Wednesday 15/01/20

  1. In MACRO NEWS, Europe ups the pressure on Iran, Germany invests big in rail and the Irish PM calls for a general election
  2. In RETAIL NEWS, Boohoo overtakes M&S in value and Games Workshop sees rising sales
  3. In INDIVIDUAL COMPANY NEWS, US banks announce big profits, Tesla’s valuation nears a landmark, Boeing gets more cancellations, MGM Resorts sells off property and the UK’s Flybe gets rescued
  4. In OTHER NEWS, I bring you a cheese hotel…



So Europe increases pressure on Iran, Germany invests in rail infrastructure and Ireland is to get a general election…

European powers step up pressure on Iran over nuclear deal (Financial Times, Michael Peel, Andrew England and Jim Pickard) shows that the “E3” (UK, France and Germany) has triggered a dispute clause in the 2015 nuclear agreement with Iran that could bring back UN sanctions on the republic. Following the recent assassination, Iran has threatened to end limits on uranium enrichment, triggering the European response. Signatories to the deal, who include China and Russia, are to meet within the next two weeks to discuss concerns. * SO WHAT? * Iran agreed in 2015 to restrict its atomic activity in return for the lifting of sanctions but America’s U-turn on the deal under Trump has put the country under enormous pressure as it now faces huge difficulties selling its oil, plunging it into its worst recession for decades. Iran says that it is still committed to the agreement and even allows the International Atomic Energy Agency access to its nuclear activity. We’ll just have to see whether this gets Iran to the negotiation table or drives them further away. At the moment, it says that the recent ramping up of its stockpile

of enriched uranium and nuclear R&D are still reversible if a compromise can be reached.

In Germany signs off on landmark €86bn investment in rail network (Financial Times, Guy Chazan) we see that the German government has just announced a ten-year, $86bn investment programme for the German rail network – its biggest ever investment. This represents a 54% uplift in spending versus the previous round of funding and will go towards upgrading its tracks, stations, energy supply systems, switches and bridges. * SO WHAT? * €86bn is clearly a lot of money but the main railway trade union, EVG, says that it’s not enough, considering that the network has been neglected for decades leading to a massive investment backlog. Still, it does show that the German government has caved under pressure not to stick so tightly to its “schwarze Null” policy of committing to a balanced budget and to increase government spending. This will be great for German jobs and manufacturing, I would have thought.

Then Ireland’s Varadkar calls February 8 general election (Financial Times, Arthur Beesley) shows that Leo Varadkar is in a confident mood as he called a snap general election to strengthen his mandate ahead of the next phase of Brexit negotiations. His campaign will focus on Ireland’s rebound from the 2008 financial crisis.



Boohoo overtakes M&S and Games Workshop continues to succeed…

Boohoo worth more than M&S as fast-fashion retailer’s sales soar (Daily Telegraph, Laura Onita) shows just how far Boohoo has come (and/or how far M&S has fallen) as its valuation hit new highs on strong sales, making it more valuable than M&S! Revenues at the online fashion retailer were boosted by a whopping 44% in the 10 months to the end of December, sending the share price up by almost 5%. * SO WHAT? * Boohoo’s performance contrasts sharply with that of many other fashion retailers at the moment, so let’s hope that they don’t fall foul of that rather worrying

recent trend – accounting error in the retailing sector! Just ask Joules and Ted Baker…

Chaos brings victory for Games Workshop (The Times, Ashley Armstrong) shows that the retailer, famed for developing the Warhammer board game brand, reported record sales and profits yesterday, justifying the doubling of its share price over the last year! Group revenues rose by 18.5% in the six months to December and pre-tax profits have grown by 44%. It is now developing a TV series based on a character from its Warhammer 40,000 game. * SO WHAT? * Here is another example of a retailer that is getting the balance right between in-store experience and online capability. The company is keen to build on the sense of community of its online fans.



US banks see bumper profits, Tesla’s valuation nears a bonus milestone, Boeing’s nightmare continues, MGM sells some property and Flybe gets rescued…

Big banks post big profits thanks to strong US economy (Wall Street Journal, David Benoit) shows that the robust US economy played a major part in boosting profits at America’s biggest banks despite a backdrop of falling interest rates (which make lending less profitable because they can’t charge as much to borrowers). JP Morgan Chase and Citigroup enjoyed double digit earnings growth in the last quarter of 2019 thanks to increased consumer borrowing and a revival in investment banking revenues. In fact, JP Morgan said it had the most profitable year in its history! Both banks benefited from consumers as their credit card businesses experienced a rise in spending. Retail customers seem to be OK on the credit front and continue to spend while corporate clients appear to be more positive given the recent apparent thawing of trade relations between the US and China. * SO WHAT? * If you just listen to what these guys have to say, things are looking pretty good for 2020. Wages are up, the labour market is tight and house values are also rising – which makes people feel “richer” and more inclined to spend. The story was rather different at rival bank Wells Fargo & Co, which saw a massive 53% fall in fourth quarter profits – but this is largely due to it having to put aside more money ($1.5bn) to cover costs associated with its 2016 fake account scandal. It seems that Wells Fargo’s reputation took a bit of a battering and it is continuing to play catch-up.

In Tesla valuation nears Elon Musk’s bonus trigger of $100bn (Financial Times, Peter Campbell) we see that Tesla’s share price is approaching the $100bn valuation mark (it’s now at $97bn). If it stays there for six months, it will unlock a treasure trove of share-based payments for chief exec Elon Musk worth just under $350m that were implemented back in 2018 as an incentive to keep him in

the top job. Its strong share price performance has been thanks to more deliveries, actual profitability and the rising surge in EV sales. Musk has various targets to hit over the years that could net him $50bn! Now that is what I call a bonus!

First negative orders for Boeing in 30 years in wake of 737 Max crisis (Daily Telegraph, Alan Tovey) highlights the difficult truth that Boeing actually lost more orders than it received last year for the first time in three decades due to customers’ crisis of confidence in the wake of two fatal crashes involving its planes. In contrast, European rival Airbus signed deals to sell 768 planes during the year. Boeing has called a temporary halt to 737 Max production to ease pressure on its finances.

Elsewhere, MGM Resorts sells casino property in $2.5bn deal (Financial Times, James Fontanella-Khan and Eric Platt) signals the latest real estate deal for private equity firm Blackstone as it partnered up with an affiliate of MGM Resorts to buy the MGM Grand. This comes only months after it bought the Bellagio (also owned by MGM Resorts) but is a result of investors putting pressure on MGM Resorts to cut its casino assets. Although it has sold the casinos, it will continue to operate them – it will just be paying Blackstone rent. * SO WHAT? * This is a reasonably chunky deal and is one that MGM Resorts needed to boost its cashflow.

Then in Relief for airline Flybe as £106m tax bill delayed after deal (Daily Telegraph, Oliver Gill and Gordon Rayner) we see that Flybe has won a stay of execution after ministers agreed to a controversial deal to stop Britain’s biggest regional airline going under by delaying a £106m tax bill. There was a lot of pressure brought to bear here because its survival was seen to be key to maintaining a vital link between regional cities. * SO WHAT? * According to Flybe/state aid: from bad to Wurzel (Financial Times, Lex), Flybe has been consistently unprofitable due to costly aircraft leases, overexpansion and rising overheads over time. Even a change in ownership last year hasn’t done much to turn things around, so it is questionable as to whether it really deserves such special treatment to exist as is. It argues that selling off profitable routes to other operators and subsidising lossmaking-but-publicly-desirable ones would be fairer.



And finally, in other news…

Today, I thought I’d leave you with something special for the cheese-lover in your life: A Cheese-Themed Hotel Room Is Popping Up in London (mental_floss, Michele Debczak 👍

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Some of today’s market, commodity & currency moves (as at 0847hrs 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 **
7,626 (+0.23%)28,929 (+0.12%)3,282 (-0.15%)13,449 (+0.14%)6,036 (+0.12%)23,917 (-0.45%)3,090 (-0.54%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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