Tuesday 18/02/20

  1. In CORONAVIRUS & MACRO NEWS, China faces a major growth slowdown, restrictions in foreign internet and now a chicken cull as Cathay Pacific and Apple warn on repercussions. Germany and Japan’s economies look vulnerable
  2. In CAR NEWS, GM exits Oz and NZ and Tesla faces problems for its German gigafactory
  3. In INDIVIDUAL COMPANY NEWS, Pier 1 Imports files for Chapter 11, Laura Ashley looks very dodgy, BT changes its subscription model and HSBC is on the verge of announcing a big overhaul
  4. In OTHER NEWS, I bring you a consequence of over-zealous spray-tanning…



So China’s economy faces a major slowdown, restrictions on foreign internet and a chicken cull while Cathay Pacific and Apple warn of fallout. Germany and Japan also look vulnerable…

China slowdown ‘biggest in 30 years’ (The Times, Callum Jones) cites Nomura’s assessment of the effect of Covid-19 (the official name for the current coronavirus) on China’s economy, predicting that the country could see its steepest fall in quarterly GDP growth since the Tiananmen Square protests in 1989. China stifles foreign internet to control coronavirus coverage (Financial Times, Yuan Yang) shows that Beijing is trying to keep a lid on panic as it has restricted access to the uncensored global internet in order to help the state frame the narrative. Meanwhile, Coronavirus fears force China into mass chicken cull (Financial Times, Sun Yu) highlights another effect of the outbreak – that that country has started to cull millions of young birds (at least 100m so far) because travel restrictions have meant animal feed has not been able to get to them, resulting in 30,000 chickens per day starving to death. This has been exacerbated by a major shortage of the main ingredients of feed – corn and soyabeans. In terms of the birds themselves, long distance domestic shipment of live birds has been restricted over concerns that this would spread the virus, leading to poultry farms having too many live chickens which has had the terrible consequence of baby chicks being buried alive. A restriction on the import of live US chickens (that has been in place since 2015) has been lifted in order to alleviate the problem but meat supply in China looks like it will be getting worse and prices are likely to stay high. * SO WHAT? * Given that China is still reeling from culling 40% of its pig population in the wake of the African swine fever outbreak, the prospect of a major chicken cull is going to

be hitting meat-lovers hard. Surely firms that make meat alternatives will be wanting to accelerate their plans for China expansion because they have a captive audience at the moment. Awful though the whole situation is, this is an absolutely golden opportunity for the likes of Impossible Foods, Beyond Meat and Omnipork to make some valuable inroads.

Cathay Pacific issues profit warning after coronavirus hits service (The Guardian, Jasper Jolly) highlights another consequence of the coronavirus as Hong Kong’s flag carrier announced a profit warning as it has had to cancel 40% of its flights in February and March. It had already faced difficulties from last year’s street protests. Apple to fall short of projected revenue due to coronavirus (Wall Street Journal, Tripp Mickle) shows yet another consequence as it became the first American company to say that it won’t reach quarterly revenue targets due to the outbreak, but will give more detail at its official earnings announcement in April. * SO WHAT? * The fallout continues and companies around the world will be continuing their attempts to quantify the damage. I do wonder whether we will see a spate of M&A when things die down as I suspect some smaller companies will be less well-equipped to weather a downturn perhaps leading to larger companies with cash swooping in and buying good businesses on the cheap.

In Japan’s economy heading for recession, and Germany wobbles (The Guardian, Phillip Inman) we see that Japan is heading towards a technical recession this year (two consecutive quarters of GDP contraction) as official figures revealed that its GDP growth rate slowed in the final quarter of 2019. Germany’s Bundesbank (the country’s central bank) said yesterday that the country’s major industrial sectors were continuing to see weaker orders. * SO WHAT? * Japan and Germany are two of the world’s biggest exporters and so their weakness is a big deal. At least Japan has the Olympics to look forward to – unless that gets affected as well.



GM leaves Australia and New Zealand and Tesla hits a hurdle on its German gigafactory…

GM to exit Australia and New Zealand as part of global overhaul (Financial Times, Jamie Smyth and Christian Shepherd) shows that General Motors is continuing with its restructuring as it continues to withdraw from markets where it has been struggling. It has also withdrawn from Russia, India and Europe (where it sold Opel and Vauxhall to PSA Group) and will be focusing its attention on the US, China, South Korea, South America and the Middle East. * SO WHAT? * And so the global car manufacturer reshuffle continues. This is a great opportunity, however, for the likes of China’s Great Wall Motors, who bought into GM’s Thailand business. Great Wall is one of the non state-owned car companies and with car sales stagnating in its

domestic market it looks like the time might be right for some overseas action.

Court’s axe hovers over Tesla factory (The Times, Oliver Moody) heralds some potentially tricky news for Tesla as a German court has ordered the company to stop cutting down trees without planning permission during its gigafactory build. Elon Musk had been hoping that Tesla’s first major factory in Europe could be built within 18 months but this could well be delayed should conservationists get their way. If Tesla doesn’t manage to finish cutting the trees down by mid-March, the company will be forced to cease activities in order to comply with laws that protect the breeding sites of wild birds during the spring and summer. * SO WHAT? * Given Germany’s rather precarious economy and the fact that this is a £3bn investment with 10,000 jobs at stake in a relatively poor region you would have thought some kind of arrangement could be reached. Still, it is a pain for Musk and could cause production delays down the road – but investors will be rather used to that 😂



Pier 1 Imports files for bankruptcy, Laura Ashley has problems, BT makes changes to its subscription model and HSBC is about to announce a big restructure…

Pier 1 imports files for Chapter 11 bankruptcy (Wall Street Journal, Aisha Al-Muslim) highlights the demise of the home furnishings giant with over 1,000 stores only two months after it said that it would be closing up to 450 outlets and cutting costs. Although the company doesn’t have massive debts, it is suffering acutely from competition with the likes of Wayfair, HomeGoods, Cost Plus World Market and Amazon. * SO WHAT? * It seems that Pier 1 didn’t do itself any favours by being late to the online retail party and had its costs jacked up from building infrastructure to cope whilst at the same time seeing its margins being squeezed.

Laura Ashley owner in crisis talks to secure emergency funding (The Guardian, Jasper Jolly) shows the latest UK retailer in crisis as its Malaysian owner (MUI Asia) is currently holding crucial talks with its bank (Wells Fargo) over getting access to extra funding in the short-to-

medium term. The retailer has seen a sharp drop-off in sales and now 2,700 jobs hang in the balance. Things aren’t looking great.

In BT ready to break with tradition to chase Netflix generation (The Guardian, Mark Sweney) we see that BT is planning to scrap its traditional pay-TV packages and let customers pay for prime content (e.g. Premier League football) on a monthly subscription – something more akin to the likes of Netflix and Disney+. Until now, BT has been pursuing the “traditional” model of tying customers into long term contracts but it will now offer more flexible packages. * SO WHAT? * I think that BT just had to do this. Everyone is doing it and they will just get left behind if they just leave things as they are. Yes, there’s a risk that their revenues could get more volatile as a result, but I think on balance that it’s better for them to keep customers happy with more options (and probably attract a few more customers) than die a slow death by clinging onto an old business model.

HSBC to cut 35,000 jobs and $100billion of assets (Wall Street Journal, Simon Clark and Margot Patrick) heralds bad news for the bank’s employees as it announced the cuts that are to happen over the next three years. This major restructuring of the business will include a scaling-down of US and European operations and a scaling-up in Asia and the Middle East. Tough times.



And finally, in other news…

I have to say that the following headline sounds somewhat naughtier than it actually is – but this story is very amusing: Breastfeeding mum regrets fake-tanning every part of her body (Metro, Richard Hartley-Parkinson https://tinyurl.com/ro9mtdz). This is hilarious!

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Some of today’s market, commodity & currency moves (as at 0723hrs 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 **
7,433 (+0.33%)HOLIDAYHOLIDAYHOLIDAY13,784 (+0.29%)6,088 (+0.25%)23,194 (-1.40%)2,985 (+0.05%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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