Wednesday 27/06/18

  1. In MACRO & MARKETS NEWS TODAY, Trump fights back against Harley-Davidson and Iranian oil buyers, Merkel continues to be in a tight spot and some economists reckon the US market has peaked.

  2. In UK CONSUMER NEWS, spending power has increased, our love of wonky veg and gin has powered retailers but then serial returners are skewing sales figures and mortgage approvals are down.

  3. In INDIVIDUAL COMPANY NEWS, GE continues to cut its limbs off and Uber gets the licence it craved.

  4. In OTHER NEWS, I bring you a spot-the-difference and suggestions for the naming of some bin lorries. For more details, read on…

1

MACRO & MARKETS NEWS

So Trump makes more threats, Merkel’s in a corner and US markets have hit their peak apparently…

Following on from Harley- Davidson saying that it would shift some of its production overseas due to EU tariffs, Trump issues tax threat to Harley- Davidson if it moves output (Daily Telegraph, Hannah Boland) shows that the President continues to be in combative mood as he warned the company that he will tax it “like never before” if it goes ahead with these plans whilst adding that its bikes “should never be built in another country”.

Trump’s also getting more punchy on Iran in US toughens stance on future Iran oil exports (Wall Street Journal, Ian Talley) as a senior US State Department official said that the US will go through with a threat to impose sanctions on countries that don’t cut oil imports from Iran to “zero” by November 4th. * SO WHAT? * Many buyers thought they’d get more time to reduce the imports – but no. Trump continues to flip his allies and China alike the bird.

Meanwhile, in Europe, Besieged Merkel seeks escape as rebellion mounts (Financial Times, Guy Chazan and Alex Barker) shows that the German chancellor is in a very tricky spot at the moment as she is surrounded by rebellious coalition “partners” and facing attack from outside her country from populists (Italy in particular) as she enters her 75th gathering of EU heads of government in Brussels tomorrow. Merkel has been the most powerful leader in the zone for the past 13 years, but her position has become so fragile that many are predicting that this meeting will be her last before she is ousted or resigns. * SO WHAT?If countries see her as a dead-woman- walking, it is unlikely that she is going to get much in the way of support as other European leaders will deem any negotiations a waste of time as they will bring little or no benefit. If Merkel gets ousted, I think that it is highly likely that her replacement will be far less expansive on the immigration issue, which will really stir things up

with other EU members and perhaps prove to be a boon for all populists, resulting in more instability. Having said that, Merkel has been extraordinarily resilient in the face of impossible odds in the past, so she should never be underestimated – even when she is down. Europe could do without instability at its core given the current trade wars and imminent Brexit.

US markets at peak with bull run at tipping point, warn economists (Daily Telegraph, Tim Wallace) sounds rather dramatic as headlines go as it highlights that Bank of America Merrill Lynch analysts are predicting that the nine-year bull run in financial markets could come to a juddering halt due to a perfect storm of higher interest rates, trade war, falling profits, eurozone imbalances and a potential US recession. 

The report also says that the Faangs will be at risk, adding that “Peak asset prices in 2018 are consistent with peak investor positioning, peak corporate profit expectations, and peak policy stimulus in a late- cycle macro and market backdrop”. * SO WHAT? * It is notoriously difficult to call the top and bottom of the market and the analysts at BAML make some very salient points. However, for all the chunky valuations of the Faangs, I would suggest that actually they won’t do so badly in a downturn. Facebook and Google ad revenues would be relatively robust because although general ad spend is one of the first things to get cut in a downturn I would have thought that analogue ad spend (e.g. TV advertising, billboards etc.) will be slashed whereas digital ad spend will probably remain steady; Amazon continues to be the venue of choice for those seeking a bargain in an ever-broadening array of products; and a Netflix subscription is a perfect way to save money on going to the cinema or paying for cable/satellite. If the Faangs are OK, then I would argue that US market downside may be limited. I would also say that the current trade war and the trend for higher interest rates won’t last forever. I believe that the trade war issues will be solved within the next six months (because otherwise this thing is just going to spiral out of control) and that interest rates will be nudged up gradually (and they won’t go up forever either) so as to limit any dramatic loss. If the trade war issues, in particular, are resolved, I think that the market could go way higher as investor worries evaporate. Higher trending interest rates will limit upside, but I don’t think they will kill it.

2

CONSUMER NEWS

In UK consumer news, spending power goes up, gin & wonky veg get popular but then serial returners are fudging sales figures and mortgage approvals are down…

Consumer spending power rises (The Times, Deirdre Hipwell) heralds a bit of good news for the British consumer as the latest Asda Income Tracker (!), which monitors what households have to spend after tax and basic living costs, shows that last month spending power experienced a MONUMENTAL rise in spending power of 2.1% – or £16.56 in monetary terms – versus a year ago. Wow. I might just go and buy myself an island. But hey, the good news is that this is the fifth month in a row of growth powered by rising wages and falling inflation despite stubbornly expensive fuel prices. Long may this continue!

Shoppers get a taste for gin and wonky veg (The Guardian, Sarah Butler) cites the latest research from Kantar which shows that the UK’s supermarkets have enjoyed a sales boost in recent weeks to the tune of £500m due to stellar gin sales (up a whopping 40% versus the same quarter last year!) and a tripling of wonky product sales at Morrisons. Kantar’s head of retail and insight Fraser McKevitt added that “The latest figures largely pre- date the soaring temperatures and newfound optimism for England’s World Cup chances but with the nation spending more than £500m in supermarkets this period compared to last year, it suggests that summer has already arrived for many”. Sales growth was positive Morrisons, Asda and Tesco – with Sainsbury’s being the only one to see contraction. Lidl continues to be the UK’s fastest-growing grocery chain. * SO WHAT? * It’s good to see that consumers are spending – and a lot of it has been powered by the weather. I know England have only played two games in the World Cup so far, but I would have thought that if they DO 

get much further, June could be a stellar month for sales as the feelgood factor filters through to the real economy (albeit briefly, I imagine!). This will be good for grocery retailers and probably electrical goods retailers as people decide to replace their old tellies with new ones to watch our ‘Arry winning the Golden Boot etc. Let’s just hope that the CO2 problem don’t persist for too long otherwise food and booze sales will not fully reach their potential over this period and it will prove to be a costly lost opportunity.

Rise of the serial returners adds to retail’s woes, says Barclaycard (Daily Telegraph, Sophie Christie) is something I mentioned a few weeks back as something that Amazon was clamping down on (the phenomenon of people who deliberately buy more items than they intend to keep and return them days later, aka “serial returners”), but it seems that this is creating problems for retailers as 25% of them have experienced an increase in returns in-store and online over the last two years, with fashion brands feeling the brunt of it. This has resulted in a “phantom economy” of lost revenues worth £7bn for retailers as a large chunk of their sales can’t be recognised. Barclaycard surveyed 2,000 people and found that of the £313 the average person spends on online clothes shopping per year, they end up sending back 47% of it. * SO WHAT? *  Fashion retailers may bleat about this, but TBH they only have themselves to blame because sizing is wildly different at every brand and customers don’t want the hassle of playing parcel tennis. It is perfectly logical to order a few sizes, see what fits best and then send the rest back. If retailers start charging for sending things back, I think consumers will stop spending – so I think that the retailers themselves have to come up with ways to minimise returns with tech like virtual changing rooms and customer avatars etc.

High prices push down mortgage approvals (The Times, Tom Knowles) cites the latest figures from UK Finance which show that high street banks approved more mortgages in May than they did in April but 4.3% less than a year earlier. Hansen Lu, an economist at Capital Economics, pointed out that “Much of the weakness in mortgage approvals is due to a stand-off between buyers and sellers. House prices are very high compared to incomes and that has priced out many would-be homebuyers, while discouraging others from accepting current asking prices. Yet, at the same time, sellers have also been reluctant to accept lower prices”.

3

INDIVIDUAL COMPANY

In individual company news, GE slims down and Uber gets its London license…

GE break up intensifies with large-scale spin-offs (Financial Times, Eric Platt and Ed Crooks) shows how General Electric is continuing to slim down as it announced yesterday that it would be spinning off two of its biggest divisions as part of its overall strategy to be more focused, meaning revenues will be half the levels they were at ten years ago. The company will divest its healthcare division and its stake in Baker Hughes, the oil services company. * SO WHAT? * This is a big deal for a company that 

has been better known for its long list of acquisitions over the last two decades but this latest development just shows how difficult things have been for the company since the beginning of the financial crisis. The healthcare and oil services divisions accounted for 30% of group revenues and 25% of its industrial segment profit last year – so this is big. The company will now be left with three divisions: electricity industry equipment, renewable energy and aero engines & other aircraft parts.

Following on from yesterday, Uber wins 15-month London licence in court fight (Financial Times, Aliya Ram and Shannon Bond) will be cause for relief to the company that is gearing itself up for an Initial Public Offering next year. Although the judge ruled that TfL had been correct in refusing to renew its licence last September, she thought that the company had shown sufficient evidence that it had changed its ways.

4

OTHER NEWS

…And finally, in other news…

We all love a spot-the- difference in a quiet moment, don’t we? Well have a go at this if you got a few spare minutes: Only a handful of people can spot the difference between these two photos – can you? (The Mirror, Zoe Forsey https://tinyurl.com/yarh4d48)

AND FINALLY, you’ve heard of the public being asked to name things like boats (resulting in suggestions such as the famously rejected Boaty McBoatface) – well Coventry City Council is asking Twitter users to name its new bin lorry fleet in Council asks for help naming its bin lorries – and some of the suggestions are absolutely hilarious (The Mirror, Courtney Pochin https://tinyurl.com/y9tfx8tp) Suggestions so far include Chitty Chitty Bin Bin, Dustbin Timberlake, Bin Diesel and Bin Kardashian. My own suggestion would be “I am Bin-Laden”, but then this might be a bit controversial…

As always, thank you for reading the WIFI!

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