Monday 16/09/19

  1. In OIL & CRYPTO NEWS, Saudi Arabia’s production takes a major hit and Facebook faces questions on Libra
  2. In HIGH STREET NEWS, restaurants continue to close, Thomas Cook gets a stay of execution and HMV’s new owner tries new tricks
  3. In REAL ESTATE NEWS, house prices fall in September and student housing looks ripe for a fall
  4. In INDIVIDUAL COMPANY NEWS, Purdue Pharma files for bankruptcy protection and BMW decides not to renew the i3
  5. In OTHER NEWS, I bring you an e-sports hotel and a Game of Thrones tapestry…



So Saudi Arabia’s production takes a big hit and Facebook’s Libra faces a regulator inquisition…

Petrol price to rise after missiles hit crucial Saudi oil refineries (Daily Telegraph, Hannah Boland) shows what happens when oil refineries at Opec’s biggest producer get hit by a drone missile attack. Ashley Kelty, an oil analyst at Cantor Fitzgerald, estimates that prices at the petrol pump will rise by at least 5p per gallon over the next few days until we know more about when the supply lines can be fixed. Early reports suggest that production won’t be back on track for weeks, not days. * SO WHAT? * The attack took out 5.7m barrels of oil per day of output, equivalent to about 5% of global supply and about 50% of Saudi Arabia’s production capacity, so this is a very big deal. The global economy could do without this at the moment given that oil helps to power economic growth, which is looking

somewhat shaky at the moment. My advice – fill your cars now if you can as garages always seem to be quick to put the price up and rather slower when it goes down again!

In Central banks to grill Facebook over Libra (Financial Times, Mehreen Khan, Sam Fleming and Caroline Binham) we see that the social media giant is to be interrogated by officials from 26 central banks on its Libra cryptocurrency project in Basel today over concerns about the potential threat it poses to financial stability. The ECB is chairing the meeting but has been quite blunt about expectations for Facebook as it said that “the bar for regulatory approval will be very high” for it to operate in the EU. * SO WHAT? * Regulators and politicians clearly hate the prospect of Libra and the potential power (and data) that Facebook could have if it went ahead. This is all to do with them potentially losing control of their own finances and resulting in fewer tools with which to react to economic circumstances. It’ll be interesting to see how these talks pan out, but I’m thinking that Facebook is facing Mission Impossible with the EU.



Restaurants continue to close, Thomas Cook gets more time and HMV’s owner tries new tricks…

More than 1,400 UK restaurants close as casual dining crunch bites (The Guardian, Rupert Neate) cites a report by accountancy firm UHY Hacker Young which confirms what we already knew – that things are pretty grim at the moment for casual dining restaurants as over 1,400 have closed down since June 2018. Byron, Strada,  Gourmet Burger Kitchen and Jamie Oliver’s restaurant chains have all been casualties as the number of restaurant insolvencies have increased by 25% in the year to June 2019 – the largest number of insolvencies since at least 2014. Peter Kubik, a partner at UHY Hacker Young observed that “Good restaurants and bad have all struggled from overcapacity, weak consumer spending and surging costs. Having a loyal following is great but if that loyal following stops going out then you have a problem. The number of restaurants whose sales are at or near capacity is pretty small – they’re the exception”. * SO WHAT? * I think that a lot of the problems among restaurants are mirrored in high street retailers and survivors are likely to be the ones who create good customer experiences and who differentiate themselves whether they are small independents or bigger chains. They both face an online onslaught (retailers from the likes of Amazon et al. and restaurants from the likes of Deliveroo etc – why go out when you can sit on your @rse and get it without moving 😜) and need to adapt to a changing – and more discerning – customer. This is just evidence of what we already know.

Then Thomas Cook wins more time to thrash out £1.1bn rescue deal (Daily Telegraph, Alan Tovey) tells us that Thomas Cook has secured more time to negotiate its survival. It needs the support of 75% of its creditors to

continue with its proposal to let Fosun, the Chinese conglomerate which is Thomas Cook’s biggest shareholder with an 18% stake, to pay it £450m for a 75% stake in the tour business and 25% of its airline. * SO WHAT? * Thomas Cook faces a number of pressures at the moment – its Air Transport Operator’s Licence (Atol) is to expire at the end of this month, hedge funds are buying Thomas Cook debt and will want to be paid out in any deal, and it also needs to get cracking on booking hotel rooms for next year. Regulators at the Civil Aviation Authority (CAA) are looking into what might happen if the company fails, which would result in what would be the biggest ever repatriation of British holidaymakers trapped abroad. You’ve heard of “Fergie Time” – this is now “Thomas Time” and the outcome is far from a foregone conclusion. What a nightmare.

On a more positive note, Sunrise fights old battles for a new dawn at HMV (Daily Telegraph, Laura Onita) looks at how HMV is doing under its “new” owner Sunrise Records, the Canadian record store. It bought HMV in February this year for £883,000 after the embattled chain continued to suffer from high costs, falling sales and the increase in downloading/streaming and is trying new things to revive its fortunes. Unusually, 114 of HMV’s 127 stores are still open (most new owners buying something out of administration tend to jettison far more than has been the case here) and there haven’t been many job culls or supplier shake-ups as yet. * SO WHAT? * When you consider that the high street has seen the disappearance of the likes of Our Price, Tower Records and Zavvi over the years, this is no mean feat – but then again, there are a lot of rental reviews due in January – so if big cuts are going to happen, that will be the time to expect them. It sounds to me like the company needs to wield the axe unfortunately because they are just selling stuff you can buy online at cheaper prices. Like I keep saying, unless this retailer can provide better customer experience, it will die a death IMHO – but this time it will be final. 



House prices take a hit in September and student housing looks like it’s in oversupply…

Rare September fall in house prices (The Times, Philip Aldrick) cites the latest data from online property portal Rightmove which shows that house prices have fallen in September for the first time since 2010. House prices tend to bounce at this time of year but Brexit worries have been blamed as being the reason that buyers are hesitating. Rightmove director Miles Shipside pointed out that “As the deadline gets closer and tensions heighten, there has been a big swing with sales agreed now over 5 per cent below those of a year ago. Buying activity is still at nearly 95 per cent of what it was a year ago, but sellers in all regions are seeing fewer sales go through”. * SO WHAT? * Rightmove’s figures are one of a number of data points that are taken into account regarding the judgment of the health of the property market – other ones come from mortgage providers Halifax and Nationwide as well as the Office for National Statistics, the latter of which releases figures with a two-month delay.

Higher education: is Britain’s student housing bubble set to burst? (Financial Times, Thomas Hale and Judith Evans) looks at whether the massive growth in recent years of student accommodation, embarked upon by rising student numbers, is about to peak out. Investors have been throwing money at this area for a while now but prices are getting to such a level that there aren’t enough students to fill the accommodation at current prices and there are questions now as to the effect this concentration of resources is having on places that are becoming ghost towns in the holidays. * SO WHAT? * According to data from the Higher Education Statistics Authority, there were 550,000 first year students enrolled on a first degree in the year ending summer 2018 versus just under 360,000 in 2,000 – so you can see why accommodation has become an issue. However, investors have been gravitating towards accommodation close to higher ranked universities in recent years, meaning that the oversupply problem has been particularly acute in some areas. Given that this accommodation has been designed with students in mind, if developers buy with a view to changing their use, they could well incur quite high costs to convert them giving them more reason to stay away. It’ll be interesting to see if this oversupply can somehow help to meet non-student needs.



Purdue Pharma files for bankruptcy and BMW decides not to update the i3…

OxyContin maker Purdue Pharma files for bankruptcy protection (Wall Street Journal, Sara Randazzo and Jared S.Hopkins) highlights the latest development for a company that has become well-known for producing pain-relieving drugs, including OxyContin. It has been facing lawsuits from almost every state in the US for contributing to opioid addiction and it filed for bankruptcy protection

last night with a partial deal that could resolve some of these lawsuits. Johnson & Johnson, McKesson Corp and Cardinal Health are also faced with similar actions that allege that they have also contributed to the current opioid crisis – and it’s not going away.

BMW signals end of road for its i3 electric car (Financial Times, Peter Campbell) heralds a sad day for i3 fans as the distinctive runaround’s future development will be sacrificed to make way for the electrification of other models in BMW’s line-up. Cars generally have a 7 year life cycle and the i3 will hit that mark next year. It will continue to be produced for a few more years, it’s just that there won’t be a new version.



And finally, in other news…

I thought I’d leave you with two things today – Japan’s first dedicated e-sports hotel to open this spring with three full floors of gaming gear (SoraNews24, Casey Baseel, which will no doubt be a big hit with gamers and Fire and thread: Bayeux-inspired ‘Game of Thrones’ tapestry unveiled in France (Reuters which will no doubt please embroidery and GoT fans alike!

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Some of today’s market, commodity & currency moves (as at 0901hrs 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 **
7,367 (+0.31%)27,220 (+0.14%)3,007 (-0.07%)8,17712,469 (+0.47%)5,655 (+0.22%)Market holiday3,029 (-0.08%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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