Tuesday 14/01/20

  1. In MACRO NEWS, UK GDP drops but housing sales rise
  2. In CAR-RELATED NEWS, China car sales fall again, Russia’s Yandex aims at European car-sharing, Germany warns about EV-related job losses and we look at how EVs could change car model line-ups, petrol stations and power generation
  3. In INDIVIDUAL COMPANY NEWS, Visa buys fintech Plaid for $5.3bn and William Hill benefits from surprises
  4. In OTHER NEWS, I bring you a very cute baby…



So UK GDP falls but housing sales rise…

Rate cut pressure grows as GDP falls (Daily Telegraph, Tim Wallace) cites the latest figures from the Office for National Statistics which show that GDP fell by 0.3% in November versus the previous month and that it grew at its weakest pace over the quarter since mid-2012. Pressure to cut the interest rate to stimulate growth will increase as a result of this and financial markets are currently indicating that there’s more than a 50% possibility that the Bank of England will cut rates from the current 0.75% to 0.5%.

In UK house sales rising after Boris Johnson’s election win, says Savills (The Guardian, Rupert Neate) we see that estate agent Savills is benefiting from a “Boris Bounce” since the election, saying in a stock market update that “the

clear outcome of the general election prompted a strong close to the year as confidence to transact returned to the market”. It was cautiously bullish about the prospects for 2020, with the caveat that a proper increase in demand would depend on getting more clarity on Brexit. * SO WHAT? * I don’t think it’s too surprising that the election result provided a late boon to house sales at the top end of the market (I think this is more about Jeremy Corbyn NOT getting in than Boris Johnson’s majority, given his “tax the rich” mentality – although that majority won’t have hurt!), but detail on the whole Brexit thing is very sketchy at the moment. Economic confidence is a huge factor in house buying and, at the moment, I believe that underlying confidence is backed by rising wages and a tight labour market. This should imply that there is at least pent-up demand for home-buying, but it won’t be unleased fully unless people feel that it’s safe to go ahead and make those purchases. Clarity is what everyone is after here – and it’s not going to come overnight.



China car sales fall again, Yandex moves in on car-sharing, Germany warns about the negative impact of EVs and we take a look at how EVs could change model line-ups, petrol stations and power generation…

China car sales tumble for second year in row (Financial Times, Sun Yu) cites the latest stats from the China Association of Automobile manufacturers which show that the country’s car sales fell for the second consecutive year due to a slowing economy and ongoing impact from trade disputes with America hitting consumer sentiment. It’s also possible that rising secondhand car sales put a dent in new car sales as well. Another area for concern was the falling sales of electric vehicles (EVs) following the government cut in subsidies, which were slashed by over 50%. This prompted a cut in production by the manufacturers. * SO WHAT? * China is the world’s largest car market, so this is a big deal. The fact that EV sales were also affected by government cuts in the subsidy is also worrying, although you could argue that you can’t subsidise EVs forever. Mind you, although the OVERALL figure is disappointing for the year, there was only a 0.1% fall in car sales in December, so some are arguing that the worst could be over and that the imminent trade deal with the US could help consumer sentiment to bounce back.

Yandex to offer car-sharing in Europe as rivals pull out (Financial Times, Max Seddon) shows that Russian tech giant Yandex has designs on expanding its car-sharing service (Yandex.Drive) in Europe just as other car-sharing operations such as ShareNow (a joint venture between BMW and Mercedes-Benz owner Daimler) are pulling out (ShareNow announced last month it was pulling out of the UK and US). Yandex.Drive has only been around for two years but touts itself as being the world’s biggest car-sharing service, with over 21,000 vehicles in operation in Russia. Yandex is looking at cities with decent electric car facilities including Madrid and Copenhagen, among others, and plans to launch a test service of up to 1,000 electric cars in a European city sometime this year. * SO WHAT? * Car-share markets are dominated in Europe by auto makers, but in Russia, it’s the tech companies who run the show. Mail.ru bought a start-up called YouDrive last year and aims to grow its fleet to 10,000 cars and Delimobil plans to raise up to $300m in a New York IPO by next year. European manufacturers seem to be increasingly doubtful of the profitability of such ventures but Yandex is banking on building on the expertise it has gained in the search engine market and Yandex.Taxi, its ride sharing app. It’s difficult to see how successful this could be although you can understand Yandex’s optimism given the success it has enjoyed in its domestic market. User growth is through the roof in Moscow, according to marketing agency Autostat, but it remains to be seen whether this can be transferred elsewhere.

There were quite a lot of articles in today’s newspapers about the impact that electric vehicles (EVs) would have in various areas. For instance, Germany’s shift to electric cars puts 400,000 jobs at risk in next decade (Financial Times, Joe Miller) highlights concerns outlined in a government-sanctioned report by the National Platform on Future Mobility (NPM) that over 400,000 jobs could be in the balance over the next ten years as the car industry gravitates towards electric vehicles. This is based on projections that Germany may have to rely on imports to meet EV sales targets as most vehicle batteries – the most valuable part of electric cars – are made in Asia. A huge number of emissions-free vehicles will have to be

manufactured over the next 24 months if Germany is to avoid billions of Euros in fines from Brussels. Another reason for the potential sharp decline in jobs is that EVs contain far fewer components, meaning that vehicle assembly will be able to be increasingly automated with jobs in engineering, technical development and design and metal production being particularly vulnerable. * SO WHAT? * Germany is an export-led economy and the car industry is a major part of that. The sector currently employs 800,000 workers, so you can see how 400,000 being identified as “at risk” is a major issue. Manufacturers can potentially soften the blow by reskilling staff to move with the changes, but this will obviously take time and money.

Polluting cars could be pulled from UK sale, say carmakers (The Guardian, Jasper Jolly) shows that the chief exec of the Society of Motor Manufacturers and Traders (SMMT), Mike Hawes, thinks that carmakers may have to cut models in the UK to comply with post-Brexit carbon dioxide limits because the UK loves 4x4s! Under the new EU rules, average CO2 emissions for virtually all cars sold this year and next will have to come in under 95g/km. Huge fines (€95 for every gram they are over their limit multiplied by the number of cars sold that year) await those who breach this limit. Currently, the UK average is 127.9g/km. What a headache for the carmakers!

Then in Old-style petrol stations will be replaced…but by what? (The Times, Robert Lea) discusses the future of charging in an increasingly EV-friendly Britain. Everyone knows that the current charging network is extremely patchy and all sorts of figures are bandied about regarding how many chargers we’ll need to install in order to meet rising demand. It is assumed that most people will charge at home, but it also thought that they will also charge at “destinations” (like supermarkets, hotels, cinemas and gyms) and “en route” (i.e. filling/service stations) but the government could also encourage more charger installation by forcing all filling stations, railway stations and hotels to become part of the public recharging infrastructure. BP Chargemaster is currently looking at installing 150kW chargers which cost £75,000 but charge up an EV in less than 20 minutes and Pod Point is involved in Tesco’s plans to install 2,400 charging points at 600 of its stores. Start-up Instavolt believes that there will be demand for chargers at places where people go for 30-45 minutes, e.g. at coffee shops, fast food outlets and convenience stores. * SO WHAT? * This all sounds great, but I have to say that I think charging will get progressively quicker and so business models that rely on motorists hanging around for 30-45 minutes will be very vulnerable. In the meantime, though, we need to get the charger infrastructure sorted first and it will be important for everyone to put resource into this otherwise EV adoption will be very slow. Yes, sales have been very strong in percentage terms, but they are miniscule in absolute terms. To my mind, I think that we are getting to the stage now where many people feel that they are up for having an electric “runaround” car, but that they will still need to have a “normal” car for the longer journeys. We need to get to the next stage where you have an electric car as your ONLY car – and improving the charging network (along with battery tech and power storage) will be key.

More electricity demand means bigger challenge for power firms (The Times, Emily Gosden) then takes a look at how an increase in EV charging points will affect our entire power generation and distribution infrastructure. National Grid published a frightening report in 2017 outlining the worst-case scenario for a massive hike in electricity needs, but since then it has retreated somewhat, saying that “smart charging” will smooth out supply and demand. Still, more electricity will definitely be needed – but I don’t think anyone has an idea as to how much!



Visa makes a chunky fintech acquisition and William Hill benefits from sporting surprises…

Visa to pay $5.3 billion for fintech startup (Wall Street Journal, Cara Lombardo and AnnaMaria Andriotis) highlights Visa’s purchase of Plaid Inc, which makes software that gives financial services apps access to financial accounts, as part of efforts to access consumers’ growing use of fintech apps and non-card payments. Visa’s chief exec said that the acquisition would

help broaden its access to fintech firms and its reach outside cards. * SO WHAT? * This is part of a move by Visa to diversify its reliance on cards as customers continue to evolve away from their use. I would expect more of this kind of thing from Visa and other players, such as Mastercard, as they try not to get left behind by changing customer behaviour.

Sporting shocks bolster William Hill profit estimates (Daily Telegraph, Hannah Uttley) shows that betting supremo William Hill’s annual profits will benefit from the number of surprise sporting triumphs in 2019. * SO WHAT? * This trading update will calm the nerves of investors who are still smarting from the impact of the major crackdown on Fixed Odds Betting Terminals (FOBTs). Hopes for the future will now rest on the growth prospects of its US business.



And finally, in other news…

You’re going to think I’ve gone all mushy, but you’d have to have a heart of stone not to say “aahhhh” when you see this: Mom dresses up baby as influential women in history (USA Today, Morgan Hines https://tinyurl.com/snwzrmo).

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Some of today’s market, commodity & currency moves (as at 0839hrs 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 **
7,608 (+0.19%)28,895 (+0.22%)3,286 (+0.63%)9,27413,430 (-0.46%)6,028 (-0.08%)24,025 (+0.73%)3,107 (-0.28%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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