Monday 02/07/18

1. In MACROECONOMIC AND OIL NEWS TODAY, the EU threatens, Obrador looks like winning in Mexico and Trump gets his Saudi mates to pump more oil.
2. In UK HIGH STREET NEWS, Wagamama attracts suitors, Café Rouge gets a lifeline and Estate agents face serious downsizing.
3. In INDIVIDUAL COMPANY NEWS, Tesla hits its Model 3 production target at last, Travelodge unveils a new format and Monzo faces a long road ahead.
4. In OTHER NEWS, I leave you with a heart-warming chimpanzee moment. For more details, read on…

MACROECONMIC AND OIL NEWS

So the EU fights back, Mexico’s on the verge of getting a populist president and Trump gets Saudi Arabia to pump more oil…

EU warns of $300bn hit to US over car import tariffs (Financial Times, Jim Brunsden) highlights a written warning submitted by the European Commission to the US Department of Commerce which states that Trump’s threats to hit car imports with big tariffs could result in global backlash of retaliatory taxes that could affect as much as $300bn of US products. The document said that “As markets would become fragmented, US costs would rise, US automobile exports would

suffer, US consumers would pay higher prices, and jobs would be lost…this development harms trade, growth and jobs in the US and abroad, weakens the bonds with friends and allies, and shifts the attention away from the shared strategic challenges that genuinely threaten the market-based western economic model”. Trump said yesterday that the EU was “as bad” as China when it came to trading with the US “just smaller”, but added that he was seeking collaboration with the EU against the Chinese. * SO WHAT? * At the moment, it sounds to me like a load of hot air. The EU is threatening, but hasn’t actually imposed any MAJOR measures (I think that the ones they’ve imposed so far are largely 

symbolic) and God knows where they got that $300bn figure from (I’ll bet my mortgage on the fact that that figure will be wrong!). I guess that Trump is trying to use the EU’s current disarray to his advantage and press his superior bargaining power.

Mexican leftist projected to win presidential election (Wall Street Journal, Juan Montes and Robbie Whelan) heralds what could be a new dawn for Mexico as populist presidential candidate Andres Manuel Lopez Obrador (aka “AMLO”) looks set to win yesterday’s presidential election by a landslide, which would result in a major shift to the left in Mexico’s politics as the electorate sticks two fingers up to the established parties. * SO WHAT? *

by way of observation it would seem that the investment restrictions will have less impact than you’d think because there’s already been a huge drop-off of inward investment from China – but industry is probably more concerned about taking a dent in exports.

In Trump’s trade war ‘could trigger fresh downturn’ (The Guardian, Angela Monaghan) we see that the Bank for International Settlements (BIS) is getting in on the Trump-bashing as Agustin Carstens, the BIS general manager, says in the organisation’s annual report on the global economy that “One possible trigger of an economic slowdown or downturn could be an escalation of protectionist measures. Its impact could be very significant, if such escalation was seen as threatening the open multilateral trading system. Indeed, there are signs that the rise in uncertainty associated with the first protectionist steps and the ratcheting up of rhetoric have already been inhibiting

If he gets a majority in Congress, he would be the first Mexican president since 1997 to have a legislative majority, which would make it much easier for him to push through his policies. Although Trump tweeted “I look very much forward to working with him”, Obrador’s administration is likely to have a more distant relationship with his noisy neighbour and Mexico’s free market model is likely to change as he puts more emphasis on helping the poor. He came close to winning in presidential elections in 2006 and 2012 but it seems that the Mexican electorate has tired of late of the growing number of corruption scandals during the presidency of Enrique Pena Nieto and given AMLO the top job this time around. Obrador is proposing to increase social spending and public investment by saving $25bn from ending corruption (!), with another $20bn a year from an austerity plan which will cut the salaries and perks for top public officials. Sceptics say that his figures are unrealistic and that he will eventually have to choose between watering down his promises or take on more debt, which could damage the country’s new-found financial stability. Leftists in the region – who have had a bit of a pasting of late – will take heart from Obrador’s victory.

Saudis ‘agree to US request to increase oil production’ (The Guardian) shows Saudi Arabia may have agreed to increase oil production by almost 20% (equivalent to 2m barrels of oil per day) in order to mitigate the supply squeeze that resulted from the US reimposing sanctions on Iran. So far we’ve only got Trump’s word for it that he managed to convince the Saudis to act in a telephone call he had with King Salman. * SO WHAT? * This is a big ask from Trump as Saudi Arabia currently produces about 10m barrels a day, with its all-time production record standing at 10.72m barrels a day – so asking for another 2m is rather punchy IMHO. Handily, Trump didn’t mention a time frame for the extra barrels. You can imagine this will go down like a lead balloon with other OPEC members who have just agreed to a relatively small increase to keep prices high-but-not-too-high (in their opinion, although I’d beg to differ given how much it cost to fill my car with diesel this weekend!).

UK HIGH STREET

In Wagamama attracts interest of private equity groups (Financial Times, Javier Espinoza) we see that the sale of the noodle restaurant chain is getting closer as groups such as Bridgepoint, CVC, KKR and L Catterton have all expressed interest in the group which could mean that the current owners could sell it for as much as £750m. The chain has 130 restaurants in the UK, five in the US and about 60 franchises around the world. Formal bids haven’t yet been submitted, but there is clearly interest. * SO WHAT? * The resilience of Wagamama in generally difficult times for restaurant chains is notable and a new US private equity owner might be just the thing the company needs to expand in America whilst also generating a very healthy return for the current owners, Duke Street. The intrigue continues…

Talking about restaurant chains, Café Rouge owner rescued by lenders (Daily Telegraph, Alan Tovey) looks at the rescue of the Casual Dining Group by US private equity giant KKR and Pemberton Asset Management over the weekend, which will be good news for the 7,500 employees who work at its 280 mid-market restaurants, which include brands such as Café Rouge, Bella Italia, La Tasca and Las Iguanas.

A chunk of the debts will be written off and £30m will be injected into the business as part of the deal. * SO WHAT? * No doubt KKR will have hammered out a very good deal in exchange for become a white knight, but clearly it sees some potential as high street restaurants have been having a right old ‘mare what with the likes of Carluccio’s and Jamie’s Italian (amongst others) having problems with higher overheads and lower footfall. Surely there will be closures and “right-sizing” of the business given what’s going on with the competition?

And it’s not just restaurants that are suffering as Thousands of estate agents at risk from weak market, online rivals and fee cuts (The Guardian, Patrick Collinson) cites a study by accountants Moore Stephens which shows that 153 firms went insolvent last year as they suffered from increasing online competition, a sluggish property market and a reduction in letting fees. * SO WHAT? * The 25% share price fall last week of Britain’s biggest estate agent, Countrywide Properties, is just symptomatic of the problems that are being faced by all estate agents at the moment. As Chris Marsden, restructuring partner at Moore Stephens, put it: “Insolvencies of high street estate agents are increasing as online competitors continue to chip away at their sales. With the ban on letting fees stated to come into force in 2019, estate agents will struggle to pass those fees on to landlords”.

INDIVIDUAL COMPANY

In individual company news, Tesla hits its target, Travelodge unveils a new brand and Monzo faces an uphill task…

Tesla reaches production goal for making 5,000 Model 3s (Wall Street Journal, Tim Higgins) marks a historic moment for the company as workers celebrated yesterday reaching their goal of producing 5,000 Model 3 sedans in one week – a target that has eluded them for some time. * SO WHAT? * This is fantastic news for the company (and its hard- working employees!) because the 5,000 vehicles a week mark represents the level at which Tesla will be able to be profitable. The next question is, will this be sustainable and then how soon will they be able to increase this level to make some serious money??

Travelodge upgrades with budget chic format (The Times, Louisa Clarence- Smith) brings our attention to a new “budget chic” format – called Travelodge Plus – that will be rolled out across the country, starting with sites in Brighton, York, Edinburgh, Gatwick Airport, London Waterloo and the City. The new brand will be funkier than their usual offering

with things like a distinctive choice of rooms and a bar café which will help customers work and relax outside their rooms. Travelodge currently owns 564 hotels in the UK, Spain and Ireland and is owned by Goldentree Asset Management, Goldman Sachs and Avenue Capital. * SO WHAT? * Interesting timing, I guess, given the fragile state of the UK economy, but I would imagine that it will depend largely on the price point and who it is targeting. If it is more of a business-traveller type offering then I believe it will be an attractive option as companies look to save costs on their mobile employees, but then surely it could have gone the whole hog and called it something else and got rid of the Travelodge reference. The initial locations would be reasonable for the business traveller and the leisure traveller alike, but again it all depends on how much it is going to charge.

Monzo losses surge amid ‘real progress’ with users (Daily Telegraph, Iain Withers) is a common story running in today’s broadsheets as Monzo, the UK’s fastest-growing digital bank, has trebled its user numbers to 750,000 in one year, but admits that profitability is its “next challenge” after its losses quadrupled to £33.1m due to expansion costs. The company only got its banking licence in April last year and is currently offering pre-paid debit cards, current accounts and overdrafts. * SO WHAT? * This sounds like the company is going in the right direction although it will obviously want to see profitability sooner rather than later if it is to achieve its goal of floating on the London Stock Exchange in as little as two to seven years.

OTHER NEWS

… And finally, in other news…

I thought I’d leave you with a something that will give you a bit of

a lift today if you can spare the 30 seconds it takes to watch: Chimpanzee can’t hide delight at being reunited with human foster family who raised him (The Mirror, Zosia Eyres http://tinyurl.com/y8r6wqyf). Ahh!!!

As always, thank you for reading the WIFI!