Thursday 18/06/20

1. In MACRO/POLITICAL NEWS, the Americans go off in a huff over digital tax and UK inflation falls off a cliff
2. In FINANCIALS NEWS, Mastercard and Visa run up a painful bill, Nationwide triples the minimum deposit and HSBC gets the axe out
3. In RETAIL/CONSUMER NEWS, Boohoo buys Oasis and Warehouse, DPD and Kingfisher hire and Dominos counts the cost
4. In INDIVIDUAL COMPANY NEWS, Lufthansa’s bailout hits turbulence and Tesla’s California registrations disappoint
5. AND FINALLY, I bring you a domestic protest and a novel way to shield…

So the US throws its toys out of the pram and UK inflation craters…

In US upends global digital tax plans after pulling out of talks with Europe (Financial Times, Sam Fleming, Jim Brunsden, Chris Giles and James Politi) we see that the Americans have thrown their toys out over the pram regarding a new global tax framework for tech companies and abandoned talks with Europe. US Treasury secretary Steven Mnuchin sent a letter to European finance ministers in the UK, France, Italy and Spain saying that he could not agree on any changes to global taxation law that would affect US companies – and threatened retaliatory tariffs if they went ahead with anything. * SO WHAT? * This is all a charade IMO. Basically, the US is using Covid-19 as a convenient excuse to drag talks out. Its tech sector is hugely important to the country – especially at the moment – and has been one of the reasons why its financial markets have bounced back so well. You can’t blame American politicians for wanting to protect it as much as possible. On the other hand, you have rather poorer European countries who could do with a bit of extra cash right now but I really think that you will only get strength in numbers in this scenario and smaller countries especially will not want to bite the hand that feeds them (i.e. tech jobs in their respective countries), hence the fragmentation of support for a co-ordinated approach to taxing the tech giants. As far as I can see, I think there are a number of forces at work here. Firstly, Trump is desperate to get re-elected – so he’s got to look “strong”, hence the hard line;

secondly, the administration is moving towards putting more pressure on Big Tech – and could use the threat of giving the Europeans free rein on imposing taxes as a negotiation stick to beat them with; and thirdly, the taxation thing will be a useful negotiating tool in all the trade talks that are going on at the moment i.e. don’t slap taxes on Big Tech and we won’t send you our chlorinated chickens etc. It’s all a game and I feel that the coronavirus outbreak will make Europe’s threats even more toothless than they were before because everyone is that much financially weaker right now. The only way they can push this through is, ironically, if they stay together – but that doesn’t look likely to happen any time soon.

UK inflation falls to 0.5% on back of cheaper petrol and toys (The Guardian, Larry Elliott) cites the latest figures from the Office for National Statistics which show that the annual rate of inflation (as measured by the Consumer Price Index) is now at is lowest level for almost four years as it drifts even further away from the government’s 2% target. The main causes of the drop was lower prices for oil, clothing and footwear. It doesn’t look like things will turn around any time soon either as producer prices were also trending lower – and producer prices are often seen as a lead indicator of cost pressures. * SO WHAT? * A fall in inflation was obviously expected, but the job of predicting where it will go next has been made even harder because 74 of the products in the “basket” that it normally keeps tabs on were not actually available to customers during lockdown and researchers could not verify prices in person. That will clearly change as time goes on, but making these sorts of forecasts is tricky at the best of times.

Mastercard and Visa run up a bill, Nationwide “does us a favour” and HSBC gets the axe out…

Mastercard and Visa face billion-pound payouts after UK court ruling (Financial Times, Jane Croft) highlights a real pain for the big credit card companies as the UK’s highest court, the Supreme Court, ruled that the transaction fees they charge breach competition laws. The court rejected three separate appeal cases involving Asda, J Sainsbury, Argos and Wm Morrison over interchange fees (the levy for every time a payment card is used). Incredibly, the appeals have been going on since 1992! Damages payable to the retailers could run into the billions, although the exact levels will be decided in further trials. * SO WHAT? * Wow! Let’s hope for the retailers’ sake that decision on damages won’t be going on for another 28 years 😂 – they could probably do with the cash at the moment. Mind you, if the credit card companies are forced to pay out, I would imagine that the consumer will be the one to suffer ultimately because those costs will no doubt be passed on to us!

Nationwide triples minimum deposit for UK first-time buyers (The Guardian, Patrick Collinson) shows that Nationwide, one of the UK’s main mortgage lenders, will ask for three times the amount of deposit it was asking for

before as it prepares itself for falling house prices and negative equity. This means it will be asking for a 15% minimum deposit applying to all new house purchases, remortgages and first-time buyer applications. Anyone still offering 95% loan-to-value mortgages will no doubt have to close applications soon because they will be inundated. * SO WHAT? * Nationwide itself said that it was doing it to protect customers, but let’s be honest, they are doing it to protect themselves! You can’t blame them, though. This is surely going to pull the rug from under the feet of the already-vulnerable real estate market. It’s a bit like estate agents have just been rolling around on the floor after a fight (with election uncertainty, Brexit worries and now coronavirus) slowly getting up only to be punched in the face by market conditions and now kicked in the testicles by the building societies. It will take a while to recover IMO.

Talking of pain, Fury as HSBC revives plan to dump 35,000 staff (Daily Telegraph, Lucy Burton and Simon Foy) highlights a revival of job cut plans by HSBC after delaying the redundancy programme while the coronavirus was going on. Obviously, union officials were up in arms about this, but the bank faces tough times ahead. * SO WHAT? * The bank has plans to slash $4.5bn in costs and had already put the job cut plans on hold. However, profits for the first quarter fell by 48% versus the previous year so the writing has been on the wall. This move comes one month after Deutsche Bank announced it was going to go ahead with 18,000 job cuts. It is going to be carnage in the banking sector for some time, I think.

Boohoo buys Oasis and Warehouse, DPD and Kingfisher have jobs to fill and Dominos sees higher costs…

I mentioned that Boohoo was on the verge of this yesterday but Boohoo snaps up high street’s big fashion victims (The Times, Ashley Armstrong) not only highlights its impressive 45% jump in first quarter sales, it shows that the company has just paid £5.25m for Oasis and Warehouse but will not be taking on any of their stores or shopworkers. * SO WHAT? * Boohoo’s market cap is now almost as big as that of M&S and Asos COMBINED! Not bad for a company that was founded in 2006! The company said that trading in March and April had been mixed but got stronger going into May and that it remained on track to deliver strong above-market-expectation growth for the year. Boohoo reiterated its commitment to remaining an online-only retailer.

Elsewhere, DPD and Kingfisher to hire 7,500 staff as demand soars (The Guardian, Sarah Butler) highlights

plans by both companies to hire more employees to cope with the rising demand for home deliveries. DPD wants to hire 6,000 HGV drivers, warehouse staff, managers and support staff as part of a £200m new investment for expansion. Kingfisher (which owns B&Q and Screwfix) wants to take on 3-4,000 staff, around half of whom will be in the UK. These roles will be mainly summer temp roles as the company is unsure as to whether the surge in demand under lockdown will continue. * SO WHAT? * It’s nice to hear about more jobs for a change rather than job cuts! Still, this does reflect the extremes between industries and businesses that have done well and those that have not.

Lockdown costs eat into profits at Domino’s Pizza (The Times, Callum Jones) shows that although UK sales have risen by 5% under lockdown, additional costs to cope with operating through the coronavirus dented earnings in the first half. * SO WHAT? * Hopefully, now those changes have been made and people start going back to work, earnings will improve. Still, it’s very difficult to predict which way it will go. This is another example of a business that would potentially benefit from a reduction in the 2m social distancing guidelines.

Lufthansa’s bailout hits problems and Tesla suffers from poorer orders…

You will probably recall that Germany’s Lufthansa is one of many airlines to take a government bailout recently but Lufthansa bailout in jeopardy as top shareholder seeks other options (Financial Times, Joe Miller) shows that the €9bn bailout is at risk because the company’s biggest shareholder (a rich bloke who owns over 15%) indicated that he might reject the deal because he thinks that other options should be considered first. * SO WHAT? * The

company said in a statement that if he did not vote the package through, there was a danger that it would not get the two-thirds majority it needed to continue – and if THAT happened, Lufthansa would probably have to initiate bankruptcy proceedings. Ouch. The drama continues…

Elsewhere, Tesla registrations plunge in California, data tracker says (Wall Street Journal, Tim Higgins) shows that new registrations for its cars have fallen by 37% over April and May in California, according to the latest data from Dominion Enterprises. On the plus side, though, the company did report a surprise uptick in first-quarter profits and encouraging sales data from China where it delivered a record number of Model 3 cars last month. It’ll be interesting to see how things go as lockdown restrictions continue to ease…

…in other news…

Today, I thought I would leave you with the epic riposte in Mum takes ‘epic’ revenge after husband complains she didn’t cut up his sandwiches (The Mirror, Luke Matthews https://tinyurl.com/y7ds7r59) and the rather creative thought process of one lady in Cuban dons full-body cardboard shield against coronavirus (Reuters https://tinyurl.com/y9yrsrpb). Nice 👍