Tuesday 10/07/18

1. In MACROECONOMIC NEWS TODAY, we take a look at the current Brexit/May chaos and the EU’s initial reaction.

2. In TECH-RELATED NEWS, Apple takes on Spotify, Microsoft takes on Apple whilst Twitter and Xiaomi take a bath.

3. In UK RETAIL NEWS, the World Cup provides a welcome boost and Mothercare takes action.

4. In OTHER NEWS, I bring you an unusual tattoo from an England football fan. For more details, read on…

So our PM loses ministers and the EU expresses dismay…

So it seems that things are hotting up Brexit-wise after Gove and BoJo quit yesterday, leaving our PM in a bit of a pickle in Theresa May vows to fight removal attempt after Boris Johnson quits (Financial Times, Henry Mance and Laura Hughes) as the “agreement” reached on Friday at Chequers was not quite as water-tight as she had thought. Jezza reacted with glee as he pointed out that the Brexit deal reached on Friday had taken “two years to reach and just two days to unravel” whilst one anonymous MP, remarking on the warm response Theresa May got from addressing the Tory backbench 1922 Committee when she spoke last night, observed that “The fact MPs stood up and applauded her for five minutes means she’s screwed”. Having said that, it looks doubtful that the Eurosceptics led by Jacob Rees-Mogg will be able to muster the 48 signatures needed to force a vote of no-confidence under Tory party rules as there’s no immediately obvious candidate (but you never know!). Which just means that no one knows what’s going to happen. 

Donald Tusk, president of the EU Council even cheekily suggested that we could even stay in the EU when he said “I can only regret that the idea of Brexit has not left with Davis and Johnson. But…who knows?”. EU reacts with dismay to British Brexit chaos (Financial Times, Mehreen Khan and Tobias Buck) shows that this kerfuffle is a cause of concern for the

Europeans and Christian Linder, leader of Germany’s liberal Free Democrats, tweeted that Europe should not feel “schadenfreude” at our plight as “Brexit threatens to become a fiasco that will also weaken the EU and Germany” although European Commission president Jean-Claude Juncker was more dismissive of the departures, saying that “What matters for us is the negotiating framework that our 27 member states have set for us”.

At this moment in time, the whole thing is in a right mess and Thorny questions on Brexit that Chequers summit failed to answer (Daily Telegraph, Anna Isaac and Tim Wallace) does a good job of identifying key areas of uncertainty such as borders, VAT, data flows, what will happen to financial services etc.etc. whilst Turmoil among Tories makes a sovereign Brexit possible again (Daily Telegraph, Ambrose Evans-Pritchard) makes some very interesting observations on possible outcomes. Evans- Pritchard says that anything is possible now from a “global” Britain trading with the EU on WTO terms via a snap election on the one extreme to a Corbyn government on the other. He basically argues that the agreement reached on Friday was far from ideal anyway and that, although much as been said about how much WE are going to suffer from Brexit, Europe is not going to get off it lightly either. He expounds the view that if the EU puts trade barriers in place in March 2019, it will suffer a lot itself and that “large parts of European industry would be paralysed”, that a resulting recession would stoke up an EMU banking crisis, which would in turn be followed by political and economic turmoil between EU member states. * SO WHAT? * The whole thing is a complete mess and there are so many moving parts to this it is impossible to predict what is going to happen. The UK (and the EU, for that matter) needs stability as it heads towards Brexit – and having major Cabinet ministers resign in the run-up, thus putting Theresa May’s leadership in question in the process, is not ideal for anyone (apart from Corbyn, obviously). Mind you, although Mario Draghi, president of the ECB, is talking a good game about the Eurozone’s economic prospects, I think that Europe is precarious at the moment and is being held together by zero- interest rate gaffer tape whilst many of its top economies – Germany, Italy and Spain – are facing some serious domestic problems that could cause aftershocks. The UK and EU are facing difficulties within whilst the US is tightening the screws on trade. Time for everyone to grow a pair and get back to the negotiating table before we all shoot ourselves in both feet, no?

In tech news, Apple takes Spotify share, Microsoft announces a new tablet, Twitter gives investors the jitters and Xiaomi has a disappointing market debut…

Apple slices into Spotify’s lead in US music market (Financial Times, Anna Nicolaou) takes a look at the current state of play in music streaming and shows that the gap between Spotify and Apple Music is narrowing in the US, the world’s #1 music market. One sign of this was Drake’s recent release of Scorpion – expected to be the biggest album of the year – which was streamed on Apple Music 170m times versus being streamed on Spotify “only” 130m times in the first 24 hours of its release. As of last week, Apple has between 21 and 21.5m subscribers in the US versus Spotify on between 22 and 22.5m and music executives expect Apple to go level with Spotify in the US by next month, overtaking them by the end of this year. * SO WHAT? * This is an impressive performance by Apple and I think that there is a lot more upside potential as its user base is much broader with more potential than Spotify, which has done well from soaking up many of the “early adopters”. Spotify’s still top dog on a global basis, but I don’t think that Apple’s growth is going to cause too much concern for Daniel Ek and his chums as I think that the market is big enough to accommodate at least a few streamers. It does go to show, however, the bright prospects for Apple’s “services” division revenues. Good news for cash- strapped tablet fans in Microsoft to sell low-cost surface to compete with Apple’s iPad (Wall Street Journal, Jay Greene) as Microsoft announced that it was going to cut prices on its Surface devices and introduce a $399 tablet that will take on Apple’s cheapest iPads. Microsoft’s 10-inch Surface Go, which ships on August 2nd in the US and 24 other markets, is the cheapest Surface model and is aimed squarely at the same customers as Apple’s 9.7 inch iPad. * SO WHAT? * Great news for

seekers of reasonably-priced tablets, but it seems to me that there is an air of desperation as tablet shipments continue to fall as the market matures. Worldwide shipments fell by 11.7% in the first quarter of this year versus last year, according to International Data Corp, although shipments of tablets with detachable keyboards grew by 2.9%. The fact is that this market is pretty sluggish now and with the trend for narrowing prices between laptops and tablets, there is less motivation for consumers to buy the latter. After all, if you are just using a tablet to do a bit of web surfing and streaming TV/films, you will probably hold on to your existing tablet for longer – and if you need something “proper” to use, you will probably be inclined to buy a laptop. I would expect tablet prices to continue to trend down over the coming years unless they find some exciting new tech.

Elsewhere, Twitter shares take a nosedive (Daily Telegraph, James Titcomb) highlights the 8% fall in the company’s share price yesterday after it announced a deeper-than- expected cull of fake accounts that will dent its recent growth in the number of users. The company will reveal its second-quarter results lar this month. * SO WHAT? * Yes, this is a kick in the teeth for the short term, but I think that the company is doing the right thing in culling fake accounts – and it may even benefit from higher ad revenues further down the road as it will be able to keep a straight face when it touts the quality of its user base to advertisers. The shares have almost doubled in the last six months, so I suppose some investors used this to lock in some profit. I would personally see it as a short term blip, but I would be interested to see the figures later this month.

Talking of disappointing news, Chinese smartphone maker Xiaomi falls in Hong Kong trading debut (Wall Street Journal, Dan Strumpf and Joanne Chiu) details the disappointing performance of a company that had put its shares on the market valuing itself at the lower end of its touted range at $54bn versus chat earlier this year that it would be going for $100bn. The company, founded only eight years ago to become the world’s #4 smartphone maker after Samsung, Apple and Huawei, decided to float in order to fund international expansion plans. * SO WHAT? * Generally speaking, you want an Initial Public Offering (IPO) to fly out of the door with chunky first-day gains that will get investors flooding back for more on subsequent flotations and create FOMO (Fear Of Missing Out) in the current offering. That didn’t happen yesterday, and if the sluggishness continues, it won’t bode well for subsequent listings such as China Tower Corp (which does mobile infrastructure) and Maituan Dianping (which specialises in local services). If it really continues like this, it is possible that these candidates could postpone their respective listings and wait for better market conditions.

In UK retail news, the world cup boost the high street and Mothercare makes some tough decisions…

There’s some good news in World Cup fever and heatwave aid retailers (The Guardian, Richard Partington) as warm weather and England’s unexpected run in the world cup are powering sales in beer, barbecue and big- screen TV sales despite underlying difficulties in the high street (not to mention the recent shortage of CO2!), according to the latest figures from the British Retail Consortium (BRC). Total retail sales rose by 2.3% last month – which is above average – and is better than the 2% rise experienced in June 2017, with particular strength in food and grocery sales. Mind you, the BRCs chief exec Helen

Dickinson, warned against getting too carried away when she said “The reality is that sales don’t grow on feelgood factor alone. Once the euphoria of sporting success subsides, without a deal on Brexit shoppers face the prospect of significant price increases and shortages of everyday goods”.

Reality bites in Mothercare takes baby steps to recovery after raising £32m (The Times, Deirdre Hipwell) as it launched a big £32.5m capital raising via a deeply discounted rights issue whilst simultaneously increasing the number of store closures to 60. The chief exec, Mark Newton-Jones believes that the current company restructure will allow the company to do “three years of work in one year” by improving its product range, investing in staff training and online sales whilst also keeping a lid on costs. It will also focus on international expansion as non-UK business now accounts for over 2/3rds of turnover and 100% of its profits! * SO WHAT? * Mothercare has been a complete basket case for a few years now, culminating in the rather ridiculous sacking and then rehiring (within one month!) of its chief exec. However, unlike some of its fellow high street players, it still has properly identifiable niche and DOES have upside – especially abroad. If it gets the domestic offering right, it will calm things down a bit and help it to focus on making all that overseas profit! Having said that, Newton-Jones has his work cut out – Mothercare’s share price closed at 27.5- a share yesterday versus the 164.25p level it was at when Newton-Jones took over a few years ago. 

…And finally, in other news…

I had an emotional couple of nights last week watching Japan vs Belgium and then England vs Colombia (I’m half-Japanese)