Thursday 17/01/19

  1. In MACROECONOMIC NEWS, the US government shutdown continues to bite and the Chinese government splashes the cash to boost the economy
  2. In UK CONSUMER/RETAIL NEWS, inflation and house prices weaken and we see more retail winners and losers
  3. In CAR NEWS, sales in China and Europe slow down
  4. In INDIVIDUAL COMPANY NEWS, US banks defy downbeat forecasts, Fiserv takes on First Data and Niantic gets a chunky valuation
  5. In OTHER NEWS, I bring you some Marie Kondo chat. For more details, read on…



So the US shutdown bites and China tries to stimulate its economy…

Government shutdown begins to harm US economy (Financial Times, Sam Fleming and Brooke Fox) highlights the knock-on effects the shutdown is starting to have on the broader US economy after four weeks of impasse. White House economists believe that the effect of work not being carried out by 380,000 federal workers will cut around 0.08 of a percentage point off GDP per week and the loss of work by federal contractors will cut an additional 0.05 percentage point. Employment and payroll data will also be affected as federal employees stuck at home not getting paid could be classified as unemployed. Furthermore, a study published by the Scott Baker of Northwestern University’s Kellogg School of Management and Constantine Yannelis of NYU Stern School of Business points to a 10-15% drop in consumer spending by federal workers who went unpaid when a shutdown occurred in 2013. * SO WHAT? * The rather obvious conclusion of all this is that a prolonged shutdown is a bad thing – not just for the workers themselves, but for the wider economy as

services provided by the US government go downhill and businesses and individuals lose confidence (although I’d argue that this bounces back if everything else remains the same). It does call in to question, though, the government’s ability to lead. At least the economy is doing well – this will give Trump some breathing space although I’m not sure how many more official dinners he can hold serving up fast-food burgers and pizza to his guests ???? (if you don’t know what I’m talking about, have a look at this story from The Mirror

China injects record $84bn to boost economy and avoid cash squeeze (Financial Times, Gabriel Waldau) shows some pretty punchy action by the Chinese government as the country’s central bank injected $84bn into the country’s banking system to boost liquidity and promote increased lending in its flagging economy, according to data released on Tuesday. * SO WHAT? * Although authorities have been keen to implement measures to boost the economy, People’s Bank of China officials have tried to calm expectations of a repeat of monster stimuli in 2008-10 and 2014-15 that ended up leading to massive increases in debt levels – which they have been trying to clear ever since. It’s all a question of getting the balance right – and this is easier said than done!



Inflation and house prices get weaker and we see more winners and losers on the high street…

There’s some good news for the consumer as Inflation hits two-year low as petrol prices fall (The Times, Gurpreet Narwan) cites Mike Hardie, head of inflation (interesting job title!) at the Office for National Statistics saying that “Inflation eased mainly due to a big fall in petrol, with oil prices tumbling in recent months. Air fares also helped to push down the rate, with seasonal prices rising less than they had last year”. House prices falling at fastest rate for six years (The Guardian, Julia Kollewe) will be good news for buyers but less good for sellers as figures from the Royal Institution of Chartered Surveyors (Rics) show the effect of Brexit uncertainty on the housing market as we face the worst outlook for sales in twenty years. Lack of supply and affordability were also cited as reasons for the current weakness, but people sitting on their hands ahead of Brexit is clearly the biggest factor.

Meanwhile, the high street continues to be an eventful place to be what with Patisserie Valerie books skewed with ‘thousands of false entries’ (The Guardian, Sarah Butler) showing how not to do your financials and getting

deeper into trouble and Clarks’ UK shoe-making to get boot for second time (Daily Telegraph, Alan Tovey) giving us yet more evidence of problems with anything to do with shoes in this country (shoe retailers have been having a ‘mare over the last year or so haven’t they!) as it shuts down a cutting-edge manufacturing facility less than two years after opening it.

On the plus side, The Works issues first dividend as record sales buck retail trend (Daily Telegraph, Ashley Armstrong and Charlie Taylor-Kroll) heralds some good news for the small arts and crafts retailer with 484 stores across the country and more to come this year as sales rose by 15% in the six months to October 28th. It is continuing to make efforts to expand its online offering with a recent rebrand to but only 10% of its sales are made online, with 40% of those being collected in stores. Also, Superheroes are the stars at Cineworld (The Times, Dominic Walsh) highlighted a strong full-year trading update with revenues up by 7.2% and box office takings up 5.8%, in line with expectations. * SO WHAT? * Reasonably priced experiences continue to be key to attracting customers IMHO. The Works features interesting product at low prices and cinemas provide a cheap-ish way of forgetting about Brexit for a couple of hours.



…and there’s more doom and gloom for car manufacturers in Europe and China…

Carmakers face cuts and gloom as China sales shift into reverse (Financial Times, Tom Hancock) talks about the difficulties facing the automotive industry after three decades of stellar growth as shrinking car sales dent their profitability which is likely to lead to production cuts, job losses and a price war that is likely to spread around the world. Bernstein analysts warn that “if we don’t get a large and determined policy response – and we’re talking a big macro stimulus, not just a tax cut on cars – then the industry is going to need to make substantial production cuts” and Michael Dunne, an industry consultant and ex-GM exec also suggested that “The shift we saw last year takes us into uncharted territory. Everyone will be super-

focused on how to adjust because they don’t want to be left with too much inventory”. * SO WHAT? * Foreign brands that have been investing like crazy in the world’s biggest car market look increasingly likely to get caught with their pants down as many have been announcing big investments in production recently – with Ford, VW and JLR being cases in point. It’s looking more and more likely that China will start to become a drag rather than a boon, although car sales elsewhere aren’t going to be up to much either for the foreseeable future.

European car sales suffer first annual drop for five years (Daily Telegraph, Alan Tovey) piles on the misery for the car industry as the latest data from the European Automobile Manufacturers’ Association shows that registrations of new vehicles fell in December for the fifth month in a row (by 8.6%) bringing the annual sales number fractionally lower than the previous year and marking the first fall since 2013. The trade body blamed bottlenecks in supply as manufacturers tried to get their cars certified to the new WLTP standards.



US banks buck the trend, Fiserv buys First Data and Niantic gets a chunky valuation…

In financials news today, Goldman leads rebound as US banks defy gloomy forecasts (Financial Times, Laura Noonan and Robert Armstrong) highlights better-than-expected fortunes of Goldman Sachs and Bank of America as investors appeared to have underestimated the health of the real economy and the strength of their banks. Citi and JP Morgan Chase also announced strong performances although their bond trading revenues were down.

Payments processor Fiserv to buy rival First Data in $39bn deal (Financial Times, Eric Platt and James Fontanella-Khan) identifies a major deal as Fiserv has agreed to buy a rival in an all-stock purchase valuing the company at around $39bn, making it one of the biggest financial services deals in the last ten years – the only one bigger

than this was PayPal’s spin-off from eBay in 2015. * SO WHAT? * This is part of the wave of consolidation in the payments industry between traditional financial services providers looking for new exciting areas of business and tech groups who need money. The offer represents a 30% premium to First Data’s closing price on Tuesday.

Elsewhere, Pokemon Go game-maker Niantic valued at $4bn in funding round (Daily Telegraph, Margi Murphy) shines a light on the company behind Pokemon Go which is due to launch a hotly-anticipated Harry Potter game later on this year. The company managed to get a $245m investment in its latest funding round, making it one of the largest investments in augmented reality so far and giving the company behind it the equivalent valuation of $4bn. The money will be ploughed into AR, machine learning and building its “real world platform” which powers its games and will be made available for other developers to use. * SO WHAT? * Making a follow-up to a major games hit is an extremely tricky business – as many companies will attest to. However, I think that making its platform available to other developers in future is a great idea and may give this company better prospects of long-term survival.



And finally, in other news…

In case you haven’t yet noticed, there’s a bit of a kerfuffle going on at the moment with an unassuming Japanese lady called Marie (pronouned “marry-eh”, with the “eh” as in “festering”) who is to tidying what Mary Poppins is to childcare. Have a look at what effect she’s having on America in Marie Kondo’s Netflix series inspires a national decluttering frenzy (The Denver Post, Jura Koncius and further discussion of whether it all works in Marie Kondo – does tidiness really equal a clean mind? (BBC, Flora Drury So now you know!

Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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