- In MACRO NEWS, BoJo faces parliamentary ire, Trump faces another impeachment attempt and India implements a big tax cut
- In HIGH STREET NEWS, Tui cracks on, M&S lose yet another senior exec and Metro Bank looks vulnerable
- In CAR NEWS, VW execs face more dieselgate fallout and Nio asks for even more money
- In INDIVIDUAL COMPANY NEWS, WeWork’s chief steps down, Facebook buys CTRL for $1bn, Nike has strong figures and Juul prepares for a restructure
- In OTHER NEWS, I bring you the joy of Japanese toilets…
So BoJo gets a massive slap, Trump faces another impeachment attempt and India tries to boost its economy with a big tax cut…
There’s going to be a lot of hysterical comment about this, so better buckle up. In Boris Johnson forced to fly home to face anger of parliament (Financial Times, George Parker, Jane Croft and Sebastian Payne) we see that BoJo has had to cut short his New York trip to fly home and will face calls for his resignation as he was overruled by our Supreme Court for his attempt to stop MPs from debating Brexit by shutting down parliament. The court ruled unanimously that his advice to the Queen to suspend parliament for five weeks was unlawful, so MPs have been sharpening their knives ahead of returning to parliament this morning. BoJo now has the rather impressive record of introducing six votes and being defeated six times in his three months as PM. * SO WHAT? * Although this is an epic development from a constitutional point of view, it looks unlikely to have much impact on Brexit in the short term as legislation to prevent no-deal has already been put in place and a vote of no-confidence on the PM does not look like it’s on the cards for now as Labour said that it is not going to call such a vote. We will now see what MPs do with this unexpected time before the Brexit deadline. The drama continues…
BoJo’s BFF also seems to be having a bit of bother in Pelosi announces impeachment inquiry of President Trump (Wall Street Journal, Natalie Andrews and Andrew Duehren) as speaker Nancy Pelosi called for an official inquiry that could lead to impeachment over reports that President Trump stopped giving aid to the Ukraine in order to pressure them to investigate Democratic presidential candidate Joe Biden. Using his office to put pressure on a foreign entity to investigate a political rival for personal gain is an impeachable offence. * SO WHAT? * So far, Trump has withstood attacks for alleged ties to Russia, involvement with porn stars and lying generally but none of it has stuck so far. Funnily enough, Trump tweeted “PRESIDENTIAL HARASSMENT!” and called the allegations
a witch hunt. Maybe this is something more substantial that will actually stick, but given Trump’s ability to side-step (and sack!) his opponents and brazen things out it is not a given!
India’s tax cut euphoria wanes as economists count cost (Financial Times, Amy Kazmin) looks at the immediate effects of a chunky $20bn cut in corporate tax unveiled last week as part of an effort by the Indian government to add fizz to a faltering economy. It cut its top effective tax rate from almost 35% to just over 25% and taxes on new manufacturing investment to 17% on Friday. The unexpected cut was cause for celebration by some business leaders – Harsh Goenka, chairman of industrial conglomerate RPG Enterprises said that “Just when the economy and street were losing hope, the finance minister, in a veritable Goddess Lakshmi avatar, has offered succour to millions of countrymen who were praying for a revival in the economy and a return to prosperity”. I bet our chancellor would be quite chuffed if he got likened to the Hindu goddess of wealth! Anyway, this latest move is unlikely to turnaround five consecutive quarters of falling GDP growth immediately as Indians have been gradually tightening the purse strings and using their savings to spend. Although this is a measure that will eventually feed down to the people, other more immediate ways of improving household purchasing power would have been to cut goods-and-services taxes and/or personal income taxes. Jahangir Aziz, head of emerging markets research at JP Morgan, made a very interesting point when he said “There is a broad consensus that the real problem facing India is not that it is too expensive to do business but the fact that there is no demand…if you want to boost consumption, you reduce the price of things people are buying”. * SO WHAT? * This cut in corporate taxes may benefit the country in the medium-to-long-term given that it could help to attract foreign investment, but given that this cut equates to about 0.7% of GDP per year, this growth will come at a cost. Still, for the moment, this cut will help Indian companies pay down debt and increase dividends. Also, if this doesn’t work quickly enough to turn things around the government can always throw in cuts to goods-and-services and/or personal income taxes to up the feelgood factor later on. This won’t be great for the current account deficit, but maybe this is the price India has to pay to reignite economic growth.
HIGH STREET NEWS
In the aftermath of Thomas Cook’s spectacular failure, Tui boss says it will fly home customers booked on Thomas Cook flights (The Guardian, Julia Kollewe) shows that one of Thomas Cook’s main rivals is now playing its part in the repatriation of holidaymakers as its chief exec Friedrich Joussen said “Tui is preparing measures to support. Where Tui customers are booked on Thomas Cook Airlines flights and these are no longer operated, replacement flights will be offered”. Tui’s share price jumped by over 7% in trading on Monday on the Thomas Cook news – and a further 1.55% yesterday – as investors concluded that a short term rise in costs for the repatriation effort will result in long term gain for the company as it gets the custom that Thomas Cook would have had. Mind you, Tui’s profit is from expenditure, not at Thomas Cook’s expense (Financial Times, Matthew Vincent) says that this is not just because Tui happens to be the “last one standing” – it’s down to Tui’s more diversified business model. I said yesterday that hedge funds would be among those to benefit from Thomas Cook’s demise, but Hedge funds will make little profit (The Times, Dominic Walsh) contends that won’t really be the case across the board as losses from bonds will be roughly balanced out by what they made on Credit Default Swaps (CDSs).
Then in Further shuffling of pack at M&S as logistics boss leaves (Daily Telegraph, Laura Onita) we see that the revolving door to M&S HQ continues to spin faster than laundry on a rapid wash cycle as Gordan Mowat, head of supply chain and logistics for the retailer’s clothing and home division, has been booted after two years in the role. This comes just days after the CFO’s departure and a few months after clothing and home boss Jill McDonald’s. * SO WHAT? * The top management clear out continues under chief exec Steve Rowe’s tenure in ongoing efforts to turn the company’s fortunes around. It fell out of the FTSE100 earlier this month and is now getting dragged into a legal battle between Ocado and rival Today Development Partners. Tough times at M&S and things do not look like they’re going to get much better in the short term at least.
Metro Bank shares hit record low prompting sale speculation (Financial Times, Nicholas Megaw) shows that the embattled challenger bank’s share price fell by 35% yesterday to hit record lows after it failed to execute a bond deal that would have raised £200m. Its advisers said, however, that the company would be able to raise new debt after it announces its Q3 results next month (but then they would say that!). Metro Bank is seeking to beat a Bank of England deadline to raise new debt by January 1st. * SO WHAT? * Given its recent record, many are now speculating that it could be forced to sell itself. All of this strife kicked off in January when it announced that it had miscategorised its loans, meaning that its calculations for how much capital it needed to cover these loans was incorrect. Hedge funds like Odey Asset Management, Marshall Wace and ENA Investment capital are, in the meantime, benefiting from Metro’s pain via their short positions.
VW’s dieselgate scandal rears its head again and Nio asks for more money…
Volkswagen bosses face charges over market manipulation (Daily Telegraph, Alan Tovey) shows that “dieselgate” has come to bite the company in the bottom as top execs Herbert Diess, Hans Peter Poetsch and Martin Winterkorn are now being accused of market manipulation in that they didn’t inform shareholders of their deception. The company has thus far paid out around €30bn in fines and settlements since the scandal broke in 2015 over its fitting of “defeat devices” to ace emissions tests. This thing just never seems to die! * SO WHAT? * If a court in Braunschweig agrees to go ahead with the case, it’ll be the first time that the leadership of Germany’s biggest
corporation will be put on trial. The decision to proceed or not with the charges is expected to take a few weeks.
There’s trouble in China in Nio forced to raise $200m from chief and shareholder Tencent (Financial Times, Peter Campbell) as the Chinese electric carmaker (which makes very eye-catching sports cars) has been forced to go cap in hand to ask for $200m from its chief exec and shareholder Tencent in the wake of a catastrophic quarter which saw big vehicle recalls for dodgy batteries and weakening sales. Chief exec William Li added that he’d have to cut about 20% of its staff and sell off non core businesses by the end of the year in order to head off a complete collapse. The company blamed the slow China car market in addition to falling demand for its vehicles and services. * SO WHAT? * This is a pretty spectacular collapse as things go, but the car maker can limp along for now on fumes. Although it floated in September last year to great fanfare as China’s answer to Tesla, its demise is further evidence of just how difficult profitable car manufacturing can be.
INDIVIDUAL COMPANY NEWS
In a quick scoot around other important developments today, WeWork’s Adam Neumann steps down as CEO (Wall Street Journal, Eliot Brown, Dana Cimilluca, David Benoit and Maureen Farrell) heralds a dramatic (yet not altogether unexpected) move by WeWork’s founder as he resigned as chief executive – although he will remain as non-exec chairman. His voting rights will also be cut. In the meantime, his new co-CEOs are expected to axe employees in an attempt to slow the company’s losses. * SO WHAT? * Neumann proved to be the major stumbling block for investors in the recent push to float this massively loss-making company and the pressure has now proved too much to resist. A dramatic development but no doubt this is all part of moves to get the flotation back on
track for the end of the year. Maybe this, coupled with a load of cost-cutting, will be enough to tempt investors back.
Then in Facebook to spend $1bn on brain-control start-up CTRL Labs (Financial Times, Hannah Murphy and Patrick McGee) we see that the social media giant has agreed to buy a company that makes tech to let people’s brains control electronic devices. CTRL differs from others in this field as it only uses non-invasive technologies to connect the two. It’ll become part of the company’s Reality Labs team, which is the division responsible for developing AR glasses. Fun fact: $1bn is what Facebook paid for Instagram back in 2012.
Elsewhere, Strong sales in China lift Nike results (Wall Street Journal, Kimberly Chin and Khadeeja Safdar) highlights an impressive 22% uplift in China revenues in the latest quarter while Juul prepares staff shake-up amid US crackdown (Wall Street Journal, Jennifer Maloney) shows that things continue to get worse at the e-cigarette maker amidst a myriad of investigations.
And finally, in other news…
Many of you will know by now that I am half-Japanese and have lived, worked and studied in Tokyo for a number of years so when I saw this I thought I had to highlight it: Loo and behold! Japan’s high-tech toilets bemuse fans (Reuters, Lucien Libert https://tinyurl.com/yy4awjx3). Yes, yes, we all know about sushi, manga and sumo wrestling – but Japan also has impressive toilets 😜. New users never fail to be surprised/excited/horrified at the vast array of options and angles of water spray available in what many feel is like sitting in Captain Kirk’s chair in the USS Enterprise!
Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *||Dow Jones *||S&P 500 *||Nasdaq**||DAX *||CAC-40 *||Nikkei **||Shanghai **|
|Oil (WTI) p/b||Oil (Brent) p/b||Gold Per t/oz||£/$||€/$||$/¥||£/€||$/₿|
(markets with an * are at yesterday’s close, ** are at today’s close)