Tuesday 22/10/19

1. In MACRO NEWS, we see the latest on Brexit, Switzerland’s Green success and Trudeau’s win
2. In REAL ESTATE NEWS, Knight Frank has a ‘mare and WeWork’s valuation drops further
3. In CONVENIENCE FOOD NEWS, US fast-food chains battle over brekky and Just Eat hopes to deliver
4. In INDIVIDUAL COMPANY NEWS, drug companies settle opioid cases out of court and Halliburton indicates shale slowdown
5. In OTHER NEWS, I bring you a drawing that will blow your mind…

So BoJo continues to try to get a Brexit deal done, Switzerland lurches greenwards and Canada’s Trudeau seeks the victory…

Boris Johnson hopes to make Brexit breakthrough on Tuesday (Financial Times, George Parker and Laura Hughes) shows BoJo’s continued efforts to force his latest Brexit deal through Parliament today as yesterday’s attempt was rebuffed by the Commons speaker John Bercow. However, Voting forecast points to MPs approving Johnson’s deal (Financial Times, Sebastian Payne, John Burn-Murdoch, Laura Hughes and Jim Pickard) suggests that he stands a reasonable chance of getting his Withdrawal Agreement bill through the House of Commons without having to be forced into a customs union with the EU or to have to hold a second referendum. Meanwhile, it seems that the vague sniff of a deal has caused a bit of a stir in Pound keeps on rising after hedge funds change tack (Daily Telegraph, Tom Rees) as sterling broke the $1.30 level versus the dollar for the first time in over five months on hopes that BoJo will be able to push a deal through. Short positions had been building up in expectation of a hard Brexit, but the prospect of a less-hard Brexit has led to an unwinding of shorts and five

consecutive days of sterling strength.

In election news, Swiss voters deliver decisive shift towards green parties (Financial Times, Sam Jones) shows that Switzerland’s political landscape has shifted leftwards as the Swiss Green party and Green-Liberal party saw a decent boost from Sunday’s elections. The biggest loser from the election was the populist Swiss People’s party, although it remains the biggest party in the Federal Assembly albeit with a reduced level of support. * SO WHAT? * Despite this result fading somewhat in the background versus what’s going on elsewhere in Europe at the moment, it’s worth saying that it represents a major shift in Switzerland’s political system and will affect voting on some critical legislative issues in the coming months – including a vote on the country’s future relationship with the EU.

Then in Trudeau wins re-election but fails to secure majority (Wall Street Journal, Paul Vieira and Kim Mackrael) we see that Trudeau and his Liberal Party have been re-elected despite recent scandals that ate away at his championing of clean governance and diversity. He will return to power with a reduced majority (he won 40% of the vote when he came to office in 2015 versus about 33% now) that will require him to elicit the support of other parties in order to get legislation through.

Knight Frank quite frankly has a knightmare and WeWork doesn’t work…

Knight Frank profits plunge as political turmoil takes toll (Financial Times, Judith Evans) gives us further evidence of Brexit uncertainties hitting the UK property market as the company, which handles residential and commercial property around the world, announced an 11% fall in pre-tax profits. 60% of the company’s business is in the UK, but the overseas business has been affected by the US-China trade war and Hong Kong protests. Knight Frank’s listed rival, Savills, reported pre-tax profits down by 7% in the first half, citing all the same reasons for weakness. * SO WHAT? * Given the tricky macroeconomic backdrop generally, trading doesn’t actually look that bad and could arguably be quite a lot worse. I would suggest that there is a lot of pent-up demand building up in the background and that if Brexit and the US-China trade war could be resolved sooner-rather-than-later, markets will go bananas. I don’t even think that WeWork’s current troubles are symptomatic of a broader malaise – it seems to me that they are company-specific (it expanded too quickly with a ridiculously high cash burn) as other rivals in the space are actually profitable.

Talking about WeWork, WeWork’s valuation falls to $8billion under SoftBank rescue offer (Wall Street Journal, Liz Hoffman and Maureen Farrell) charts continued negative newsflow on the embattled flexible office space provider as the company’s board is expected to meet today to discuss emergency financing options. Possibilities include a potential takeover by SoftBank Group but a decision is expected to be made by the end of this week. * SO WHAT? * This just goes to show how ridiculous the whole WeWork hype has been because this is evidence that the company only has enough cash to last a few more weeks! When you think of all the BS that came in the lead-up to the recently abandoned flotation it is just amazing to think that it is now so close to running out of cash with no-one apart from its biggest shareholder to bail it out. There was recent news of big staff lay-offs but apparently even that has been delayed because it could not afford the costs!!! What an absolute shocker! In my previous life as a headhunter I came across a lot of people who aspired to work in a start-up. They felt that working in a small but growing “disruptor” with cool offices and the promise of a stake in the company that would ultimately make them millionaires would be a great career path. It CAN be – but as this shows, it is by no means a given. If you find yourself in such a company, make sure you spend time to understand how it REALLY works and how it actually makes its money and what the market it’s in is like. If it doesn’t feel right, it can be better to jump ship before it’s too late…

US fast-food chains fight over breakfast and Just Eat aims to deliver…

Fast-food chains heat up breakfast fight (Wall Street Journal, Heather Haddon) highlights a surge in the breakfast battlefield as Wendy’s, Shake Shack, McDonald’s, Burger King and Dunkin’ turn up the heat on attracting morning business. Breakfast visits and average spend have increased over the last five years while those at lunchtime and dinner/supper (depending on where you are from!) have fallen slightly as more people ditch brekky at home for dining on the run or “al desko”. * SO WHAT? * I think that this is an interesting area of potential growth that perhaps taps into a growing economy and rising wages as people get increasingly cash rich and time poor, but if things come off the boil in the economy and in jobs this is one of the first “expenses” to go IMO. It’s great to improve the

breakfast offering, but not at the expense of everything else – also I would have thought that it is more expensive because you will have to employ more staff in the morning to push sales. Great for consumers, though 😁

Just Eat hopes to deliver as customers’ tastes broaden (Daily Telegraph, Oliver Gill) looks at the company which is currently being acquired by Dutch operator Takeaway.com as its revenues increased by 25% in the latest quarter on a sales increase of 30%. However, the company also observed that its own delivery business was proving to be a drag on growth and consumer spending was slowing down. * SO WHAT? * Although Just Eat is a UK market leader, the enlarged group (including Takeaway.com) will create a business that services 40m customers across 20 countries. Given the deep-pocketed competition of the likes of Deliveroo and Uber Eats, it’s not going to be plain sailing. Peter Duffy, interim chief exec, says that the company will benefit from consumers’ changing tastes (i.e. being willing to try a broader range of cuisines) – but then so are all its competitors!!!

Opioid cases get settled out-of-court while Halliburton sees weakening demand from shalers…

Last-minute opioid deal could open door to bigger settlement (Wall Street Journal, Sara Randazzo) heralds a major development in the ongoing blame game of America’s opioid crisis as four drug companies and two Ohio counties reached a $260m settlement. * SO WHAT? * Drug companies have been accused of pushing opioid painkiller use too widely without proper warnings of the risk of addiction and distributors have been accused of

allowing too many pills to get into communities only to be abused. This out-of-court settlement could be a precedent for further deals between drug companies and other counties in order to avert thousands of lawsuits.

Halliburton to cut costs after demand for shale fractures (The Times, Emily Gosden) shows that the biggest oil services supplier to North America’s fracking industry is going to make more cost cuts ($300m is targeted) as demand from shale producer customers fall as well as profits. * SO WHAT? * The company provides services to oil and gas companies and employs around 60,000 people in over 80 countries and is seen, along with rival Schlumberger, as a barometer for activity in the oil sector. It believes that oilfield activity is likely to be weaker than the fourth quarter of last year.

And finally, in other news…

I’ve put things like this in Watson’s Daily before and I would recommend that, if you’ve got a spare 5 minutes you relax with a hot beverage and give this a watch: Japanese artist perfectly recreates Asahi Super Dry beer can in graphite pencil【Video】(SoraNews24, Katy Kelly https://tinyurl.com/y36brako). I think this is as impressive as it is mesmerising!