Wednesday 09/01/19

  1. In MACROECONOMIC AND COMMODITIES NEWS, the EU gets tough on Iran, Germany edges closer to recession while palladium prices hit new highs and US steel prices fall to pre-tariff levels
  2. In GROCER AND HIGH STREET NEWS, Morrisons, Sainsbury’s and Waitrose report varying degrees of disappointment whilst Joules and Footasylum have contrasting fortunes
  3. In INDIVIDUAL COMPANY NEWS, Apple turns to trade-in and Safestore gets a boost on stockpiling
  4. In OTHER NEWS, I bring you an edible insect vending machine. For more details, read on…



So the EU cracks down on Iran, Germany heads towards recession, palladium prices benefit from petrol car demand and US steel prices fall…

In EU backs new sanctions on Iran (Financial Times, Michael Peel) we see that the EU has frozen the assets of an Iranian intelligence organisation and two of its agents for allegedly organising assassinations in Europe. It shows that the EU is taking a tougher stance on Tehran, which is going to make salvaging the international nuclear deal that much harder. These are the first punitive measures taken against Iran since the 2015 agreement was made to curb the country’s nuclear programme. A Dutch government letter was sent to the Iranians saying “Iran was informed that involvement in such matters is entirely unacceptable and must be stopped immediately…Further sanctions cannot be ruled out”. The new sanctions will come into force from today. Tehran has denied all knowledge of any assassination plots. * SO WHAT? * Call me cynical, but it sounds to me that the Europeans are giving themselves a way of easing themselves out of the nuclear deal without looking like they are cow-towing to Trump, who abandoned the agreement in May last year. Alternatively, they could be being canny and using the allegations as leverage with Iran, i.e. “we’ll throw this in your face if you don’t give us what we want”. The US is continuing to put pressure on countries to follow its course of action, but the Europeans have been trying to resist.

German industry hits brakes (The Times, Gurpreet Narwan) cites the latest German industrial production figures for November which show that output fell for the third month in a row. The data published by Destatis, the German federal statistics office, showed a drop of 1.9% versus market expectations of 0.3%. Main areas of weakness included consumer goods, energy production and construction products. * SO WHAT? * This kind of stuff is important because Germany has always been the growth engine of the EU, so any sign of weakness (especially now

as they are, in effect, in political leadership limbo) is likely to filter through to the rest of the bloc. These figures have added fuel to the theory that Germany could be heading towards recession after the most recent Purchasing Managers’ Index (PMI) also pointed to weakening manufacturing activity

In commodities news, Palladium hits fresh record high as petrol car sales stoke demand (Financial Times, Henry Sanderson) signals the commodity’s longest continuous bull-run as it hit its highest ever level of $1,329 per ounce on Tuesday. The metal’s price has shot up by 140% since the beginning of 2016 as it is benefiting greatly from sales of petrol cars due to the fact that over 70% of production goes into making catalytic converters for them. Given that we appear to be in a bit of a limbo period in automotive development as we transition towards electric and hybrid vehicles, customers are playing it safe in the meantime and abandoning diesel in favour of cars that used palladium-rich catalysts. The other factor behind the upward rise is the shortage of palladium supply versus demand – something that is likely to continue. * SO WHAT? * This is clearly great for palladium suppliers right now, but it will not last forever as electric vehicles don’t use catalysts. Also, car sales continue to fall around the world as consumers seem to be shying away from major purchases. Still, I think there will be plenty of good times for palladium suppliers for the next few years because although EV sales is a fast-growing category, it is from a very low base.

US steel prices fall to pre-tariff levels amid China slowdown worries (Financial Times, Ed Crooks) is an interesting one in that US steel prices, which got the rocket boosters put under them when Trump announced big tariffs on imports last year, are now below the levels pre-tariff as steel prices have slowed down across the board in response to China’s economic slowdown. * SO WHAT? * China is a key player in the steel market and accounts for a massive 50% of global production and consumption, so you can see why any kind of slowdown there is going to have worldwide repercussions. I guess that recent talk of China making massive investments in new infrastructure could potentially boost demand – but the key is to what extent China will allow foreign producers to get a look in. 



Supermarkets and high street retailers report contrasting Christmas fortunes…

I said that this week was going to be a biggie for retailers – and it seems that it is one of contrasting fortunes. Christmas to celebrate ends a little ‘wonky’ for Morrisons (The Times, Deirdre Hipwell) shows that although the supermarket actually had its fourth consecutive Christmas of sales growth, its shares fell by 3.2% because investors focused on the “disappointing” performance of its wholesale business which supplies Amazon and McColl’s Retail Group (although the company itself was actually quite upbeat about the wholesale business).

No holiday cheer for Sainsbury’s and Waitrose as numbers slide (Daily Telegraph, Sophie Christie) highlights weaker

sales at the two supermarket stalwarts, according to data from Kantar Worldpanel. All the other supermarkets, however, saw positive sales over the festive period and the overall sales figure for the sector hit a new record. Fraser McKevitt of Kantar observed that “The discounters have continued to make their mark over Christmas: two thirds of all households shopped at either Aldi or Lidl over the 12-week period culminating in a highest-ever combined Christmas market share of 12.8%”.

There were contrasting fortunes on the high street as well, what with Joules joins the Christmas winners’ circle with Next and John Lewis (The Guardian, Zoe Wood) highlighting Joule’s impressive sales growth of 11.7% in the seven weeks to 6th January, which sent the share price up by over 4% on the one hand and Footasylum in profit warning as discounting wipes out margins (Daily Telegraph, Ashley Armstrong) on the other. The company’s shares fell by 15% on the news adding insult to injury as the shares have now fallen by 86% since it floated on AIM in 2017. This sounds like an absolute shocker. Will they be the next high street operator to go bust, I wonder?



Apple turns to trade-ins and Safestore benefits from stockpiling…

Yesterday, I talked about Apple transitioning away from being a hardware-powered company to a services-powered one, but in the meantime, Apple’s answer to slower iPhone sales? Getting customers to trade in (Wall Street Journal, Sarah Krouse) looks at ways for Apple to boost iPhone sales. Basically, it is trying to attract more phone buyers by offering generous prices when trading old models in for new ones. Trading in has been happening for donkey’s years at mobile phone vendors, but Apple is trying to muscle in and get the customers coming to it directly instead. * SO WHAT? * This sounds decent enough, but it 

hasn’t helped arrest the slowdown of iPhone sales – and I don’t think it ever will do. As far as I’m concerned, the only thing that will significantly boost unit sales is a big change in the design – which is where bendy/foldable phones will come in (I talk about this in the FULL VERSION of Watson’s Yearly).

You may well have heard about various companies in the UK stockpiling product ahead of Brexit in order to prevent bottlenecks – well Safestore doubles profits as business stockpiling increases (Daily Telegraph, Jack Torrance) shows that there are some beneficiaries of this as Safestore more than doubled its profits from last year as the UK’s #1 storage provider continued to do well from booming demand. Rivals Big Yellow and Lok’nStore have also benefitted from the stockpiling trend as they have seen higher occupation levels. * SO WHAT? * This situation is clearly not going to last forever, so I just hope that the companies don’t get too excited and overexpand.



And finally, in other news…

Many people kick-off the new year with noble intentions of changing their diets and, perhaps, doing more to save the planet. Well you could accomplish two things at once with Vending machine selling edible bugs is an instant hit in Kumamoto, generates about $4,600 a month (SoraNews24, Koh Ruide Mmm. Yum.

Some of today’s market, commodity & currency moves (as at 0827hrs 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 **
6,862 (+0.74%)23,787 (+1.09%)2,574 (+0.97%)6,89710,804 (+0.52%)4,773 (+1.15%)20,247 (+1.10%)2,546 (+0.77%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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