Wednesday 20/02/19

  1. In MACROECONOMIC NEWS, Trump makes positive noises on China trade talks, Germany’s trade surplus increases chances of retaliation, Germany sides with France against the EU and the UK labour market remains tight
  2. In RETAIL/HIGH STREET NEWS, Walmart triumphs, Asda sales slow, Iceland freezes and Greggs is on a roll
  4. In OTHER NEWS, I bring you an interesting service business. For more details, read on…



So Trump softens on China, Germany’s trade surplus puts it in the crosshairs, Germany and France align over EU competition and the UK labour market stays tight…

Trump eases off hard deadline for China tariffs (Wall Street Journal, Bob Davis and Alex Leary) will no doubt get people excited because Trump said to reporters yesterday that the self-imposed deadline to conclude talks with China on tariffs by March 1st was “not a magical date”, implying that there could be a delay in bringing those tariffs in. * SO WHAT? * This could mean that the deadline will actually be pushed forward to an expected Trump-Xi meeting to take place within the next few weeks. If nothing is achieved, Trump has threatened to raise taxes on $200bn-worth of Chinese goods from 10% to 25%. No doubt all the US negotiators so far will be frustrated by Trump’s latest remarks as they have been banging on about having a hard and non-negotiable deadline all along, but he seems to like using this tactic of undermining his underlings in an attempt to show them that he’s the daddy.

German surplus stokes talk of trade war (The Times, Oliver Moody) highlights Germany’s massive (over €100bn) trade surplus – the world’s largest and bigger than the second and third biggest surpluses from Japan and Russia combined – which could hand Trump a very easy excuse to launch a trade war with Europe as he’s currently considering putting a 25% tax on car imports. Mind you, Timo Wollmershauser, senior economist at the Institute for Economic Research in Munich observed that “the EU has exported more goods to the US than vice versa for many years and Germany is responsible for a lot of that, but the US sells far more services to the EU than the other way around and achieves big profit transfers from foreign investment in America. If you put all this together, the trade balance between the US and EU points to a small surplus in favour of the Americans”. * SO WHAT? * I suspect that Trump will use the stat that aligns most closely to his

agenda and so he may well just concentrate on the trade surplus and play to his supporters’ gallery. We’ll see soon enough.

In Germany backs French call for right to overturn EU merger decisions (Financial Times, Guy Chazan) we see that Germany has put its support behind France’s calls for an overhaul of EU competition law that would give member states the right to overturn merger decisions made by the European Commission. This has all come about because of the recent failure of the Seimens-Alstom rail merger that would, they argue, have produced a European champion. German economy minister Peter Altmaier presented a five-page manifesto that he said was designed to make sure that “Europe remains a successful player in global markets in the future”. * SO WHAT? * It’s ironic that the two biggest economies in the European Union – who generally go on about putting on a united front – are actually arguing for individual member states to be able to override Brussels. The fear is that if “European champions” are not allowed to emerge, European industry could be crushed by China. I suspect that this will rumble on for quite some time.

Employers squeezed as job vacancies grow to record levels (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics (ONS) which show that the number of vacancies in the British jobs market have risen to their highest level since records began in 2001. Stats showed that pressures were particularly acute in hotels, food services, IT and communications and health and social care and Samuel Tombs, chief UK economist at Pantheon Economics, concluded that “With surplus labour extremely scarce and job vacancies rising to a new record high, workers are having more success in obtaining above-inflation pay increases”. * SO WHAT? * This is good news for workers, but despite the super-tight labour market, pay growth is still way off the 6.6% recorded in February 2007, just before the financial crisis. Under “normal” conditions, this would imply that wage growth will continue to climb, but I would have thought that Brexit will hold back at least some of the potential upside for time being.



Walmart posts strong sales, Asda and Iceland not so much while Greggs is on a (vegan) roll…

Walmart posts strong holiday sales gains in US (Wall Street Journal, Sarah Nassauer) heralds a strong performance from the world’s biggest retailer as it announced better-than-expected grocery sales, online orders and holiday purchases, including toys. The retailer reiterated its forecasts for fiscal 2020. * SO WHAT? * US retailers had a solid 2018 overall due to a strong US economy, high employment and rising wages but recent government data showed December sales falling at their sharpest rate since September 2009, causing some investors to conclude that the boom times might be over. Recent results from retailers have been a mixed bag with Target and Costco saying that they’d had the best holiday sales for years, but others including Macy’s and Kohl’s reported sluggish growth. Walmart has clearly benefited from its exposure to groceries, but big investments in its overseas operations – like Flipkart in India – will no doubt hit margins.

On the other hand, Asda sales slow ahead of verdict on merger with Sainsbury’s (Daily Telegraph, Ashley Armstrong) paints a rather more downbeat picture of the

Walmart-owned supermarket that is currently trying to merge with Sainsbury’s. Although it managed to put in a seventh consecutive quarter of sales growth, it is slowing down versus the previous quarter. * SO WHAT? * Although I’m sure that there’s nothing funny going on in the background, it probably serves Asda well to paint itself in a “poor me” light in order to persuade the Competition and Markets Authority (CMA) to look favourably on the merger with Sainsbury’s. The deal will hinge on the CMA deciding that the success of Aldi and Lidl has changed the grocery landscape sufficiently and whether the enlarged company will be able to make the requisite number of store disposals as part of any deal.

Constrasting fortunes continue to be evident on the UK high street in Iceland was out in the cold over Christmas (The Times, Miles Costello) which shows that frozen food retailer Iceland had a disappointing festive period for trading according to a report released to bondholders, suffering from tough competition and weak consumer confidence, but then Greggs enjoys profits boost due to vegan sausage roll (Daily Telegraph, Sophie Christie) heralded an “exceptionally strong start to 2019” putting annual profits on course to beat expectations. Shares in Greggs climbed by 11% on the news and the company put some of its success down to the “extensive publicity” it garnered from the launch of its vegan-friendly “sausage” roll at the beginning of the year. Greggs is scheduled to announce full-year results on March 7th.



HSBC announces tricky results…

Market turmoil damages HSBC profits (The Times, Ben Martin) highlights the fragile nature of its profits as it suffered badly from the turmoil in markets in the final quarter of last year. It has had a good start to 2019 but is hunkering down ahead of Brexit. * SO WHAT? * HSBC is Europe’s biggest bank but is currently getting hit from all 

sides due to political tensions in its main markets – especially the US-China trade war and Brexit. The new chief exec, John Flint, said that customers were getting much more cautious and added that the bank was likely to slow its pace of investment over the next few years.



And finally, in other news…

I thought I’d leave you today with a rather unusual service that you never knew you needed in This store in Tokyo will pull out your grey hairs for you, leave you looking years younger (SoraNews24, Krista Rogers Who needs plastic surgery when you can pay someone to pluck 30-70 hairs in ten minutes?!?

Some of today’s market, commodity & currency moves (as at 0705hrs 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 **
7,179 (-0.56%)25,891 (+0.03%)2,780 (+0.15%)7,48711,309 (+0.09%)5,161 (-0.16%)21,423 (+0.60%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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