Tuesday 04/02/20

1. In CORONAVIRUS & MACRO NEWS, Hong Kong closes crossings to China as world growth, oil and supply chains look vulnerable while UK manufacturing output steadies
2. In FINANCIALS NEWS, Goldman teams up with Amazon and banks eye bitcoin again
3. In M&A NEWS, Worldline buys Ingenico while Just Eat and Takeaway.com goes ahead
4. In INDIVIDUAL COMPANY NEWS, Alphabet suffers overall but its YouTube and cloud businesses do well, Panasonic’s JV with Tesla hits profitability and Mike Ashley buys a chunk of Mulberry
5. In OTHER NEWS, I bring you customised cookie cutters and an unbelievable make-up artist…

So the Coronavirus effects continue while UK manufacturing stabilises…

Hong Kong closes most crossings to China as coronavirus spreads (Financial Times, Nicolle Liu, Alice Woodhouse and Naomi Rovnick) heralds the latest developments in Hong Kong regarding ongoing efforts to curtail the spread of the virus as its chief exec, Carrie Lam, announced that 10 crossings were to be suspended from midnight tonight. She added that the number of flights to the mainland would be further reduced, but stopped short of imposing what medical workers have been calling for – a complete block on entry from mainland China.

The ongoing outbreak continues to have a ripple effect in a number of areas. World growth to dip sharply as China goes into reverse (Daily Telegraph, Tim Wallace and Hannah Uttley) shows UBS analysts predicting a dramatic drop in world economic growth due to the fallout resulting from the shutdown of Chinese industry. They forecast the Chinese economy to contract by 1.5% versus the previous year – its first contraction since 1976, according to World Bank figures – and analysts at other houses are getting busy, cutting their own forecasts. Research group Scope Ratings made an interesting observation when they said that the “phase one” agreement recently reached between the US and China, which involved China buying an extra $200bn of US goods over the next two years, could look rather optimistic given current circumstances and may have to be revisited. Virus pushes oil into a bear market (The Times, Emily Gosden) highlights the effect the coronavirus is having on oil prices as Brent crude is now officially in bear market territory, having fallen by more than 20%. It was trading above $68 per barrel last month and is now hovering around $54-55. China is the world’s #1 oil importer but lockdowns have just decimated demand as the current death toll of 360 coronavirus deaths in China has overtaken that of the SARS epidemic of 2002-3. Coronavirus/China stocks: supply chain reaction (Financial Times, Lex) looks at another aspect of the effects of the outbreak as the automotive and tech sectors were hit badly in yesterday’s market sell-off. More specifically, Chinese carmaker Dongfeng has seen its share price drop by over 20% following news of the outbreak as most of its production is based in Wuhan – but Peugeot, Renault, Honda and Nissan also have production facilities there. In the tech space, companies including Apple, Xiaomi

and local electronic component maker BOE Technology also have major operations in Wuhan and Taiwan’s Hon Hai (aka Foxconn), famous for assembling the world’s iPhones, is also expected to be affected. * SO WHAT? * Clearly, world growth IS going to take a bashing due to the China-centric slowdown. However, I doubt that the US-China trade deal is going to have to be renegotiated – as it is, it’s only pretty limited in scope and it took so long to cobble together that you would have thought it should be OK. Oil price weakness is a problem for the oil producers – but presumably they will all decide to cut production at their emergency meeting in Vienna to counter it. One thing that I think IS more of a problem, though, is the whole supply chain thing. Every time there is a tsunami, natural disaster or a serious outbreak of disease, supply chains are exposed for being very concentrated geographically and/or in terms of heavy reliance on a very small number of companies. I guess that this is a characteristic of globalisation, but it seems that we never learn and history keeps repeating itself as a result – disaster, shock, supply chain weakness exposed, disaster recedes, everyone promises lessons will be learned and then the same thing happens all over again the next time around! Will we learn this time??

There’s good news for manufacturing in UK factory output begins to stabilise after eight-month slump (The Guardian, Richard Partington) as the IHS/CIPS monthly survey, which is closely monitored by the Treasury as a leading indicator of the economy, showed that factory output steadied in January after eight consecutive months of contraction – a losing run that was the weakest period in manufacturing activity since 2009! The decisive result of December’s general election helped to boost confidence as well as orders – and employment was flat on the month. * SO WHAT? * While this is not negative, it’s way too early to crack open the (non-European) bubbly as there are still a lot of issues to be sorted out with Europe (and the US, for that matter). Everyone keeps banging on about reduced levels of uncertainty following Boris’ election – but I think it’s a question of degree! Yes, at least he can count on Parliament to get things through on the UK side, but outside that is anyone’s guess. Still, at least manufacturing’s slide has been arrested for the moment. You also wonder whether the coronavirus is going to have an impact on UK manufacturing as maybe China will be keen to overcompensate for the virus’ effects by ramping up domestic production once its effects recede and encourage its citizens to “buy China”. It’s too early to tell – but there is a danger here IMO…

So Goldman works with Amazon and bitcoin attracts interest…

Amazon targets banking offer in hook-up with Goldman Sachs (Daily Telegraph, James Cook) highlights Amazon upping its attempts to get into banking as it announced a venture into small business lending with Goldman Sachs. The new facility will offer loans in the US via Amazon’s online lending platform as soon as next month, but Amazon has been offering business loans since 2011. * SO WHAT? * This will give Goldman access to more customers – with the added advantage that vendor sales data could be as useful as credit scores – and allow Amazon access to a broader range of banking services without having to go through all the audit/compliance hassles it would have had if it did it on its own. It is thought that Amazon loans, which are said to be anything from $1,000 to $750,ooo, are generally aimed at borrowers who may not be able to get a traditional business loan. Interestingly, Goldman/Amazon: Credit buddies (Financial Times, Lex) suggests that smaller banks shouldn’t be too concerned by Amazon’s

latest foray – but payment processors Square and PayPal SHOULD be, because they have been upping their efforts in business lending themselves. An interesting development, but on its own shouldn’t cause too much of a splash.

If you follow the table that I put at the bottom of Watson’s Daily, Banks and fund managers come back for another bite at Bitcoin (Financial Times, Eva Szalay and Laurence Fletcher) you will have noticed that Bitcoin has been doing rather well recently. Bitcoin’s price has surged by 31% in January, but looking further out, it has posted higher returns on a one, three and 10-year basis than any other asset class, according to Steve Kurz at Galaxy Digital, a specialist cryptocurrency firm. Banks have been burned before on Bitcoin when it crashed from its $20,000 highs in 2017, but this recent surge has put it back on the radar. * SO WHAT? * I’m NOT a cryto or currency specialist, but it just seems to me that money can be made out of Bitcoin IF investors watch it constantly and set themselves buy and sell limits because it’s just so darn volatile – it just isn’t a “buy and keep” asset. If I ever got involved in this (and I am NOT planning on doing so!), I would set a range and trade accordingly. Yes, I’d probably miss at least some outperformance but I think that over time you could do quite well from trading the volatility if you had the patience.

Worldline buys Ingenico while Just Eat and Takeaway.com push forth…

In Worldline to buy Ingenico for €7.8bn as sector dealmaking intensifies (Financial Times, Philip Georgiadis and Leila Abboud) we see that French payment services business Worldline has announced intentions to buy domestic rival Ingenico in a cash and shares deal that would create the world’s fourth biggest payment services provider. It sounds like a good match as Worldline has a good European client base and Ingenico is a leader in payments hardware and has a growing online commerce business. * SO WHAT? * There has been a tremendous amount of consolidation in the payments industry over the last year or so (e.g. Fiserv and Global Data, Global Payments and TYS,  FIS’s acquisition of WorldPay come to

mind). I think you need scale in this business – and when everyone’s consolidating around you, the pressure builds for you to do the same in order to keep pace with your rivals.

Takeaway merger goes ahead but final delivery may take 40 days (The Times, Dominic Walsh) brings us up-to-date with the £10bn merger that recently saw the Competition and Markets Authority (CMA) announce an investigation the day before the deal was to complete. Trading in Just Eat Takeaway.com started yesterday while the companies continue to be run separately under orders from the CMA while its investigation is ongoing. The company’s management are hopeful that the deal will get the final green light very soon. * SO WHAT? * I do think that the last-minute nature of the CMA’s involvement shows astounding levels of incompetence as it had plenty of time to get its act together to avoid this messy outcome. Hopefully they will get this sorted soon so everyone can just get on with things.

Alphabet has mixed news, Panasonic’s JV with Tesla becomes profitable and Mike Ashley buys a bit of Mulberry…

In a quick scoot around other news, Google parent debuts YouTube, cloud results, reports weak earnings (Wall Street Journal, Rob Copeland) shows that Alphabet surprised everyone by showing the individual performances of some of its businesses for the first time BUT operating income failed to meet market expectations for the ninth quarter in the last ten and revenues also fell. Although advertising revenue continues to pour in, the company’s growth is also increasingly dependent on newer areas such as YouTube and cloud storage.

Panasonic’s joint venture with Tesla turns first profit (Financial Times, Kana Inagaki) heralds some good news for Panasonic as it has at last managed to make money from its $1.6bn venture with Tesla as production volumes had cut the cost of raw materials. Talking of Tesla, Wall Street bulls drive Tesla’s valuation to new record (Daily Telegraph, Olivia Rudgard) shows its share price taking another massive jump taking its year-to-date rise to above 70%. It is now the world’s second biggest car manufacturer after Toyota and some analysts say it is well on track to become as big as Apple.

Mike Ashley snaps up stake in Mulberry (The Guardian, Rupert Neate) shows that Fraser Group’s Mike Ashley went shopping again – this time for a 12.5% stake in upmarket British handbag company Mulberry. This was said to be part of giving Fraser Group (formerly known as Sports Direct) a more premium feel.

And finally, in other news…

I thought I’d leave you today with a gift idea for that special someone in your life in You can get customised cookie cutters to make treats that look just like your pet (The Mirror, Luke Matthews https://tinyurl.com/uuqveay). However, I would absolutely urge you to take a look at Makeup artist blends into backgrounds by painting mind-bending optical illusions onto her FACE (Daily Mail, https://tinyurl.com/qp6aomt). This woman’s talent is just astounding!