Tuesday 02/04/19

  1. In MACRO AND MARKETS NEWS, German manufacturing weakens, British manufacturing strengthens and global markets rally on better news from US and Chinese manufacturing
  2. In IPO-RELATED NEWS, Lyft falls on its second day and Slack considers a direct IPO on the NYSE
  3. In INDIVIDUAL COMPANY NEWS, we see just how incredibly profitable Saudi Aramco is and Amazon cuts prices at Whole Foods
  4. In OTHER NEWS, tidying sensation Marie Kondo could “spark joy” by endorsing tasers. For more details, read on…



So German manufacturing drags down the eurozone while UK manufacturing gets a boost from stockpiling and global markets recover on stronger figures from the US and China…

German factories drag down whole eurozone (The Times, Gurpreet Narwan) shows that, according to the latest IHS Markit/CIPS manufacturing purchasing managers’ index (PMI), German manufacturing shrunk at its fastest rate in six-and-a-half years last month. * SO WHAT? * The global slowdown in demand, tariff uncertainties and Brexit concerns are all believed to be taking their toll and Germany’s weakness, given that it is the biggest economy in the eurozone, is dragging everyone down. Phil Smith, principal economist at IHS Markit observed that “Uncertainty towards Brexit and US-China trade relations, a slowdown in the car industry and generally softer global demand all continue to weigh heavily on the performance of the manufacturing sector, which is now registering the steepest rate of contraction since 2012”.

Interestingly, UK manufacturers buoyed by Brexit stockpiling as eurozone slumps (The Guardian, Phillip 

Inman) shows that the same PMI for the UK indicated manufacturing activity ramping up to a 13-month high in March as firms stocked up on raw materials and finished goods at their fastest monthly rate of any G7 country since 1992! The main reason behind this is fears that imports and exports would be held up at the UK border. IHS Markit director Rob Dobson pointed out that “The stock-building boost introduces a major headwind for demand, output and jobs growth moving forward. Manufacturers are already reporting concerns that future trends could be constrained as inventory positions across the economy are unwound”. In other words, all this activity is great now, but it’ll probably lose a massive amount of momentum in the coming months as inventory levels are run down as there’s only so much you can stockpile!

US and Chinese manufacturing stabilise, while Europe lags behind (Wall Street Journal, Paul Kiernan and Paul Hannon) has a more upbeat tone as manufacturing activity in the US and China has improved, according to official figures. Given that manufacturing is an economic bellwether of the wider economy, markets reacted positively. * SO WHAT? * It would seem that the US is continuing the momentum it got from last year’s fiscal stimulus while others are sceptical about how sustained China’s rise in manufacturing activity really is given that it always improves after the long Lunar New Year holiday. The naysayers on China will certainly have to see a bit more evidence of an upturn before they wind in their scepticism.



Lyft wobbles and Slack ploughs on with its flotation plans…

Profit questions throw Lyft shares into reverse (Financial Times, Richard Henderson and Mamta Badkar) shows that the newly-floated company’s share share price fell below the listing price on the second day of trading as doubts weighed on investors’ minds about their touted route to profitability. Shares fell by 11.9% yesterday to a level that was 4.2% lower than the listing price. * SO WHAT? * This kind of thing happens quite often with tech IPOs – and Lyft is in good company with the likes of Facebook, Twitter and Alibaba all seeing their share prices fall on the second day of trading. TBH, the observation about investors suddenly starting to ask questions about Lyft’s path to profit are a load of codswallop because they will have known this all beforehand – you either believe the company’s BS or you ignore it and buy into the story anyway. I suspect that some of the luckier ones who managed to get allocated shares in the IPO saw them pop and then sold to lock in a quick profit. Given that Lyft was open to retail investors as well as institutional ones, you are likely to see a bit more volatility as their activity is more difficult to predict/control.

The problem will come if the shares continue to track downward. Uber in particular will not want that to happen given it is planning to list soon and could do with a good performance from Lyft to pump up the hype on ride-sharing.

Slack chooses NYSE for direct listing (Wall Street Journal, Corrie Driebusch and Maureen Farrell) shows another company with flotation on its mind as it prepares to follow Spotify by undertaking a direct listing, where a company places its stock on an exchange without raising money or having underwriters. Slack operates an app that’s used for group communication (it’s trying to be an e-mail killer!) and has already raised a ton of money – $1bn since it launched in 2013. Presumably it’ll use the extra cash from flotation for expansion. * SO WHAT? * Basically, a direct listing is a cheaper way to list (it saves on fat investment bank fees) and given that Spotify’s flotation went OK last year, it has obviously decided to go down the same road and save itself some money. The major risk with this kind of listing is that there isn’t an investment bank acting as a stabilising agent, calming any wild price swings in early trading. This will no doubt make investment bankers twitchy as they will be losing out on big fees if everyone starts doing this (and Airbnb looks like it is considering doing the same), so they will probably be praying that Slack has a disaster.



Saudi Aramco shows just how profitable it is and Amazon aims to cut prices at Whole Foods…

Saudi Aramco’s $111bn profits dwarf those of mega-rivals (Financial Times, David Sheppard and Myles McCormick) lifts the lid on just how much money Saudi Arabia’s state oil company makes as it disclosed its financial performance for the first time in 75 years . It turns out that the group generated $111.1bn of net income last year – double that of Apple and five times that of oil producer Royal Dutch Shell – as it supplies over 10% of the world’s crude oil. * SO WHAT? * Prince Mohammed bin Salman (MbS) is trying to wean his kingdom off oil revenues by embarking on a long term plan to boost other areas of the economy but given

that the oil sector currently accounts for 63% of total revenues in 2017, you can see how hard this is going to be. Luckily for him, he has access to tons of money (unlocked by Saudi Aramco’s purchase of Sabic) so at least he’s got something to throw at the problem.

Amazon cuts more prices at Whole Foods (Wall Street Journal, Heather Haddon) heralds a shift for Amazon as it tries to break the perception of Whole Foods as being a pricey option for grocery shopping (one of its nicknames is “Whole Paycheck”!) by announcing plans to cut prices on over 500 items at Whole Foods stores from tomorrow. * SO WHAT? * These prices cuts will be the most wide-ranging since it bought the grocer for almost $14bn in 2017 and shows Amazon’s intention to get more mainstream in its grocery offering and compete with the likes of Walmart, Kroger et al. It’ll be interesting to see what the effect will be, but I would imagine it is going to take some time to truly shift this perception.



And finally, in other news…

OK, OK I know this is an April Fool’s thing but I thought the headline was hilarious so here it is: Japanese company proposes Marie Kondo as mascot for new “Spark Joy” police taser weapons (SoraNews24, Scott Wilson http://tinyurl.com/y5s8pg7o).

Some of today’s market, commodity & currency moves (as at 0830hrs 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 **
7,317 (+0.52%)26,258 (+1.27%)2,867 (+1.16%)11,682 (+1.35%)5,406 (+1.03%)21,492 (-0.02%)3,170 (+2.58%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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