Friday 05/04/19

1. In MACRO NEWS, China’s stimulus appears to be gaining traction, Trump is upbeat but a Xi meeting date isn’t decided while German factory orders disappoint – as does Italy’s economy
2. In CONSUMER SPENDING TRENDS, UK car sales slow, car insurance premiums fall and UK high street spending remains sluggish
3. In FINANCE NEWS, UniCredit has a sniff at Commerzbank, Saga has its woes and Nomura has a shocker
4. In INDIVIDUAL COMPANY NEWS, Boeing is in big trouble and Amazon expands both healthcare and Mrs Bezos’ bank balance
5. In OTHER NEWS, I bring you a cushion “bake”. For more details, read on…

So the China stimulus takes effect, Trump stays upbeat, German factory orders hit new lows and Italy doesn’t like recovering any time soon…

China stimulus efforts show signs of stabilising economy (Financial Times, Don Weinland and Sherry Fei Ju) cites the most recent official purchasing managers’ index which showed a return to growth. Some say that this is evidence of the success of government initiatives to kick the economy out of a rut by increasing debt issuance and encouraging infrastructure projects. Others worry about whether the latest figures are just a blip because the findings of this survey are at odds with the most recent factory output and raw material demand figures which showed the fastest slowdown in almost ten years. The main driver of growth in March was manufacturing production, which would imply that government spending on infrastructure projects is starting to filer through. * SO WHAT? * The world is watching as China’s economic growth machine has powered many companies and commodity prices. Given that most of the recent economic data has pointed to a slowdown, I don’t think that this PMI result is going to be enough to allay continued concerns – but it won’t make them worse.

Following on from what I said yesterday, Trump says US-China trade deal close, but no summit plans yet (Wall Street Journal, Bob Davis, Alex Leary and Vivian Salama) shows that there is still work to do in the US-China trade negotiations. Both sides are continuing to aim for a trade deal within the next four weeks, but US Trade Representative Robert Lighthizer said that there are “major, major issues left” but that “We’re certainly making more progress than we would have thought when we started”. Denied! For now.

German industrial powerhouse falters (The Times, Gurpreet Narwan) cites the latest figures from the German economy ministry which show that factory orders fell at their steepest monthly rate last month since January 2017, increasing fears of an economic slowdown. * SO WHAT? * An economic slowdown in China, Trump’s trade tariffs, new rules on diesel emissions and Brexit worries are all taking their toll on Europe’s economic powerhouse and although it has so far managed to avoid a technical recession by the skin of its teeth, data isn’t exactly painting a rosy picture. Although the services sector is doing OK, manufacturing (which accounts for about a third of GDP) is having a rough time as it is heavily exposed to the vagaries of the global economy due to it being one of the world’s biggest exporters. A weakened Germany is NOT good for the eurozone.

Talking of weakness, Sluggish Italian economy set to remain at near zero growth (Daily Telegraph, Tim Wallace) says that Italy is highly likely to remain in recession as there is talk that the government is about to cut growth forecasts to almost zero (0.1% this year versus previous expectations of 1%, apparently!). UBS’s Giovanni Montalti observed that “The Italian political framework appears very fractuous and the outlook is likely to remain characterised by instability, against the backdrop of factors such as the European parliament elections coupled with the challenging fiscal policy decisions to be taken by mid-October”. * SO WHAT? * Italy continues to be an economic basket case and I can’t see its fractuous cobbled-together government helping matters. Germany has leadership issues (Merkel not being the power she once was), France has gilet jaunes issues (Macron’s popularity going down the pan because of his heavy-handedness – which has come back to bite him) and Italy (wildly opposing powers being cobbled together after an inconclusive election because it was arguably “better than nothing”) has are suffering at the moment – not good for europe.

UK car sales slump, insurance premiums fall and UK high street spending looks poor…

Car sales crash as 19-plate fails to woo drivers (The Times, Robert Lea) is perhaps rather unsurprising given the whole Brexit farce but the latest figures published by the Society of Motor Manufacturers and Traders show that new car registrations were down by 3.4% versus March 2018 and at the worst level since 2014. Fun fact: March, with its “new” numberplate, is the most important month of the year for car dealers and generally accounts for 20% of all sales. Private sales and fleet sales are all down and diesel continues its spectacular fall from grace with sales now 25% of the market versus the 50%+ share it once enjoyed. * SO WHAT? * This is bad, but it could actually be even worse than this because some car dealers indulge in a bit of pre-registration naughtiness as they register vehicles without actually selling them in order to inflate the sales figures they have agreed with manufacturers. This means that the numbers could drop quite sharply over the following months as reality bites.

There’s some good news for drivers in Car insurance premiums fall in advance of whiplash payout reforms (The Guardian, Miles Brignall) as new legislation, which will come into force in April 2020 and reduce the number of payouts, is already having an effect on insurance premiums according to research by Comparethemarket. Whiplash claims cost the motor insurance industry £2bn per year but

the Ministry of Justice says that the new rules in the Civil Liability Act will “ensure spurious or exaggerated whiplash claims are no longer an easy payday” because they will change the way that whiplash claims are calculated. * SO WHAT? * This is good news for drivers as insurance prices have generally been in an upward trend since 2012 but Dan Hutson, head of motor insurance at Comparethemarket, pointed out that “the reductions have been aided by the reduction in the number of car registrations in the past six months, which suggests that insurers are having to compete more to win a larger share of a smaller market. With the review of the Ogden personal injury discount rate [a rate used to calculate large payouts in serious personal injury claims] now under way, there is hope for motorists keen to see further reductions of their premiums”. It’s not going to be life-changing for drivers, but it should give them a bit of extra money. Which is nice.

High street struggles to put spring in its step (The Times, Deirdre Hipwell) is another rather unsurprising headline today, but the article focuses in on the latest findings of the BDO high street sales tracker which show that, although like-for-like in-store sales strengthened by 4.8% in March, they were nowhere near strong enough to make up for the performance lost when the “Beast from the East” hit in March 2018, making sales fall by 10.1%. Despite increased footfall in shops, rising wages and falling unemployment, sales remain stubbornly low. The figures showed weakness across the board, but the only bright spot was online sales, which rose by 18.7% last month. Sophie Michael, head of retail and wholesale at BDO, made a rather downbeat observation when she said that “Retailers continue to trade on paper-thin margins and the impact of further increases in business rates and staffing costs will only add to the fears of possible high street casualties”.

UniCredit expresses an interest in Commerzbank, Saga has a nightmare and Nomura faces some biiiig cuts…

UniCredit plots counterbid to take control of Commerzbank (Daily Telegraph, Vinjeru Mkandawire) heralds a funny turn in the Deutsche Bank/Commerzbank saga as Italian banking giant UniCredit appears to have thrown its hat in the ring as a potential suitor to Commerzbank. * SO WHAT? * UniCredit already owns German bank HypoVereinsbank and has been interested in Commerz for years. It will be waiting in the wings to swoop if the deal to form a “German champion” doesn’t go ahead, but could face competition from ING, BNP Paribas and Santander. There was no comment from Deutche, Commerz or UniCredit on the matter, but I have to say that I just don’t see it happening. The German government still has a 15% stake in Commerz and I don’t believe that it will allow another foreigner to take control of one of its own – much less an Italian (and I say that given how dire Italian banks are at the moment, plus the wider political/economic landscape).

Shares in travel firm Saga slump as it warns Brexit will hit profits (The Guardian, Julia Kollewe) highlights problems at the company which specialises in travel and insurance for the over-50s. The impact of Brexit uncertainties and

projections of lower insurance margins prompted it to announce a profit warning and dividend cut, sending its share price down by 37%. The company plans to do an overhaul on its insurance division that has been hit by increased competition and also plans to offer more experience-led holidays in its travel division. * SO WHAT? * It sounds to me like there were rumblings about deterioration in its business, but clearly most investors got caught by surprise, judging by the depth of the fall. Saga relies on brand loyalty, so it needs to nurture this if it isn’t to become just another faceless insurer.

In Japan’s Nomura to cut $1bn in costs and shut 20% of branches (Financial Times, Siddarth Shrikanth, Robin Harding and Leo Lewis) we see some very sobering news for Nomura employees as the brokerage announced some drastic plans following big losses in the nine months to December 2018. London will be particularly affect when job cuts are announced but the cutting of branches in its domestic network in Japan is particularly drastic IMHO. The company will streamline the management into a global structure and will cut “flow” trading business in Europe and America for bonds, emerging markets and forex. * SO WHAT? * This is bad news for mid-tier brokerages with global ambitions and just makes the top-tier even stronger, resulting in less choice for investors. The latter will benefit in the near-term from price cuts that only the top-tier can afford to finance, but when the competition has gone down to the bone, they could get a nasty shock in terms of price hikes.

Boeing’s nightmare gets worse and Amazon makes increases efforts in healthcare (and bolstering Mrs B’s bank balance)…

I think that Ethiopian 737 Max pilots not to blame for crash, probe finds (Financial Times, Aaron Maasho, Tom Wilson and Sylvia Pfeifer) is an absolute shocker for all concerned as Ethiopian investigators have found that the pilots who guided 157 people to their deaths followed emergency procedures correctly and were not to blame. * SO WHAT? * The Lion Air 737 Crash in Indonesia and the Ethiopian crash have severely shaken the world’s confidence in Boeing, given that they only happened within five months of each other. The 737 is Boeing’s best-selling plane and Boeing: holding pattern (Financial Times, Lex) contends that that investors think this won’t get much worse as the company’s share price has come off its lows in recent days, having lost 10% since the crash but I have to say that I think that this could morph into the mother of all nightmares for Boeing (it already is for the victims and their families) if further investigations confirm what the Ethiopian investigation has already found. If this really is the company’s fault, the compensation claims could be

absolutely enormous AND orders for new planes could just fall through the floor as buyer confidence evaporates. China recently diverted a massive order to rival Airbus – and you’ve got to think that the latest incidents made that decision easier to make. This is a terrible business. And Airbus is probably going to benefit.

There were a couple of interesting stories about Amazon today. Amazon expands healthcare services with Alexa deals (Financial Times, Hannah Kutchler) heralds a welcome development for the company as it announced that its Alexa devices now comply with US rules regarding healthcare data protection, which will enable it to provide more services. It also announced a number of partnerships that will let it check users’ blood sugar, communicate with hospitals and get repeat prescriptions on their devices. * SO WHAT? * This is a great step forward into what many believe is a huge growth area.

The other big story regarding Amazon today is Bezos’ wife ‘happy’ with divorce deal leaving her with $36bn (Daily Telegraph, Margi Murphy) which will probably serve to put a line under any investor unease regarding the Bezos’ high-profile divorce as Mr B will retain 75% of the couple’s Amazon shares and 100% voting control. Everyone’s a winner (well, relatively).

And finally, in other news…

I thought I’d leave you with a great bit of PR in Greggs brilliantly trolls Next over £18 cushion that looks like a steak bake (The Mirror, Courtney Pochin http://tinyurl.com/y2bxfzpa). Superb!