Monday 30/11/20

  1. In MACROECONOMIC & MARKETS NEWS, the EU tries to pitch to the US, China motors on, investors pile in and Tesla’s inclusion causes much head-scratching
  2. In M&A AND IPO NEWS, UK M&A shoots up and S&P Global approaches IHS Markit while Airbnb and DoorDash aim high
  3. In CORONATRENDS NEWS, Weight Watchers slims and Esports triumphs while preparations are made for vaccine rollout
  4. In MISCELLANEOUS NEWS, the UK cuts Huawei off quicker, Arcadia faces collapse and Black Friday underwhelms in shops
  5. AND FINALLY, I bring you “spot the sniper” and unusual Christmas tree decoration…



So the EU holds out an olive branch, China motors on and investors pile in while Tesla causes a kerfuffle…

EU pitches new post-Trump alliance with US in face of China challenge (Financial Times, Sam Fleming, Jim Brunsden and Michael Peel) shows that the EU intends to persuade the US to form a new global alliance to address the “strategic challenge” posed by China. The European Commission has prepared a draft paper that calls for new and deeper co-operation on all sorts of things like digital regulation, deforestation and how to tackle Covid. * SO WHAT? * After a somewhat testy relationship with Trump, Europe is now trying to pull both sides of the Atlantic closer together and this seems like a more conciliatory way of doing it rather than last week’s introduction of a digital tax by France. Europe has been largely frustrated in its wish to have a more co-ordinated approach regarding China and will see Biden as a way to get this going. This is only a draft paper, but outlines intent in black-and-white.

Talking about China, though, China stocks rise after data underscores economic recovery (Financial Times, Hudson Lockett) shows that the country’s factory activity had its best month for three years as the official purchasing managers’ index for manufacturing recorded factory output rising at its fastest rate since 2017 with a jump in new export orders. Chinese consumers move towards forefront of economic recovery (Financial Times, Thomas Hale and Ryan McMorrow) highlights strong consumer spending figures and cites a Morgan Stanley report which contends

that private consumption would supercede exports and infrastructure investment as the main catalyst for economic growth in China next year. The record-breaking amount spent on Singles’ Day last month alone is yet another testament to Chinese consumers’ willingness to spend.

Meanwhile, Investors pile record sums into global stock markets (Daily Telegraph, Tom Rees) shows that recent positive news on vaccines has triggered major inflows of money into global stock markets as hopes increase over a resulting economic recovery. As a consequence, global markets are expected to post their strongest monthly performance ever today.

Talking about markets, Tesla’s S&P debut is set to put $100 billion in trades in motion (Wall Street Journal, Michael Wursthorn and Gunjan  Banerji) shows that Tesla’s imminent entry to the S&P500 is causing a bit of a kerfuffle due to its size (market cap of about $555bn) and its share price volatility. It is causing so much concern (because of its potential outsize effect on the index as a whole) that the index is thinking of adding Tesla to the index over two days rather than one. * SO WHAT? * This is the biggest company ever to enter the index and will be, on entry, the sixth largest company in the S&P500 – bigger than Berkshire Hathaway but smaller than Facebook – so no wonder it will have an effect. It would be like you having a bath and then an elephant deciding to join you 😁. Not only will funds have to buy Facebook shares to reflect the constituents of the index, they will also have to sell down smaller constituents to buy Tesla shares (who will make up about 1% of the index). This is quite something for a company that makes b*gger all cars 😂



M&A activity increases while Airbnb and DoorDash aim high…

Suddenly big deals are the only game in town (The Times, Ben Martin) highlights the fact that M&A activity is increasing considerably as City stockbroker Peel Hunt points out that there have been 15 bids for London-listed companies since the start of August worth almost £23bn (RSA agreed to sell itself to Canadian rivals for £7.2bn, Caesars Entertainment is buying William Hill for £2.9bn and Codemasters is being bought by Take-Two Interactive while G4S is currently trying to defend itself from a £3bn hostile bid, for example). This is mainly due to a number of changes that have evolved under lockdown. Firstly, bankers and companies have become more accustomed to doing deals virtually. Secondly, stock markets have now recovered considerably since their February/March lows meaning that management are more open to being approached. Thirdly, everyone knows more about the virus and its effects, which means that it is getting increasingly easier to plan. If you add positive vaccine news into the mix, you can see why companies are more willing to look through current circumstances and think about how they’d like to position themselves on the other side of the pandemic. * SO WHAT? * Many believe that the M&A frenzy will continue as private equity firms are getting increasingly active on the buying front (think Warburg Pincus and TowerBrook’s purchase of the AA and Lone Star’s purchase

of McCarthy & Stone) and because there is a growing valuation gap between UK-listed companies and their foreign counterparts (presumably this is mainly due to Brexit concerns).

In terms of current deals, though, S&P Global nears deal to buy IHS Markit for about $44billion (Wall Street Journal, Cara Lombardo and Liz Hoffman) shows that two of the largest data providers to Wall Street are lining up for what could be the biggest deal of the year. IHS Markit, based in London, is worth about $37bn while S&P is worth about $82bn. A deal announcement is imminent.

Meanwhile, Airbnb, DoorDash aim for higher-than-expected valuations ahead of debuts (Wall Street Journal, Maureen Farrell) highlights both companies’ desires to aim for a higher valuation in their forthcoming IPOs as Airbnb is targeting a $30-33bn range (versus market expectations of $30bn) and DoorDash is targeting $25-28bn (versus expectations of $25bn). Listings are expected in the middle of next month and roadshows (where the companies visit potential investors) are expected to start about now. * SO WHAT? * Both companies have actually done quite well under lockdown and are no doubt wanting to take advantage of that being fresh in investors’ minds. Out of the two, I would have thought that Airbnb stands to benefit more over the longer term as they will do better from both domestic and international traffic as lockdowns change while I still think that companies like DoorDash SHOULD do less well in an environment where people are time rich and cash poor (takeaways are an expensive luxury IMO – sorry to be a downer!). 



Weight Watchers aims to lose weight, Esports benefits and preparations are being made for vaccine rollout…

Dieting giant begins to slim down its workforce (Daily Telegraph, Louise Moon) shows that Weight Watchers, trading as WW International since 2018, is considering cutting up to 50% of its UK coaches as soon as next week as it tries to migrate its business more online due to the pandemic and increasing competition. * SO WHAT? * Up until now the model has been such that WW coaches guide people through programmes via live-chats and in-person sessions but big debts and more competition are forcing the company to evolve. It is doing the right thing IMO as it needs to capitalise on its name as much as possible as quickly as possible or become irrelevant. In an increasingly crowded market, it needs to move with the times.

In Esports takes off in lockdown but will the bubble burst (Daily Telegraph, Michael Cogley) we see that esports has seen a major boost in popularity under lockdown – viewing figures on game streaming site Twitch reached a peak this month of 2.5m concurrent watchers, which is more than twice the number for the same period last year – but there are debates on how to monetise it most effectively. * SO WHAT? * I would say that esports has definitely established itself this year and you could argue that the coronavirus has meant that it has brought in far more new players and interest than would have been the case under “normal” circumstances, but the question is whether the pendulum could swing the other way when more live sport

comes back online. IMO, it WILL swing the other way as people under lockdown yearn for a “live” experience that could be made all the more intense after being restricted for so long and it could make people appreciate it more. Still, there will be some who have discovered that they like both – and that’s still a good thing for esports.

Elsewhere, International rollout of Covid-19 vaccine on track for next month (Financial Times, Donato Paolo Mancini, Guy Chazan and Joe Miller) looks at vaccine rollout plans as the UK is expected to be the first country to approve the Pfizer/BioNTech vaccine with the first jabs being made on December 7th, with US approval from the FDA expected to follow shortly after. The European Medicines Agency, which licences medicines for use across the EU, will be discussing approval next month of the Pfizer/BioNTech vaccine as well as Moderna’s. Pharmacies add freezers, train staff to handle Covid-19 vaccination drive (Wall Street Journal, Jaewon Kang) shows that all sorts of venues are making preparations to administer vaccines as part of “Operation Warp Speed”. They include supermarkets such as Kroger and Albertsons as well as CVS Health. * SO WHAT? * This is all very exciting but I am sure that there will have to be an accompanying PR campaign to get the general public to believe in the efficacy of these vaccines given how unusually quickly they have been developed and approved. After all, it’s all very well to have the capability – but if you don’t have Joe Public coming in there’s not much you can do. As I have said before, although governments seem to be loath to force people to take the vaccine right now, I would imagine that there will be a reasonable uptake as I would expect people to have to prove that they’d been vaccinated in order to do certain things (e.g. get on a plane, go on a cruise, go to a rock concert – maybe even go to a bar). 



Huawei takes yet another blow, Arcadia faces collapse and Black Friday underwhelms…

In other big stories today, UK to ban installation of Huawei 5G equipment from September (Financial Times, Sebastian Payne and Nic Fildes) has taken many by surprise as this new ban will come into effect for new Huawei equipment from September 2021 rather than the existing arrangement where companies will be able to buy Huawei equipment until the end of this year and use it until 2027 by which time it should all be removed. Telcos companies say that this will increase costs and delay 5G rollout by a number of years. * SO WHAT? * This is a particular nightmare for companies who have already stockpiled Huawei equipment (it will be useless now) and who have had to deal with changing government guidance on how to do business with the likes of Huawei. Nokia and Ericsson will be loving this new move (they provide similar equipment) and will no doubt use this opportunity to hike up prices. I guess this will make all telcos much more inclined to boycott Huawei completely given the shifting sands of government opinion.

Elsewhere, High street crisis deepens as Arcadia faces collapse (The Times, Callum Jones, Ashley Armstrong) shows that 13,000 jobs hang in the balance at shops owned by Arcadia (Topshop, Dorothy Perkins etc.) while the future of Debenhams (12,000 staff) is also likely to be decided this week. Interestingly, Mike Ashley’s Frasers Group is looking at intervening in both but has major beef with both Arcadia’s Philip Green and Debenhams, which he tried and failed to takeover a while back. Fears for suppliers as Arcadia faces collapse (Daily Telegraph, Laura Onita, Michael Cogley and Tim Wallace) shows that it’s not just Arcadia that will suffer. Dramatic times…

Then in Black Friday was a bust for many stores, better for online (Wall Street Journal, Sarah Nassauer and Suzanne Kapner) we see that US shoppers continued to buy online and avoid the physical stores. Those who DID venture out tended to stop in fewer shops and go to places like Walmart and Target that sell a wide range of goods. * SO WHAT? * This is hardly surprising given infection rates – but I do wonder whether the same will happen over here when some restrictions are lifted. 


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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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