Monday 30/07/18

  1. In MACROECONOMIC NEWS TODAY, Trump talks about That Wall again and Pakistan looks likely to go begging to the IMF
  2. In our latest TARIFF UPDATE, we see how tariffs are starting to affect end prices to consumers
  3. In INDIVIDUAL COMPANY NEWS, China’s Ant Financial continues to dominate, we see more “afters” from the Qualcomm/NXP debacle and Ladbrokes gambles on the US
  4. In OTHER NEWS, I bring you an interesting Finnish national celebration. For more details, read on…



So Trump brings up chat about that wall again and Pakistan’s newly elected PM considers aid from the IMF… 

Just when Mexicans thought it was safe to go outside, Trump again threatens to shut down government (Wall Street Journal, Siobhan Hughes and Peter Nicholas) highlights a tweet (what else?!) send out by Trump yesterday which said that “I would be willing to ‘shut down’ government if the Democrats do not give us the votes for Border Security, which includes the Wall!”. * SO WHAT? * The threat comes just before mid-term elections where Republicans (Trump’s party) are trying to maintain control of the House of Representatives. Many believe that turnout will be the deciding factor in the midterms and that nothing motivates Trump’s voter base more than immigration.

Pakistan set to seek up to $12bn IMF bailout (Financial Times, Kiran Stacey and Farhan Bokhari) shows that the initial euphoria over Imran Khan’s election as Pakistan’s PM is receding quickly as senior finance officials are putting together plans to appeal for the biggest ever bailout from the International Monetary Fund (IMF). Pakistan is in the middle of a foreign reserves crisis as higher oil prices have made imports much more expensive and any IMF bailout would immediately clamp down on any public spending. * SO WHAT? * This would make the incoming PM’s election promises (such as spending public money on providing healthcare access for all, investing in schools and creating an “Islamic welfare state”) much more difficult to fulfil. Pakistan has subsisted on loans from China so far, but many believe he will have to go begging to the IMF, who are likely to exact tough terms such as raising electricity tariffs, slashing agricultural subsidies and selling off lossmaking public companies. As Charlie Robertson, global chief economist at Renaissance Capital, put it, “This is the first time Imran Khan gets his hands on power and he is going to have to make some very tough decisions. He will have to break election promises, at least in the short term”.



In tariff chat, we see how price rises are starting to affect consumers…

Soda, motorcycle prices rise as tariffs hit home for consumers (Wall Street Journal, Patrick McGroarty) shows the day-to-day impact that tariff wars are having on consumers as companies affected by tax-induced price rises have decided not to absorb the price rises themselves, but rather pass them on to the end customer. Manufacturers such as Coca-Cola, Polaris Industries (which makes boats, motorbikes, snowmobiles etc) and  Winnebago industries (which makes recreational vehicles) are all at it and, in the other direction, BMW raises prices as trade war hits consumers (Financial Times, Patrick McGee) highlights the fact that the German car manufacturer will be the first major to raise prices on US-

-built vehicles exported to China as a result of the tariffs imposed by Beijing in retaliation to Trump’s tariff salvo. * SO WHAT? * Although it might sound a bit perverse, if the tariff thing doesn’t go on for too long, it might actually be a blessing in disguise for some because if tariffs come OFF after companies put through price rises (because all sides resolve their tariff differences), they can then cut prices that consumers pay (but not quite as deeply as the initial price rises), look like consumer champions and make more sales than before as something that choked off demand could actually blossom into a catalyst. By way of example, if a car manufacturer put up a price now of one of its vehicles by 10% because of the tariffs and then cut it again by, say, 8% when the trade wars are resolved, they would still be putting through a net 2% price rise and I’d argue that you’d get a big volume boost as pent-up demand goes some way to making up for the lost sales in the interim between tariff introduction and resolution. That boost in sales could then be self-perpetuating and lead to a more sustained rise over a longer period. However, whether this eventually turns out to be good or not depends massively on how long the tariff thing will take to resolve. The longer it goes on, the more painful it will be for manufacturer and consumer alike – and some manufacturers in particular may not be able to survive.



In individual company news, China’s Ant Financial continues its upward march, Chinese authorities say they aren’t responsible for the Qualcomm/NXP breakdown and Ladbrokes bets on the US…

In Jack Ma’s giant financial startup is shaking the Chinese banking system (Wall Street Journal, Stella Yifan Xie) we see that Ant Financial Services Group, founded by the Chinese billionaire chief of commerce giant Aliababa, has become the world’s biggest fintech company and is a major driver of tech innovation. China’s banks complain deposits are slipping through their fingers to Ant, forcing them to pay out higher interest rates to remain attractive, which has the added knock-on effect of them having to close down branches and ATMs. Chinese authorities are mindful of Ant’s incredible growth and have started to limit the activities it can get involved in – like stopping them from developing a national credit-scoring system or forcing them to reduce holdings in assets that help them to pay high (and therefore attractive) interest rates. Ant now has a quite staggering valuation of $150bn – over double what it was valued at in 2016, which makes it bigger than Goldman Sachs. * SO WHAT? * It seems that we might be at – or nearing – an inflection point here as Chinese authorities seem to have been quite happy to let it grow up until now, but are currently considering whether its status should be changed to that of a financial holding company, which would mean that it would have to meet far more stringent capital requirements that bind banks. For its part, Ant says that it doesn’t want to be a financial conglomerate but a tech provider or “lifestyle platform” with profits coming via fees from institutions using its technology. Given its history of financial disruption, you can guarantee that its traditional competition will be very keen to see its wings clipped a bit.

Talking about wings being clipped, China to Qualcomm: don’t blame us for failed NXP deal (Wall Street Journal, Liyan Qi) says that Chinese antitrust regulators are saying that the proposal didn’t get through because the companies didn’t properly address competition concerns, rather than anything more sinister. China’s State Administration for Market Regulation said in a statement that “Qualcomm and NXP decided to abandon the deal as the deadline the two parties agreed on expired. [We] regret this”. Neither Qualcomm nor NXP commented on this latest development. * SO WHAT? * I think that this sounds like a massive load of cr*p. Chinese antitrust authorities were the last of nine international regulators to have to sign off on the proposals – eight had already done so and China was dragging its feet. They deny that it had anything to do with the current trade negotiations but I think this is complete rubbish – it had EVERYTHING to do with them! Mind you, it does mean that, in theory anyway, the door is still open for the deal- albeit by a tiny tiny crack. It’s particularly interesting that neither company has commented – so you never know. It looks unlikely to get revived at this stage, though…

Ladbrokes group takes punt as US legalises sport betting (The Guardian, Rebecca Smithers) looks at the prospect of GVC Holdings, the owner of Ladbrokes and Coral, completing an imminent $200m tie-up with the world’s biggest casino operator – MGM Resorts – which would put it right in the mix with the newly liberalised US sports betting market. MGM Resorts (which owns casinos such as the MGM Grand and the Bellagio) and GVC will be putting $100m each into the joint venture that will be focused on US sports betting and will allow them to create gambling ventures within the US. * SO WHAT? * This could be massive for GVC as it will be able to apply its gambling know-how to America, where the Professional and Amateur Sports Protection Act of 1992 effectively outlawed sports betting in the US, which resulted in gambling going underground until it was liberalised this May. BIIIIIIIG potential upside here as domestic growth stagnates, but there will be lots of US operators trying to catch up



… And finally, in other news…

I thought I’d leave you with a something that will give you a bit of a lift today if you can spare the 30 seconds it takes to watch: Chimpanzee can’t hide delight at being reunited with human foster family who raised him (The Mirror, Zosia Eyres Ahh!!!

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