Friday 30/11/18

1. In UK CONSUMER NEWS, borrowing and confidence are down but mortgage lending goes up
2. In TECH NEWS, Amazon feels heat from the Germans and Apple axes Chinese apps
3. In INDIVIDUAL COMPANY NEWS, AT&T announces streaming plans, Bayer makes big cuts and Intu’s woes continue
4. In OTHER NEWS, I bring you doctors eating Lego for research and a sausage-balancing dog. For more details, read on…

So borrowing slows down, consumer confidence takes a dive while mortgage lending goes up…

Borrowing slows and consumer confidence wanes, data show (Financial Times, Gavin Jackson) cites the latest figures from the Bank of England which show that the annual rate of growth in consumer borrowing fell to its lowest level since May 2015 during October. In addition to this, the closely-watched GfK index – which measures consumer confidence – showed consumer confidence falling to its lowest level for 11 months, with the joint lowest reading for five years.

Interestingly, given the overall slowdown in the UK property market, Bank data shows mortgage lending hits nine-month high (Daily Telegraph, Helen Chandler-Wilde) shows that there’s still an appetite for mortgages as approvals hit their highest level since January (although they are still trending below the long-term average).

However, it would seem that consensus still expects a slowdown in the overall property market which could be made worse if we have a no-deal Brexit.

* SO WHAT? * It seems to me that more people are hunkering down ahead of the unknown of Brexit. Maybe these mortgage approvals are the last hurrah for the time being before we launch into 2019 and the reality of it all starts to hit. You’d have to be pretty bullish (and have balls of steel/loads of money hanging around) to make big ticket purchases at the moment because no-one really knows how Brexit will affect jobs, wages and employment prospects generally. Consumers have, in the last few years, been happy to spend on credit cards or buy cars on PCP (Personal Contract Purchases, not the drug!) but I think that a combination of the Bank of England cracking down on profligate lenders and the impending reality of Brexit is putting the brakes on. I actually wonder if there is a chance that the high street will actually benefit because although people might get nervous about spending on big ticket items, they might still want to spend – just on smaller stuff. Fingers crossed for the UK retailers – let’s hope they can prove everyone wrong this Christmas season!

Amazon comes under the spotlight and Apple reluctantly axes some Chinese apps…

In German regulator scrutinises Amazon over dominance (Daily Telegraph, Hasan Chowdhury) we see that the Federal Cartel Office has started an investigation into Amazon’s dual role of being, on the one hand, the country’s largest retailer and, on the other hand, being the biggest online host for small businesses. Andreas Mundt, head of the Federal Cartel Office (aka Bundeskartellamt), pointed out that “Amazon functions as a kind of gatekeeper for customers. Its double role as the largest retailer and largest marketplace has the potential to hinder other sellers on its platform”. * SO WHAT? * This investigation will be closely followed by other countries in the EU and could well result in more scrutiny elsewhere. It follows hot on the heels of the European Commission announcing that it is going to investigate Amazon’s use of the data it holds on third-party sellers and whether it is benefiting from it. I suspect that this will be a bit of a cloud over the company until the investigations reach their conclusion because if regulators decide to come down hard, there could be some sizeable knock-on effects – especially if more regulators start to jump on the bandwagon as a result.

Rule-breaking Chinese apps removed by Apple (Daily Telegraph, James Titcomb) highlights Apple’s removal of over 700 iPhone apps from China for ignoring App store rules that stop making changes to their apps without Apple’s permission. New features and security improvements are examples of updates that should be approved by the company, but this has been going by the wayside. Chinese state media has been putting concerted pressure on Apple to control its App Store more closely – and given that it is a) the only foreign app store available in China (Google’s Play is banned, for instance) and b) Apple’s biggest source of app revenue (according to Macquarie analysts) you can see why it feels it has to play ball. This follows a removal of thousands of apps back in August which were deleted for breaching Apple’s rules. * SO WHAT? * This isn’t disastrous by any means, but it is yet another fly in the ointment for Apple’s efforts in a country where it is desperately trying to make inroads. As I’ve said before, I think that Apple is super-vulnerable in China because of its iconic status and is highly likely to be a focus for Xi Jinping’s trade negotiations with Trump i.e. play nice and we’ll let Apple in, play not nice and we’ll put the barriers up.

AT&T unveils its streaming plans, Bayer sacks employees and Intu just doesn’t catch a break…

AT&T plans 3-tiered WarnerMedia streaming service to take on Netflix (Wall Street Journal, Drew Fitzgerald) heralds AT&T’s plans to capitalise on its acquisition of Time Warner by offering three versions of its new streaming video service from the fourth quarter of 2019 that will have original movies and TV series from Warner Bros, Turner and HBO. WarnerMedia (as TimeWarner is now known) plans an entry-level service focusing on movies, a second tier with original programming and more films and a third tier with all of the above plus classic films, comedy and children’s programming. * SO WHAT? * Whatevs. Nothing here to get too excited about as we really need to know more specifics about the content and what will be pulled from other sites like Netflix. This will just pit it against the likes of Netflix, Amazon and now Disney. Ultimately, I think that punters will just get subscriber fatigue (there are only so many subscriptions one can take) and there will be another wave of consolidation. IMHO, Netflix and Amazon will be the ultimate winners because they not only have broader reach – they are also developing their own high quality content that makes them compelling. I don’t think Apple is really spending enough to be a proper player while Disney and now AT&T maybe have the content but not necessarily the distribution power.

Bayer to cut 12,000 jobs, shed Coppertone and Dr. Scholl’s brands (Wall Street Journal, Ruth Bender) highlights Bayer’s announcement that it will be cutting 10%

of the global workforce in an effort to stem the slide that it is experiencing in most of its businesses. To make matters worse, the inventor of Aspirin is also facing almost 10,000 lawsuits from users of weedkillers made by the relatively recently acquired Monsanto. The company’s share price has fallen by about a third since a San Francisco jury found, in August, Monsanto’s Roundup weedkillers caused cancer. Bayer has said that the cuts are part of an effort to squeeze out €2.6bn of cost savings by 2022. The shares ticked up on the news initially, but then ended flat. * SO WHAT? * Although it’s good that Bayer is trying to streamline itself, the timing isn’t great as it is about to enter a period of slow growth as patents for its top-selling drugs Xarelto and Eylea are due to expire in 2023, with nothing particularly in the pipeline to fill the gap. You do wonder whether they are going to be able to get decent prices for their disposals given that they look rather like a distressed seller. The company’s woes continue…

Intu’s woes are part of a trend that shows no sign of abating (The Guardian, Zoe Wood) is a story that is in many of the broadsheets today as the collapse of a takeover bid for shopping centre landlord fell though, sending shares down by 41%. * SO WHAT? * This is clearly a function of potential buyers getting the jitters over the fragile nature of the UK high street at the moment. I suspect that property values will continue to fall unless there is a massive uptick in activity – but that doesn’t look like happening at the moment. As Fidelity International’s Adrian Benedict put it, “Bricks-and-mortar retailers are in a fight for survival. Online shopping is transforming retail but at a time when consumption is struggling and the role of consumption in growth is waning. The level of rents and amount of floor space are uneconomic for many bricks-and-mortar retailers”.

And finally, in other news…

There are occasions when you wonder about scientists and how they spend their time on dubious research projects as per Doctors eat Lego to discover how long it takes to pass through digestive systems (Sky News, https://tinyurl.com/ybctkblj). Nice.

And finally, just to balance that out, I thought I’d leave you with Police dog balances sausage on nose (Sky News, https://tinyurl.com/yaono4pd). Impressive!