Tuesday 01/10/19

1. In MACRO, MARKETS & OIL NEWS, European joblessness hits new lows, BoJo continues the search for a deal,  UK consumer spending buoys the economy, Shanghai Star loses is lustre and Saudi Arabia tries to sweeten the Aramco deal
2. In FIN/TECH NEWS, Revolut makes a big move, TikTok makes its parent proud and Facebook’s news costs might be less than expected
3. In INDIVIDUAL COMPANY NEWS, WeWork officially postpones its IPO and Goals gets relegated
4. In OTHER NEWS, I bring you a gathering of Nigels…

So European unemployment hits lows, BoJo continues to search for a deal, UK consumers boost the economy, Shanghai Star ain’t so stellar and Saudi Aramco aims to tempt buyers…

Eurozone defying slump as jobless rate drops to 12-year low (Daily Telegraph, Tom Rees) heralds some good news for the ‘zone as the latest figures show that unemployment is now at its lowest level since 2007. This has been due to particular strength in Italy, Greece and Spain – and even Germany wasn’t too bad either. Unemployment rates in southern Europe are still relatively high, though, with rates of 9.5% in Italy and 13.8% in Spain versus levels below 4% in the UK, US and Germany. The overall unemployment rate for the Eurozone now stands at 7.4%. * SO WHAT? * This is quite interesting considering that the Eurozone economy is having a wobble at the moment, with Germany teetering on the brink of recession and ECB president Mario Draghi’s continued calls for increased government spending and economic stimulus to jolt its economy back to life . In theory, if Eurozone governments get spending, there will be more scope for the unemployment rate to fall further as employment opportunities and wages start to rise.

Johnson to ‘know by weekend’ whether he has chance of Brexit deal (Financial Times, George Parker, Sam Fleming, Mehreen Khan and Arthur Beesley) suggests that BoJo is continuing to push for a deal with the EU and that he’ll know by the weekend whether new proposals have any chance of helping to avoid a no-deal Brexit. The drama rumbles on as both sides make threats and accuse each other of being unreasonable while BoJo continues to brandish the prospect of no-deal as a negotiation tool.

In the meantime, Consumer spending boosts economy due to higher wages (Daily Telegraph, Tim Wallace and Tom Rees) cites the latest figures from the Office for National Statistics which show a rise in consumer spending in Q2 of 2019 due to the boost that households are getting from rising wages. Even the proportion of incomes being saved has gone up from 6.4% in the

previous quarter to 6.8% now. Given that consumer spending is going up despite credit card lending growth slowing down, it shows that higher wages (and not increased levels of unsecured lending) are fueling the spending as they filter through to the real economy.

Elsewhere, Shanghai’s Star Market fades after initial success (Financial Times, Hudson Lockett) shows that the much-hyped Chinese alternative to the Nasdaq has faltered since its launch in July. 25 companies listed initially and others predicted this to ramp up significantly as the year wore on, but an initial boom has turned into a damp squib. The main selling point – that listing on this new index would be less onerous than other exchanges on the mainland – appears to have have involved rather more bureaucracy than the marketing had implied. * SO WHAT? * The Shanghai Stock Exchange is trying to make sure it only lets in “quality” companies that don’t have “fluff valuations” to give Star a fighting chance of doing better than ChiNext, an earlier attempt to attract tech stocks. At the end of the day, it only started in July, so it’s too early to say whether Star is going to be a winner or not. It may well be that this slowdown gives the new index a bit of a breather to get things right. Nasdaq won’t be quaking in its boots just yet, but if lessons learned from ChiNext are implemented effectively, it seems to me that there will be no shortage of Chinese companies wanting a piece of the action – and if quality control maintains intact, it could well attract non-Chinese tech companies as well as corporates look for a way to tap into Chinese thirst for all things tech.

Saudi Aramco dangles $75bn payout to float investors’ boat (The Times, Emily Gosden) highlights plans for the state-owned oil company to dole out a $75bn dividend to boost the attraction of its forthcoming public listing. This would exclipse other company dividends – Royal Dutch Shell was the most generous dividend payer last year with a “measly” $16bn in dividend payments – and is part of a bid to justify the $2tn valuation that Crown Prince Mohammed bin Salman (aka “MBS”) is seeking when the world’s biggest oil company finally lists. You will recall that MBS wants to list Saudi Aramco as part of his “Vision 2030” plan to wean the kingdom off reliance on oil revenues. At least some proceeds from the sale will be ploughed into intiatives to execute this plan, so you can see why MBS wants to get the highest valuation possible.

Revolut aims for expansion, TikTok ticks along nicely and Facebook might not pay out so much for news…

Having said yesterday that challenger banks are generally having a rough time, Digital bank Revolut sparks an expansion revolution (Daily Telegraph, James Cook) highlights the company’s dramatic announcement yesterday that it has signed a deal with card issuer Visa that will help it to expand to 24 new countries, which will mean it will be hiring around 3,500 new employees, bringing its total headcount to 5,000. * SO WHAT? * This is an astounding development as most digital banks expand slowly, country-by-country – so Revolut announcing an expansion into 24 at the same time is somewhat notable!  It aims to launch in Japan and America by the end of the year with other countries such as Brazil, Russia and South Africa to follow but won’t launch in all 24 countries by the end of 2020. This announcement surprised everyone and is likely to make rivals such as Monzo and Starling rethink their expansion plans. I think that this is a VERY bold move because this isn’t just any old product it is selling – the banking services it sells are highly regulated and dealing with this across 24 countries will be an absolute nightmare. The company has already come under scrutiny for alleged links to Russia so the pressure is bound to intensify hugely. It seems to me that this move will either catapult Revolut into the stratosphere, or it could just magnify any issues that it currently has. Now this is purely speculation here, but I think that if it goes well, then Revolut’s growth will trump that of all its rivals, but if it DOESN’T it could become

an extremely attractive acquisition target for a lumbering “traditional” bank wanting to get access to cutting-edge technology as well as know-how in new services (not to mention access to countries where it may not have a presence). Who knows? It could be an acquisition target before that (but probably at a highly inflated price)!

Viral video sharing app TikTok on song with £6bn revenues (Daily Telegraph, Matthew Field) highlights the continued success of TikTok as it drives profits for Chinese parent company Bytedance. TikTok now has over a billion users worldwide and has helped to pump up the valuation of its parent to about $75bn, although most of the latter’s income comes from the Chinese version of the app, Douyin. Although it’s doing rather well, Bytedance has been subject to allegations of censorship and investigations by UK and US regulators over its handling of children’s data.

Then With Facebook’s coming news tab, only some will get paid (Wall Street Journal, Lukas I. Alpert and Sahil Patel) we see the rather interesting development that Facebook will only be paying a few of the publishers whose content will appear in the upcoming Facebook news section. The news section, which will appear on the toolbar at the bottom of Facebook’s mobile app, is expected to launch at the end of this month and will include links to stories from around 200 publications. Negotiations will a number of publishers are still ongoing as Facebook wants access to everything while some publishers only want to give them limited access. Facebook is offering around $3m per year on a three-year contract for national newspapers, which then slides down to a several hundreds of thousands of dollars per year for regional publications. There will be a “Top News” section with the top 10 headlines curated by humans while news in subsections will be selected by algorithm and there will be NO advertising in the feed. It still won’t be as good as Watson’s Daily, though 😜

WeWork “officially” drops its plans to list and Goals gets relegated…

Although we all knew this was going to happen anyway, WeWork drops listing after doubts grow (The Times, Patrick Hosking) shows that the company behind WeWork, the We Company, officially cancelled plans to float yesterday, one week after it removed its chief exec. It said that it would now concentrate on its core business. * SO WHAT? * This was bound to happen and I think it’s a good thing that it has been forced to take a breath and sort out its business. No doubt it will come back for a listing in the not-TOO-distant future, though, as it is STILL going to need

money! At least when it comes back, it can say to investors that it has taken measures to address previous concerns rather than just fronting up and saying to them “trust us”, wink, wink as they did before.

Goals is relegated from stock market as Ashley waits (Daily Telegraph, Hannah Uttley) shows that the five-a-side football company backed by Sports Direct’s Mike Ashley has been kicked off the Aim stock exchange for having tricky financials. Shares in the company were suspended in March on news of an HMRC inquiry into alleged accounting errors and this delisting effectively turns it into a private company. Ashley launched a £3.8bn takeover bid for the company last week and talks are ongoing. It sounds like Ashley will be able to pick up yet another asset at fire sale prices…

And finally, in other news…

I thought I’d leave you today with something that is particularly heartening for guys called Nigel in World’s biggest gathering of Nigels and all things Nigelness attracts 433 Nigels (Metro, Richard Hartley-Parkinson https://tinyurl.com/y6l5vnfx). Good on ’em. Mover-and-shaker Nigels that probably weren’t in attendance included Nigel Owens (top rugby referee – decent excuse, he’s currently at the Rugby World Cup), Nigel Benn (the aging boxer who announced a comeback – he’s probably training in the gym) and, of course, Nigel Farage (who, to be honest, should have turned up as we all know he likes a pint, but maybe he was afraid other Nigels would turn on him). The gathering also came up, rather handily, for a collective noun for a group of Nigels – so a group of them will now be called “a niggle” of Nigels. Sadly, Nigella Lawson didn’t turn up, but there’s always next year…