Monday 05/11/18

  1. In TARIFFS NEWS, US and Chinese companies alike suffer from the Trump tariffs
  2. In TECH NEWS, Apple changes tack and one insurer taps into health devices
  3. In RETAILER-RELATED NEWS, the Patisserie Valerie chief cuts some of his jobs, the Wagamama deal gets panned by some and the living wage recommendation rises
  4. In OTHER NEWS, I bring you an interesting new museum. For more details, read on…



So companies on both sides of the trade war are suffering…

Companies face the tariff pinch (Wall Street Journal, Theo Francis) shows that US companies are currently managing to cope with rising tariffs by putting through price increases and rejigging their supply chains – but warn that this can’t continue indefinitely. Tariffs have slowed US timber and grain exports right down and raised prices for many other goods. Even heavy-equipment maker Caterpillar, which is still doing pretty well because it has assembly operations in both countries, faces higher raw material costs. * SO WHAT? * The fact is that Trump’s tariffs are going to affect all companies differently with winners and losers at either end of the scale. Interestingly, data from Refinitiv suggests that Q3 earnings for S&P500 companies will rise to 27.1%, the third consecutive quarter of 25%+ earnings increases, but analysts say that as much of a third of that is due to last year’s US corporate tax cut and is likely to tail off next year. The question is, will Trump just ride the wave he instigated by the tax cuts and continue to put pressure on the Chinese, or will he take action before he is forced into doing so? I think he’s got a bit of a window between now and the end of the first quarter of next year during which he will have more of the initiative, but if he leaves it too long he will get increasing pressure from industry to clarify the long-term situation.

Alibaba cuts revenue forecast, citing uncertain economy (Wall Street Journal, Yoko Kubota) looks on the other side of the tariff divide as Chinese e-tailer behemoth Alibaba decided to cut its full-year revenue forecast by

between 4 and 6% due to a China economy slowing to its weakest pace in almost ten years. It seems that the uncertainty engendered by the trade war is having a negative effect on Chinese consumers, hitting Alibaba directly, but it is also facing increased domestic competition from the likes of and Pingduoduo. The latter phenomenon means that its grip on online advertising isn’t quite as strong as it has been, which is bad news for its non-retailing earnings. Last week, Chinese tech giant Baidu, blamed a slowing Chinese economy for potentially holding back its revenue growth. * SO WHAT? * I suspect that the US-China trade war is going to be the most common excuse for companies falling short of their earnings targets. If the big boys are using it, I’m sure that everyone else won’t be averse! Alibaba’s exec chairman Jack Ma said that he expects the trade war with the US to continue for up to 20 years and that businesses in both countries would feel the pain. Although I don’t think it will last anywhere near that long, I guess that what he is really saying is that companies need to dig in for the long haul and any agreement will at least provide some upside. IMHO, the thing with China is that it can hide its pain better than the US can because the Chinese government is far more able to fudge the figures than the Americans so it can perhaps look stronger for longer. For instance, if it does not manage to hit its year-end GDP growth target, I think that an outside observer could look at it as a win for Trump. China would not want that, so I would bet my mortgage that it somehow, miraculously, manages to hit it. And it can keep doing that – whereas Trump doesn’t have that luxury. At least he has an economy running on jet fuel currently – but even that won’t continue forever. If Trump wants a second term, a good way of ensuring that would be to do a trade deal with China that’ll make both leaders look good.



In tech news, Apple gets coy and an insurer looks at health trackers…

Facing iPhone troubles, Apple tries to change the story (Wall Street Journal, Tripp Mickle) carries on the chat from Apple’s results last week where it said that it will no longer report unit sales of its devices – a metric that it has provided since the 1980s. Basically, this has come to pass because punters are holding onto their smartphones for longer resulting in a major slowdown in sales growth. Apple has so far responded by pushing software and services and raising prices on its new gadgets. * SO WHAT? * Investors generally don’t like surprises, and this is something that will make their spreadsheets harder to update given that this is a data point they’ve had access to for quite some time. From the company’s point of view, though, this gives it more breathing room and will mean that investor focus will shift to margins as well as the rapidly-expanding services business over time. It does look to outsiders, however, that the company has something to hide – but I guess Apple being Apple, it will just get away with it as long as it maintains or grows its margins. Overall, I think that this move makes Apple more opaque but then it is probably a reasonable way to force investors to look more at the services business which it hopes will continue to grow at a rapid clip. It won’t stop investors grumbling, though – and it may actually mean that other handset makers will go down the same road given that the WHOLE smartphone market is maturing.

Insurer taps into trackers to reward healthier consumers (Daily Telegraph, Robin Pagnamenta) heralds the potential future direction of things as one South African insurance company, Vitality (a division of the £6bn Johannesburg-listed insurer Discovery) is starting to use steps recorded by apps and fitness devices included Fitbits and Apple Watches, to reward consumers who can show that they have improved their lifestyle. Much in the same way that car insurers lower insurance to drivers who install telematics to monitor their driving, now health insurers are trying to do the same with people. Vitality offers life and health insurance globally via partners including Generali, Sumitomo and ASA using a tiered programme of “financial incentives” to customers who attain specific fitness objectives. Incentives include free coffees at Starbucks (that presumably exclude cake), free monthly subscriptions to Amazon Prime and Premier League footy matches. Members who can demonstrate a sustained lifestyle improvement can then qualify for a platinum, gold or silver membership scheme whilst enjoying lower premiums. * SO WHAT? * Although this sounds great in theory, I think it sounds highly intrusive and thus only for those who “trust” that they won’t be hacked somehow. Mind you, if the only data that can be hacked is your heart rate and the number of steps you did then maybe it’s not so bad. The problem would be is if this gave hackers a gateway into your connected devices somehow with more sensitive information. Having said that, I really think that this is going to be a major area of growth as more people get access to and use health trackers of various kinds. It means that customers are incentivised to live healthier lives and insurance companies get a “less risky” client base. If one were to invest in this kind of thing, I would have thought that companies that provide software that increases data security of these devices will be hot property.



Patisserie Valerie’s boss gives up some of his side jobs, the Restaurant Group gets stick over its purchase of Wagamama and there’s a recommendation for the living wage to rise…

In a quick roundup of some of the latest news on the UK high street, Patisserie boss gives up pay and some jobs on boards (The Guardian, Sarah Butler) shows chairman Luke Johnson, who clearly wants to avoid watching daytime TV in his pants, making some fairly obvious concessions to turnaround the business at his troubled cake shop. He has waived his £60,000 salary and has promised to reduce his outside activities. Just to give you an idea of how broad his outside interests are, in addition to being the chairman of Patisserie Valerie, he is on the board of 17 companies, over half of which he is also chairman. The list is long and impressive, but given the car-crash of Pat Val, you can understand why investors want him to focus more on the job at hand.

Further to last week’s news, Investor doubts growing over Wagamama takeover deal (Daily Telegraph, Oliver Gill) shows that investors expressed their displeasure by sending shares of the Restaurant Group down by around 20% on the news mainly because they think the price for Waga’s was too high and that it didn’t make any strategic sense. This could put the deal under threat, but we’ll just have to wait and see.

Just as retailers and other low-payers were getting used to the new minimum wage, Living wage increase brings pay rise for 180,000 workers (The Guardian, Richard Partington) shows that the Living Wage Foundation, which over 4,700 companies are signed up to, has increased the UK living wage by 2.9% outside London and 3.4% in it. The foundation is encouraging employers to introduce the new rates immediately, but companies will in actual fact have until May next year to implement the pay rises. * SO WHAT? * This sounds great for employees but will pile the pressure on to employers who have just about got used to the latest wage hike and are having to contend with Brexit uncertainty, consumer sluggishness and increased competition. I suspect this could tip some over the edge.



And finally, in other news…

I thought I’d bring you news of a lovely new museum you might want to go and visit: Rotten shark made you queasy? A vomit bag for every guest at the Disgusting Food Museum (Reuters, Marie-Louise Gumuchian Casu Marzu cheese riddled with insect larvae, anyone? Yummy.

Some of today’s market, commodity & currency moves (as at 0808hrs 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 **
7,094 (-0.29%)25,271 (-0.43%)2,723 (-0.63%)7,35711,519 (+0.44%)5,102 (+0.32%)21,899 (-1.55%)2,665 (-0.41%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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