Friday 01/11/19

  1. In MACRO & OIL NEWS, Trump faces more impeachment stuff, Hong Kong goes into recession, sterling trading heats up and Shell suffers from weak oil prices
  2. In RETAIL NEWS, Authentic Brands gets the green light for Barneys, JC Penney eyes a comeback and Fosun closes in on the Thomas Cook brand
  3. In TECH NEWS, Samsung’s profits crater, the smartphone market grows and Pinterest gets in bother
  4. In INDIVIDUAL COMPANY NEWS, Altria makes a big Juul write-down and Lloyds gets whacked on PPI
  5. In OTHER NEWS, I bring you some impressive pumpkin carving…



So Trump faces more heat, Hong Kong falls into recession, sterling activity increases and Shell loses out to lower oil prices…

Democrats open new phase in Donald Trump impeachment inquiry (Financial Times, Demetri Sevastopulo and Lauren Fedor) heralds problems for Trump as this whole impeachment thing just isn’t going away. He is now going to have to face open hearings about his alleged efforts to make his Ukrainian counterpart investigate Trump’s political opponents in order to get military aid. I don’t know how long this is going to drag on for, but I guess that Trump will want to get this sorted quickly so the electorate will have time to forget it in the run-up to next year’s election.

Given all the civil unrest since June, Embattled Hong Kong slips into recession (The Times, Gurpreet Narwan) has an air of inevitability about it. However, this is a notable development given it’s the first time it’s been in this situation for ten years. GDP contracted by 3.2% in September and marked the second consecutive quarter of contraction which makes it a “technical recession”. * SO WHAT? * The government is expected to introduce more stimulus measures in addition to the £2bn-worth of tax cuts and business subsidies introduced in August but no-one’s going to want to invest or do business there in any kind of size while the civil unrest is ongoing. China will have to tread a fine line between being too heavy-handed in bringing Hong Kong to heel and potentially scaring off overseas investors.

Election to trigger an explosive rise in sterling (Daily Telegraph, Ambrose Evans-Pritchard) contends that a number of global banks are getting excited about the prospect of getting a Withdrawal Agreement and a government with a working majority if BoJo wins the upcoming general election – and that there will be a

resulting frenzy of trading that will drive up the value of sterling. HSBC’s currency strategist observed that “A lot of investment has been mothballed because of uncertainty, but we could see those mothballs wither away quickly once there is clarity. It could be radical”. Growth could gather pace very quickly, with the labour market tightening even more – which could then put pressure on the Bank of England to raise interest rates to prevent the economy overheating. Societe Generale, Danske Bank, Swedbank, Morgan Stanley and UniCredit all have £/$ year-end targets of $1.40 or thereabouts and UBS Wealth Management has advised its clients to start buying UK assets “unhedged” for the first time in years. * SO WHAT? * Much of this assumes BoJo winning with a majority that would have the ability to push through legislation – and the bigger a potential BoJo majority, the stronger sterling will be. However, many City observers will also have fears in their mind of a Jeremy Corbyn victory which sounds like it will involve massive taxes for the wealthy and the potentially very expensive nationalisation of rail, the Post Office and utilities companies – as well as the uncertainty of a possible second referendum. No one seems to be mentioning the LibDems very much at the moment, but I’m sure that will change as time goes on. I am planning on trying to read the manifestos when they come out and will try to summarise and compare them so you can see the differences as I am one fun guy 😃

Investors wipe £15bn off Shell’s value as oil prices drop (Daily Telegraph, Ed Clowes) just shows how oil price weakness has been hitting some of the oil majors as Shell’s profits fell by 15%, which was exacerbated by an uninspiring global economic backdrop. Investor disappointment regarding its downbeat assessment of paying down debt and returning cash to investors via the world’s biggest share buy back translated into a 4.5% fall in its share price – making it the biggest loser in the FTSE100. Having said that, its results were better than market expectations overall as its oil and gas trading division made much more money than analysts had been predicting. Shell needs oil prices to be at least around $65 a barrel in order to break even – but this has proved to be out of reach for the majority of this year.



Barneys/Authentic Brands gets the go-ahead, JC Penney aims to turn things around and Fosun closes in on the Thomas Cook brand…

Judge approves sale of Barneys to Authentic Brands (Wall Street Journal, Soma Biswas) highlights what will be a new chapter in the life of Barneys New York as a bankruptcy judge approved Authentic Brands’ acquisition of the ailing department store for just over $271m. It is likely that this will mean the closure of most of Barneys New York stores – leading to job losses for many of its 2,000 employees – and the licencing of the Barneys name. Closures will include the flagship store on Madison Avenue among others and the Barneys name will be licenced to Saks Fifth Avenue which will open Barneys stores within its own stores (!). The deal should close today but the door has been left open for another buyer to step in – but that looks unlikely at this stage. * SO WHAT? * The potential outcomes have been well-flagged all along – but I do wonder why you’d want to see the Barneys brand in another department store. At least there will be some kind of conclusion (assuming the deal goes ahead) and everyone can try to get things back on track for the imminent Christmas season – a tall order, admittedly, given we are now in November! Yet another example of the slow death of department stores…

Talking about dying department stores, J.C.Penney plots a comeback: less clutter, more yoga classes (Wall Street Journal, Suzanne Kapner) looks at what the struggling retailer is doing to turn things around. It seems to be experimenting with alternative formats that include a fitness studio, a videogame area and style classes (!)

as well as cutting less-profitable product categories. New-ish CEO Jill Soltau is also rejigging the layout of stores by grouping products via “lifestyle”, e.g. work, active, casual and dress. Her “experimental” store in Hurst, Texas, has wide aisles, bright lighting, interactive experiences, tons of lounges, “smart” fitting rooms and concierge services – which all sounds great. * SO WHAT? * Although it is admirable that Soltau is trying to change the format to appeal to new and existing customers, she’s against the clock as revenues continue to fall (fun fact: J.C.Penney has lost money every year since 2012), the company has about $4billion in debt and it is also facing the prospect of being delisted from the NYSE. Given that she’s also trying to do this while consumer tastes continue to change – and with limited resources – I don’t fancy her chances, although I’d love to be proved wrong. Whatever she decides, she’ll have to do it quickly otherwise time will run out.

Then in Fosun poised to snap up Thomas Cook brand (Financial Times, Daniel Thomas) we see that Chinese conglomerate Fosun is on the verge of buying the Thomas Cook brand and intellectual property assets which could mean that you could see it as an online travel agent within months of it falling into administration! There have been other companies who have been bidding – including rival Tui – but it would appear that Fosun is ahead of the pack at the moment. No details are available currently as to the price. * SO WHAT? * Given the brand recognition that Thomas Cook has built up over the years, it is eminently possible that Fosun could use the brand to front a digital travel agent which could also be used to sell package holidays to Chinese and link up with its other tourism businesses, like Club Med for example. Thomas Cook may be dead, but it is not yet buried! In a funny kind of way, you do wonder whether this worked out well for Fosun in that I suspect these assets will be cheaper than trying to rescue the whole company.



Samsung suffers, the smartphone market grows and Pinterest announces bigger losses…

South Korea’s Samsung reports 52% fall in profit amid weak demand (Financial Times, Song Jung-a) portrays a rather downbeat consumer electronics giant as it said that it expected its earnings to stay weak for the fourth quarter due to weak seasonal demand and increased marketing costs. Its downbeat assessment of future prospects extended into next year given the global economic slowdown. On the plus side, the chip business shows signs of recovery as 5G-related spending is expected to increase along with renewed spending on data centres. * SO WHAT? * This was the fourth consecutive quarter of falling earnings for the world’s #1 producer of memory chips and

smartphones. Having said that, the prospect for a recovery in chips should be positive and Smartphone market grows for first time in two years (Daily Telegraph, James Cook), which cites data from Strategy Analytics showing increased handset shipments, gives cause for some optimism – especially if Samsung can take advantage of Huawei’s US problems.

Pinterest’s losses widen as expenses ballooned (Wall Street Journal, Kimberly Chin) heralds the company’s deepening losses in the third quarter as its outgoings more than doubled, sending the share price down by a chunky 19% in after-hours trading. On the plus side, active monthly users increased by 28% from last year and came from expansion into new international markets. It did, however, lose 8% of its monthly active users in the US over the same time period. * SO WHAT? * Sales and marketing are proving to be expensive for the company but it hopes that investment now will reap rewards from SMEs further down the line by giving them a broadening product array.



Altria announces a big Juul write-down and Lloyds suffers from the PPI deluge…

Perhaps unsurprisingly, Marlboro owner sees $4.5bn of Juul’s value go up in smoke (The Times, Alex Ralph) shows that Altria has made a $4.5bn write-down in the value of its 35% stake in vaping specialist Juul. Although it didn’t cite any one thing as a reason behind the “non cash impairment charge”, the fact that it’s under investigation from the FTC, the FDA and being banned all over the place (sales restricted in China, India has announced a complete ban, etc.) suggests that this is an eminently understandable move. Juul-related troubles also led to the collapsed of the proposed merger between Altri and Philip Morris International. * SO WHAT? * Talk about trying to catch a falling knife! I really do wonder whether the value of that 35% stake bought for $12.8bn is actually going to go

to zero. Given how down everyone is on vaping, I would not be surprised if it died completely. The ONLY thing I think that could help sentiment right now is if the mysterious lung conditions that are allegedly caused by vaping are ACTUALLY caused by all the non-official knock-off products that are sold on the internet. However, I imagine that will be extraordinarily hard to prove and everyone wants to put the boot into anything or anyone involved in vaping right now.  

Lloyds profit slumps after provision for last-minute PPI claims (The Guardian, Julia Kollewe) is a story doing the rounds on today’s broadsheets as the high street bank has had to allocate another £1.8bn to cover the massive increase in PPI complaints received in the run-up to the August 29th claims deadline. * SO WHAT? * This will negate virtually all of its quarterly profit BUT it would seem that the end is in sight for this cloud that has been hanging over all of the banks over the last few years. OK, so there’s a risk that the amount of money allocated to the claims will have to go up again, but the end is definitely in sight. I expect things will go sideways for now, though, until we get Brexit/economic clarity from the general election.



And finally, in other news…

Given that it’s the day after Halloween, I thought I’d leave you with the impressive Romania hosts carving of over 30,000 pumpkins (Associated Press, Vadim Ghirda and Andreea Alexandru That’s a whole lot of pumpkins!

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Some of today’s market, commodity & currency moves (as at 0912hrs 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 **
7,248 (-1.12%)27,046 (-0.52%)3,038 (-0.30%)8,29512,867 (-0.34%)5,730 (-0.62%)22,851 (-0.33%)2,958 (+1.0%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$54.5969$59.7451 (-0.61%)$1,511.851.295741.11545108.011.161509,148.46

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