Thursday 20/08/20

1. In NEWS ON ECONOMIC INDICATORS & TRENDS, Maersk turns a corner while UK inflation rises, traffic returns, suburbs see spending and cosmetics experience changes
2. In TECH NEWS, Apple breaks $2tn, Huawei phones users could be about to suffer badly and BlackBerry announces a phone
3. In RETAIL NEWS, we see retail winners and losers in the US and China
4. In INDIVIDUAL COMPANY NEWS, Johnson & Johnson makses a big acquisition
5. AND FINALLY I bring you instructions for “how to bag a husband” 1958 stylee and unnerving see-through toilets…

So Maersk turns a corner, UK inflation rises and cosmetics-buying patterns change…

*** It’s THURSDAY, which means that it’s ZOOM CALL time! I will be on Zoom THIS EVENING at 5pm and will be going through the week’s key business and financial markets themes and then you can ask me anything (details are HERE)! NB I AM GOING TO BE ON “HOLIDAY” NEXT WEEK, SO THERE WILL BE NO WATSON’S DAILY FROM MONDAY 24TH TO FRIDAY 28TH. ZOOMS WILL RESUME THE FOLLOWING WEEK! ***

Maersk sails back to strength as demand lifts (Daily Telegraph, Alan Tovey and Lizzy Burden) shows that the Danish shipping giant has actually lifted its profit forecasts for the full year on signs of a demand pick-up in global trade. They also benefited from lower fuel costs. * SO WHAT? * The company may have spoken too soon as Trump made rumblings yesterday about postponing trade talks with China, which could dent sentiment. Having said that the Shanghai Containerised Freight Rate (tracks shipping costs on one of the world’s major trade routes) and Baltic Dry Index (tracks rates for ships transporting dry bulk commodities) are rising from coronavirus lows. Given Maersk is a key player in transporting goods all around the world, it is seen as a key bellwether for the state of global trade.

In the UK, Pent-up demand for hair cuts, new clothes and travel lift inflation to 1pc (Daily Telegraph, Tim Wallace) highlights a surprise rise in inflation in July. Hairdressers upped their prices by 8% for men and children and 5.6% for women, ice cream prices shot up by 16.7%, petrol and diesel prices were also higher and even clothing saw stronger pricing as the much-predicted big discounting didn’t materialise. Other items that saw price rises were garden furniture, fridges, cleaning equipment, package holidays and takeaways. As a result of this rise, Savers lose interest as inflation beats account rates (Daily Telegraph, Marianna Hunt and Tim Wallace) shows that there’s only one easy-access savings account left now (offered by National Savings & Investment) that beats inflation with a 1.16% interest rate – meaning that many households will suffer a drop in the value of their cash in real terms.  * SO WHAT? * The rise in inflation was a surprise given all the economic upheaval, but it is welcome nevertheless as rising inflation can be seen as a signal of a recovery. I suspect that V-shaped recovery fans will use this as proof of their belief. I am sceptical about a V-shaped recovery because there are so many uncertainties 

HOWEVER, if the government extends furlough, I think that this scenario could have much more chance of coming to fruition. Extending furlough will avert a massive spike in unemployment that would be a body blow to any kind of confidence but the question is whether furlough will successfully plug the gap between pandemic-related business devastation and recovery or whether it will just be like rearranging the deck chairs on the Titanic.

In other glimpses of the current state of the economy, Rising traffic levels signal economy is speeding up (The Times, Gurpreet Narwan) highlights findings by Jefferies, the investment bank, that energy consumption is now at 97% of normal levels while traffic congestion was up from 87% to 90% in the last week. Jefferies publishes weekly reports that bring together a number of other “mini-indicators” and it concludes that the economy could actually grow by over 15% in Q3 after falling by over 20% in Q2. Suburbs lead London’s economic recovery while city centre struggles (The Guardian, Joanna Partridge) cites a report from the thinktank Centre for London and King’s College London which shows that the ‘burbs are actually leading an economic recovery as consumers stay and spend locally and office workers and tourists stay away from the city centre. Transaction data from Mastercard shows that consumer spending has shifted outwards from central London – which is not surprising given that 75% of London’s workers have yet to return to their desks, according to data from Morgan Stanley. Another interesting stat from Transport for London showed that journeys to London workplaces were about 50% of average levels in the first week of August but driving and cycling frequency had returned to normal.

Then in ‘Lipstick effect’ wears off as recession hits cosmetics (The Times, Ashley Armstrong) we see that lockdown has had a major effect on the $530bn cosmetics industry. The terms “lipstick effect” was coined in 2001 by the chairman of Esteé Lauder, Leonard Lauder, who said that lipstick sales were inversely correlated to the state of the economy as people bought lipstick as an affordable luxury to cheer themselves up in an uncertain world. Coronavirus has not only affected what products are sold (eyeliner and mascara have seen stronger sales as these are still areas you can see over a mask!) – it has affected how they are sold as many of the traditional department stores and boutiques closed overnight. * SO WHAT? * The cosmetics industry is just one more example of an industry that has had to make rapid changes to survive the current climate. I would imagine that the sudden change will have caught many off guard and so I would expect there to be more consolidation in the industry as smaller operators do what they can to survive and biggest operators look to enhance their existing offering and perhaps cut dead wood.

Apple breaches $2tn, Huawei users could suffer and Blackberry makes a comeback…

Lockdown sales surge helps Apple hit $2trn (The Times, Tom Knowles) shows that Apple has become America’s first company to get a $2tn valuation only two years after it breached the $1tn mark. It has benefited enormously under lockdown from sales of handsets, tablets and laptops as well as its services. There is a great graphic in How Apple compares (The Times) which shows you the company’s growth history and how $2tn compares to other things. For example, it is bigger than Saudi Aramco (market cap of $1.82tn), it is equivalent to almost 10% of America’s GDP and, on its own, it is worth almost 70% of the entire FTSE100 put together! Apple/Tesla: divide and conquer (Financial Times, Lex) takes a look at stellar valuations and Apple’s announcement of a stock split. Will other companies such as Facebook indulge in a bit of stock split action given the post-announcement share price performances of Apple and Tesla? If so, investors will be piling into other potential stock split candidates.

Sanctions are a Huawei hang-up for 4m (Daily Telegraph, Matthew Field) shows that up to four million UK customers could be saddled with increasingly useless Huawei mobile phones as the company looks like it will not be able to renew the temporary licence it has used up till now to get Android updates. Phones developed before May 2019 (including the P30 and Nova ranges) are still expected to get key security features but phones developed after that date (e.g. the P40 range) have been completely blocked from using Google’s apps when the US was put on a US blacklist. Huawei has about a 10% market share of UK smartphones. * SO WHAT? * This is another nightmare and another potential nail in the coffin for Huawei. It’s like ZTE all over again!

On a more positive note, BlackBerry brand to be revived by release of 5G model in 2021 (Daily Telegraph, James Cook) highlights the latest return of the BlackBerry phone brand as its “new” owner, OnwardMobility, said it would release a new 5G model probably in the first half of 2021. It hopes it will sell to government and enterprise customers rather than “normal people”. It will use an OnwardMobility design and be powered by Android. * SO WHAT? * Just what we all need! ANOTHER mobile phone brand! Still, it’s probably quite good for it to create a niche for itself. It’ll maybe even get a good margin out of it if it doesn’t have to sell to the masses!

We see how coronavirus has polarised winners and losers in the US and China…

Target sales jump as pandemic speeds e-commerce shift (Wall Street Journal, Sarah Nassauer and Suzanne Kapner) shows that the gap between retail’s winners and losers has been magnified by the coronavirus pandemic. Ones that had been allowed to stay open have generally done pretty well, whereas those who had to close did not. Yesterday, Target reported its strongest every quarterly results and DIY chain Lowe’s announced its strongest sales growth in decades! On the other hand, Kohl’s and TJ Maxx, who had to close temporarily, announced major sales declines. * SO WHAT? * I expect the strong to get stronger

and the weaker ones, if they can actually survive, will take some time to recover as they have a deeper hole to climb out of.

Premium retailers rise China’s recovery from Covid-19 crisis (Wall Street Journal, Trefor Moss) shows a different divide in China where the pandemic has led to an increasing contrast in performance between makers/purveyors of premium products (e.g. Monlcler and Lululemon Athletica) doing really well and those aiming at mass-market consumers struggling to return to growth. Luxury brands were probably given a little lift in China as affluent consumers’ movements were affected by travel restrictions. * SO WHAT? * More affluent Chinese have been much more able to take advantage of deals designed to encourage spending versus their less affluent counterparts who just want to cover the basics. I presume that this trend will continue for at least the time being until employment struggles back to normal levels.

Johnson & Johnson makes a big acquisition…

Johnson & Johnson to buy biotech Momenta in $6.5bn deal (Financial Times, Ortenca Aliaj and James

Fontanella-Khan) highlights an all-cash deal that will broaden the world’s biggest healthcare company’s capabilities in autoimmune treatments. * SO WHAT? * This will give J&J’s drugmaking division Janssen Pharmaceutica access to Momenta’s promising product pipeline. The deal comes only days after Sanofi bought Principia and I suspect we will see more consolidation in a fragmented industry.

…in other news…

I thought I’d leave you today with life advice that our forebears were given in 129 ways to get a man according to 1958 advice – carry a hat box and sell fishing tackle (The Mirror, Jane Lavender). Gems such as “Look in the census reports for places with the most single men” and “Read the obituaries to find eligible widowers” sound somewhat psychotic IMO. Then there’s Japan: See-through public toilets open in Tokyo parks (SkyNews) which will no doubt make many people nervous! You’ll see why 😂! When you are in there you will be praying that there won’t be any power cuts…