Wednesday 14/08/19

  1. In MACRO, TRADE & OIL NEWS, US CPI strengthens, UK wage growth hits new highs, US/China trade tensions ease, Japan/South Korea trade suffers, ExxonMobil looks to offload North Sea assets and US shale gets buffeted
  2. In RETAIL NEWS, Steinhoff aims to sell off assets and Poundland rejigs its prices
  3. In INDIVIDUAL COMPANY NEWS, Boeing causes problems for Tui while CBS and Viacom reunite
  4. In OTHER NEWS, I bring you a very cool bike…



So US inflation rises, UK wage growth strengthens, US/China tensions ease while Japan/South Korean tensions continue and ExxonMobil looks to offload North Sea assets…

In a whistle-stop look at macro-events, US consumer price inflation up 1.8 per cent in July (Financial Times, Brendan Greeley) shows that prices are on the rise in the US – especially those of airline tickets, fruits and veg – which puts a question mark over how aggressive interest rate cuts need to be in the near term. * SO WHAT? * Under “normal” circumstances, a rise in inflation would result in a tendency to INCREASE interest rates to encourage more saving and less spending (thus taking the “heat” out of price rises), but given that Trump called for deeper interest rate cuts to stimulate the economy, data like this shows inflation pulling in the opposite direction. In short, those who want interest rate cuts will say that the latest CPI figures are just a blip and those who don’t will say that these figures show early signs of higher inflation – which will either mean that they will want interest rates to stay as they are or go higher (although I wouldn’t expect the latter anytime soon given the Fed just cut them – and a reversal of that would make them look stupid).

Meanwhile, UK wages rise at fastest rate for a decade despite Brexit risks (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics which show that annual average pay – excluding bonuses – rose by 3.9% in the latest quarter – making it the highest growth rate since June 2008. Unemployment rose slightly by 3.8% to 3.9%, but is still at levels not seen since the 70s. Mind you, Economists warn UK jobs boom may have peaked (Daily Telegraph, Tim Wallace) contends that the jobs boom is losing momentum as the number of vacancies fell for the second consecutive quarter and productivity showed its biggest drop since 2013. * SO WHAT? * The economists haven’t got a clue and they will change their forecasts as appropriate. We are heading into Brexit – something that has never been done before – and “experts” are proved wrong time and time again. They just give everyone predictions of what MIGHT happen and back it up with statistics which, to be honest, can generally be used to convincingly illustrate the opposite argument. What I DO think, though, is that employment is increasing, which is tightening the labour market and raising wages. Logic would suggest that large-scale hiring of permanent employees will slow down as we get closer to Brexit and then speed up again once we get any more certainty as to

outcome. But hey, no-one really knows! Then if you throw in the prospect of an early election etc. you get even more uncertainty…

Early Christmas for markets as US delays China tariffs (Wall Street Journal, Callum Jones and James Dean) highlights stock market rebounds as the US surprised everyone by backpedaling on newly-proposed tariffs on Chinese imports for certain goods. The Office of the US Trade Representative move will allow American retailers stock up on popular goods ahead of the key Christmas period and share prices of companies with China links rose in a relief rally. * SO WHAT? * Ultimately, this is just noise as the true trade war rumbles on in the background. Markets rise and fall according to Trump’s tweets on China and he has been proved to be full of BS on a number of occasions. Until we see a real deal in black and white and both leaders being photographed with those fake smiles and fake handshakes, it ain’t over. Even then you are relying on both sides honouring their side of the bargain, but at least it’ll be something everyone can work with.

As you know, I have been banging on a bit about rising Japan/South Korean tensions but I thought I’d highlight Japan/South Korea trade war: guilt edged (Financial Times, Lex) which makes some really good points about the current situation. Japanese exports to South Korea are almost twice the amount of imports. Although the materials Japan exports to Korea are key to the latter’s key semiconductor industry, it is possible for the likes of Samsung and LG to rejig their supply chains to drastically reduce their reliance on Japan given time (Samsung aims to cut out Japanese goods entirely from its supply chain by January next year, for example). This would imply that although both the South Korean president and Japanese PM have seen their approval ratings rise as a result of all this, it is actually businesses that will suffer more – and for longer.

In oil news, ExxonMobil plans £1.6bn sale of North Sea oil and gas stakes (The Guardian, Jillian Ambrose) shows that the world’s biggest listed oil company is looking to pull out of the North Sea as it puts its $2bn of oil and gas assets up for sale after almost 50 years in the UK’s oil basin. The company produces about 5% of the UK’s oil and gas via a joint venture with Royal Dutch Shell. * SO WHAT? * This will make ExxonMobil the third US oil major to exit the North Sea after Chevron and ConocoPhillips as they are all concentrating more efforts on North American shale projects which show much faster returns on investment, although Shareholders have no love for shale companies (Wall Street Journal, Rebecca Elliott) shows that share prices of shale players are weakening at the moment as borrowing costs are rising and expectations of big production growth lose momentum.



Steinhoff looks to offload and Poundland rejigs prices…

Steinhoff to sell assets in push to survive debts and lawsuits (Financial Times, Joseph Cotterill) highlights the travails of the South African global retailer following its decision to offload a number of businesses and assets to address massive debts and shareholder lawsuits. This is in response to ongoing difficulties that were kicked-off by the revelation of a €6.5bn hole in its accounts two years ago. Steinhoff owns Poundland, Harveys and Bensons for Beds in the UK and Conforama in France but is facing a number of lawsuits from shareholders who are basically saying that they were lied to as a result. * SO WHAT? * Settling the lawsuits will unlock other finance options for the struggling company, so selling off assets to enable them to do this will have a sense of urgency. 

Talking of which, Poundland to sell products priced between 50p and £5 (The Guardian, Zoe Wood) highlights the company’s new pricing strategy as it moves away from its “everything’s a pound” mantra. The discount retailer is testing out the new prices in 24 pilot stores and managing director Barry Williams said that “This is a way to broaden our proposition in a measured way that stays true to why people love Poundland”. The shop started selling products at £2 and £5 in 2017, but now has new price points of 50p, 75p, £1.50, £3 and £4. When faced by questions over whether shoppers would be confused by Williams came out with the best quote I’ve seen in a long time when he said “Have you ever been to Currys and tried to buy a biryani or gone into Greggs and asked to speak to Gregg? Sometimes what it says over the door isn’t reflected in the shop” 😂. * SO WHAT? * I think that this is long overdue and will give it far more freedom in terms of its product lineup, but it’s been having a tough time and the possibility of its owner Steinhoff potentially having to offload it to pay its legal bills won’t be great.



Boeing’s nightmares continue, Tui suffers and CBS and Viacom reunite…

Boeing’s plane deliveries tumble as 737 MAX Jet stays grounded (Wall Street Journal, Patrick Thomas and Austen Hufford) gives us the numbers to back what we already knew – that the grounding of the 737MAX jets have put a massive dent in deliveries. July proved to be its quietest month since November 2008, with deliveries for the year so far being at their lowest since 2007. July was the fifth consecutive month with no new orders. * SO WHAT? * No surprise here as Airbus continues to benefit from Boeing’s disasters in terms of stronger orders, but there isn’t any light at the end of the tunnel as the company’s hopes for a flight resumption this year run contrary to what many regulators are saying – that it will take longer.

Brexit and Boeing 737 Max dent Tui profits (The Guardian, Julia Kollewe) shows that it’s not just Boeing that’s suffering from the grounding of its jets – travel firm Tui saw a massive 46% fall in quarterly profits due to weak

bookings, Brexit uncertainty and the costs involved in grounding the 737 Max aircraft. The company has already had two profit warnings this year, but it stuck to its full year guidance. * SO WHAT? * It’s a really tricky time for travel operators at the moment – just ask Thomas Cook! Tui wants to transform from being a tour operating business into an online platform selling holidays and actually announced the sale of two specialist German tour operators earlier this week. That’s probably a reasonable idea in theory, but it won’t happen overnight and it’s a crowded market. Having said that, it does have decent experience and if it manages to sell off assets, it could become a consolidator and buy other businesses that align with its new strategy.

Then in That’s a rap as media firms merge (The Times, James Dean) we see that CBS (owner of Showtime etc., catering to an older audience) and Viacom (owner of Nickleodeon and MTV etc., catering to a younger audience) are to merge to form a $30bn company after being broken up back in 2006. There have been two other attempts at merging the companies since 2016, but they fell down on price. This deal, though, looks like sticking and will give both media giants even more power as well as the potential to cut costs.



And finally, in other news…

I thought I’d leave you today with A Swedish bike is made from 300 Nespresso coffee pods (Quartz, Anne Quito How amazing is this??

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Some of today’s market, commodity & currency moves (as at 0907hrs 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 **
7,251 (+0.33%)26,280 (+1.44%)2,926 (+1.48%)8,01611,750 (+0.60%)5,363 (+0.99%)20,655 (+0.98%)2,814 (+1.64%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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