Tuesday 20/08/19

  1. In MACRO NEWS, Japan’s exports fall, Germany edges closer to recession and Brit consumers get downbeat
  2. In TECH NEWS, Big Tech faces Big Investigation, Huawei gets a reprieve, Baidu has a shocker and Waymo abandons car manufacturing
  3. In MERGER & ACQUISITION NEWS, Greene King is “Ka-shing” in while Tilney and Smith & Williamson get together
  4. In OTHER NEWS, I bring you battered sprouts…



So Japan’s exports slow, Germany faces recession and Brexit worries hit UK  households…

Japan exports fall in July as shipments to Asia slip (Financial Times, Alice Woodhouse) shows that trade tensions in the region are denting Japan’s exports, albeit at a slower rate than expected, according to official figures released yesterday by the Ministry of Finance. Exports to Asia as a whole fell by 8.3% year-on-year, with Singapore falling particularly sharply (down 22.3%!). Shipments to China, Japan’s biggest trade destination in the region, fell by 9.3% and exports to South Korea, with whom they are having increasingly frosty relations, fell by 6.9% in July. * SO WHAT? * Japan relies heavily on exports, so this situation is definitely something PM Abe will want to address. However, given that he’s riding high in the polls at the moment as he benefits from public support against South Korea, I don’t expect him to make any knee-jerk reactions. Still, the situation regarding exports is something that needs addressing before it becomes more serious.

Germany on brink of recession as slump in exports continues (The Guardian, Phillip Inman) highlights Germany’s central bank, the Bundesbank, warning that the country is on the verge of recession as a combination of a fall in its exports, Brexit and the US-China trade war has led to a 0.1% fall in GDP in the latest quarter, with another fall in the next quarter being on the cards. A recession is defined as two consecutive quarters of GDP contraction

(aka “negative growth” – I’ve always thought this is a weird way of expressing it, but there you go!) and Germany is the engine of the European machine, so this will have consequences. * SO WHAT? * At the moment, Germany’s finance minister Olaf Scholz says that he’s prepared to splash the cash (to the tune of €50bn) to avert a potential recession. However, it looks increasingly likely that the ECB will begin quantitative easing (QE) before Germany has to resort to stimulus of its own as Mario Draghi, the ECB’s outgoing president, said last month that he was considering QE in response to worsening economic conditions in the eurozone as a whole.

Meanwhile, Recession threat deals heavy blow to household confidence (The Times, Gurpreet Narwan) cites the latest survey from IHS Markit which shows that people are losing confidence about their finances, which is translating into lower spending on big ticket items like cars, holidays and houses. IHS Markit economist Joe Hayes observed that “The Brexit haze, uncertainty over the political environment and the increased possibility of the UK entering recession appear to have dented expectations. Pessimism towards job security also intensified during August, explaining why households have withdrawn into a more risk-averse approach”. * SO WHAT? * This is a survey – which generally tends to measure sentiment. It is dangerous to rely on such things in isolation and I always think that you have to look at other measures as well, such as real spending figures from Mastercard and Barclaycard in addition to real housing sales and car purchases. Mind you, all of those are painting a mixed picture at best at the moment, so it’s not looking too hot for the UK currently, which is to be expected given Brexit.



Big Tech faces a major antitrust investigation, Huawei gets a delay, Baidu sees profits plummet and Waymo says it won’t make cars…

States to move forward with antitrust probe of big tech firms (Wall Street Journal, John D. McKinnon and Brent Kendall) heralds a major joint antitrust investigation by a group of states (some say it could be up to 20 or more), which is expected to launch officially next month. It will probably focus on whether a tight number of major tech platforms are using their market might to strangle the competition. This could potentially coincide with the Justice Department’s antitrust investigation announced in July meaning that the likes of Google, Facebook, Amazon and Apple will be under a great deal of pressure over the coming months. * SO WHAT? * So far, this is all talk but it looks highly likely that it’ll happen. I reckon that this is going to blunt the teeth of the FAANGs for a bit (#seewhatididthere) and their share prices won’t be quite as perky while the investigations carry on. These companies have powerful lobbies and friends in very high places, so I really can’t see any proper break-ups (maybe there will be some business disposals here and there) because too many people stand to make too much money. Maybe some of their working practices will have to change slightly to accommodate competitors, which would be good news for the smaller operators. Having said that, the possibility of two big investigations combining gives the best chance of forcing Big Tech to make some decent concessions IMHO.

Markets rally after Trump eases off Huawei (The Times, James Dean) shows that US pressure on China’s Huawei has relented slightly ahead of US-China trade talks set for next month. The US Department of Commerce granted Huawei a 90-day grace period during which it will be allowed to continue to trade with American companies, giving markets cause for muted relief. * SO WHAT? * Markets have been going up and down depending largely on how talks between the US and China are perceived to be going – and so this softening of stance has meant investor

hopes of a resolution to the US-China trade impasse are currently in an uptick. However, given Trump’s track record, the true position is anyone’s guess as things can change quite quickly with him! The fact is that Trump has already burned his bridges with Huawei to a large extent given that his administration has done such an extensive hatchet job on Huawei. The company’s reputation has been under attack not only in America itself, but US allegations that it is spying for the Chinese have been taken on tour around the world to anyone who would listen. I think he’s using Huawei as a short-term political/negotiation scapegoat, but this will probably damage US tech companies in the longer term as Chinese companies will be increasing their efforts to wean themselves off relying too much on the Americans in case this kind of thing repeats itself.

Baidu, China’s private-sector bellwether, reports 62% profit drop (Wall Street Journal, Shan Li and Maria Armental) shows that all is not well for the Chinese search engine giant (aka “the Google of China”) as it just announced its weakest quarterly revenue growth for over two years, a massive drop in profits and muted prospects for its key advertising business. Its main problem is that it has been slow to capitalise on its users migrating to smartphones in recent years, to the extent that is now out of the top five most valuable publicly traded Chinese internet companies. Having said that, its revenues were better than market expectations, so its share price shot up by 9.4% in after-hours trading. * SO WHAT? * Baidu has tried to diversify from its search business by pushing into AI-related areas like autonomous driving, smart speakers as well as video streaming, but all these activities are in the periphery as far as contributions to profits are concerned. It seems to be doing all the right things – just not fast enough.

Then in Google venture backs out of cars (Wall Street Journal, Olivia Rudgard) we see that Waymo, Alphabet’s self-driving car venture, has decided NOT to build its own vehicles from scratch because it is “really hard”. Waymo was founded by Google in 2009 and currently runs a driverless taxi service in Phoenix, Arizona. * SO WHAT? * This sounds like an eminently sensible decision and means that they can continue to work broadly with other car manufacturers and stick to what they are good at. At least there will be less waste this way!



UK pub operator Greene King gets a new owner and Tilney goes into merger talks with Smith & Williamson…

Greene King toasts £5bn takeover bid from Hong Kong (Daily Telegraph, Oliver Gill) heralds a bid from Hong Kong’s richest man, Li Ka-shing, as he suddenly became a massive player in the British beer business. Greene King owns 3,000 pubs and CK Hutchinson, controlled by Li Ka-shing, made a surprise bid yesterday at an eye-watering 50% premium to what it was trading at before. Li Ka-shing has just increased his exposure to the UK via this purchase as he already owns Superdrug and the mobile network Three, among other things.  * SO WHAT? * There seems to be a thirst for pub deals at the moment. Last year, Fuller’s,

one of London’s oldest breweries, was bought by Japan’s Asahi and private equity firm TDR Capital struck a £3bn deal for Stonegate to buy Ei, Britain’s biggest pub group, a few weeks ago. Some feel that this could be the beginning of the end for traditional pubs, but clearly purchasers see some mileage in the business. That and the fact that they can buy assets cheaply with a cheap pound!

In Tilney confirms Smith & Williamson merger talks (Financial Times, Alice Ross) we see that UK wealth manager Tilney confirmed yesterday that it’s in exclusive talks to merge with competitor Smith & Williamson to create a group managing a whopping £45bn of assets. MiFID II regulations that came into force in January last year have resulted in a wave of consolidation in the sector as pricing transparency and rising costs of regulatory compliance have hit asset managers’ finances. Tilney has been hoovering up smaller outfits in a fragmented market in a bid to get scale, but would be a biggie if it all goes ahead.



And finally, in other news…

I thought I’d leave you today with food for thought ahead of Christmas in Tesco unveil battered sprouts on Christmas menu – and they actually sound nice (The Mirror, Zahra Mulroy, https://tinyurl.com/y3o7ta5b). I just don’t think this sounds right – but maybe this is because I am a sprout-lover. Maybe this method of preparation could convert some of the haters??

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Some of today’s market, commodity & currency moves (as at 0902hrs 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 **
7,190 (+1.02%)26,136 (+0.96%)2,924 (+1.21%)8,00211,715 (+1.32%)5,372 (+1.34%)20,677 (+0.55%)2,880 (-0.11%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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