Thursday 02/05/19

  1. In MACROECONOMIC NEWS, the US keeps rates on hold, UK factory orders fall and the housing market remains subdued
  2. In TECH NEWS, Apple nudges above $1tn again and Hulu closes in on Netflix
  3. In RETAIL NEWS, Sainsbury’s dusts itself down after the Asda debacle and Next benefits from warmer weather
  4. In INDIVIDUAL COMPANY NEWS, Boeing supplier Spirit suffers collateral damage, GSK focuses on quality and Metro Bank has a shocker
  5. In OTHER NEWS, I bring you a Sonic trailer. For more details, read on…



So the US keeps interest rates unchanged while UK factory orders and the UK housing market suffer…

Fed keeps rates steady, signals concern over sluggish spending, low inflation (Wall Street Journal, Nick Timiraos) shows that the Fed stayed firm, didn’t bend to President Trump’s appeal on Tuesday to cut rates by 1% and left the federal funds rate unchanged at 2.25-2.5%. * SO WHAT? * Some observers voiced concerns that disappointing recent inflation figures might be early signs of a weakening economy but Fed Chairman Jerome (aka “Jay” to his besties) Powell batted away these concerns saying that they were just a short term blip. Trump obviously wants the Fed to cut rates because doing so will power markets upwards, which will make him look good when he seeks re-election as President.

Meanwhile, back home, UK factory exports tumble as Brexit chaos takes toll (The Guardian, Richard Partington)

cites the latest figures from IHS Markit and the Chartered Institute of Procurement and Supply (Cips) which show that UK manufacturers’ exports fell at their second-fastest rate since October 2014 and in Factories dumped from global supply chains (The Times, Philip Aldrick) IHS Markit’s Rob Dobson observed that some companies have started to “re-route their supply chains away from the UK in advance of Brexit”. * SO WHAT? * I doubt anyone will be surprised by this. Clarity on Brexit is obviously needed to arrest this decline otherwise businesses could be damaged permanently as supply chains just cut us out completely.

In another bit of news that isn’t very surprising, Housing market growth subdued since EU referendum (Daily Telegraph, Sophie Smith) cites the latest figures from Nationwide which show that Britain’s housing market displayed slowing growth for the fifth month in a row due to Brexit uncertainty although first-time buyer eagerness is continuing with 360,000 first-time buyers in April – the highest number for 12 years. This frenzy at the lower end has been fed by a tight jobs market, wage growth, low mortgage rates and long mortgage terms.



Apple gets a boost while Hulu tries to bridge the gap with Netflix…

Apple rallies above $1tn on improved revenue forecast (Financial Times, Richard Waters) shows that investors are buying into the story that Apple is forecasting a quicker rebound than expected after six months of declining revenues caused by sluggish handset sales in China. Apple CFO Luca Maestri observed that “We saw during the course of the quarter an improvement in our iPhone performance, particularly in the past few weeks” and added that this recovery was particularly noticeable in China following price cuts and the introduction of new installment programmes for buyers. Chief exec Tim Cook also said that Apple could benefit from people having more money in their pockets due to efforts by the Chinese government to stimulate spending, which include a cut in VAT, as well as a calming in trade tensions between the US and China. * SO WHAT? * This sounds good, but I just get the feeling that China will continue to disappoint given that there are so

many local mobile phone players with offerings that are far cheaper in comparison and the company is always going to be a political football over there. I hope that I’m wrong and that the decline really is slowing down in this key market, but there’s a long way to go before services can make up for the declining revenues from handset sales.

Hulu closes gap with Netflix in the US (Financial Times, Anna Nicolaou) heralds some good news for Hulu as it announced that it had added almost 4m paying subscribers so far this year as the Disney-owned streamer plays catch-up with Netflix in America. It now has 26.8m paying subscribers (it’s only available in the US) versus Netflix’s 149m subscribers globally, so I don’t think this is too shabby at all. Interestingly, Hulu’s growth continues apace whereas Netflix’s growth is slowing down – Netflix added 1.7m subscribers in the first quarter of this year versus Hulu adding 3.8m in the same period. * SO WHAT? * This all sounds good, but Hulu is still loss-making. Disney has a 60% stake and Comcast has a 30% stake and Disney execs have said in the past that they may take full control one day. It expects Hulu to become profitable sometime around 2023 or 2024. Still, Hulu is going in the right direction for now!



Sainsbury’s licks its wounds while Next benefits from the warm weather…

Sainsbury’s boss digs in after aborted Asda tie-up (Daily Telegraph, Oliver Gill and Michael O’Dwyer) takes a look at the supermarket in the aftermath of its failed bid for Asda. Everyone’s obviously gossiping about whether Sainsbury’s chief exec Mike Coupe will have to leave following his failure to get the deal over the line, but he said yesterday that he continued to have full support of the board as he unveiled annual pre-tax profits that fell by over 40%, largely due to one-off costs. Interestingly, the share price rose by 4% on the results announcement as investors were actually expecting worse! The company said that it would release £100m to tart up its 400 supermarkets and invest an additional £550m over the next year that should hopefully sort out its integration of Argos once and for all and the

transfer of its bank to Lloyds. A strategy update on what Sainsbury’s will do next is now due in September. * SO WHAT? * I would be willing to bet that this strategy update will involve closures of loss-making stores and job cuts in order to appease investors who maybe want Coupe to do what “Drastic Dave” Lewis did at Tesco. Let’s hope he doesn’t decide to open a new discount format – I think that would be disastrous as it would just be doing it for the sake of it and cannibalise its main brand.

In Warm weather gives Next glow of growth (Daily Telegraph, Michael O’Dwyer) we see that Next’s sales benefited from unusually warm weather in the first quarter but the retailer has refused to get too excited and kept its full-year guidance of a 1.7% increase in sales unchanged. * SO WHAT? * This is good, but is probably flattered by the fact that the same period last year had some unseasonably COLD weather that kept shoppers away. Online sales continued to strengthen, with an 11.8% rise. It’s good to see that it’s not all doom and gloom for fashion retailers!



Boeing’s woes are affecting suppliers, GSK goes for quality and Metro Bank has a shocker…

In a quick scoot around some of the other stories today, Boeing woes hit supplier Spirit as it suspends guidance (Financial Times, Slyvia Pfeifer) shows that the Boeing nightmare is spreading as Spirit AeroSystems, which is Boeing’s biggest parts supplier and produces 70% of the 737’s aerostructure, announced that it is suspending its full-year guidance and frozen share buybacks. Glaxo boss chooses quality over quantity (The Times, Alex Ralph)

highlights the ongoing restructuring at Glaxosmithkline as it unveiled a strong first quarter trading update that came in above market expectations and then Metro Bank reveals ‘horrible’ results after loan fiasco (Daily Telegraph, Lucy Burton) highlights a shocker for the British challenger bank which announced that its profits halved in the first quarter due to a loans fiasco which caused an exodus of big customers. The bank’s share price has fallen by 54% since the blunder came to light in January this year. You’ve got to admire the front of the chairman Vernon Hill who said that “Bumps in the road do happen, we have to learn from them”. Funnily enough, he could be facing a shareholder revolt at the AGM next month.



And finally, in other news…

I thought I’d leave you today with Good God the live-action Sonic the Hedgehog movie trailer looks weird (SoraNews24, Casey Baseel The title says it all!

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 **
7,385 (-0.44%)26,430 (-0.61%)2,924 (-0.75%)8,05012,344 (+0.13%)5,586 (+0.10%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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