Wednesday 12/12/18

  1. In CAR-RELATED NEWS, China cuts tariffs in a drastically weaker sales environment and Hyundai champions fuel cells
  2. In RETAIL AND CONSUMER-RELATED NEWS, Christmas ain’t looking good for the high street, pensions get hit by falling retail property values and yet wages jump
  3. In INDIVIDUAL COMPANY NEWS, Verizon takes a big write-down, WPP makes big cuts and Tencent Music prices low
  4. In OTHER NEWS, I bring you Kim Jong Un moisturising facemasks and a gym breakup letter. For more details, read on…



So China relents on car tariffs – although the market itself is a lot weaker – and Hyundai puts weight behind fuel cells…

China to cut tariffs on imported US cars (Financial Times, Demetri Sevastopulo and James Politi) heralds a welcome move for US car manufacturers as the government agreed to cut tariffs on imported American cars from 40% to 15%, the level set earlier on this year. Carmakers on a roll amid talk of a China deal (The Times, Callum Jones) shows how shares in General Motors and Ford were buoyed by the news as well as European carmakers VW, Daimler and BMW. * SO WHAT? * This shows a softening of the stance between the two sides, but TBH, this can change on a dime and there’s a long time between now and the self-imposed March 1st deadline on the trade truce. If you couple that with a US holiday season and Chinese New Year Celebrations, the window of negotiating opportunity is not as wide as it at first seems. The good news is that both sides have intimated that the Huawei sideshow won’t derail anything and that China has also made noises about resuming the purchase of American agricultural products.

Although that is clearly good news, China car sales suffer steepest monthly fall in 6 years (Financial Times, Sherry Fei Ju) is quite a worrying sign as the world’s biggest car market is heading for its first annual decline in sales for 30 years, with sales down by almost 14% in November versus the same month last year according to the China Association of Automobile Manufacturers. This is due to a mixture of the removal of government subsidies on vehicle purchases this year as well as weakening consumer

sentiment as the wider economy slows down. The ongoing trade war and a wobbly stock market also haven’t helped as all of this makes consumers more likely to hold off on big purchases. * SO WHAT? * I guess it would be possible to stimulate more demand by reintroducing the subsidies now, but then again if the slowdown in consumer confidence is really taking hold, I would have thought the boost would be limited. For this to really work, I think that the whole trade war thing needs to be straightened out first. Let’s hope the positive noises between the two sides result in something more concrete and long lasting.

In Hyundai Motor Group commits $7bn to fuel-cell technology (Financial Times, Bryan Harris and Song Jung-a) we see that South Korea’s second-largest conglomerate is putting a chunky bet on the success of hydrogen-powered systems for cars, drones and ships as it belatedly throws itself more wholeheartedly into the electric vehicle party after some disappointing dabbles with battery-powered vehicles. The group’s automaker Hyundai Motor announced the launch of the world’s first fleet of commercially-made hydrogen powered trucks in conjunction with Swiss hydrogen company H2 Energy as recently as September, but this latest move signifies a deeper dive into the tech as it earmarks $6.7bn over the next decade to boost production of fuel-cell systems and engines. Fans of the hydrogen fuel cells say that it is better suited to long-distance transport than electric vehicles because the latter tech has a limited range, long refuelling times and battery degradation. Naysayers of hydrogen fuel cells say that the process of extracting hydrogen from water is environmentally unfriendly. * SO WHAT? * This is an exciting development but, as with electric cars, existing infrastructure is a long way off being optimal and current sales of fuel cell vehicles are miniscule. As I keep saying, I think hybrid is currently the way to go until charging networks etc. improve by a huge margin. 



Christmas isn’t looking great for UK retailers, falling retail property values are hitting pensions but then wages are going up strongly…

Political turmoil takes toll on Christmas cheer for retailers (The Guardian, Zoe Wood) does a good job of giving us a snapshot of how things are looking for UK retailers in the run-up to Christmas. Last week, John Lewis said that department stores sales were slowing, Primark warned of “challenging” conditions with weaker footfall – a trend confirmed by Springboard figures which showed the number of shoppers visiting the high street falling by 3.2% last month – and now Kantar Worldpanel figures show that the overall grocery market is only growing at 2% – its slowest pace since March 2017. The data also showed Tesco, Sainsbury’s and Waitrose all losing market share whilst Aldi and Lidl continue their upward trajectory. Clive Black, an analyst at Shore Capital, observed that “Recent news flow from the British retail trade has been more mellow than not, including a subdued Black Friday and weak UK trading from apparel discounter Primark. That mellow mood has been filtering into the supermarket segment…where the discounters [are] sustaining strong momentum as the supermarkets flatline”.

Ongoing weakness in the retail sector is having knock-on effects in other areas as per Pensions suffer as retail property values fall (The Times, Louisa Clarence-Smith) which highlights the fact that shops, shopping centres and

retail parks saw the biggest monthly fall in value since May 2009 (apart from the period immediately following the Referendum in 2016), according to figures from CBRE, Britain’s largest valuer. Some think that this is only the start – with Fidelity International last week warning that the value of retail property could fall between 20% and 70% depending on the individual asset (a rather large range, but still). Ongoing weaknesses in this area will have a big impact on pension funds who invest in this area. * SO WHAT? * Given the number of retail failures, this is hardly surprising and I think that valuers are only reacting to what they see in front of them. I would be inclined to agree that there’s probably going to be more downward momentum from here – which is great if you are a buyer! As I’ve said before, this could be a bonanza for a company like Ikea which is looking to build up city centre presence – and with retail property values going this way, they could be bagging some real bargains.

On a more positive note, Wages rise at fastest pace in a decade to defy Brexit worries (Daily Telegraph, Tim Wallace) shows average annual pay rises of 3.3% as employers compete to keep/attract staff – the biggest rise since the end of 2008 – meaning that wages have now overtaken inflation, which stands at 2.4% over the same period. The unemployment rate remained unchanged at 4.1%, its lowest level since the 70s. * SO WHAT? * This sounds great – and is the reason why there may be a tiny glimmer of hope for the retailers yet for a Christmas splurge. However, if Brexit goes badly, employers will stop taking people on, meaning that the jobs market will loosen, which then means that wages will either go static or downwards.



Verizon makes a bit writedown, WPP makes cuts and Tencent Music makes a lower price on its IPO…

Verizon takes $4.5billion charge related to Digital Media business (Wall Street Journal, Sarah Krouse and Micah Maidenberg) highlights a painful accounting charge for its Oath media business, which was created by the $9bn acquisition of AOL and Yahoo. Unfortunately for Verizon, it was unable to make any headway in the competitive digital advertising space and has decided to bite the financial bullet. * SO WHAT? * Oh how the mighty fall. Mind you, other operators such as Vox Media, BuzzFeed and Vice Media have also failed to meet ambitious revenue growth targets and put any kind of dent in the likes of Facebook and Google – so Verizon is not alone. It just goes to show how difficult the world of digital advertising is right now as even something as big as this can fall flat on its face!

Talking of advertising, WPP to cut 3,500 jobs and close 80 offices in bid for sales growth (Daily Telegraph, Christopher Williams) is further evidence of how tricky things are getting in this space as WPP’s new chief exec Mark Read tries to cut costs and revive sales growth. Half the savings will be reinvested, including the hiring of 1,000 staff to give a shot in the arm to the creative side of the business. The share price rose by 7% on this news.

It seems like the increasingly lukewarm reception being felt by tech firms is continuing as Tencent Music prices its IPO at bottom of range (Wall Street Journal, Corrie Driebusch and Maureen Farrell) shows that the Chinese music-streaming company decided to price its IPO at the bottom of the stated $13-$15 range. Having said that, it will still be one of the biggest traditional IPOs by market value in the US with an implied valuation of $21.3bn versus Alibaba’s valuation of $169.4bn when it floated in 2014.



And finally, in other news…

We are now well and truly into that time of year where I recommend unusual stocking fillers for your nearest and dearest this Christmas. For that special someone in your life who appears to have everything, I bet they had everything apart from THIS: Kim Jong Un moisturing face masks prove big hit in South Korea (Sky News, Alix Culbertson As we all know, nothing says Christmas more than some tasteful Kim Jong Un merch…

AND FINALLY, I thought I’d give you some helpful guidance for if you want to extricate yourself from your gym membership: Man writes hilarious break up letter to gym after he couldn’t cancel by phone (The Mirror, Robyn Darbyshire

Some of today’s market, commodity & currency moves (as at 0819hrs 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 **
6,807 (+1.27%)24,651 (+1.15%)2,637 (-0.04%)7,03210,781 (+1.49%)4,806 (+1.35%)21,639 (+2.35%)2,603 (+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)