Tuesday 27/11/18

  1. In MACRO AND OIL NEWS, Trump talks more China tariffs, Italy hints at a budget climbdown and US shale drillers could be affected by low oil prices
  2. In UK HIGH STREET NEWS, pubs adapt to change and Cake Box has big ideas
  3. In INDIVIDUAL COMPANY NEWS, GM announces closures and WPP merges J Walter Thompson and Wunderman
  4. In OTHER NEWS, I bring you KitKats and a fit cat. For more details, read on…



So Trump has more China tariffs in mind, Italy hints at a climbdown and oil weakness threatens the shale drillers…

Trump expects to  move ahead with boost on China tariffs (Wall Street Journal, Bob Davis) shows that POTUS is in a belligerent mood as, days before the G20 summit where he’ll meet with China’s Xi Jinping, he has indicated that he expects to move forward with increasing tariff levels on $200billion of Chinese goods to 25% despite China asking for a postponement. He went on to say that if the trade talks don’t produce anything favourable he will slap on 10% or 25% tariffs on goods that are currently exempt from duties. Mind you, it wasn’t just the Chinese who were being targeted – he reiterated his threat to levy tariffs on car imports that would be bad for the European, Japanese and South Korean automotive industries. * SO WHAT? * This seems to be classic Trump posturing as he heads into talks rattling cages. God knows whether any deals will get hammered out, but I wouldn’t hold your breath. The US economy’s momentum is still good and China’s economy is officially on track to achieve its 6.5% GDP growth target so I suspect that both sides will be willing to play a waiting game given that there doesn’t seem to be much urgency – at the top level, at least – to get anything done. Companies like Apple, however, will probably be tearing their hair out as they could well become the whipping boy both in China and back home as Trump is threatening to slap taxes on Apple products made outside the US and imported on the one hand, and then China could easily put tariffs up to effectively choke off any of Apple’s China growth ambitions on the other.

In Italian shares rise on hint of climbdown in Brussels budget talks (The Guardian, Larry Elliott) we see that whispers of reconciliation between the European Commission and Italy’s populist leaders over the disputed budget sent Italian bank shares – a bellwether for the Italian stock market – up by 5% in trading yesterday. It sounds like Rome was willing to cut its budget deficit from 2.4% of national output to 2% – which has been a major stumbling block up until now. * SO WHAT? * This sounds like a mild positive and markets across Europe were boosted by this chat but it’s unclear as to whether this would go far enough to satisfy the Europeans – or even whether they’d actually be able to hit this target anyway given that Italian economic growth is expected to fall over 2019. The saga continues.

Oil’s tumble threatens US shale drillers (Wall Street Journal, Christopher M. Matthews) highlights challenges posed by recently weakened oil prices as two large shalers, EOG Resources and Whiting Petroleum, identified $50 a barrel as the lowest level that they can still make a worthwhile profit as US benchmark prices fell recently to $51.91. The implication here is that if the price keeps going lower, US shale drillers will have to curtail production. * SO WHAT? * Fracking techniques continue to improve and so profitability continues to improve along with it. Shalers are also in a much better position than they were in the last oil downturn and have reduced debt levels considerably, but if oil prices continue to bump around at levels just above their minimum comfort levels, you can’t blame them for potentially shelving production. Having said that, they are themselves partly to blame (because of increased production) so it’s difficult to know whether they will stay or go at this point in time. Opec will be meeting shortly and it sounds like members are mostly vying to cut production to increase prices – so this would benefit the US producers anyway.



It seems that pubs they are a-changin’ and Cake Box has big ambitions…

Pub closures are more than a local difficulty (The Times, Dominic Walsh) cites figures from the Office of National Statistics in a report entitled Economies of Ale (who said that the ONS wasn’t capable of witty puns??) which charts big changes in the pub industry in the 21st century. The total number of pubs has fallen from 52,500 to 38,815 since 2001 – 11,000 of which have closed in the last ten years in the wake of the smoking ban, the financial crisis and rising overheads due to the higher minimum wage and beer duty amongst other things. Generally speaking, closures tend to be highest amongst small independent and tenanted pubs run by individuals. On the other hand, the increase in the number of large food-led managed pubs means that there are actually 6% more jobs in pubs and bars than there were in 2008. * SO WHAT? * I think that this is just evolution. A much-needed crackdown on drink-driving has no doubt adversely affected pubs in 

the middle of nowhere and I think that a gradual increase in expectation levels when you go out and spend your hard-earned money these days is no bad thing. This is clearly bad news for people who like to step into a time-warp with a broken juke-box, sticky floors and a few old men talking b0ll0cks whilst stringing out a few pints, but higher customer expectations are making these places up their game.

I thought I’d mention Cake Box targeting a shop on every UK high street, says boss (Daily Telegraph, Julia Bradshaw) as a bit of a contrast to what’s going on at Patisserie Valerie at the moment because this is a bakery that has ambitions. It makes eggless celebration cakes and has a franchise structure which appears to be very popular. It is planning to open two production facilities in Bradford and Coventry next year to service its growing amount of shops in addition to a warehouse and distribution centre. It unveiled its first results yesterday since listing on London’s junior Aim market in the summer. * SO WHAT? * This sounds great and it’s good to hear some positive news from a baker for a change! Keeping things simple by “only” selling cakes is clearly working for this company and maybe now is a good time for it to expand given rising store vacancies on the  high street.



General Motors decides to make some big cuts and WPP merges two of its agencies…

GM to cut 14,700 jobs as car sales flag and US tariffs bite (The Guardian, Dominic Rushe) heralds bad news for many carworkers as General Motors announced that it would stop production at five of its North American facilities and cut 14,700 jobs in response to sluggish sedan sales and the impact of Donald Trump’s tariffs. Trump himself was clearly annoyed at this decision because it makes him look bad, but GM’s chief exec Mary Barra explained that “we are taking this action now while the company and the economy are strong to keep ahead of changing market conditions”. * SO WHAT? * Investors seemed to think this was a good thing (the shares were up by 5.5% on the news) as they approved of its proactive action as part of a broader shift towards changes in car ownership trends (more people will share cars rather than 

actually own them) and vehicle electrification. As America’s biggest car maker, I would have thought there are more areas that could be cut if needs be. No doubt others will follow.

WPP to merge J Walter Thompson and Wunderman (Financial Times, Matthew Garrahan) highlights the continued streamlining of WPP’s stable of advertisers as it tries to make itself leaner and meaner in order to fight back against the onslaught of digital advertisers such as Facebook and Google. The new group will be called Wunderman Thompson and follows another merger of Young & Rubicam and VML within WPP’s stable. * SO WHAT? * WPP has been built up over the years by the acquisitive previous chief exec Sir Martin Sorrell and the current environment would suggest that simplifying its structure to make itself more client friendly whilst at the same time responding to the ongoing threat of Facebook and Google, is a move in the right direction. I expect more of this to occur given the complexity of WPP’s structure – but I also think that others, such as Publicis will also continue to slim their operations for the same reasons.



And finally, in other news…

I’ve mentioned this before, but Japan has a real fascination with KitKats to the extent that you can get all sorts of weird and wonderful flavours! Well it sounds like they decided to put them all in one place in a special gift set in All the best KitKat flavours together in one exclusive anniversary box for limited time (SoraNews24, Oona McGee https://tinyurl.com/y7dbz9lc). Amazing!

But what is even more amazing is this: Cat performs sit-ups underneath car (Newsflare, https://tinyurl.com/yd9zfkrl). Work it, kitty!

Some of today’s market, commodity & currency moves (as at 0829rs 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 **
7,036 (+1.20%)24,632 (-0.04%)2,673 (+1.55%)7.08211,355 (+1.45%)4.995 (+0.97%)21,977 (+0.79%)2,575(-0.04%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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