Tuesday 15/01/19

  1. In MACRO AND MARKETS NEWS, China and Eurozone growth declines whilst Brazil’s markets mask deeper woes
  2. In UK HIGH STREET NEWS, JD Sports has a cracker, Revolution has a profit warning and New Look faces a painful recovery
  3. In INDIVIDUAL COMPANY NEWS, Netflix expects and Continental voices concerns
  4. In OTHER NEWS, I bring you raining spiders and a baby with big hair. For more details, read on…



So China and Eurozone growth weakens whilst Brazilian markets hide deeper problems…

Fears grow for global economy as China and eurozone suffer decline (The Guardian, Richard Partington) highlights official figures showing Chinese exports were down by 4.4% in December – the biggest drop since 2016 – on weakening demand and Eurostat data showing that eurozone industrial output fell by 1.7% in November and 3.3% over the year. The Organisation for Economic Co-operation and Development (OECD) also warned that most of the world’s major economies are showing signs of slowing down, with French and British growth slamming the brakes on the hardest. It also said that its leading indicators showed slowing growth in the US, Germany, Canada, Italy and the euro area. * SO WHAT? * There certainly seems to be increasing momentum behind figures indicating a downturn. As I have said before in Watson’s Yearly, I believe that this trend could turn around dramatically if the US and China hammered out a 

solution on trade and if the UK did NOT leave the EU (I’m not saying that as a Remainer, I’m saying that in the belief that markets – and the EU itself – would breathe a MASSIVE sigh of relief if we didn’t leave because of the major hassle it will cause for years to come). 

Brazil’s soaraway stock market masks deeper troubles (Financial Times, Jonathan Wheatley) shows how the joy that has met Jair “Tropical Trump” Bolsonaro’s accession to the presidency has translated so far into the real being the best-performing currency of 2019 and Brazil’s Bovespa stock market hitting a number of record highs. Despite this recent fillip, the currency is still around 60% below its dollar value in mid-2011 and Brazilian stocks are still worth less than half their level just before the financial crisis hit, so there’s still a lot of room for upside. * SO WHAT? * He’s taking the plaudits at the moment but the fact is that new measures have been announced and retracted and there are reports of in-fighting among senior ministers. For the moment, Brazil appears to be gripped in a Bolsonaro honeymoon, but reality will hit when he tries to sort out welfare and other reforms. Here’s hoping! Many will be looking to what he comes up with after the congressional recess in February.



JD Sports has a strong showing, Revolution Bars has a shocker and New Look’s recovery is looking painful…

In JD Sports shows rivals a clean pair of heels (The Times, Deirdre Hipwell) we see that the UK’s biggest sportswear retailer dodged the retail gloom and benefited from strong sales from Black Friday and the holiday period. The other good news was that it had managed to protect its margins by not having to do too much discounting and upgraded its profit outlook. * SO WHAT? * This is a great performance against a difficult backdrop and stands in stark contrast to rivals such as Footasylum, which had its third profit warning in 14 months last week, and Sports Direct, whose chief exec Mike Ashley was quoted as saying that November trading had been “unbelievably bad”. Its strength in the British athleisure market and overseas expansion have helped to double revenues over the last three years.

Having said that, there’s still plenty of high street gloom to go around as Revolution Bars’ profit warning sparks investors’ flight (Daily Telegraph, Chris Johnston) highlighted poor performance that led to the shares

tanking by 20% in trading yesterday. Although there was an increase in sales in December, they were down by 4% over the 26 weeks to December 29th. However, rivals Greene King and Stonegate did way better in the same timeframe. * SO WHAT? * It just goes to show that even in this tricky economic backdrop, it IS possible to make money – as other operators have shown. Stonegate must be glad it dodged a bullet as it put in an offer for Revolution at 203p per share over a year ago that was rejected. Revolution’s share price was 96p yesterday. The good news is that its new format Revolution de Cuba is trading well, so things may yet improve.

Pain for investors in New Look survival plan (The Times, Deirdre Hipwell) shines a light on New Look’s woes as it tried to address its massive debt pile after a poor Christmas and a profit warning. The company said that it agreed a debt-for-equity swap with its lenders, taking away majority control from its South African owner (Brait SA) in a bid to stay alive. New Look has had a bad three years through a combination of stiffer competition, buying too much of the wrong stock and losing focus of its core customers. Good luck, New Look – it looks like you’re going to need it!



Netflix is surfing a wave and Continental gets gloomy…

Netflix earnings aim to show “Bird Box” effect pays off (Financial Times, Anna Nicolaou) looks ahead to Thursday, when Netflix announces its fourth quarter results to investors on the back of a very successful Christmas period where it released what turned out to be a blockbuster in Bird Box (that even spawned a rather dangerous #BirdBoxChallenge) and put in a decent showing in the Golden Globes. Netflix spent an estimated $13bn on content in 2018 in its ongoing bid to chase subscriber and revenue growth and we’ll soon see whether it is worth the hype. * SO WHAT? * It’ll be interesting to see how Thursday works out. I think that it’s all about subscriber growth at the moment and as long as Netflix 

continues to knock it out of the park on that front, investors will keep cheering it on and ignore the increasingly massive amounts of money it is spending. Competition will be increasing not only from Amazon, but also from new kids on the block Disney, Apple and AT&T, so things could get interesting (and probably even more expensive). 

Continental piles on the misery (The Telegraph, Alan Tovey) confirms tough times for the car industry as the world’s #2 supplier of vehicle parts and tyres forecast weak demand for at least the first half of the year. The German company had two profit warnings last year and yesterday continued to paint a downbeat picture of the immediate future as its CFO, Wolfgang Schafer said that “The main reasons are continued weak demand in China, the trade dispute between the US and China [and] general uncertainty around Brexit”. * SO WHAT? * This just confirms the overall mood in the automotive sector at the moment as Continental is seen one of the main bellwethers of the industry given that it supplies everyone.



And finally, in other news…

I sent you something creepy last week on spiders – so I thought why not send you something else this week that might freak you out as well ????????. Have a look at ‘Spider raining’ in Brazil leaves student who filmed phenomenon “stunned and scared” (The Mirror, Amber Hicks https://tinyurl.com/ybnq9axz). This gives me the heebie-jeebies.

AND FINALLY, the following is bizarre but in a different way. Check out the impressive hair on this little girl: Baby Chanko: Internet hair sensation becomes face of Pantene (Sky News https://tinyurl.com/y6ulacvj). Presumably “because she’s worth it”. Amazing!

Some of today’s market, commodity & currency moves (as at 0823rs 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 **
6,855 (-0.79%)23,910 (-0.25%)2,583 (-0.48%)6,90610,856 (-0.26%)4,763 (-0.28%)20,555 (+0.96%)2,570 (+1.36%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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