Wednesday 22/07/20

  1. In MACROECONOMIC & MARKETS NEWS, we take a look at how the European bailout plan will work, TfL looks at funding and markets rise on vaccine hopes and EU agreement
  2. In SOCIAL MEDIA NEWS, Facebook looks at racial bias, LinkedIn axes 6% of its staff, Snap’s revenues weaken (but ad sales are picking up) and TikTok could separate from its parent
  3. In HIGH STREET NEWS, Tesco wants to clean itself, Ted Baker celebrates online sales and high streets could go residential
  4. In INDIVIDUAL COMPANY NEWS, Tesla continues to accelerate, Coca-Cola loses its fizz and Robinhood cancels its UK launch
  5. AND FINALLY, I bring you some delivery bants…



So we have a closer look at the European bailout plan, TfL reviews its options and markets rise on hopes and relief over Europe…

EU recovery fund: how the plan will work (Financial Times, Jim Brunsden, Sam Fleming and Mehreen Khan) looks at the deal that was hammered out by EU leaders over the weekend. In short, the agreed deal is a watered-down version of what was originally proposed in May – the grants component of the recovery fund was reduced from the proposed €500bn to €390bn. It will now give Brussels massive power to borrow hundreds of billions on the markets and distribute it to member states. The proposal, called Next Generation EU, will involve the European Commission borrowing up to €750bn in the financial markets, of which €390bn will be distributed as grants with the rest being in loans. Member states need to come up with a recovery plan to get access to this funding, which will be distributed between 2021 and 2023. The allocation of recovery money  will be in proportion to the amount of economic harm done by the pandemic and there will be oversight of how the country is doing versus its plan. There are still more details to be agreed upon, but this is the bones of what will be happening. The Frugal Five have been unmasked but they’re not done yet (Daily Telegraph, Ambrose Evans-Pritchard) has a more cynical spin on what has been achieved saying that some of the money would have been spent anyway and that the extra is spread thinly over a number of years. This article argues, however, that the biggest thing the recent agreement has achieved is not the amount of money in the bailout – it’s all about the increasing power of Europe, which has now been given the green light to raise tons of money and the wherewithal to distribute it all as it sees fit (not bad for an entity that is unelected!). Overall, though, I think that a European crisis has been averted but whether it will all hang together will depend on further detail and success of the plan’s implementation.

TfL launches review into funding of transport in UK capital (Financial Times, Bethan Staton) highlights the launch of an independent review – in addition to the government’s own review – of its long term financing options as lockdown has decimated its business. The government is doing its own review as a condition of the £1.6bn rescue package it doled out in May, so I suspect Sadiq Khan is doing his own review to limit any cuts that the government review may recommend. The current funding model depends on fare revenues – clearly a massive weakness when the pandemic hit. The government, as part of the conditions of the rescue package, has told TfL to reduce concessionary fares and put a number of central government people onto TfL’s board. Unions warn of a danger that the government is using the crisis to privatise the Tube network. * SO WHAT? * This is clearly a messy situation that needs resolving quickly considering that lockdown cut passenger income by 90% and that TfL continued to spend £600m a month. The government got its people into the board of TfL ostensibly to represent the taxpayer, but I have no doubt that they will be using this opportunity to clip Sadiq Khan’s wings. This needs resolving sooner rather than later as more people will be starting to commute to work over the coming months.

Then in World markets surge on promising Covid-19 vaccine and EU deal (The Guardian, Rob Davies) we see that investors powered markets around the world higher on relief that the EU wasn’t going to implode and on positive developments in vaccine trials. * SO WHAT? * As I have said on numerous previous occasions, markets are likely to rise and fall on sentiment news like this, leading to more volatility – which in turn should translate into healthy trading revenues at investment banks as investors continue to try to second-guess the peaks and troughs. Having said that, I would expect volatility to be less extreme in the next few months versus what happened at the beginning of the outbreak given that economies are continuing to edge towards some kind of normality.



Facebook studies, LinkedIn cuts, Snap’s revenues slow and TikTok ponders its future…

Facebook creates teams to study racial bias, after previously limiting such efforts (Wall Street Journal, Deepa Seetharaman and Jeff Horwitz) shows that Facebook is putting more effort into studying and addressing racial bias on its core platform as well as on Instagram. The new “equity and inclusion team” will look at how Black, Hispanic and other minority users in the US are affected by its algorithms versus white users. In the past, internal analysis revealed that black users were 50% more likely to have their accounts disabled under new guidelines. * SO WHAT? * I guess this is all part of a general move to make Facebook more responsible but of course, they’ve only just started doing something to address previous criticisms. It’s good PR, but too early to tell whether it will have any effect at this early stage.

LinkedIn to lay off about 6% of its workforce (Wall Street Journal, Martin Mou and Ben Otto) says that the Microsoft-owned professional networking site is to cut about 960 jobs due to the falling demand for its recruitment services. * SO WHAT? * The irony of a platform that wants to render recruiters obsolete by cutting them out of the loop is that it makes most of its money through ads and fees paid by recruiters. If fewer employers are

employing and fewer recruiters are placing ads and subscribing to expensive search functionality such as “Recruiter”, then it is unsurprising that the axe is falling. I guess that the company will just have to hunker down for the moment.

Snap revenue slows but sees advertisers ramping up (Wall Street Journal, Georgia Wells) highlights a mixed bag of news for Snap. On the one hand, it reported slower revenue growth for the second quarter but on the other hand it said that advertisers had started to spend more in recent weeks. * SO WHAT? * Snap’s observations on advertisers may be taken as a sign that the same is true elsewhere. Given advertising’s increasing importance to the company, an uptick will definitely be welcome! The company added that its daily user base increased by 4% from the previous quarter – also good news.

Embattled TikTok could be sold to US investors (Daily Telegraph, Laurence Dodds) shows that TikTok might be split off from its Chinese parent ByteDance and sold to US investors in order to swerve a potentially massive regulatory crackdown. Talks are said to be at an early stage, but clearly drastic action could be needed to avoid the US following India in banning TikTok. * SO WHAT? * Major action could well be needed as Trump and his gang are currently discussing whether or not to ban TikTok due to data security concerns and its links to China. This isn’t going to be easy as a completely new structure will be needed – and buying TikTok will not be cheap given its burgeoning popularity. This is definitely a story worth following!



Tesco ditches cleaners, Ted Baker does well online and high streets may get more residential…

Tesco staff in nearly 2,000 stores to clean shops after contractors axed (The Guardian, Zoe Wood) shows that the supermarket is cutting the number of contract cleaners in its 1,920 Tesco Metro stores starting from August 24th. Existing staff will be taking on new tasks like cleaning floors, windows, shelving, fridges, their own break rooms and toilets. Tesco will train staff to carry out these new tasks but it will continue to used contract cleaners for things like cleaning external signage, pressure washing etc. * SO WHAT? * Tricky times, but I guess that it will save more Tesco jobs from being axed – at least for the time being.

Shift from formal dress doesn’t suit ailing Ted Baker (Daily Telegraph, Laura Onita) shows that Ted Baker’s revenues have dropped since lockdown as it has found, like Asos, that people just aren’t buying smart clothing. On the other

hand, online sales strengthened by 35% although this was mostly due to discounts. * SO WHAT? * Although the company is clearly in turmoil at the moment, Ted Baker: worth a rummage (Financial Times, Lex) argues that it is making improvements in things like stock management as part of its overall turnaround plan and that there is potential upside to come.

UK high streets could be turned into housing, says thinktank (The Guardian, Phillip Inman) highlights a report by think tank Social Market Foundation, which recommends that the government should trying to create residential hubs in town centres rather than put their efforts into encouraging new types of shops. It argued that more home-working and online shopping will inherently lead to lower footfall that will mean ongoing difficulties for retailers. * SO WHAT? * I think that town and city centres will need to be more open to change as some of the behaviours that we have already seen building up over the years have been accelerated by the pandemic. Discussions are ongoing but surely every option should be on the table!



Tesla accelerates, Coca-Cola goes flat and Robinhood sheaths its bow…

In other interesting news today, Elon Musk aims Tesla at fourth straight profitable quarter (Wall Street Journal, Tim Higgins) shows that the electric car company continues to surprise on the upside as it turns out that the nightmare second quarter that everyone was predicting because of lockdown turned out to be smaller than expected when the company announced delivery figures recently! Everyone is waiting in anticipation of another positive announcement in today’s results – that it will report a profit for the quarter! * SO WHAT? * If it DID manage to report a profit, it would mark the first time of doing so for four consecutive quarters – and this would qualify it for inclusion in the S&P 500. This would pump up its share price even more because index funds would then be forced to buy it. This is getting interesting!

Elsewhere, Coca-Cola sales fall 28%, but it says the worst is over (Wall Street Journal, Jennifer Maloney) highlights the suffering of the fizzy-drinks producer as about 50% of its revenues come from pubs, restaurants, bars, cinemas etc. – and they have all been shut down. However, sales have started to recover as lockdown has been lifting.

Then in Robinhood shoots down British plan (The Times, Ben Martin) we see that the American trading app that got wildly popular recently announced yesterday that they would postpone a push into the UK indefinitely in order to focus on its domestic business. The app had been due to launch this year and the waiting list to join had reach 250,000! * SO WHAT? * Basically, the arrival of Robinhood scared the bejeezus out of other more established online brokers and trading platforms because it doesn’t charge commissions! It makes money instead by selling customer orders to high-frequency market traders, getting paid for margin loans and investing unused money lying around in customer accounts to invest. Interesting stuff! Shares in Hargreaves Lansdown and AJ Bell, who would have potentially suffered from Robinhood’s arrival rose in relief yesterday.



…in other news…

I thought I’d leave you today with a bit of amusing banter between a delivery driver and his customer in Delivery driver leaves man in tears with note on where to find ‘hidden’ parcel (The Mirror, Luke Matthews). Good work 👍

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Some of today’s market, commodity & currency moves (as at 0750hrs 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 **
6,270 (+0.13%)26,840 (+0.60%)3,257 (+0.17%)10,680 (-0.81%)13,047 (+0.99%)5,104 (+0.22%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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