Tuesday 18/12/18

  1. In MACROECONOMIC AND MARKETS NEWS, May sets a date, a second referendum looks more likely and markets fall on renewed US-China trade worries
  2. In RETAIL NEWS, Asos shocker topples the whole retail sector
  3. In MISCELLANEOUS NEWS, there’s more evidence the UK property sector will stagnate and Hitachi buys into ABB to the tune of $6.4bn
  4. In OTHER NEWS, I bring you some very amusing dog photos. For more details, read on…



So Brexit pressures continue and markets take a bath on US-China trade concerns…

Theresa May sets mid-January date for vote on Brexit deal (Financial Times, George Parker, Henry Mance and Laura Hughes) sets out the latest development in the Brexit saga as, shortly after Theresa May set a date for MPs to vote on her unpopular Brexit deal in the week commencing 14th January, Jeremy Corbyn tabled a motion of no confidence in her leadership (i.e. an attack on her personally, rather than the government). Some observers say that this was just a stunt to embarrass the PM and that he would shy away from calling a vote of no confidence in the government because he’d lose (conservatives don’t want a general election). * SO WHAT? * There are still some vague hopes that the deal can be tweaked before the January deadline and MPs are actively urging her to test other variations of Brexit in a series of Commons votes. 

Is Britain heading towards a second Brexit referendum? (Financial Times, George Parker) looks at how possible a second referendum would actually be despite the PM publicly rejecting the idea currently. An idea that appeared not so long ago to be a Remainer pipe dream seems to be gaining more traction because May’s current deal is so unpopular. She is being urged at the moment to test out alternative variations to see if a plan B could galvanise enough votes, but success for this option is looking unlikely. A “Norway-style” economic partnership where the UK would remain closely integrated with the EU and governed by its rules was roundly rejected in a Commons vote last June, with many believing that this could be even worse than May’s deal. Which leaves the second

referendum option. The idea has been gathering cross-party momentum since the voting down of the Norway option and although Labour has kept the option of a second referendum open, Corbyn’s not been keen to push it too much because it could split his party. After all, in the 2016 referendum, Labour party members voted overwhelmingly for Remain whilst most Labour MPs’ constituencies voted Leave. * SO WHAT? * Given that many of the “conventional” options look likely to meet major resistance, momentum for a second referendum is certainly building. However, if it DID happen, it would take some time to sort out. Although LibDem leader Vince Cable says that legislation could be passed “within a matter of weeks” (but then again he would say that as a second referendum is central to his party’s policies) holding a vote before the original March 29th deadline would seem to be nigh on impossible as a lot of admin would have to be sorted to allow it to go ahead (e.g. primary legislation, the question that would appear on the ballot paper, preparing the poll and a campaign period of at least 10 weeks etc.). Still, EU officials have said that there could be an extension of a few weeks granted to allow us to get things sorted. Also, the European Court of Justice ruled this month that the UK COULD unilaterally revoke the Article 50 notification, which means that in theory Britain will have another option of calling Brexit off. We’ll just have to wait and see.

Dow Industrials fall 508 points as investors fret over growth (Wall Street Journal, Jessica Menton) shows how nervy investors are getting about friction in the US-China trade negotiations and concerns ahead of the meeting tomorrow of the Federal Reserve about the interest rate (if they put it up, markets will probably go down). The latest declines have now put the tech-focused Nasdaq into negative territory for the year, the Russell 2000 index of small-caps is now in a bear market, having suffered a drop of over 20% since its August 31st peak and US crude has now dipped below $50 a barrel for the first time in 14 months. Tricky times.



Asos sneezes and the whole sector takes fright…

Asos raises fear that high street woes have moved online (The Times, Deirdre Hipwell) shows the effect of yesterday’s surprise trading update by Asos where it halved its profit forecast following a disastrous November. Investors took fright as it followed last week’s profit warnings from Superdry and Bonmarche and sold off shares in Next and Marks & Spencer, amongst others in the sector. Conventional wisdom has highlighted the ongoing customer migration from offline to online retailing but what people are really concerned about now is that high street problems are now becoming online retailer problems. * SO WHAT? * This is obviously bad news, but the key thing to consider here is whether this is an Asos problem or a retail sector problem, because if it’s just an Asos thing other retailers are being oversold. On the other hand, if this can be taken as a sign that consumers are reining in spending across the board, then the sell-off can be justified. Whitman Howard retail analyst Tony Shiret says that the profit warning could have been due to overly-punchy sales targets and/or failing to get the right price offering around the Black Friday period and that there is still all to play for in both the run-up to Christmas and the subsequent aftermath. Shares in smaller rival Boohoo have not seen the same problems, but then again shares in Zalando – Europe’s biggest online-only fashion retailer – have suffered due profit warnings this year. I think that this kind of news throws up all sorts of opportunities for finding investment gems as investors panic and sell everything.

If you fancy a bit of bah humbug today, then look no further than It’s beginning to look a lot like a miserable

Christmas for retail (Daily Telegraph, Tim Wallace, Jack Torrance and Tom Rees) because it does a good job of painting a very downbeat picture of the current state of UK retail. On the consumer side, things are actually looking quite good – the lowest unemployment rate since the seventies, a record number of job vacancies, pay rises now running ahead of inflation and ultra-low interest rates meaning that borrowing money is still very cheap. However, this does not seem to be filtering through to retailers as the list of failures continues to lengthen with Toys R Us, Poundworld, Maplin going under this year and Mothercare, Homebase, Carpetright, New Look and many others having to sign controversial Company Voluntary Arrangements with landlords and creditors to keep trading. As a result, retailers have been forced to make some deep discounts in order to entice customers, with average discounts running at 43%, according to Deloitte, and the situation has been made worse for apparel retailers as extremes in weather have resulted in having the wrong amount of stock at the wrong times. In addition to this, consumer sentiment appears to be on the slide with young people being particularly pessimistic (which might explain Asos’ current state) about their personal finances. * SO WHAT? * Yes, things are not great currently but there are still some bright spots – entertainment is still seeing some action with Barclaycard’s latest figures showing spending in this area up by 8.7% on the year as ticket sales (up 30.5%), pub spending (up 11.3%) and restaurant spending (up 8.3%) show that consumers are not yet abandoning civilisation to live in a cave. An improvement in customer confidence (that could probably be assisted by more clarity on Brexit) is obviously key for the short term but, as I keep saying, in order for retailers to survive for the long term I believe that they have to take note of this willingness to spend on “experiences” and up the ante in what they offer in their stores to consumers to make them WANT to go there rather than buy online.



There’s more evidence of a UK property slowdown and Hitachi buys into ABB…

Property market will stagnate in 2019 as house sales fall, says Rics (The Guardian, Patrick Collinson) cites forecasts from the Royal Institute of Chartered Surveyors which show that house price growth will go sideways in 2019 as the number of sales fall amid Brexit uncertainty and affordability constraints. Prices are expected to fall in London and the South East, rise in Northern Ireland, the north-west, Scotland and Wales and stay neutral in East Anglia and the South West. Rics observed that “House prices are now a greater multiple of earnings than at any point since records began. Such high house prices are shutting more and more people from accessing the market”. * SO WHAT? * The report backs up what Rightmove said recently, but pours cold water on the Bank 

of England’s assumptions that house prices will fall by 30% following a disorderly Brexit as it said that there is still a shortage of supply and fewer forced sellers in the market meaning that “many vendors will be under no real pressure to sell, meaning they can choose to avoid listing their property at a time when the market is weakening”.

Elsewhere, Hitachi to pay $6.4bn for 80% of ABB’s power grids division (Financial Times, Kana Inagaki and Ralph Atkins) heralds some big news as Hitachi bids to become a global industrial force and its Swiss rival gets to concentrate on its digital and robotics business. ABB will keep a 19.9% stake in the divested division but it also announced further restructuring measures to boost its performance. This will no doubt go some way towards addressing the issue of its share price having fallen almost 25% over the last year. The deal is expected to close by the first half of 2020. * SO WHAT? * This deal puts the already precarious £15bn Wylfa Newydd nuclear power station project in Wales into jeopardy as the ABB deal stretches its finances, although a final decision has not yet been made.



And finally, in other news…

With all the doom and gloom going around at the moment, I thought you might welcome this: Making a dog’s dinner of it! Hilarious snaps show playful pooches pulling some VERY funny faces as they try to catch flying treats in new calendar snaps (Daily Mail, Dianne Apen-Sadler https://tinyurl.com/y7w7uf7v). Some brilliant photos!

Some of today’s market, commodity & currency moves (as at 0824hrs 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 **
6,773 (-1.05%)23,593 (-2.11%)2,546 (-2.08%)6,75410,772 (-0.86%)4,800 (-1.11%)21,146 (-1.01%)2,596 (-1.45%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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