Monday 04/03/19

  1. In POLITICAL NEWS, a US-China deal seems to be closer, we look at what a no-deal Brexit might bring and highlight the upcoming Spanish election
  2. In TRANSPORT-RELATED NEWS, we look at future plans and thoughts for Germany’s electric cars and trucks while America’s U-turn on high speed rail fuels doubts over our HS2
  3. In INDIVIDUAL COMPANY NEWS, Amazon makes a stir with its new store plans and Tencent ups its investment in esports
  4. In OTHER NEWS, I bring you an eye test. For more details, read on…



So an agreement seems closer between the US and China on trade, we see what a no-deal Brexit might look like and how Spain’s Pedro Sanchez is relying on far-right fear…

US, China close in on trade deal (Wall Street Journal, Lingling Wei and Bob Davis) heralds an important step in the ongoing trade negotiations between the US and China. It seems that the two countries are in the final stage of completing a trade deal that could be finalised at a summit between the two presidents around March 27th, after Xi completes his trip to Italy and France. China is offering to lower tariffs and other limits on a variety of American products and the US is looking at lifting most – if not all – restrictions that it slapped on China since last year. * SO WHAT? * There are a number of hurdles yet to be overcome between now and then, but it does seem like there is some light at the end of the tunnel. Next up – US vs Europe?

How would a no-deal Brexit affect the UK economy? (Financial Times, Chris Giles and Delphine Strauss) takes a look at the potential consequences for a no-deal Brexit. If MPs reject May’s latest Brexit agreement again, she has promised a vote on a no-deal Brexit by March 13th at the latest. If that got voted through, we would leave the EU without an agreement in place on March 29th. Generally speaking, pro-EU supporters see this as a nightmare scenario which could cause chaos on the roads and shortages of food and medicine – but then Brexiteers see a no-deal as a positive that would allow the country to accelerate plans to make trade deals with the rest of the world. The article takes a look at the effect a no-deal might have on ports, food and services – and what the policy response would be. In short, there would be a lot of disruption at ports because although Brussels has announced measures to give UK road hauliers point-to-point access to EU markets for the rest of 2019 and HMRC has simplified border-related paperwork, new procedures will be a lot to digest for customs officials, clearance agents and freight forwarders. The implication here is that the nightmare gridlock scenario predicted by Remainers will probably be mitigated to some extent by emergency measures being put in place, but they won’t be enough to stop delays. Food would be hit hardest as delays in transportation would be very bad for perishable goods – and although supermarkets and suppliers have been stockpiling, there’s only so much they can do. Consumers

could also face big price rises on meat and dairy (so we might all want to go vegan!) due government plans to use import tariffs to protect our own farmers, but then again this could be mitigated by the fact that our own meat might face export restrictions. With regard to services, the sector that makes up 80% of our GDP, the main concern is whether a no-deal Brexit will kill some existing businesses and/or render new opportunities permanently out of reach. London will probably lose some of its financial services business, but it will be difficult to quantify because it will take time for it to become apparent. There will also be difficulties for lawyers, accountants, architects and doctors and nurses, among others, as the UK has said that it will recognise EU-acquired professional qualifications, but the EU has not agreed to reciprocate. The tech industry has also expressed concerns about the flow of data, because to comply with EU regulations, incoming data flows would be stopped unless contracts were updated to include specific permissions. This could affect hundreds of thousands of contracts and many companies just wouldn’t be ready for it. What would the policy response be? Well, the Bank of England will probably cut interest rates to limit or avoid a drop in demand, but as they are pretty low already, some say that a temporary cut in VAT might be the best way to support spending by lower earners. Chancellor Philip Hammond has already indicated he’s willing to splash a certain amount of cash to help cushion the blow but whether that really filters through is a moot point. * SO WHAT? * Whichever way you look at it, a no-deal Brexit is going to be disruptive. Although I don’t think it’ll be the doomsday scenario that some are predicting, it certainly won’t be a walk in the park. 

Pedro Sanchez pins Spain election hopes on fear of far-right (Financial Times, Ian Mount) highlights the upcoming Spanish election next month as Spain’s parliament dissolves tomorrow. This means that Sanchez will have been the leader of the shortest-lived administration in modern Spain as he only came to power in June last year! He was forced to announce early elections two weeks ago when the two Catalan secessionist parties that supported his minority government rejected his 2019 budget. * SO WHAT? * Interestingly, it seems that Sanchez may actually benefit from this as both he and his socialist party (PSOE) are actually doing better in the polls and taking support from the centrist Ciudadanos party. His tactic of painting his opposition as being pawns of the extreme right appears to be working – and so the question is, if he wins the election, will he be able to get a majority or will Spain have a repeat performance of a super-fragile coalition?



Germany looks to the future of electric cars and trucks while America’s U-turn puts the future of our own HS2 in doubt…

In Germany revs up for electric cars and driverless tech revolution (Daily Telegraph, Hasan Chowdhury) we see that the president of the VDA, an industry body representing Germany’s car sector, said in a statement that “We will invest over €40bn in electric mobility during the next three years, and another €18bn will be invested in digitisation and connected and automated driving” as vehicle sales worldwide have slowed down amid fears of “peak car”. Daimler Trucks chief backs higher taxes for commercial diesels (Financial Times, Patrick McGee) takes a look at the future of trucks as, ironically, Daimler Trucks’ chief exec Martin Daum said that “We need to make, basically, the usage of diesel trucks more expensive…We need a CO2-based penalty-reward system out there that is really strictly CO2-based” in order to hasten the advance of emissions-related technology. * SO WHAT? * I thought I’d mention this because it’s all very

interesting hearing about the future of vehicle-related technological advances, but the fact of the matter is that we are still way off mass-adoption of electric vehicles. It’s good that the debate continues and we will undoubtedly see an explosion of growth for battery manufacturers as the take-up of electric vehicles increases – but let’s be honest about this, it is all from a VERY low base.

American rail U-turn fuels doubts over HS2 (Daily Telegraph, David Millward) makes for nervous reading for those involved in the massively expensive HS2 project as moves in America to significantly scale back a high profile high speed rail project in California bring attention to what might happen over here with our own HS2. The incoming California governor Gavin Newsom, said that building the network “would cost too much and take too long” (and Trump seems to have agreed wholeheartedly with this, branding it a “failed fast train” and a “green disaster”) and has scaled back original plans significantly. * SO WHAT? * Our own HS2 has soared in cost from £32.7bn in 2013 to £55.7bn in only two-and-a-half years and, given the fact that the main engineering work won’t start until the end of this year, whispers that the project could be abandoned have been getting louder. This is a major headache for the UK government, but I guess that it will be drowned out by Brexit for the time being at least.



Amazon continues to stir things up for retailers and China’s Tencent pours more money into esports…

Grocers brace for another blow from Amazon (Wall Street Journal, Heather Haddon and Esther Fung) follows on from news over the weekend that Amazon is planning to launch urban grocery stores that will stock beauty products (high margin) alongside food (lower margin). Initial details about these stores suggests that they will be smaller than many traditional supermarkets but bigger than many convenience stores, which could mean that they will be trampling on the turf of the likes of Kroger, Walmart and Target. Amazon has been looking for leases that won’t limit what it sells, enabling it to sell cosmetics and skin-and-hair products in addition to other retail items. At the moment, it’s not clear whether the new format will have the Amazon brand name, although it is expected to be distinct from Whole Foods Market, which it bought two years ago. * SO WHAT? * Just as the “traditional” retailers are trying to catch up with it, Amazon goes and does something like this. It’s obviously great news for the consumer because of the increased choice that will be made available (and this move into beauty appears to be bang “on trend” as Kroger recently signed an agreement with Walgreens Boots Alliance to combine groceries and cosmetics in some stores), but the entry of another retailer into an already-crowded market place isn’t going to make life easy for the incumbents, especially as Amazon has been the retail sector’s nemesis. You could possibly argue that Amazon does not have the same “bricks-and-mortar” expertise that the likes of Kroger, Walmart and Target have about things

like product placement and how to get customers to buy more, but it does have the expertise of Whole Foods to call on and it’s not like you can say that Amazon is a slow learner. Price war??

Tencent eyes more esports competitions in China (Financial Times, Tom Hancock) highlights a big increase in investment in esports tournaments in China by Tencent, the world’s biggest video games company by revenues. The company already invests in two of the world’s most-watched tournaments where players compete in its mobile-based Honour of Kings and PC-based League of Legends, which get 80m online viewers per match. Esports is a very fast-growing area and China is expected to generate revenues of $210m this year, that will put it ahead of western Europe. Honour of Kings has seen sponsorship by McDonald’s, Mars and VW and Nike just announced a four-year sponsorship deal with Tencent’s League of Legends Pro League, thought to be worth $7.5m per year. Local governments are keen to boost the growing industry via subsidies and players have found that it can all be a highly lucrative way of earning as one team, called Invictus Gaming, has won over $840,000 in prize money from playing League of Legends at the world championships last November (fun fact – League of Legends is the world’s most played video game!). * SO WHAT? * This is an area with huge potential and when you have big hitters like Tencent involved, you have to sit up and take notice. The increasing popularity of esports as entertainment not just for players, but for observers as well, could well provide a welcome growth channel for developers who have generally been having a rough time of it lately. I would have thought it would also be increasingly lucrative for promoters of such events who could see massive growth in advertising at increasingly-watch tournaments.



And finally, in other news…

I thought I’d leave you with this eye test today: Can you name the animal based on a close-up of its eye? Take our tricky nature quiz (The Mirror, Keir Mudie They say that eyes are the windows to the soul – but in this case, they are the passport to quiz-related glory…

Some of today’s market, commodity & currency moves (as at 0824hrs 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 **
7,107 (+0.45%)26,026 (+0.43%)2,804 (+0.69%)7,59511,602 (+0.75%)5,265 (+0.47%)21,822 (+1.02%)3,028 (+1.12%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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