Friday 22/06/18

1. In MACRO & COMMODITIES NEWS TODAY, we see that Daimler and BMW will lose from Trump’s tariffs whilst LNG may benefit, that oil price talks highlight rifts, that the CO2 shortage isn’t just affecting beer and that the odds on an August UK interest rate rise are getting shorter.

2. In TECH NEWS, Faangs are riding high whilst Xiaomi disappoints.

3. In RETAIL AND CONSUMER-RELATED NEWS, Kroger benefits from a different approach and Dixons sees a dive in profits.

4. In OTHER NEWS, I warn you about flying hotdogs. For more details, read on…

So Dailmer & BMW are losers from Trump tariffs and LNG is a big winner, OPEC’s members are split on oil price talks, the current CO2 shortage could have wider implications if it continues and a UK interest rate rise looks slightly more likely…

Daimler and BMW face hard road in trade wars (Financial Times, Patrick McGee and Patti Waldmeir) highlights more fallout from Trump’s tariffs as SUVs built by BMW in South Carolina and Daimler- owned Mercedes in Alabama will be subject to a whopping 40% tax as China

retaliates in the latest round of the trade war between the world’s two biggest economies. US car manufacturers won’t be affected very much, however, as the majority of Ford and General Motors’ vehicles sold in China are being manufactured locally in well-established JVs. * SO WHAT? * Interestingly enough, Porsche and Audi will only see minimal impact as their imports will be subject to a lower 15% tax. Philippe Houchois, autos analyst at Jefferies pointed out that “Ironically, China is the only large market with which the US enjoys an auto trade surplus. Import duties could lead German [carmakers] to localise more production in China putting US exports and jobs at risk”. An anonymous source at one of the German 

carmakers added that “You have examples where countries have [used] tariffs and protectionism to nurture a strong automotive industry – take Korea, Japan or China as examples- and they have only lowered the barriers once the industry is competitive at a global level. That works. But Trump is doing something different. He is taking a highly developed, established industry, and then he is slapping tariffs on it. There is no empirical evidence that that creates jobs”.

On the other hand, it’s interesting to see US prepares for next wave of LNG exports (Financial Times, Ed Crooks) because this is one area that China has not yet threatened with retaliatory tariffs because its usage is key to Chinese government efforts to wean itself off reliance on coal. China’s demand for Liquefied Natural Gas (LNG) is rising rapidly and consequent imports of it from the US have also been growing apace – from 17bn cubic feet in 2016 to 103bn cubic feet last year – to the extent that now, China is the #3 destination for US LNG exports behind Mexico and South Korea and is predicted to account for over 25% of ALL global consumption growth between 2015 and 2040 by the US Energy Information Administration. * SO WHAT? * New LNG plants take about four years to construct and there hasn’t been a new one built in the US since 2015 because everyone was expecting there to be an oversupply. However, the growth in demand from China has increased so rapidly that it became evident that these concerns were misplaced and now Venture Global LNG, Qatar Petroleum, LNG Ltd. and Tellurian are all looking to invest in US LNG export plants, with companies like Baker Hughes (the General Electric affiliate which 

supplies products and services for the oil and gas industry) also looking to benefit from this unexpected demand. Even though other countries, such as Russia, Qatar and Mozambique are looking to increase LNG production in the future, the US could still be at an advantage because its LNG is “the lowest cost of supply…in the world”, according to Brian Gilvary, BP’s CFO. Oil cartel split amid pressure to raise supplies (The Guardian, Adam Vaughan) does a good job of summarising the key areas for discussion in the Opec meeting that is taking place today in Vienna. Basically, Saudi Arabia (Opec’s biggest producer) and Russia (the biggest oil producer outside Opec) are in favour of increasing production whereas Iran, Iraq and Venezuela want to keep he current production restrictions in place. The oil price has shot up by 55% since Opec and non-Opec countries agreed to reduce production in 2016. This is an interesting article with some useful charts – but anyway, we’ll see soon enough what the outcome is. * SO WHAT? * FWIW, I think that if the two biggies decide to increase production everyone else is going to have to follow suit whether they like it or not because if they carry on as they are at the moment and the Saudis and Russians open the taps, they will just make their profits bigger whilst looking a bit stupid themselves.

I thought I’d better mention Threat from CO2 shortage spreads to food producers (Financial Times, Camilla Hodgson, Laura Hughes, Scheherazade Daneshkhu) because it is a problem that could have a rather disruptive effect on our food and drink supply chains in the UK with the British Poultry Council warning that a “severe lack” of CO2 – which is used by meat producers to stun birds and pigs during slaughter – will threaten meat production with eight or nine factories that account for 50- 60% of all poultry produced in the UK running low on CO2. The shortage is European-wide and could potentially have a detrimental effect on the meat and fizzy drinks industries. * SO WHAT? * CO2 supplies have been below average this year and the situation has been made worse by technical difficulties at a few gas supply companies. At the moment, it sounds like a short-term problem that will have minimal long-term effect, but we’ll just have to wait and see. Maybe this will result in panic buying of chicken and beer – so it may even turn out to be a good thing!

Recent newsflow has been conflicting in terms of the future direction of the UK interest rate and Odds shorten for August rate rise but don’t bank on it yet (Daily Telegraph, Tim Wallace) highlights the fact that the Bank of England’s chief economist, Andy Haldane, has indicated that he would be up for an interest rate rise, adding weight to the argument that the next meeting of the Bank of England’s Monetary Policy Committee (MPC) will yield an interest rate rise.

* SO WHAT? * It has proved to be a bit of a “dangerous” game double-guessing what the MPC might do (everyone expected a May rate rise, but that didn’t happen) but you would have thought that Andy Haldane would be best-placed to see what’s actually going on in the economy and that his support for an upward move would carry a lot of weight. Stefan Koopman at Rabobank observed that “The market has been caught on the wrong foot too many times to blindly believe the Bank’s MPC and go all-in. A more sceptical view would for instance be that the Bank’s hawkish message is aimed at lending support to the pound and to keep a lid on cost-push inflation, which is expected to rise over the summer”.

IN TECH NEWS, FAANGS SHOW THEY’VE GOT TEETH AND XIAOMI DISAPPOINTS ON ITS IPO PLANS…

Share price records topple as Faangs power ahead (Financial Times, Robin Wigglesworth) highlights the stellar performance of the group of stocks known as “Faangs” (Facebook, Apple, Amazon , Netflix and Google’s parent company Alphabet) as four of the five hit new intraday records in trading yesterday. Just to give you an idea of scale, the Faangs alone have a total market cap of $3.35tn, which makes them bigger than the entire FTSE100, Hong Kong’s Hang Seng Index or France’s CAC 40!

On the other hand, Xiaomi dents expectations with float price of $6.1bn (Daily Telegraph, Matthew Field) represents a bit of a damp squib in place of the expected fireworks from Chinese smartphone giant Xiaomi as it has set its flotation price at a significantly lower level than had previously been indicated. It is targeting a raise of $6.1bn in its Hong Kong Listing versus the $10bn it was originally aiming to achieve. That said it will still be one of the biggest flotations of the year and will value the company at somewhere between $54bn and $70bn market cap although it’ll fall way short of the $100bn it was touting earlier on this year.

The company has had to delay its offering in mainland China due to a dispute with the regulator, but it will start trading in Hong Kong on July 9th. * SO WHAT? * Maybe a combination of being overly bullish in the first place on the valuation and an atmosphere of uncertainty due to the China-US trade war is denting Xiaomi’s own confidence, but at least this is still going ahead. I suspect that they will await more favourable market conditions before making a return. I suppose that in this sense, the HK listing is quite a good way of testing the water as i am sure that this company will continue its upward momentum after a bit of a speedbump in 2016. 

In retail/consumer news, Kroger reports solid earnings, Dixons announced a dive in profits and cannabis gets legit…

In Kroger’s new approach to stocking shelves is boosting earnings (Wall Street Journal, Heather Haddon) we see that efforts by America’s #1 supermarket chain (by stores and sales) to overhaul its operations are bearing fruit as news of its stronger-than-expected earnings sent the share price 9.7% higher in trading yesterday. Like everyone else, it has been taking a good hard look at its business and decided to implement various measures to compete against the growing threat of Amazon and other retailers. For instance, Kroger announced last month that it was taking a roughly $250m stake in British online grocer 

Ocado Group to run its warehouses and process online orders and that it was also buying Home Chef, whose meal kits will shortly be sold in its stores. It hopes that moves like this couples with keeping supplier costs down and culling its product line-up will continue to strengthen the company overall. * SO WHAT? * It sounds like the company is making some good strategic moves, but it will have to keep momentum going as the competition isn’t standing still. Amazon continues to broaden its services, Walmart is also investing heavily in changing its business and European discounters Aldi and Lidl continue to expand in the US. It’s a jungle out there! 

In yet another bit of evidence that the UK high street is having a ‘mare, Dixons blames UK market for profits dive (The Times, Martin Strydom and Robin Pagnementa) highlights the company’s downbeat assessment of its

prospects as it announced a 24% fall in full-year profits due to a shrinking UK market, squeezed margins and higher costs. This assessment was broadly expected as it came close on the heels of last month’s profit warning, which wiped over 20% off the share price. New chief exec Alex Baldock also blamed an uncertain economic backdrop that was adversely affecting consumer confidence in addition to a slowing housing market that has been responsible for decreasing demand for fridges, cookers, washing machines and dishwashers.

…And finally, in other news…

If you ever find yourself at a Philadelphia Phillies baseball game, then you should maybe read this cautionary tale: Philadelphia Phillies baseball fan shot in face with hot dog as mascot fires sausages from oversize cannon (The Mirror, Chris Kitching). Fortunately, she’s OK and isn’t going to sue! I suspect she’s not going to eat hot dogs for a while, though…

As always, thank you for reading the WIFI!

ABOUT ME: I was a stockbroker for 13 years in four different investment banks in both London and Tokyo where I advised some of the world’s biggest financial institutions on investments in the European and Japanese stock markets. I’ve also worked in the recruitment world with spells in HR, investment banking recruiting and headhunting in addition to founding my own career consultancy, Seiha Consulting, in 2014 where I help people get the careers they really want using my experience as an interviewer and an interviewee over a 20+ year period. This has given me a unique insight not only into the way stock markets function, but also how it all relates to the employment landscape. If you want to know more about my background, please have a look at my LinkedIn profile here.

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