- In MACROECONOMIC NEWS TODAY, Emerging markets fall while the Turkish Lira rallies, sterling drops and UK inflation outpaces wages.
- In REAL ESTATE NEWS, New Zealand bans foreign buyers and London sees a sizeable price drop
- In INDIVIDUAL COMPANY NEWS, Tencent announces a rare profit fall, Tesla gets subpoenaed and Uber narrows its losses
- In OTHER NEWS, I bring you KFC’s new clothing line and a bizarre city promo video. For more details, read on…
So emerging markets fall as Turkey gets a supporter, Sterling falls and UK inflation grows faster than wages…
Emerging markets index falls into bear territory (Financial Times, Robin Wigglesworth, Adam Samson and David Sheppard) sets the scene as emerging markets saw their steepest fall for six months on the back of weaker commodity prices, currency falls and disappointing results from Tencent (which we’ll go into later). The FTSE Emerging Index fell by 2.3% at one point yesterday taking the benchmark’s decline since peaking on January 26th to over 20% – the definition of a bear market. Markets
have been spooked by the Turkey vs USA shenanigans since last week and Tencent is the biggest member of the index, so disappointing results had a major effect.
In Turkish lira rallies as Qatar steps in with £12bn pledge (The Guardian, Sean Farrell and Graeme Wearden) we see that Qatar has swooped in to save Turkey (at least for the meantime) by pledging loans worth £12bn, which could help Turkey avoid having to go the International Monetary Fund (IMF) to ask for emergency funding (well, at least for the moment). The lira jumped up by 6% after the Qatari pledge and a separate move by Turkey’s central bank to shore up the finances of its banks. * SO WHAT? * This is all very well, but Trump could just
ratchet up the sanctions and wait to hear Erdogan’s frustrated screams of pain. In the meantime, Erdogan remains defiant as his government more than doubled the tariff on rice to 50%, pushed up the coal tariff from 10% to 14% and tripled the car tariff to 120%! I don’t know how Erdogan thinks he can win a p!ssing contest against Trump, but I guess it makes him look feisty to the people who recently re-elected him. If he just released that pastor Andrew Brunson and let his central bank raise interest rates, this could all be over pretty quickly. The problem is that he’s made such a fuss about the whole thing, he is going to look like a right kn0b if he backs down – but then again, if he leaves it too long the simple measures mentioned above will be less likely to be effective. If I was in Erdogan’s position, however, I would cosy up to countries like Russia to annoy the Americans and make the Europeans nervous by getting awkward on immigrants – which is maybe why Merkel is getting involved in the background. IMHO, this could all be solved in a reasonable timeframe, but that would involve a lowering of testosterone levels on both sides.
Meanwhile, back in the UK, Sterling has its worst run since the crash (The Times, Philip Aldrick) points out that sterling has weakened for 12 consecutive days – something it hasn’t done since August 2008 – with Sunil Krishnan, head of multi-asset funds at Aviva Investors, observing that the fall “is not just a question of Brexit, it’s also a recognition that the UK economy has not been particularly strong”. The situation is unlikely to improve any time soon given Inflation outstrips wage growth as cost of living hits 2.5% (Daily Telegraph, Anna Isaac). The rise in the Consumer Price Index (CPI) was driven by higher prices for transport, computers games and possibly the “new” sugar tax.
REAL ESTATE NEWS
In real estate news, New Zealand bans foreigners from buying existing properties and London house prices suffer a big drop…
New Zealand bans foreigners from buying homes (Financial Times, Jamie Smyth) is bad news for the uber-rich who’ve been buying property in the country as a place to escape to in the case of a global apolcalypse (!). The new law, passed by parliament yesterday following a public outcry against billionaire “survivalists” (not in the nuclear sense, but more in the sense that they want somewhere to escape to if rising inequality leads to revolution), will ban foreigners from buying existing residential property. Supporters of this law change argue that Chinese property investors are pricing locals out of the market to the extent that local home ownership is at its lowest level for almost 70 years as prices have risen by 60% over the last ten years. Critics of this, such as Dave Platter of Juwai.com, an online Chinese real estate portal, point out that “Foreign buying is just 3 per cent of the market and tends to be focused on new development, making clear again that foreign investment leads to the creation of new dwellings. That’s vital in a market with a housing shortage, like Auckland”. The new legislation will require foreign buyers to justify buying existing properties to New Zealand’s Overseas Investment Office by proving that their actions will benefit the country – but buyers from Australia and Singapore won’t be affected because of existing trade
agreements. They will, however, still be able to buy new housing, such as offplan apartments. * SO WHAT? * This only sounds like half a solution to me – and that what it is really doing is just playing to the crowds because there are still exceptions regarding existing property (I bet Australian and Singaporean property investors will love the fact that they will now have less competition!) and land, of course. New Zealand joins Canada, Australia and others in making efforts to limit the activities of overseas property investors who are being accused of skewing the local market, but I don’t think this goes far enough if the government REALLY wants to do something. This will probably be a boon to said Australian and Singaporean property investors and a dent to some of New Zealand’s realtors who specialise in this area.
If you need something boring to talk about at an upcoming dinner party, then maybe you could refer to London suffers largest fall in house prices since 2009 (Daily Telegraph, Helen Chandler-Wilde) which cites the latest figures from the Office for National Statistics (ONS) that show London house prices had their biggest annual fall for almost nine years. Worst hit were prices in the City of London (-23.8%), Kensington and Chelsea (13.9%) and the City of Westminster (-12.1%), but despite all this, average London prices were still the most expensive in the land at £477,000 versus £228,000 nationally. Paul Smith, chief exec of Haart estate agents said that “Middle England is thriving – prices in areas of Birmingham, Nottingham and Leicester rose by a huge 10% on the year, and families across the UK looking for a semi-detached home are having to pay almost £10,000 more than they were the same time last year. There remains imbalance between supply and demand, making now a good time to sell”. There you go – dinner party conversation sorted ;0).
INDIVIDUAL COMPANY NEWS
Further to what I said earlier, Tencent reports its first profit fall in 13 years as games sales slow (Daily Telegraph, James Cook) as its mobile gaming division reported disappointing results despite being the major player in the world’s biggest video game market. It blamed the slowdown on sluggish sales of some of its popular
gaming titles. * SO WHAT? * This is very disappointing for a company that has had a very strong track record but its constant battle with Alibaba for supremacy in other areas is taking its toll. Tencent: the game is up (Financial Times, Lex) highlights online gaming as the cash cow for the business which finances everything else and says that recent brushes with Chinese authorities, who are concerned about child addiction to some of their games, are delaying its progress. The resulting new games backlog and the potential for the authorities taking a closer look at their business model regarding in-game purchases, is not going to be good especially in the short term. Some will buy the shares on weakness, but it sounds like there will be more hurdles to come.
Another day, another story on Tesla in SEC sends subpoena to Tesla in probe over Musk tweets (Wall Street Journal, Emily Glazer, Mengqi Sun and Dave Michaels) which says that Federal regulators are ramping up an investigation into whether Elon Musk was lying when he recently tweeted that he’d found backers to take the company private. The issuing of the subpoena implies that senior SEC bods have decided there’s enough smoke to look deeper into the causes of the “fire”. Here we go…
Uber’s revenue growth keeps up fast pace (Wall Street Journal, Douglas MacMillan) shows that, one year into the top job, chief exec Dara Khosrowshahi has managed to maintain the company’s revenue growth rate whilst simultaneously cutting losses – all good stuff considering that he is preparing the company for an Initial Public Offering (IPO). On the one hand, he’s sold off the Asian and Russian operations and the US car leasing business, but at the same time invested in growth areas such as food delivery and scooters – all whilst dealing with the aftermath of a fatality involving one of its driverless cars in March. * SO WHAT? * Taking the top job from founder Travis Kalanick was never going to be easy and Khosrowshahi has been dealt a number of hospital passes (e.g. the London licence debacle, the driverless vehicle fatality etc), but seems to have done a decent enough job to take it nearer to IPO, pencilled in for the second half of 2019. Investors have valued it at about $70bn, making it the highest-valued tech company in the world.
…And finally, in other news…
There are times when companies come up with new products that you never knew you needed. KFC launches a new fast food inspired clothing line – including chicken nugget trackies (The Mirror, Robyn Darbyshire https://tinyurl.com/yahfpdgb) . The trackies helpfully have an elasticated waistband and you can up the classiness a notch by buying a necklace that says “finger lickin good”. Nice. If you could team them up with these https://tinyurl.com/hboayg8 you could be the king/queen of junk food!
AND FINALLY, regular readers will know how much I like to end on a bizarre song (who can forget “Chicken attack”, for instance https://tinyurl.com/y8w62qwy or even “Have A Nice Day” https://tinyurl.com/y7t32rx7 which is probably more notable for its unique dancing), but today I thought I’d bring you “Once In Your Life In Osaka” is this year’s song of the summer (SoraNews24, Oona McGee https://tinyurl.com/y8zzfnl4) which is a song in English by a Thai band about Japan’s equivalent of Birmingham. Oh yes. How about THAT, eh??
As always, thank you for reading Watson’s Daily!