Monday 24/09/18

  1. In MACROECONOMIC NEWS, China cancels US trade talks and OPEC’s latest meeting predicts rising oil demand
  2. In NEWS ON CAR SALES, we see a contrast between the UK and US
  3. In INDIVIDUAL COMPANY NEWS, Comcast wins in the auction for Sky, Royal Mail heralds a parcel-led future and River Island has a tough time
  4. In OTHER NEWS, I bring you a weird new manicure “trend”. For more details, read on…



So China retaliates and OPEC predicts a bullish future for oil demand…

China cancels trade talks with US amid escalation in tariff threats (Wall Street Journal, Lingling Wei) is hardly surprising given Trump’s latest moves on the tariff front as his latest tranche of duties, affecting $200bn of Chinese imports, comes into force today. Having said that, China has left open the possibility for talks next month. * SO WHAT? * The two sides are just posturing at the moment. I think that Trump is trying to string this out for a little bit longer and that he’s more likely to come out with some kind of deal closer to the US midterm elections at the beginning of November to win votes. No doubt in his ideal world, talks with North Korea will warm up again by then as well – but obviously the opposite parties in both negotiations are fully aware of this and will probably be willing to do deals at that point to make everyone look good.

In Airlines’ demand for oil will offset impact of electric cars in next five years (The Guardian, Adam Vaughan) we see that OPEC’s latest report predicts that world oil production will rise to record levels within the next five years due to major expansion in demand from airlines outstripping a fall in demand from the increased take-up of electric cars. It also predicted that coal usage will also increase, with a steep drop in OECD country usage going into 2040 being offset by a huge increase in usage in developing countries. It also predicted that renewable energy production will only account for about 20% of global energy demand by 2040. * SO WHAT? * Clearly, this report needs to be taken with a pinch of salt. Whaaat? An oil cartel writing a report predicting a rosy future for its own product?? Nooooo – surely not!?! However, I suspect that the truth lies somewhere between what it is predicting and what the renewable energy industry is predicting. The thing is that renewable industry predictions are based on what might be or hopes for  future technological improvement. Oil industry predictions are based much more on past performance and fact. OK – so OPEC is obviously talking its own book, but I would be more inclined to believe their predictions more than the renewable industry’s.



In car sales news, there’s a stark contrast with markets in the UK and US…

Car sales set to crash after dealers flood market to beat green tests (Daily Telegraph, Alan Tovey) highlights a tricky situation for car makers and car dealers at the moment as car sales are expected to take a bath after what appeared to be a strong August. September is usually a big month for car sales (because of the registration plate changes) but carmakers have flooded the dealer network ahead of the rollout of a new emissions regime, known as WLTP (Worldwide harmonised Light Vehicle Test Procedure) to avoid having to test their vehicles to the new tighter standards brought in following the VW emissions scandal. Cars registered after August must be tested to WLTP standards, but some cars would fail – hence the manufacturers getting rid before the deadline and pumping up pre-registrations. Pre-registrations occur when dealers register cars themselves to inflate sales figures and then quietly sell the vehicles on as low-mileage used cars for a big discount. Auto Trader stats show a 22% increase in the number of cars for sale with less than 100 miles on the clock on their website in August, which would imply a lot of

pre-registering going on. * SO WHAT? * Although official new car registration data showed a 23.1% jump in August after a 1.2% rise in July, it seems that there is a lot of jiggery-pokery going on in the background meaning that any kind of sales figures for the next few months shouldn’t be taken at face value. I would have thought that the underlying trend for car sales will be in the downward direction as punters get more risk averse heading into Brexit.

Used-car sales boom as new cars get too pricey for many (Wall Street Journal, Adrienne Roberts) looks at the current state of affairs for car sales in the US where there appears to be a trend of punters increasingly going for second-hand cars due to the widening gap between new and used prices.  * SO WHAT? * New car sales have started to slow down this year after seven consecutive years of rises and a strengthening used market could well dent them further as buyers forego the “new car smell” for the “old car smell”. Although used car prices have been trending up of late, the gap between new and used prices is at its biggest for ten years according to car-shopping website Demand for used was particularly high this summer and it looks like this situation could continue as higher interest rates and rising prices for new cars combine to put increasing pressure on consumer wallets. 



In individual company news, Comcast wins the auction for Sky, Royal Mail stakes its future on parcels and River Island is the latest high street retailer to suffer lower profits…

So Comcast chief pledges to preserve Sky’s independence (Financial Times, Matthew Garrahan) heralds Comcast’s victory over rivals Walt Disney and 21st Century Fox for Rupert Murdoch’s pay TV group with an offer of £17.28 per share versus the Disney-Fox bid of £15.67 a share and effectively ends Murdoch’s involvement with Sky almost 30 years after he created the group. * SO WHAT? * This brings to a close a saga that kicked off in December 2016 and at least gives some clarity to the sector. We’ll just have to see now what Comcast has in store – although Comcast’s style tends to let the “locals” get on with it. As the chief exec of Comcast, Brian Roberts, put it, ” The consistent theme at Comcast has been letting leaders of our businesses make their own decisions, being decentralised and keeping an entrepreneurial spirit…we’ve said this to Jeremy and the rest of the Sky team…they will be able to act as an independent company but with the resources of a $150bn company behind them”. No doubt there will be more consolidation to come in the industry.

Royal Mail sends message to investors with focus on parcels (Financial Times, Michael Pooler) highlights the vision for the future, as delivered by the company’s new management. Basically, it wants to make sure it can surf the wave of increased parcel traffic as letter delivery

descends into terminal decline and chief exec Rico Back also outlined his desire to grow Royal Mail’s international parcels business, GLS. * SO WHAT? * Whatevs. The new team are making the right noises so far – with investors who need calming down after they objected to executive pay packages and unions who wanted assurance of no job losses – but the key problem the company needs to face RIGHT NOW is the decline in letter-traffic. The EU’s recently enacted GDPR legislation has already caused a massive drop in marketing mail and parcel delivery is becoming an increasingly competitive area. Royal Mail should not underestimate the challenges facing it, but it has the network to be able to fight back against newbies like Amazon. As long as it doesn’t dawdle, it SHOULD be able to benefit from increased parcel deliveries but it needs to be proactive IMHO.

I know I keep banging on about gloom on the UK high street – and today’s going to be no different as River Island profits down as retailer adapts to online world (Daily Telegraph, Ben Woods) highlights a massive 40% fall in profits at the apparel retailer as it invested in improving its online offering. As chief exec Ben Lewis put it, “Despite some of the challenges we have a strong belief in what we are doing, our brand and product proposition, and we are investing in the changes taking place in consumer behaviours to make sure that we stay at the forefront of customers’ minds”. Interestingly, despite the fall in profits, the company isn’t trimming its store footprint and actually added to its estate. * SO WHAT? * It sounds like this privately-owned business is in transition and wants to squeeze as much value out of its existing estate as possible. Clearly, investing in its online capabilities is a good thing, but if it can get the most out of its existing stores as well then everyone’s a winner!



…And finally, in other news…

I thought I’d bring you a very creepy “trend” to kick the week off with in Bizarre manicure is creeping people out – as it makes your nail look like a hand (The Mirror, Robyn Darbyshire Yuck!

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0806hrs 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
7,490 (+1.67%)26,744 (+0.32%)2,930(-0.04%)7.98712,431(+0.85%)5,494 (+0.78%)23,895 (+0.94%)2,795 (+2.41%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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