- In MARKETS & MACRO NEWS, markets weaken on recession fears, French unemployment falls and Italy’s in a pickle
- In CONSUMER & RETAIL NEWS, UK inflation rises while house prices in the south fall, Lookers sees its profits falling dramatically, Sports Direct has auditor problems and Macy’s turnaround hits the buffers
- In INDIVIDUAL COMPANY NEWS, WeWork says “YouPay”, Tencent has a great quarter and Monzo announces loans
- In OTHER NEWS, I bring you some impressive pizza-making…
MARKETS & MACRO NEWS
So markets took fright, French unemployment falls and Italy is having a right drama…
Markets spiral downwards on fears of German recession (The Guardian, Phillip Inman) highlights investor fright as the prospect of Germany sliding into recession (because its economy contracted by 0.1% in the second quarter of this year), continued US-China trade tensions, China’s weak industrial production figures and the inversion of US yield curve for the first time since 2007 (which is seen by many to be a leading indicator – or at least a gauge of optimism/pessimism) combined to get them scrambling to sell.
Meanwhile, French unemployment fall eases pressure on Emmanuel Macron (Financial Times, Hannah Copeland and Victor Mallet) shows that unemployment in France fell to its lowest level in 10 years, which is going to come in useful as Macron pushes ahead with controversial labour market reforms. However, things are getting tetchy in Italy in Italian government on the brink – what happens next? (Financial Times, Hannah Roberts) as Deputy PM Matteo Salvini is making his move by calling for snap elections in October – three years earlier than scheduled. If you are interested in Italian politics, you should have a read of this because it looks at various different scenarios. However, my read of it is that Italy continues to be a European basket case and its uncertain economic future can’t be swept under the carpet because Europe’s engine (Germany) is sputtering as we speak. Europe is coming into some very tricky times. And then there’s Brexit, of course…
CONSUMER & RETAIL NEWS
Inflation and southern house prices rise, Lookers’ profit craters, Sports Direct’s auditors abandon and Macy’s suffers from discounts…
Rising inflation dampens rate cut chances (The Times, Gurpreet Narwan) cites the latest figures from the Office for National Statistics which show that the annual consumer prices index (aka the CPI) rose to 2.1% versus 2% last month and market expectations of 1.9%. Inflation is continuing to rise because of falling unemployment and wages growing at their fastest rate for 11 years. * SO WHAT? * When inflation rises, usually central banks tend to raise interest rates to prevent overheating (encourages more saving and less spending) but the Bank of England has signalled a reluctance to raise rates while the prospect of Brexit is lurking in the background. The Bank has an inflation target of 2%, but if inflation keeps going up it could be hard to continue to resist raising rates.
House prices fall in whole of the south for first time since 2009 (The Guardian, Richard Partington) mentions the latest figures from the Office for National Statistics which reflect current consumer unease as muted pricing in London is spreading to the regions. House price growth across the UK has been slowing down since the Referendum and now average house prices are only up by 0.9% on the year – the weakest national growth rate since 2012. The average house price is 5.59x average earnings (which is way higher than the long-term average ratio of 4.29x between 1983 and 2019) and home ownership rates are falling, particularly among the under-35s. * SO WHAT? * Clearly, consumers are keeping their hands in their pockets when it comes to spending big on houses and cars but I think that affordability is pretty horrendous – especially given that buyers have to stretch so much even in the downbeat market we’re in at the moment. No wonder younger people are having difficulties – and the entry end of the market will continue to be pumped up by Help To Buy artificially supporting it.
Lookers faces up to 40% fall in profit (The Times, Robert Lea) confirms what I said above re consumer spend on big ticket items as one of Britain’s leading motor dealers, Lookers, yesterday announced a whopping 40% drop in half-year profits to £25m despite revenues rising by 3%. Margins have been slashed as dealers fight over the dwindling number of customers and they’ve also been hit by rising wage costs, taxation on apprenticeships and automatic pension enrollment. * SO WHAT? * Things aren’t great for the company as new car registrations continue to fall for everyone and economic uncertainties continue to stop customers forking out. Lookers is also facing an
investigation by the Financial Conduct Authority over allegations of how finance packages are sold to buyers. Could this be the next PPI?? I doubt whether they will be unique in their sales practices…
Sports Direct shares tumble as Grant Thornton quits as auditor (Daily Telegraph, Laura Onita) continues Sports Direct’s sorry saga as accountancy firm Grant Thornton told Sports Direct last night that it was resigning after over ten years as its auditor. Grant Thornton threatened to do this before after the recent delayed results announcement, but it seems that it’s now official (although, weirdly, the company had said in a report earlier this week that “We are pleased that Grant Thornton have agreed to remain as our auditor, which makes sound commercial sense during these increasingly challenging times for UK retail”. Oops!). Sports Direct now has to find a new auditor to take on the reins from September 11th – and its share price fell by 10% on the news. The government may have to step in to appoint a suitable auditor if Sports Direct can’t get one themselves. * SO WHAT? * So far, companies including the Big Four of KPMG, PwC, Deloitte and EY don’t want to touch Sports Direct with a barge pole, so it will be interesting to see who gets the “prize” of auditing it in future. There is even talk of the company having to go private if they can’t find anyone – and I think it might help it restructure more freely away from the prying eyes of the City. Whether or not this is actually feasible is another question, however. Mind you, I guess the price of taking it private is getting cheaper by the day! The company sounds like a massive minefield to me…
Macy’s turnaround hits harsh retail reality (Wall Street Journal, Suzanne Kapner and Aisha Al-Muslim) highlights disappointment at the US department store as it lowered its full-year earnings forecast heading into the back-to-school and holiday season. Its share price fell by 13% on the announcement at its second quarter results, meaning that it has now fallen by around 58% in the last 12 months. Share prices of rivals Nordstrom, Kohl’s and JC Penney were also sold off as they took collateral damage from investors. * SO WHAT? * Department stores just haven’t been able to benefit from customers getting higher wages and the relatively strong economic backdrop in the US. Barneys New York recently filed for chapter 11 bankruptcy, the owner of Sears and Kmart filed for bankrupcy last autumn and JC Penney said last week that it might get delisted from the New York Stock Exchange because it has not managed to maintain an average share price of $1 or above for 30 days in a row. As I keep saying, I think that ALL department stores are an anachronism and they need to adapt their offering fast or just die. It’s sad, but then many of them have suffered from under-investment for years, leaving them as tired, drab and expensive places to do your shopping.
INDIVIDUAL COMPANY NEWS
WeWork has flotation in mind, Tencent announces strong profits and Monzo announces its entry into personal loans…
WeWork burns the cash (Daily Telegraph, Matthew Field) highlights the office space company’s ambitions to raise a shedload of cash in a flotation that could happen as early as next month. It burned through an impressive $905m in the first six months of this year in its ongoing quest for growth. However, WeWork: you pay (Financial Times, Lex) shows that its ambitions to raise over $3bn will come at a very high price. It was valued last year at $47bn and continues to grow at a rapid pace. * SO WHAT? * The fact is that WeWork (which is now part of the parent company The We Company) has never turned a profit and is seemingly in no hurry to do so. In contrast to this, London-listed rival IWG is actually more profitable but because its growth prospects aren’t as s3xy and it lacks the backing of a massive tech sugar daddy (WeWork has Japan’s SoftBank), its valuation suffers in comparison. To me, WeWork sounds like a lot of style over not much substance (plus there’s the danger of it going spectacularly wrong if the market changes) but I bet investors will just lap it up when it comes to market.
Tencent posts surge in quarterly profit (Financial Times, Louise Lucas) heralds a turn in fortunes for the tech giant as it announced a 26% year-on-year increase in profits, although revenues proved to be disappointing. Tencent has been cutting back on marketing spend, discounts and even M&A as domestic economic growth weakens. * SO WHAT? * Chinese tech companies have been facing a squeeze from the weaker macroeconomic outlook in China and a much tighter regulatory backdrop. Tencent has suffered in particular from moves by the government to crack down on online gaming and has also seen regulators dragging their feet on licencing any new games, although the situation on the latter has vastly improved.
Monzo launches personal loans (Daily Telegraph, Adam Williams) is another story doing the rounds in today’s newspapers as digital bank Monzo unveiled its first range of personal loans. It will charge customers interest rates of between 3.7% and 20.4% for loans of £7,500 to £15,000 rising to between 6% and 20.4% for loans of £200 to £7,499. This sounds expensive compared to loans from rivals such as John Lewis Finance, M&S Bank, Sainsbury’s Bank, Tesco Bank and Zopa who have a headline interest rate of 2.9% for loans up to £10,000. However, Monzo doesn’t have any early repayment charges, late repayment charges and can change their repayment date. * SO WHAT? * Nice one. It’s early days yet, but it’s all part of the growing up process!
And finally, in other news…
I thought I’d leave you today with Domino’s worker makes perfect pizza in just 27 seconds – and is fastest in Europe (The Mirror, Courtney Pochin https://tinyurl.com/y58e9lbl). This is soooo impressive!
Some of today’s market, commodity & currency moves (as at 0909hrs 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 **|
|7,148 (-1.42%)||25,479 (-3.05%)||2,841 (-2.93%)||7,774||11,493 (-2.19%)||5,251 (-2.08%)||20,406 (-1.21%)||2,816 (+0.25%)|
|Oil (WTI) p/b||Oil (Brent) p/b||Gold Per t/oz||£/$||€/$||$/¥||£/€||$/₿|
(markets with an * are at yesterday’s close, ** are at today’s close)