Wednesday 15/08/18

1. In MACROECONOMIC AND CURRENCIES NEWS TODAY, the Eurozone gets a boost from Germany and UK unemployment remains low but wage growth slows whilst Turkey’s lira weakness hits the rupee and crypto has a nightmare
2. In RETAILER NEWS, Kroger goes online in China and Home Depot has another quarter of growth as we see an alternative future for House of Fraser as Homebase and mall operator Capital & Regional confirm the broader downbeat trend
3. In OTHER NEWS, I bring you a very weird song that’s sprouting all sorts of memes. For more details, read on…

So the Eurozone gets boosted by Germany, there’s mixed news for UK workers and currency markets are seeing some action…

In Germany gives eurozone a boost (The Times, Tom Knowles) we see that the latest figures from Eurostat which show that the European Union expanded at a quicker-than-expected pace in the first quarter of 2018 despite seeing a fall in industrial production with GDP increasing by 0.4% versus market expectations of +0.3%. The growth was powered by particularly strong growth in German (+0.5% on strong consumer and government spending) and the Netherlands (+0.7% because of a bounce back in trade). France and Italy, on the other hand, saw disappointing growth as their respective GDP rates were +0.2% apiece. * SO WHAT? * There have been fears of a slowdown, but with Germany putting in yet another quarter of growth – its GDP has grown in EVERY quarter for the last four years – the Eurozone is still in positive territory.  It just goes to show that when you’ve got Germany in the engine room, you’ve always got a chance! Conversely, now that everyone expects Germany to put in a game-saving performance, if this winning streak comes to a stop it will shake Eurozone sentiment badly. Given the delicate nature of German politics at the moment and continued Trump tariff-related shenanigans, such consistent performance should not be taken for granted.

Pay rises slow despite fall in jobless and EU worker flight (The Guardian, Larry Elliott and Julia Kollewe) cites the latest figures from the Office for National Statistics which show that annual wage growth fell from 2.5% to 2.4%, although real pay growth – which is average weekly earnings adjusted for inflation – was up by 0.1% including bonuses and +0.4% excluding them. The stats also show unemployment falling from 4.2% to 4% – its lowest level since the winter of 1974-5 – and the biggest drop in workers coming from the EU since modern records began 20 years ago. * SO WHAT? * Bulls will point at real wage growth to back up their arguments (because that went up) and bears will use total or regular wage growth stats to back up their arguments (because they slowed 

down). Suren Thiru, an economist at the British Chambers of Commerce, observed that “Achieving sustained increases in wage growth remains a key challenge, with sluggish productivity, underemployment and the myriad high upfront business costs weighing down on pay settlements. As such, there remains precious little sign that wage growth is set to take off – undermining a key assumption behind the monetary policy committee’s recent decision to raise rates”.

Following on from what I was saying yesterday about Turkish lira contagion, Rupee’s dramatic drop prompts fears for the Fragile Five (Daily Telegraph, Anna Isaac) shows some of the latest fallout as India’s currency fell to an all-time low reaching 70 rupees to the dollar yesterday, prompting concerns of a return of the “Fragile Five” economies and wider emerging market sell-off. The Fragile Five, a phrase thought up by investment bank Morgan Stanley in 2013, refers to economies with a particularly high gearing towards growth funded by foreign investment – namely, Brazil, India, Indonesia, South Africa and Turkey. * SO WHAT? * As far as I can see at the moment, this is really more of a Turkey-specific issue than something broader, but some investors will use this as an excuse to sell up and move on elsewhere, which will actually perpetuate their initial concerns.

Cryptocurrency market plumbs new depths in 2018 (Wall Street Journal, Steven Russolillo, Paul Vigna and Akane Otani) highlights recent cryptocurrency weakness as the market for digital currencies is now 70% down from January. Bitcoin this week fell below $6,000 for the first time since late June and Ether, which is the second-most used digital currency, fell by 17% over 24 hours. * SO WHAT? * It seems that investors are becoming a bit more reticent about getting involved in riskier bets at the moment as even “legit” currencies of emerging market countries are taking a beating right now. The fact is that cryptocurrencies are highly risky and highly volatile – which is why trading them can be so attractive and why so much money can be made (or lost) in punting around in them. Bitcoin traded all over the place during 2017 as investors bet on it becoming a more mainstream currency and it oscillated between being a “bull market” or “bear market” – a rise or fall of 20% from a peak or trough – about once a month. In one trading session in December, Bitcoin rose by 40% in a 40 hour period – but then fell by 25% in a 24-hour period! There’s no sense in whinging about losses because, as the saying goes, if you can’t stand the heat get out of the kitchen don’t trade cryptocurrencies. Buying opportunity or sign of things to come??

In retailer news, America’s Kroger goes to China and Home Depot gets upbeat while over in the UK, Ashley’s got ambitions for House of Fraser, Homebase closes stores and mall operator Capital & Regional reflects the downbeat trend…

Kroger to sell groceries on Alibaba site in China (Wall Street Journal, Liza Lin and Heather Haddon) heralds a historic moment in the American retailer’s history as it announced that it would be selling its products via an e-commerce site owned by Chinese e-tailer giant Alibaba, it’s first foray into overseas sales. This is also part of a broadening of its strategy where it is increasing its online presence. Kroger said that the site, with its storefront on Tmall Global, will open for business today with an initial product line-up including dietary supplements and private label products. * SO WHAT? * Kroger’s domestic market continues to get increasingly crowded and so it is making a concerted effort to hawk its wares by other means and using other channels. By embarking on this deal, Kroger gets a crack at a massive market without having to go to all the expense of having a physical presence and Alibaba gets to enhance its online grocery market offering. Kroger’s share price rose 2.8% initially on the news.

I thought I’d mention Home Depot builds up sales outlook after second quarter outperforms (Financial Times, Mamta Badkar and Adam Samson) because the DIY retailer is often seen to be a bellwether for the US housing market and consumer confidence – so the fact that it reported strong sales for the quarter and an upgrade for its full year forecasts tells you what you need to know! As CFO Carlo Tome said on the earnings call, “We continue to expect strong economic growth with the backdrop of a healthy home-improvement environment. Homeowners continue to enjoy home price appreciation and rising wages and low unemployment have driven consumer confidence to record high levels”. The only cloud on its horizon was higher-than-expected transportation costs denting its profits.

Although Ashley’s bold leap to create ‘Harrods of the high street (Daily Telegraph, Ben Woods) takes an unexpectedly upbeat tone regarding the future of the newly-acquired House of Fraser (fewer store closures than had been expected and a concerted move to be more “upmarket”), the mood amongst most retailers is still pretty grim given Homebase to shut 42 stores, with more in balance unless rents are cut (The Guardian, Sarah Butler) – where the troubled retailer is trying to negotiate 90% rent cuts on almost 20% of its stores in order to survive –  and Capital & Regional counts cost of retail woe (The Times, Tom Knowles), which is warning that it expects to take a £1.2m hit to its rental income this year due to the amount of retailers going into administration and asking for rent reductions. The company has been moving away from fashion retailers – which had made up 30% of its portfolio – and towards discount retailers/those who would be less likely to be adversely affected by online shopping such as Primark, TK Maxx, Lidl and WH Smith.

…And finally, in other news…

I thought I’d mention a song that’s udderly ridiculous, where the singer is clearly milking the public’s need for the bizarre – Doja Cat’s “MOo”, as mentioned in I will never be the same after this s3xy cow song (The Cut, Madeleine Aggeler https://tinyurl.com/yatsrm7g). Be warned, weirdly amusing though this is, it is NSFW because of some of the moves and profanity, but if you listen to rap music you will be OK. As an alternative to this, how about copying the moves to this song that “Gangnam Style” Psy released last summer: https://tinyurl.com/yauja8m8

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