Friday 09/11/18

  1. In MACROECONOMIC AND ENERGY-RELATED NEWS, China exports strengthen despite tariffs, the Europeans forecast the UK to have the slowest growth into 2020, oil goes bear, renewables’ costs fall and Toshiba abandons Cumbrian plant
  2. In RETAIL NEWS, Sainsbury’s puts the pressure on and Halfords changes gears
  3. In INDIVIDUAL COMPANY NEWS, Ford moves into e-scooters and Disney takes on Netflix



So Chinese exports are shrugging off tariffs, Europeans forecast low growth for the UK, the oil price continues to falter, renewables’ costs fall further and Toshiba abandons its plant in Cumbria…

Trump’s tariffs have fully kicked in – yet China’s exports grow (Wall Street Journal, Liyan Qi ad Grace Zhu) cites the latest customs administration data which shows that China’s exports surged again last month – by 15.6% versus a year earlier – on the back of rock-solid demand. Some economists believe this has happened because businesses have frontloaded orders before the tariff deadlines. Imports to China were also up by a healthy 21.4% in October year-on-year and crude oil imports were up a whopping 89%. The trade war continues.

In what has to be a bit of a no sh!t Sherlock moment, UK forecast to have slowest growth in Europe by 2020 (The Guardian, Richard Partington) looks at the latest forecasts from the European Commission which say that, even in the event of a “soft” Brexit, Britain will join Italy to become the slowest-growing economy in the EU next year. Eurozone growth peaked out in 2017, but in recent quarters Britain has overtaken the eurozone. * SO WHAT? * Predicting any European country’s growth right now is a bit of a mug’s game given the problems facing the eurozone’s biggest and most important economy – Germany – and the basket case of Italy, which could yet destabilise the whole shebang. Clearly, so much can happen between now and Brexit that will hugely influence any kind of growth, but I think that most people would expect UK growth in particular to be weak at the start – it’s just how long that weakness will last that is the key.

In energy-related news, US oil enters bear market on rising inventories, worries of oversupply (Wall Street Journal, Dan Molinski) highlights that the WTI crude oil price has now fallen by over 20% since its $76 a barrel peak on October 3rd, taking it into bear market territory. The weakness this week was driven by the Energy Information Administration’s weekly inventory report,

released Wednesday, which showed that US oil inventories rose for the seventh consecutive week with crude oil production in the US reaching a record high. * SO WHAT? * OPEC is meeting this weekend and may decide to cut production to shore up oil prices. Russia, Saudi Arabia and some other OPEC countries have been producing more oil to offset lost Iranian capacity due to US tariffs, but it seems that they overestimated how much to open the taps given that the US granted a number of waivers that mitigated the suddenness of the drop-off.

New wind and solar generation costs fall below existing coal plants (Financial Times, Ed Crooks) heralds an important moment in power generation as a report by Lazard, the investment bank, contends that the cost of new wind and solar power generation has now fallen below what it costs to run existing coal-fired plants in the US. Retirements of US coal-fired plants are expected to hit new highs this year as the older ones reach the end of their working lives and some of the younger ones are no longer economically viable. * SO WHAT? * Trump has actually been looking at subsidising coal and nuclear plants in order to minimise the risk of blackouts that can occur with gas and renewable energy in severe weather conditions but his efforts have been scotched so far. The tide seems to be turning very much in favour of renewables and the cheaper it gets to squeeze power from these sources, the more compelling they will become as economic viability has always been a bugbear for renewables.

Meanwhile, back in the UK, Toshiba pulls plug on plan for nuclear plant in Cumbria (The Guardian, Adam Vaughan) sounds the death knell of the Moorside nuclear plant that was supposed to generate about 7% of the UK’s electricity. Toshiba decided to wind up its NuGen subsidiary after failing to find a buyer. * SO WHAT? * The writing was on the wall when Toshiba’s US nuclear unit Westinghouse went bankrupt last year. South Korea’s Kepco came close to taking on NuGen but then fell back due to new company leadership and a change in the way that nuclear power is financed in the UK. Given that the cost of renewables continues to fall, the long term viability of nuclear looks increasingly tenuous. I must say that I did not expect myself to be saying that even as recently as two years ago, but technological developments in renewables have advanced so quickly that their mass adoption is fast approaching reality.



In UK retailer news, we see arguments for and against “Sasda” and Halfords changes gear…

Funnily enough, debate continues on the merits or not of the merger between Sainsbury’s and Asda in Sainsbury’s boss issues warning over Christmas competition (Daily Telegraph, Ashley Armstrong) as Sainsbury’s chief exec Mike Coupe appealed to the Competition and Markets Authority (CMA), which is reviewing the plans at the moment, to let the merger go ahead by saying “Ultimately the CMA tests if there is consumer harm and we think that there is an overriding case this will benefit consumers as the synergies that will be passed on will mean lower prices for consumers”. As if to underline his point, Sainsbury’s announced a huge 40% drop in pre-tax profits in the six months to Sept 22nd after a number of one-off costs. Sainsbury’s merger ‘will hit shoppers’ (The Times, Deirdre Hipwell) looks at the other side of the argument as Wm Morrison warned that the merger could have a “significant impact” on shoppers and Aldi added that it would “create the largest retailer of fuel in the UK by volume of fuel sold…reduce consumer choice both locally and nationally and have a detrimental impact on suppliers across all categories”. * SO WHAT? * I’m going to stick my neck out here and say that this is all noise. Basically, the CMA is looking at the “Sasda” merger and anyone not involved in it is saying what a bad idea it would be 

(surprise, surprise). I think that the Tesco takeover of Booker last year makes this merger far more likely (that was a melding of two of the top companies in their respective fields and there was a LOT of objection to that) and the fact that it comes as the UK incumbents are all feeling the pinch also feeds into the case for letting it through. No doubt there will be necessary disposals (there always are in these cases) but I would be very surprised if the merger didn’t go through. It would certainly up the ante with both Tesco on the one hand and the discounters on the other. I would, however, be concerned for suppliers, however, as surely the temptation would be there for the enlarged group to screw them.

Profits fall as Halfords changes gear (The Times, Dominic Walsh) highlights woes at Britain’s biggest bike retailer as profits for the first half fell by 23% due to rising costs and investment in its new strategy. The company is looking at no growth until 2021 as it targeted investment in its stores, services and digital offering. The company is going to put more focus on motoring and cycling and shift away from camping equipment, power tools and toys. Other new initiatives include an agreement to sell Brompton foldable bikes, the provision of financial services in its autocentres enabling MoT customers to pay for more expensive repairs and increasing emphasis on cross-selling. * SO WHAT? * It sounds to me like these are all good areas to focus on and decent-enough initiatives. I say thank God they didn’t buy Evans Cycles as that would have put even more pressure on a business that is trying to drag itself out of a rut.



Electric scooters get a boost and Disney takes the fight to Netflix…

There’s quite a lot of chat about electric scooters today as Ford to launch global fleet of e-scooters (Financial Times, Tim Bradshaw) highlights the car company’s efforts to broaden its business horizons by investing in fleets of electric two-wheelers that will be rolled out in 100 cities by 2020 by buying Spin – a Californian scooter rental start-up. Basically, Spin gives you an on-demand electric scooter where the scooters are unlocked and rented out using a smartphone app and can be dropped off anywhere. The French fall in love with scooters (Daily Telegraph, James Cook) makes the case for electric scooters and why it’s taken a while for the UK to let them on the road. * SO WHAT? * This pits Ford against the likes of Bird and Lime that have attracted huge amounts of funding in the last couple of years. It seems to me that this is another big bubble – a bit like the one that seems to be bursting at the moment with bike-sharing – and is liable to be a fad that fades away. The fact that anyone can travel up to 15mph on these things and not be on the road sounds like an accident waiting to happen IMHO. Conclusion – it sounds like fun but I think it will ultimately implode. After all, walking is free (and, I would argue, much safer).

Disney to take on Netflix with TV spin-offs of its hit films (Daily Telegraph, Wil Crisp) shows how Disney is

nearing its goal of taking on the mighty Netflix as it revealed more detailed plans for its TV streaming service. It will be called Disney+ and aimed squarely at the family market. It will have a load of new spin-off programming from its own famous franchises and will include content from its recent $71.3bn acquisition of 21st Century Fox’s entertainment assets. Beginning in 2019, all of Disney’s movies will be removed from Netflix as it vies to become a direct competitor.  * SO WHAT? * I think that this is a very big risk on Disney’s part. I have said before that streaming has been going great so far as original content and bought-in content alike continues to see some deep investment but that there will come a point where consumers will reach a streaming saturation point. After all, how many streamers are you really going to subscribe to? For instance, I already have Amazon Prime because of all the other services it offers and I have a Netflix subscription. Although I have young kids, I’m not going to subscribe to Disney+ because it would just get too silly. When you have “normal” cable or satellite telly, all the channels are bundled together so you don’t really notice them that much. Separating them out just highlights their intrinsic value to your viewing experience and if you bore of watching superhero movies after one month, you will just unsubscribe. Big as though Disney is, I just don’t think it has the power to beat Netflix at its own game. Or Amazon, for that matter. I would be willing to bet you 50p that they will be back on Netflix (at least in part) within the next three years. Yes, wild, I know.