Monday 17/06/19

  1. In MACRO NEWS, the US/Iran situation hots up while UK growth looks set to fall
  2. In RETAIL NEWS, Walmart outpaces Amazon, we take stock of the impact of CVAs and Patisserie Valerie gets a revamp
  3. In INDIVIDUAL COMPANY NEWS, Deutsche Bank outlines a major overhaul
  4. In OTHER NEWS, I bring you an unexpected cake. For more details, read on…



So tensions increase between the US and Iraq while UK growth looks set for a slowdown…

Trump’s ‘maximum pressure’ Iran strategy stokes war fears (Financial Times, Demetri Sevastopulo) refers to Trump’s comments on Thursday that blamed Tehran for attacks on oil tankers in the Gulf of Oman last week. Some think that it could push the two countries closer to war as tensions have continued to heighten since the US withdrew from the Iran nuclear deal a year ago. Those opposed to poking the hornets’ nest say that Trump is seeking something that will be impossible to get – his own way over a number of major issues and/or the destruction/removal of the current regime – while supporters of Trump’s aggressive stance say that the Obama administration was too soft on Iran and that choking off its resources reduces their options, meaning that they will be more likely to engage at the negotiation table. Saudi Arabia ups ante in war of words with Iran (Financial Times, Ahmed Al Omran, Simeon Kerr and Monavar Khalaj) shows that Saudi Arabia is getting in on the Iran bashing (and probably notching up brownie points with the US after the whole Khashoggi thing last year) as

the kingdom’s de facto leader, Crown Prince Mohammed bin Salman (aka “MBS”) warned that “The kingdom doesn’t want a war in the region, but we will not hesitate to deal with any threat to our people, sovereignty and vital interests”. * SO WHAT? * The oil price will rise the more tensions increase in the region given the potential threat of supply. I think that Trump will want to avoid this, but he certainly knows how to push Iran’s buttons!

UK growth tipped to slow as firms run down Brexit stockpiles (The Guardian, Richard Partington) cites British Chambers of Commerce (BCC) forecasts which predict that economic growth in the UK will fall as companies rundown the stockpiles they’ve amassed going into Brexit. It has cut its GDP growth forecasts for next year from 1.3% to 1% – the weakest rate since the 2009 recession following the financial crisis. * SO WHAT? * The stockpiling of raw materials and components by manufacturers powered a 0.5% rise in GDP in the first three months of this year, but these inventories are now being run down which will mean that orders will be slow. This is interesting, but critics will say that this must be taken with a pinch of salt as the BCC is a big supporter of Remain and economic forecasts are always subject to tweaking! Their forecasts will obviously reflect their wider stance – but I think this is what everyone is expecting anyway. Remainers will use this as evidence to back their own Brexit fears.



Walmart outdoes Amazon, we see the impact of CVAs so far and Patisserie Valerie’s new owner has a plan…

In Walmart outpaces Amazon in drone patent race (Financial Times, Martin Coulter) we see that Walmart is actually on course to file more drone patents than Amazon for the second year running! Research from accountancy firm BDO shows that it filed 97 new drone patents with the World Intellectual Property Organisation since July 2018, with Amazon “only” filing 54. * SO WHAT? * Amazon boasted earlier this month that it would start delivering packages to customers via drones “within months”, but regular readers of Watson’s Daily will know that I am highly sceptical of this generally – certainly as far as drones in densely populated areas are concerned anyway. I’m sceptical because I think it’s hard to get permits to fly in a lot of places, but I it could probably work in more remote locations which would normally cost a lot to deliver to.

CVA tactic has led to the closure of 1,000 shops (Daily Telegraph, Ashley Armstrong and Tim Wallace) takes a look at what CVAs have done to our UK high streets. Originally, CVAs were only meant to be used when a business was in danger of bankruptcy but they have now become so prevalent that landlords are fighting back. Paul Suber, co-head of retail at Colliers said that “CVAs should

not be used as a tool for financial engineering and a way to walk away from freely entered-into legal contracts. Their use must only be as a last resort”. New research shows that CVAs have been used to shut 954 stores since the start of 2017 among retailers including Carpetright, Mothercare and Homebase and landlords are complaining that they are being used as a tool to force rents down. * SO WHAT? * I don’t think that retailers can be blamed for using this tactic even if CVAs weren’t originally intended for such situations. However, I am sure that retailers will say that this is just a case of the chickens coming home to roost after years of landlords just upping rents without taking into account difficult conditions. There is definite mileage in landlords getting some rent rather than no rent as it is difficult to think who will fill all of the empty spaces – but I suspect that the situation will continue to get worse as shopper behaviour continues to change.

There’s good news for posh cake fans in Rescuers butter up Patisserie Valerie’s clientele (The Times, Tabby Kinder) as the new owner of the cafe chain, Causeway Capital, has outlined a turnaround plan following a major review conducted after it paid £94m for the business that imploded in January. It said that it will slim Pat Val’s existing 37 menus with 800 items down to a much leaner two menus with 150 products. Great for fans of simplicity, but not so good for those who like tons of choice! Causeway Capital has entered into new terms with its suppliers and new policies for its 2,000 staff. Let’s hope it all works out!



Deutsche Bank readies itself for some big changes…

Deutsche Bank to set up €50bn ‘bad bank’ as part of overhaul (Financial Times, Stephen Morris and Olaf Storbeck) heralds the latest development for Germany’s biggest lender as it prepares for a major overhaul of its business. Basically, the bank aims to split out around €50bn of assets, mainly comprising of long-dated derivatives, and taking an axe to its equity and rates trading

business outside Europe. Details aren’t finalised yet, but this seems to be the direction the company is taking. Chief exec Christian Sewing is expected to announce details at the bank’s half-year results in late July. * SO WHAT? * Deutsche Bank has been criticised for ages for not doing enough to turn the business around, so I guess we will have to see whether this IS enough. I suspect that critics will be very cynical as Deutsche has promised overhauls in the past and not delivered satisfactorily, so goodwill is thin on the ground as far as they are concerned. This was inevitable really after merger talks between Deutsche Bank and Commerzbank collapsed a few months ago as investors have been pushing for major changes.



And finally, in other news…

I thought I’d leave you today with a cautionary tale in Woman asks for Mariah Carey birthday cake – but what she gets is priceless (The Mirror, Courtney Pochin Hmmm.

Some of today’s market, commodity & currency moves (as at 0859hrs 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 **
7,346 (-0.31%)26,090 (-0.07%)2,887 (-0.16%)7,79712,096 (-0.60%)5,368 (-0.15%)21,124 (+0.03%)2,888 (+0.21%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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