Wednesday 02/09/20

1. In MACROECONOMIC NEWS, China exports rise, the Eurozone dips into deflation and Brazil enters recession
2. In CONSUMER/RETAIL NEWS, UK mortgage approvals rise, Dunelm benefits, Ocado has a rough first day with M&S, Debenhams edges towards oblivion, Morrisons champions flower power, Ted Baker sees a return and B&M moves up
3. In TECH NEWS, the TikTok purchase gets trickier, Google aims to pass on any digital tax and Apple’s valuation reaches new heights
4. In INDIVIDUAL COMPANY NEWS, Tesla raises more money (just because it can)
5. AND FINALLY, I bring you the right way to eat McFries…

So China exports rise while the Eurozone sees deflation and Brazil hits recession…

New export orders boost China output (The Times, Martin Strydom) cites the latest Caixin/Markit manufacturing purchasing managers’ index which shows that manufacturing activity in China grew at its fastest rate since January 2011. * SO WHAT? * This is good news as it implies that manufacturing activity is getting back on track. Given that China was the first to shut down in the coronavirus outbreak, everyone is looking very closely at how it progresses towards normality.

In Eurozone slides into deflation for the first time in four years (Financial Times, Martin Arnold) we see that the latest figures from Eurostat show that the pressure is building on the European Central Bank to get more involved in helping the bloc’s economic recovery. Headline

consumer price inflation was -0.2% in August versus +0.4% in July – something that will no doubt feature at next week’s ECB policy meeting. For now, the fall was blamed on weaker oil prices, Germany’s cut in VAT and delayed summer sales in France, Italy and Belgium.

Coronavirus tips Brazil into recession (Financial Times, Bryan Harris) shows that Brazil’s economy has now officially entered into recession in spectacular fashion with Q2 GDP figures experiencing their worst fall in any of the nine recessions it’s had in the last 40 years. * SO WHAT? * Impressive, but join the club – everyone is hurting! Many are hoping that these disastrous Q2 figures signal the low point in the coronavirus aftermath but there are concerns that President Jair Bolsonaro may just start trying to spend his way out of recession – something that may prompt capital outflow from the country from overseas investors given that a spending cap imposed by the constitution will be breached (investors don’t like uncertainty). There is also some uncertainty surrounding the immediate future Brazil’s finance minister, Paulo Guedes, who is more cautious on the spending front – which isn’t going down well with Jair “Tropical Trump” Bosonaro. 

UK consumers spend, Ocado has a rough first day, Debenhams looks even shakier, Morrisons says it with flowers, Ted Baker sees a return of sorts for the founder and B&M gets promoted…

Following on from yesterday’s news about car finance applications rising sharply, Mortgage approvals rise points to recovery (The Times, Philip Aldrick) shows that consumers are spending on pretty much the biggest ticket items most people ever get as mortgage approvals have now recovered to their pre-pandemic levels. This is probably almost entirely due to Rishi Sunak’s stamp duty holiday but this trend is being echoed in the latest consumer credit and deposit data as well. Dunelm benefits from home spending boom (Financial Times, Patricia Nilsson) shows that the home furnishing retailer is doing well due to all this house buying activity as well as people getting bored of staring at the same sofa/cushions etc. during lockdown. The company remains cautious on the outlook, however, as the prospect of further future lockdowns could scupper a longer term recovery. * SO WHAT? * Sunak’s stamp duty holiday appears to be working a treat for the housing market – and anyone related to this will also recover as a result. Traditionally, DIY stores, soft furnishing specialists and, to a certain extent, electrical retailers tend to do well in a buoyant housing market as movers use the opportunity to buy new stuff and non-movers spruce up their homes. The market got an “artificial” kick up the backside courtesy of the government and the party will last at least until the deadline comes next year. What happens after that will depend on whether there is a hard or a soft deadline and what else is going on for the consumer at the time (which may itself depend on what happens when furlough ends). As a quick aside, it’s interesting to see movement in the property market whilst at the same time landlords are suffering with lack of government support. I wonder whether a “side benefit” of the current circumstances from Sunak’s point of view is that multiple homeowners are being shaken out, potentially giving individuals more chance at the entry end of the market. Thus far, private landlords have provided stiff competition at the part of market populated by first-time buyers, so their current pain regarding lack of rental payments may result in a thinning out of such competition. Just a thought…

Elsewhere in retail, First day of Ocado M&S deliveries marred by cancellations (The Guardian, Sarah Butler) highlights a tricky first day for “Mocado” (that’s my name for the venture😁) as reports of late order cancellations and inability to get new delivery slots for a week surfaced on social media. * SO WHAT? * The fact is that the launch was very popular. Also, on a first day, glitches were bound to happen IMO. However, if this continues, what was seen as a dream combo could turn into a nightmare. Let’s hope that this was all down to first day nerves – otherwise M&S really will go down the toilet!

Speaking of things going down the toilet, Debenhams’ deadline for bids passes as final collapse looms (The Times, Ashley Armstrong) shows that yesterday’s 5pm deadline for bids has now passed. Given that the company wanted to sort out a deal by the end of this month, things aren’t looking great, especially as it seems that it has not being paying rent, rates or suppliers whilst simultaneously shutting down stores. Talk about the death of a thousand cuts! I would put my money on liquidation and Mike Ashley (CEO of Frasers Group, owner of House of Fraser) cherry-picking stores.

Elsewhere in retail, Morrisons doubles in-store flower stalls to meet demand (The Guardian, Sarah Butler) highlights Morrisons’ intentions to double the number of flower stalls in its supermarkets, taking on some professional florists who may have suffered in the coronavirus shake-out, Ray Kelvin nominee takes place on Ted Baker’s board (Daily Telegraph, LaToya Harding) heralds a return of sorts for Ted Baker’s founder who still owns 12% of the business – although he will not be taking on a day-to-day role himself. Remember he’s the guy who had to make an embarrassing exit following allegations of enforced hugging, getting employees to sit on his lap etc. He IS the genius behind Ted Baker, whatever his foibles, and since his departure in 2018, the company has fared disastrously.

Then in B&M to enter FTSE100 as ITV changes channels (Financial Times, Jonathan Eley and Patricia Nilsson) we witness a historic moment as the discounter makes it to the big leagues, displacing ITV in the FTSE100’s quarterly shake-up. Great for B&M (more exposure, prestige – and buyers of shares!), embarrassing for ITV.

TikTok hits a major snag, Google aims to pass on tax costs and Apple’s valuation goes ballistic…

TikTok deal talks are snarled up over fate of app’s algorithms (Wall Street Journal, Liza Lin, Aaron Tilley and Georgia Wells) highlights a major spanner in the works for the TikTok sale negotiations as the Chinese government issued new restrictions on the export of AI tech at the end of last week. * SO WHAT? * TikTok’s algorithms that decide which videos are recommended to users are widely seen as its “secret sauce” and, as such, will at the very least put a lower ceiling on a selling price – and which could actually spoil the whole sale. TikTok’s owner ByteDance is seeking clarity, but TBH I can see any protestations falling on deaf ears as the government doesn’t like ByteDance and may be willing to sacrifice it as an example to others. In the meantime, I think that Instagram Reels will continue to pick up the slack…

Google to pass cost of digital services taxes on to advertisers (Financial Times, Alex Barker) shows that the tech giant intends to brush off any digital services taxes in Europe by passing them on to advertisers from November. The price of serving an ad on Google will, for instance, increase by 2% in the UK and 5% in Austria. * SO WHAT? * Given Google’s size and power, it can do things like this and not take the hit. Will it mean that companies will do their advertising instead by traditional means? I think not.

Then I thought I’d mention Apple now outguns all of the FTSE100 put together (Daily Telegraph, Matthew Field and Louis Ashworth) as it highlights the fact that Apple is now worth more than all the companies in the FTSE100 put together! Mad, huh?! Incredible 😱 – and just a bit ridiculous IMO.

Tesla raises even more money (because it can)…

Tesla aims to raise $5bn in its biggest issue of new stock in a decade (The Guardian, Mark Sweney) shows that the electric car company announced intentions to raise up to $5bn, taking advantage of a nigh-on 1000% share price surge over the last year and comes one day after it

completed its 5-for-1 stock split. The company didn’t reveal any details about what it was going to do with the $5bn. * SO WHAT? * Tesla is clearly an impressive company and retail investors in particular seem to love it. However, the fact remains that it sports a huge valuation for a company that doesn’t actually sell very much! Still, I guess everyone is buying it for the future…

…in other news…

I thought I’d bring your attention today to McDonald’s show right way to eat ketchup and fries – and we’ve all been doing it wrong (The Mirror, Paige Holland). Well I never!