Friday 22/11/19

  1. In MACRO & OIL NEWS, US-China trade talks take a more positive turn, Labour’s manifesto launch ruffles feathers and Saudi Aramco sidelines foreign banks
  2. In BID NEWS, Charles Schwab closes in on TD Ameritrade, Google’s acquisition of Fitbit faces resistance, LVMH increases its bid for Tiffany and Xerox threatens HP with a hostile bid if it doesn’t play ball
  3. In RETAIL NEWS, both Macy’s and Kroger disappoint
  4. In INDIVIDUAL COMPANY NEWS, Francaise des Jeux’s IPO nets the government €2bn, WeWork cuts 17% of the workforce and Royal Mail has a bad day
  5. In OTHER NEWS, I bring you a knife made of fungus and a Jesus/Phil Collins statue…



So China makes positive noises, Labour’s manifesto creates a splash and Saudi Aramco snubs foreign banks…

China invites Lighthizer and Mnuchin to Beijing (The Times, James Dean) heralds a potentially positive move as Liu He, China’s chief trade negotiator, said that he was “cautiously optimistic” about reaching the first stage of a multi-phase deal. He has invited his opposite number, Robert Lighthizer, and treasury secretary Steve Mnuchin to Beijing to continue high level talks. * SO WHAT? * TBH, this sounds ever-so-slightly positive but is nothing to get excited about. One side saying that they are “optimistic” about talks means b*gger all as it could either be taken at face value or it could just be a negotiation tactic so when nothing gets done, the other side can be blamed for being the one to scupper the talks. Rhetoric elsewhere from both Washington and Beijing continues to be quite prickly and voicing support for the Hong Kong protesters is not going to make things any easier either.

The Labour Party unveiled its election manifesto yesterday – and it caused quite the commotion! Headlines this morning say things like Jeremy Corbyn tax plans trigger fears of return to 1970s (Financial Times, Jim Pickard), Labour declares war on the City (Daily Telegraph, Ed Clowes and Lucy Burton) and Corbyn hails £83bn dream spending plan (The Times, Francis Elliott, Steven Swinford and James Coney) which shouts “Highest tax burden since Second World War” and “Labour offer ‘not credible’ –

independent expert’. Wow! I’m going to read the LibDem, Labour and Conservative manifestos in their entirety when they come out and then summarise policies in terms of how they affect specific groups. Obviously I’ll get cracking on the first two as they are now out, but I will release a report when I get a chance to look at all of them and review them side-by-side. I bet you can’t wait!

Then in Saudi Arabia sidelines foreign banks on Aramco IPO (Financial Times, Arash Massoudi, Anjli Raval and Simeon Kerr) we see that the global banks, including JP Morgan Chase and Morgan Stanley who have been advising on the Saudi Aramco IPO, are being snubbed in favour of locals NCP Capital and Samba Capital – as well as HSBC – to co-ordinate the deal. * SO WHAT? * This is obviously the Saudi regime giving the likes of Bank of America, Citigroup, Credit Suisse, JP Morgan, Morgan Stanley and Goldman Sachs a slap in the face. I have to say that I think that this whole IPO stinks. From the puffed-up valuations to the way companies and governments have kow-towed to a highly questionable regime that dissolves dissenting journalists in acid and the desperate attempt at making shares more attractive by providing strangely-generous incentives – and now the sidelining of the foreigners – this is a dodgy deal of the highest order. Unsophisticated retail investors may buy it, believing that the Saudis will underwrite it no matter what and institutions may be leaned on by the regime to buy shares with forced smiles on their faces – but making this a success post-flotation may prove to be very expensive ultimately if the government has to support it all in the background. I suspect it could be a success when it trades – but I don’t think it will be able to perform well without help. Having said that, Saudia Arabia probably has enough money to keep the party going for a quite some time.



Charles Schwab closes in on TD Ameritrade, LVMH ups its Tiffany bid and Xerox gives HP and ultimatum…

Charles Schwab nears $25bn deal for rival TD Ameritrade (Financial Times, James Fontanella-Khan, Eric Platt and Phillip Stafford) shows how the ongoing major price wars between online brokers are forcing them to consolidate. Many have had to cut their trading fees to zero with the advent of new players like Robinhood increasingly trying to eat their lunch and the growth of passive investing has also hit their trading volumes. If the two got together, the combined entity would have a whopping $5tn in assets. * SO WHAT? * Given the downward trend in fees and constant threat of passive investing, it is unsurprising that firms are looking to consolidate. There has already been some consolidation in wealth management circles and I don’t think it is going to stop now as the threats facing them don’t look like receding any time soon…

LVMH ups bid for Tiffany close to $16bn (Financial Times, James Fontanella-Khan and Eric Platt) highlights the latest development as talks between the two companies have been going on for the last few weeks. Tiffany is now letting LVMH take a closer look at its books – which would suggest that a deal is becoming increasingly likely, although obviously nothing’s finalised at this moment. * SO WHAT? * If the takeover went ahead, it would be LVMH’s biggest-ever acquisition and it would help the European luxury goods giant to broaden its footprint in America. Given that Tiffany has been struggling of late with lower tourist spending, a strong dollar making their goods more expensive overseas and the ongoing US-China trade war, it would seem that the time is ripe for a deal like this! The original offer of an all-cash $120 per share has now been

upped to $130 and represents a 30% premium to where Tiffany’s share price was before LVMH started to sniff around.

In Google runs into data fears over $2.1bn Fitbit deal (Financial Times, Hannah Kuchler) we see that Google’s proposed $2.1bn acquisition of Fitbit is facing calls by politicians and privacy campaigners to be blocked. * SO WHAT? * On the one hand, you could say that an acquisition of Fitbit by Google is just an attempt by the latter to catch up with Apple and its Watch. However, the problem is that there are increasing concerns over Google’s potential access to the data of 27m people who use Fitbit’s trackers! It would gain access to heart rate, activity and sleep data and now there are calls for the FTC to block the deal. Google is currently being sued by a patient at the University of Chicago who alleges that Google appropriated data from the university’s medical school and cross-checked it with Google Maps and WiFi connections to put names to patients – and then there’s the US government investigation into whether Google breached privacy laws in its “Project Nightingale” agreement with Ascension, where it gained access to the medical records of over 50m Americans. So the objectors have clearly got a point! It’s interesting, isn’t it, that Apple has decided to approach the harvesting of data in a different way – they’ve got the users via their Watch and now they are asking them to give them data via their new Research App.

Xerox threatens to go hostile in HP takeover bid (Financial Times, Matthew Rocco and James Fontanella-Khan) shows that Xerox has had enough of playing Mr Nice Guy and has now told the much bigger HP that its friendly bid will turn into a hostile one if it doesn’t agree to combine and play nice by Monday next week. HP has turned down the $22bn offer that Xerox tabled on Sunday saying it “significantly undervalues” the company (mind you, they pretty much all say that to get a better price) but left the door open for a higher bid. The drama continues…



After a few highlights in US retailing, both Macy’s and Kroger disappoint…

Macy’s posts lower sales; cuts forecast (Wall Street Journal, Suzanne Kapner and Allison Prang) highlights falling sales for the third quarter and it cut its full year forecast as well. The company put this down to weaker demand for autumn goods on later cold weather, weaker spending by international tourists and sales declines at smaller malls – but critics say it’s down to an offering that just isn’t working currently and that it has too many outlets

in lower-tier locations. Nordstrom and Gap also posted disappointing numbers after the market close.

Kroger dials back overhaul as sales splutter (Wall Street Journal, Jaewon Kang) shows that America’s biggest supermarket chain has decided to concentrate more on selling groceries and de-emphasise the rollout of too many new products and store revamps. It said that it will be slowing down the pace of store refurbishment to minimise disruption and will now focus on increasing sales of groceries that account for around 75% of sales. * SO WHAT? * Kroger is trying to improve both its offline and online capabilities in a very competitive market but it seems that plans that were put in place 2017 haven’t worked particularly well so it has now decided to return to basics.



The French government gets a handy €2bn, WeWork axes staff and Royal Mail doesn’t deliver…

French government raises €2bn with Francaise des Jeux IPO (Financial Times, David Keohane) heralds a successful stock market debut for state gaming monopoly Francaise des Jeux, raising a useful €2bn for a government that is trying to sell off national assets. Francaise des Jeux, which started off originally in 1933 as a national lottery to help soldiers injured in WWI, shot up by over 17% by lunchtime. The government reduced its stake from 72% to 20% in the process. * SO WHAT? * This was obviously a welcome development for a government that is trying to sell off stakes in various assets like Engie and Aeroports de Paris to raise money that it will invest elsewhere. As Finance Minister Bruno Le Maire said about the Francaise des Jeux sell-off, “I clearly think that the role for the French state is not to be part of the French lottery…our role is to invest in the future of young people in innovation and in new technologies”.

WeWork to cut around 17% of workforce (Wall Street Journal, Sarah E Needleman and Eliot Brown) highlights the job cuts that everyone had been expecting as the company tries to slow burgeoning losses. 2,400 jobs will go, excluding 1,000 cleaning and facilities staff who will be transferred to another company and the 1,000 employees who work in companies that WeWork acquired. WeWork had around 14,500 employees before it all started to fall apart.

Royal Mail share price tumbles over delay in shake-up plan (The Guardian, Mark Sweney) had a bad day yesterday as its share price fell by 14% on news that strike action could put the company into loss next year. That aside, it had its best revenues for five years and saw a big jump in profits for the half year but is falling behind schedule on its bid to transform its business in the wake of falling letter volumes. * SO WHAT? * Talk about turkeys voting for Christmas – workers voting to strike are risking cutting their noses off to spite their face as customers now have viable alternatives to the Post Office and can switch their business elsewhere quite easily – especially in the growing area of parcel delivery. The UK business remains challenging and will continue to be so for a while yet as the company tries to change with the times.



And finally, in other news…

I thought I’d bring you a couple of quite bizarre stories today with Japan’s YouTube knife-maker is back at it again–this time with a knife made entirely of fungus (SoraNews24, Dale Roll – which is amazing – and the rather freaky Jesus He Knows Me: Huge church statue in Mexico is Phil Collins lookalike (Sky News, which you will find hilarious if you actually know who Phil Collins is…

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Some of today’s market, commodity & currency moves (as at 0907hrs 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 **
7,242 (-0.34%)27,813 (+0.02%)3,108 (+0.05%)8,50613,170 (-0.05%)5,894 (-0.12%)23,113 (+0.32%)2,885 (-0.63%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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