Tuesday 02/07/19

  1. In MARKETS, MACRO & COMMODITIES NEWS, markets trend higher on trade war resolution hopes, UK factory output hits new lows, OPEC keeps its production limits unchanged and iron ore price soar
  2. In FINANCIALS NEWS, Thailand’s SCB sells its insurance division to Hong Kong’s FWD and Aussie banks face a foreign onslaught
  3. In CAR NEWS, Aston Martin gets a push while Nio sees management departures
  4. In INDIVIDUAL COMPANY NEWS, Coty restructures and Office looks to close stores
  5. In OTHER NEWS, I bring you the bottle cap challenge…



So markets get a Trump-Xi bump, UK factory output falls, oil production remains unchanged and iron ore prices continue to climb…

Global markets rally as hopes of US-China trade deal rise (The Guardian, Richard Partington) highlights investor hopes of a resolution to the US-China trade wars after Trump and Xi agreed to resume trade negotiations. The two leaders are set for more talks as Trump’s meeting with Xi at the G20 gathering appeared to go well, with Trump saying that the relationship with China was “right back on track”. Trump held back from imposing further tariffs on Chinese imports while China agreed to reciprocate and purchase more US agricultural goods. So far so lovely, however, Stocks are marching higher but corporate profits are not (Financial Times, Philip Geordiadis) shows that although the S&P has had its best first half since 1997, this hasn’t been on the back of forecasts of strong corporate profits and FactSet data shows that analysts actually expect corporate earnings to fall from here. The conclusion? Either the analysts are too gloomy, or we’re getting close to seeing a market correction. Mind you, if Trump and Xi actually get to some kind of trade accord markets will ignore all that and get a big boost – but then analysts may be more minded to up their targets if that happens anyway.

Opec retains oil output limit to ward off global price crash (The Guardian, Jillian Ambrose) shows that the cartel has

decided to keep current production limits unchanged, arguing that the rapid growth of the US shale oil industry and global economic slowdown could cause an increase in supply and a decrease in demand respectively. Russia and Saudi Arabia (the biggest non-Opec and Opec oil producing countries) have already agreed to extend the cuts despite Donald Trump asking them to increase output to make up for the oil that Iran produced. * SO WHAT? * Oil prices ticked up a bit, but I would have thought that the bits I mentioned yesterday about the Strait of Hormuz and the Bab-el-Mandeb strait will also affect oil prices in the short term at least.

In Iron ore prices soar as supply fails to meet ‘insatiable’ demand (Daily Telegraph, Jon Yeomans) we see that the iron ore prices rose as mine closures in Brazil following the Vale-owned dam collapse led the Australian government to forecast that global seaborne supply would fall by 4% this year. Global supply will also be hit by lower iron ore exports from Australia as cyclones dented output. This is the first annual drop in Australian iron ore exports for almost twenty years. * SO WHAT? * The price for iron ore, used to make steel, has broken the $100 a ton barrier in the last few months as supply disruption and rising demand from steel mills in China have combined in a perfect storm for price rises. Liberum analyst Ben Davis observed that “We’ve had incredibly strong demand for steel, most of it going into housing. The demand side has been the bigger factor than supply disruption. And there is a little bit of upside still to go”. Interestingly, demand for BHP and Rio Tinto’s “high grade” iron ore has risen in recent years from China because it pollutes less when it goes into the smelter. Miners make a lot of money from iron ore given that it can be extracted for as little as $13 a ton!



SCB sells its insurance business to FWD while Aussie banks are likely to face more foreign competition…

Thailand’s SCB sells insurance arm to Hong Kong’s FWD for $3bn (Financial Times, John Reed and Don Weinland) highlights the sale of the insurance business of Thailand’s Siam Commercial Bank to Hong Kong’s fast-growing FWD insurance group, as part of the latter’s expansion in Asia. * SO WHAT? * This is south-east Asia’s biggest ever insurance takeover and will mean that SCB will be able to distribute FWD’s life insurance products to its customers in Thailand for 15 years. This follows FWD’s acquisition on Friday of MetLife’s Hong Kong life insurance

business and is its ninth M&A deal in seven years. It still has a way to go before reaching the size of the likes of AIA or Prudential in terms of assets and agents but it is clearly going in the right direction. The SCB/FWD deal will be subject to regulatory and shareholder approval.

Foreign banks take aim at Australia’s big four oligopoly (Financial Times, Jamie Smyth) sounds a warning for the likes of Commonwealth Bank of Australia, National Australia Bank, ANZ Bank and Westpac. They face more potential competition from the likes of HSBC, ING and Citi following an inquiry that exposed large scale misconduct among the incumbent big four. Australia is one of the world’s most profitable banking markets and consumers could be tempted to leave following the Royal Commission inquiry and subsequent tightening of regulation. Things could get interesting…



Aston Martin’s about to get a shove but Nio is suffering…

Italians prepare to give Aston Martin a push (The Times, Ben Martin) highlights the fact that Aston’s biggest shareholder is talking about increasing its current 31% in the business. The Italian private equity firm Investindustrial is thinking of sinking £64.8m, equivalent to about 3% of the company, into it – which is ironic considering that it sold off shares in Aston Martin when the company floated for £19 a share, reducing its stake from 40% to 31%. The current share price is around £10. * SO WHAT? * This is quite an unusual move because when private equity firms sell down a holding, they rarely buy it back again as they tend to buy low and sell high. In this case, they are selling high and buying low – so many will infer that they believe that there is long term value in Aston Martin at the current

price. There is a lot riding on the success of Aston’s upcoming 4×4!

Electric car start-up Nio hit by management departures (Financial Times, Louise Lucas, Tom Hancock and Archie Zhang) shows that all is not well at the Chinese electric vehicle maker that raised $1bn in a New York listing last year as two senior executives, the heads of software and British operations, left their posts. The departures come shortly after the recall of 4,800 of their SUVs following reports of spontaneous combustion, which precipitated a 75% fall in the company’s share price. * SO WHAT? * This is a particularly bad sign because software is key to the vehicles and it has been a major area of weakness for the company. Costs are still high and many staff have been let go in the US in the last few months – including the chief exec – so if the company needs to raise more cash (which it inevitably will) it is going to have to continue to wield the axe. It just goes to show how difficult it is for electric vehicle manufacturers these days – especially when vehicle subsidies are reduced or cut altogether.



Coty struggles and Office eyes store closures…

Struggling beauty giant Coty to restructure operations (Wall Street Journal, Sharon Terlep) portrays the travails of troubled cosmetics maker Coty in the face of executive turnover and falling sales. The makeup and fragrance seller, controlled by investment firm JAB, is taking a $3bn write-down on CoverGirl, Max Factor – among other brands – and shed jobs as it seeks to restructure itself. Sales of brands like Revlon and Maybelline are suffering from the trend of consumers shifting to higher-end and niche brands like Glossier and Kylie Cosmetics. The company said that it will focus on stemming the losses and cutting costs before it re-embarks on new product launches and growth.

Shoes chain takes step towards closures (The Times, Louisa Clarence-Smith) gives us more evidence of the poor health of the UK high street as Office, which has about 100 stores in Britain, has appointed advisors to look at a potential CVA. The retailer, owned by South African clothing retailer Truworths International, blames “continued concerns over Brexit and depressed consumer demand” for its current woes. * SO WHAT? * Shoe shops are having a horrendous time of it, aren’t they? Clarks and Jones are among those having problems. I guess that shoes can be fairly expensive and, if you’re not feeling flush, you can just go and get them repaired. I would also say that footwear is particularly susceptible to online competition given that your size won’t vary with manufacturers and shops as much as clothes do, hence less of a need to go and try them on. OK, you might go once or twice to feel the fit, but you can then go and order online. Tough times and surely time for more consolidation in the sector…



And finally, in other news…

You probably know by now that I like to keep you informed of the latest trends (and sometimes dance moves). Well how about What is the bottle cap challenge? Jason Statham, Conor McGregor, John Mayer and more try Instagram trend (nj.com, Amy Kuperinsky https://tinyurl.com/yxwd4kqq). Doing this down the pub on a Friday night should cause quite a stir…

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Some of today’s market, commodity & currency moves (as at 0824hrs 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 **
7,498 (+0.97%)26,717 (+0.44%)2,964 (+0.77%)8,08912,521 (+0.99%)5,568 (+0.52%)21,754 (+0.11%)3,044 (-0.04)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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