Thursday 12/09/19

  1. In MACRO NEWS, Trump urges the Fed to take interest rates to zero while tariffs on both sides of the US-China divide relent slightly and Scotland says no
  2. In RETAIL NEWS, Zara benefits from a polka-dot dress, Forever 21 files for bankruptcy and Sports Direct’s search for an auditor continues
  3. In INDIVIDUAL COMPANY NEWS, the London Stock Exchange gets a surprise bid from its Hong Kong counterpart, California passes Uber-unfriendly legislation and Trump considers banning non-nicotine flavoured e-cigarettes
  4. In OTHER NEWS, I bring you a beautiful town benefiting from Bond…



So Trump continues to pressure the Fed, tariffs take a breather and Scotland says no…

Trump demands Federal Reserve cuts US interest rates to zero (Daily Telegraph, Tom Rees) shows that Trump isn’t letting up on his pressuring of the Fed ahead of next week’s scheduled meeting. In typical Trump style, he tweeted that “The Federal Reserve should get our interest rates down to zero, or less, and we should then start to refinance our debt”. It is widely believed that the Fed will cut interest rates next Wednesday in only the second time in ten years as the US economy is starting to show that it’s not immune to the current global slowdown. * SO WHAT? * The Fed is independent and Trump can sling all the mud he likes. Having said that, if he continues to slag off Jerome Powell (who he nominated, remember) and the US economy goes down the toilet, Trump will then say “I told you so” and if Jerome Powell cuts interest rates, which usually gives the economy a boost, Trump will say “It’s all because of me”. Trump can carve a win out of this either way but poor old JP will be the one wearing the responsibility for any economic weakness (because obviously Trump will take all the credit for anything good!).

Then in the ongoing trade war between the US and China, US to delay tariffs on China by two weeks (Wall Street Journal, Catherine Lucey and William Mauldin) shows a slightly more conciliatory stance ahead of planned trade talks next month from the American side and China eases tariffs on selected US imports before trade talks (The Times, Gurpreet Narwan) shows the same from the Chinese side. * SO WHAT? * This is all lovely, but I wouldn’t focus on this too much because it could all change very quickly if things go sour. The key will be what actually happens in the talks themselves, but the markets will probably breathe a sigh of relief in the meantime.

The Brexit noise continues in Scotland’s highest court rules prorogation of UK parliament is unlawful (Financial Times, Mure Dickie, Jane Croft and James Blitz) as Edinburgh’s Court of Session ruled that BoJo’s suspension of parliament was unlawful, but stopped short of ordering the recall of MPs. This ran against a previous decision by the High Court in London last week, which said that the suspension of parliament was “inherently political in nature and there are no legal standards against which to judge their legitimacy”, adding that “It is not a matter for the courts”. The UK Supreme Court will launch a hearing on this next week and the High Court in Belfast is currently looking at whether prorogation is breaching the Good Friday Agreement.



Zara benefits from its hit polka-dot dress, Forever 21 files for bankruptcy and Sports Direct races to get an auditor…

Zara’s hit £40 polka-dot dress propels firm’s worldwide sales growth (The Guardian, Sarah Butler) highlights a big factor in parent company Inditex’s worldwide sales growth success over the half year. The £39.99 dress was the viral fashion hit of the summer with its own Instagram Hot 4 the Spot as it appealed to all ages and all sizes – and even became a uniform for hen parties! Existing store sales were up by 5% in the six months to July with profits up by almost 9%. Inditex brands Pull & Bear, Massimo Dutti and Bershka all did well in addition to Zara with offline and online sales all growing. There have been recent store openings in Bahrain, Oman and Kuwait with more to following in South Africa, Colombia and the Philippines this autumn. * SO WHAT? * This looks like a very solid performance from a great apparel retailer and contrasts sharply with what’s going on with British counterparts like Topshop, New Look and M&S. Still, the share price fell by 4% in trading yesterday as investors were expecting higher profit margins. I think that is a bit of a harsh reaction considering that growth is expected to continue at the same rate and that its early autumn/winter collections have been “well received” – especially when you consider what is happening to the competition.

Sticking with apparel retailing for the moment, Forever 21 plans to file for bankruptcy as many retailers struggle (Wall Street Journal, Soma Biswas, Aisha Al-Muslim and Alexander Gladstone) highlights rumours that the American apparel retailer will be filing for bankruptcy this Sunday (which are denied by the company itself) due to the usual suspects of slow sales, online competition and changing customer habits. The company shut more stores between January and June – over 7,000 – than they did in

the entirety of 2018 and some are saying that another 700 could face the axe. Forever 21, which focuses on cheap and fast fashion, has suffered due to expanding too quickly with big stores just as its younger customers were ramping up their online spending. * SO WHAT? * Forever 21 is just one of a number of US stores struggling at the moment and a report by BDO said that in the first half of this year, 14 retailers with 20 stores or more filed for bankruptcy, including Payless, Gymboree and Charlotte Russe Holdings – with Charming Charlie, Barneys New York, A’Gaci and Avenue stores joining them more recently. I think this is a particular shocker given that wages have been rising for a while now, the job market is buoyant and the economy is still doing pretty well (although it’s showing signs of wobbles at the moment). Anyway, it just goes to show that retailers everywhere are under pressure as online shopping continues to grow in popularity.

Meanwhile, Sports Direct in race against time to find new auditor (Financial Times, Jonathan Eley) shows that the controversial “athleisure” retailer is up against it to get a bean-counter to sort its books. None of the biggies want to touch it with a barge pole after its accountancy firm Grant Thornton quit (its assets are increasingly sprawling, chief exec Mike Ashley can be a bit of a loose cannon and the company’s corporate governance has come under scrutiny) and if Sports Direct doesn’t manage to find one itself, the government will be called in to appoint one. Mike Ashley also came under fire at yesterday’s AGM as almost a third of independent shareholders voted against his reappointment as chief. Mind you, considering that he still controls about 63% of the shares, he can just flip them the bird. * SO WHAT? * Things are tricky for Ashley at the moment and he blames all the usual things like business rates, high rents and changing consumer behaviour for Sports Direct’s overall weakness – but when you see things like rival JD Sports’ strong performance, you do wonder whether it’s a Mike Ashley problem or sector-wide one. I’m thinking that it is becoming more of the former than the latter at the moment… 



LSE gets a surprise bid, California legislation causes an Uber headache and Trump considers banning flavoured e-cigarettes…

In LSE set to spurn shock £30bn takeover bid from Hong Kong (Daily Telegraph, Harriet Russell) we see that the Hong Kong Exchanges and Clearing’s (HKEX) unsolicited bid for the London Stock Exchange is likely to be swatted away, although LSE’s share price got a boost in trading yesterday (presumably because investors think that this could smoke out other potential bidders). * SO WHAT? * Given that the shares closed up by only 5.9% versus the 23% premium being offered by HKEX, it would suggest that the market doesn’t think it’ll go ahead. If it does, however, it could throw the LSE’s recent plans to buy Refinitiv for £22bn into doubt. Mind you, Brits and Americans will no doubt be pretty twitchy about a Chinese takeover (especially in the current climate) so I would not expect this to get past the regulators.

Uber vows to fight California legislation on gig economy (Wall Street Journal, Alejandro Lazo and Sebastian Herrera) highlights the passing of some landmark legislation that will force companies to reclassify some of its contract workers as employees – which will kick companies like Uber and Lyft where it hurts as both companies rely on flexible labour and low worker costs. * SO WHAT? * Given California’s size and history of producing precedents for business legislation, this is a big deal and could pull the rug from under the gig economy by reclassifying its workers. It’s unsurprising that companies like Uber will fight tooth and nail to overturn this legislation as it could have huge implications for them.

The pressure on e-cigarettes continues to increase as Trump plans to ban most vaping flavours (Wall Street Journal, Jennifer Maloney and Alex Leary) shows that Donny T is thinking about pulling most vaping products from the market due to growing concerns about the effect on health and rising use by teenagers. Serious stuff when you consider that flavours such as mint, mango and other fruity flavours account for 80% of Juul’s sales. * SO WHAT? * Vapers are already facing scrutiny and criticism and this latest slap from the president himself could pose serious problems for an area that the tobacco industry is pouring a lot of money into. 



And finally, in other news…

I thought I’d leave you today with a potential holiday destination idea in New Bond film gives ancient Italian town £10m boost (Sky News, Andy Hayes It does indeed look pretty stunning! You might have to hold off on using the airport rental for car chases, though…

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Some of today’s market, commodity & currency moves (as at 0834hrs 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 **
7,338 (+0.96%)27,137 (+0.85%)3,001 (+0.72%)8,17012,359 (+0.74%)5,618 (+0.44%)21,760 (+0.75%)3,031 (+0.75%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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