Thursday 23/07/20

  1. In MACROECONOMIC NEWS, we see reaction to the EU bailout deal
  2. In TECH NEWS, Microsoft’s revenues rise but it’s facing a lawsuit with Slack. US investors try to buy TikTok
  3. In AUTOMOTIVE NEWS, Tesla announces its 4th consecutive quarter of profit and Fiat Chrysler signs a deal with Waymo but gets investigated over omissions
  4. In INDIVIDUAL COMPANY NEWS, Stagecoach paints a bleak picture, Kingfisher benefits from lockdown DIY and there are contrasting fortunes for Chilango and Chipotle
  5. AND FINALLY, I bring you a noodle-themed hotel room and how to make Domino’s garlic and herb dip…

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MACROECONOMIC NEWS

So we see reaction to the EU bailout deal…

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Investors cheer euro’s prospects after ‘milestone’ EU deal (Financial Times, Eva Szalay) shows how the agreement on the EU’s bailout recovery fund has been received positively by investors and signals a potential shift in preference away from US assets to European ones. Before the deal was announced on Tuesday, consensus estimates for the Euro/Dollar rate according to Bloomberg were $1.15 by the end of the year – but it reached that level just after

the agreement over the $750bn fund was announced.

Mind you, Despite historic EU deal, deep rifts remain (Financial Times, Mehreen Khan, Sam Fleming and Jim Brunsden) highlights continued rifts despite the agreement as it turns out that Finland joined the Frugal Four during negotiations in resisting the proposed deal but the now-Frugal Five were calmed down by late-night talks with Angela Merkel and Emmanuel Macron. However they got there, Recovery fund marks ‘breakthrough’ for EU debt ratings, says S&P (Financial Times, Tommy Stubbington) shows that the agreement the EU reached should lift credit ratings of member states as they are now involved in a joint response to the pandemic-induced economic crisis and the massive increase in debt issuance to finance everything will make the Euro more attractive as a reserve currency. * SO WHAT? * Like I said before, it’s good that the EU member countries managed to reach an agreement. The devil will be in the detail – but mostly in how it is all executed.

2

TECH NEWS

Microsoft’s revenues climb, but Slack slaps it with a lawsuit and US investors try to buy TikTok…

Microsoft revenue surges though cloud growth slows (Wall Street Journal, Aaron Tilley) shows that Microsoft reported strong sales growth due to ongoing demand for its cloud computing services as more customers moved online during the pandemic. Although sales for Azure, Microsoft’s cloud computing service, were up by 47% versus a year ago, this signalled a bit of a slowdown. The company’s profit margin for the latest period took a bit of a hit as it made investments in growing its cloud capacity. On the other hand, Slack accuses Microsoft of copying (The Times, Tom Knowles) highlights allegations by Slack, the messaging app, that Microsoft unfairly bundles its rival Teams app with Office 365. It alleges that Microsoft is “force-installing it for millions, blocking its removal and hiding the true cost to enterprise customers”. This is potentially going to get ugly.

I mentioned this yesterday but US investors try to buy TikTok from Chinese owner (Financial Times, Henny Sender, Arash Massoudi, Miles Kruppa and Hannah Murphy) goes into more detail as to who’s involved and

what they are trying to do. Basically, a group of investors led by venture capital (VC) firms General Atlantic and Sequoia Capital are talking to the US Treasury and other regulators about spinning out TikTok from ByteDance and firewalling it. In return, ByteDance, will retain a minority stake in TikTok and non-voting shares. * SO WHAT? * Given that the White House is currently debating whether to put TikTok on its “entity list” (its trading blacklist), the current talks have a bit of an edge. I have to say that I think that this sounds like it would be a workable solution and that maybe the current parent, ByteDance, would be better off owning a bit of something (a US-owned TikTok) rather than 100% of nothing (which is what would happen if the US decided to ban it). I presume that ByteDance will want to wait until they know for sure whether the US will slap a ban on it before making a decision, but you never know – maybe the company will take exception at the Americans essentially buying a Chinese success story on the cheap (cheap if you assume that the app is yet to hit maturity). Maybe even the Chinese government will get involved saying that this was a plan concocted by the US government all along to get TikTok for itself and that they are just jealous of its success. If the Americans DO end up getting it, they really will have most of the most popular tech out there right now! This will just make them even more dominant in the tech that most of us use on a regular basis!

3

AUTOMOTIVE NEWS

Tesla does it again and there’s mixed news for Fiat Chrysler…

Tesla posts fourth consecutive quarterly profit, defying pandemic shutdown (Wall Street Journal, Tim Higgins) shows that Tesla, for the first time in its 17 years of existence, has managed to report a fourth consecutive quarter of profits. It added that it still aims to deliver 500,000 vehicles this year – up by over 36% versus last year – but that this would be difficult (it had previously said that it wanted to deliver more than that number, but then coronavirus happened). * SO WHAT? * As I said yesterday, this latest development means that Tesla is now eligible for inclusion in the S&P 500 index. If it does go into the index, it is highly likely that its share price will get an immediate uplift as index funds will have to buy it – amazing when you consider that its share price has already risen almost fourfold so far this year!

Elsewhere, Fiat Chrysler signs deal with Waymo as it steers away from Aurora (Financial Times, Peter Campbell and Patrick McGee) highlights a new “exclusive” deal

between Fiat Chrysler Automobiles (FCA) and Google’s self-driving specialist Waymo, which essentially brings an end to FCA’s 18-month relationship with Amazon-backed Aurora. FCA was the first car group to work with Waymo back in 2016, but since then Waymo has worked with Jaguar, Volvo, Renault and Nissan. * SO WHAT? * Having now signed the deal, FCA can now use Waymo tech across ALL of its global portfolio. The great thing here is that it won’t now have to develop it itself – and it has been seen as a bit of a laggard in self-driving tech up until now.

There’s some bad news for FCA, though, in Fiat Chrysler and Iveco offices raided in ‘dieselgate’ investigation (Daily Telegraph, Alan Tovey and Hasan Chowdhury) as investigators raided offices in Germany, Switzerland and Italy in 10 properties looking for evidence of whether firms fitted “defeat devices” to their vehicles to cheat emissions levels. VW has already been hammered with fines running into the tens of billions. * SO WHAT? * This is clearly not great, but it all depends on what the investigations find. I would have thought this will take some of the shine off FCA shares, but it could well do without being subject to humongous fines when car sales aren’t great and economies are struggling.

4

INDIVIDUAL COMPANY NEWS

Staegecoach has a bleak outlook, Kingfisher benefits from lockdown DIY and there are contrasting fortunes for Mexican restaurants…

In news on trends that have emerged during lockdown, Stagecoach plans job cuts and predicts bus passenger reduction is long term (The Guardian) shows yet another bus company getting a kicking from the coronavirus. It’s not alone as rival FirstGroup is also having problems and it said that it did not expect passenger numbers to return to 2019 levels for a number of years.

Elsewhere, Kingfisher cashes in on lockdown DIY boom (The Times, Ashley Armstrong) shows that strong sales of gardening products and decorating supplies has emboldened the company enough to say that it will refuse

to accept a taxpayer bonus payment to retain staff (the government said recently that companies are entitled to get £1,000 for every member of staff they bring back from furlough if they keep them on for a certain time period). The company which owns Screwfix and B&Q said that sales momentum continues to be strong but added that it’s not so sure about what will happen for the rest of the year. Still, good news for now, though!

There are contrasting fortunes for Mexican restaurants in Burrito dining chain Chilango prepares to enter administration (The Guardian, Sarah Butler) as the chain faces potential closure of its 12 Mexican-themed restaurants in yet more evidence of the slow death of chain restaurants on the UK high street while Chipotle’s online sales surge amid coronavirus (Wall Street Journal, Heather Haddon) shows that the tripling of online sales during lockdown helped to get it through this tough period, although it declined to give full year guidance on its figures. Still, at least some are doing OK out there!

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...AND FINALLY...

…in other news…

I thought I’d leave you today with an unusually-themed hotel room in Sleeping with the noodles – Ramen-themed hotel room now accepting guests in Japan (SoraNews24, Casey Baseel) – this looks brilliant, no?? – and a recipe that you might like if you’re a fan of Dominos in Man shares simple replica recipe for Domino’s famous Garlic and Herb dip (The Mirror, Paige Holland). My kids demand pizza on Fridays, so I think I will try this recipe out and report back to you!

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Some of today’s market, commodity & currency moves (as at 0753hrs 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 **
6,207 (-1.00%)27,006 (+0.62%)3,276 (+0.57%)10,706 (+0.24%)13,104 (-0.51%)5,037 (-1.32%)22,749 (-0.59%)3,325 (-0.24%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$42.1300$44.5100$1,874.561.274491.15907107.111.099839,507.64

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