Wednesday 19/09/18

  1. In MACROECONOMIC NEWS, China retaliates to Trump’s tariffs and economists warn of the potential damage
  2. In EV/HYBRID VEHICLE-RELATED NEWS, Tesla faces a criminal investigation, rival Lucid plays catch-up, Ferrari announces ambitious plans and retro-fitted hybrid trains are on their way
  3. In ONLINE RETAILER-RELATED NEWS, we see why Amazon should be split up, Zalando has a nightmare but Ocado predicts growth
  4. In INDIVIDUAL COMPANY NEWS, Sky decides to include Netflix and there’s consolidation in the insurance broker industry
  5. In OTHER NEWS, I bring you Britain’s best lawn. For more details, read on…



So China fights back and economists tell us trade wars can be “bad” and that bears sh!t in the woods

No-one will be surprised by China hits back at Trump with further $60bn of tariffs (The Guardian, Richard Partington) given that Donny T just slapped them with $200bn-worth. It seems that Trump is likely to turn the screws even further in a bid to boost his approval ratings ahead of the US midterm elections in November. * SO WHAT? * If you just looked at the headline amounts, you’d think that China’s response is rather muted – but the fact is that China’s imports from America only amount to $130bn versus exports TO America amount to around $500bn. However, there are other ways for China to respond that 

could be equally or more damaging – via tightening of regulations, meddling more deeply in day-to-day operations and, on a higher level, any kind of M&A.

Meanwhile, we must all thank our lucky stars for the tremendous insight of economists in Economists warn US and China will both suffer in tariff trade war (Daily Telegraph, Anna Isaac) as many of them make downward adjustments to growth forecasts and say things like Lazard Asset Management’s Ronald Temple did when he said “With each escalation, the outlook for markets and economic growth in 2019 deteriorates…our concerns over trade friction and monetary policy tightening are increasing”. Amazing insight. Almost as good as credit agencies ;0) BTW, if I find anything on who actually benefits from these trade tariffs, I’ll let you know – because commentary is all rather one-sided currently.



In EV/hybrid vehicle-related news, Tesla gets into more hot water, Lucid plays catch-up, Ferrari evolves and hybrid trains become a reality…

DOJ opened probe of Tesla after Musk’s going-private tweet (Wall Street Journal, Tim Higgins and Dave Michaels) highlights Tesla’s revelation yesterday that the Department of Justice had commenced an investigation into the company in the aftermath of Elon Musk’s August tweet that he’d secured funding to take the company private. Bloomberg News reported yesterday that this was a criminal investigation against Tesla (although there has been no official confirmation of that) but it is also facing an investigation from the Securities and Exchange Commission which could potential bring a civil case. Tesla’s share price fell by 3.2% in trading yesterday but has fallen by about 25% since THAT tweet. * SO WHAT? * There’s a lot of hoo-ha surrounding this, but what with some observers questioning Musk’s state of mind and his bizarrely aggressive tweets regarding the British rescue diver, I just wonder whether this is all a Jose Mourinho-like theatrical attempt to focus the attention on him rather than his company’s production problems. The drama continues…

Following on from Monday’s announcement that it had secured $1bn in funding from Saudi Arabia’s sovereign wealth fund, Lucid plays catch-up in electric vehicles race (Financial Times, Richard Waters) shows just how much the Tesla rival has to do to produce its first luxury sedan in 2020. The company currently only has 200 employees, but it will need to expand exponentially in order to meet the deadline to release the Lucid Air. * SO WHAT? * Even with $1bn in your back pocket, this is going to be a monumentally difficult nut to crack given that all the big boys have been given a bloody nose by the Tesla upstart and are now well into the electrification of their product line-up. The longer a tiddler like Lucid has to wait until it 

can make production a reality the harder it’s going to become to make a dent in anyone’s consciousness. It says that it’s not going to build its own network of charging stations and that it will buy in batteries from Samsung and LG – which should make things easier – but then the competitive landscape is going to advance so much by the time Lucid comes out with a car that they are going to have a nightmarish time of it IMHO.

In Ferrari unveils “ambitious” plan to secure future of brand (Financial Times, Peter Campbell) we see that the sports car manufacturer has announced plans to double profits, adopt hybrid technology and expand its product range by 2022 to secure its future. It said that 60% of its models will contain hybrid technology by 2022 and that it is targeting a margin increase from the current 30.3% to over 38%. Although it said that all of its current range will be hybrid by 2021, it has stopped short of announcing a purely electric car. * SO WHAT? * Quite dramatic stuff, but it’s all in the execution. The company has done well since being spun-off from Fiat in 2015 and this announcement would suggest that its plans on future-proofing itself are going in the right direction.

Hybrid battery trains set to shorten commuter journey times (Financial Times, Andy Bounds) sounds brilliant, don’t you think? Chiltern Railways announced plans to run hybrid diesel and battery-powered trains from next year but said that it won’t go for full electrification because of the high costs involved. The company is working with Angel Trains on tech that will convert diesel trains into the UK’s first retrofitted electric hybrids. Chiltern currently relies entirely on diesel trains on its London-Birmingham and Oxford-Aylesbury networks and Angel said that it expects the first Class 165 HyDrive train to be ready by the end of 2019. * SO WHAT? * This sounds like a great idea – especially because its something that can use existing rolling stock and will cost far less than going the whole hog into electrification. The fact that it will also make a meaningful impact in terms of efficiency is great news and offers train operators who are often locked into long leasing contracts a realistic upgrade option. Angel Trains is working with Magtec, a Sheffield-based EV specialist which produces electric drive trains for military vehicles, small trucks and buses.



In online retailer-related news, we look at reasons why Amazon could be broken up, Zalando goes south and Ocado predicts a sunny outlook…

Amazon ‘should be split up before it is broken up’ (The Times, Simon Duke) is an interesting little article which focuses on the opinion of a Citigroup analyst, Mark Hay, who thinks that Amazon should split itself into a retail division and a cloud computing division in order to head off potential regulatory focus. * SO WHAT? * This is quite an interesting theory – and investors would probably love the separation as it would potentially make closer scrutiny of each part of the business easier – but I’m not sure how much the top brass will want to do that. After all, the two divisions complement each other quite well at the moment and there may yet be further synergies to be had. Mind you, given how much Trump seems to dislike Amazon and Jeff Bezos, it might be a smart move to go for the pre-emptive move to at least give the impression of a lower profile. For all his bluster, and however much he may want to stick it to a high profile critic, “punishing” Amazon for being successful may not go down well in corporate America and, if he DID look at punishing Amazon somehow, investors would start to play a game of “who’s next” which could play unwelcome havoc with some company stock prices.

Zalando shares tumble 20% on second profit warning (Financial Times, Tobias Buck) heralds a calamitous day

for the German online fashion retailer as it announced that full-year sales and earnings would be lower than current forecasts. As is often the case with retailers, it blamed the weather on its poor performance citing the “long hot summer” as having a delaying effect on autumn/winter sales of higher-value items such as jackets and coats. * SO WHAT? * This news is rather disconcerting and no doubt investors will be wondering if the same pressures will affect competitors such as Asos, for instance. Zalando has 24.6m active customers in 17 markets and has been widely seen as a success story in the online retail space. However, its stock price has fallen by almost 30% since August – when it announced its first profit warning – so you do wonder how the company will get back on track. If it really is just the weather that’s behind this, then there should be some kind of rebound – but if there is something more fundamental going on it could have further to fall.

Ocado predicts growth surge after increase in retail sales (Daily Telegraph, LaToya Harding) shows that online grocery retailer Ocado is predicting a strong surge into the end of the year after solid sales in the latest quarter and the company’s CFO, Duncan Tatton-Brown, said that “We are investing in a number of areas, primarily in our new platforms” whilst also recruiting more engineers. * SO WHAT? * This is great news and shows that it’s not only the overseas business that’s doing well (although, let’s be honest, the overseas business is what investors are most interested in). As Laith Khalaf of Hargreaves Lansdown put it, “Ocado recently achieved promotion to the FTSE100 and its equity market value is now greater than the likes of Morrisons, Royal Mail and M&S. It still needs to turn overseas partnerships into profits, and details of its commercial relationships with US retailer Kroger are still being hammered out”.



In individual company news, Sky decides to include Netflix and two insurance giants consolidate…

Sky includes Netflix in TV deals in attempt to retain subscribers (Daily Telegraph, Christopher Williams) is a very interesting article (not least because I myself have recently attempted to ditch Sky for Netflix!) which shows that mass desertion has forced Sky to make nice with a major nemesis by including Netflix in its pay-tv packages for the first time ever from November. Although the £10 additional charge on an existing subscription is more than going direct to Netflix for £7.99 per month, the deal will include 350 extra boxsets from Sky that would normally cost an extra £5 per month and Netflix programming will be integrated into the Sky Q interface itself. * SO WHAT? * It just goes to show how powerful Netflix has become because, in the past, something like this would never have happened.

‘Fabulous’ bid means £100m for broker bosses (The Times, Harry Wilson) highlights US insurance giant Marsh & McLennan’s £4.3bn bid to acquire Jardine Lloyd Thomson – an all-cash bid at a fat 40% premium to JLT’s average share price before the announcement. M&M is a professional services behemoth employing 65,000 people generating revenues of over $14bn last year and said that buying up JLT would edge it closer to its aims of becoming the “pre-eminent global firm offering clients advice and solutions”. The bid apparently came out of the blue and a rival knock-out bid looks unlikely at this stage. Funnily enough, shares in JLT shot up by 30% yesterday and the deal is expected to be completed in the next six months. * SO WHAT? * There’s been a recent trend of consolidation in the insurance sector as regulations have continued to tighten around the world and competition has intensified. Earlier this year, for instance, French insurer Axa offered $15.3bn for XL group and AIG offered $5.6bn for reinsurer Validus. There are bound to be more deals to come.



…And finally, in other news…

I thought I’d bring you something exciting today – so here it is: This is officially Britain’s best lawn (and it took 273 hours to mow) (Metro, Jen Mills Oh yeah! Boom! You know where the party’s at – WATSON’S DAILY, BABY!!!

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

Some of today’s market, commodity & currency moves (as at 0801hrs 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
7,300(-0.03%)26,247 (+0.71%)2,904(+0.54%)7,95612,158 (+0.54%)5,364 (+0.28%)23,672 (+1.08%)2,733 (+1.22%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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