Tuesday 30/10/18

  1. In MACROECONOMIC NEWS, we see Hammond’s giveaway, Merkel’s farewell bow and Bolsonaro’s challenges
  2. In CAR-RELATED NEWS, car makers get a Chinese boost but UK punters keep their hands firmly in their pockets
  3. In INDIVIDUAL COMPANY NEWS, Hitachi Chemical gets naughty, HSBC beats estimates, Wagamama’s closes in on a sugar daddy, Walmart tries checkout-less and Apple’s new iPad and Mac gadgetry is to be unveiled
  4. In OTHER NEWS, I bring you some very creepy shoes and a Halloween game. For more details, read on…



So Hammond hands out the presents, Merkel says farewell and Bolsonaro is faced with some big challenges…

You’ll no doubt be bombarded with Budget stuff today, but I think that the quick blast from Budget 2018: key points and summary (Financial Times, Mark Odell) does a decent enough job of giving you the overview. Chancellor Philip Hammond was able to access a windfall from better-than-expected tax receipts and promised that the end was in sight for austerity as he talked about lower taxes and higher public spending, with the caveat that the public sector could get it in the neck if Brexit goes badly. Almost all of the money from the extra tax receipts went on the NHS and he painted a picture of an economy that was “stable but unspectacular”, gave a big boost to defence spending by more than doubling the extra £800m earmarked for the military earlier this year, introduced measures to stimulate business investment, announced a new digital services tax to come into force by 2020 that was aimed at big US tech and he also heralded the staggered ending of the Private Finance Initiative (PFI) as well as Help to Buy. Clearly there’s a shedload more detail, but those were some of the headlines. If you want to get a quick view of how you might be affected, then have a look at the chart in What the Budget means for you (Daily Telegraph, Blick Rothenberg). * SO WHAT? * Just by way of a knee-jerk reaction, you would have thought medical equipment makers and defence equipment manufacturers will get a decent boost from this as pent-up demand is allowed to be sated to some extent on the one hand, but then on the other I don’t think that the business investment measures, the digital services tax or the ending of the Help to Buy scheme are going to have particularly positive effects on their respective areas. Whatever measures are put in place, as far as I see it, business investment will stall until the implications of Brexit become clearer, the digital services tax sounds like it could be used by Big Tech to leave the UK and the ending of Help To Buy is probably going to mean less new houses being built. Overall, it seems to me that this Budget was designed to take the wind out of the sales of a potential Labour onslaught at a time of government weakness as the measures seem to me to be a bit “un-conservative” on the surface. I also think that the digital tax, although admirable, will ONLY work if loads of other countries get on board otherwise there will just be a tech-sodus from the UK to places where taxes aren’t as onerous.

Following on from what I said in yesterday’s Watson’s Daily, Germany’s Angela Merkel steps down as CDU leader (Financial Times, Guy Chazan) shows that Merkel

has decided to take Fate in her own hands and stand down as the leader of Germany’s ruling Christian Democratic Union after 18 years in the post and saying that she would exit politics completely in 2021. * SO WHAT? * How much of this was actually of her own volition is unclear given that she had previously indicated that she WOULD stand for party leader again this December. This now means that not only has Germany got a very fragile coalition, the main party is going to be distracted by an internal party leadership frenzy. Given that she has previously argued that the roles of party leader and chancellor go hand-in-hand, you do wonder how long she is going to last as chancellor – surely she will not make it to the end of her fourth term in power? I guess that a lot of that depends on how “Merkel” the next party leader is. If it turns out to be someone with a Merkel-sized chip on their shoulder, she will be toast pretty quickly, but if it is an ally, she may well be able to engineer a smooth transition (if the electorate allows her to do so). Another scenario could play out though – the SPD took an even bigger hit to its popularity in the recent regional elections than her CDU did and this could prompt it to leave the government and reposition itself as being in opposition. If it did that, a new general election would have to be called – and if that happened, Merkel said that she would not stand again.

There’s more detail on what lies ahead for a new Brazil in Brazil puts its faith in Bolsonaro’s free-market conversion (Financial Times, Joe Leahy and Andres Schipani) as it paints a picture of a leader who has spent almost all of the last 28 years arguing against things like privatisation and pension changes but ran for office under the banner of liberal economic reform, which is the direct opposite of what he’s been about for most of his political life. Bolsonaro has got his work cut out for him, though, as Brazil is struggling to extricate itself from its worst recession in history, has a big budget deficit and public debt standing at 80% of GDP – which is high for an emerging economy. His appointment of Paulo Guedes, a Uni of Chicago-trained economist and co-founder of BTG Pactual (which used to be the biggest domestic independent investment banks but itself got caught up in the corruption scandal that ended many careers – including former president Dilma Rousseff’s) has been generally welcomed by investors who hope that he will maintain a freeze on fiscal spending, reform the state pension system and cut privileges and perhaps embark on a privatisation programme of government assets. * SO WHAT? * Bolsonaro has one hell of a lot to do to turn things around and although many investors want to give him the benefit of the doubt given the market-friendly noises he’s been making, there is doubt as to whether he really will be able to follow through on his promises given that his historical political stance and his current one seem to be majorly at odds with each other. He could be ultimate proof that a leopard CAN actually change its spots. Or maybe not.



In car-related news, manufacturers got a little China boost but poor sales in the UK are continuing…

Car industry boosted after reports of China tax cut (The Guardian, Jason Deans) highlights share price strength in car maker stocks yesterday in response to indications that the Chinese government could halve the tax on car purchases in order to boost demand. Shares in individual US and European car manufacturers strengthened between 2 and 4% and the automotive sector as a whole was the strongest sector across European markets yesterday. * SO WHAT? * I think that there are far bigger unsolved problems lurking in the background (the US vs 

China/the World trade war and related tariffs) that will take the edge off any kind of sustained upside. More clarity is needed, IMHO, for this upward shift to develop into anything more than a blip.

Back in the UK, Car finance slows as borrowers hit brakes (The Times, Philip Aldrick) cites the latest Bank of England figures which show that growth in consumer credit has slowed down to its lowest level since June 2015, with a fall in car finance being the biggest reason behind it. This could also have been due to the new tighter emissions rules that recently came into force. * SO WHAT? * The Bank of England has been keen to rein in consumer borrowing, so it seems it has got its wish as consumers appear to be tightening their belts ahead of the uncertainty of Brexit – at least on big ticket items.



Hitachi Chemical makes an admission, HSBC beats estimates, Wagamama gets closer to selling itself, Walmart flirts with checkoutless and Apple is due to announce some new gadgetry…

Hitachi Chemical admits to improper quality testing (Financial Times, Kana Inagaki and Leo Lewis) highlights the latest Japanese company to admit to falsifying data after scandals involving poor quality controls at other companies such as Kobe Steel, Subaru and Mitsubishi Materials have emerged over the last year. It centres on poor testing for a material used to protect chips used in cars and home electronics (so pretty key stuff) and the shares fell by as much as 14% in trading yesterday but eventually settled down 7.6% at the close of trading. * SO WHAT? * This really is quite disconcerting as Japan has long traded on a reputation for quality. Over the last few years, there have been laptops spontaneously combusting (Sony), recalls because of “sticking” accelerators (Toyota) and dodgy airbags (Takata Corporation) as well as all the recent stuff. I still find it astounding that more has not been made of Kobe Steel’s admissions given that they provide a raw material that is structurally key to so many things. Anyway, call me cynical, but what usually happens in these situations in Japan is that a load of old duffer execs bow 

deep and make tearful apologies before resigning in front of the cameras, the company gets someone new in that generally doesn’t do anything that different fundamentally and the whole shebang carries on. Meanwhile, the tearful old duffers pop up somewhere as directors in another company. Japanese companies always used to look down particularly on other Asian companies – especially Chinese ones – and boast about the superior quality of their product. All I have to say to this is Pot. Kettle. Black. Glass houses. Stones. Broken glass everywhere.

In UK company news, there’s HSBC quarterly profits beat estimates as bank cuts costs (Financial Times, David Crow and Alice Woodhouse) which provides cheer for investors who are hopeful that the company can power growth without spending getting out of hand and Wagamama on menu for Restaurant Group (The Times, Dominic Walsh) shows that the company behind Frankie & Benny’s and Chiquito is emerging as the front-runner to buy Wagamama, but this is ongoing.

In US company news, Sam’s joins club with no checkouts (The Times, James Dean) shows Walmart experimenting with the concept at one of its shops in Dallas where customers scan and pay for products via a phone app. The difference with this and Amazon’s Go, however, is that a shop assistant will check their app at the end of the shopping trip – so they won’t just be able to stride out. And then in Apple expected to unveil update iPad and Mac at New York event (Wall Street Journal, Tripp Mickle) we see that new gadgetry upgrades are to be announced later on today. More on that when it all gets announced.



And finally, in other news…

I thought I’d sign off today with news of some really weird shoes in Fashion label launches ‘human skin boots’ in time for Halloween (The Week, Gabriel Powerhttps://tinyurl.com/yamw67mo). Those things give me the heebie-jeebies. And then for something less controversial, how about having a go at this: Fiendish Halloween puzzle features 10 hidden pumpkins – can you spot them all? (The Mirror, Richard Jenkins https://tinyurl.com/y9dg26ol). 

Some of today’s market, commodity & currency moves (as at 0804hrs 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 **
7,026 (+1.25%)24,443 (-0.99%)2,641 (-0.66%)7,05011,335 (+1.20%)4,989 (+0.44%)21,457 (+1.45%)2,568 (+1.02%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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