Friday 31/01/20

  1. In MACRO & CORONAVIRUS NEWS, markets continue to fall, the coronavirus continues to spread, US growth slows, European unemployment hits a new low and the Bank of England leaves the interest rate unchanged
  2. In TECH NEWS, the Huawei decision weighs on telcos and Amazon knocks it out of the park
  3. In BEVERAGE NEWS, Diageo get hits by trade tensions, ULVR wants to shed tea and Coca-Cola gets a caffeine boost
  4. In INDIVIDUAL COMPANY NEWS, Altria tries to distance itself from Juul
  5. In OTHER NEWS, I bring you an amazing stop-motion Toy Story 3



So markets continue to weaken on coronavirus fears, the US economy slows, Europe’s jobless rate hits a new low and the Bank of England leaves interest rates unchanged…

Markets in turmoil after coronavirus stokes fears over growth (The Times, Alex Ralph) shows that investors are getting increasingly pessimistic on the effects of the coronavirus on economic growth, pushing stock markets and oil prices down. The World Health Organisation declared a global emergency and investors sold off travel, leisure and energy companies most heavily, with Carnival (the world’s #1 cruise operator) falling particularly sharply as news of potential cases of the coronavirus on one of its cruise ships came out. Coronavirus poses challenge for China’s centralised system (Financial Times, Christian Shepherd and Sue-Lin Wong) makes the very interesting point that China’s hierarchy could have made the outbreak worse as the mayor of Wuhan, Zhou Xianwang said in an interview this week that “I hope everyone can understand why there wasn’t timely disclosure. After I received information, I needed authorisation before making it public”. Coronavirus: closure of Russia-China border sparks trade fears (Financial Times, Henry Foy) shows further fallout as Russia made the decision to close its 4,000km-long land border with China, which probably won’t go down well with its biggest trade partner and Face mask shortage hits Europe and US as coronavirus spreads (Financial Times, Nikou Asgari and Peter Wells) shows another immediate impact of the virus as people stock up. US company 3M, which sells the popular N95 respirator, said it was upping production this week in order to meet huge demand. SP Services, a UK-based first aid equipment supplier, has had two years’ worth of demand over the last week alone and is searching for more suppliers and the Cambridge Mask Company, which makes military grade filtration masks, has actually sold out. Anecdotally, one of

my school friends who works in China said that the price of masks almost doubled in two days earlier this week and it seems that one of the trending topics on Weibo (a Twitter-like app which is extremely popular in China) is “cut up your masks before you throw them out”, which urges people to take action in order to stop unscrupulous operators reselling used masks. I can’t verify this myself, but if it’s true it’s pretty shocking.

Elsewhere, US economy grows at slowest annual pace since 2016 (Financial Times, Peter Wells and Brendan Greeley) cites the latest estimates from the US commerce department which show that economic growth slowed down in the final quarter of last year and could imply that growth for 2020 will fall short of Trump’s 3% annual growth target. Worryingly, it seems that consumer spending is one of the reasons behind this fall. This is not good because consumers have been key to America’s economic strength. This news came a day after the Federal Reserve left interests unchanged. * SO WHAT? * Trump could do without an economic slowdown going into the presidential election at the end of this year. He has been banging the drum on the economy for quite some time, so this isn’t likely to go down well. Slowing consumer activity is not going to be good for America’s retailers either.

Then Eurozone jobless rate slides to 12-year low as sentiment improves (Financial Times, Martin Arnold) shows potential signs of economic improvement in the bloc of 19 countries, with Greece, Bulgaria and Croatia all doing particularly well. * SO WHAT? * The ECB will probably be relieved about the direction as it wants tighter markets to increase wage growth that will, in turn, encourage spending and push up inflation.

Bank of England has kept rates unchanged but still fears Brexit (The Guardian, Larry Elliott) shows that the Bank decided to leave the interest rate unchanged yesterday. Although its Monetary Policy Committee (MPC) saw recent signs of improving confidence, it decided to err on the side of caution given the uncertain impact from Brexit.



So the Huawei restriction poses telcos problems and Amazon has a record festive period…

Following on from the UK government’s decision to only allow Huawei equipment to be used on the periphery of the UK rollout of 5G, Huawei curbs force UK telecoms groups to review 5G plans (Financial Times, Nic Fildes) shows that the likes of BT, Vodafone and Three will be forced to buy equipment from Huawei rivals such as Ericsson and Nokia. Some say that this means they could end up paying up to 20% more for the equipment they need. The government said that it will put a 35% market share limit on Huawei equipment in 5G networks and full-fibre fixed-line infrastructure, to take effect in 2023 – sooner than many in the industry were expecting. * SO WHAT? * Ruling will cost us £500m, says BT (The Guardian, Mark Sweney) shows

that this may well be a pain in terms of additional cost for the telcos, but it could have been way worse for them if the UK had ceded to US wishes to cut Huawei out completely.

Amazon revenue jumps on holiday sales as profit rises (Wall Street Journal, Dana Mattioli) highlights a great fourth quarter for Amazon as its sales beat previous records for the festive period. Profits from its cloud computing and advertising businesses mitigated increased costs associated with the expansion of its one-day Prime shipping programme – and investors clearly liked what they heard because the share price rose by over 10% in after hours trading. * SO WHAT? * It seems that the push to increase numbers of Prime customers is working – and although it cost Amazon money to “buy” them, they tend to spend more on the site. This in turn helps to boost its advertising business. Elsewhere, its AWS cloud services business continues to grow apace and now makes up about 20% of sales and two-thirds of operating income and expects a good 2020.



Diageo suffers, Unilever aims to shed tea and Coca-Cola gets a boost…

Global trade tensions weigh on Diageo (The Times, Greig Cameron) highlights tricky times for the drinks giant as it is currently fighting to stop 25% tariffs on Scotch whisky in the US amid difficult trading conditions. Diageo is the world’s biggest spirits producer and owns brands such as Johnnie Walker, Smirnoff and Tanqueray and, of course, Guinness. * SO WHAT? * Scotch sales account for about 26% Diageo’s overall business, so you can see why the company is keen to get something sorted.

Unilever goes cold on tea business as sales decline (Daily Telegraph, Hannah Uttley and Simon Foy) highlights the

company’s decision to have a strategic review of its tea business – which includes brands like Lipton and PG Tips – following steep profit falls in 2019. * SO WHAT? * Apparently, tea has an image problem with younger consumers but Unilever: reading the tea leaves (Financial Times, Lex) argues that the company should try to innovate with its current portfolio rather than get rid. It also points out that tea is actually one of the most popular drinks across large parts of the world and getting rid of it would be a lost opportunity as well as a bit of a cop-out.

Coffee and sports drinks give Coca-Cola a real lift (The Times, James Dean) shows that sports drinks and “enhanced” water powered the beverage giant’s fourth quarter results higher but the old favourites of Sprite, Fanta and Coke put in an even better performance. The company aims to be a “total beverage” group by expanding its drinks line-up with new drinks, which some believe could potentially include those infused with cannabis extracts in future.



Altria makes moves to distance itself from Juul

Altria slashes value of Juul stake and loosens ties (Financial Times, Alistair Gray and Naomi Rovnick) heralds the latest development in the downfall of vaping as Altria decided to make a massive write-down on the stake it bought in vaping supremo Juul just over a year ago. This

was largely related to big legal costs for Juul as it faces an ongoing backlash from regulators and governments around the world. Altria also said it would cease to provide sales and distribution services to the company. * SO WHAT? * Given the massive flack that vaping has attracted over the last year, this seems to be a sensible course of action for Altria – but it really goes to show what a nightmare vaping has turned out to be. It already proved to be a deal-breaker to its previously proposed merger with Philip Morris International.



And finally, in other news…

I thought I’d leave you today with this incredibly impressive story: 2 Brothers Created a Stop-Motion Remake of Toy Story 3 Using Real Toys and People (Popsugar, Victoria Messina Just. Wow.

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Some of today’s market, commodity & currency moves (as at 0807hrs 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 **
7,382 (-1.36%)28,859 (+0.44%)3,283 (+0.22%)9,29913,157 (-1.41%)5,870 (-1.48%)23,205 (+0.99%)HOLIDAY
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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