Wednesday 19/12/18

1. In MARKETS AND OIL NEWS, we look at why markets are falling and whether we’re heading for global recession plus the reasons behind oil price weakness despite OPEC cutting production
2. In RETAIL NEWS, John Lewis and Angling Direct report strong numbers
3. In INDIVIDUAL COMPANY NEWS, Japan’s SoftBank shares disappoint on its market debut and Apple continues to face problems in India
4. In OTHER NEWS, I bring you THE best family Christmas cards ever! For more details, read on…

So US markets recover, the FTSE hits a two-year low and oil prices fall despite production cuts. WHY??

In US stocks close higher as oil prices slide (Wall Street Journal, David Hodari and Corrie Driebusch) we see that US markets staged a late rally yesterday after generally sluggish trading due to energy company share prices being hit by weaker oil prices. Volumes were lower as investors steel themselves for the Federal Reserve’s policy decision due today. Despite yesterday’s small rise, both the Dow Industrials and the S&P are down by over 7.5% in December. If things continue like this, it will be the indexes’ worst month since the world was in the midst of the European debt crisis in May 2010.

FTSE falls to two-year low over US interest rate fears (Daily Telegraph, Tom Rees) reflects investor nervousness on this side of the pond regarding the Federal Reserve’s meeting today as Trump attempted to put pressure on it not to raise interest rates against a backdrop of global growth concerns. The FTSE 100 fell to a 13-month low and European stock markets fell for the fourth day in a row. * SO WHAT? * Investors are nervous about the Fed raising rates because it would increase the cost of borrowing at a time when world growth looks like stalling.

Why are markets falling, and are we heading for global recession? (The Guardian, Richard Partington) does a good job of explaining why everyone is getting rather antsy

about markets at the moment. Basically, the US Federal Reserve (aka “the Fed”) looks like it’s going to raise interest rates for the fourth time this year, which raises borrowing costs. The fear is that further interest rate hikes could hold growth back because companies and individuals will be reluctant to invest if it costs more – and if you couple that with concerns surrounding the ongoing US-China trade war, you’ve got a recipe for nervy markets. * SO WHAT? * Despite Trump attempting to stick his oar in by trying to dissuade the Fed from raising rates in the way that everyone is expecting, it looks unlikely that his protests will work. The Fed has been dropping very big hints in the last few months that it will raise interest rates by 0.25% from the current level of 2%-2.25%, but it is possible that soothing words from the Fed about NEXT year’s rate hike schedule (i.e. that it will be slower than expected) could go some way towards mitigating outright panic.

Price of oil hit by booming shale (The Times) looks at why the oil price is getting weaker despite OPEC recently deciding to cut production by 1.2m barrels per day – and it’s mostly down to booming shale oil production in the US. The Brent crude price has fallen by a third since it reached its highest level for four years in October and forecasts from the US Energy Information Administration show that production is going to continue to increase. Interestingly, the Russian oil industry is also booming with crude output reaching record levels. * SO WHAT? * At the moment, it’s looking like the OPEC cuts won’t be enough to offset a potential oil glut going into next year.

So John Lewis and the mighty Angling Direct provide some much-needed Christmas cheer in the retail sector…

John Lewis bucks trend with good week for fashion and beauty sales (The Guardian, Sarah Butler) heralds some rare good news in an otherwise tricky sector as it reported a sales rebound last week as discounts managed to tempt shoppers into parting with cash. John Lewis’ beauty, wellbeing and leisure sales were up by 16%, womenswear was up by 8.5% and menswear by 7.2% although sales of electrical goods were down by 4.3% and homeware sales fell by 1.7%. * SO WHAT? * It really does seem to be a mixed bag at the moment from the high street stalwart. It just goes to show that there is still all to play for this Christmas!

And the good news doesn’t just end there – you’ll no doubt be glad to see Gone fishing: Angling Direct sales rise 32% after a record Black Friday (Financial Times, Camilla Hodgson) as the UK’s largest specialist fishing tackle and equipment retailer posted excellent numbers, which sent the shares up by 5% in early trading. It’s not clear how much of this was due to discounting, but investors seemed to applaud the trading update anyway. The company continues to invest in its international business in France and Benelux markets. * SO WHAT? * Sorry to sound so cynical, but I think things really are dire when you’ve got broadsheets trumpeting the triumphs of such a niche retailer! It just goes to show how bad things are elsewhere in the sector that any good news is immediately pounced upon!

SoftBank has a disappointing float and Apple continues to face problems in India…

SoftBank telecom unit shares open below IPO price – then drop 8% (Wall Street Journal, Suryatapa Bhattacharya and Mayumi Negishi) highlights a disappointing first day of trading on the Tokyo Stock Exchange for SoftBank’s mobile phone unit as it fell by up to 8.1% from its issue price due to investors showing concern about an imminent price war between its major rivals. SoftBank’s mobile carrier unit is the third biggest in Japan but is way behind its bigger rivals – NTT DoCoMo and KDDI – who account for 75% of the market. The problem is that these guys are looking to cut prices by up to 40% next year – not to mention the fact that e-commerce company Rakuten is also preparing to enter the market with low-cost services. * SO WHAT? * This is clearly a bit of a pain for parent SoftBank Group as the mobile unit has proved to be a useful cash cow, but it seems that its attention is being drawn increasingly to amassing big stakes in some of the world’s most exciting tech start-ups via its famous Vision Fund.

I’ve mentioned this before, but ‘It’s been a rout’: Apple’s iPhones fall flat in world’s largest untapped market (Wall Street Journal, Newley Purnell and Tripp Mickle) shows that Apple is continuing to have problems in what is thought to be the world’s biggest untapped market as its handsets are just too darn expensive – there are 1.3 billion consumers in the country, only 24% of Indians own smartphones and the number of users is growing faster than in any other country, according to research firm eMarketer. The number of iPhones shipped to India has dropped by 40% so far this year versus 2017 and Apple’s market share has halved from about 2% to 1% as it continues to cling to its existing business model of selling a limited number of handset models at high prices with fat margins. Rivals, in the meantime, have adapted their India offering by doing things like increasing battery life and offering less expensive models, for instance. * SO WHAT? * When all’s said and done, Apple needs to make a conscious effort to up its game in India if it wants to get a proper slice of the action. It set up a plant last year near Bangalore to assemble its cheapest model, the SE, but I think that it also needs to rejig its supply chain to use more Indian suppliers to make a real difference and avoid attracting import taxes. Given the unpredictable nightmare that China is proving to be, I would have thought that Apple should make a special effort here. At the end of the day, why not throw more resource at India, increase production and perhaps take up some of the assembly/production capacity from China and supply the world. It would keep the Chinese on their toes, broaden the supply chain, help lower costs in India but also make Apple’s margin even fatter by supplying the world with phones assembled in India as well as China.

And finally, in other news…

When I saw this, I just thought I HAD to bring it to your attention: People can’t get enough of this family’s hilarious “real life” Christmas cards (bestlifeonline.com, Diana Bruk https://tinyurl.com/y9ktmssp). This is hilarious!