Friday 07/09/18

  1. In MACROECONOMIC AND CURRENCY NEWS, emerging markets fall into bear territory and Bitcoin takes a bath
  2. In INDUSTRY NEWS, it looks like the US shale boom and Aussie property boom are on the wane as the UK high street has its worst August for three years
  3. In INDIVIDUAL COMPANY NEWS, Apple gets Shazam approval, Facebook announces a Singapore data centre and Ford has a big recall
  4. In OTHER NEWS, I bring you what could be a highly remunerative offer from Burger King and Bude’s top tourist attraction. For more details, read on…



So emerging markets dip into bear mode and Bitcoin gets a kicking…

Perhaps rather unsurprisingly, Emerging market stocks enter bear territory (Wall Street Journal, Mike Bird, Riva Gold and Ira Iosebashvili) highlights further weakness in the MSCI Emerging Markets Index yesterday, led by Russia and the Philippines, taking them 20% below the recent peak – the common definition of a bear market. Weakness in

Turkey and Argentina has turned the spotlight on emerging markets’ dollar exposure as US interest rates are in an upward trend, thus effectively making their debt increasingly expensive.

Bitcoin value plunges again (Daily Telegraph, Hasan Chowdhury) points out a big 12.5% drop in Bitcoin yesterday as it traded down to $6,450 last night having fallen through $7,000 on Wednesday. * SO WHAT? * It would seem that the sell-off may have been sparked by reports earlier this week of Goldman Sachs postponing the opening of a cryptocurrency trading facility although it’s probably got more to do with the fact that EU finance ministers will be commencing talks about potential cryptocurrency regulation TODAY.



In news on industry trends, booms in US shale and the Australian property market appear to be on the wane and the UK high street has a disappointing August…

US shale boom begins to cool (Financial Times, Ed Crooks) sounds a warning note on an industry that has been growing and growing over the last two years as logistical issues such as rising labour costs and pipeline capacity shortage continue to pile up. The chief execs of Schlumberger and Halliburton, the world’s #1 and #3 listed oilfield services companies, pointed to a slowdown in the number of new wells being brought online at a Barclays conference in New York earlier this week and Weir Group, a UK engineering company that makes pumps used by shalers, confirmed this by saying that there had been a “considerable softening” in US demand last month. * SO WHAT? * It would seem that the US shale oil industry has been developing at breakneck speed for the last few years and has now hit a sticking point because a lot of the efforts have been concentrated in one (albeit mega) oilfield – the Permian Basin – and labour and equipment costs have continued to rise. Other logistical costs associated with waste water treatment and a lack of pipelines to transport the oil from West Texas to the refineries have also proved to be problematic and ultimately a drag on progress. There are a lot of naysayers out there now, but I guess that the industry will just have to innovate its way out of this rut – at least the strong oil price will give them some sort of buffer at least for the near term.

In Australia’s property boom ends as credit squeeze begins (Financial Times, Jamie Smyth) we see that tighter credit and sky-high prices have led to the biggest fall in Sydney real estate prices for nine years – at almost triple the rate of the national average. Prices in Sydney have risen by 70% in the last five years and household debt has risen above 120% of GDP, one of the highest levels in the developed world. * SO WHAT? * The reining in of easy

credit and upward pressure on mortgage rates is starting to filter through and Paul Dales, of Capital Economics, believes that “the current housing downturn will probably end up being the longest and deepest in Australia’s modern history”, with house prices falling by 12% over the next four years. But it’s not just economists who have a rather downbeat outlook – Wesfarmers chairman Michael Chaney said on Wednesday this week that he believed house prices could drop by 20%, sparking a wider recession in Australia. With 40% of mortgages being interest-only at the peak of the market, there is going to be a lot of pain felt on the way down and it’ll get a lot worse if a sell-off gathers momentum. It just seems that the time is ripe for a big correction (did you know that Sydney is ranked as the second least affordable city in the world with house prices at 13 times the average income?) although one happy consequence of such a downward lurch would be a rebalancing of the currently highly skewed balance of wealth, although obviously that’s not really going to be of any consolation to those who will be adversely affected should this current move turn into a prolonged period of weakness.

Although some retailers got an uplift from the World Cup and sunny weather it seems that it’s still pretty depressing out there in High Street has worst August for three years (The Times, Philip Aldrick) as a survey by accountants BDO say that High Street sales fell by 2.7% – the seventh consecutive month of weakness. BDO’s high street tracker, which has been running for 12 years and is based on results from 85 mid-tier retailers with 10,000 individual shops, showed fashion retailer sales down by over 3%, homeware shop sales down by 6.1% – the worst August figures since 2012 – and sales in lifestyle (which includes beauty and gifts) just went sideways. BDO’s head of retail and wholesale Sophie Michael pointed out that “the high street hasn’t seen any notable growth since October last year. With inflation continuing to bite on the weekly shop and the heatwave driving discretionary spending to bars and entertaining, there is even less disposable income heading to the high street”. * SO WHAT? * The high street carnage – and migration to online consumption – continues. I think that the run-up to Brexit is going to get even more painful, but it all depends on what sort of deal we get! If it’s even a tiny bit better than our currently low expectations, then there could be a big uptick.



In individual company news, Apple gets the go-ahead for Shazam, Facebook goes to Singapore and Ford announces a big recall…

EU clears Apple to acquire song-recognition app Shazam (Wall Street Journal, Anthony Shevlin) heralds the approval of Apple’s acquisition of Shazam by the EU following an investigation by the European Commission which looked at the impact it would have on competition in Europe. There were also some concerns that Apple could get access to sensitive data about its customers’ competitors, but clearly they weren’t judged to be sufficient to scupper the deal. Apple Music is now the #2 music streamer in Europe and Shazam is the #1 music recognition app for mobile in the world. Nice combo.

In Facebook to build $1bn Singapore data centre to power Asia growth (Financial Times, Stefania Palma) we

see that Facebook is going to pour $1bn into Singapore to build its first Asia-Pacific data centre in a bid to expand in its largest market by active users and advance its data-intensive capabilities. The new data centre will be operational in 2022. * SO WHAT? * This is a really important move for Facebook as this will help it to grow in a market which is expanding way faster than Europe, the States AND Canada combined!

Ford recalls two million trucks after reports of seat-belt malfunction (Wall Street Journal, Allison Prang) quite literally makes for uncomfortable reading if you’re an owner of one of these vehicles as Ford is making this move following reports of a seatbelt malfunction that could cause smoke or fire! The recall is for the F-150 made between 2015 and 2018. * SO WHAT? * This is a real pain for Ford as its F-series product line is very popular (it sold 900,000 F-series pickups last year and it’s the industry’s best-selling vehicle) and accounts for the bulk of its profit. Mind you, it looks like a pre-emptive measure as it isn’t currently aware of any injuries caused by the defect and the company reckons it will cost about $140m this quarter to rectify. This comes at a tricky time for Ford, which is trying to cut about $25bn in costs over the next few years.



…And finally, in other news…

I thought I’d bring you news of a competition that could make you a lot of money if you’re prepared to look a bit silly: Burger King is offering someone £20,000 to be the first person to try their new Crispy Chicken Burger (The Mirror, Zoe Forsey Could be worth it?

AND FINALLY, as it’s the weekend I thought I’d bring you a recommendation for if you want an exciting day out: Plastic tunnel outside Sainsbury’s is voted town’s best tourist attraction (Metro, Jane Wharton

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0803hrs 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
7,314 (-0.94%)26,015 (+0.11%)2,879 (-0.35%)8,09111,954 (-0.74%)5,247 (-0.29%)22,255 (-1.01%)2,703 (+0.43%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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