the fourth quarter (Wall Street Journal, Harriet Torry) highlights a solid performance against the backdrop of a slowing global economy, a trade war with China and a partial government shutdown at the end of the year. Consumer spending was strong thanks to a tight job market, tax cuts and rising wages and business investment also rose in the final quarter of the year, potentially setting the scene for further growth in the future. Although GDP growth was 2.6%, this was slower than the 3.4% growth in the third quarter and 4.2% in the second but higher than consensus forecasts of 2.2%. The White House predicts GDP growth of around 3% this year, but Federal Reserve officials believe it will slow down thereafter. * SO WHAT? * These look like robust figures, but it seems to me that the “sugar-rush” from Trump’s massive tax cuts last year are running out. Fortunately, America Inc. looks like it’s capable of taking up the slack, but Trump would do it a huge favour by sorting out the whole trade war thing (firstly with China and then with the rest of the

world) as soon as possible. As we all know, business HATES uncertainty and if this continues to drag on it could potentially clip the wings of business investment which may have longer-term consequences. However, for now, things are looking pretty good.

Indian economy grows at slowest quarterly pace in more than a year (Financial Times, Stephanie Findlay) puts a dent in Prime Minister Narendra Modi’s claims that he can deliver robust growth in the run-up to the general election in April/May this year. Having said that, many countries would love to have 6.6% GDP growth, but the figures released by India’s statistics ministry yesterday showed the lowest growth rate in five quarters as the economy is being held back by weaker consumer spending and manufacturing growth. The government shaved its growth forecast for the fiscal year from 7.2% to 7%. * SO WHAT? * This isn’t ideal so close to the election as it highlights Modi’s shortcomings and will give his opponents ammo to say that he can’t keep his promises – including creating enough jobs for India’s millions of unemployed youths. Earlier this month he tried to curry (see what I did there) favour with distressed farmers by releasing $2.8bn in direct payments as well as announcing sizeable tax breaks for the middle class. Will it be enough, though? 



Online retailer Zalando bounces back and Gap announces a split…

In Zalando bounces back with stronger growth at end of 2018 (Financial Times, Tobias Buck) we see that the online fashion retailer bounced back in style with stronger-than-expected results and the announcement of plans to grow like Netflix and Spotify. It’s already the biggest online fashion retailer in Europe – bigger than Amazon and Asos – with 26.4m active customers and sales of €5.4bn last year, which isn’t bad for a company that started up in Berlin just over ten years ago. * SO WHAT? * This is great news for the company whose numbers faltered in the third quarter due to unseasonably warm weather that stunted jacket and coat sales. The share price had fallen by more than 40% year-on-year before yesterday, but it shot up by 25% on the good news. Chief exec Ruben Ritter outlined ambitions to be “the starting point of fashion in Europe…where a customer can fulfill all her fashion needs”. In order to do this, Zalando will have to deepen and broaden their relationships with fashion brands. One way of doing this is to expand the company’s existing partner programme which allows brands to sell and ship their own stock via the Zalando site, which takes a commission. At the moment, this programme accounts for 10% of gross merchandise volume (GMV) but is forecast to rise by 40% by 2023/2024.

Gap to split into two public companies (Wall Street Journal, Khadeeja Safdar) heralds a rather dramatic move by the clothing retailer stalwart as Gap announced that it will separate the fast-growing budget business of Old Navy from the rest of the business to create two separately quoted companies. This has come about because Old Navy has outperformed sister brands Gap and Banana Republic for a number of years to the extent that it now accounts for over half of Gap Inc’s $16.6bn 2018 sales. Current Gap CEO Art Peck will continue to run Gap, Banana Republic, Athleta, Intermix and new brand Hill City with about $9bn in annual revenue under a new company name while Old Navy CEO Sonia Syngal will run the new company, which has about $8bn in annual revenues. The separation is expected to complete in 2020. * SO WHAT? * The thinking behind this is that it will allow both companies to act more quickly and focus investment decisions and investors seemed to like what they heard as the stock shot up by 25% in after-hours trading. Investors tend to like having focus in a company – be it in specific product areas, geographies or strategy – as it allows them to see a clearer picture of what they are putting their money into. This sounds like a good move for a company badly in need of a refresh. Fun fact(s) – Old Navy was founded in 1994 by former Gap CEO Millard “Mickey” Drexler to compete with Gap’s then-lower-cost rivals and he named it after a bar in Paris. Sales reached $1bn within four years…



Tesla unveils a new low-price Model 3 and Aston Martin has a bad day…

Price cut brings Tesla to the masses (The Times, Tom Knowles) marks a significant milestone for the electric vehicle manufacturer as it has become the first to offer an electric vehicle to the mass market after cutting the price of its most popular model from $44,000 to $35,000. This means that the company will at last be fulfilling the the promise it made back in 2016 and said that customers in the US would get deliveries within the next two to four weeks and in the next three to six months for customers in the UK and Europe. Elon Musk added that ALL sales of Tesla vehicles would now be made online with existing stores being converted into information centres and showrooms. * SO WHAT? * Better late than never, I guess. I do wonder what current owners feel like now that their car will undoubtedly be worth way less in the aftermarket. Clearly, the staff at Tesla’s 378 stores and service centres won’t be feeling too chuffed either. Musk said in a

conference call that moving sales online would cut costs by 5-6% – savings that would be used to cut the prices of its Model S and Model X. It’ll be interesting to see what effect this has on sales.

Aston Martin shares crash as it reveals £136m IPO costs (The Guardian, Julia Kollewe) highlights investor disappointment as its shares cratered by 20% yesterday because it announced the £136m bill to take it to market, which put it into a £68m annual loss. Shares in the company have fallen by a whopping 42% since it floated to great fanfare last year and some are saying that this poor performance will increase the likelihood of the company crawling back to investors to beg for more money. On the plus side, revenues were up by 25% and car sales rose by 26% as special editions remained in high demand. * SO WHAT? * This is not great given that the company also has to contend with Brexit as well, like all the other manufacturers. This will put a lot of pressure on the success of the new crossover SUV, the DBX, which starts production trials this April and June with a view to moving to full production at its new St Athan factory in south Wales early next year. If that model proves to be a damp squib, I suspect CEO Andy Palmer will start to get pretty nervous.



US home ownership climbs while things remain pretty bleak in the UK according to Nationwide and Foxtons…

US home ownership rate hits highest level since 2014 (Wall Street Journal, Laura Kusisto) cites the latest figures from the US Census Bureau that show the share of American households that own their own home increased to 64.8% in the final quarter of last year versus 64.2% a year earlier in further evidence that momentum is shifting away from renting back to owning. * SO WHAT? * This is

good news because new owners tend to power demand for new construction, renovations, furniture and real estate-related services and it also shows a greater confidence in the wider economy.

The picture is rather different in the UK, as evidenced by House price remain sluggish as Brexit nears, reports Nationwide (Daily Telegraph, Sophie Smith) which shows that price growth has slowed right down to 0.4% versus the same time last year according to Nationwide’s latest house price index. Funnily enough, London property slump pushes Foxtons to first annual loss since IPO (The Guardian, Julia Kollewe) also paints a negative picture of the current housing market and it’s all being blamed on Brexit uncertainty making buyers less willing to fork out. Unsurprising, but evidence for if you needed it.



And finally, in other news…

I thought I’d leave you today with an interesting guide to toast in A ‘burnt toast’ scale has been devised and it’s sparked a fierce dispute online (The Mirror, Zahra Mulroy I’m more of a #4 or #5 man myself…

Some of today’s market, commodity & currency moves (as at 0758hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
7,075 (-0.46%)25,916 (-0.27%)2,784 (-0.28%)7,09811,516 (+0.25%)5,241 (+0.29%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)