Monday 12/11/18

  1. In CONSUMER-RELATED NEWS, UK wages and house prices rise
  2. In RETAIL-RELATED NEWS, Alibaba sets a new record for Singles’ Day, US fast food chains run out of puff and hedge funds bet against the UK high street
  3. In INDIVIDUAL COMPANY NEWS, SoftBank sniffs around UK banking unicorns
  4. In OTHER NEWS, I bring you an unusual house. For more details, read on…



So UK wages and house prices are getting stronger…

More employers forced to line up inflation-busting pay increases (Daily Telegraph, Tim Wallace) cites a survey from the Chartered Institute of Personnel and Development (CIPD) which found that 65% of employers believe they will have to hike pay by over 2% next year, versus 52% asked the same question last year. Given that this is against a backdrop of inflation expected to rise at 2.1% next year, this could actually mean that we actually feel the wage increases. * SO WHAT? * This just goes to show the ongoing tightness of the UK labour market as unemployment remains at its lowest levels for 40-odd years. Couple that with dwindling numbers of non-UK

workers in the market and you’ve got a squeeze on your hands.

House prices return to growth (Daily Telegraph, Matthew Field) cites stats from estate agent Your Move which say that average house prices in England and Wales have gone up for the first time since February as they edged up by a modest 0.4% in October. Having said that, the annual price increase was still on a weaker trend of only 1%, the weakest price rise since 2012. Your Move MD Oliver Blake put a positive spin on the current situation when he said “Whilst price growth has slowed considerably in England and Wales, the fact that there is a relatively strong economic backdrop, and there have been three consecutive months of growth, means it’s not all doom and gloom”. * SO WHAT? * The ongoing weakness is pretty much due to economic and Brexit uncertainty as punters get increasingly reluctant to splurge large amounts of cash in case Brexit proves to be a disaster.



In retail-related news, Alibaba wins big, US Fast Food chains hit tough times and hedge funds short the UK high street…

Alibaba pulls in record Singles Day sales (Wall Street Journal, Shan Li) heralds some good news for the Chinese e-tailing behemoth as it swatted aside slowing Chinese domestic growth and US trade tensions to break all previous sales records in the annual online retail frenzy. Alibaba’s Executive Vice Chairman Joe Tsai conceded that the trade war would probably have an effect in the short term, but added that “There are 300 million [in China’s] middle class. In the next 10, 15 years, that number will double to 600 million. That number is not going to stop, trade war or no trade war”. * SO WHAT? * This will no doubt come as welcome relief to Alibaba given that it recently reduced its full-year forecasts due to a slowdown in some sales categories as National Bureau of Statistics figures also reflected online retail sales growth slowing down from 36% in the last quarter to 24% in the current quarter. I would have thought that Chinese consumers are spending less freely at the moment, but this could well be offset in future as it rolled out the Singles’ Day event to six Southeast Asian countries including Singapore, Vietnam and Thailand.

US fast-food chains struggle as poorer consumers tighten belts (Financial Times, Alistair Gray) highlights problems being faced by fast-food outlets despite a booming economy. Restaurant industry data provider MillerPulse found that footfall for US fast-food outlets fell (now there’s a bit of tongue-twister for you) by 2.6% versus a year ago – way worse than the 0.8% year-on-year drop the previous month. Apparently, this is due to increasing consumer demand for healthier alternatives to burgers and pizzas and lower construction activity, which means fewer construction workers buying fast food on lunch breaks (!).

Last week, the owner of Papa Gino’s and D’Angelo Grilled Sandwiches, Papa Gino’s Holdings Corporation, filed for bankruptcy protection and closed 95 of its restaurants and Taco Bueno, which has 169 outlets, also filed for Chapter 11. Wendy’s chief executive Todd Penegor remarked last week that poorer customers were not getting as much benefit from the strong US economy as the more affluent saying that “We are seeing the lowest unemployment levels in a long time, high consumer confidence…but as you look at that income growth, it skewed significantly to higher-income households. On the low end, you start looking at folks with rent and healthcare costs starting to rise that are really eating into some of the headway that they are making”. As a result of this, some chains are offering more customer discounts with Burger King advertising 10 chicken nuggets for $1, McDonald’s introducing a $6 meal deal and Applebee’s offering $1 cocktails. * SO WHAT? * Although the US economy has been cooking on gas, this does go to show that there are still areas that are in difficulty. I would have thought that this will result in accelerated consolidation in the industry as “winning” chains pick up outlets from troubled companies on the cheap or just buy other chains outright to benefit from economies of scale.

Meanwhile, back in the UK, Short sellers bet £1.4bn on tough Xmas on the high street (Daily Telegraph, Tom Rees) shows just how pessimistic some investors are going into the crucial Christmas period as Pets at Home, Marks and Spencer and Debenhams turn out to be the most shorted stocks on the London Stock Exchange as even more data – this time from Springboard, which shows slowing footfall – piles on the pressure. Wickes owner Travis Perkins and B&Q owner Kingfisher are also targets for the short-selling hedge funds as punters keep their hands firmly in their pockets on big ticket items. * SO WHAT? * It’s not looking good for the high street retailers but then again if everyone is saying the same thing, the “upside risk” will be huge (i.e. there will be a massive rebound if the high street confounds the naysayers). Will the consumer have one final hurrah before Brexit?? Given that wages are going up, it is not outside the realms of possibility. 



SoftBank goes unicorn-hunting in UK fintech…

UK fintech unicorns in talks with SoftBank (The Times, Harry Wilson) shows that Japan’s Softie is sniffing around UK fintech unicorns Revolut and Oaknorth as potential recipients of truckloads of cash from its $100bn Vision Fund. Talks with Revolut are at the very early stages whilst those with Oaknorth are said to be more advanced, but a final decision for either is not expected for a number of

months. * SO WHAT? * If SoftBank gets involved, this would be a massive boost for London’s financial technology sector as the Vision Fund looks at investing AT LEAST $100m into its target companies and last year turned Improbable, a British virtual reality tech company, into a unicorn as it ploughed in $520m to bring the company’s valuation to over $1bn. So far, SoftBank’s biggest investment in UK tech is in Arm Holdings, which it bought for £24bn in 2016. Both Revolut and Oaknorth have only been in existence for three years but have attracted huge backing and a big injection like this could help Revolut’s application for a full banking licence that would enable it to provide far more services than its current pre-paid card.



And finally, in other news…

I thought I’d leave you today with the suggestion of a possible photo opportunity in Britain’s first upside down house opens its upside down doors (Metro, Harley Tamplin Nice.

Some of today’s market, commodity & currency moves (as at 0759hrs 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 **
7,105 (-0.49%)25,989 (-0.77%)2,781 (-0.92%)7,40711,529 (+0.02%)5,107 (-0.48%)22,270 (+0.09%)2,631 (+1.22%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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