Tuesday 11/09/18

  1. In MACROECONOMIC NEWS today, Sweden faces a dilemma, Japan’s Abe tightens his grip on power and UK growth gets a boost
  2. In CAR-RELATED NEWS, Didi announces a big loss, Volvo postpones its IPO and Williams announces something very exciting
  3. In INDIVIDUAL COMPANY NEWS, Apple suffers short-sellers, Snap’s strategy chief leaves and Debenhams craters
  4. In OTHER NEWS, I bring you a guide to current slang to better understand the youth of today. For more details, read on…



So the Swedish election comes to an unsatisfactory conclusion, Japan’s PM looks like consolidating his power and UK GDP gets a boost…

Following on from yesterday’s election, Difficult test awaits Sweden’s political establishment (Financial Times, Richard Milne) shows just how far the anti-immigration Sweden Democrats have come in the last few years as the end result was so tight that now the centre-left and centre-right parties are going to have to come to some sort of agreement about how to deal with them in government. Currently, they are split into those who refuse to deal with them and those who are open. As Peter Sandberg, MD of the Swedish Chamber of Commerce for the UK, put it “Something is going to have to give. The next few weeks will be interesting. It might create new alliances”. * SO WHAT? * The parties have got some serious negotiating to do – and they need to get it done as soon as possible because a budget vote is due in December. The danger is that the government that comes out of all this will be a weak one, unable to enact meaningful reforms in housing and employment that many business heads are seeking. Tricky times ahead…

Japan’s Shinzo Abe looks set to secure grip on power (Financial Times, Robin Harding) seems to be getting closer to consolidating his power as he launched his 10-day campaign yesterday with his main rival, Shigeru Ishiba, attacking the incumbent prime minister over sluggish wage rises despite ultra-low unemployment and higher corporate profits. * SO WHAT? * The leadership election, which is held by the Liberal Democratic Party every three years but went unopposed last time in 2015, will come to a head on September 20th. Abe looks like he will win by a landslide – and if he does, he might be able to kick out some of the LDP’s old duffers.

Summer heat and World Cup fever help boost GDP (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistic (ONS) which showed that a combination of the hottest summer on record and England’s performance in the World Cup helped Britain’s GDP grow in the three months to the end of July, mainly due to a stronger performance from the services sector. * SO WHAT? * This sounds great – and it was, especially for food and drink retailers – but such benefits are already fading and there are a number of areas that have struggled. Amongst retailers, those involved in selling household goods and furniture suffered, but manufacturing and energy production have also been weaker. John Hawksworth, PwC’s chief economist warned that “the long hot summer could give way to a stormy autumn, as Brexit-related uncertainty leads businesses to defer major investment decisions and subdued real wage growth weighs on consumer spending”.



In car-related news, Didi Chuxing continues to suffer, Volvo decides to delay its IPO and Williams announces something very exciting in electric car batteries…

Didi Chuxing loses Rmb4bn in first half of year (Financial Times, Yuan Yang) shows that things really aren’t going Chinese ride-hailing giant Didi’s way at the moment as it announced a loss of over $580m in the first half of the year, according to a letter that was leaked to the media. Didi is facing a great deal of hostility at the moment as two of its drivers were involved in the murder of their passengers and the company is facing huge pressure to reassure on safety. * SO WHAT? * Didi has only, incredibly, been around for six years and has never turned a profit. However, in that time, it has built itself up into an absolute beast of a company with 550m registered users – more than 50% of all of China’s internet users – and 30m drivers. Clearly, things are rather difficult for them at the moment, but I suspect that their sheer scale will pull them through. Even their main rival in ride-hailing over the past year, Meituan Dianping (which is currently seeking a listing in Hong Kong that could value them up to $4.4bn), said last week that they weren’t going to expand any further in this area. If I were a trader (and I’m not!) I’d be looking to buy 

Didi at depressed levels because I think they’ll get through this and remain the dominant force in ride-hailing.

In Trade war fears scupper Volvo cars initial public offering (Financial Times, Peter Campbell) we see that China’s Geely has decided to delay the IPO of Volvo Cars because it wants to wait for more favourable market conditions and get a better valuation. * SO WHAT? * It had pencilled in an IPO for before the end of the year, but given all the Trump/imports/steel nightmare currently going on, it was always looking a bit tricky on the timing front. Volvo will continue with its plans to raise profit margins by 50% by 2025 whilst expanding its new subscription service and its supply of vehicles to ride-hailing fleets. No biggie.

Williams plans to put Britain at front of electric car race (The Times, Robert Lea) is a REALLY exciting story IMHO as Williams Grand Prix Holdings, parent company of the Williams F1 team, is working with Unipart (which makes motor components) in a joint venture called Hyperbat that will commence production of Aston Martin’s first electric car – the RapidE. Production will be in Coventry at a facility that has been making diesel and petrol exhaust systems. * SO WHAT? * What is particularly exciting here is that the first batteries for the RapidE could be twice as powerful as those that go into Tesla cars. The government are obviously loving this – the business, energy and industrial strategy secretary Greg Clark gushed that “Hybrid and electric vehicles will play a key part in Britain’s cleaner and greener future. Through the industrial strategy, the government is building on our world-leading strengths, making the UK the go-to place for these technologies.



In individual company news, Apple faces sceptics, Snap loses its strategy chief and Debenhams shares drop off a cliff…

Short sellers bet against Apple as new iPhone is due (Daily Telegraph, James Titcomb) highlights something that you might not have been aware of – that Apple is the most shorted stock in America right now as traders question the company’s ability to sustain earnings momentum ahead of tomorrow’s unveiling of new iPhone models. Short sellers “borrow” shares they don’t own to “sell” them which is effectively a bet on a company’s share price going down. Shorts in Apple are now just shy of $10bn – ahead of shorts on Amazon ($9.6bn) and Tesla ($8.7bn). * SO WHAT? * The saying “buy the mystery, sell the history” is usually rolled out at times like this and I would expect there to be a lot of Apple shares changing hands tomorrow. The fact is that this is an “S” year (you know, a sort of “in-betweeny” year where new phones are just enhanced versions of the previous year’s models) and smartphone sales are peaking out in developed markets. Apple is facing headwinds from Trump as he continues his one-man crusade against the Chinese/The World with manufacturing facilities outside the US as well as potential related backlash from the Chinese – which could damage Apple’s chances in China’s massive market. These three phones are just going to have to be incredible to keep current momentum growing – and I don’t expect them to be.

There’s more bad news for Snap, the company behind Snapchat in Snap’s strategy chief Imran Khan to leave company (Wall Street Journal, Georgia Wells and Maureen Farrell) as this departure follows a string of recent senior departures. The company is currently attempting to arrest its slide in popularity following the redesign of its Snapchat app that went down like a lead balloon on launch. * SO WHAT? * Snap’s shares shot up by 44% on its first day of trading in March 2017, but shares have fallen by 40% from the flotation price ($17) to a record low yesterday of $9.74. The company reported revenues up by 44% and decreased losses in the latest quarter, but the fact is that it has yet to report a profit since flotation. I have three words for you: One. Trick. Pony. This company needs to sort out its strategy PDQ or it will continue to go downhill fast – and the departure of someone so senior at such a crucial time isn’t great.

Following on from what I was saying yesterday about UK department stores, Debenhams rushes out trading update after shares drop (Financial Times, Jonathan Eley) shows that the troubled retailer hastily announced a trading statement following shares dropping by as much as 19% yesterday following reports over the weekend that it was considering its options (which I mentioned in yesterday’s Daily). The statement managed to arrest the slide so the shares were “only” down by 10% at the close. * SO WHAT? * Maybe I’m being a bit harsh but I see Debenhams as a dead man walking. Like I said yesterday, Mike Ashley just needs to bide his time a bit longer and he’ll be able to pick up another department store for firesale prices. Have a look if you can at a share price chart of Debenhams for the year so far – it doesn’t look good. Put it this way – you wouldn’t want THIS in your pension fund…



…And finally, in other news…

Are you up-to-date with teenager/yoof-speak? If not, here’s a handy guide from Surrey Police in Police hope this embarrassing ‘slang dictionary’ will help them engage with young people (Metro, Harley Tamplin https://tinyurl.com/ycqxxm69). I love the way they say that Stormzy is “not the weather – [he’s a] rapper from Croydon”. Genius. I thought I’d give it a go – do you know what I mean when I say “Wagwan blud, feds on a beef-ting fam”.

Mind you, if you have time today, you should watch this as an alternative guide done in the medium of rap – Doc Brown is brilliant: https://www.youtube.com/watch?v=ympI2mdABUM 

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0812hrs 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
7,279 (+0.02%)25,857 (-0.23%)2,877 (+0.19%)7,92411,986 (+0.22%)5,270 (+0.33%)22,665 (+1.30%)2,678 (+0.30%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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