Monday 03/12/18

1. In MACRO, MARKETS AND OIL NEWS, a G20 truce cheers markets, Macron has a domestic, UK manufacturing gets a boost and oil prices ain’t what they used to be
2. In RETAILER NEWS, Amazon trials cashierless and Spain’s Dia faces tough times
3. In VEHICLE-RELATED NEWS, electric driverless truck approval nears the go-ahead and Uber eyes e-scooters
4. In OTHER NEWS, I leave you with Wetherspoon’s Christmas menu. Ho Ho Ho. For more details, read on…

So Trump and Xi reach an important truce, markets have a relief rally, Macron faces trouble at home, UK manufacturing gets a boost and oil prices face crunch time…

So generally speaking the weekend’s G20 meeting fell short of a lot of expectations although Trump agrees ceasefire in China trade war (Wall Street Journal, Emily Gosden) showed at least some progress as both the US and China agreed a ceasefire in trade hostilities as Trump postponed a scheduled increase in tariffs on $200bn of Chinese goods (albeit for 90 days unless there were major changes in overall trade relations) to give both sides time to conduct further negotiations. The US said that China had agreed to purchase “a very substantial amount of agricultural, energy, industrial and other product from the United States” and later on added that the new deal would see China “getting rid of tariffs”. Global markets rally after Trump-Xi ceasefire eases trade worries (Wall Street Journal, Mike Bird and Robb M. Stewart) shows the impact these remarks had as Japan’s Nikkei, China’s Shanghai Composite and South Korea’s Kospi all gained between 1.6% and 2.2%, with the S&P500 futures up by 1.5% ahead of the open and then came the big news in Trump: China to ‘reduce and remove’ tariffs on American cars (Wall Street Journal, Trefor Moss) which referred to a late night tweet from POTUS who said that “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%”. * SO WHAT? * The G20 thing is a decent enough development, but this news on American autos is HUGE news. The US exported $9.5bn worth of new passenger vehicles and light trucks to China in 2017 but I think that the car company that is going to benefit most at the moment will be Tesla. Only last week we heard that the number of Tesla cars sold in October fell by a whopping 70% because of tariffs and that it had to cut prices of some of its models to stem the slide.

Meanwhile, Paris rioting puts Macron’s economic overhaul to the test (Wall Street Journal, Matthew Dalton) looks at Macron’s reaction to the aftermath of a weekend of riots as he convened a crisis meeting of ministers on Sunday morning. This all started with protests at fuel tax rises from the “gilets jaune” (yellow vests) which became a broader rallying point for all those who believe his pro-business policies favour the rich at the expense of the working class. The gilets jaune have gained in popularity due to Macron’s imposition of policies such as the elimination of wealth tax for all assets except real estate, reduced job protections for workers, cuts in housing aid and a resistance to increasing the minimum wage. * SO WHAT? * There’s not really that much that can be done in the immediate aftermath apart from increasing police presence and bringing vandals swiftly to justice. Although Macron probably has the power 

to push on with his economic overhauls as his party has an iron grip on the legislature, he has been facing increased calls to do a u-turn on the fuel tax for the sake of public order. I suppose it is possible that maybe some of his reforms get postponed but I wouldn’t expect a wholesale rethink given that these changes will take time to bear fruit, meaning that he doesn’t really have the luxury of delaying too much.

Back home, it seemed that UK manufacturing got a boost but Stockpiling for Brexit flatters manufacturing sector’s figures – for now (The Guardian, Phillip Inman) contends that this is only fleeting as it’s due to manufacturers stockpiling goods ahead of March’s Brexit date to smooth over expected delays at Britain’s ports. Figures from the quarterly survey by EEF, the manufacturers’ trade body, showed that production remained strong across the sector as firms got nervous about raw material imports. The uncertainty continues…

OPEC is due to meet this Thursday in Vienna and Oil’s deja vu moment: OPEC meets amid price rout (Wall Street Journal, Stephanie Yang and Amrith Ramkumar) highlights the backdrop against which it is taking place as oil prices have had their worst month since October 2008 as both US crude and Brent have fallen by 22% last month, making the forthcoming meeting the most crucial one they’ve had in four years. Back in 2014, OPEC’s decision not to cut oil production in similar circumstances led to the price falling from $110 a barrel to $27 a barrel, which then triggered fears of a global slowdown and consequent market panic. Russia’s Putin agrees with Saudis to renew OPEC pact (Wall Street Journal, Benoit Faucon and Summer Said) shows that non-OPEC countries, spearheaded by Russia, are willing to toe the OPEC line on any production decision – which many believe should be to cut in order to stem the price slide – but interestingly, Cheaper oil isn’t the US boon it used to be (Wall Street Journal, Paul Kiernan and Christopher M.Matthews) poses the theory that, actually, lower oil prices don’t actually provide the economic output boost that they used to for the US economy. Basically, this has happened because the US has changed from being a net importer of oil to the world’s biggest oil producer (a title it earned this year) which now means that when oil prices fall, it has a detrimental effect on investment and employment in important areas of the economy. Also, fuel-efficient vehicles, a transition away from heavy industry and a trend towards more energy-efficient living overall has led to the US economy consuming a lot less oil than it used to. * SO WHAT? * It seems to me that the US is in transition. The fact that Trump continues to cheer on (and ask the Saudis for assistance with) lower oil prices would suggest that the belief that lower oil prices = greater output is still the prevailing opinion, but the signs are there that this is going to change. If/when this happens, there will be a major change in oil price dynamics with OPEC and non-OPEC countries having to take US production impact even more seriously, potentially weakening each group and – who knows – maybe even resulting in the birth of new alliances.

Amazon tests out new checkout tech and Spain’s Dia hits serious challenges…

Amazon tests its cashierless technology for bigger stores (Wall Street Journal, Heather Haddon and Laura Stevens) heralds a new technological development that could put more pressure on physical retailers to make their businesses more convenient for customers. The tech, where systems track what shoppers buy and charges them automatically when they leave the store, currently works in small-format stores (the cashierless system is already in use at its seven Amazon Go convenience stores) but now the e-tailing giant is trialing it in larger-format stores. * SO WHAT? * There are various challenges with larger format stores for the technology, but when Amazon gets it nailed I suspect that the retail landscape could change quite rapidly. A major step would be to introduce it in its Whole Foods stores, but there is no official word on the timing of that.

Spanish supermarket group Dia faces crunch time (Financial Times, Ian Mount) highlights the travails of an altogether more traditional retailer as recent resignations of the chairwoman, chief exec and firing of the head of finance – not to mention a severe slashing of the dividend and debt downgrade – have been the inevitable consequences of a difficult few months for Spain’s third biggest supermarket chain whose share price has cratered by over 80% this year. The good news is that it has a big network across Spain, Portugal, Brazil and Argentina with a successful store format but it has suffered from a very competitive market with Mercadona (which has a 25% market share) and discounters Aldi and Lidl continuing to vie for customers’ affections as well as debt problems. * SO WHAT? * The recent departures have been rather dramatic, but there is hope that Russian billionaire Mikhail Fridman’s holding company, LetterOne, which already has a 29% stake in Dia, will bid for the rest of it in order to revive its fortunes. Fridman has form in retail, having turned X5 Retail Group around into becoming Russia’s biggest food retailer with over 13,000 stores. I suspect that this is in the price, so if it doesn’t come to fruition, Dia’s share price will fall even more. Time will tell!

The advent of the electric driverless truck gets closer and Uber considers e-scooters…

In Electric driverless truck set to gain approval for public roads (Financial Times, Patrick McGee) we see that Swedish autonomous vehicle start-up Einride and German logistics group DB Schenker are on the verge of regulatory approval for an all-electric driverless truck to carry freight on public roads. The two groups say that this would be a world first and follows a testing phase in November. The 7.5 ton “smart container on wheels” is called the T-Pod has no steering wheel, foot pedal or driver cabin (the latter of which can often account for half of the cost of building a truck), which maximises the room for carrying cargo and is powered by the Nvidia Drive platform. A remote operator,

sitting hundreds of miles away, can supervise up to 10 vehicles simultaneously and take over in order to navigate difficult terrain. * SO WHAT? * This sounds amazing, but before you get too excited about it, a T-Pod can only travel six miles per day and is only eligible to travel on 100miles of public roads at the moment, but it does give you the feeling that something quite exciting is happening!

Uber eyes electric scooter start-ups for the UK market (Daily Telegraph, Natasha Bernal) adds to recent rumours about Uber making moves in electric scooters as a report in The Information says that the ride-hailing company wants to deepen its involvement in alternative transport after buying bike hire start-up Jump for $200m in April. A deal to buy Lime or Bird, could be signed by the end of this year according to the report. Uber is already an investor in Lime, although Uber also has links with Bird given its founder was an ex-employee and the company has a number of ex-Uber staff. None of the companies involved commented.

And finally, in other news…

We’re in the final strait in the run-up to Christmas now, so I thought I’d leave you with something seasonal thus: Wetherspoons reveals its Christmas menu – including a pigs in blankets pizza (The Mirror, Zoe Forsey https://tinyurl.com/yc36wgbb). Ho ho ho (at a reasonable price)!