Thursday 29/10/20

1. In MACRO & MARKETS NEWS, India/China relations get testier, Germany and France impose new measures and markets wobble
2. In CONSUMER/CONSUMER GOODS-RELATED NEWS, Visa and Mastercard point to a nervous US consumer (but US car sales are strengthening), UK estate agents push for a stamp duty holiday extension, LVMH/Tiffany is back on and Sony aims high for its PS5
3. In TECH-RELATED NEWS, Apple targets search but faces French privacy problems while Pinterest revenues climb
4. In INDIVIDUAL COMPANY NEWS, Heineken announces cuts, Glaxo wanes, Next delights and John Lewis goes for mixed use at its flagship
5. AND FINALLY, I bring you an exploding dessert…

So relations between India and China continue to be tense, Germany and France impose new measures to control the virus and markets weaken…

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India takes its tussle with China to the high seas (Financial Times, Amy Kazmin) shows that relations between the two neighbours continues to be tense as India increased its presence in disputed waters in the South China Sea with a warship. Relations have been pretty tense over the summer after China soldiers killed 20 Indian soldiers on the Himalayan border and this latest move extends the testiness to the sea. China’s navy easily outmans and outguns India’s – and it is expanding more quickly as well. However, some say that India has a geographical advantage as most of China’s energy supplies

have to pass through it. * SO WHAT? * Until now, successive Indian governments have been reluctant to rattle China’s cage, but Beijing’s development of Indian Ocean ports in places like Sri Lanka, Pakistan and Djibouti have forced a rethink – with the drama in the Himalayas probably being the final straw. I think that this is pretty significant in that it shows a major shift from trying to appeal to China to being very wary of it. India has plans to reinforce its maritime infrastructure whilst also boosting its defence co-operation with Washington.

Then in Germany and France impose fresh curbs to slow Covid-19 spread (Financial Times, Michael Peel, Victor Mallet, Guy Chazan and Erika Solomon) we see that both countries are tightening restrictions on social contact in response to the rising number of infections. France has announced a new one-month national lockdown (although schools, factories and companies would remain open) and Germany’s new restrictions – which will come into force on Monday and last until the end of November – will shut down all restaurants, bars and virtually all public entertainment.

All of this had knock-on effects, as per Markets fall as prospect of winter lockdowns in Europe triggers sell-offs (The Guardian, Rob Davies) which shows that markets around the world took a tumble on investor concerns about a second wave in the northern hemisphere. * SO WHAT? * I would expect markets to be volatile for some time yet as they move upwards on falling case numbers and vaccine testing announcements and downwards on rising case numbers, faltering businesses and vaccine delays – not to mention what’s going to happen in the forthcoming US presidential election. It’s obviously going to be a bit more complicated than this, but you get the general gist.

The US consumer is getting more cautious (although car sales are rising), UK estate agents push for an extension of the stamp duty holiday, LVMH/Tiffany is back on and Sony has high hopes for the PS5…

In terms of the US consumer, Visa and Mastercard earnings highlight consumer spending woe (Financial Times, Robert Armstrong) shows that retail spending in the US has basically flatlined since July, which disappointed investors in Visa and Mastercard who were hoping for more. The companies were also hit by the fact that cross-border transactions, which have higher fees, have fallen sharply due to ongoing global travel restrictions. This is significant given that such transactions made up about 40% of Mastercard’s revenue pre-coronavirus. But then again, US car business vrooms back from pandemic nadir (Wall Street Journal, Mike Colias and Nora Naughton) shows that the pace of new-vehicle sales in the last few months has meant a return to pre-crisis levels. Luxury vehicles and high-end pick-up trucks are proving to be particularly popular, powering the likes of Fiat Chrysler and Ford to strong quarterly performances that beat market expectations. Having said that, there is a lurking danger in the form of a coronavirus second wave, so it would probably pay to remain at least a bit cautious at this stage regarding immediate prospects. * SO WHAT? * Super-low interest rates and government stimulus have helped consumers afford to buy cars and there is something to be said for the argument that household spending has been reprioritised. Money not being spent on going on holidays and going out more generally is being redirected towards “feathering the nest” (DIY projects etc.) and buying a new vehicle. I would have thought that the potential for this kind of growth to be sustainable will depend a lot on who wins the US presidency next week and what policies they put in place.

Back in the UK, Calls to extend stamp duty holiday by six months (Daily Telegraph, Melissa Lawford) shows that a group of industry bodies is, somewhat unsurprisingly, appealing to Chancellor Rishi Sunak to extend the stamp duty holiday by six months. They are arguing that the deluge of home sales in the pipeline may not beat the

current deadline, but let’s face it they are scared that a March deadline will kill sales after that date and the industry will see a massive drop-off. * SO WHAT? * The recent wave of transactions has been powered by the deadlines of both the Help to Buy scheme and stamp duty holiday ending on the same day (so everyone is trying to get things sorted before this) as well as the release of pent-up demand that was stoked by lockdown. The processing of all these transactions has been made more complicated by the shift to working from home which has led to the average for transaction processing to stretch from 12 to 20 weeks. It remains to be seen whether Sunak will bend on this. I would have thought that he’d want to avoid a hard deadline (i.e. stamp duty holiday and then suddenly back to normal) and perhaps do a staggered taper of the holiday otherwise things could get messy for buyers and sellers.

Meanwhile, Tiffany agrees to new deal terms with LVMH (Wall Street Journal, Cara Lombardo and Dana Cimilluca) shows that crisis (and massive legal fees) have been averted as Tiffany has agreed to accept a lower takeover price from LVMH to allow the deal to go forward. LVMH will now pay $131.50 per share for Tiffany versus the $135 per share it promised to pay back in November. * SO WHAT? * Thankfully, sense has prevailed and both sides have pretty much got something out of it all – which is what negotiation is all about! LVMH got a lower price and Tiffany got its sugar daddy. Now everyone can move on although the economic backdrop ain’t exactly rosy!

Sony sets 100m sales target for new PlayStation 5 console (Financial Times, Kana Inagaki) shows that the consumer electronics giant has set a sales target for the new console as it simultaneously raised its annual profit guidance by 13%. This will come as a welcome development at a time where sales of smartphone camera sensor sales are dropping off sharply (Huawei is its second biggest customers in this area. Apple is number one). Game sales and PlayStation Plus subscriptions have risen under lockdown and it is thought that this is likely to continue. Sony: angels and demons (Financial Times, Lex) points out that the company is currently on a valuation discount to its gaming rival Nintendo (but that this is because of the exposure to Huawei) and that console launches can be expensive initially. However, sales of high margin services like game downloads and online subscriptions are rising fast, so things should turn up.

Apple focuses on search and gets in hot water while Pinterest sees rising revenues…

Given all the fuss about Google, its search engine and exclusive contracts, Apple intensifies its efforts to replace Google search (Daily Telegraph, James Cook) is hardly surprising. Apparently, its new software iOS 14 includes a limited Apple search engine but its webcrawler, Applebot, which builds up a vast map of the internet has been increasing its activity. Apple clearly needs a plan B for if its current deal with Google gets compromised. However, Apple hit with antitrust complaint in France over privacy controls (Alex Barker, Patrick McGee and Leila Abboud) shows that Apple is now facing problems in France over its plans to restrict trackers used for mobile advertising. A coalition of trade groups in online advertising complained to France’s competition authority to ban Apple from

applying privacy controls early next year that would cripple their business. * SO WHAT? * Apple wants to ask users for permission to be tracked across apps and websites, which will no doubt result in a massive reduction in access to the info that powers mobile advertising. The coalition argues that Apple is saying on the surface that it is doing this for privacy reasons, but that the real reason is to stifle competition.

In Pinterest revenue soars as pandemic boosts engagement (Wall Street Journal, Sarah E. Needleman) we see that Pinterest announced strong user and revenue growth in the third quarter as engagement rose and advertising revenues rose during the Facebook advertising boycott. Whether or not that trend will last is questionable but it is a step in the right direction. These results powered the company’s share price up by 24% in after hours trading yesterday. Pinterest certainly seems to be on the up with monthly users rising by 37% in the third quarter, with particular strength outside the US.

Heineken announces cuts, Glaxo weakens, Next surprises on the upside and John Lewis goes for mixed-use…

In other news doing the rounds today, Heineken to cut head and regional office jobs by a fifth on profits hit (Financial Times, Judith Evans) highlights more deep cuts in the management of the world’s second-largest brewer as part of a restructuring process prompted by the coronavirus. It is the first company of the “Big Three” global brewers (the others being Anheuser-Busch InBev and Carlsberg) to announce major job cuts during the pandemic. Tough times. No doubt others will follow suit.

Then in Lower vaccine rates drag on Glaxo (The Times, Alex Ralph) we see that disruption to non-Coronavirus vaccinations have negatively impacted GSK’s quarterly

sales. A combination of lockdowns and patient reticence at visiting surgeries have meant fewer vaccinations overall. FWIW, I would have thought that these would come back sharply when there is a Coronavirus vaccine as patients may decide to get them all done at the same time or in quick succession.

In retail, Next warns new lockdown would wreck festive sales (Daily Telegraph, Laura Onita and Simon Foy) shows that although sales were strong in the third quarter, they could fall by 20% in the all-important fourth quarter in the event of a second lockdown. Then in Half of John Lewis flagship will turn to offices (Daily Telegraph, Louise Moon) we see that John Lewis has just been given the go-ahead to turn almost half of its flagship Oxford Street store to office space. * SO WHAT? * I think this could well be something that other department store operators get involved in as they try to turn things around. I really think that the days of big department stores in city centres are numbered. Mixed use makes so much more sense IMO and gives the stores an installed customer base.

…in other news…

I thought I would leave you today with the hilarious dessert-related incident in Woman suffers mortifying fail on camera while trying to enjoy a crème brûlée (The Mirror, Rosaleen Fenton). Brilliant 😂!