Thursday 04/10/18

1. In MACROECONOMIC AND COMMODITIES NEWS, Macron gets another resignation, Turkey’s inflation rises to almost 25%, UK services sector growth slows and copper trading looks set to rise
2. In FINANCE NEWS, Greek banks have a right wobble, N26 arrives in the UK and Funding Circle underwhelms
3. In CARS NEWS, Honda joins the driverless party but Aston Martin’s market debut disappoints
4. In RETAILER NEWS, Tesco announces overseas woes
5. In OTHER NEWS, I bring you the latest in junk food. Oh yes. For more details, read on…

So Macron’s troubles continue, Turkey’s inflation reaches nightmare proportions, UK services sector growth slows and copper demand looks set to surge…

Emmanuel Macron suffers blow as third minister resigns (Financial Times, Harriet Agnew) shows that the wheels are falling off a bit for France’s Emmanuel Macron at the moment as his interior minister and once-loyal supporter, Gerard Collomb, has become the third senior minister to quit in three months. Macron doesn’t have a replacement right now so his PM Edouard Philippe will be taking charge of the interior ministry for the time being. * SO WHAT? * Collomb’s resignation follows that of Nicolas Hulot, the environment minister and sports minister Laura Flessel. The basic problem is that Macron is increasingly being perceived as a bit of a dictator, which is p!ssing off the coalition partners he worked so hard to unite. In a lunch with journalists at the end of last month, Collomb said that “if everyone bows down to him, he will eventually isolate himself”. The resignations come at a delicate time for the President as he is continuing to push through difficult economic and labour reforms. IMHO, France is long-overdue these reforms and given the unusually strong support for the President when he came to power I have to say that if Macron can’t do it then no-one can. Mind you, as I have said before Macron’s not been in power for long and he has covered quite a lot of ground in that time.

Turkey’s inflation rate surges to almost 25% (Financial Times, Laura Pitel) highlights continued tricky times for Turkey as its inflation rate hit 24.5%. It has continued to rise following the August currency crisis sparked by Erdogan’s spat with Trump over an American pastor/spy (depending on who you believe). Although the currency has strengthened against the dollar since its August lows, it is still 37% down since the start of the year and has been the main cause of price increases for fuel and other imports.

* SO WHAT? * It would seem that the market reaction is not quite as bad as you’d expect right now, but it would seem that everyone is waiting for the outcome of the hearing of Andrew Brunson (the pastor/spy) which due on October 12th. If he is not released, then the lira is likely to be sold off big time and inflation will get even worse. This could lead to the central bank raising interest rates yet again (they were only recently hiked to 24% in an effort to calm inflation).

UK services sector activity slows in September (Financial Times, Chris Giles) cites the latest IHS Markit’s Purchasing Managers’ Index which showed a slowing rate of growth in September. Chris Williamson, chief business economist at IHS Markit observed that “Brexit worries continue to dominate the outlook, however, keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown. Clarity on Brexit arrangements is therefore needed as soon as possible to help sustain growth”. * SO WHAT? * Given that the services sector accounts for something like 80% of UK GDP you can see why everyone’s watching it so closely. August’s GDP figures are due out next week

Copper trade to surge as China’s global lending fuels demand (Daily Telegraph, Jon Yeomans) highlights projections by the world’s biggest miner, BHP Billiton, that copper demand is going to shoot up over the next five years due to the country’s massive “belt and road initiative” which could generate spending of around $1.3tn on infrastructure projects by 2023. They believe this will require an additional 1.6m tons of copper demand, which equates to adding another 7% to existing global demand. * SO WHAT? * The “belt and road” initiative was announced by President Xi Jinping in 2013 to increase China’s influence by lending money to developing nations to help them build power lines, railways, roads and pipelines. While a great deal of this extra copper demand will be used in power projects, it may lead to more demand from construction and consumer devices as countries develop. BHP’s data says that belt-and-road countries use only 1.35kg of copper per capita versus the global average of 4kg, so there is clearly growth potential (according to their figures).

In finance news, Greek banks wobble, N26 comes to the UK and Funding Circle disappoints on its debut…

In Greek bank shares slide on bad debt worries (Financial Times, Martin Arnold and Kerin Hope) we see that some of Greece’s banks got mullered in trading yesterday as investors started to worry that they might not have enough capital to meet targets for reducing bad debts. Piraeus Bank, the country’s largest lender by assets (and seen to be Greece’s weakest bank due to its higher exposure to bad debt and low capital strength versus its peers) saw its shares fall by over 20%, Eurobank’s fell by 15%, National Bank of Greece’s fell by 5.5% and Alpha Bank’s were down by 3.3%. * SO WHAT? * I would say that these jitters occur from time to time, but the difference now is that Greece has restricted access to sovereign debt markets and so has less of a buffer if things go wrong. One senior banker called yesterday’s sell-off “an over-reaction by a weak and illiquid market dominated by short sellers” and said that banks were well-capitalised and on course to meet the current timetable agreed with the ECB for reducing bad debt.

Digital bank takes on high street’s big players (The Times, Harry Wilson) heralds the arrival of a new kid on the block in digital banking as Germany’s N26 starts a

phased roll-out in the UK, joining other digital-only banks such as Revolut and Monzo in taking on our traditional lenders. Interestingly, over 50,000 Britons have joined a waiting list to open an account with the bank that has some very high-profile backers. N26 only started up in 2015 but grew to 500,000 customers within nine months! It now has over 1.5m customers in 17 European countries. Over time, the aim for N26 is to replace traditional banks by providing overdrafts and savings products – although this is limited to German customers at the present time. * SO WHAT? * Although incumbent banks are still way bigger than these digital tiddlers in terms of customer base, such start-ups are rising quickly as they benefit from cutting edge tech and not being mired with problematic legacy IT systems. They continue to attract customers with innovative services, such as allowing customers to spend money overseas in foreign currencies at exchange rates that are very close to market rates. The incumbents need to get their act together or they will face a slow death!

Poor trading on first day takes shine off Funding Circle (The Guardian, Rupert Neate) shows that shares in peer-to-peer lender Funding Circle fell by 24% from its flotation price yesterday in the company’s first official day of trading. Some said that this was because it had been overpriced and there is some scepticism surrounding its claims to be a force in business lending. Since it started up in 2010, Funding Circle has attracted £5bn in funds from over 80,000 investors and lent to around 50,000 small businesses.

In car news, Honda jumps on the driverless bandwagon and Aston Martin misfires on its market debut…

Honda to invest $2.75billion in GM’s self-driving car unit (Wall Street Journal, Adrienne Roberts and Sean McLain) signals an initial $750m investment in General Motors’ self-driving car unit that will rise by another $2bn over the next 12 years as part of an initiative to develop a mass-produced fully autonomous car. The Japanese manufacturer will work with GM Cruise to develop a driverless car from scratch that can be churned out in high volumes on a global basis and will take a 5.7% slice of Cruise. Japan’s SoftBank Group bought a 19.6% stake in Cruise in June costing $2.2bn. * SO WHAT? * Driverless car development is an expensive business, so it makes 

sense for companies to pool their resources. This deal with Cruise isn’t exclusive – Honda has been in talks with Alphabet’s Waymo since December 2016, although they have yet to announce anything concrete as a result. Everyone else is at it as well, what with Fiat Chrysler teaming up with a BMW-led consortium that aims to produce fully-automated vehicles by 2021 and Toyota announcing in August an investment of $500m in Uber to jointly develop autonomous vehicles. I’m still sceptical that it will happen as soon as they say it will, but there is some serious money flying about here – so it could just be enough to make it happen.

Aston’s share price skids on first day of trading (The Guardian, Angela Monaghan) is a common story doing the rounds this morning as Aston Martin had a tough first day on the markets as its shares fell from £19 to £17.75 initially to recover and finish the day at £18.10. the flotation will allow the company to invest in increasing its production volumes and new products.

In retailer news, Tesco announces problems overseas…

Tesco shares tumble over Thai troubles (The Times, Deirdre Hipwell) highlights the impact of the company’s overseas travails as they had a negative impact on Tesco’s expected operating profit, sending shares down by 8.6% yesterday. The domestic business doesn’t sound like it’s doing too badly as it had 11 consecutive quarters of growth and, as chief exec Dave Lewis put it, “When you

look at the group – sales are up, profits are up, cash generation is up, we are paying down debt and paying more to shareholders in dividends”. However, Tesco has faced problems in Thailand as the government issued welfare cards for groceries that can’t be used in internationally-owned supermarkets and then sales in Poland were hit by a government-led change in Sunday trading laws. * SO WHAT? * I guess you’ve got to take the rough with the smooth and it is good news that the domestic business is putting in a pretty solid performance. There’s no word about disposing these businesses, but “Drastic” Dave is not shy about wielding the knife, so we’ll just have to see what happens!

…And finally, in other news…

If you like noodles and crisps, then I think you are going to love this: First ever Pringles instant cup ramen noodles are coming to Japan (SoraNews24, Oona McGee https://tinyurl.com/ybln78ba). Genuis!!!

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