Thursday 31/10/19

  1. In MACRO NEWS, the Fed cuts rates for a third time, French GDP rises and the City hopes for a “Boris Bounce”
  2. In TECH NEWS, Apple and Facebook smash it, Twitter goes a-political
  3. In RETAIL/CONSUMER NEWS, Australia’s biggest supermarket faces the music for underpaying, UK MPs push for changes in business rates, Next disappoints and UK consumer confidence continues to shrink
  4. In INDIVIDUAL COMPANY NEWS, Peugeot and PSA look like merging while both Lyft and Starbucks do well
  5. In OTHER NEWS, I bring you holiday maximisation, McDonald’s on a diet and bad airline food…



So the Fed cuts rates, France motors and the City hopes for a Boris Bounce…

In Fed cuts rate for third time this year, signals pause (Wall Street Journal, Nick Timiraos) we see that the Federal Reserve (aka “the Fed”) cut interest rates for the third time since July, but indicated that this would be the last cut for a while unless the economy had a shocker. The federal funds rate was cut by 0.25% to a range of 1.5%-1.75%. * SO WHAT? * I think it’d be fair to say that this rate cut was largely in the price already, but US stocks rose slightly in response. It’s interesting to note that the Fed RAISED interest rates FOUR TIMES last year to try to calm an overheating economy but has CUT it three times this year in order to avert a potential downward spiral following the ongoing US-China trade war. Bluntly speaking, Trump wants the Fed to cut the rate way more than this because big rate cuts tend to boost financial markets considerably, which would make him look like a hero going into election year next year. So you can see why Fed chairman Jay Powell’s more gradual adjustments aren’t going down well in the White House…

Following on from what I was saying about France yesterday, French economic growth beats expectations (Financial Times, Martin Arnold) cites the latest figures which show that French GDP grew by 0.3% in the three

months to September. This beat market expectations, providing further evidence that the French economy is weathering the current global economic slowdown better than Germany’s, which will fall into recession if expectations of a second consecutive quarter of contraction come to fruition. France appears to be benefiting from strength in services and domestic consumption whereas Germany seems to be suffering from its exposure to exports, which are being hit by tariffs incurred during the US-China trade war. Interestingly, exports only account for 31% of French GDP versus a 48% average for the eurozone. German GDP figures are scheduled to be announced on November 14th, and the expectations aren’t good.

We are all going to be in for a barrage of noise in the run-up to the December 12th election, so City hopeful Johnson victory could spark ‘Boris Bounce’ (The Guardian, Phillip Inman) is just one of many comments! This one says that early signs in financial markets point to the expectation of a BoJo victory and his subsequent carrying through of the existing deal with tweaks. Analysts at Berenberg bank think a “Boris Bounce” (a boost to the economy and financial markets) could occur, especially if he throws tax cuts into the mix of higher public spending. * SO WHAT? * The Conservative and Labour parties are expected to publish their respective manifestos in the next two weeks or so. That should mean we’ll get a clearer picture of the parties’ respective intentions, but until then expect a ton of noise and bluster.



Apple and Facebook put in solid performances and Twitter moves away from political ads…

Apple revenue rises even as iPhone sales decline (Wall Street Journal, Tripp Mickle) highlights a solid performance in the company’s other gadgets and services division as iPhone sales growth continues to tail off. Profits were down, marking the first time since CEO Tim Cook took over in 2011 that they have declined for every quarter in a fiscal year. The company continues to talk a good game as CFO Luca Maestri said it is optimistic about a strong Christmas sales season given customer interest in its new iPhones and wearables. * SO WHAT? * However you look at it, iPhones still account for over 50% of Apple’s revenues but at least other areas of the business seem to be going in the right direction, doing just enough to take the edge off sluggish handset sales. Its new streaming service Apple TV+ is due to launch this Friday with a $4.99 per month subsciption. FWIW, I think Apple will just move sideways until it launches a 5G phone next year as all of its  products seem to be incrementally better than the previous ones. If it could come out with a 5G foldable phone that doesn’t break (unlike rival offerings!), maybe this would get people excited again! In the meantime, the company will

just keep chipping away at services and wearables. I must say, though, that I think it is madness for Apple to go into TV. Talk about a money pit. As far as I can see at the moment, they’ve got next to b*gger all content and it’s going to get worse (and more expensive) as their bigger rivals fight over existing shows to boost their own offering. Apple does seem to have money to burn, so I guess it can just throw money at streaming – but I think there are much better ways of using its cash pile.

Facebook earnings soar as Zuckerberg warns of ‘tough year’ ahead politically (Wall Street Journal, Jeff Horwitz) shows that Facebook has managed to weather the storm of bad PR and political pressure as it announced strong third quarter results yesterday, sending the share price up by 5% in after-hours trading. User numbers rose by 9% versus last year and average revenue per user was up by 19% over the same period. * SO WHAT? * OK, so it continues to struggle with Washington with antitrust and misinformation allegations and has just been abandoned by key partners in its Libra cryptocurrency project – but the business continues to rumble on unabated. Given Twitter to ban political ads (Wall Street Journal, Georgia Wells and Emily Glazer) while Facebook says it will continue in this space regardless, I expect that the company will be rubbing its hands at the prospect of higher ad revenues leading into next year’s election! Zuck should definitely be sending Jack Dorsey a big Christmas present this year for taking this stance!



Australia’s #1 supermarket faces a massive backpay bill, MPs call for a review of business rates, Next disappoints and consumer confidence continues to shrink…

Australia’s top supermarket chain underpaid workers by A$300m (Financial Times, Jamie Smyth) highlights a massive injustice as Woolworths admitted that a review undertaken by PwC found that 5,700 of its workers had been underpaid over a period stretching back to 2010! Affected employees will be getting full entitlements, with back pay and interest as well as pension contributions asap, according to the company. This is the latest underpayment scandal to hit Australia recently as Domino’s Pizza and 7-Eleven have also had similar issues. The Fair Work Ombudsman will be investigating further and trade unions across the country have launched a campaign against what they term “wage theft” calling for tough new laws to punish wrongdoers. * SO WHAT? * This is absolutely shocking, don’t you think?? Anyway, all those affected workers will suddenly get a pretty decent cash windfall which may help to boost consumer spending in some way (presumably this may help DIY retailers and holiday firms, among others, depending on the size of the windfall) – but there could be much wider implications if more companies admit to doing the same thing.

Back in the UK, Business rate regime must be replaced, MPs demand (The Times, Gurpreet Narwan) highlights ongoing hand-wringing about the effect of business rates on high street retailers as a group of MPs in the Treasury Select Committee said that they placed an unfair burden on them. They called on the government to consider alternative taxes instead like a land value tax, an online sales tax or a profits tax. * SO WHAT? * Retailers have been banging on about this for ages and will continue to do so as the high street fragments by the day. Online retailers continue to benefit from lower (or no) taxes, meaning that they can afford to charge less for their goods, which means that customers continue to use them – which makes the situation worse for physical shops. Something major clearly needs to happen, but given that business rates rake in about £30bn a year, you can understand why the government has been dragging its feet somewhat. High streets are emptying as a consequence, though, so pressure is building for change.

Next feeling the heat from a warm summer (The Times, Ashley Armstrong) shows that warmer weather at the end of summer hit high street sales growth, but online sales increased by 9.7%. Investors seemed to be underwhelmed by the company’s decision to stick with its annual profit guidance and the share price fell by just under 3% on the update. Meanwhile, Consumer confidence takes another step back (The Times, Gurpreet Narwan) cites the latest GFK consumer confidence index which shows shows that UK consumers are feeling increasingly pessimistic about their personal finances. No surprises there!



A Peugeot/Fiat combo gets closer, Lyft raises guidance and Starbucks benefits from iced coffee…

Fiat Chrysler and Peugeot agree to pursue giant auto merger (Financial Times, David Keohane and Peter Campbell) signals an agreement to merge, creating the world’s fourth biggest carmaker. The boards of both companies have agreed to “work towards” a so-called merger of equals and details will be discussed over the coming weeks. PSA chief Carlos Tavares will become CEO of the enlarged business and Fiat Chrysler’s John Elkann will become chairman while the company will be headquartered in the Netherlands, a “neutral” location. The French government, which owns 12.2% of PSA, is also officially on board with the agreement – important, considering that it was the French government’s faffing which scuppered the proposed (then abandoned) merger with Renault earlier this year. * SO WHAT? * This sounds reasonable from a strategic point of view, but it’ll be interesting to see the detail. The fact that the French government are OK with it will give this deal a big boost. I expect more mergers and “joint ventures” in the automaker sector as players huddle together to survive more onerous regulation and shrinking sales.

Elsewhere, Lyft raises guidance, reports increased revenue (Wall Street Journal, Heather Somerville) heralds positive developments for the US ride-hailer as it raised its forecasts for this year as it announced a 63% hike in revenues and more earnings per rider. It will be the second quarter in a row where it has improved its full-year guidance. * SO WHAT? * I think that Lyft is quietly doing well as it, unlike competitor Uber, isn’t trying to be all things to all people everywhere all of the time. It has stuck to the US and Canada and looks like it is heading steadily toward profitability if its third set of results since flotation are anything to go by. The next stage on that road is to reduce discounts and subsidies – but the main cloud hanging over it is the Assembly Bill 5 (aka “AB5”) legislation in California which will classify its drivers as employees who will be entitled to more legal protections, increasing the company’s overheads.

Then Starbucks gets a lift from iced coffee (Wall Street Journal, Heather Haddon) shows that the world’s largest coffee chain attributed its solid quarterly results to stronger US sales of iced coffee and other cold beverages, which now make up around half of all drink sales. Interesting takeaways from these results: cold coffee is becoming increasingly popular among younger customers who view it as a healthier alternative to fizzy drinks and younger customers are also helping sales by buying cold drinks throughout the day rather than just in the morning. The company still faces big competition in China form local rival Luckin Coffee.



And finally, in other news…

I thought I’d leave you with a few bits today: You can double the amount of days you have off work in 2020 if you plan it now (The Mirror, Luke Mattews Shhhh. Just keep it between us 😜. And although I’m not really a fan of McDonald’s, if you feel the need and want to minimise the impact on your waistline What to eat at McDonald’s and Nando’s if you don’t want to ruin diet – and it’s not salad (The Mirror, Zoe Forsey may be worth a look! However, I would stay away from the following: Plane passengers share snaps of the worst in-flight meals they’ve been served (The Mirror, Luke Matthews 🤢

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Some of today’s market, commodity & currency moves (as at 0907hrs 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 **
7,331 (+0.34%)27,187 (+0.43%)3,047 (+0.33%)8,30412,910 (-0.23%)5,766 (+0.45%)22,927 (+0.37%)2,929 (-0.35%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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