Monday 18/02/19

  1. In CONSUMER/RETAIL NEWS, UK worker pay rises on skills shortage, house prices are at their most affordable for years, Microsoft’s on the verge of a London shop and Walmart’s due to reveal the cost of taking on Amazon
  2. In CAR-RELATED NEWS, US import tariffs loom and EV metals stutter
  3. In INDIVIDUAL COMPANY NEWS, Baidu hits a sticky patch and Dyson ships 100 jobs out of the UK
  4. In OTHER NEWS, I bring you a neighbour’s worst nightmare. For more details, read on…



So UK pay rises, house prices get affordable, Microsoft’s about to open a London shop and Walmart’s going to show what it costs to compete with Amazon

Skills shortage in UK pushing up workers’ pay, says survey (The Guardian, Richard Partington) cites research from the Chartered Institute of Personnel and Development and recruitment group Adecco which shows that skills shortages in the UK are driving up wages, with pay rising by 2.5% on average versus 2% at the end of last year. Two-thirds of survey respondents said that they have had to increase their starting salaries to attract candidates – up from 56% in the final quarter of last year. * SO WHAT? * This is overall good news for consumers as wage rises are outpacing price rises, which should lead to a better standard of living. It’s interesting to see that Brexit uncertainty hasn’t had more of a negative effect as yet.

If Brexit doesn’t seem to have had much of a detrimental effect on wages, Houses ‘at most affordable since 2011’ (The Times, David Byers), which cites findings from the latest monthly figures from Rightmove, shows that asking prices have only risen by 0.2% versus the previous year – the weakest growth at this time of year since 2009. Miles Shipside, an analyst for Rightmove, observed that “Sellers’ subdued pricing is now being outstripped by higher average wage growth, meaning that buyer affordability is on the rise at the fastest rate in nearly eight years. In theory the scene would be set for an active spring, if it were not for the uncertain political backdrop”. * SO WHAT? * Sellers have been dropping their prices in recent months but wage growth has fallen way behind house price growth over the years with recent data from the Office of National Statistics showing that the average home in England and Wales was

7.8 times the average salary versus 3.55 times in 1997 (and it’s a whopping 9.7 times the average wage if you’re buying a brand new home!). It’s great that wages are rising in real terms, but they’ve got a long way to go to reach previous levels. I would have thought that house prices aren’t going to rise in a meaningful way until there’s some Brexit clarity.

Microsoft to open UK store (Daily Telegraph, Hannah Boland) heralds the imminent arrival of its first ever UK shop this summer after a very long wait. According to its job adverts, the store will be offering “hands-on experiences with innovative technology to unique programmes” including things like Xbox game design sessions. There are already Microsoft stores in US, Canada, Australia and Puerto Rico, but this will be the first one in Europe. The London store will be on the crossroads between Oxford Street and Regent Street (a few doors down from the Apple store then!). Construction on the building is expected to complete in April.

Walmart to reveal costs of battle with Amazon (Financial Times, Alistair Gray) brings our attention to Walmart’s upcoming results which will give us a better picture of how it has performed versus Amazon over the Christmas period. At the moment, Wall Street analysts are expecting the company to report rising sales but very weak profit margins due to increased investment in future-proofing its offering and higher labour costs. It has been pursuing offline initiatives like offering grocery pick-up and, online, it has relaunched and, so investors will be hoping that they have made a positive impact. * SO WHAT * Recent economic data suggests that US retail sales are slowing down, so observers will be looking for evidence to either confirm or dispel resultant fears. I think that Neil Saunders of GlobalData Retail put it best when he said that “If Walmart’s sales have done well it would kind of suggest that the government numbers are off. Walmart is a bellwether for the economy. It’s almost representative of how people are spending”.



Potential US tariffs get carmakers nervous and metals involved in EVs underperform…

The tariff drama continues with US car import tariffs could ‘backfire politically’ (The Times, James Dean) as the EU ambassador to the United States, David O’Sullivan, argues that imposing tariffs on European cars would have a “knock-on effect” on car-making in the US – as a US-EU trade war would probably result – just as Wilbur Ross, the US commerce secretary, was due give Trump a report recommending whether or not imported vehicles pose a national security risk. Merkel fears US may hit German cars with ‘security threat’ tariffs (Daily Telegraph, Jorg Luyken) shows that Germany is particularly worried about what might happen to them given how important their car-manufacturing business is. * SO WHAT? * This is clearly a big deal – especially for countries with major exposure to the car manufacturing industry. The IFO Center for International Economics, a major German thinktank, has forecast that 60% of the damage done to the EU by imposing tariffs would hit Germany, although increased exports to other countries may help to mitigate this.

Investors get burned after betting on electric-car metals (Wall Street Journal, Amrigh Ramkumar) is an interesting article that highlights the stubborn weakness of commodities that many thought would be red hot in terms of demand because of their importance in the manufacture of rechargeable batteries. Cobalt prices have fallen by over 30% so far this year to their lowest level in two years and lithium prices fell for the tenth consecutive month in January to a multiyear low. Miners rushed to produce commodities that investors thought would skyrocket in value because of increased demand for batteries, but this turned into oversupply as China – which is a huge player in the supply chain for electric car batteries – saw its economy slow down. Lithium is relatively abundant in South America and Australia and cobalt has seen a glut of supply from the Democratic Republic of Congo (the country which produces about 70% of global supply), sending prices down. * SO WHAT? * This over-exuberance has meant that share prices of a number of small publicly-traded cobalt and lithium suppliers and producers have suffered major share price falls in the last year – with First Cobalt Corp and Lithium Americas Corp seeing their share prices drop by 83% and 57% respectively. I still believe in the long term prospects of companies exposed to these metals until such time as other major technological improvements diminish or eliminate their importance. Even though EVs account for just 2% and 4% of overall car sales in the US and China, sales growth in both countries in percentage terms is huge.



Baidu hits some tough times and Dyson takes more jobs out of the UK…

‘Difficult years’ for Baidu as China’s internet goes mobile (Financial Times, Yuan Yang, Nian Liu and Louise Lucas) highlights the difficulties of China’s leading search engine – the dominant player in its market for most of the last twenty years – as it faces heavy criticism for prioritising its own platforms above relevant results (for instance, a serious scandal occurred in 2016 when a man died after buying an experimental cancer treatment found through Baidu, which then exposed its huge exposure to medical advertising – 20-30% of its revenues at that point), a slowdown in advertising growth as the wider economy continues to lose momentum and the migration of online

content to social media platforms which it can’t capture. * SO WHAT? * Baidu’s traditionally strong search business is looking tricky and some feel that it is currently just throwing money at anything in the hope that it sticks, like its driverless car project Apollo – but these projects have yet to come to fruition. Martin Bao of Industrial and Commercial Bank of China, points out that “the cash cow is not growing, the ones that are growing are not making a lot of money, and some parts are only burning money”.

I thought I’d mention Dyson sweeps 100 back office jobs out of the UK (Financial Times, Michael Pooler) because it follows on from the announcement it made last month to move its HQ to Singapore. * SO WHAT? * Some people will go mental over this because Dyson is a vocal Brexiteer, but when you consider that the company has more than doubled its UK workforce over the last five years (to around 4,800), 100 jobs does seem to be a drop in the ocean. I’d be more worried about the money the company is pouring into a “new” battery tech. If that turns out to be an expensive failure, then things could get properly serious IMHO.



And finally, in other news…

I thought I’d leave you with a rather embarrassing situation for all concerned in Dog rips open neighbour’s parcel and finds something very unexpected (Metro, Joe Roberts

Some of today’s market, commodity & currency moves (as at 0841hrs 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 **
7,237 (+0.55%)25,883 (+1.74%)2,776 (+1.09%)7,47211,300 (+1.89%)5,153 (+1.79%)21,282 (+1.82%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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