Tuesday 15/12/20

1. In MACROECONOMIC & COMMODITIES NEWS, Germany teeters on the brink of a double-dip recession, the pound strengthens on Brexit hopes and steel orders jump up
2. In REAL ESTATE-RELATED NEWS, sellers cut prices, NatWest reintroduces 90% mortgages and Polypipe gets a boost
3. In TECH NEWS, harmful content is targeted in the UK, Reddit buys Dubsmash and Google has an outage
4. In INDIVIDUAL COMPANY NEWS, DoorDash and Airbnb get some reality and EA makes a counter-offer for Codemasters
5. AND FINALLY, I bring you a prison-themed restaurant with a Halloween feel…

So recession looms for Germany, the pound makes some ground on Brexit hopes and steel demand rises…

Germany braced as hard lockdown set to trigger double-dip recession (Financial Times, Martin Arnold and Victor Mallet) shows that economists expect Germany to suffer the consequences of a hard lockdown and fall into a double-dip recession. Commerzbank’s chief economist Jorg Kramer reckons the current hard lockdown will cut 4% off the German economy’s daily growth rate versus the previous “lockdown lite” that knocked 2.5% off. Germany has been doing well from its large manufacturing sector, which has had been less disrupted by coronavirus restrictions and buoyed by strong demand for its exports from China. * SO WHAT? * Eurostat data published yesterday showed that eurozone industrial production increased by 2.1% in October, which came in above market expectations – so this lockdown is going to hit hard given that Germany is the bloc’s biggest economic engine.

Meanwhile, slightly more positive noises on the Brexit negotiation front heartened some in Pound rises on renewed Brexit hope (The Times, Gurpreet Narwan) as the

pound strengthened by up to 1.7% yesterday versus the dollar. * SO WHAT? * Any headlines about the negotiations (until they actually come up with anything concrete) are just noise IMO and no-one has a clue what is going on apart from the negotiators themselves (well, probably). Markets and the value of sterling will fluctuate accordingly with them going up on positive rumblings and down on negative ones – but negotiation is all a big game. Albeit one with very serious consequences.

I thought I’d include Steel orders jump after Covid-19 slowdown (Wall Street Journal, Bob Tita and Ben Foldy) because this is one of any number of economic indicators as higher demand implies growth in economic activity. The benchmark price for hot-rolled sheet steel has doubled since early August and a one-third cut in capacity due to factory shutdowns earlier in lockdown has meant that production has had to shoot up rapidly in order to meet demand for cars, appliances and machinery. Although most capacity is now back online, lead times have gone from less than four weeks over the summer to around ten weeks. Waits for types of steel that need more processing go up to three months now and prices for scrap steel, iron ore and other steel “ingredients” have also shot up, particularly in China as government-funded infrastructure projects eat up capacity. This looks good for now, but if demand drops because of countries falling into a double-dip recessions there could be more turbulence ahead.

UK sellers reduce prices and NatWest reintroduces the 90% mortgage while Polypipe benefits from heightened demand…

Sellers cut house prices as chances of completion in duty holiday fade (Daily Telegraph, Melissa Lawford) shows that asking prices fell in December, for the second month in a row, although prices are still 6.6% higher than 2019, according to Rightmove. Weakness was most prevalent at the top of the market (prices down by 1.4% last month) while prices on entry-level properties fell only very slightly (by 0.1%). Homebuyers with a small deposit got some good news, however, in NatWest brings back 90% mortgages as buyer demand soars (Financial Times, Nicolas Megaw) as the high street lender caved to demand and said it would start offering mortgages with 10% deposits. The new mortgages will be available from tomorrow and would be open to all home buyers – not just first-timers. Lloyds Banking Group, which owns Halifax, relented last week in the same way but added some conditions. * SO  WHAT? * House prices are usually a great barometer of economic sentiment but, as many of you will know, I am of the opinion that demand is being kept artificially high by Rishi Sunak’s stamp duty holiday. Unless

he extends the deadline or tapers it, I am convinced that demand will fall off a cliff the moment it finishes. For the meantime, though, lenders will be keen to make some money while they can by selling mortgages.

Higher demand for properties is having a knock-on effect in various places. Polypipe shares bounce after second profit guidance upgrade in a month (Financial Times, Harry Dempsey) shows that the UK piping manufacturer announced its second upgrade in profit guidance in a month yesterday, boosting its share price by over 10%. Polypipe is the UK’s biggest plastic pipe maker and singled out particularly strong demand from the residential sector as the main reason behind the current strength. House construction, home repairs and renovations during the pandemic all contributed. It remains cautiously optimistic about its prospects for next year given the current strength of its order book, although this is tinged with some uncertainty about the wider economy next year. * SO WHAT? * I would have thought that the strength of the company’s order book will see it through the most part of the first half of next year and if the economy starts to pick up a bit over that time it might see a more gradual uptick beyond that. Here’s hoping!

The UK is set to crack down on harmful content, Reddit buys Dubsmash and Google has a blip…

Tech companies face multibillion-pound UK fines over harmful content (Financial Times, Sebastian Payne and Tim Bradshaw) heralds much-anticipated plans from the government that will outline a new set of “duty of care” requirements for platforms including Facebook, YouTube and WhatsApp. The rules will demand that the companies “remove and limit the spread of illegal content” and the UK’s media regulator Ofcom will enforce penalties for tech companies of up to £18m or 10% of annual turnover, whichever is higher. * SO WHAT? * It seems that the momentum against Big Tech is morphing from fine words to actual action as the industry faces increasing pressure from Europe in the form of new EU legislation that will be introduced this week in addition to ongoing US and European antitrust investigations. What with France introducing its digital tax and the UK’s Competition and Markets Authority launching a new Digital Markets Unit it does seem that the walls are closing in somewhat on the Big Tech players.

Elsewhere, Reddit scoops up TikTok rival Dubsmash (Financial Times, Hannah Murphy) shows that the online discussion forum bought TikTok “rival” Dubsmash for an undisclosed sum as it started to dip its toes into the highly competitive viral video segment. Reddit said that it would integrate Dubsmash’s tools into its platform but allow it to keep its own platform and brand. Dubsmash is most known for short videos and lip-synching clips. * SO WHAT? * This shows continued appetite from companies to muscle in on the success of TikTok. Snap launched its own video app last month, for instance, and it seems that both Facebook and Snap had previously approached Dubsmash about an acquisition. Reddit/Dubsmash: AMA on video (Financial Times, Lex) points out that this takeover is likely to be positive for ad revenues but that it has a long way to go to catch up with rivals including Snap, Twitter and Facebook. If Reddit can keep its momentum going, it will more than likely go for its own IPO in due course!

Meanwhile, Is Google down? Gmail, YouTube suffer outages (Wall Street Journal, Same Schechner and Sarah E.Needleman) shows that a number of Google services went offline for about an hour yesterday, causing all sorts of disruption in academic institutions and companies alike. * SO WHAT? * It was no biggie in the end, but it does go to show how much we all rely on tech! All the more reason for antitrust legislation IMO in order to encourage competition 😜

DoorDash and Airbnb pull back and EA makes a counter-offer for Codemasters…

Wall Street goes cool on DoorDash and Airbnb (The Times, James Dean) shows that last week’s IPO heroes hit a bit of a blip this week as Airbnb and DoorDash’s share prices were 24% and 22% down from their peaks last week. Interestingly, many analysts downgraded both stocks yesterday saying that they were overvalued given that they were still loss-making. Having said that, they are still comfortably above their opening prices!

Then in Electronic Arts makes £945m counter-offer for Codemasters (Financial Times, Arash Massoudi and Tim Bradshaw) we see that Electronic Arts made an all-cash offer for Codemasters, blowing Take-Two Interactive lower cash-and-shares offer out of the water. Codemasters switched its recommendation to favour EA’s accordingly and EA’s counter-offer gives Codemasters’ board an extra life (Financial Times, Bryce Elder) shows that this latest offer will be a source of great relief for Codemasters’ management because there had been grumblings from shareholders that Take-Two Interactive’s offer had been too low. Will there be a counter-offer to the counter-offer??

…in other news…

Given that more lockdown appears to be on the cards this Christmas, I thought that this place sounded particularly appropriate to mention: Dine out and isolate at the same time at Tokyo’s Prison Restaurant: The Lockup (SoraNews24, Master Blaster). Very weird – but looks pretty good!