Tuesday 28/08/18

  1. In MACROECONOMIC AND MARKETS NEWS TODAY, Trump unveils a new accord with Mexico and the Nasdaq hits new highs
  2. In AUTOMOTIVE-RELATED NEWS, Mexico’s manufacturers breathe a sigh of relief, Tesla hits reality, Toyota invests big in Uber and diesel parts makers face a bleak future
  3. In POWER-RELATED NEWS, Asian battery growth threatens to drown out UK innovation and a lack of wind scuppers our clean energy revolution
  4. In TECH NEWS, Amazon threatens food, cashiers and pharmacists as the Navy considers using un-jammable WiFi
  5. In OTHER NEWS, I bring you London’s most expensive pint, an unusual tattoo and a chippy recommendation. For more details, read on…



So Trump does NAFTA 2.0 and the NASDAQ climbs to new highs…

Trump hails US-Mexico trade pact, says ‘We’ll see’ with Canada (Wall Street Journal, Jacob M.Schledinger, Josh Zumbrun and Robbie Whelan) heralds a new deal between the US and Mexico which will smooth relations between the two countries but Trump sounds a warning shot to Canada as he says it might be an exclusive party to which it will not be invited. The Trump administration will give Canada until Friday to sort out major sticking points that include things like making it harder for Nafta members to challenge US penalties. Mexico has caved on this point, whereas Canada has always said it would be “unacceptable”. In true Trump diplomatic style, he said that “I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in”. * SO WHAT? * All good headline-grabbing stuff and is no doubt designed to portray 



“tough negotiator” Trump in a good light ahead of the midterm elections. If he could sort out North Korea and tie-up China trade negotiations before then (beginning of November), well that’d be just swell for votes!

Meanwhile, Nasdaq hits new record as it passes 8000 mark (Wall Street Journal, Akane Otani) signals a new milestone as the tech index shows no signs of losing steam. It passed 7000 in January and this is the first time the index has breached two “thousands” in the same calendar year since just before the tech bubble in 1999 when it went from 4000 to 5000 in only 49 trading days. * SO WHAT? * People love this sort of thing but in of itself it just reflects the sheer strength of momentum of the tech stocks. Netflix has shot up by 90% so far this year, Amazon by 65%, Microsoft 28% and Google parent Alphabet by 19%. Naysayers will no doubt try to make parallels with 1999, but I think that while THAT bubble was powered by a “jam tomorrow” mindset with next to b*gger all in terms of concrete earnings for many, today’s tech is powered by “jam today, jam tomorrow and even more jam in the future” as each company seems to consolidate its supremacy in core areas before using deep pockets to expand into others. The current momentum looks likely to continue as gains are spread across the different indexes with the wider economy also in rude health. Sure, the tech sector influence has been outsize, but as things stand the road ahead isn’t looking too bumpy.



In automotive-related news, manufacturers in Mexico get some relief, Tesla hits reality, Toyota buys into the Uber dream but Diesel parts makers’ days look numbered…

In Mexico pact eases car makers’ concerns (Wall Street Journal, Chester Dawson and Mike Colias) we see that Trump’s new agreement with Mexico is calming concerns in the auto industry about a drawn-out trade war with its noisy neighbour. The new agreement, which is effectively replacing the old North American Free Trade Agreement (aka “Nafta”), requires a higher percentage of cars to be manufactured in the US or Mexico in order to qualify for free trade. Manufacturers will also have to commit to making sure that 40-50% of the vehicle’s content is made by workers earning at least $16 an hour (which is basically aimed at stopping Mexican workers undercutting their American counterparts). * SO WHAT? * If manufacturers don’t meet these requirements, their vehicles will have a 2.5% tariff slapped on them when they cross the border. One of the good things about this is that it gives the manufacturers something to work with, but it’s not ideal as the deal doesn’t yet include Canada. Shares of General Motors, Ford and Fiat Chrysler were up by between three and five per cent on the news. As we all know, companies don’t like uncertainty!

The whole Is-Tesla-going-private-or-not thing took a new turn at the end of last week (discussed with the Board last Thursday and announced to the market on Friday) as per Investors share the pain of Musk’s aborted Tesla bid (The Times, James Dean) which highlighted Tesla’s shares falling by 3.2% in trading yesterday as the market reacted to Elon Musk saying that he will not, in fact, be taking Tesla private after all. The shares have fallen by 18% since he threatened to take his company private back on August 7th in an apparent fit of pique and, as Jefferies analyst Philippe Houchois put it, “the only tangible results so far from that [take private] episode seem to be an SEC investigation, lawsuits and more damage to the standing of management and board”. Tesla: off road (Financial Times, Lex) says that he’s just created a whole load of needless kerfuffle when he should be more focused on production issues and that his wild actions need to be more tightly controlled whilst Tesla’s challenges are back in spotlight after going-private spectacle ends (Wall Street Journal, Tim Higgins) brings into focus the harsh reality of Tesla continuing to hit tough production targets and even exceed them given that they only managed to hit the 5,000 model 3s per week by setting up a massive tent next to their main production facility. * SO WHAT? * TBH, I think that Musk’s actions were stupid (or maybe to use the words he directed towards concerned analysts a few 

months back “bone-headed”). He should have considered what he was about to say before he opened his mouth, but on the other hand if there’s anyone who has the ability to sweep such matters under the carpet it’s Elon Musk as investors will no doubt get blinded once more by the man’s brilliance. If he manages to hit his targets consistently and in the not-too-distant future, investors will no doubt accord him hero status once more. I would have thought that some traders will see this as an interesting buying opportunity given the share price fall it has sustained in recent weeks, although one of the major risks with this company is Musk himself – if he goes, the company’s share price will crater badly.

In other car-related news, Toyota to invest £500m in Uber to develop autonomous cars (Daily Telegraph, James Titcomb and Hasan Chowdhury) shows how Toyota has put its faith where its mouth is by handing Uber a huge amount of wonga to develop driverless cars. You will recall that Uber suspended all development of such cars after a fatality in March and it has been dealing with all sorts of legal problems since then re intellectual property. * SO WHAT? *  Uber is a notorious cash burner, so the extra readies are going to come in handy as the two companies work together on driverless car safety systems. Uber already works with Daimler and Volvo – and rival Lyft has agreements in place with General Motors, Jaguar Land Rover and Google/Alphabet’s Waymo. This is a massive show of faith from Toyota in Uber and will come in very handy as the latter heads into 2019 with flotation in mind.

It shouldn’t really be a surprise to anyone, but Boom years over for diesel car parts supplier (Financial Times, Michael Pooler and Peter Campbell) looks at how falling sales of diesel-powered cars are not only hitting manufacturers such as Nissan and Jaguar Land Rover, but they are now filtering through to companies who manufacture parts for diesel engines after seeing years of growth. UK diesel sales have fallen by over 30% in the year so far, with diesels now making up 32% of new car sales. Downward momentum is continuing on the continent where diesels went from a 49% market share of new car sales in 2016-2017 to 42% in 2017-2018 but the main difference between the UK and Europe is that the UK diesel sales shortfall isn’t being made up by petrol-powered car sales. * SO WHAT? * Many parts manufacturers can switch to making parts for petrol engines, so it’s not going to be disastrous for everyone – and you could say that Brexit will mean that car manufacturers in the UK will have to source more locally (which will probably be good for some of the smaller suppliers) but then again Brexit uncertainty is leading to potential buyers sitting on their hands and not splashing out on big ticket items like cars. Tough times, but to be honest, they should have seen it coming not only from the general trend away from diesels in some of Europe’s most polluted cities, but also from the whole diesel emissions scandal sparked off by VW. I think that UK and European governments alike should be doing more to help car owners given the fact that they’ve been lied to for the last two decades about diesel’s eco-credentials. Still, that’d probably cost too much so I’m not going to hold my breath!



In power-related news, Asian batteries threaten to scupper UK innovation and lack of wind has hurt the UK’s green ambitions…

Asian battery boom threatens to pull plug on UK innovation (Daily Telegraph, Hasan Chowdhury) is an interesting article that warns about booming production of lithium-ion batteries in Asia potentially crimping innovation in the UK’s energy storage technology industry, according to Alex O’Cinneide, chief exec of Gore Street Capital which advises the Gore Street Energy Storage Fund – the world’s first energy storage fund. He says that huge take-up of electric vehicles in Asia is resulting in a ramping up of production of batteries, which is driving their production

costs down. This takes the shine off other innovations and O’Cinneide makes parallels between what is happening now with lithium-ion batteries now and innovations in solar panels a decade ago when he said “A lot of very good solar technology companies didn’t make it because you had so much product coming out from Asia at a very competitive price”.

Lack of wind puts UK’s green revolution into reverse (The Guardian, Adam Vaughan) identifies an unusual side-effect of our recent heatwave – that the resulting lack of wind has put the mockers on the UK’s “green revolution” and pushed carbon emissions up this summer, which has prompted renewed calls for more diversity in the current energy mix. Figures from National Grid show that although windfarm capacity increased by over 10% versus a year ago, the share of electricity actually supplied fell from 12.9% last year to 10.4% this summer, with some wind turbines laying idle for days at a time. I’m sure the wind will return. Now if we could somehow harness rainpower, we could be quids in ;0)



In tech news, Amazon continues to make advances and the Navy considers unblockable WIFI…

There are some really interesting articles on Amazon today! Whole Foods helps Amazon sink teeth into a tasty market (The Times, James Dean) looks at how it is continuing to make big inroads in grocery retail, which was boosted hugely by its $13.6bn acquisition of Whole Foods, the posh organic grocery chain. Shopping with no cash, cards or a checkout (The Times, James Dean) heralds the opening of its second Amazon Go store, where there are no cashier and tons of cameras and sensors (if you’re not aware of this concept, have a read of this story – it’s really interesting!) and The cure that pharmacies have been dreading (The Times, James Dean) looks at how Amazon is potentially going to be a pharmacy-killer as it entered the world of prescription drugs in June with its acquisition of Pillpack. Pharmacies can breath easy for now, because they are still protected by all sorts of legislation, but you can imagine the barriers could be lowered in the interest of providing cheaper alternatives to consumers. As Ross Mulken, an analyst at Evercore ISI pointed out, “The online experience for pharmacy is currently poor and there’s little in the way of pricing transparency in the US: people don’t know what they’re paying for drugs. That’s something Amazon could help fix”. He added that “the healthcare market has very high barriers to entry, though – partially because of legislation, partially because of the power of the entrenched players. Any incorrect delivery of a healthcare product can result in somebody dying. It’s not just about a package being late”. * SO WHAT? * Clearly, there will be a big learning curve involved here for Amazon, but if they can get that sorted, 

they will be formidable. Although I am a big fan of Amazon, its convenience and its overall cheapness, I do sometimes wonder what sort of company it will become. Without wanting to come over as some kind of weird conspiracy theorist, I believe it is building up an incredibly detailed picture of all of us as the days go by with book choices, food choices and now health. Facebook gets a lot of flak for building up creepy databases, but I think it’s nothing compared with what Amazon has (and will have). If Amazon ever suffers a serious data breach we could all be in trouble. I think I’ve said this before, but given the amount Amazon knows about us, I would have thought that insurance would be a great area for the company to develop as it would be very well placed to judge individuals’ behaviour much more accurately than your average actuary. But as far as “boring” old retail goes, given that the American grocery market alone is thought to be worth $800m per annum alone, the upside is clearly there. Walmart has a 26% market share, Kroger has 10.1% and Whole foods has 1.6%, but with Amazon’s logistics and massive customer base behind it, the growth potential is massive.

Although it’s only really tiny, I thought I’d mention Navy sees the light of unjammable Wi-Fi Technology (Daily Telegraph, Joseph Archer) because the tech involved is so impressive! Basically, an Edinburgh Uni spin-out called pureLiFi has recently attracted a £10m cash injection from Temasek, the Singapore investment fund, to further develop its tech that trasmits internet data via light rather than the current means of radio waves. Navy trials have found that this new tech is immune to interference from enemy jamming systems which means that sailors can still stream Love Island on their phones whilst in the head of battle amid claims that the tech is 1,000 times more powerful than current WiFi systems and uses less power. Cool, eh?



… And finally, in other news…

Do you like things that are “reassuringly expensive”? Well how about this: There’s a pub in London charging £22.50 a pint” (Metro, Kate Buck https://tinyurl.com/y8rp6mjx). Cheers!

Some rail commuters out there might agree with the sentiment but not go quite this far: Fed up commuter gets ‘Southern Rail are sh*t’ tattoed on his body (Metro, Tom Usher https://tinyurl.com/ybnmtmvy). Hmmm.

AND FINALLY, if you happen to be in the area, this place sounds pretty special: Chip shop is so good it has customers flying in by plane and queues can stretch for over an hour (The Mirror, Lucy Thornton and Daniel Sheridan https://tinyurl.com/ya2we296). WHAT?? It’s only fish and chips!!! Mind you, if I was in the area I think I’d have to go and see what all the fuss as about ;0)

As always, thank you for reading Watson’s Daily!