Tuesday 06/08/19

1. In MARKET, CURRENCY & MACRO NEWS, US-China developments cause a kerfuffle, Facebook’s Libra gets ganged up on and a weaker £ helps the UK services industry
2. In RETAIL/CONSUMER NEWS, UK retail sales and car sales dive, the M&S/Ocado rationale is questioned, Tesco axes staff and Sports Direct buys Jack Wills while in the US, Barneys files for bankruptcy
3. In INDIVIDUAL COMPANY NEWS, Just Eat and Takeaway.com agree terms
4. In OTHER NEWS, I bring you cat batteries…

So the US-China thing spills over into currencies, Libra faces more pressure but a weak pound is helping the UK services sector…

Market meltdown as trade war with China hots up (Daily Telegraph, Tom Rees) highlights market turmoil as both US and UK markets had their worst day of trading so far this year as major markets dropped between 1.7% and 3.1% yesterday following China’s decision to halt American agricultural imports. China also let its currency fall below $7 to its lowest level in 11 years, angering Trump who tweeted that “China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices”. * SO WHAT? * Clearly this is a reaction to Trump slapping taxes on almost all Chinese imports – but what is different this time is that China is weaponising its currency to get its point across, presumably because there’s only so much it can do on the trade front (because it exports more to America than it imports). If this continues – or gets weaker, even – it could well negate the effect of tariffs and Chinese imports will start to rise again. Some recent comment has suggested that China is willing to play the waiting game and watch Trump squirm while they dig in until the presidential election next year, hoping that he will not be re-elected. They win either way in that scenario – if he stays in, his bargaining position may get weaker (the US economy might not be in such good shape by then) and if he gets replaced, they could get a better deal with his successor. The key is how long they are prepared to wait and take the pain because there will be some domestic collateral damage in the meantime.

Facebook’s cryptocurrency raises privacy questions, say

regulators (Financial Times, Hannah Murphy) shows that regulators from the US, EU, UK, Australia and Canada have issued a joint statement voicing concerns over the privacy risks pertaining to Facebook and its 27 partners who may “instantly become the custodian of millions of people’s personal information”. They said that there wasn’t enough detail on how data would be treated and asked for further information. * SO WHAT? * Regulators, central bankers and politicians really do seem to hate the idea of Facebook making a successful cryptocurrency under their noses – and you can understand why, given Facebook’s track record on their treatment of data. I just wonder whether the pressure will be enough to scupper Libra before it’s even born and whether these parties are trying to get banks to sort something out in the background to make a more “legitimate” alternative. I don’t think that the current financial commitment to Libra so far is that big in the scheme of things and it could die a death without causing too much damage to its consortium members. However, I think that if the central bankers, politicians et al. really want to kill Libra, they need to come up with a viable alternative – and quickly.

Continuing on the subject of currencies, Weak pound helps UK services sector activity improve in July (Financial Times, Valentina Romei) shows that activity in the the all-important UK services sector actually improved last month, slightly offsetting the nightmare that manufacturing and construction are having at the moment. The IHS Markit purchasing managers’ index for services rose in July to its highest level since October, but Chartered Institute of Procurement & Supply group director Duncan Brock observed that “While services activity grew in July, the marginal improvement on last month is a smokescreen. Fundamental weaknesses remain in a sector pinned down by Brexit uncertainty and increasingly stagnant global economic growth”. * SO WHAT? * Things could definitely be worse, but this is not going to be enough to crack open the Bolly. There’s still plenty of uncertainty out there!

UK retail sales and car sales fall, the M&S/Ocado rationale is questioned, Tesco cuts Metro staff and Sports Direct buys Jack Wills while in the US while Barneys files for bankruptcy…

It’s carnage in the UK at the moment with UK retailers experience worst July since sales records began (The Guardian, Richard Partington) citing the latest data from the British Retail Consortium (although figures released by the Office for National Statistics reflect a less dire picture). Barclaycard, which processes almost half of all credit and debit card transactions in the UK, said that families are cutting down their spending on essential items and one of its directors, Esme Harwood pointed out that “Spending has remained relatively subdued over the past few months, with an underlying uncertainty about the wider economic and political landscape causing many to hold off making purchases on bigger ticket items”.

Then in Car sales fall but electric vehicles up 71% (Daily Telegraph, Michael O’Dwyer) we see that the latest stats from the Society of Motor Manufacturers and Traders (SMMT) show continued weakness in car sales (which backs up what Esme Harwood said above) as the number of new car registrations fell for the fifth consecutive month in July. The number of electric car sales was a small highlight with Britons tripling their purchases in the space of a year – but as I always say, this is from a really low base.

Meanwhile, in retailers, M&S broker raises doubts on Ocado deal (The Times, Ben Martin) highlights a very unusual situation where M&S’s broker questioned the rationale behind the retailer’s £750m tie-up with Ocado. Morgan Stanley analysts said in a research report that they weren’t convinced that it should even enter the online food delivery market given that it only accounts for just over 5% of the UK food market “and is no longer showing much growth”. I say this is unusual because Morgan Stanley is paid by M&S to be its broker, which usually means it tries to

emphasise the positives. * SO WHAT? * M&S has heralded the Ocado deal, announced in February, as something that will transform its online offering. Given that M&S has been struggling for quite some time now, you can see why it wanted to trumpet its new development. FWIW, I think that it IS a transformational deal given that their online offering (like its offline offering) has been pretty lacklustre as a whole, and if you want to do online properly, then Ocado is the company you want to work with. I also wonder, but I can’t prove it, whether M&S will be different to others in terms of online food delivery because I suspect that fewer people do their “main” shop with M&S – they tend to buy various favourite bits. If this is the case, then actually ordering online won’t be a hassle (less items to deal with) and they may actually do better than supermarkets.

Elsewhere on the high street Tesco cuts 4,500 jobs in store revamp (The Times, Elizabeth Burden) highlights more cuts at Tesco as it has decided to cut jobs mainly from its Tesco Metro shops, which are going to undergo a widespread overhaul. Then in Ashley adds Jack Wills to stable as clothing chain collapses (Daily Telegraph, LaToya Harding) we see that Sports Direct sealed the deal to buy Jack Wills for £12.7m. This includes all of its 100 UK and Ireland stores and its distribution centre. Given the recent disastrous performance of Sports Direct, you do wonder whether this is a case of out of the frying pan into the fire.

In news just in, Barneys files for bankruptcy, plans to close most stores (Wall Street Journal, WSJ Staff) heralds the demise of a famous institution as it has come to an agreement with lenders that will give it time to find a buyer. The luxury retailer currently operates 13 department stores and nine warehouse stores, but most would have to be closed as part of the chapter 11 process. The New York, Boston, San Francisco and Beverly Hills stores along with two Barneys Warehouse outlets will remain open, but all other physical stores will shut down. * SO WHAT? * I know I keep banging on about this, but department stores are just an anachronism IMHO. They can’t compete on price, so they have to offer superior experience – but not everyone can/is willing to shell out more for their merch than they need to. It’s sad, but it’s just another sign of how consumer behaviour is changing.

Just Eat and Takeaway.com agree merger terms…

Takeaway.com and Just Eat agree food delivery tie-up (Financial Times, Tim Bradshaw and Myles McCormick) highlights a deal whose terms were agreed yesterday after merger talks came to light last week. The combined group will be worth over €10bn and will be the biggest food delivery service outside China – surpassing Uber Eats. This is the latest deal in a fast-consolidating

sector as operators go for scale to improve the economics of their expensive operations. Mind you, Just Eat shareholders await a sweeter deal (The Times, Simon Duke) points out that some shareholders want a better deal as Takeaway’s share price is sliding more than Just Eat’s and they argue that, although it is the smaller partner, it will be providing around two-thirds of the enlarged company’s revenues and therefore Just Eat shareholders should own more of the business. * SO WHAT? * The deal isn’t done and dusted just yet as 75% of Just Eat’s shareholders must approve before it all goes ahead. We’ll just have to wait and see what happens here.

And finally, in other news…

I thought I’d leave you today with something really random in Charge up your phone with the power of a portable cat battery from Japan (SoraNews24, Oona McGee https://tinyurl.com/y3dhsgeu). ?? This is very strange, even by normal Japanese standards 😂