Thursday 13/02/20

1. In MACRO & CORONAVIRUS NEWS, the Eurozone’s economic outlook takes a blow, Macron’s popularity continues to dive and Italy’s Salvini goes to trial while the coronavirus rages on
2. In RETAIL NEWS, the landlords’ rescue of Forever 21 poses questions and in the UK retailers push for rates reform while Dunelm puts in a good performance and Greggs does a deal with Asda
3. In INDIVIDUAL COMPANY NEWS, Cisco’s sales fall, SoftBank’s ambitions soften and BP makes climate promises
4. In OTHER NEWS, I bring you a maths problem that’s harder that my Big Weekly Quiz 😁..

So the Eurozone’s outlook takes a hit, Macron’s popularity slides, Salvini loses immunity and the coronavirus rolls on…

Eurozone economic outlook dented by industrial output drop (Financial Times, Martin Arnold and Laura Noonan) cites the latest data from Eurostat which showed a steeper-than-expected fall in industrial production going into the end of last year. Output from Germany, France and Italy was particularly weak and economists continue to revise down their estimates for Eurozone GDP growth. * SO WHAT? * Recent surveys showing improving sentiment suggested that Eurozone manufacturing had turned a corner but now the disruption from the coronavirus is pulling the rug from underneath it. The SARS experience of 2002/3 suggests that growth takes a hefty dent in the short term but then bounces back very strongly.

Problems for Macron as defecting MPs believe the party is over (Financial Times, Victor Mallet) highlights increasing French dissatisfaction with President Macron as MPs continue to quit La République en Marche (LREM) ahead of local elections next month. Macron’s party now has 300 members of the National Assembly, down from 314 at the beginning of his presidency and heading towards the 289 level where he will still have an absolute majority. Macron now has around a 30% approval rating and voters are expected to vote for Marine Le Pen’s extreme right Rassemblement National and the greens on the left. * SO WHAT? * It seems to me that Macron is suffering a severe case of mid-term blues after an incredible honeymoon at the beginning of his term. Since then he has brought in some painful reforms and his popularity was always bound to take a hit. I don’t think there’s any need for him to panic just yet as he still has a comfortable majority, but it is something he should be keeping an eye on.

Then in Salvini loses immunity and faces trial for blocking migrant boat (Financial Times, Miles Johnson) we see that the controversial leader of the right wing League party, Matteo Salvini, has now lost his legal immunity and will face prosecution for blocking a ship full of migrants from entering Italy last year. Prosecutors argue that his actions whilst he was interior minister amounted to abuse of power. * SO WHAT? * Salvini is relishing the chance of using the trial as a political platform to stir things up regarding illegal immigration (he has actually been pushing

for a trial himself). Italy’s legal system is highly convoluted and a trial plus appeals could stretch over many years. Speaking of years, if he loses, Salvini could spend 15 years behind bars and be barred from public office. Polls indicate that his anti-immigration League party is Italy’s most popular political party – but his continued attempts to become prime minister himself have so far fallen flat. If he times it right, he may yet get his wish as being on trial will no doubt guarantee him a platform from which to express his views.

In news on the coronavirus, China accused of under-reporting coronavirus outbreak (Financial Times, Yuan Yang and Nian Liu) highlights criticisms from health workers on the front line, academics and patients while China ousts top official in coronavirus outbreak’s epicenter (Wall Street Journal, Stu Woo) shows some early finger-pointing, ‘It’s like a war’: panic buying as virus convulses city (The Guardian, Verna Yu) gives you an idea of what’s going on in Hong Kong at the moment while Coronavirus sends ripples through a global economy (Financial Times, Valentina Romei) shines a light on how the virus is adversely affecting important supply chains, which will also dent global GDP growth. As I said earlier, SARS hit growth initially, but when things calmed down activity increased sharply. Clearly, we have not got to that stage yet. Markets revive as virus spread slows (The Times, Gurpreet Narwan and Philip Aldrick) shows a rally in world markets as investors tried to second-guess everyone and Coronavirus-drug development becomes a top focus at Gilead (Wall Street Journal, Joseph Walker) gives us an insight into how one company is racing to come up with the world’s first drug to treat the disease, with early signs of its treatment looking positive. The drug in question is remdesivir and the company has been trying to ramp up production in case the early test results continue to be borne out. Fun fact: remdesivir was originally developed several years ago to treat Ebola. In the meantime, US travel industry set for multibillion-dollar hit from coronavirus (Wall Street Journal, Keiko Morris and Austen Hufford) shows how airlines, hotels and retailers are bracing themselves for a hit and things have now got so bad that Mobile World Congress axed after firms quit over coronavirus fears (The Guardian, Mark Sweeney), which is a shocker considering that this is a major annual industry conference. However, exhibitors and speakers continued to cancel due to health concerns so it was probably unsurprising in the end. It was supposed to be held on 24th February and would have had over 100,000 delegates from around 200 countries over the four days of the conference.

Forever 21’s rescue by landlords poses questions while UK retailers push for rates reform, Dunelm furnishes the market with good news and Greggs goes to Asda…

Landlords’ rescue of Forever 21 sounds warning bell (Financial Times, Alistair Gray) suggests that things aren’t right when gnarly old retailers won’t touch the fashion retailer with a barge pole while its landlords have just embraced Forever 21 with open arms (and maybe gritted teeth). Simon Property Group and Brookfield Property Partners have teamed up with BlackRock-controlled Authentic Brands to buy it out of bankruptcy for $80m. If this hadn’t happened, the business would have to have been liquidated. * SO WHAT? * Things really are getting bad for retailers and their landlords stateside – by the end of last year, mall vacancies hit their highest level in at least 20 years, according to Reis Moody’s Analytics. In this case, the two landlords were owed $13.4 m in unpaid rent, but the disappearance of Forever 21 would have left a big hole in a lot of malls and adversely affected other tenants (although it would be bad for landlords as well as tenants would demand lower rents or leave altogether). Do the landlords have hitherto undisclosed retail chops to turn things around at Forever 21? I think it would be fair to say that levels of scepticism are high…

Retailers call for reform of rates to save high street (The Times, Louisa Clarence-Smith) shows that 52 high street chains have written collectively, with the help of the British Retail Consortium, to Chancellor of the Exchequer Sajid Javid to appeal for urgent business rates reform before the Budget is published next month. Specifically, they want a reform of transitional relief, which stops business rates from falling in line with rents. * SO WHAT? * This push has been going on for a while now as the high street continues to disintegrate and I would have thought that the timing is right for this latest move to be successful. We’ll just have to see how it goes…

On a more positive note, Dunelm profit surge allows it to think smaller (Daily Telegraph, Laura Onita and Simon Foy) shows that the furniture chain surprised the market yesterday by announcing a big boost in profits for the second half of 2019 – and its share price rose by 8.7% as the company also announced an increase in the dividend. It added that it aims to open more smaller stores on the high street – something that it has experimented with and has found to be popular.

Then for all you pastry fans out there, Greggs targets supermarket shoppers in tie-up with Asda (Daily Telegraph, Laura Onita) shows that Greggs will be bringing its hot food into Asda’s supermarkets, starting with five sites in the north of England. If this proves to be successful, there will be a wider (sausage)rollout. * SO WHAT? * This is Asda’s latest tie-up – as it already works with Just Eat to deliver items to customers quickly and KellyDeli, which makes sushi. I guess that it is trying to tart itself up after the failed merger with Sainsbury’s so that other buyers may be attracted by Asda’s charms. Good ideas, though!

Cisco’s sales drop, SoftBank’s ambitions are reined in and BP makes some promises…

Cisco sales fall in latest quarter (Wall Street Journal, Aaron Tilley) shows that global economic jitters are leading to a slowdown in tech investment, crimping sales growth at the network equipment giant. * SO WHAT? * The router maker is often seen to be a bellwether for corporate demand – so the signs aren’t great. Unfortunately, the already bleak outlook does not yet take into account effects from the coronavirus.

SoftBank’s billionaire founder scales back fund’s ambitions (Financial Times, Kana Inagaki) highlights problems at SoftBank’s massive Vision Fund which has

made a number of duff investments – most notably in WeWork. Activist investor Elliott Management has built up a $2.5bn stake in SoftBank and is calling for the company to plough back billions in share buy backs, give more transparency on its Vision Fund investments and sort out its governance. * SO WHAT? * Many fear the approach of Elliott Advisors, but I would say that chief exec Masayoshi Son is a VERY tough cookie, so it’ll be interesting to see who wins the battle.

Now I’m mentioning BP pledging to cut emissions to ‘net zero’ by 2050 (Daily Telegraph, Ed Clowes) because this story is all over the papers today. This is being touted as being BP’s biggest-ever strategic overhaul, but TBH I think it’s all BS. 2050 is miles away and restructuring takes years. Nice words, but I really don’t think this is anything but noise at this stage. It’s just a line in the sand and the detail will supposedly follow. BP going net zero? That would be like a lion saying it has decided to go vegan…😜

And finally, in other news…

I thought I’d leave you with a right old brain-teaser today if you have any spare time and you enjoy intellectual torture. Here it is: Can you solve this crazy difficult, super satisfying math puzzle from a Japanese middle schooler? (SoraNews24, Casey Baseel https://tinyurl.com/wvsgu23). 😱