Friday 22/02/19

  1. In GLOBAL TRADE-RELATED NEWS, Trump softens on Huawei, Maersk warns on trade war escalation and German export orders hit new lows
  2. In CONSUMER GOODS NEWS, Kraft-Heinz has a poorly-received reveal and Johnson & Johnson has talc issues
  3. In INDIVIDUAL COMPANY NEWS, Apple and Goldman Sachs work on a credit card, Pinterest aims for a summer flotation, Tesla fields another blow and both Purplebricks and Centrica shares get pummeled
  4. In OTHER NEWS, I bring you something that could save your life. For more details, read on…



So Trump softens on Huawei, Maersk stays nervy and German exports weaken…

Donald Trump appears to offer an olive branch to Huawei (Financial Times, Kiran Stacey, Demetri Sevastopulo and Camilla Hodgson) heralds a very interesting development as Trump tweeted that “I want the United States to win through competition, not by blocking out currently more advanced technologies”, signalling a potential softening of his administration’s hard line stance on Huawei. * SO WHAT? * This tweet is now been interpreted as potentially being a precursor to some kind of trade deal – which it might be – but I have to say that surely a lot of the damage has already been done by his administration who have been touring the world slagging off Huawei. This has already resulted in major seeds of doubt being planted in various countries to the extent that Huawei’s tech has been banned or blacklisted in many places. So why this apparent softening? Maybe it’s intended to be a symbolic climb-down so that Trump can look like a benign statesman and Xi can make it look like a US concession that he won through diplomacy. I do, however, think that some kind of compromise on the Huawei thing is a necessary step towards any kind of agreement.

In Maersk chief expects escalation of global trade war (Financial Times, Josh Spero) we see the Soren Skou, chief exec of AP Moller-Maersk, the world’s biggest container shipping line, saying at his company’s full year results announcement that he expects the global trade war

to continue even if the US and China come to an agreement and that “the US moves its attention more on Europe and we have another round there”. Skou offered a downbeat assessment of the coming year due to trade tariffs, volatile fuel prices, the switch to more expensive low-sulphur fuel from 2020 and forex movements. On the plus side, the company managed to increase earnings and reduce debt last year by doing things like selling Maersk Oil, its shares in Total and getting cash from separating out Maersk Drilling. * SO WHAT? * It’s definitely worth listening to what Maersk says when they comment on world trade as their performance is a closely watched bellwether. I get the feeling that everyone is so focused on the US-China talks that they are forgetting the potential bun fight that could be coming up between the US and Europe. Just THINK of the concessions that the US could force in negotiations when Europe is in flux with EU elections, Brexit and weakening economic conditions.

German export orders sink to six-year low as bloc weakens (Daily Telegraph, Helen Chandler-Wilde) cites the latest Purchasing Managers’ Index (PMI) for German manufacturing which shows a contraction in February that was largely blamed on slowing demand from Asia. Export orders are now at their weakest levels since 2013. The services sector did well, but this only came after January hitting its worst levels in five and a half years. Jan von Gerich of Nordea Bank voiced his concerns thus: “The bad news is that there are no signs that the weakness in the more cyclical German manufacturing sector would be temporary, and the outlook is frankly scary. In light of these numbers, it is crystal clear that the challenges currently facing the German economy go well beyond the car sector”.



Kraft Heinz gets probed and J&J has talc problems…

Kraft Heinz swings to loss and discloses SEC probe; shares plunge (Wall Street Journal, Annie Gasparro) highlights some difficult announcements from the company as it wrote down the value of its Kraft and Oscar Mayer brands by a whopping $15.4bn, revealed that it was being investigated by federal securities regulators and took a knife to its dividend – all of which led to a 20% drop in the company’s share price.  It wrote down its brand values due to customers shifting to simpler ingredients and healthier food and the Securities and Exchange Commission is currently investigating the company’s accounting practices regarding the procurement of ingredients and other expenses that went unrecorded in previous quarters. * SO WHAT? * The company will no doubt be embarking on a sale of brands which its deems have “no clear path to competitive advantage” and a merger with another food maker is not out of the question. It did try to merge with Unilever a couple of years ago but was rebuffed – and since then, Kraft Heinz has been quiet on this front.

It never rains but it pours in Johnson & Johnson subpoenaed in baby powder probe (Financial Times, Hannah Kuchler) as the company has now received subpoenas from the US Department of Justice and the US Securities and Exchange Commission who are investigating allegations of asbestos contamination in its baby powder products. This comes at a very difficult time for the company following a December when Reuters reported that the company had known for decades that there was asbestos in baby powder and when a judge in Missouri awarded 22 women $4.7bn who said that the asbestos in baby powder and other J&J talc-based products caused their ovarian cancer. Johnson & Johnson hit back with “Decades of independent tests by regulators and the world’s leading labs prove Johnson & Johnson’s baby powder is safe and asbestos-free, and does not cause cancer. We intend to co-operate fully with these injuries and will continue to defend the company in the talc-related ligitation”. * SO WHAT? * This could turn into a nightmare of epic proportions for the company – and if it does not manage to convince the public of its innocence I think we could potentially see huge class action lawsuits. I mean for instance, I don’t know anyone who has had kids who will not have used J&J’s baby powder at some point or other – and they will have used it because of the trust in the J&J name. If that has been based on lies, then it could cost the company very dearly indeed.



Apple and Goldman Sachs team up on a credit card, Pinterest announces plans to list, Tesla gets dented and both Purplebricks and Centrica faced a tough day of trading…

Apple plans credit card with Goldman Sachs (The Times, Tom Knowles) brings our attention to plans for Apple to launch a credit card with Goldman Sachs in the next few months that would link to the iPhone. The idea is that this would be a new addition to the Wallet App and would give you extra features like letting users set spending goals, track rewards and manage balances – something along the lines that Monzo and Revolut are already offering. * SO WHAT? * This new development is part of a broader push into increasing revenues for Apple’s services division as handset sales continue to mature. Apple would get to potentially boost the use of Apple Pay and Goldman would increase its exposure to younger, digitally-savvy “ordinary” consumers as it continues to broaden its offering away from its traditional investment banking business.

Following on from yesterday’s announcement by Lyft to

float, Pinterest set for summer flotation (The Times) shows that the American social media site filed paperwork with the SEC for an Initial Public Offering (IPO) that may give it a valuation of at least $12bn. If things proceed smoothly, the flotation could happen in June. * SO WHAT? * It seems that tech companies are getting more confident due to a beginning-of-year recovery that followed a pretty disastrous sell-off in the final quarter of last year. I get the impression that there’s a lot of pent-up IPO action that might have happened last year spilling over into this year.

There were some rather dramatic share price moves yesterday with Purplebricks shares plunge 40% on lower revenue forecasts (The Guardian, Rob Davies) detailing a massive fall for the UK’s biggest online estate agent following a dramatic cut in its revenue forecasts and the sudden departure of its US and UK bosses and Centrica hits 20-year low (Daily Telegraph, Vinjeru Mkandawire), which highlights investor shock at British Gas owner Centrica’s announcement that its cashflow could take a big hit this year. * SO WHAT? * Purplebricks cited sluggish growth in its US and Australia business as the main reasons behind the revenue drops and Centrica is facing all sorts of problems including a haemorrhaging of customers, declines in nuclear output and a drop-off in volumes at its oil and gas division. Given all these issues, some investors are assuming that a dividend cut is increasingly likely.



And finally, in other news…

I thought I’d bring your attention to this: How the simple 40 push-up test could save your life – if you’re a man (The Mirror, Zahra Mulroy). Drop down and give me forty!

Some of today’s market, commodity & currency moves (as at 0827hrs 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 **
7,167 (-0.85%)25,851 (-0.40%)2,775 (-0.35%)7,46011,423 (+0.19%)5,196 (+0.00%)21,426 (-0.18%)2,804 (+1.91%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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