Monday 16/12/19

1. In MACRO NEWS, we look at the US trade deal impact and post-UK election expectations
2. In RETAIL/HIGH STREET NEWS, US retail suffers a tricky year, Toscafund buys a decent wedge of Ted Baker and UK cinemas want to feel The Force
3. In MISCELLANEOUS NEWS, UK water companies survive nationalisation but face tough challenges and Ola tries to make a splash while Uber is side-lined
4. In OTHER NEWS, I show you how how to win the Christmas cracker pull…

So markets cheer the partial US/China trade deal and more certainty in Westminster…

US hails trade deal with China as threatened tariffs are suspended (The Guardian, Patrick Collinson) heralds a sense of relief and euphoria as China suspended additional tariffs on an array of imports from the US as part of the “Phase One” deal. The US trade representative, Robert Lighthizer, said that the deal will almost double US exports to China over the next two years. Easing worries push investors out of havens, drive stocks to new highs (Wall Street Journal, Ira Iosebashvilli) shows that this recent development is starting to result in a shift from “safe haven” assets like gold, the Yen and stocks that pay dividends (which investors tend to buy when things aren’t going so well because they are less risky/offer more stability) back into the wider stock market. The majority Conservative win on Friday will also have a positive effect on the markets (at least for the short term) such as those identified in Boris bounce ‘may reverse Brexit blow to sterling’ (Daily Telegraph, Tim Wallace) which suggests

that BoJo’s victory will open the floodgates to foreign investors buying sterling after a long period of reticence due to the uncertain economic/political climate; and Election to boost house prices (The Times, Louisa Clarence-Smith) cites Rightmove as saying that the average house price will go up by 2% over the next year, with housing market activity picking up in spring on pent-up demand. * SO WHAT? * Trade talks and Brexit are certainly two big clouds that have been hanging over markets of late and so positive developments (albeit on a limited capacity on the US/China trade front) were bound to have a positive impact. US markets have seen many false dawns over the last two years as trade agreement prospects have risen only to be dashed and investors in the UK have become increasingly fretful about Brexit and Westminster’s indecision. Neither of these latest developments claims to be the finished article – as there are still many hurdles to be faced – but in the meantime share prices hit new highs in the US and those of UK builders and estate agents shot up by 10% in the immediate aftermath of both bits of news. Detractors will say that Trump sold out to make himself look good going into election year and that Boris has still got some very tricky negotiation ahead of him with the Europeans.

US retailers suffer from discounts, Ted Baker gets a new big shareholder and UK cinemas want The Force to be with them…

US retailers hit by ‘worst year since 2008’ for discounting (Financial Times, Alistair Gray) highlights a worrying trend among US retailers as they resort to cutting prices to combat the threat of online rivals. The latest industry data shows that special offers have gone way beyond Black Friday and are also bigger than they have been in previous years. Retail consultant Jan Rogers Kniffen observed that “This is the worst year for discounting since 2008. Outside of a recession, it’s the deepest I’ve seen”. This has been exacerbated by the US-China trade war which has led to many clothing retailers ordering more than they would normally to potentially beat the tariffs – but this has led to higher inventory, which will probably lead to even more discounting. Retailers such as American Eagle, Tailored Brands and Children’s Place have all expressed concerns going into Christmas. * SO WHAT? * This is indeed concerning to hear at a key period of the year. The latest developments in the US-China trade stand-off will no doubt be welcomed by retailers, but I would expect them to take some time to feed through. In the meantime, the US consumer stands a good chance of bagging a decent number of bargains over the holiday season.

In Toscafund scoops up 12% of troubled retailer Ted Baker (Financial Times, Jonathan Eley) we see that hedge fund Toscafund Asset Management has now built up a stake of almost 12% in Ted Baker, making it the second biggest

shareholder after founder Ray Kelvin. Investors such as Invesco and Baillie Gifford have been reducing their stakes in the company which has had four profit warnings in the last year. * SO WHAT? * Neither Toscafund nor Ray Kelvin have made any comment re the stake, but the interesting thing here is that although more conservative investors will be reluctant to put money into the company because of allegations of Kelvin’s inappropriate behaviour to staff (which led to his abrupt departure), it is likely that a hedge fund may have no such qualms. The fund has a history of investing in companies who have founders with big stakes and buying assets that nobody wants. The drama continues…

Then in UK cinema industry hoping to feel full force of Star Wars (The Guardian, Mark Sweney) we see that the industry is crossing its fingers/toes/praying that the new Star Wars film will result in sales that will take them into a galaxy far, far away. The British box office has had a pretty good few years and the industry is hoping that a strong December roster of Jumanji: The Next Level and Cats will be complemented by a successful final installment of the venerable franchise. * SO WHAT? * This is all impressive stuff – and Disney’s success over this year has been staggering when you consider their ownership of hugely popular films as part of franchises including Star Wars, Toy Story, The Incredibles, Marvel, Frozen and Lion King. However, many are saying that this is unlikely to be replicated and that next year’s movie schedule is not nearly as strong and will look lacklustre in comparison. In the meantime, cinema chains such as Vue have continued to invest in a better experience which they hope will keep punters going to their theatres rather than just staying at home and watching Netflix.

Water companies survive nationalisation but face hurdles while Ola tries to take advantage of Uber’s misfortune…

Water Industry faces battle against watchdog’s tough new regime (Daily Telegraph, Tim Wallace) highlights challenges facing the big water companies shortly after they breathed a sigh of relied that they won’t be nationalised under a Labour government. Industry regulator Ofwat will today be announcing a new regime that will force companies to be more efficient and take less profits as part of a five-year plan to shake-up the industry. It said that “These are seriously stretching goals for the sector, but we know they can be achieved”. Water companies

could challenge the new rules, so we’ll just have to see how things develop from here.

Upstart Indian taxi rival hails cut-price route into London (The Times, Simon Duke) heralds a push by Softbank-backed Indian start-up Ola in London as it announced its official launch in the capital next month. Uber, which is also backed by Softbank, is to lose its London licence due to the discovery of lapses in its driver approval process so Ola is looking to take advantage while the giant is down. It will be opening with lower prices to attract new users and waive commissions, attracting drivers who are used to having to pay Uber 25%. * SO WHAT? * It looks like drivers and customers will certainly benefit from the arrival of this new kid on the block and, given that it already operates in 250 cities worldwide in India, Australia and New Zealand, it is no slouch. Rivals Kapten and Bolt will also be vying for customer and driver attention while Uber sits powerless on the sidelines.

And finally, in other news…

If you are feeling particularly competitive this Christmas then you might like to read How to win the Christmas cracker pull every time – and what we all do wrong (The Mirror, Luke Matthews https://tinyurl.com/tl7p6ux). Just think of all those cheap gifts that you will be winning!