Thursday 01/10/20

  1. In CONSUMER/HIGH ST/RETAIL NEWS, savings are rising, jobs are looking tenuous, pubs, bars and restaurants get hit by the curfew, high street rents are down, Boohoo benefits despite scandal and Morrisons aims to add 1,000
  2. In TRANSPORT-RELATED NEWS, American Airlines and United are to cut 32,000 jobs while TfL has a rescue plan
  3. In TECH NEWS, Big Tech is going to get the Brussels treatment and Germany all but freezes out Huawei
  4. In MISCELLANEOUS NEWS, M&A activity goes through the roof, the FCA fails to stop payments to claimants and Nikola postpones an event
  5. AND FINALLY, I bring you some more Uncle Roger…



So a PE firm closes in on buying Asda, Aldi steps up, Côte gets saved, Pizza Hut cuts restaurants and Deliveroo wants to double its rider numbers…

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Britons save at record rate as lockdown curbs spending (Daily Telegraph, Russell Lynch) cites the latest data from from the Office for National Statistics which shows that average households saved 29.1% of their income during the national lockdown. An economic recovery depends hugely on consumers’ propensity to spend and if households decide to close their wallets in expectation of a further downturn then things could get very bleak indeed. Although there has been a rise in spending over the summer, the Bank of England believes that there is a danger that consumers will revert to saving/survival mode if unemployment starts to rise, as it is expected to, as we approach the end of furlough. When you see headlines like More than a third of UK employers planning to make staff redundant (The Guardian, Jasper Jolly) that highlights findings from a YouGov poll about employment plans going into the end of the year, these fears look well-founded. Pubs, bars and restaurants report curfew sales dive (The Guardian, Rob Davies) cites The Guardian’s own analysis which shows that the recently-imposed 10pm curfew has hit sales hard and UK retailers pay just 13% of latest rent bill (Financial Times, George Hammond and Alice

Hancock) reflects the continued precarious state of the high street as tenants try to save money to survive by not paying rent. Increasing restrictions of movement are unlikely to improve the current situation.

Boohoo reports sales surge despite Leicester supplier scandal (The Guardian, Sarah Butler) shows that the disgraced e-tailer managed to brush off a huge wave of negative publicity in the wake of revelations about factory working conditions to publish half-year sales up by 45% during the coronavirus pandemic. The group – which owns brands such as Oasis, Warehouse, Pretty Little Thing, Nasty Gal and Karen Millen – saw its pre-tax profits up by 51%, which was way ahead of analyst expectations. The UK business, which accounts for over 50% of sales, was boosted by shoppers returning fewer items and ordering 10% more per visit. Casual clothing did particularly well (a function of WFH) and the company is scaling back its stock of dresses in the run-up to Christmas in anticipation of a more muted (or non-existent) party season. * SO WHAT? * It’s interesting to see, after all the media hoo-ha, that at the end of the day consumers just want cheap stuff. They may feel slightly bad doing so but we are living in tough times and many cannot afford to be righteous. It may be different when there is more money sloshing around the economy but for now I think frugality takes precedence over morality.

Given that this section has been somewhat depressing, I thought I’d try to lighten the mood with Morrisons packs in 1,000 more workers (The Times, Louisa Clarence-Smith) which shows that it is the latest grocer to announce that they are employing more staff. It needs the extra staff to pick and pack orders for products sold on Amazon as part of its recently deepened partnership with the e-tailing giant. Morrisons has had a partnership with Amazon since 2016 but last month this stepped up a gear as Prime members now have access to its full range. Tesco announced last month it would create 16,000 permanent jobs while Aldi and Lidl have committed to creating another 1,200 and 1,000 roles respectively. * SO WHAT? * At least there is one corner of retailing that is able to take up some of the slack of the others as we head into more uncertainty under Covid. 



More cuts are coming for airlines and TfL eyes a rescue…

American Airlines, United to cut 32,000 jobs as Washington debates relief (Wall Street Journal, Alison Sider) shows that American Airlines and United Airlines are going to go ahead with 32,000 job cuts today after lawmakers were unable to agree on a coronavirus bailout package. Both carriers said that they would bring employees back if a deal is announced in the next few days. * SO WHAT? * The airline industry continues to suffer a massive pasting and with the continued absence of passengers I really think that the only way through this is to get outside help. It may come down to governments having to decide which airlines to save and which ones to abandon because I would have thought that subsidising them all will be too onerous.

Meanwhile, on land, Sadiq Khan sets out £5.7bn TfL rescue plan for London (Financial Times, Jim Pickard) shows that London’s Mayor is calling for a £5.7bn bailout of London’s transport system in an official submission to the Treasury in order to keep everything going for the next 18 months. The government recently announced such a package for the national railway system and senior Conservatives have hinted that TfL’s submission was likely to be approved, albeit with strings attached (he’ll have to increase fares and the congestion charge as well as giving two seats on the board to senior Conservatives). Khan says that income from ticket sales has fallen by around 90% during lockdown and will not recover to normal levels until social-distancing measures are lifted. * SO WHAT? * This is going to get highly political as Khan is from Labour and the government argues that TfL’s finances were in trouble even before the outbreak. This has been thought to be due to cost overruns and delays on the Elizabeth Line as well as Khan sticking to his promise of freezing fares for a number of years when he took office in 2016. This is going to be tricky and I suspect no-one is going to be fully satisfied here.



Big Tech could get the EU treatment and Germany moves to freeze out Huawei…

In Brussels drafts rules to force Big Tech to share data (Financial Times, Javier Espinoza) we see that the EU is preparing to make Big Tech companies share their massive amounts of data with smaller rivals according to an early version of the Digital Services Act legislation. The Act is expected to be completed by the end of this year and will be the EU’s first major overhaul of the internet for twenty years. The aim will be to break the power that Big Tech currently enjoys and even up the playing field a bit and there is a long list of do’s and don’ts that is likely to cause them major headaches. * SO WHAT? * This all sounds great, but I do wonder whether the EU has been too slow. Big Tech is not likely to take any of this lying down and may even be emboldened to rebel given Apple’s recent defeat of EU competition commissioner Margrethe Vestager. If the

EU falls flat on its face on this, it will be the world’s laughing stock. I hope it works because Big Tech has far too much power at the moment.

Then in Germany crackdown set to exclude Huawei from 5G rollout (Financial Times, Guy Chazan and Nic Fildes) we see that Germany is about to impose a load of tough new restrictions on telecoms equipment providers that will pretty much exclude Huawei from its 5G network, although it’s not an outright ban. The new IT security bill will introduce a two-stage approval process for telecoms equipment. The first stage will involve a technical check of the components themselves followed by a political assessment of the manufacturer’s “trustworthiness”. The bill has not been finalised yet and so it is possible that changes could be made. * SO WHAT? * The nightmare continues for Huawei as Germany looks like joining the UK in freezing Huawei out of what would have been an extremely lucrative 5G rollout. I actually think this “trustworthiness” test is quite clever because it puts the onus on the company rather than the government, giving Angela Merkel more wiggle room in any potential negotiations with the Chinese.



M&A activity gets frenzied, the FCA fails to stop insurer delays and Nikola postpones an event…

Dealmaking rebound drives busiest summer for M&A on record (Financial Times, Ortenca Aliaj, Kaye Wiggins, James Fontanella-Khan and Arash Massoudi) shows that M&A activity returned with a vengeance after the initial shock of lockdown in the second quarter. Data from Refinitiv shows that the combined value of deals worth over $5bn worldwide shot up in the three months to September to make the busiest third quarter for thirty years! Some say this was due to a backlog but activity has been boosted by stock market listings, demand for financing during the crisis and a rise in the number of Special Purpose Acquisition Companies (SPACs). Wall Street Banks have made a record $28bn in investment banking fees as a result! This is pretty incredible, but it’ll be interesting to see whether this momentum continues going into the end of the year.

Elsewhere, Businesses face insurance delays as UK court appeal edges closer (Financial Times, Oliver Ralph and Matthew Vincent) shows that the FCA failed in its attempt to get insurers to payout following the test case as insurers want to appeal. Not good news for the claimants as they need the money sooner rather than later.

Then in Nikola postpones showcase as it tries to win back confidence (Financial Times, Peter Campbell and Claire Bushey) we see that the beleaguered electric truck company has had to postpone an event (“Nikola World”) that shows off its vehicles and battery tech while it deals with recent scandals. This thing is just going down the tubes fast!



…in other news…

I know that I’ve mentioned this guy before, but I just had to mention him again because I just find his stuff hilarious. Nigel Ng is a comedian who created the character “Uncle Roger” and his videos have been going viral for the last few months. He does brilliant critiques over the wrong way and the right way to make fried rice. Yes, he’s a character, but I agree with pretty much everything he says in terms of rice making! I don’t share his reverence for woks, however…

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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£/$€/$$/¥£/€$/₿

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