Thursday 04/04/19

1. In MACRO NEWS, it looks like the US and China are nearing a deal, May and Corbyn start talks and the UK services sector takes a beating
2. In TOBACCO NEWS, China Tobacco looks outside its domestic market while US cigarette sales fall on increased vaping
3. In CAR NEWS, Ford announces a slew of new models in China and Tesla has a shocker
4. In INDIVIDUAL COMPANY NEWS, Dunkerton has his work cut out at Superdry and Verizon kicks off 5G
5. In OTHER NEWS, I bring you some noodle etiquette. For more details, read on…

So a US/China accord seems closer, May and Corbyn get together on Brexit and the UK services sector suffers because of Brexit…

There’s some potentially good news for fans of world trade in Trump likely to announce plans for summit with China’s Xi on Thursday (Wall Street Journal, Vivian Salama and Bob Davis) as a US administration official said that an announcement of a summit date between the two presidents is “likely” to come today when Trump meets Vice Premier Liu He. * SO WHAT? * Obviously this might not come to pass, but it IS looking more likely. If a date is set I would expect markets to rise in anticipation – although they shouldn’t go too mad given Trump’s track record of being unpredictable.

Then in May and Corbyn kick off ‘constructive’ Brexit talks (Financial Times, Jim Pickard, Laura Hughes and Henry Mance) we see that the two leaders have come together in an attempt to get past the current deadlock. Basically, it looks like we are heading for a soft Brexit with a customs union with the EU looking increasingly likely. It seems that this is the price that May was willing to pay to get Labour

on board because, until now, she has repeatedly ruled this option out. MPs also voted late last night to stop a no-deal (this motion only won by a single vote) and will require the PM to ask for a long delay to Brexit when she goes to Brussels next week. * SO WHAT? * This is all very well, but Brussels has still got to approve of all this and it has repeatedly said that very stringent conditions would have to be fulfilled to get a long delay. The May/Corbyn talks looks like they might be a step towards some kind of agreement but it’s too early to tell yet.

Meanwhile, Growth halts as services sector hits reverse (The Times, Philip Aldrick) shows that service sector growth has ground to a halt in the first quarter of this year, according to the latest IHS Markit/CIPS PMI survey, as it actually contracted for the first time in two and a half years. * SO WHAT? * These surveys are obviously taken seriously (the Bank of England follows them!) but they have been known to be wrong at times of political uncertainty – for instance, after the 2016 referendum result, they forecast a GDP contraction that never happened and they were also overly pessimistic in the final quarter of last year. The thing is that the services sector accounts for 80% of UK GDP, so data like this doesn’t look good. The reason for this contraction was, unsurprisingly, mainly laid at the door of Brexit.

China Tobacco looks outside of its own backyard and US cigarette sales are falling while vaping is rising…

China Tobacco looks to take on global cigarette makers (Financial Times, Tom Hancock) highlights the desire of China National Tobacco to spread its wings and see what’s outside the domestic market it has monopolised (it has a 97% market share!) for so long. A slowing economy and increasing pressure by health officials for people to quit smoking is proving to be a drag on growth and so the company wants to look further afield to expand. Over 25% of China’s adult population are regular smokers currently, but this number is expected to fall. Most of China’s exported cigarettes are sold in developing Asian countries, but now there are ambitions to stray even further from its cosy home market in order to compete with the likes of Philip Morris International and British American Tobacco. * SO WHAT? * I would have thought that Western cigarette giants would probably be secretly quite pleased if China National Tobacco decided to expand internationally because it would give them a deep-pocketed potential buyer for brands that are on the wane as fewer people smoke. Yes, there would be more competition in theory

with such a “new kid on the block” but at least they might be a recepticle that they could offload some of their brands into if they want to slim down the business. On the other hand, a cash rich new player could make things trickier if they decide to wade into vaping.

That being said, you do wonder about the company’s timing given things like US cigarette sales drop as smokers shift to vaping (Financial Times, Andrew Edgecliffe-Johnson and Alistair Gray) because it would seem that the Chinese are looking to expand into a market that looks to be contracting (well, certainly in developed markets anyway!). The latest data from Nielsen said that sales volumes of cigarettes fell by 8.8% versus a year ago and although price rises clawed back some of the impact on revenues, the rate of decline seems to be increasing. Vaping product sales have shot up in the meantime. * SO WHAT? * Although companies such as British American Tobacco and Altria are putting a lot of money into e-cigarettes and heated products, the cash cow is still very much “traditional” cigarettes. The thing is that tobacco companies are potentially going to be squeezed a great deal over the coming years as less people smoke and restrictions on vaping come in. I’m not convinced that this is a great time for China National Tobacco to expand overseas unless they want to buy western brands that they can sell in their domestic market.

Ford announces new models for China and Tesla has a shocker…

Ford to launch 30 new models in China to stem plummeting sales (Financial Times, Tom Hancock and Wang Xueqiao) sounds like too little too late but the troubled American manufacturer announced that it will be launching 30 new models in China over the next three years in order to arrest the downward momentum in its performance there. * SO WHAT? * Ford’s total sales in China fell by 37% last year and sales at its main joint venture partner Changan were even worse as they fell by 54%! This poor performance stands in stark contrast to the performance of some of its foreign competitors in China who enjoyed a surge in sales despite a fall in the overall market for the first time in almost thirty years. Toyota has been a big winner and although GM and VW saw weaker sales, they weren’t nearly as bad as Ford’s.

I’ve always said that if you want to read a negative story on Tesla, you can always rely on the Wall Street Journal, so I imagine they were probably rubbing their hands in glee with Tesla’s first-quarter deliveries plummet (Wall Street Journal, Tim Higgins) as Tesla announced that vehicle deliveries fell by a chunky 31% versus the previous quarter as the company struggled to get its Model 3 to customers in Europe and China. Tesla said this was due to challenges associated with taking the Model 3 overseas for the first time. * SO WHAT? * Tesla fans will say that sales will bounce back once they get past these teething troubles, but the fact is the company has a terrible record of living up to ambitious promises and the competition is hotting up in the meantime. If you are in the market for an electric car, the choice is improving all the time and because most people only make vehicle purchases infrequently, Tesla is having to rely on very dedicated Tesla fans who are patient enough to wait rather than buy from another manufacturer. I still say I think that Tesla should merge with an established maker (e.g. VW). That way you would combine Tesla’s technical expertise with the established maker’s production capacity and distribution. I suspect that Elon Musk would rather cut off his own limbs than do that, though…

Superdry falls and Verizon makes progress with 5G…

After Tuesday’s dramatic events at Superdry where the co-founder ousted the entire board, Boardroom victory costs Superdry founder £15m (Daily Telegraph, Ashley Armstrong) goes to show that Julian Dunkerton has got his work cut out for him to turnaround the company as the company’s share price fell by 8% in the immediate aftermath. The whole board resigned – as they said they would – and four non-exec directors have handed in their notice with the company’s two brokers, Investec and UBS, also resigning. * SO WHAT? * Hey, well there’s nothing like starting with a clean sheet! OK, so the news is now being digested, but the clock will start ticking soon as shareholders (and others!) will be wanting to see a 

concrete plan of action. Will Dunkerton’s return have the same effect as Steve Job’s return to an ailing Apple, or will it be a flop??

Verizon, South Korea launch smartphone 5G (Wall Street Journal, Timothy W. Martin, Sarah Krouse and Na-Young Kim) heralds the arrival of the 5G era as Verizon launched 5G wireless services in parts of Chicago and Minneapolis yesterday with South Korean carriers SK Telecom and KT Corp switching on 5G in Seoul on the same day. * SO WHAT? * This is the beginning of something pretty special, IMHO, as 5G will enable things like eight-way video calls, holograms, high-def live streaming and other virtual/augmented reality capabilities due to it being up to 100 times faster than current networks. The future is here! South Korea, famed for its superfast internet, is projected to have the world’s highest 5G penetration for 2019 and 2020, according to research by Strategy Analytics. 

And finally, in other news…

I thought I’d leave you with something educational today in Big mistake lots of us make when eating noodles – and how we should be doing it (The Mirror, Zoe Forsey https://tinyurl.com/yxjt85nt). So now you know!