Tuesday 03/12/19

1. In MACRO NEWS, Trump talks tariffs on Argentina, Brazil and France, Chinese manufacturing gets a surprise uplift and UK manufacturing cuts jobs
2. In RETAIL NEWS, the UK high street has an uptick while Ted Baker has a shocker
3. In INDIVIDUAL COMPANY NEWS, UK motorists demand compensation from VW and Nomura’s new chief has his work cut out
4. In OTHER NEWS, I bring you Disney’s most streamed song…

So Trump rattles more cages, Chinese manufacturing shows surprise growth and UK manufacturing cuts jobs…

Trump to levy tariffs on Brazil, Argentina (Wall Street Journal, Josh Zumbrun, Paulo Trevisani and Amrith Ramkumar) shows the US president in typically aggressive mode as he announced that he would be raising tariffs on steel and aluminium imports from the two countries. He accused them, on Twitter of course 😜, of “presiding over a massive devaluation of their currencies, which is not good for our farmers” and put tariffs up with immediate effect. He also ramped up the rhetoric with France in Trump administration proposes tariffs against $2.4bn of French goods (Wall Street Journal, Josh Zumbrun and Noemie Bisserbe) as he threatened to slap French imports with 100% tariffs in retaliation for them imposing a new digital services tax, which he says unfairly targets US tech companies. The 3% tax applies to revenues that tech companies earn in France from such things as targeted advertising or running a digital marketplace. The Americans argue that this focuses on areas where US companies are particularly strong and won’t affect French ones in the same way. * SO WHAT? * Everyone was taken by surprise by Trump’s moves on Argentina and Brazil, especially considering that they are not seen to be countries who have been manipulating their currencies, as the president suggests. When the US started imposing tariffs globally of 25% on steel and 10% on aluminium in 2018, Argentina and Brazil managed to get exemptions. Many observers say that the currency weakness has not been manufactured – it has been due to slow economic growth and political upheaval and now both countries are scrambling to try to get Trump to change his mind. As for France, Finance Minister Bruno Le Maire remained defiant about Trump’s threats saying that “We will never, never, never abandon our will to tax fairly tech giants” on what has been nicknamed the “GAFA” tax (Google, Apple,

Facebook, Amazon). The American side says that, in addition to GAFA, Groupon, eBay, Match Group (owner of Tinder) and Expedia would also be affected. It’ll be interesting to see what happens here as France is one of the first countries to impose a digital services tax in Europe due to American giants paying a pittance versus what they earn. More will follow, but the Americans are urging other countries considering taking the same action to do it within an OECD framework (presumably because this will take absolutely ages and will give US companies time to shift strategy/operations). I think the only way of imposing a digital services tax effectively is to charge the same rate across the board in as many countries as possible. The risk of each country doing it themselves is that it will leave them open to tech companies moving their operations (or threatening to move their operations) away to a more receptive country – and taking their jobs with them. I suspect this will be a theme for quite some time to come.

China shows surprise growth spurt (The Times, Callum Jones) highlights unexpectedly strong factory activity as manufacturing output rose in November to its highest level since December 2016, according to the Caixin/Markit purchasing managers’ index (PMI) for manufacturing. Some observers saw this as a one-off and not a trend (but the cynical side of me says that they were the ones who were predicting weakness and so are talking their own book 😜). * SO WHAT? * I think it’s advisable not to use PMI figures on their own because they are a survey. It’s better to use them as a general guide as to direction, but they should be backed up by hard figures in other data points. Still, I’m sure that the government will welcome such news coming into the end of a difficult year.

On the other hand, UK factories are laying off workers at fastest rate for seven years (The Guardian, Julia Kollewe) cites the latest IHS Markit/Cips figures which show that workers are being laid off at their fastest rate since September 2012 due to ongoing cuts to factory output. New orders fell for the seventh month in a row on tougher trading conditions and inventories that had been built up in anticipation of Brexit being run down. The gloom goes on.

There’s a glimmer of hope on the UK high street but Ted Baker’s shares fall in the latest scandal…

High street surges in Black Friday run-up (The Times, Philip Aldrick) cites the latest monthly release from the British Retail Consortium which shows that November’s adjusted year-on-year sales actually rose by 0.9% going into Black Friday. Electronics and clothing sales got a boost from discounts and recent cold weather but the latest figures from Barclaycard were less flattering as they showed consumer spending rising in November only at about half the rate of inflation. On the plus side, spending in bars, pubs and clubs was pretty solid. * SO WHAT? * This sounds a bit like last year when people seemed to spend more on “experiences” rather than things – and pubs/bars/restaurant chains like Mitchells & Butlers et al. did quite well as a result. Mind you, Barclaycard’s consumer confidence survey warned that “a third of Britons are planning to spend less than usual for Christmas this year”. I would suggest that the likes of Aldi and Lidl will continue to do well as consumers tighten up their spending over Christmas while bars, clubs, restaurants and cinemas will benefit from consumers wanting to cheer themselves up!

Ted Baker investigates £25m error in accounts as shares plunge (Daily Telegraph, Laura Onita and Simon Foy) heralds a very embarrassing accounting blunder which sent the retailer’s share price down to its lowest level for a decade as bosses said it had overstated the value of the stock on its books. The problem was highlighted by new CFO Rachel Osborne, who only joined within the last couple of months, and the company swiftly brought in another auditor and law firm to investigate further. KPMG, the previous CFO (who had been in the job for 17 years) and the chairman will no doubt be building up a sweat as a result of this extra scrutiny. The share price fell by 8% to £3.36 – which is a drop in the ocean when you consider that Ted Baker’s share price was £21 at the beginning of this year…* SO WHAT? * Ted Baker has had an absolute shocker of a year what with the departure of its founder Ray Kelvin (amid allegations of his unwelcome “hands-on” style of management) and two profit warnings – and this really would be the crowning glory of what the Queen would call an annus horribilis. Rumours continue to swirl about a group led by Ray Kelvin buying the company back and taking it private. This would help Kelvin to turn the company around without having to deal with the spotlight of nervous investors – and this latest scandal just went and made a potential buyout a whole lot cheaper! A trading update from the company is due out next week.

VW faces more irate drivers and Nomura’s new boss has a lot on his plate…

UK ‘dieselgate’ victims demand compensation from Volkswagen (Daily Telegraph, Michael O’Dwyer) highlights the latest developments in the whole emissions scandal following the High Court hearing in London yesterday. Customers claim that they were misled by the firm who fitted devices to their cars to cheat emissions tests, but VW says that they are not entitled to compensation because their vehicles didn’t contain the device and therefore did not suffer any loss. * SO WHAT? * VW settled similar claims by US consumers, businesses and regulators to the tune of $25bn, but has managed to avoid something similar in Europe thus far. It’ll be interesting to see who wins this particular game of chicken. The hearing is expected to last about two weeks.

In Incoming Nomura boss warns of ‘sense of crisis’ (Financial Times, Leo Lewis) we see that incoming chief exec, Kentaro Okuda, is taking up the chief exec hot seat and replacing predecessor Koji Nagai who lost shareholder support in a vote in the June AGM (don’t feel too sorry for him – he’s going to become chairman). Nomura has built its reputation on its rock-solid domestic brokerage business and Okuda’s appointment is unusual in that he comes from the investment banking division – not the broking one, which is usually the case. He inherits a brokerage that has had to deal with a number of scandals and a decimation of morale following three $1bn cost-cutting programmes. * SO WHAT? * Okuda has his work cut out as online brokerage competitors like SBI continue to threaten Nomura’s supremacy. He will need to cuts costs, digitise the company and restore morale quickly in order to turn things around.

And finally, in other news…

You are going to hate me today. It’s because once you read Disney’s most streamed song on Spotify – and amount artist has cashed in from it (The Mirror, Courtney Pochin https://tinyurl.com/rg6u9vv) you aren’t going to get the song(s) out of your head 😁 Obviously, you may well choose not to read it, but don’t you want to know what it is?? Or what the artist earns from it??