Friday 17/01/20

1. In MACRO & “ECONOMIC BELLWETHER” NEWS, China’s GDP slows down, Turkey announces its fifth interest rate cut in a row, European car sales rise and UK recruiters suffer
2. In RETAIL NEWS, Gap goes back on its plan to split itself, Arcadia announces store closures, Primark looks overseas and Halfords has a good Christmas
3. In TECH NEWS, Facebook cancels plans to sell ads in WhatsApp and Alphabet hits $1tn
4. In OTHER NEWS, I bring you the Super Nintendo World song and some snow art…

So China slows, Turkey cuts interest rates yet again, European car sales rise and UK recruiters suffer fallout…

Pretty much everyone’s been expecting it anyway but China’s economic growth slows to 6.1% as trade and business confidence suffer (Wall Street Journal, James T. Areddy) cites the latest data from China’s National Bureau of Statistics, reflecting a general economic slowdown that was made worse by the ongoing US-China trade war. This is China’s slowest rate of growth for almost thirty years but still falls within the government’s 2019 target range of between 6% and 6.5%. Headwinds included the continued clampdown on debt, slower income growth and rising food price inflation stemming from the African swine fever outbreak denting purchasing power. The government expects a turnaround in consumer confidence and consumption this year and has outlined some punchy goals for 2020 including boosts for GDP and income and a pledge to end absolute poverty.

Turkey delivers fifth rate cut in a row in effort to boost growth (Financial Times, Ayla Jean Yackley) highlights yet another interest rate cut, bringing the one-week repo rate down by 0.75% to 11.25% to boost the economy despite inflation rising to 11.9% (I say “despite” because, normally, central banks raise interest rates to take the heat out of rising inflation as it encourages people to save more and spend less). President Erdogan believes that lower interest rates will calm inflation, which goes against conventional economic theory, and has been putting constant pressure

on his Central Bank to cut interest rates from the high of 24% which was implemented in 2018 to protect the lira.

European auto sales motor on despite trade headwinds (Daily Telegraph, Alan Tovey) cites official data from the European Automobile Manufacturers’ Association (ACEA), which shows that demand for new cars rose across Europe for the sixth consecutive year despite consumers getting increasingly jittery about spending on big ticket items. Germany was by far the strongest market with sales up by 5%, France saw a 1.9% increase and Italy saw a more modest 0.3% increase. Spain saw sales drop by 4.8%, which was twice as much as the UK. * SO WHAT? * I thought this was quite surprising given the hugely negative sentiment we get from the manufacturers themselves but they are more focused on the rising costs involved in making cars that comply with ever-tightening regulation. Still, it’s interesting to see that consumers are still buying (on the Continent).

Then in Recuitment groups hit by global turmoil (Financial Times, Archie Hall) we see that FTSE250 recruiters Hays and PageGroup have seen their business dented by French strikes, Brexit uncertainty and, most recently, Australian wildfires. Smaller rival Robert Walters also suffered with falling profits but the companies were divided on the outlook. Hays’ FD sounded pretty bullish, saying that one-off factors were to blame for the fall in profits but PageGroup’s chief exec painted a more downbeat picture. * SO WHAT? * Recruiters are often seen as an economic bellwether, with the argument being that companies hire when the good times roll, but then cut recruitment budgets when they are feeling the pinch. The divided opinion would suggest that they just don’t know how 2020 will pan out. FWIW, I think that their performance will be less like a bellwether over time as recruitment becomes increasingly automated. That will be a slow burn, however.

Gap does a U-turn, Arcadia announces closures, Primark aims for overseas growth and Halfords has a decent Christmas…

Gap backs away from Old Navy split (Wall Street Journal, Suzanne Kapner and Micah Maidenburg) heralds the rather dramatic news that Gap will not spin off its better-performing brand Old Navy after all. The original plan to split the two into separately quoted companies was announced about a year ago and when CEO Art Peck stepped down at the end of last year, the company reiterated that the plan remain unchanged. Clearly, that has now changed. * SO WHAT? * When you consider that Old Navy’s performance has stuttered a bit recently and that sales at Gap and Banana Republic continue to fall, it seems sensible for the management (which has been very unstable recently with tons of senior departures) to focus on getting things on a more even footing before doing anything drastic. Separating out Old Navy would have caused some big upheavals at a tricky time. Investors won’t be that pleased, though, because I think that they had been looking forward to being able to put money into the more successful part of the business rather than Gap as a whole. Still, this is something that new top management will have to deal with and at least keeping the whole lot together (for now, at least) will give them more potential options.

Philip Green’s Arcadia closes more stores after tough Christmas (The Guardian, Sarah Butler) shows that the parent company behind Topshop, Topman, Dorothy Perkins, Evans, Burton, Miss Selfridge and Wallis has announced the closure of at least 12 outlets in the last few

weeks, including one at the high-profile Westfield Stratford, due to poor performance over Christmas. This is despite landlords agreeing to massive rent cuts last year as part of a rescue bid. More store closures are likely and a second round of restructuring is rumoured to be on the cards. * SO WHAT? * This gives us further evidence that entering into a CVA does NOT guarantee survival and that clothing retailers have suffered from heavy discounting in the lead-up to Christmas. Arcadia’s nightmare continues…

Primark leans on new shops to buck high street gloom (Daily Telegraph, Simon Foy) shows that sales were up by 4.5% in the 16 weeks to Jan 4th versus the same period last year as its European business did quite well. The UK business saw a small decline in like-for-like sales (i.e. sales in shops that are not new). Sales were up overall due to new store openings and existing store expansions. * SO WHAT? * This is an OK performance in a tricky environment and it’s interesting to see that, according to Primark looks overseas as UK fashion sales slip (The Guardian, Zoe Wood and Sarah Butler), Primark will only open ONE new store in the UK this year (its lowest number in decades) and concentrate on openings in the US, France, Italy, Spain, Poland and the Czech Republic. Let’s hope that works out as overseas expansion can often be a nightmare. Primark has done well so far, though, so let’s hope that continues.

There’s also good news in Halfords’ festive period bicycle sales step up a gear (Daily Telegraph, Laura Onita) as the company benefited from its cycling business as its motoring business went slower. Electric scooters and custom bikes proved to be particularly popular. * SO WHAT? * This is good news, but I still wonder whether we’ve hit “peak cycling” in the UK after the boom which followed the 2012 Olympics. It’ll be interesting to see how Evans Cycles did in comparison.

Facebook reconsiders WhatsApp plans and Alphabet hits the $1tn mark…

Facebook backs off controversial plan to sell ads in WhatsApp (Wall Street Journal, Jeff Horwitz and Kirsten Grind) heralds an interesting development from Facebook as it has decided to cool its efforts to put ads on WhatsApp. * SO WHAT? * This is a major change of

direction as Facebook, which owns WhatsApp, has spent a lot of time looking at options for monetising the popular messaging service. In fact, the acrimony caused by Facebook wanting to put ads into the app led to the WhatsApp founders leaving. Facebook will now look at other ways of monetising.

A red-letter day for $1trn Alphabet (The Times, James Dean) highlights the day when Google’s owner, Alphabet, became the fifth publicly quoted company to gain a market value of over $1tn. The other four are Apple, Microsoft, Amazon and Saudi Aramco. Ultimately, this is nice, but doesn’t really mean all that much 😜

And finally, in other news…

I thought I’d leave you today with the annoyingly catchy song in Universal Studios Japan’s Super Nintendo World preview shows fans busting moves, mystery block (SoraNews24, Katy Kelly https://tinyurl.com/vx9ap2y) and the altogether more calming Artist uses snow as canvas for massive geometrical designs (Associated Press, Thomas Peipert https://tinyurl.com/txtfe4j). Nice.