Tuesday 27/08/19

  1. In MACRO NEWS, Trump looks to meet Iran and makes positive noises about China while Germany continues to wobble, the UK services sector takes a beating and Indonesia plans to move its capital city
  2. In RETAIL NEWS, the UK high street is promised a BoJo boost, M&S looks like it’ll fall out of the FTSE100, KFC experiments with pseudo-nuggets and Indian dining apps face pressure
  3. In INDIVIDUAL COMPANY NEWS, Amgen buys Celgene’s Otezla while Johnson & Johnson faces a big fine
  4. In OTHER NEWS, I bring you two memorable gift ideas…



So Trump softens his stance slightly on Iran and China, Germany stares the prospect of recession in the face, the UK services sector suffers Brexit buffeting and Indonesia’s capital looks like moving…

Given Trump’s track record, I wouldn’t get too excited by either Trump ready to meet Iran’s Rouhani for new nuclear deal (Financial Times, Victor Mallet and Michael Peel), where France’s President Macron has offered to broker a meeting between the two sides to hammer out a new nuclear agreement with Iran, or indeed Trump’s warmer words on China rally Wall Street (The Times, James Dean) where he appeared to be open to the possibility of delaying proposed tariffs on Chinese imports. My conclusion? Nice words at the G7 summit – which stabilised falling Asian markets – but we need to see some action, especially as Latest US-China tit-for-tat tariffs drive yuan down to 11-year low (The Guardian, Martin Farrer) shows just what effect the current war of words/tariffs has been having on China (weak currency, job losses etc.). You just have to take what Trump says with a pinch of salt as he is liable to backtrack/change his mind at any given time!

Germany on brink of recession as business confidence nosedives (The Guardian, Graeme Wearden) cites the closely-followed Ifo survey which shows that business confidence has fallen to its lowest level for seven years. This confirms similar recent rumblings from the Bundesbank and Ifo’s head, Professor Clemens Fuest, pointed out on CNBC that “Everything we see at the moment means there are ever more indications of recession in Germany, meaning two quarters of negative growth”. * SO WHAT? * Europe’s growth engine is not currently running on all cylinders. Mind you, it would be greatly helped if Trump sorted the whole tariff malarkey given Germany’s reliance on exports. Also, Germany’s finance minister Olaf Scholz has said that he’s prepared throw €50bn at the economy to avert a potential recession – so that could help. Maybe this will tip him closer to the edge. As an aside, I have been wondering whether all this European weakness will actually make BoJo’s task easier in negotiating a “better” (or slightly less bad, depending how you look at it) Brexit because when the original agreement was being negotiated, Europe looked like it was doing pretty well for the most part. I think that it should, in theory, if he was negotiating with one party – but the problem is

that he’s negotiating with 27 other member countries at the same time, which makes things rather trickier. Also, he’s doing this against the clock, which may mean that he runs out of time.

Vital services sector hit by Brexit fallout (The Times, Louisa Clarence-Smith) cites a CBI poll which shows that British consumer service firms including hotels, bars, restaurants and leisure-related companies had their fourth consecutive quarterly fall in business activity and things ain’t looking any prettier in the immediate future. In fact, expectations are at their lowest level since early 2012. Even professional services firms, like lawyers and accountants, have experienced their steepest profitability drop-off since 2011. Rain Newton-Smith, chief economist of the CBI, observed that “The outlook for services firms is bleak at the moment, with Brexit uncertainty holding back investment and expansion plans…the idea of a no-deal Brext is clearly weighing down the economy and is affecting businesses both big and small”. * SO WHAT? * Everyone wets themselves about the services sector because it accounts for 80% of the UK’s GDP, so bad health in this area is baaaad news. Basically, businesses tend to hate uncertainty and therefore want clarity ASAP over any withdrawal agreement. In the meantime, many are hoping for the best (abandoning Brexit? A better deal?) but preparing for the worst (no-deal).

Although Joko Widodo names Borneo site for new Indonesian capital (Financial Times, Primrose Riordan) sounds a bit random (and possibly like one of those headlines you see around April Fool’s Day), it is a very serious matter. Indonesia’s current capital, Jakarta, is actually situated on swampland and is currently one of the fastest sinking cities in the world. Some experts believe it could be completely submerged by 2050, so when President Widodo announced a site in East Kalimantan on Borneo yesterday, it was a major historical moment. The site was chosen for a number of reasons, including its lower risk to natural disasters like “floods, earthquakes, tsunamis, forest fires, volcanoes or mudslides” and construction is hoped to commence in 2021, with government functions expected to transfer there from 2023-2024. It is expected to cost $32.7bn and will be funded by public-private partnerships, the private sector and state-owned companies. * SO WHAT? * This will be a MASSIVE undertaking and it could well be undone by any number of current politicians or successors when he leaves office in 2024. Critics will say that he’s just avoiding the problem of how to make Jakarta more habitable by completely upping sticks. Still, this will be a huge boost for construction in the region.



The UK high street gets a boost, M&S faces demotion from the FTSE100, KFC trials meatless nuggets and Indian dining apps face push-back from restaurants…

More towns to benefit as fund for struggling high streets hits £1bn (The Guardian, Zoe Wood) highlights an enlarged pot of cash allocated to Britain’s high streets (from £675m in last year’s budget to £1bn now) by the Ministry for Housing, Communities and Local Government (MHCLG) for specific projects designed to boost city centres. 100 towns are now in the running to get their hands on the cash for projects like new bus services and turning empty shops into homes with BoJo saying that “This scheme is going to re-energise and transform even more of our high streets – helping them to attract new businesses, boost local growth and create new infrastructure and jobs”. * SO WHAT? * Critics will say that this is p!ssing in the wind and that the fund is nowhere near large enough to save the rapid demise of our high streets. Traditional retailers continues to complain about an outdated business rates system and the imbalance of tax demands on offline and online retailers. It seems to me that this is a sticking plaster being put on a massive gaping wound and is probably designed as a vote-sweetener ahead of a potential general election. The structural problems on our high streets run deep and I think that much more needs to be done if they are to survive in their current form. The problem is that this won’t happen quickly enough – certainly not if BoJo has got a general election on his mind in the near-future.

Talking of problems on the high street, FTSE100 disappearance looms as M&S falls out of fashion (Daily Telegraph, Louis Ashworth) shows that high street stalwart M&S could fall out of the prestigious FTSE100 when it rebalances next week – and looks likely at the moment to be replaced by Russian gold and silver miner Polymetal, which is now worth £5.24bn after its shares have risen by an impressive 40% since the start of May. * SO WHAT? * In terms of the day-to-day running of the business, dropping out of the FTSE100 to the FTSE250 is no great shakes in the scheme of things, but it usually means that FTSE100 index funds in particular will be forced to sell the shares (because they can only invest in FTSE100 companies) that will depress the price even more (although this may be mitigated to some extent by mid-cap

index funds buying into M&S). Still, M&S has managed to scrape through in the past when it’s come close to relegation and the rebalancing is due to take place a week tomorrow.

There’s good news for vegetarians/vegans/flexitarians in First the vegan sausage roll – now KFC to test out meat-free nuggets (The Guardian, Zoe Wood) where KFC said that it is working with Beyond Meat to launch plant-based chicken nuggets and wings in the US. The product is called “Beyond Fried Chicken” and will come in green containers. The nuggets (which are made from plant-based wheat protein) will be given away in a one-day free trial to be rolled out in restaurants across the US if successful. Shares in Beyond Meat rose by 4% and in Yum! (which owns KFC) by 1.3% on the news. * SO WHAT? * The meat-free revolution rumbles on! Currently, meat-free alternatives in supermarkets aren’t that cheap compared to their meaty counterparts, but as distribution increases and production costs come down, they will no doubt get cheaper for the average punter. If this momentum continues, it will change the face of the agricultural industry on a global basis. If you want to read more about the meat-free industry, have a look HERE at my latest monthly.

In Indian dining apps face restaurant exodus over discount ‘epidemic’ (Financial Times, Benjamin Parkin) we see that there’s a growing revolution by restaurants in India against the increasing might of dining apps such as Zomato, EazyDiner and Gourmet Passport because they are being forced into making discounts of up to 50% to stay on the apps. Dining apps in India have exploded in popularity as “Foodtech” has grown from a $120m industry in 2015 to an estimated $5bn currently, but the National Restaurant Association of India is now encouraging members to opt out of platforms that offer massively discounted meals to diners. * SO WHAT? * Thus far, the campaign has concentrated on dining platforms, but it sounds like it will spread to cover online delivery companies next such as Swiggy and Uber Eats. Rohan Agarwal, a manager at consultancy firm Redseer, observed that “This is the first consolidated pushback from the restaurant side so far, in an industry where otherwise the aggregators were trying to push for the terms”. It seems to me like the dining apps have reached the next stage of maturity after a frenzied period of stellar growth and will have to wind in their bid for rapid expansion via discounted offers and spread the love by letting the people who actually make the food get more money. That way, everyone’s happy – but there is a lot more negotiation to come to get to this state of affairs.



Amgen buys Celgene’s Otezla for $13.4bn and Johnson & Johnson gets slapped with a big fine…

Drug sale clears path for Celgene merger (The Times, James Dean) shows that Bristol-Myers Squibb is one step closer to a successful $74bn ($90bn, if you include debt) takeover of Celgene as the latter has agreed to sell its hugely popular psoriasis treatment, Otezla, to Amgen for $13.4bn. * SO WHAT? * This will go some way to satisfying the US competition regulator over the latter’s concerns about the combined entity having too much power in anti-inflammatory drugs. On the other side of the equation, this should enhance Amgen’s strong psoriasis and anti-inflammatory treatment portfolio. The Otezla sale is contingent on the Bristol-Myers Squibb and Celgene deal going ahead, but if it does, it will be an even bigger pharmaceutical acquisition than Pfizer’s acquisition of

Warner-Lambert in 1999.

Johnson & Johnson ordered to pay $572million in Oklahoma opioid case (Wall Street Journal, Sara Randazzo and Jared S.Hopkins) heralds the possibility of further findings of liability for drugs companies regarding the ongoing spread of opioid abuse. This upsurge in cases being brought by state and local municipalities is coinciding with more concerted efforts by the Justice Department to investigate the over-prescription of opioids by doctors. The Oklahoma case was the first to go to trial and focused on J&J because the other two drugmakers settled out-of-court. * SO WHAT? * The crux of all this is whether drugmakers such as J&J made misleading claims in their marketing campaigns about addiction risk and the breadth of efficacy for a number of chronic pains. J&J is going to appeal the judgment. The whole industry will be watching this very closely to gauge whether they need to build up funds for future litigation costs. It never rains but it pours for J&J, which is continuing to face massive lawsuits on its baby powder, pelvic mesh and hip devices and other pharmaceutical products.



And finally, in other news…

I thought I’d bring you TWO intriguing gift ideas. The first one sounds great for frustrated golfers who want a short-cut in Nissan develops golf ball that automatically finds the hole every time (SoraNews24, Master Blaster https://tinyurl.com/yy7g95he), but then Couple mortified by mother-in-law’s engagement gift with very awkward design flaw (The Mirror, Courtney Pochin https://tinyurl.com/yyvblatu) shows how kind intentions can sometimes go awry…

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Some of today’s market, commodity & currency moves (as at 0838hrs 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 **
7,095 (-0.47%)25,899 (+1.05%)2,878 (+1.10%)7,85511,658 (+0.40%)5,351 (+0.45%)20,456 (+0.96%)2,902 (+1.35%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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