Wednesday 12/09/18

  1. In MACROECONOMIC AND TRADE TARIFF NEWS, UK wages rise and China makes conciliatory noises to the US
  2. In UK RETAIL-RELATED NEWS, America and China logon to British online retailers, JD Sports makes hay and Tesco is to open its new discount format next week
  3. In INDIVIDUAL COMPANY NEWS, Alibaba goes to Russia and Renesas consolidates in chip-making
  4. In OTHER NEWS, I show you the lengths some will go to for free pizza and an annoying bar trick. For more details, read on…



So UK wages rise, China tries to make nice but the trade war hits start-ups hard…

Rise in UK wage growth as jobless total hits 40-year low (The Guardian, Richard Partington) cites figures from the Office for National Statistics (ONS) which show that wages have grown at their biggest rate – 2.9% including bonuses or 2.4% excluding bonuses – since July 2015. * SO WHAT? * Although this is good news, pay growth is still below that seen just before the collapse of Lehman Brothers ten years ago and we are about to head into the uncertainty of Brexit – so it’s too early to crack open the Bolly just yet. The Bank of England will be loving this as it vindicates their decision to raise interest rates last month.

In China woos US companies again, curbs trade threats (Wall Street Journal, Lingling Wei and Yoko Kubota) we see that Chinese leaders are currently sounding a more conciliatory tone with US multinationals and stepping away from previous threats of retaliation as the Chinese government gets more conscious that current trade ructions could scare investors away. Exxon Mobil’s proposed $10bn project in southern China, for instance, is getting the special treatment at the moment and could be

one of the biggest single foreign investments in China if it goes ahead. The charm offensive is likely to continue this weekend as Vice President Wang Quishan is going to meet with senior execs from JP Morgan Chase, Citigroup and Blackstone and marks a change in stance from talks with Trump a few months back. * SO WHAT? * Nice to know, but this trade chat between the US and China is ongoing and it’s not worth reading too much into this at the moment. At the end of the day, as far as I’m concerned, the only development that’ll move the needle is if the two presidents get something sorted out between them as it seems to me that any important agreement that doesn’t involve Trump directly is almost not worth the paper it’s written on as he often comes along later and rips it up with his little hands.

Meanwhile, lower down the food chain, Startups bear brunt of new US tariffs on China (Financial Times, Richard Waters) shows how all this trade tariff stuff is filtering down to mere mortals as hardware entrepreneurs could find themselves dead in the water through no fault of their own. For instance, the price of a new “smart home” controller made by US startup Brilliant went up by $50 before it has even officially gone on sale – and this is all due to tariffs. This is particularly painful for hardware start-ups as they face the monumental task building up enough volume to help them get better margins. * SO WHAT? * The longer this trade spat continues, the more startups will have to shut up shop as the bigger operators will have cash buffers to ride out the storm that they just won’t have.



In UK retailer-related news, we see that British retailers are a hit with US and Chinese customers, JD Sports puts in a good performance and Tesco’s announces the imminent launch of its new discount format…

America and China log into British retailers (The Times, Robert Miller) cites findings in the fourth annual Global Cross-Border Commerce Report, compiled by Ipsos on behalf of Paypal, which show that the US and China have bought more goods from British online businesses than any other European country. * SO WHAT? * We are still in the top three for cross-border shoppers in France, Greece, Ireland, Italy, Norway, Spain and Sweden but I suspect that this kind of activity can be very volatile as cross-border shoppers tend to be particularly motivated by getting a bargain, so any big currency moves or tariff changes could have a magnified effect. Interesting to note, but nothing to get too excited about as it’s great when it’s going well, but it could all disappear very quickly.

There’s some good news in high street retail in Records fall as JD Sports crosses Finish Line (The Times, Deirdre Hipwell) which shows that a combination of choosing the right merch, growing online sales and attractive store formats have helped the company to another period of record trading, with interim pre-tax profit shooting up by 19%. The company has 1,500 shops globally (390 of which are in the UK and Ireland) with operations in Europe, Asia-Pac and the US where it recently bought American footwear chain Finish Line for £396m. * SO WHAT? * It sounds like this business has got the balance right between its online and offline offering and is a rare ray of light in an the otherwise downbeat retail landscape. The shares have shot up by just over 50% since January this year, so they are definitely doing something right!

This was flagged quite recently, but Tesco set to launch discount chain (Daily Telegraph, Ben Woods) heralds the arrival of the supermarket’s new discount chain, Jack’s, next week with its first store opening in Chatteris, Cambridgeshire. The plan is to have up to 60 such stores rolled out across the country. * SO WHAT? * This is obviously a move to snatch back some of the market share taken by the likes of Lidl and Aldi but I am sceptical it will work as I think that it will dilute the Tesco brand and could just wither and die if it doesn’t have a proper and distinct identity. But hey, it’s just early days yet! 



In individual company news, Alibaba sets up in Russia and Japan’s Renesas buys a US rival for big bucks…

In Alibaba to set up online retail service in Russia (Financial Times, Max Seddon) we see that the Chinese e-commerce behemoth is to partner up with Moscow’s sovereign wealth fund (Russian Direct Investment Front) and oligarch Alisher Usmanov to establish a Russian branch of its retail site AliExpress in a deal that’s expected to complete in the first quarter of 2019. AliExpress will sell Chinese-made products. * SO WHAT? * This is an interesting deal as Russia has been on Alibaba’s radar screen for a while now and will take advantage of Usmanov-controlled’s dominance of social media via its Facebook equivalent VK, which has 97million

monthly users. Alibaba will have a 48% stake in the venture and will combine its existing AliExpress business in Russia with its B2C website Tmall to build a larger and more powerful platform. This sounds great, but it’s not going to be a bed of roses given Russia’s huge distances and creaking infrastructure.

Renesas to buy US chip-making rival IDT in $6.7bn deal (Daily Telegraph, Hannah Boland) highlights Japanese microchip maker Renesas’ acquisition of US rival Integrated Device Technology (IDT) for $6.7bn in efforts to boost its offering in products for electric cars. * SO WHAT? * This is a bolt-on acquisition for Renesas as there are few overlapping areas, so should help them in areas such as wireless networks and Renesas chief exec added that “IDT has been focusing on products that have longer lifespans, higher reliability and lower volatility. Even though we operate in different areas, our core strategies are very similar”. This is the latest deal in a wave of consolidation in the sector where individual players are keen on strengthening their product offering and will be subject to all the usual regulatory approvals.



…And finally, in other news…

There’s a cautionary tale in here about making promotional promises: Domino’s regrets telling customers they’ll get 100 years of pizza if they tattoo themselves (Metro, Lucy Middleton Russians clearly like (free) pizza!

I thought that I’d sign off today on this: Barman’s 20p puzzle to wind up his mates has baffled thousands of people – can you find it? (The Mirror, Abbi Garton and Nicola Oakley Very VERY annoying!

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

Some of today’s market, commodity & currency moves (as at 0802hrs 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
7,277(-0.02%)25,972 (+0.45%)2,888 (+0.39%)7,97311,996 (+0.09%)5,297 (+0.55%)22,605 (-0.27%)2,656 (-0.33%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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