Tuesday 03/09/19

  1. In MACRO & CURRENCY NEWS, BoJo issues an ultamatum, we see what Labour’s economic pledges cost, UK factory output slows right down and Libra gets no love from the ECB
  2. In RETAIL NEWS, pleas increase to save the UK high street and Sports Direct tries to drive Debenhams into the ground
  3. In INDIVIDUAL COMPANY NEWS, Toyota pushes into China and Allen & Overy’s attempts at a US deal fail
  4. In OTHER NEWS, I bring you a John Bercow mix…



So BoJo gets on the front foot, Labour’s pledges get priced up, UK factory output disappoints again and Libra gets zero support from the ECB…

Whoever said politics was boring, eh?? Boris Johnson threatens to call October 14 election (Financial Times, George Parker and James Blitz) shows that BoJo has ratcheted up the pressure on Remoaners by saying that if he loses today’s vote to keep no-deal on the table, he will call a General Election on October 14th. BoJo said that he would rather hold an election than seek any further Brexit delays and that keeping no-deal on the table is the only way he will be able to engineer any kind of better deal with the Europeans. Mind you, to trigger an election, two-thirds of MPs would have to vote for it. * SO WHAT? * If this happened, it is likely that he would bill the election as a “people versus parliament” election and put the Conservatives firmly in the Brexit camp, which would negate Nigel Farage’s party and pit them against Labour, the LibDems, SNP and Greens in the Remain corner. It looks to me like he wins if he manages to keep no-deal on the table and he wins if things go to a General Election and he gets what could be a bigger mandate – but he will obviously be scuppered if he loses the vote today and the subsequent election (clearly a big gamble, but one that his advisers think he can win as things stand). It’s interesting to note here that the LibDems don’t really feature much in any commentary at the moment despite having actually been in government more recently than Labour and my feeling is that they could take a hefty chunk of a potential Labour vote because it might attract disgruntled Labour and Conservative Remainers. On the plus side, you could probably argue that the LibDems are the only decent-sized party that has nailed its colours to the mast as Remainers from the earliest stages whereas Labour and the Conservatives have had a lot of in-fighting over it since the referendum. On the negative side, I would challenge you to go up to anyone on the street and ask them who the leader of the LibDems is (it’s Jo Swinson 😜) and what their policies are apart from those on Brexit. Overall, though, I think that this is another bold move from BoJo that will either strengthen his position by appealing to the Brexiteers or fail spectacularly.

Following on from yesterday’s comment about how much Labour’s plan to just take 10% of companies’ shares would actually cost, Cost soars for Labour’s grand pledge to shape the economy (Financial Times, Chris Giles and Delphine Strauss) looks at how much Labour’s promises to “end austerity, eliminate in-work poverty and drive up living standards across the UK economy” whilst staying within budget would cost. The current chair of the Office for Budget Responsibility, Robert Chote, estimates that whatever government got in power, borrowing would have to be within £25bn per year if it wanted to see its debt ratio falling, meaning that a Labour government would have

to raise taxes by at least this much. Mind you, Labour itself said in last year’s Labour Party dossier that the bill to end austerity alone would cost £42bn per year. * SO WHAT? * It’s difficult to tell which ideas will end up as official party policy going into an election given that shadow chancellor John McDonnell has flirted with ideas such as a complete overhaul of the use and governance of land, rethinking the role of the Bank of England, trialing universal basic income (i.e. flat lump sums for the unemployed), nationalisation of rail companies, utilities and the Royal Mail plus a drive towards the use of green energy – all of which will cost an enormous amount of money and whose benefits (if any) are unlikely to be felt for years, all at a time of economic instability. I suspect that this will be played on in any potential election campaign to scare voters away from Labour. If they do run, I would have thought that they are more likely to vote yellow rather than blue.

Meanwhile, UK factory output dives to seven-year low as Brexit fears rise (The Guardian, Richard Partington) cites the latest report from IHS Markit and the Chartered Institute of Procurement and Supply which shows that UK manufacturers have seen the sharpest drop in factory output for seven years due to Brexit fears and a broader slowdown in the global economy. * SO WHAT? * Interestingly, the report also said that firms had restarted plans to stockpile goods, just as they did before the original 29th March Brexit deadline – so I guess that it’s possible activity may pick up. On a related note, we’re not alone in manufacturing activity drying up – the same report also showed that manufacturing in the eurozone contracted for the seventh month in a row in August as weak demand for goods persisted.

Then in Facebook’s Libra digital currency plan ‘could threaten ECB’ (Daily Telegraph, Matthew Field) we see ECB board member Yves Mersch voicing his scepticism regarding Libra at a legal conference in Frankfurt thus: “I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call”. He went on to say that he thought that it could potentially reduce the ECB’s control over the Euro, adversely affect the execution of monetary policy and weaken the Euro’s international role. Not a fan, then. * SO WHAT? * This is about as surprising as someone telling us that bears do actually sh!t in the woods/that the Pope is, in fact, Catholic – but clearly Libra is getting central bankers all around the world pretty tetchy as it will be a leap into the great unknown and potentially weaken their power. The thing is, if their power weakens, I think that it will give governments less control over the ability to “smooth” the performance of their economies and we could see much more volatility as a result. In a separate, yet related, note Manny Pacquiao launches world first ‘celebrity cryptocurrency’ (The Telegraph, Jamie Fullerton https://tinyurl.com/y5h3fzzp) shows that celebs and boxers are now starting to jump on the crypto bandwagon. Wouldn’t it be just great if rapper 50 Cent launched a coin. What would he call it?? A 50Cent coin??



UK retail continues to suffer and Sports Direct seeks revenge on Debenhams

Plea for action to save high street as sales stagnate (The Times, Callum Jones) highlights appeals from the British Retail Consortium (BRC) to save the UK high street as its chief exec Helen Dickinson observed that “Summer discounting and poor footfall have hit in-store sales particularly hard. If the government wants to avoid seeing further store closures and job losses on the high street, they must take action”. Overall, food sales were good, but non-foods were weaker. More gloom for the high street…

Mike Ashley wants to ‘eliminate Debenhams as a

competitor’, court hears (The Guardian, Rob Davies) brings our attention to high drama as Debenhams’ barrister said in a court hearing yesterday that his client believed Sports Direct was backing the legal action by the Combined Property Control Group (CPC) to overturn the current CVA in order to “drive Debenhams into administration so that it can pick up its assets on the cheap”. * SO WHAT? * You will recall that Sports Direct was shut out of Debenhams as the latter managed to garner enough support from creditors to push through a CVA, which effectively rendered Sports Direct’s £150m share holding worthless. Sports Direct was originally a participant in the case but stepped away after Debenhams’ lawyers argued that it wasn’t a big enough creditor – but it didn’t stop the company from continuing to bankroll the action. This case will be very closely watched given the increasing prevalence of CVAs in the last couple of years. If it succeeds, the retail landscape will look even more uncertain as this apparent safety net could prove to have gaping holes.



Toyota targets China and Allen & Overy’s US overtures come unstuck…

Toyota accelerates push into Beijing car market (Financial Times, Kana Inagaki) highlights Toyota’s ambitions for China as the company has signed deals with BYD and Comtemporary Amperex Technology (CATL) to develop batteries for electric vehicles, invested $600m in China’s ride-hailing group Didi and started working with start-up Pony.ai on an autonomous driving project as well as participating in Baidu’s self-driving car programme Appollo. * SO WHAT? * Against a backdrop of manufacturers such as Ford, PSA and General Motors all seeing softer sales in the world’s #1 car market, Toyota has seen its sales jump by 12% between January and July versus the same period last year and seems to be catching up with the likes of VW and GM as relations improve between Japan and China.

Mind you, Japan has to continue to be careful to over-egg its burgeoning China relationship as it could annoy Trump, who could make things more difficult in America. Going back to it, though, Toyota still has some ground to make up with other foreign companies in China – especially in autonomous vehicles – but things seem to be going in the right direction.

Meanwhile, City law firm’s American marriage bites the dust (The Times, Jonathan Ames) heralds the failure of 18 months of talks about a merger with LA-based O’Melveny & Myers as the two parties couldn’t come to an agreement about the valuation of the combined business, ironically costing them millions in advisory fees. * SO WHAT? * UK law firms have been been trying to get a foothold in the US in order to get mandates on US deals and highly lucrative private equity work, but US companies have so far been pretty aloof. No doubt efforts will continue, but it’s back to the drawing board for now for A&O as it joins a number of its “Magic Circle” brethren in failed attempts at merging with US law firms. In the meantime, US firms continue to pick off star performers at UK law firms…



And finally, in other news…

As you know, I always try to find something for you in this section that is either amusing, or informative – or both! Unfortunately, nothing particularly hit me on this today so I thought I’d leave you with a little light music from John Bercow, speaker of the House of Commons, famous for shouting “Orderrrrr!” amidst clamouring politicians. Click HERE to listen to it, but you might need to turn the volume down. I suspect he’ll be saying this a lot in the next few days 😜 JOHNNY B IN DA HOUSE

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Some of today’s market, commodity & currency moves (as at 0919hrs 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 **
7,282 (+1.04%)26,403 (+0.16%)2,926 (+0.06%)7,96311,954 (+0.12%)5,493 (+0.23%)20,625 (+0.02%)2,930 (+0.21%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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