Friday 07/02/20

  1. In CORONAVIRUS & MACRO NEWS, we see more developments and impact as the virus continues to spread, Steve Mnuchin warns of a slowing momentum in the US economy and UK hiring picks up
  2. In RETAIL NEWS, Tesco attracts bidders for its Asian business, John Lewis warns of more job losses but we also see evidence of a “Boris bounce” in retail
  3. In INDIVIDUAL COMPANY NEWS, Twitter’s revenues hit a new high, Apple’s Watch eclipses the Swiss, there are calls for the US to invest in Eriksson and Nokia while ICE abandons its eBay bid
  4. In OTHER NEWS, I bring you a trick involving an avocado…



So the coronavirus continues to impact many areas, US growth loses momentum but UK hiring picks up…

Coronavirus whistleblower doctor dies in Wuhan hospital (Financial Times, James Kynge and Nian Liu) highlights the death of the Chinese doctor, Li Wenliang, who raised the alarm over the coronavirus epidemic. He had initially been accused by Chinese authorities of “rumour-mongering” and they forced him to retract his statement. The outpouring of sympathy following his death became particularly poignant following local media reports that he leaves behind a pregnant wife who has also contracted the disease. The death toll continues to climb.

As far as economic impact goes, Coronavirus threatens to tip China property into downturn (Financial Times, Don Weinland and George Hammond) signals problems for the country’s $43tn property market as sales centres close and potential homebuyers stay away. According to some estimates, China’s property market contributes 25% of the country’s GDP – and so could have a meaningful effect on GDP for the first quarter. Toyota and Nintendo warn of hit from coronavirus outbreak (Financial Times, Kana Inagaki and Leo Lewis) shows both companies are warning that Nintendo Switch consoles shipments and Toyota car sales will suffer, Fiat Chrysler warns coronavirus may force European plant to close (Financial Times, Peter Campbell) highlights the first time a global car company has warned of a European plant closing as it faces shortages of key parts from China and Coronavirus outbreak strains global medical mask market (Wall Street Journal, Austen Hufford and Melanie Evans) shows how the supply of medical masks is tightening as rising demand is being exacerbated by the fall in the number of staff at the factories producing the masks. In the meantime, China to cut US tariffs as coronavirus risks deepen (The Guardian, Larry Elliott) shows the latest efforts of the Chinese government to stimulate its economy by halving tariffs on a variety of US products.

Steven Mnuchin warns US growth may not hit 3% in 2020 (Financial Times, James Politi) shows further repercussions as the US Treasury Secretary said that the US GDP growth may fall short of its 3% target this year because of the ongoing Boeing 737 Max problems and coronavirus outbreak (although there might be some light at the end of the tunnel for Boeing as per Boeing 737 Max: regulators to agree on design fixes for troubled airliner (The Guardian, Dominic Rushe) which says that international air safety regulators are getting close to agreeing design fixes for the planes that had two fatal crashes).

* SO WHAT? * The coronavirus continues to spread and the repercussions on global growth, commodity prices and individual companies alike will continue to grow as scientists and doctors around the world race to find a cure. Any attempts at trying to quantify the impact of something like this can be pretty futile when you are in the middle of it – as we are – so the best that anyone can do is damage limitation.

On a non-coronavirus note, Surge in hiring as employers recover their confidence (Daily Telegraph, Tom Rees) cites the findings of a monthly report from REC (Recruitment & Employment Confederation) and consultant KPMG, which show that companies went on their biggest hiring spree in over a year during January as vacancies shot up (although temp work fell for the first time in almost seven years). * SO WHAT? * This certainly looks like good news on the face of it. Confidence among employers appears to be rising although new rules on IR35, which cover how contractors are taxed, is said to be putting a dampener on the temp market. Interestingly, there was a bit of an anomaly in this report as it found that salary growth for new permanent staff was at its lowest level since July 2016 – which runs counter to official data which suggests that wages are getting close to their fastest growth rate for the last ten years. I wonder whether this may be due to employers not being quite so ready to fork out for higher wages in the uncertain run-up to the December general election. If that’s the case, then I would have thought wage rises would get back on track.



Tesco lines up the Asian suitors, John Lewis warns of more cuts but retail actually experiences a “Boris bounce”…

Thai conglomerates enter bids for Tesco’s south-east Asia stores (Financial Times, John Reed and Stefania Palma) brings us up to date with what’s going on with Tesco’s Asian business at the moment. Charoen Pokphand (the conglomerate which owns Thailand’s 7-Eleven stores), Central Group (Thailand’s biggest department store group) and TCC Group (controlled by a brewing billionaire) all put in bids to buy Tesco Lotus a couple of weeks ago but the final bid deadline is expected to be either towards the end of this month or the beginning of next. Tesco currently has 1,967 stores in Thailand – and some shopping centres – and 74 stores in Malaysia and this overseas business is a rare success for a UK retailer. * SO WHAT? * This all sounds great, but given the size of these bidders, there is definitely a chance that Thailand’s antitrust regulator, the Office of Trade Competition Commission, could put a spanner in the works. Still, there is strong interest in this business and I would expect Tesco to extract a very decent price (with the caveat that the bidders aren’t swatted away due to their outsize market share). This will no doubt come in handy to help Tesco in its domestic market.

John Lewis boss warns of store closures and job losses (The Times, Ashley Armstrong) heralds more gloom for the ailing retailer as its new chairwoman, Dame Sharon White, warned that further cuts would be made in an effort to turn its fortunes around. The group currently has over 80,000 employees, 50 John Lewis shops and 338 Waitrose supermarkets and convenience stores. The new

chairwoman took over on Tuesday and made the warning in her first address to staff. * SO WHAT? * I don’t revel in being negative, but it seems like madness to me to select a chairwoman who has zero experience in retail to run a big retailer like this in a time of crisis. All I can think is that she has been brought in to make the tough decisions (e.g. on staff bonuses and more cuts). If it works, she can be praised for bringing a breath of fresh air to the proceedings, but if it doesn’t she will be blamed as an outsider who didn’t know what she was doing and they get someone else in who DOES have the relevant experience. Either way, the company wins because they get a patsy who they can dump the blame on (but who gets their dirty work done) or someone who actually manages to help them through a difficult transition. I certainly hope that she succeeds – John Lewis really needs her to.

‘Boris bounce’ drives High Street sales to highest level in six years (The Times, Ashley Armstrong) sounds a rather rare positive note as it cites the findings of a BDO report which show that high street retailers saw their biggest increase in sales since January 2014 as they also benefited from the “Boris bounce” post the general election. The data showed that the fashion sector ended a two-month downward spiral with a 5.8% rise in sales and sales of homeware, including furniture and sofas, rose even more strongly – up by 8.9% in the segment’s biggest rise since 2011. Online sales rose by an impressive 18.8%. * SO WHAT? * This is great news, although the shine is somewhat dimmed by the fact that sales were boosted by heavy discounting which isn’t great for margins. The retail sector needs to continue to invest in improving efficiency and customer experience – but it also needs to tackle the tricky problem of the huge cost of returns because between 20 and 40% of all fashion sales are returned (remember I mentioned a little while ago the practices of “wardrobing” and “bracketing”?).



Twitter’s revenues breach $1bn, Apple’s Watch eclipses the Swiss, Barr calls for US investment in Eriksson and Nokia and ICE backs away from eBay…

In a quick scoot around some of the other news, Twitter revenue tops $1bn a quarter for first time (The Guardian, Mark Sweney) shows that the company performed hugely above expectations following a difficult third quarter. “Monetisable” daily user numbers (users to whom Twitter shows ads) were also up 21% year-on-year, which was above market expectations. Ad revenues were also up strongly – a 20% increase year-on-year.

Apple clocks the Swiss watch sector (Daily Telegraph, Michael Cogley) highlights a rather alarming phenomenon (if you are a Swiss watch maker, that is) as the Apple Watch last year sold more than all the watches of all the Swiss brands combined. Strategy Analytics believes that Apple sold 31m units last year versus the Swiss watch

makers who sold 21m. Apple Watch sales were up by 36% on the year versus a 13% decline for the Swiss. The level of disruption is thought to be less dramatic in the high end makes, but it’s certainly a worrying trend for the entire industry. Will this be the death of the traditional wrist watch?

You will recall how the US gleefully went around the world last year doing a hatchet job on Huawei’s reputation. BoJo even annoyed the Americans recently with not slapping Huawei with a total ban on the UK 5G network and Donald Trump ‘apoplectic’ in call with Boris Johnson over Huawei (Financial Times, Sebastian Payne and Katrina Manson) is indeed indicative of that. However, US signals move for Ericsson or Nokia to take on Huawei’s 5G (Daily Telegraph) shows that the Americans are willing to go even further as the US Attorney General, Bill Barr, called on the US and its allies to buy controlling stakes in Eriksson and Nokia! Wow.

Then in Intercontinental Exchange chief defends eBay approach (Financial Times, Philip Stafford) we see that ICE has quickly abandoned its bid to buy eBay as investors reacted angrily to the proposal. Back to square one for both, then.



And finally, in other news…

I thought I’d end this week with something avocado fans out there might like: Mum’s ‘awesome’ trick will keep your avocados fresh and stop them going brown (The Mirror, Luke Matthews Keeping it real here at Watson’s Daily…

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Some of today’s market, commodity & currency moves (as at 0713hrs 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 **
7,505 (+0.30%)29,380 (+0.30%)3,346 (+0.33%)9,57213,575 (+0.72%)6,038 (+0.75%)23,821 (-0.19%)2,875 (+0.30%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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