Friday 24/01/20

  1. In MACRO & MARKETS NEWS, the ECB holds steady and markets get nervy on the corona virus
  2. In RETAIL NEWS, Morrisons cuts managers while Hotel Chocolat and Asos toast a solid Christmas
  3. In INDIVIDUAL COMPANY NEWS, Intel gets a boost and the Just deal attracts attention
  4. In OTHER NEWS, I burst a bubble regarding James Corden’s Carpool Karaoke…



So the ECB hangs fire and markets are spooked by the corona virus…

ECB keeps interest rates low amid strategic study of goals (Daily Telegraph, Lizzy Burden) shows that the ECB decided to keep interest rates on hold while it launches its first strategic policy review for 16 years. The ECB’s “new” president, Christine Lagarde, said that the central bank would probably keep rates at their current levels or lower until inflation gets closer to 2%. The interest rate on deposits was cut last year to -0.5%, which obviously hurt savers and banks as these rates are designed to get people to spend. The strategic review will examine the bank’s objectives and how to achieve them and it is expected to be concluded by the end of the year. * SO WHAT? * You can see the reasoning behind these ultra-low rates, but the problem is that if they aren’t raised the Bank will have less wiggle room in the event of another financial crisis. Still, I guess it’s what you have to do if you want to encourage growth – but it doesn’t seem to have worked that well so


Meanwhile, World financial markets rocked by China coronavirus (The Guardian, Richard Partington) shows that markets got increasingly nervy as the virus continues to spread. China has now put Wuhan and four other big cities on lockdown in an effort to contain it but traditional mass-travel ahead of the lunar new year has made things very difficult. The Sars outbreak in 2003 dented China’s economy as it infected 8,098 people worldwide and killed 774, so there are fears of a repeat. On the London Stock Exchange, mining companies such as Rio Tinto, Glencore and Anglo American saw their share prices weaken on concerns that demand from China for their raw materials could suffer and shares in hotels, airlines and luxury retailers also fell on the same thing. As far as luxury goods firms are concerned, China makes up about 35% of global income and the build-up to and aftermath of the lunar new year on January 25th is usually very lucrative – but this could all come crashing down because of the travel bans. * SO WHAT? * No one knows how far this virus will spread at this stage but it does seem that markets are starting to price in a proper epidemic. 



Morrisons wields the axe but Hotel Chocolat and Asos report good Christmases…

Morrisons to cut 3,000 manager roles in staffing overhaul (Financial Times, Myles McCormick) highlights a staffing revamp at the Bradford-based supermarket chain that will actually boost the numbers of lower-level employees. It said yesterday that it would change the balance of in-store staff by creating 7,000 new “customer service positions” as managers were demoted or left. * SO WHAT? * It’s a cut-throat world out there for supermarkets as many suffered over Christmas whilst facing constant competition from the likes of Lidl and Aldi. Maybe having more staff in the “front line” providing better service will differentiate and improve their offering, but in the meantime their managers face a tough choice.

In Hotel Chocolat whips up sales rise (Daily Telegraph, Hannah Uttley) we see that the company announced an 11% rise in sales for the 13 weeks to December 29th as it benefited from brisk trade in its £100 hot chocolate machines, new chocolate flavours and their new vegan chocolate (which took five years to develop!). On the

downside, though, it said that the costs of its overseas expansion were higher than expected due to supply chain issues. * SO WHAT? * Hotel Chocolat has been a high street hero and stock market darling for some time now and I really like the fact that it tries to innovate with its product. However, I am always nervous when companies like this announce overseas expansion because it is often costly and fraught with risk. Let’s hope that it can sort out its supply chain issues and make a success of selling chocolate abroad!

Asos back in the game as shoppers say yes to dress (The Times, Ashley Armstrong) heralds a strong Christmas for the online fashion retailer, putting it back on track after a year that included two profit warnings. It posted a 20% jump in sales for the final quarter of last year, easily beating market expectations, as it learned lessons from previous years and got its discounting strategy right over Black Friday and the festive season. Chief exec Nick Beighton boasted that the company sold one black dress every second and one wedding dress (costing between £120 and £300) every minute! * SO WHAT? * It’s great to see their top line growth recover after a difficult year, but some were grumbling that discounting had cut into margins. Still, at least Asos seems to be heading in the right direction. If Asos can cut down on all those naughty customers’ “bracketing” and “wardrobing”, that would be even better!



Intel gets an earnings boost and Just attracts late attention…

Intel earnings boosted by data-centre, PC demand (Wall Street Journal, Asa Fitch) highlights Intel’s strong fourth quarter earnings which came thanks to higher PC shipments and strong demand for chips destined for data centres, the latter of which carry high margins. Intel is the latest chip maker to report rising demand as Taiwan Semiconductor and ST Microelectronics also announced strong sales and revenue growth respectively. Intel added to the feelgood factor by announcing a positive outlook for the full year. * SO WHAT? * Intel is doing particularly well from the rising demand for cloud computing as companies move from owning servers outright to renting them. This means that cloud-computing vendors are building up big

data centres to house all this power, necessitating demand for Intel’s chips. The company continues to face some headwinds, including difficulties with developing new processors, shortages in the supply of chips, potential loss of market share against the likes of Advanced Micro Devices (AMD) and the ongoing fallout from the US-China trade war. Still, things could be worse!

Watchdog steps in at last minute to put Just Eat merger on hold (The Times, Dominic Walsh) highlights an unwelcome surprise for Just Eat and as the Competition and Markets Authority (CMA) decided to launch an investigation into the £10bn merger only a day before the all-share deal was due to complete! Talk about leaving it to the last minute! It was thought that because doesn’t have a business in the UK that there would be no overlap in the merger but the competition watchdog changed its mind. For the moment, the timetable for the integration will change, but we’ll just have to see how this turns out.



And finally, in other news…

Do you remember the disappointment as a child when you realised that Father Christmas wasn’t real? Well prepare to get reacquainted with that feeling in James Corden doesn’t actually drive during ‘Carpool Karaoke’? (MSN, Mark Gray Well I never…

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Some of today’s market, commodity & currency moves (as at 0706hrs 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 **
7,508 (-0.85%)29,160 (-0.09%)3,325 (unch)9,40213,390 (-0.88%)5,967 (-0.68%)23,827 (+0.13%)HOLIDAY
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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