Monday 09/09/19

1. In MACRO & OIL NEWS, tariff wars hit both the US and China, we look at the latest situation facing BoJo and Saudi’s royals tighten their grip
2. In RETAIL/CONSUMER NEWS, UK footfall drops, we see the challenges at M&S, Premier Inn’s room upgrade and Apple ahead of its new handset launch
3. In INDIVIDUAL COMPANY NEWS, WeWork aims for an even lower valuation, Nissan searches for a new chief and vaping deaths prompt concerns
4. In OTHER NEWS, I bring you a great catch…

So the US and China suffer in the tariff wars, BoJo faces more challenges this week and the Saudi royals take more control…

In the ongoing trade wars, Manufacturers cut spending as trade war dents confidence (Wall Street Journal, Austen Hufford) shows that US manufacturers are holding back on investment in their workforce and production facilities as the ongoing trade dispute is making for an uncertain backdrop. Some companies are buying fewer machines and working hours are being cut – which is leading to weaker sales and lower pay for the workers, which could lead to a US economic slowdown. As one chief exec put it, “You can’t play roulette. You can’t gamble with 30 years of work”. Meanwhile, China exports decline as US trade dispute takes toll (Financial Times, Don Weinland) shows what’s going on on the other side as exports from China fell last month as the ongoing trade dispute continues to impact the manufacturing sector. Many analysts were actually expecting a temporary boost as Chinese companies put in more orders to beat the September 1st tariff deadline – but this did not materialise. Interestingly, last month’s export data also shows that the country’s trade surplus (which measures how much its exports exceed imports by value) fell to $34.8bn – way below market expectations – versus a $45bn surplus in July. * SO WHAT? * Both sides can clearly take a bit of pain and, at the moment, it seems like neither side appears to want to blink first. Still, cracks are starting to show so the pressure continues to build ahead of the next round of talks in October.

In the ongoing Brexit drama, Leo Varadkar plays down prospects of Brexit breakthrough (Financial Times, Arthur Beesley) highlights the first face-to-face meeting between Boris Johnson and Irish PM Leo Varadkar, due to take place this morning. Varadkar was keen to manage expectations, though, when he said “I don’t expect any big breakthroughs but I do think it’s an opportunity for us to establish a

relationship”. Johnson stokes Brexit flames by sticking to aggressive strategy (Financial Times, Jim Pickard) reviews the situation so far with BoJo and Brexit and looks forward to events that are likely to unfold from now. At the moment, it sounds like he will ignore legislation that was passed last week to force him to get an extension to Article 50 – and if he does, this could spark an emergency judicial review by the Supreme Court later next month which would lead to a massive bun fight between judges, the government and parliament. * SO WHAT? * It is interesting to see that, despite all these setbacks for BoJo, opinion polls currently put the Conservatives ahead at 35%, Labour at 21%, the LibDems at 19% and the Brexit party at 12%. I get the feeling that the voting public is just getting sick of limbo and is increasingly getting behind someone (even if they don’t particularly like him) who is taking action. Having said that, the credibility of polls has taken a bit of a beating in the last few years, but I would suggest that a 14% lead on second place is pretty big. More drama to come in the next few days…

Saudi oil shake-up to spark fresh unease in energy market (Financial Times, Ahmed Al Omran, David Sheppard and Andrew England) shows that the ruling royal family is tightening its grip on oil as it removed its energy minister, Khalid al-Falih, and replaced him with King Salman’s son Prince Abdulaziz yesterday. Falih was also replaced as chair of Saudi Aramco last week in the run up to the state oil company’s expected IPO. * SO WHAT? * This is a big deal because members of the ruling family are not usually appointed to such a key role and it has often been seen as one of the most secure government positions. Falih’s predecessor, Ali al-Naimi, was in the job for 21 years! This latest move suggests that Saudi Arabia, the de facto leader of Opec, is not happy with an oil price hovering around $60 a barrel. It also reflects Crown Prince Mohammed bin Salman’s ruthless leadership style as he continues to make progress on his ambitious economic reform programme (called Vision 2030) that aims to reduce the kingdom’s reliance on oil revenues. However, in order to achieve that, he needs higher oil prices (ideally $70-80 a barrel) to finance his plans.

UK shoppers stay at home, M&S faces big challenges ahead, Premier Inn goes posh and Apple expectations rise ahead of tomorrow’s reveal…

UK retail footfall dips further as shoppers shun high street (The Guardian, Miles Brignall) cites the latest data from retail data company Springboard which shows that the decline in people going to high street stores is continuing as shoppers preferred to go to out-of-town retail parks or shop online in the latest quarter. Springboard said that malls are having a particularly tricky time at the moment and Helen Dickinson, chief of the British Retail Consortium, remarked that “Only retail parks, with their combination of activities and shopping, were able to buck the trend, and there is little sign that the stresses on retail will abate any time soon”.

The formidable challenge of rejuvenating M&S (Financial Times, Jonathan Eley) looks at the problems and what needs to be done with M&S after last week’s fall from the FTSE100. Chairman Archie Norman (who is credited with turning around performances at Asda and ITV) and Chief exec and M&S-“lifer” Steve Rowe have been making some sweeping changes in senior management, the store portfolio and in their online offering. * SO WHAT? * M&S seems to me to be perennially going through some kind of reinvention with varying degrees of success (well certainly since I’ve been following it for over two decades!). They start off with review of the stores, a format revamp to make things look more “exciting” in the shops and perhaps review existing or promote new brands. The difference this time, as far as I am concerned, is this seismic shift of customer behaviour that everyone is having to cope with – more customers shopping online. The thing is, M&S is pretty slow and lumbering as retailers go and it has coped with these changes less well than some of its smaller and nimbler competitors. I think that it has been going in the right direction and although you could argue that the Ocado investment was rather expensive (and late!), this is the price it will have to pay to drag itself up-to-date. Whether it properly takes advantage of this or not is another question. At the moment, it seems that investors are not giving it the benefit of the doubt, hence its slide from the FTSE100. I don’t see any particularly decent developments for M&S in the near future, but maybe some of the big changes going on in the background will yield fruit a little bit further down the line.

Meanwhile, Premier Inn aims to put rival to bed with new business rooms (The Times, Dominic Walsh) heralds a new initiative for the Whitbread-owned budget hotel chain as it has started trialing premium rooms aimed at business users. The Premier Plus rooms cost an extra £15-20 per night versus the standard room. This follows the launch last year of Super Rooms at rival Travelodge which have better furniture, a Lavazza coffee machine, a choice of pillows and a better shower. * SO WHAT? * This seems like a good idea and is clearly designed to make each hotel more profitable. The only thing is that it sounds like it’s just getting increasingly like a “normal” hotel – but then again with the rise of things like Airbnb when it comes to accommodation options, you can’t blame them for trying to rejig things.

Then Apple bets more cameras can keep iPhone humming (Wall Street Journal, Tripp Mickle) takes a look at Apple ahead of its annual big reveal tomorrow where it is expected to unveil the new iphones (probably called the iPhone 11 with a couple of extra letters stuck on the end). Basically, the event is creating less buzz every year as the tech improvements get more and more incremental in nature. Apparently, three phones are to be launched tomorrow that have additional rear cameras and improved capabilities for low-light photos. I hope you were sitting down when you read that earth-shattering prediction 😜. We’ll obviously have to wait until tomorrow to see for sure, but I think it’d be fair to say that expectations are pretty low in terms of big changes.

WeWork moots even lower valuations, Nissan seeks a new chief and vaping deaths increase concerns…

In WeWork parent weighs further valuation cut (Wall Street Journal, Maureen Farrell) we see that the office space’s parent company, We Co., is considering a valuation that could fall under the $20bn level as some investors increase pressure for the company to abandon its scheduled Initial Public Offering. An investor roadshow (where a company that is about to float does a massive worldwide tour of investors and potential investors to persuade them to buy shares when they come to market) is scheduled to start today, but given the tricky economic backdrop, more investors are saying that the company would be better off to postpone. * SO WHAT? * Given that the company was valued at $47bn at its last financing round, this is a big deal. To my mind it either shows desperation (in that it thinks this is the most it’ll be able to raise before plummeting further) or naivety on the part of previous investors (including Japan’s SoftBank). I think that there are far better companies to buy in this space and that WeWork is increasingly looking like it is all style and no substance.

Nissan board to meet on CEO succession (Wall Street Journal, Sean McLain and Nick Kostov) highlights the latest dramatic twist in the Nissan story as current chief exec Hiroto Saikawa looks like he’ll be resigning over allegations of the manipulation of his stock-based performance compensation today. * SO WHAT? * This is hilarious given that he was so vocal about predecessor Carlos Ghosn’s dodgy dealings. It seems that they are all at it and so a new generation of leader will be expected to sweep a broom through a tired company at a very difficult time where pretty much all automakers around the world are facing falling sales and higher costs. Whoever comes in next will not only have to sort out Nissan, but its currently tricky relationship with longtime partner Renault. What a shambles!

People urged to stop vaping following more deaths, hundreds of illnesses (Wall Street Journal, Brianna Abbott and Jennifer Maloney) will not make easy reading for tobacco companies who are increasingly betting their futures on vaping as US health authorities are now advising people to stop using e-cigs and other vaping products while they conduct investigations into three more deaths from mysterious illnesses relating to severe lung injury. Companies such as Altria, Reynolds American and British American Tobacco will no doubt be watching developments very closely.

And finally, in other news…

I thought I’d leave you today with a tale of quick reactions in Hero Catches a Stranger’s Phone Mid-Air While Riding a Roller Coaster (Time, Cady Lang https://tinyurl.com/y56yz9wu). Nice!