Friday 14/12/18

1. In MACROECONOMIC NEWS, the US posts strong job numbers, Italy’s latest budget fudge falls short and the EU orders the reinstatement of tougher diesel emission rules
2. In RETAIL NEWS, Mike Ashley warns of dire retail situation, Bonmarche craters and Ocado continues to pursue tech partnerships
3. In INDIVIDUAL COMPANY NEWS, Serco gets a boost
4. In OTHER NEWS, I bring you the world’s oldest skydiver. For more details, read on…

So US employments continues its strength, Italy’s deficit re-jig is unconvincing and stricter diesel emissions look likely…

Strong US job numbers bolster case for rate rise (The Times, James Dean) cites the latest figures from the US Labor Department which show that new claims for unemployment benefits fell last week by the biggest margin in about three-and-a-half years, showing continued strength in the US jobs market. * SO WHAT? * Given this figure – and the fact that US unemployment is at its lowest level for almost 50 years, it does look like fears of a slowdown are looking misplaced and that the pressure is building for the US Federal Reserve to raise interest rates to ensure the economy doesn’t overheat.

In Italy budget U-turn does not go far enough, Brussels warns (Financial Times, Miles Johnson) we see that Rome’s plan to cut its budget deficit may not be enough to placate Brussels, according to the EU’s economy

commissioner Pierre Moscovici as he said that “It is a step in the right direction but we are not there yet, there are still steps to be taken, perhaps on both sides”. * SO WHAT? * Rome’s conciliatory noises are fine in themselves but they haven’t provided any details at all about how they are going to achieve this sudden budget deficit reduction magic trick. We’ll just have to wait and see how this pans out, but I am very sceptical.

EU ordered to reinstate tougher diesel emission rules (Financial Times, Rochelle Toplensky and Peter Campbell) reverses a decision to relax diesel emissions two years ago, which means that car manufacturers will face more onerous requirements to produce cleaner vehicles. * SO WHAT? * This decision means that manufacturers have one year to comply with the tighter Nitrogen Oxide limit unless the EU appeals or passes new laws to raise the limit. Car makers have already spent billions ensuring their vehicles meet the new real-world testing regime, called WLTP, so I guess they won’t be best pleased at yet more hoops to jump through. No doubt an appeal will be made on behalf of the manufacturers!

Mike Ashley paints an apocalyptic picture, Bonmarche falls off a cliff and Ocado continues to do its thing…

Mike Ashley issues dire warning for UK retail industry (Financial Times, Jonathan Eley) shows the Sports Direct’s founder in full doom-and-gloom mode as he unveiled the company’s first half results saying “November was the worst on record, unbelievably bad. I don’t blame the guys, no-one could have budgeted for that”. His words were followed by a 16.5% fall in the share price, although they recovered a bit after the company later issued a “clarification statement”. Shares in Debenhams, Next and M&S fell in trading yesterday and the news came just a day after Superdry issued a profits warning. As it happens, profits from its core UK sportswear division were pretty robust in the first half and growth in its premium lifestyle business was also good – but the whole lot was dragged down by the dire performance of House of Fraser and losses on its 29.7% stake in Debenhams. Everyone no doubt enjoyed the rare sight of pigs flying over their heads when the company predicted that it would break even next year. * SO WHAT? * Call me a cynic, but I think that Ashley is massively talking his own book here. His core business appears to be surviving quite well – but he has got a monumental task in turning House of Fraser into something halfway decent. As far as I’m concerned, he’s managing down expectations to potentially get concessions from government and local councils and will no doubt use his predictions when rents come up for 

review. Ashley is a high profile “character” in the retail industry and I suspect that many failing companies will use his apocalyptic assessments to justify their own failures. He is one wily operator!

Talking of which, Bonmarche discount retailer crashes in high street ‘storm’ (Daily Telegraph, Charlie Taylor-Kroll) highlights the women’s discount fashion chain’s whopping 48% share price fall yesterday as it issued its second profit warning in three months, blaming “unprecedented” trading conditions and Brexit uncertainty causing consumer wobbles. The retailer, with over 300 stores across the country, also reported a poor Black Friday performance despite discounts on a large number of items. On the positive side, Cantor Fitzgerald Europe’s retail analyst Mark Photiades pointed out that the company’s online performance was decent and that the company’s relatively short leases (3.6 years) gave it reasonable flexibility on exiting unprofitable stores.

Ocado targets supermarket sweep of tech partnerships (Daily Telegraph, Ashley Armstrong) focuses on Ocado’s future in selling its warehouse technology to overseas retailers following some momentous deals with retailers in the US, Canada, France and Sweden. Ocado Solutions is the division that licences the company’s technology and software to third parties and CFO Duncan Tatton-Brown said that “we expect 2019 is going to be busy…we expect more commitment [from partners] next year, and our sales team is busy looking for the next Ocado Solutions partner”. * SO WHAT? * The company’s results were otherwise OK, but obviously the Ocado Solutions business is the thing that everyone is interested in given it meets a very urgent need for retailers in general.

Serco has good news…

Serco provides a source of optimism (The Times, Robert Lea) showed that it’s not all bad in the world of outsourcing as its predictions of a 30-40% uplift in underlying profits this year was enough to boost its shares by 10% in trading yesterday.

Shares in outsourcing companies have been having a torrid time since Carillion’s collapse at the beginning of this year and shares in Kier and Interserve have suffered a lot recently – so this is a rare bright spot.

And finally, in other news…

I thought I’d leave you today with something inspirational to end the week with: 102-year-old great-granny becomes ‘oldest’ skydiver (MSN, Bryce Sellick and Matt Teager https://tinyurl.com/y9p6hr25). Wow!