Wednesday 18/12/19

  1. In MACRO NEWS, Trump targets Europe, BoJo gets feisty with Brexit and Davos while UK employment hits a record high
  2. In MANUFACTURING-RELATED NEWS, suppliers suffer Boeing fallout and Tesla confounds the short-sellers
  3. In INDIVIDUAL COMPANY NEWS, JAB lines up a big coffee IPO, Unilever faces challenges and e-cigarette promotion is banned on Instagram
  4. In OTHER NEWS, I bring you a tilted toilet and a Christmas song puzzle…



So Trump turns his attentions to Europe, BoJo targets a Brexit deadline and no Davos frivolities while UK employment hits new highs…

Robert Lighthizer says Trump ‘focused’ on EU trade (Financial Times, James Politi) heralds an imminent Trump-shaped headache for the EU. US trade representative Robert Lighthizer hinted that the President, fresh from trade negotiation breakthroughs with the NAFTA replacement and “phase one” agreement with China, will be turning his attention to Europeans. In an interview with Fox Business Network yesterday, Lighthizer said that “We’ve put tariffs in place on a variety of products, and we’re going to continue to focus on that. It’s something the president cares about. You can’t get the global trade deficit down without getting the trade deficit down with Europe”. He added that there is currently a $180bn bilateral deficit this year, which is unsustainable for Washington. On a separate note, he said that the US was looking forward to negotiating “a really big deal” with the UK following last week’s election result, but that it wouldn’t necessarily happen quickly. * SO WHAT? * This comes at a tricky time for the EU given Germany’s ongoing economic and political paralysis (Germany is the real driver of the bloc) and its particular exposure to exports. I presume that Trump’s team will be feeling pretty good about themselves given recent developments in trade negotiations elsewhere so it will be interesting to see how much pressure the Americans exert on their European counterparts.

Boris Johnson throws down gauntlet to Brussels as trade talks loom (Financial Times, Sam Fleming, Alan Beattie, Jim Brunsden and George Parker) shows that Boris Johnson’s push to exclude the option of another Brexit deadline extension by enshrining it in law will put huge pressure on negotiations next year. The EU has warned that a deal by December 2020 would be very tricky, but Johnson is keen to turn the screws. * SO WHAT? * Some say that this short timetable may necessitate a partial deal

that will involve prioritising aspects of what both sides want to achieve, but others say that even this will be difficult. The law that BoJo wants to bring in can be overturned, so the move is largely symbolic, but he is making his intentions very clear. The EU wants to begin talks in March. 

In Johnson bans ministers from attending Davos summit (Financial Times, Jim Pickard) we see that the PM is trying to start his new government on the right foot by saying that it would be inappropriate for ministers to attend because “Our focus is on delivering for the people, not champagne with billionaires”. Donald Trump did something similar in Davos 2017 shortly after he became president as he surfed his way to the oval office on a wave of populism. * SO WHAT? * This is all noise, of course, but I guess this is an easy PR win for BoJo, who described previous Davos visits when he was London’s mayor as “a great big constellation of egos involved in massive mutual orgies of adulation”. It’ll take more than this, though, to convince people that his new regime is a “people’s parliament”. It’s still early, so we’ll soon see what he has up his sleeve.

UK wage growth slows again but employment hits record high (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics which show that although average weekly wage growth weakened to 3.2% in the three months leading into the October 31st deadline, unemployment stayed at 3.8% – its lowest level since the mid-1970s. In terms of interesting trends, the ONS said that this increase was down to a larger number of men entering the workforce, but the number of women in employment fell. John Philpott, of the Jobs Economist consultancy, pointed out that public sector employment was rising while private sector employment had fallen slightly over the quarter. * SO WHAT? * Interesting stuff, but my take on things is that a majority government is likely to lead to more job creation as pent-up investment that has been sidelined by political and economic uncertainty will be released. I don’t think it’ll be a sudden flood because there are still a large number of knotty issues to be addressed, but I would have thought that a parliament with a big majority (a novelty in recent years) will ease recent concerns to some extent.



Boeing problems spread down the supply chain and Tesla frustrates the short-sellers…

Boeing suppliers reel from 737 Max production halt (Financial Times, Andrew Edgecliffe-Johnson, Peggy Hollinger, Sarah Provan, Archie Hall and Michael Pooler) highlights the fact that Boeing’s 737 Max woes are spreading panic down the global supply chain following its decision, announced on Monday, to suspend production of its controversial aircraft. Two fatal crashes led to its 737 Max planes being grounded in March. The share prices of Safran, (a French company which makes the Leap engine for the Max in a joint venture with General Electric), Senior (a UK supplier that makes airframes an high-tech components for the Max), Meggitt (another UK supplier) and Spirit AeroSystems (which makes fuselages for the Max) all suffered a sell-off, but the uncertain nature of when (or even, if) production might restart will test some suppliers’ ability to survive given the unprecedented magnitude of the problem. * SO WHAT? * It’s unclear currently as to how much Boeing will be supporting suppliers as those further down the chain will not want to leave their machinery idle. If they go off to engage in other

projects due to lack of support, Boeing will suffer when 737 Max production restarts. The scale of this problem is such that this production halt could actually start impacting America’s GDP in the next few months.

Tesla making short work of the sceptics (The Times, Tom Knowles) highlights the $575m in paper losses that hedge funds have suffered in shorting the stock as hopes for Tesla’s new gigafactory in Shanghai are rising, as has its share price – by 14% this year. Tesla is the third most shorted stock in the US and the most shorted car manufacturer in the world (short selling is when traders pay to borrow stock from a big institution and sell it in the expectation that the share price will fall, which will allow them to buy it back at a lower price). * SO WHAT? * This does not mean that it’s all going to be a bed of roses for Tesla from now on! In fact, the refusal of the Trump administration to extend a tax credit for electric vehicle buyers will come as a blow to the company. As I keep saying, Tesla’s tech is great, but its longstanding production issues, poor record of customer service when things go wrong and the increasing capability of its competition will make things very difficult in the coming years. No doubt Musk is hoping that his gigafactories will keep him ahead of the game, but I really think that incumbent makers’ superior experience, supply chains and distribution networks will severely reduce (or even negate) Tesla’s first-mover advantage.



JAB eyes a big coffee IPO, Unilever disappoints and e-cigarette promotion on Insta is a big no-no…

JAB to list Peet’s and Douwe Egberts in €3bn coffee IPO (Financial Times, Leila Abboud and Arash Massoudi) heralds the imminent combination of two of the world’s best-known coffee brands to take the fight to the likes of Nestlé and Starbucks in a European listing next year. Parent company JAB Holdings is hoping to raise up to €3bn from the IPO of a combined Jacobs Douwe Egberts Group (JDEG, the world’s #2 coffee roaster by volume after Nestlé) and Peet’s Coffee (a premium retail coffee brand that has brand names such as Tassimo, Senseo and L’Or under its umbrella). * SO WHAT? * If this all goes ahead, it would create the biggest publicly traded coffee company in the world and would be the biggest IPO scheduled so far for 2020. The flotation would give early investors an opportunity to crystallise gains. 

Elsewhere, Pressure builds on Unilever as Asian slowdown weighs on sales (Daily Telegraph, Hannah Uttley and Simon Foy) shows the company facing criticism as it blamed the fact that it would not hit its sales targets this year due to tricky market conditions. South Asia and west Africa markets were cited as being particularly problematic. * SO WHAT? * There is an understandable amount of scepticism here among investors who have seen a weak performance from the company, but they have been promised that the good times will return in the second half of next year as its efforts to attract younder customers and offer more exclusive products kick in.

Vaping suffers its latest blow in Advertising watchdog bans e-cigarette promotion on Instagram (The Guardian, Mark Sweney) as the UK’s Advertising Standards Authority (ASA) ruled that British American Tobacco (BAT), Ama Vape Lab, Attitude Vapes and Mylo Vapes should not be allowed to promote their products on Instagram. * SO WHAT? * The pressure on vaping – and particularly its promotion to younger people – continues…



And finally, in other news…

Productivity is said to be a serious problem for the UK economy at the moment, so it seems that a toilet company is trying to address this single-handedly in Say goodbye to comfort breaks! New downward-tilting toilets are designed to become unbearable to sit on after five minutes (Mailonline, Ryan Morrison All I can say is 😱. Maybe they will use this song in the marketing 😜. If you want something to consider if you are at a loose end for a few minutes, you might want to have a go at How many Christmas songs can you find hidden in this holiday brainteaser? (Insider, Frank Olito Good luck!

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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 **
7,523 (-0.33%)28,293 (+0.13%)3,193 (+0.07%)8,82313,292 (-0.83%)5,969 (-0.44%)23,934 (-0.55%)3,017 (-0.18%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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