Wednesday 24/07/19

1. In POLITICAL NEWS & TRADING IDEAS, Spain’s PM Sanchez faces a tricky time and we look at industries who might benefit from BoJo as PM and the hot weather
2. In SOCIAL MEDIA NEWS, Facebook takes its medicine and Snap posts strong user growth
3. In FINANCIALS NEWS, the Bundesbank acknowledges positives of Libra while UBS and Santander disappoint
4. In CAR NEWS, China’s BAIC buys a 5% slice of Daimler and Tesla suffers
5. In OTHER NEWS, I bring you some coffee sneakers…

So the pressure ratchets up on Spain’s PM Sanchez and we look at which industries could benefit from BoJo and the current heatwave…

Spanish parliament votes against Pedro Sanchez as PM (Financial Times, Ian Mount) highlights the tricky situation in Spanish politics at the moment because although Sanchez won the election in April, his party only has 123 of the 350 seats in parliament. He’s been unable to form a coalition and if he doesn’t win tomorrow’s vote, the country may have to run another election in November. He lost his latest bid to form a government failed in yesterday’s vote and success in tomorrow’s may well depend on his centre-left PSOE party coming to some agreement with the radical left Podemos party. * SO WHAT? * Given Europe’s relative instability at the moment, what with German weakness, Italian unpredictability and Brexit, Spain’s situation will be problematic – especially as its recent economic performance has actually been pretty good. The drama continues…

So Boris Johnson achieved his goal of becoming PM amid much uproar yesterday. You’ll no doubt see loads of anti-BoJo press (his antics are a gift to journos), but I thought that UK equities: the Boris Johnson trade (Financial Times, Lex) has an interesting alternative spin on the situation as it looks at which industries might be affected by his leadership. IF he manages to surprise everyone and extract the UK out of Europe relatively painlessly, the pound would strengthen. If that happens, housebuilders could benefit as sentiment on home ownership would improve (Crest Nicholson, for instance, has been heavily sold by short-sellers, so the potential upside in a market uptick would be that much greater), retailers might benefit from a renewed sense of empowerment meaning that the likes of M&S and Morrisons could be among those to prosper

(especially because big short positions have been built up against them) and banks that have decent exposure to high street businesses – like Lloyds Bank and RBS – should also benefit. IF BoJo managed to deliver a reasonable Brexit, this would reduce the likelihood of a Labour government – which would be beneficial to utilities companies (who would get an absolute panning under Labour). Well he’s got 100 days (or thereabouts) to get things sorted re Brexit!

While we’re on the subject of possible trades, It’s a glorious summer, but we can’t all stand the heat (Daily Telegraph, Tim Wallace and Mason Boycott-Owen) takes a look at who benefits and who suffers when temperatures start to rise. Zelica Carr, chief exec of the Ice Cream Alliance (yes, that is a thing), pointed out that “If last year is anything to go by, [ice cream parlours] will see a doubling of sales on heatwave days. There are up to 5,000 ice cream vans plying their trade and they can do up to 10 times as much business in the middle of a heatwave”. Pubs are estimated to sell an extra 1m pints per day in a heatwave and the British tourism industry benefits as well (which will also benefit from the whole weaker pound and Brexit uncertainty malarkey). Construction can also benefit as they are able to finish more jobs and the energy industry also sees upside as demand for power for air conditioning shoots up. Or, to put it more exactly, Dr Iain Staffell of Imperial College London explained that “While the UK is not synonymous with air conditioners, demand rises by 350MW for each degree that the temperature rises above 20C”. On the downside, “indoor trades” tend to have a tough time. A spokesperson from William Hill, the bookmaker, said that “We imagine people will remain indoors or in their gardens over the next couple of days” and some retailers may suffer. Usually, retailers complain about sales being affected by poor weather – but Anne Alexandre from the British Retail Consortium pointed out that “Unfortunately, the fashion industry may not benefit, as most summer ranges are already approaching end-of-season clearance sales to make room for autumn”.

Facebook takes its medicine and Snap grows its user base…

Facebook expected to settle SEC claims of inadequate disclosures over privacy practices (Wall Street Journal, Emily Glazer) heralds the imposition of a chunky fine (north of $100m) by the Securities and Exchange Commission on Facebook for failing in its privacy practices regarding Cambridge Analytica’s use of its data. The official announcement is expected to be made today. Facebook settlement requires Mark Zuckerberg to certify privacy protections (Wall Street Journal, Ryan Tracy and John D McKinnon) looks at a settlement with the Federal Trade Commission (FTC) where Zuckerberg himself will have to certify that Facebook is taking steps to protect consumer privacy every quarter. If he doesn’t, there will be punishments (although I don’t know what they will be. Fines, perhaps?). A settlement with the FTC, which is also to be announced today, will include a $5bn fine for Facebook plus the imposition of various conditions regarding how Facebook treats the privacy of its users. Facebook, for its part, does not have to admit or deny breach of privacy allegations as part of the deal. * SO WHAT? * This is a bit of a slap on the wrist for Facebook – they don’t have to admit to much and they get away with a few words and a big fine (although it’s not exactly crippling for them!). Making Zuckerberg personally responsible for data privacy is a good thing – it’ll hopefully keep him on his toes. However, this is hardly going to change things IMHO.

The Facebook machine will continue to roll on – unless the current investigations into Big Tech deem a break-up to be necessary! From an investment point of view, this takes away some uncertainty that has been hanging over the company – so I think that we could potentially see some outperformance from here, especially if Facebook makes a big song and dance about new data protections etc. to pander to the sceptics.

Snap posts record user growth (Wall Street Journal, Georgia Wells) highlights a strong performance from the company as it posted its best user growth figures so far since its listing as Snapchat app improvements and a management overhaul took effect. The company’s daily user base increased by 7% – way above market consensus forecasts – and second quarter revenues increased by 48% – so its share price had a 11% upward bump in after-hours trading. The company has yet to report a profit, but company founder and CEO Evan Spiegel said that there is an outside chance that it will be in the black by the end of this year. * SO WHAT? * This is a real achievement for the company – and marks a major turnaround since last year when its new updates were roundly panned. The company has introduced new augmented reality features and is moving into gaming – all of which is good news. Yes, it is still burning cash – but it is inching ever-closer to profitability, which is great. I still think that Snapchat is a one-trick pony – but at least it is trying new areas. The only thing is, I wonder whether Facebook will do what it always does and copy anything good that Snapchat does – and do it on a larger scale. It’s been rather distracted of late, but now it seems to be emerging from various investigations it can get back on it.

Germany’s Bundesbank looks at the positives of Libra while UBS and Santander disappoint…

Bundesbank: Facebook’s libra can aid reform (The Times, Oliver Moody) is quite an interesting story that in that it is a notable departure from the current mass slagging-off that Facebook’s cryptocurrency has been getting of late. Basically, Germany’s central bank said that Facebook’s plans could have a major effect on finance by pushing down costs for consumers moving their money around as it would force banks to do something about their antiquated and expensive systems. The Bundesbank also said that it could be a catalyst for the EU to bring its rulebook up to date. * SO WHAT? * Given that most politicians, regulators and central banks have been slagging Libra off, it is quite interesting to see that the Bundesbank, the most powerful member of the European Central Bank (ECB), is actually looking at some of the positives that might come out of it. I, for one, agree with its cautiously positive stance in that while there are reservations regarding data privacy and proper oversight it

may well push traditional banks and lawmakers to adapt to the evolving market.

European banks themselves appear to be having a tough time of it, though, as UBS earnings hit by declines in main profit engines (Financial Times, Stephen Morris) shows a mixed set of results with its wealth management and investment banking units reporting big earnings declines on the one hand while, on the other, profits at the retail bank and asset managment divisions were up. Earnings at the investment banking division have fallen now for the third quarter in a row – and this is likely to increase the volume of calls for the business to be overhauled.

Santander’s profits fall by a third (The Times, Katherine Griffiths) shows a bank whose profits have been badly dented from tough competition in the mortgage market and branch closure costs in the UK. Santander is Spain’s biggest bank and, over the years, bought Abbey National, Alliance & Leicester and the savings arm of Bradford & Bingley. * SO WHAT? * I don’t see this situation changing any time soon – and the court case it is fighting a €100m claim with Andrea Orcel will be a cloud hanging over the stock until it’s resolved. Orcel was offered the job to be chief exec – only for it to be withdrawn after he’d resigned from his previous position at UBS.

China’s BAIC buys into Mercedes-Benz and Tesla sales stumble…

In vehicle-related news, Chinese carmaker BAIC takes 5% stake in Daimler (Financial Times, Christian Shepherd) shows a cementing of its partnership, preventing rival Geely from getting to cosy. Geely (which owns Volvo Cars and Lotus) bought a 9.69% chunk in Daimler (which owns Mercedes-Benz) for $9bn early last year as part of its overseas strategy, so this latest move shows that BAIC is keen for Geely not to get its own way.

Tesla’s higher-end sales erode in key market amid Model 3 gains (Wall Street Journal, Tim Higgins) shows that Model 3 sales appear to be cannibalising sales of the higher-end

(and more profitable) Model S and Model X, according to research from Dominion Enterprises. Registrations of the new Model S in the second quarter fell by 54% in California and those for the Model X fell by around 40% over the same period. This stands in direct contrast to the near-doubling of Model S registrations. * SO WHAT? * I guess that this is the price the company is having to pay in order to get more mass-market appeal. As I keep saying, Tesla has lost its first-mover advantage as other more established manufacturers are getting their act together and offering attractive alternatives at different price points. Tesla is having to cut into its margins to sell the Model 3 – and if it loses out on volume as well as consumers choose electric vehicles from other manufacturers, the company could get itself into a tough spot.

And finally, in other news…

I thought I’d leave you today with These waterproof sneakers are made from recycled coffee (Mental Floss, Michele Debczak https://tinyurl.com/y3axvguv). I haven’t worn them myself, but I think the pictures look good! I don’t get a kick-back if you buy them – but what a great idea!