Thursday 16/07/20

1. In MACROECONOMIC, MARKETS & OIL NEWS, Q2 China GDP grows, Europe has some dramas, UK inflation rises and markets perk up on vaccine hopes while Russia and Opec are set to end production cuts
2. In RETAIL/HIGH STREET NEWS, Walmart and Kroger require shoppers to mask up, the UK high street continues to evolve, Next closes in on Victoria’s Secret and Asos benefits from the lockdown look
3. In INDIVIDUAL COMPANY NEWS, Google becomes the latest giant to invest in India’s Reliance and Goldman Sachs benefits from bond trading
4. AND FINALLY, I bring you the latest crazes in masks…

So China GDP returns to growth, Europe has a LOT going on, UK inflation rises and markets perk up on vaccine hopes while Opec and Russia talk production…

Just in case you didn’t know, I do a Zoom call on Thursdays at 5pm. I kick off by talking about the week’s business and markets news and then open it up to any questions from YOU! If you would like to join, the details are in your morning e-mail (check spam for some) or just click THIS link. Hopefully, I’ll see you there!

Chinese GDP grows 3.2% in second quarter (Financial Times, Thomas Hale and Xinning Liu) highlights the Chinese economy’s return to growth as it pulls itself out of the coronavirus pandemic. This coincided with a steep drop in the number of new reported cases and concerted government support for the industrial sector. I think it would be fair to say that no-one’s taking this for granted, given there’s no virus cure – but at least things are going in the right direction.

Europe’s leaders gear up for crunch summit (Financial Times, Darren Dodd) heralds the start of a key summit of European leaders tomorrow as they meet to discuss the proposed €750bn coronavirus recovery package. Leaders will face continued resistance from the “frugal four” – Denmark, Sweden, Austria and the Netherlands – but we’ll just have to see how this pans out. * SO WHAT? * Usually, I would expect this sort of thing to drag out given the number of countries involved but I think that a lot of countries are desperate to get their hands on any kind of aid they can find – and they want it now. There is a LOT riding on this meeting. Spanish Prime Minister Pedro Sanchez described its significance thus: “Europe was the answer to the great crisis of the second world war and Europe once again has to be the answer to the great crisis caused by the pandemic”.

The drama continues in EU watchdog to probe German regulators after Wirecard collapse (Financial Times, Matthew Vincent, Jim Brunsden and Olaf Storbeck) as the European Securities and Markets Authority has now launched a fast-track investigation into Germany’s supervision of disgraced payments group Wirecard. The review covers both BaFin (the German financial regulator) and the FREP, which is a private sector body that overseas German companies’ accounts. I suspect that this will end up being an exercise in finger-pointing, blame avoidance and back-stabbing IMHO! I wonder who will be thrown under the bus on this one…

AND THERE’S MORE drama for Europe as Apple tax ruling deals blow to EU (The Times, Bruno Waterfield) shows that the European Court of Justice ‘s general court (the EU’s second highest court) has rejected a 2016 Brussels competition ruling that ordered Apple to hand over €13bn

in back taxes to the Republic of Ireland. * SO WHAT? * Although Ireland could do with €13bn from Apple to put a sizeable dent in its budget deficit, it sided with the company saying that “The correct amount was charged in line with normal Irish taxation rules”. This sounds like 🐂💩 to me! It’s only my opinion of course, but Ireland is understandably trying to defend its status as a low-tax regime and if Apple gets slapped with this massive fine, other big hitters (who are already jittery because of the coronavirus effect) may use it as an excuse to leave. I don’t think that this is the end of the matter but it’s not looking good for Margrethe Vestager, who Trump calls “the tax lady”. I would have thought that it will weaken the EU’s negotiation stance in the whole digital services tax debate. Silicon Valley: 2 (she lost last year when she took on Starbucks) – EU/Vestager: nil points in this round. It is a shame because I think the world could do with a strong regulator to reign in the excesses of Silicon Valley – because I doubt the Americans are going to do much about it. 

Meanwhile, UK inflation rises as game console prices increase in lockdown (The Guardian, Richard Partington) shows that the UK inflation rate has risen for the first time this year, fuelled in part by strengthening prices of games consoles. The latest stats from the Office for National Statistics show that the consumer price index (CPI) measure of inflation increased from 0.5% in May to 0.6% in June versus economist consensus forecasts of a drop to 0.4%. I’ve got nothing against economists – I’ve worked with some really good ones – but this goes to show how wrong “experts” can be when, let’s be honest, this whole thing is a complete crap-shoot, especially during this pandemic. A bit like trying to predict the oil price 😂. * SO WHAT? * I just don’t think you can believe a lot of the figures that are coming out at the moment. The collection of reliable data has been much more difficult during lockdown and so I would imagine that we will continue to see wild differences in predictions. Of course it is many people’s job to predict such things, but at the moment you might as well just put a blindfold on and make your predictions throwing darts at a dartboard.

Fresh hopes for Covid vaccine give markets a shot in the arm (The Times, Alex Ralph) highlights a rise in the stock markets yesterday as the market cheered up on vaccine news from Moderna and encouraging data from a vaccine being developed at the University of Oxford. AstraZeneca is working with Oxford’s Jenner Institute on the manufacture and distribution of the vaccine. If all goes well it hopes to make it available in September 😱👍👍👍. That’s a big “if”, though – but wouldn’t it be great!

Then in Opec and Russia primed to unwind historic supply cuts (Financial Times, Anjli Raval, David Sheppard and Derek Brower) we see that the oil supply cuts agreed earlier this year will be coming to an end, meaning that production will start to rise. * SO WHAT? * The cuts helped oil prices to rise from around $20 a barrel to the current $40 level, so everyone will be waiting to see whether a rise in demand as economies restart will be able to soak up the extra oil or whether the price will start to fall again.

Masking-up becomes the norm, the drama continues in the UK high street, Next gets closer to Victoria’s Secret and Asos benefits from lockdown…

Walmart, Kroger to require shoppers to wear masks in all US stores (Wall Street Journal, Dave Sebastian and Sharon Terlep) shows a change in mood in the US as more businesses push to get people to wear masks. The two giants have over 8,000 stores across the country and have decided to take the initiative to protect staff and customers. * SO WHAT? * Good on ’em, I say. I’m not sure whether this is going to affect the number of customers who go to their stores, but I think it’s good to see some positive action being taken as local guidance has been rather variable.

Then on the UK high street, Pret passes on VAT cut to customers to boost sales (Daily Telegraph, Hannah Uttley) shows that prices at Pret will come down and On the side of the angels (Daily Telegraph) shows that Next is on the verge of taking over Victoria’s Secret in the UK after beating competition from M&S and others. On the other hand, PizzaExpress set to fall into lenders’ ownership (Financial Times, Daniel Thomas) shows that the embattled purveyor of pizzas is about to see a change of ownership as Chinese owner Hony Capital looks likely to take on the Chinese operations while the bond holders take the rest. Meanwhile, Nearly half of Britain’s shops have yet to reopen (Daily Telegraph, Laura Onita and Russell Lynch) cites the findings of a survey from the Local Data Company which says that only 52% of shops that have so far been allowed

to open actually have. It’s probably too early yet to guess how many of the 48% will stay permanently closed, though…

That said, UK high streets set to swap shops for retirement homes (Financial Times, George Hammond) shows an interesting direction that emptying UK high streets could take as the government is currently trying to reform the planning system. Changes would make it easier for developers to turn commercial property into residential property. Currently, senior living provider McCarthy & Stone says that it would welcome changes that would give them more scope to develop in such locations. * SO WHAT? * This is great for the potential for senior living – but TBH, if the government relaxes the current rules it could open up all sorts of possibilities (and be a shot in the arm for construction at the same time). I think it is really important for regulations to change on the high street, because if the current rules and regulations remain as they are our town centres are going to become ghost towns. They had already been going that way before the coronavirus hit…

Moving to online retailers, Lockdown fashion opens doors for Asos (The Times, Ashley Armstrong) announced strong sales yesterday as shoppers bought the “lockdown look” (I’m presuming that’s not the “watching-Netflix-all-day-in-my-pants-and-eating-pizza” vibe). This helped it to rebound from lows in March as Generation Z customers bought more sneakers, beauty products and exercise clothes. * SO  WHAT? * Although Asos is missing out from people buying clothes to go to weddings, festivals and clubs they have actually done well from having fewer returns because exercising clothing is more forgiving fit-wise than, say, party dresses. Asos is currently talking a good game on the dodginess of its suppliers, but I’m sure it is scrambling around and double-checking just to make sure it is squeaky-clean on that front.

Google invests big and Goldman Sachs benefits from bonds…

In other interesting news today, Google to pour $4.5bn into Reliance’s digital business (Financial Times, Benjamin Parkin and Anjli Raval) shows that Google is the latest high profile company to invest into the fast-growing Jio Platforms digital business in India. Other big investors, including Facebook, have put $20bn into the group over the last few months. $4.5bn buys Google a 7.7% stake in Jio.

Facebook put $5.7bn into it in April. * SO WHAT? * This is serious money being put in by serious players! It just goes to show how much people believe in the future growth of data and online services in India.

Then in Volatility help lift Goldman Sachs revenues by 93pc (Daily Telegraph, Lucy Barton) we see that Goldman Sachs is the latest US bank to announce that it had benefited greatly (trading revenues up by 93% over the second quarter!) from the trading bonanza during lockdown. Overall revenues were up by 41% versus a year ago. What a performance by the company that has been referred to in the past as the “great vampire squid wrapped around the face of humanity”!

…in other news…

Ah, face masks. It seems that if you take some face masks and cross them with some mischief-making teenagers looking for viraldom on TikTok, this is what you get: Teenagers are using face masks to dress up as old people and buy alcohol (The Mirror, Joseph Wilkes). However, I think that you’d be hard-pressed to find a mask that is as epic as the one in Ramen face mask from Japan fogs up your glasses, looks like a steaming hot bowl of noodles (SoraNews24, Oona McGee).