Monday 14/01/19

  1. In MACROECONOMIC NEWS, we look at the latest options for Brexit and an update on UK employment
  2. In CAR NEWS, India rises up the rankings and VW has its eyes on the China prize
  3. In REAL ESTATE NEWS, a landmark case could cause chaos in the UK and mortgage rates are set to rise
  4. In INDIVIDUAL COMPANY NEWS, Apple’s TV moves could be too little too late and a Debenhams recovery could see come big cuts
  5. In OTHER NEWS, I bring you things to do whilst waiting for your flight and an “anger room”. For more details, read on…



So we look at the latest options for Brexit and changes in UK employment…

There is, understandably, a whole lot of noise going on about Brexit at the moment, but I think that Plan B options narrow ahead of historic vote (Financial Times, George Parker and Henry Mance) does a decent job of giving us the current lowdown with an overview of some of the main options. At the moment, it’s looking like Theresa May is facing heavy defeat in this week’s House of Commons vote on her withdrawal agreement, so here are some current options on the table: No-deal Brexit – which is widely seen to be the least appealing option, but is backed by an estimated 80-100 Eurosceptic Conservative MPs, and would mean departing the EU with no agreement and the prospect of restarting the relationship with the bloc from the outside. It would use the recent EU-Canada trade agreement as a template and work from there. The problem with this option for Conservative Eurosceptics is that the pro-EU House of Commons has shown it will probably block a no-deal Brexit meaning that May’s deal is – in practice – the best they’re going to get; a second referendum – aka the people’s vote (what a load of BS – what was the first one then?!? Remember, 75% of the House of Commons voted for Remain, so the first referendum was very much a people’s vote) – which Remainers hope will reverse the 2016 victory for Leave. Opponents say that it flies in the face of democracy as it will, in effect, ignore the result of the first one. It’s also not clear whether this would get a majority in the Commons. Having said that, if May’s withdrawal agreement gets voted down, more people would get on board with the idea of a second referendum. Some say that this option currently has 150-180 MPs in support across all parties and that this could rise to 210 – but they will need more than 300 to get a Commons majority. Corbyn has so far not shown any interest in this option or to reverse the decision to leave; Norway-plus/customs union – one of the more popular “soft Brexit” options where Britain would stay in the EU

customs union, its single market or both. Opponents of this option say that this would make a mockery of Brexit and would mean that we have to obey Brussels whilst having less say in the rule-making. One other option that is being mooted by some is having a general election. FWIW, although Labour would love to do this, I don’t think the Conservatives will and I’m not sure how popular this option would be to the British public. To my mind, all it would do re Brexit would be to kick the can even further down the road and cause even more delay and uncertainty. However, you never know…

South Yorkshire tops jobs growth table as low-employment regions catch up (The Guardian, Richard Partington) cites a report from the Resolution Foundation thinktank which shows how employment has changed since the financial crisis in 2008. South Yorkshire and Merseyside recorded the strongest levels of jobs growth during this period and the report also found that low-income households benefited more than higher-income ones. It contends that the current record national employment rate of 75.7% has been driven by lower-employment regions “catching up”. Having said that, it seems that the growth has been very much in the bigger cities, with the surrounding areas failing to keep pace. Also, the nature of work has changed with the advent of zero hours contracts and the gig economy which means that while the headline employment figures look good, job security is poor, especially for younger workers. Stephen Clarke, senior economic analyst at the Resolution Foundation, observed that “while the jobs surge has not been as dominated by London or low-paid work as some claim, new challenges have developed – particularly for younger workers and with a big rise in insecure work”. * SO WHAT? * This is quite interesting, but you have to take stuff like this with a massive pinch of salt as the organisation’s stated aim is to improve the standard of living for low and middle-income families. You are unlikely to ever see a report from the Resolution Foundation saying “hey, everything is fine – no dramas here”! I’m not saying that you shouldn’t believe it – it’s just that this organisation has an axe to grind and it is unlikely to publish a report that doesn’t fit in with its overarching beliefs or purpose. 



India overtakes Germany and VW targets China…

India displaces Germany to become fourth-largest auto market (Financial Times, Patrick McGee and Simon Mundy) heralds a big moment for India as momentum continues to build in sales of commercial and passenger vehicles helping it to overtake Germany and putting it on the road to being bigger than current world #3 Japan within three years, according to data from LMC Automotive and McKinsey respectively. It seems that there is huge market potential as Fitch estimates that car density – a measure of how many passenger cars there are per 1,000 people – was just 27 last year versus 145 in China and 570 in Germany. Fitch analyst Anna-Marie Baisden observed that “India has not really undergone the same kind of economic boom as China, which has created a consumer class ready to spend. Buying a car is about either a first car or a move up from a motorcycle. We are not seeing as much ‘status symbol’ buying”. * SO WHAT? * Clearly, the potential is enormous, but don’t you think that this current state of affairs sounds eerily similar to the problems being faced by Apple in India? In that case, smartphone penetration is miniscule – so the market potential is huge in theory. However, the average cost of an iPhone there is astronomical – and unless it manages to reduce this, it 

just won’t be able to get a piece of the action. The same is true in the car industry – and it has been holding back many manufacturers’ progress as a result. The company that DOES appear to be in pole position for any upswing, however, is Suzuki as it formed a joint venture with the Indian government in 1982 called Maruti Suzuki and now has a 54% market share in the country. Amazingly enough, Maruti Suzuki’s market cap is now $31.3bn – $5.6bn more than the Japanese parent company Suzuki Motor! The latter owns a 56% stake in the JV.

Volkswagen eyes the prize of electric sales in China (Financial Times, Patrick McGee) looks at the continued market potential in China since the size of its car market overtook America’s #1 spot in 2009 and is now on track for being almost twice as big. Even so, car density is still low – with Fitch estimating it to be 145 per 1,000 people versus 570 in Germany. * SO WHAT? * What is particularly exciting for VW, though, is that 60% of battery-powered electric vehicles sold globally in 2018 were sold in China – and this is a rapidly growing segment. The company is investing €30bn over the next five years on electric technology and by next year will have four factories specifically designed to manufacture a wide range of electric vehicles – two of which will be in China, where VW aims to have the widest range of battery-powered vehicles (30 different models within two years). For the moment, though, the company is suffering with China’s overall slowdown in car sales, so ambitions may have to be tempered for the time being.



One landmark case could spell disaster for UK real estate and mortgage rates are likely to rise…

Landmark case threatens property ‘disaster’ (The Times, Louisa Clarence-Smith) highlights what could be a very worrying development for UK real estate as there is a legal dispute going to court this week between the European Medicines Agency (EMA) and the Canary Wharf Group (CWG). The EMA, which is moving to Amsterdam after Brexit, is trying to get out of an office lease it signed in 2011 with CWG arguing that Brexit was an unforeseen event and so it should therefore be allowed to exit the 25-year lease for 10 floors of office space. CWG argues that EU membership has been contentious for a number of years and therefore something that the EMA should have considered. * SO WHAT? * Basically, if the EMA wins, this could open the floodgates for any UK-based business with big EU operations arguing that Brexit is a valid reason for nullifying their contracts. As Alison Hardy, partner and head of real estate dispute resolution at Ashurst put it, “If the 

EMA is successful, and depending on how wide the court opens the floodgates, that could have disastrous consequences not only in the property market, but for the UK economy as a whole. It is possible that all sorts of contracts, well beyond leases, could be frustrated by Brexit, and not just where the contracting party is an EU agency. It could extend as far as any entity that conducts a large proportion of its business in the EU”. Nightmare.

In Mortgage rates to rise as funding costs grow (The Times, Katherine Griffiths) we see that homeowners are likely to have to pay more for their mortgages as specialist lenders are having to pay higher funding costs because of Brexit and the global economic slowdown. This could all cut the number of mortgage deals available and potentially hasten mergers within the sector. The number of smaller lenders targeting specific groups of customers has mushroomed in the last few years, but increasing risks have resulting in increased costs. * SO WHAT? * Although wages have been rising, something like this could put a dent in consumer spending power and if any of these companies goes bust, there could be some potentially serious aftershocks. We’ve not quite reached this state of affairs yet, but it could be the slight headache that turns into a migraine for a government embroiled in Brexit strife.



Apple’s TV solution might be lacking and Debenhams faces a tough future…

Further to last week’s news about Apple allowing access to AirPlay on non-Apple devices made by the likes of LG, Sony, Samsung and others, Apple’s new TV service may not be a game changer (Daily Telegraph, James Titcomb) argues that competition is very stiff in TV streaming with companies like Netflix and Amazon having enjoyed a very long head-start. Netflix has built up around 150m subscribers in ten years and Amazon Prime has over 100m – and there is now the prospect of more entrants with Disney and other giants offering their own subscription

channels. It will be operating in a tricky marketplace and the prospects of it selling more iPhones in the meantime remains remote. Relying on TV streaming is unlikely to make up for this shortfall.

After last week’s drama, Debenhams rescue plan may cost 10,000 jobs and 90 stores (Daily Telegraph, Ben Marlow) sounds like history is repeating itself after similar rumblings in 2016 with BHS. It sounds like the company has earmarked 90 out of its 165 shops in the UK and Ireland for closure as, apparently, 90% of the company’s pre-tax earnings are generated from a core of 80-90 shops. Chief exec Sergio Bucher is expected to propose a three-stage turnaround proposal with lenders in the next few weeks but there are many obstacles to overcome. The Fat Lady isn’t quite singing just yet, but it sounds like she’s warming up in the aisles.



And finally, in other news…

Getting delayed is always frustrating. However, turning this frustration into something positive has proven to be quite popular as per Law student who missed her flight embraces a four hour wait at the airport by dancing around the terminal – and even her cat joins in (Daily Mail, Bryony Jewell

AND FINALLY, if you really can’t bring yourself to look at the bright side, how about just venting those frustrations as per All the rage: Beijingers vent their stress in ‘anger room’ (Reuters, I think that anger rooms could definitely become the next escape rooms ????

Some of today’s market, commodity & currency moves (as at 0834rs 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 **
6,910 (-0.48%)23,970 (-0.13%)2,595 (-0.06%)6,98610,884 (-0.35%)4,776 (-0.62%)20,360 (+0.97%)2,554 (+0.74%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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