Wednesday 20/03/19

  1. In MACRO NEWS, US-China trade talks take another step and UK unemployment reaches record lows
  2. In RETAIL NEWS, ASOS has US troubles, Ocado says its fire was a one-off, Superdry’s Dunkerton gets a knock-back and Office Outlet (used to be Staples) goes into administration
  3. In SOCIAL MEDIA NEWS, Google outlines a move into gaming and Instagram tries shopping
  4. In INDIVIDUAL COMPANY NEWS, the FDA approves a new postpartum depression drug and Boeing publishes an open letter
  5. In OTHER NEWS, I bring you a VERY hot chilli sauce. For more details, read on…

1

MACRO NEWS

So US-China trade talks are set for next week and UK unemployment hit record lows…

High-level US-China trade talks to resume in final push for deal (Wall Street Journal, Bob Davis) signals another round in high level talks as US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are to fly to Beijing next week to meet with Chinese Vice Premier Liu He. Some observers are saying that this is an indication that talks are getting to their final stages – executive VP of the US Chamber of Commerce even went as far as saying that the US and China would be able to close a trade deal by the end of April. A deal is expected to encompass increases in exports to China, more substantial intellectual property protection, a cessation of pressure on US companies to transfer tech know-how to their Chinese partners and a reduction in subsidies to Chinese firms. The major stumbling block of how to enforce these new measures still remains, however. * SO WHAT? * It ain’t over till it’s over and I think we’ve all learned that you can never make assumptions as far as the freewheeling President Trump is concerned. A quick look at the markets would

suggest that this is being treated with a collective shrug of the shoulders – if everyone really thought that an agreement was imminent I would expect markets to roof it, but they haven’t.

UK unemployment rate falls to lowest since 1975 (Financial Times, Gavin Jackson) highlights Britain’s tight labour market as the latest data from the Office for National Statistics shows that the employment rate is now down at 3.9% – the lowest level since 1975 – and the pace of hiring in the three months to the end of January was its fastest since November 2015. Total pay growth slowed down to an annual rate of 3.4% versus analyst expectations of 3.2%. This data is at odds with recent releases from the likes of IHS Markit, whose Purchasing Managers’ Index suggested that companies were slowing down their hiring plans. * SO WHAT? * I must say that I find it surprising, to say the least, to see such figures and can only assume that there must be some kind of lag in the labour market versus the sentiment being shown in surveys. On an anecdotal basis, some headhunters I’ve been in conversation with recently (I used to be in that market and have chats from time to time about how business is going) have said that companies have actually been INCREASING their hiring plans – although you never know with headhunters as they tend to paint a rosy picture sometimes ;0)

2

RETAIL NEWS

ASOS has US troubles, Ocado’s fire was a blip, Superdry’s Dunkerton suffers a blow and Office Outlet goes into administration…

In a quick scoot around retail news today, Asos struggled to cope with surge in US demand (Financial Times, Adam Samson) shows that its US warehouse couldn’t cope with higher-than-expected demand in the most recent quarter and that it is also facing challenges in Germany and France as consumer confidence shows signs of waning in both economies. Overall, Asos said it retail sales increased by 13% over the quarter (or 11% if you strip out the impact of a weak pound), which fell short of the 15% that the market was expecting and its share price fell by 7% on the news. * SO WHAT? * 13% (or 11%) retail sales growth doesn’t sound that bad for a retailer given current circumstances but Asos is supposed to be a swashbuckling online retailer targeting millennials and expectations are high. Still, a 7% fall is relatively mild compared to the 37% drop it suffered after announcing a “significant deterioration” in its trading in December. Many retail observers are interested in the fortunes of the likes of Asos and Zalando given that they are pure e-tailing plays and are a yardstick against which any fashion retailer with online aspirations are measured.

You may recall the fire that Ocado had last month at its Andover warehouse, which spooked investors because of the possibility that its robot tech may have been faulty. Well Warehouse fire was a blip, Ocado reassures City (Daily Telegraph, Ashley Armstrong) is the predictable conclusion that the company has reached so far in its investigations. The £45m facility was completely destroyed in the blaze and the company ramped up capacity at its newest warehouse in Erith to take up the slack. * SO WHAT? * The company did a good job of calming investors as the stock was up by 5.4% on this news as investors continue to believe in the fast-growing tech side of the business. If its tech had been the cause of the problem in Andover, that

would have sent shockwaves around the world for their existing partners (e.g. Kroger, Casino and Sobeys) and given any future potential partners room for doubt. The company will hope that nothing else negative will emerge from this story as it could cause serious problems.

Cold water poured on Dunkerton’s Superdry bid (The Times, Deirdre Hipwell) gives us the latest regarding Superdry co-founder Julian Dunkerton’s bid to “save” his company as Institutional Shareholder Services, the world’s biggest proxy voting agency (a company that represents  shareholders who can’t be *rsed to vote themselves on important decisions ????), has poured cold water on his bid to return to the board. It said that “Given that the current issues at the company seem to have at least partially arisen as a result of combined decision-making by Julian Dunkerton and management, shareholders’ support for these proposals is not considered warranted at this time”. * SO WHAT? * I’m only half-joking about what proxy voting agencies do – because officially, this particular agency is used by 1,600 institutional investors who want impartial advice (some cynics might say that this is just passing the buck so if things go wrong as a result of the vote, investors have got someone to blame). Anyway, it will represent a chunky number of investors and its opinion won’t make Dunkerton’s bid any easier. Another shareholder advisory group called Pirc is also thought to be advising against Dunkerton’s return. It just means that he’ll have to convince more shareholders to support him. His reinstatement will go to a vote on April 2nd.

And then there’s Office Outlet is latest retailer to go into administration (The Guardian, Zoe Wood) which shows the stationary-chain-formerly-known-as-Staples (it was owned by Staples Inc, but was sold off to Hilco and rebranded at the end of 2016) has collapsed. It has 90 stores and will put 1,200 jobs at risk. This comes less than a year after it entered into a Company Voluntary Arrangement (CVA) to sell stores and cut its rent bill. An administrator said that it had suffered from falling stationary sales and the broader weakness of the high street. The administrator is currently looking for a buyer.

3

SOCIAL MEDIA NEWS

Google goes gaming and Insta goes shopping…

Battle begins as Google enters the $140bn gaming market (Daily Telegraph, Tom Hoggins and Laurance Dodds) highlights Google’s new foray into the gaming market as it outlined its future intentions at the Game Developers Conference (GDC) in San Francisco via its cloud streaming initiative, Google Stadia. Google says that it will allow anyone anywhere to stream better-than-console-quality games on any device without having to download or buy physical copies. Stadia will stream games to Chrome browsers, Pixel devices and TVs with Google’s Chromecast dongle using Google’s data centres. * SO WHAT? * This sounds brilliant and could well be the future of gaming BUT it’s unclear yet how Google will monetise it and I suspect that the success will depend hugely on the games line-up AND internet speeds around the world. In the meantime, Microsoft and Sony confirmed that they will be

releasing next-generation consoles. Everyone – including Apple, Amazon and China’s Tencent – is racing to be the “Netflix of gaming”, but I suspect that this will take quite some time before it actually comes to fruition. Interesting, though!

Instagram tests online market with checkout app facility (Daily Telegraph, Olivia Field) heralds a new development for Facebook-owned Instagram as it has signed up major fashion brands including H&M and Burberry to test a feature (called “Checkout on Instagram”) that enables users to buy goods within the Instagram app, with Facebook taking a cut of the sales. So far, 23 US fashion retailers have signed up and there are plans for expansion. In essence, when users see and Instagram post containing a product, they can tap on it and be sent to a shopping page to select more options like colour and size. They can then enter payment details and confirm an order without leaving Instagram. * SO WHAT? * I think this is a brilliant idea and will create yet another chunky revenue stream for Facebook in addition to ads. No doubt others will try to copy this as well. One for Snap and Pinterest, maybe?

4

INDIVIDUAL COMPANY NEWS

The FDA approves a new postpartum depression drug and Boeing makes some admissions…

In Sage Therapeutics’ drug for postpartum depression gets FDA approval nod (Wall Street Journal, Peter Loftus) we see that the FDA yesterday approved Zulresso, the first medication specifically targeting women with postpartum depression, a condition that affects some women after childbirth, causing sadness and loss of interest in activities. Until now, doctors have prescribed general antidepressants such as Zoloft (aka brexanolone), but they can take a few weeks to have any effect and don’t work on everyone. * SO WHAT? * While this is a definite step forward, the cost is very high (about $34,000 on average per patient for the full course) and it has to be administered as a 60-hour intravenous infusion at a hospital or clinic. This will obviously limit its appeal to only the most severe cases. It is notable, however, that this comes soon after another antidepressant drug, Johnson & Johnson’s

Spravato, was approved earlier this month after NO approvals for new antidepressants for a number of decades.

Boeing’s chief executive breaks silence on double crash (Daily Telegraph, Alan Tovey) gives us the latest from Boeing following the Ethiopian air crash. Chief Dennis Muilenburg issued a video message and open letter to “airlines, passengers and the aviation community” to provide some reassurance after two crashes in the space of five months involving its 737 Max planes. Investigators in the Ethiopian Airlines crash say that there are “clear similarities” between the crashes which may suggest problem with systems. Muilenburg said that a software update would be released soon and there will be pilot training that “will address concerns in the aftermath of the Lion Air accident”, with some saying this will be within the next two weeks. * SO WHAT? * Clearly this is a very sensitive time and we’re not at the end of investigations just yet. Boeing is obviously trying to mitigate the negatives here, but it will no doubt be facing huge compensation claims from airlines who have been forced to ground the planes. Some say that these claims could be as much as $5bn.

5

OTHER NEWS

And finally, in other news…

Do you relish a challenge? Like some oomph in your sauce? Well how about trying this: Venomous hot chilli sauce which mimics spider bite will give you muscle spasms (The Mirror, Zahra Mulroy https://tinyurl.com/yxlrjbel). My eyes are watering just thinking about it…

Some of today’s market, commodity & currency moves (as at 0825hrs 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 **
7,324 (+0.34%)25,887 (-0.10%)2,833 (-0.01%)7,72411,788 (+1.13%)5,426 (+0.24%)21,609 (+0.20%)3,059 (-1.03%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$58.9965$67.48811,303.751.322271.13451111.571.16553,990.20

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