Monday 03/06/19

1. In TRADE WARS & BREXIT NEWS, China and Mexico continue US negotiation efforts while global airlines, Huawei and FedEx get caught in the crossfire and Brexit dents manufacturers
2. In RETAIL NEWS, we see the case for US retailer weakness as being company-specific while Arcadia awaits its fate and Amazon backs UK pop-ups
3. In TECH NEWS, Facebook gets serious about crytpo and Hyundai offers out its hydrogen fuel cell tech
4. In OTHER NEWS, I bring you Lithuanian baby racing. For more details, read on…

So trade negotiations continue to impact airlines, Huawei – and now FedEx – while Brexit hits UK manufacturing…

China, Mexico signal willingness to step up trade talks with US (Wall Street Journal, Josh Zumbrun and Yoko Kubota) shows the latest developments in trade negotiations as China’s Vice Commerce Secretary Wang Shouwen said yesterday that “We’re willing to adopt a cooperative approach to find a solution”. Meanwhile, Mexico is sending a delegation to the US to talk about immigration issues following Trump’s threat to slap taxes on all Mexican imports if the Mexican government doesn’t do anything to stem the tide of immigrants to the US. In typical understated style, Trump tweeted yesterday that “Mexico is sending a big delegation to talk about the Border. Problem is, they’ve been “talking” for 25 years. We want action, not talk. They could solve the Border Crisis in one day if they so desired”. * SO WHAT? * Both China and Mexico make up the largest sources of US imports and face big tariff hikes in the next few weeks, so this is a big deal. There aren’t any more trade talks scheduled, but many think that a meeting between Trump and Xi COULD happen at the G20 meeting in Japan later this month.

Then in Global airline industry cuts profit forecast by more than a fifth (The Guardian, Jasper Jolly) we see that the International Air Transport Association (Iata), whose 290 members account for 82% of scheduled air traffic, has cut its projections for earnings across the industry by over 20%. This is largely due to the US-China trade dispute hitting cargo transport and higher costs, including oil prices. * SO WHAT? * Although airlines will still be profitable (albeit less so than last year), there is a danger that negative sentiment on cargo could spread to passenger volumes if economic confidence takes a proper hit. I would have thought that cargo demand would bounce back strongly, however, if an agreement was reached between the US and China.

Huawei pauses production of some phones (Daily Telegraph, James Cook) is an immediate consequence of US sanctions as the Chinese telco equipment giant has apparently paused production of some of its smartphone models as the South China Morning Post reported that orders to Foxconn (the assembler) were suspended. At the moment, it’s not clear whether this is a temporary or

permanent measure. * SO WHAT? * Surely this was bound to happen given all the Huawei-bashing that’s been going on this year (mainly from the Americans). Given the uncertainty is clouding future demand visibility, it is probably a wise move. 

From the Chinese side, FedEx caught in US-China tensions (Wall Street Journal, Trefor Moss) shows that Chinese authorities are conducting an investigation into allegations that it damaged the interests of customers, according to state media. FedEx was alleged not to have made deliveries “according to the name and address” of intended recipients in China, harming Chinese customers. FedEx, which has an Asia-Pacific hub in Guangzhou and employs 9,500 locals, had apologised last Tuesday for publicly mishandling packages for Huawei. * SO WHAT? * This just looks like the Chinese getting back at the Americans for its Huawei-bashing. It was pounced upon as an example by China’s Commerce Ministry which announced Friday that it was setting up an “unreliable entity list” of its own that would be a blacklist of foreign companies, organisations and individuals that breach contracts, damage Chinese companies for political reasons or harm national security interests. China has never (officially) targeted individual companies before, so this is a major negative development for non-Chinese companies if it is rigorously enforced.

Nearer home, Industry faces triple blow as Brexit leads to ‘paralysis’ (Daily Telegraph, Alan Tovey) cites research by trade body Make UK which shows that Brexit is leading to investment in manufacturing falling off a cliff and export customers avoiding the UK. The latest results of this quarterly survey showed that in the second quarter of this year, the number of companies planning to invest in their business halved while the number of manufacturers planning to employ more staff dropped from 16% to 6%. Stephen Phipson, chief exec of Make UK warned that “Earlier this year there was clear evidence that industry was on steroids as companies stockpiled. Underneath, however, there is now growing evidence of European companies abandoning UK supply chains, whilst Asian customers balk at the unknown of what may exist as the UK leaves trade agreements which operate under EU rules”. * SO WHAT? * Pretty much everyone and their dog has been saying that manufacturing orders were artificially high because companies were stockpiling ahead of the original Brexit date – well it seems now that some of that is coming home to roost. Further political uncertainty and a run-down of stored inventory are likely to make things increasingly difficult for UK manufacturers.

We see whether US apparel retailer weakness is company-specific while Arcadia awaits its fate and Amazon finances some UK pop-ups…

Blame us, not the economy, say US retail chiefs (Financial Times, Alistair Gray) looks at whether the recent weakness in US apparel retailers is an industry-wide thing or company-specific as 35 out of 74 listed retailers tracked by S&P Global Market Intelligence undershot market expectations for first quarter like-for-like sales. The Gap and J Jill (a woman’s clothing chain) saw their share prices plummet by 10% and 54% respectively as chief execs admitted that shoppers were shunning their boring offerings, Urban Outfitters said itself that it had been less effective than normal in surfing the right fashion trends and Abercrombie & Fitch said that it had “self-inflicted issues” in its Asia business. Nordstrom blamed “executional misses” on falling sales. * SO WHAT? * I suppose that this could be an explanation of what’s going on in apparel retailing at the moment but this really shouldn’t be happening given US economic strength and rising wages. If things continue like this it will be much more difficult to blame individual companies and much easier to put it all down to a general malaise.

Arcadia’s fate left hanging by a thread (The Times, Ben Martin) reminds us that the fate of Arcadia, which owns the Topshop, Burton, Dorothy Perkins, Miss Selfridge and Wallis brands, will have its future decided this week when creditors and landlords get to vote on seven CVAs that will allow parts of the business to continue. Arcadia has 566 stores in the UK and Ireland and is planning on closing 23 of them as part of the CVAs that will have big rent reductions as part of the survival plan. Arcadia said that it would also close all of its 11 US Topshops and identified another 25 stores that could also close. Tough times for Philip Green, the billionaire who is currently facing four assault charges in the US for inappropriate touching of a Pilates instructor.

In Amazon sponsors high street pop-up shops (The Times, Elizabeth Burden) we see that Amazon is sponsoring ten pop-up shops across the UK over the next year to give 100 small online-only brands a physical presence on the high street in a project called “Clicks and Mortar”. The first one opens today in Manchester and others will be rolled out in Wales, Scotland, the Midlands, Yorkshire and the South East. * SO WHAT? * Amazon, Direct Line and Square are funding the logistics and Amazon is said to want to back the campaign in order to give online sellers to test physical retail. This sounds like a nice idea but doesn’t take away the fact that Amazon is one of the main culprits behind the hollowing out of our high streets in the first place!

Facebook probes further into crypto and Hyundai wants everyone to have access to its hydrogen tech…

Facebook in talks with US regulator over digital currency (Financial Times, Laura Noonan and Hannah Murphy) highlights the fact that Facebook has begun talks with the Commodity Futures Trading Commission (CFTC), the top US derivatives regulator, as part of the social media giant’s plans for a digital coin as part of its push into payments. * SO WHAT? * The advent of “GlobalCoin” proposed by Facebook, termed a “stablecoin” due to it being a digital currency pegged to a flat (i.e. normal) currency, will let users send money and make purchases across its Facebook, Instagram and WhatsApp platforms. The CFTC will be looking at how GlobalCoin, which will be pegged to the US dollar, will safeguard against money laundering. 

Hyundai urges rivals to buy its fuel cell tech to boost sector (Financial Times, Edward White and Song Jung-a) looks at how the world’s fifth-biggest car maker is proposing to broaden the appeal of hydrogen fuel cell technology by offering to sell its hydrogen fuel cell system to rivals to encourage wider adoption. Electric-powered vehicles are expected by most to be the dominant force over the next 20 years, but some say that shorter journeys are better served by electric while commercial transport may benefit from hydrogen’s longer range and quicker refuelling. * SO WHAT? * Both technologies face charging infrastructure hurdles currently, but hydrogen’s is lacking more. As things stand, alternative-fuelled car sales are a miniscule percentage of the whole and I think that charging infrastructure is going to be absolutely the key to mass adoption. Having said that, at the moment, electric is clearly winning the PR battle…

And finally, in other news…

I thought I’d leave you today with this huge bundle of cuteness: Babies crawl to victory in annual race in Lithuania (Inside Edition, https://tinyurl.com/y2wv9x4r). Ahhhh!