Thursday 20/12/18

  1. In MACRO, MARKETS & CRYPTO NEWS, US rates rise, the EU and Italy come to an arrangement, UK inflation hits a new low and there’s some bad news for crypto fans
  2. In NEWS ON CIGARETTES AND ALCOHOL, AB InBev announces a cannabis alliance and Altria is close to buying 35% of America’s biggest e-cigarette producer
  3. In INDIVIDUAL COMPANY NEWS, GSK strikes a major deal with Pfizer
  4. In OTHER NEWS, I tell you how not to beat the breathalyser test. For more details, read on…



So the US raises interest rates, the EU and Italy compromise over the budget, UK inflation hits a new low and there’s bad news for crypto fans…

Fed shrugs off Trump’s pleas and increases US rates again (The Guardian, Dominic Rushe) highlights yesterday’s decision by the US Federal Reserve to raise interest rates by 0.25% to a new range of 2.25-2.5%, despite increasing pressure from President Trump. * SO WHAT? * The Fed funds rate is closely watched as it sets the pace for interest rates around the world and is seen as an indicator of the strength of the US economy. Despite everyone and their dog expecting this rate rise, markets reacted by falling (I guess some held out the hope that Trump’s bullying tactics would carry some sway), taking the December decline to a magnitude not seen since the Great Depression of 1931. Jerome Powell sounded like he was keeping his options open for interest rate moves next year.

EU and Italy strike budget agreement to avoid fines (Financial Times, Jim Brunsden and Mehreen Khan) shows that Rome and Brussels appear to have come to an agreement after a two-month impasse where both sides dug their heels over the proposed deficit in Italy’s 2019 budget. Italy will now have a budget deficit of 2.04% of GDP versus the proposed level of 2.4% and will achieve this by delaying some of its spending plans, including the planned introduction of a basic income programme. * SO WHAT? * This sounds to me like Brussels kicking the can down the 

road because of EU parliament elections next year – if the EU was too firm, it would have given Eurosceptic parties ammo. Italy is still a basket case as far as I’m concerned, but let’s see how things pan out.

UK inflation rate cools to 20-month low (Financial Times, Gavin Jackson) cites the latest data from the Office for National Statistics which shows that the consumer price index rose by 2.3% in the year to November, weaker than the 2.4% for the previous month. * SO WHAT? * This slowdown would suggest that real incomes have actually grown during the course of 2018 as inflation fell and wage growth accelerated (the most recent data says that average weekly earnings grew by 3.3% in the year to October). However, rising wages have not yet filtered through to power inflation back up and I suspect that economic uncertainty surrounding Brexit will keep things that way for the time being at least.

There were a couple of interesting developments regarding cryptocurrencies that I wanted to mention today. One was Crypto miners fight for survival as market turmoil continues (Financial Times, Hannah Murphy) which highlights major problems for bitcoin miners whose numbers are dwindling fast due to high overheads and falling cryptocurrency prices. The other one was Blow to Bitcoin investors as HMRC closes tax loophole (Daily Telegraph, Hannah Boland) which says that HMRC has ruled that Bitcoin investors in the UK will NOT be allowed to classify their investment in the cryptocurrency as “gambling” (where winnings are tax free). Investments will now be classed as “chargeable assets” which will attract capital gains tax. Talk about shutting the stable door when the horse has bolted!



So AB InBev moves into cannabis and Altria gets closer to a deal with Juul

In AB InBev in cannabis drinks tie-up (Financial Times, Alistair Gray and Nicole Bullock) we see that the world’s #1 brewer is getting together with Canadian marijuana company Tilray to research cannabis-infused drinks – but only in Canada for the moment. The two companies will invest $50m in researching how to get such drinks to market, taking into account factors like flavouring and the length of the high. This comes hot on the heels of Tilray’s announcement earlier on this week of a partnership deal with pharmaceuticals group Novartis to develop medical marijuana. Shares in Tilray shot up by 17% yesterday on the news in after-hours trading. * SO WHAT? * This is a really interesting development and is something that will continue to raise pulses as companies scramble to make a new market. Marlboro cigarettes maker Altria announced it was taking a C$2.4bn stake in Canadian marijuana company Cronos earlier this month and earlier on this year, Constellation Brands invested almost $4bn into Canopy Growth, another pot company. Then there was Aurora 

Cannabis’ $2bn purchase of medical marijuana group MedReleaf back in May – not to mention all the excitement that raised share prices of all pot companies when Coca-Cola was rumoured to be thinking of a foray into cannabis-infused beverages. I think there are going to be some interesting developments in this market in 2019.

Altria is nearing a deal to take a 35% stake in Juul (Wall Street Journal, Dana Mattioli, Jennifer Maloney and Dana Cimilluca) heralds the latest development in something that has been rumoured for the last few months. People familiar with the deal say that a $12.8bn cash injection could even be announced this week and would value Juul Labs at a whopping $38bn – potentially making it one of the world’s most valuable private companies (after only three years in existence!). Just to give you an idea of scale, this would make it bigger than Airbnb, Elon Musk’s SpaceX and Pinterest – and it would be on a par with companies like Delta Airlines, Target and Ford! * SO WHAT? * Through getting together, Altria would get access to markets outside the US and to Juul’s rather impressive 75% profit margin while Juul would get a deep-pocketed backer to help it through the new FDA clampdown on e-cigarettes and access to better shelf space at retailers. This pursuit of Juul implies a lack of confidence of its heat-not-burn IQOS product in the US, which has seen success in Japan and other countries.



GlaxoSmithKline announces a JV with rival Pfizer

GlaxoSmithKline to break up after striking Pfizer joint venture (Financial Times, Sarah Neville and Arash Massoudi) sounds an important moment for the company that has been undergoing a major overhaul under the auspices of its chief exec Emma Walmsley as it will split into two, creating a new £9.8bn consumer health business via a joint venture with Pfizer. The new UK-based group will take in Pfizer brands such as Advil, Centrum and Caltrate

into GSK’s established brands such as Sensodyne, Nicorette and Excedrin, making it the world’s biggest provider of over-the-counter medicines. In exchange, Pfizer will get a 32% stake in the new business. GSK said that it will spin off the division within the next three years via a UK stock market listing, leaving its prescription drug and vaccine business for existing shareholders. The tie-up is expected to complete by the second half of next year. * SO WHAT? * This sounds like a good deal strategically and gives investors the option to focus better on different areas by separating them out. It also means that the company’s core business could shed some of its debt quite neatly. Share prices of both firms rose on the news.



And finally, in other news…

You’ve probably made it through peak Christmas party season by now, but the following is worth keeping in mind: Can sucking on 2p coins help you pass breathalyser test? (Metro, Adam Smith Don’t drink and drive, folks!