Thursday 05/11/20

  1. In US ELECTION & MACRO NEWS, it’s all looking a bit tricky in the US as the UK heads for a double-dip recession
  2. In NEWS ABOUT THE UK HIGH STREET, shoppers make a last minute dash – but jobs are cut, Mike Ashley pulls out of Debenhams talks and Clarks finds a rescuer
  3. In INDIVIDUAL COMPANY NEWS, Uber and Lyft get a major boost, BMW benefits from China, Qualcomm benefits from 5G smartphone sales and we look at Ant repercussions
  4. AND FINALLY, I bring you some controversial shoes…



So we look at the repercussions of a tight election and the prospects of a double-dip UK recession…

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Phew 😅! With all that lot out of the way, Biden edges to victory as Trump threatens legal war (Daily Telegraph, Ben Riley-Smith) shows that the race to the White House is proving to be very close – so close, in fact, that President Trump is threatening legal action to discount postal votes in some key swing states. He even took the unprecedented step to declare victory while the vote was still being counted! Biden’s lead in the polls proved to be ephemeral and hopes that he would sweep to victory on Trump’s mishandling of the coronavirus pandemic turned out to be unfounded. Investors face bumpy ride as legal challenge threatens to delay results (Daily Telegraph, Sam Benstead) shows that Trump’s relative outperformance versus expectations means that a result will be less clear-cut and although the S&P500 was up yesterday, it’s likely that markets will go sideways until there is more clarity. US assets/election: blue wave goodbye (Financial Times, Lex) attests that the lack of a majority for the presidency and

Congress means that it is more likely that the next four years will be difficult as it will be hard to push through legislation. The resulting uncertainty could be damaging on a longer term basis as any efforts to make big changes are more likely to be scuppered by the opposition party pushing its own agenda. Agreement on any stimulus packages are likely to be particularly problematic, which is something that is picked up on in Election results dash business hopes for large-scale stimulus (Financial Times, James Politi, Andrew Edgecliffe-Johnson and Laura Noonan) where business leaders had expected a major stimulus in the event of a Biden win and are now wondering what’s next. Biden had talked about an immediate multi-billion dollar stimulus combined with a hike in taxes for big companies and the wealthy, but such ambitions could be hampered by his opposition.

So what movements have we seen in the stock markets as a result then? Well, Investors pile into tech stocks and Treasuries as ‘blue wave’ trade unravels (Financial Times, Eric Platt, Colby Smith, Katie Martin and Robin Wigglesworth) reflects relief that Big Tech looks less likely to become the whipping boy of the new regime and nervousness about the future is powering government bonds as they are seen as a safe haven. Also Oil and gas groups buoyed by fading fears of US ‘blue wave’ (Financial Times, Derek Brower) shows that old-school oil and gas stocks saw their share prices rise and those of renewable energy producers fell as hopes of a “green surge” under Biden faded away. * SO WHAT? * This is all rather tedious, but there’s not really that much of value to say until we get a final decision on the election result. For me, the main takeaway is that whoever wins won’t have done it by a clear margin. This will make it far more difficult to push through legislation at a very sensitive time for the economy, which is a shame for America but also for the rest of the world as America is a major driver of the world economy. I would suggest that this puts China in a great position in comparison and could even result in a thawing of the entrenched positions they currently have on trade. It may well be that the US has to “play nice” with China – or certainly engender less aggressive relations with it – because it could be one of the only major sources of growth for American companies in a world economy that is currently hanging by a thread.

Meanwhile, UK heading for double-dip recession as summer recovery stalls (The Guardian, Phillip Inman) cites the latest data from the IHS Markit/CIPS monthly survey on the services sector (the services sector contributes around 80% of the UK’s GDP) which shows that the British economy is heading towards a double-dip recession this winter (“double-dip” describes two consecutive downturns in quick succession). * SO WHAT? * I don’t think this is going to come as any surprise, so it will be interesting to see whether today’s meeting of the Bank of England’s monetary policy committee will result in a big stimulus.



Shoppers stock up and jobs cuts are announced…

In a quick scoot around news about the state of the UK high street, Shoppers make last-minute dash ahead of England’s lockdown (Financial Times, Patricia Nilsson and Alice Hancock) highlighted a final pre-lockdown hurrah as consumers flooded shops, restaurants and pubs as footfall shot up by a whopping 19% on Tuesday versus the same day last week, according to data from Springboard.

In a bad day for the high street, M&S swings to first loss in its history (Daily Telegraph, Laura Onita and Simon Foy) shows that the high street stalwart announced its first pre-tax loss in 94 years as a listed company and John Lewis cuts 1,500 jobs at its head office (The Times, Ashley Armstrong) highlights cuts to about a third of HQ jobs at the John Lewis Partnership. Ashley ruled out of Debenhams deal (The Times, Ashley Armstrong) shows that Debenhams future has just become that much more uncertain as Frasers Group’s Mike Ashley decided not to

match the £300m price tag the group’s advisors were asking for and pulled out of the bidding. Debenhams faces a stark future whichever way it looks as now the options are liquidation or selling it to a group of hedge funds – neither of which is going to end well.

Elsewhere on the high street, Lloyds to axe another 1,070 jobs as it cuts costs further (Daily Telegraph, Lucy Burton) shows that Britain’s biggest high street lender is cutting even more jobs as part of restructuring plans but, on a more positive note, Clark’s founding family loses control after £100m rescue (Daily Telegraph, Laura Onita) shows that Clarks has a rescuer, but at a cost. Hong Kong-based private equity giant LionRock Capital is supporting Clarks’ Company Voluntary Arrangement which will allow all 320 stores to stay open. 60 sites will pay no rent and the remainder will pay depending on turnover. If all goes ahead as planned with the CVA, LionRock will get a majority stake in Clarks, overtaking the Clarks’ family interest in the business. Sadly, though, this won’t be enough to help 4,000 jobs that will be at risk as part of a general restructuring, though. * SO WHAT? * I don’t know what it is about shoe shops, but they just seem to have been suffering for years. It seems like Clarks’ is getting a reprieve, though, but the future continues to look far from rosy.



Uber and Lyft get a boost, BMW does well in China, Qualcomm benefits from 5G and Ant faces repercussions…

California voters exempt Uber, Lyft, DoorDash from reclassifying drivers (Wall Street Journal, Preetika Rana) highlights a major win for gig-players as they will not have to classify their drivers as employees (which costs more because they will have to pay things like holidays and sick pay etc.), remaining at their current status as contractors (who don’t receive such benefits). * SO WHAT? * Given the current economic status, the companies involved will be relieved that they won’t have to pay out extra at a time when things are particularly tough. I would say, though, that it is unlikely this employee/contractor thing will end here. I’d say that it is a pause in hostilities!

In BMW’s profits jump as China recovery leads to record sales (Financial Times, Joe Miller) we see that BMW’s Q3 profits grew by almost 10% as demand increased, especially in Asia, to give the company its best ever sales figures! Sales in China were particularly strong – they increased by over 31% in Q3, which is great considering that China is BMW’s biggest and most profitable market. On the other hand, it warned that its automotive business

would not be profitable for the year as a whole due to significantly reduced demand. Europe is looking particularly sketchy at the moment. * SO WHAT? * It’s particularly interesting to see the success in China. This was echoed by rival Daimler’s results recently which showed that its net profits increased by almost 20% due to strong sales of Mercedes-Benz cars in China. More evidence of China’s current economic revival!

Qualcomm sees 5G smartphone sales taking off (Wall Street Journal, Asa Fitch) highlights the chipmaker’s forecasts that reflect a surge in smartphone sales next year as customers upgrade to 5G phones – at least double the expected level for this year. * SO WHAT? * I would have thought that a combination of Apple’s latest release of a suite of 5G phones and more lockdown will contribute to consumers deciding to upgrade their phones to the new standard (even though there is patchy coverage). It pays to be prepared, right??

I also thought it was worth adding some extra comment on yesterday’s news about the postponement of Ant Group’s IPO as per Beijing says it halted $37bn Ant IPO to protect market stability (Financial Times), which shows Chinese regulators’ tightening grip on the whole micro-lending sector and Ant’s eating of humble pie in Ant to hand back $167m after flotation blow (Daily Telegraph, Matthew Field and James Cook) as the company has been forced to repay over 1.5m investors who put money into the listing that then got postponed. Chastening times for the payments behemoth!



…in other news…

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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)