Wednesday 30/10/24

*** So I’m back from seeing rellies oop north! *** I’ll be catching up on the Dailies (and Weekly) I missed, so please bear with me in the meantime! There’s also the small matter of the Budget being announced today, so I’ll be commenting on that tomorrow 😁.

EU drives through tariffs on Chinese electric vehicles (Financial Times, Alice Hancock and Edward White) shows that the EU is pushing ahead with Chinese EV import tariffs after all, which means that they’ll be slapped with taxes of up to 45%, depending on how much state help the companies in question are deemed to have enjoyed. The tariffs come into force today and will be in place for five years! Talks between the two sides will continue though, but here’s the first shot over the bows!

Staying in Europe, Germany’s loveless coalition teeters on brink of break-up (Financial Times, Guy Chazan) highlights trouble in Europe’s biggest economy as speculation builds about an early election in spring. Chancellor Olaf Scholz hosted a widely-anticipated “industrial summit” yesterday with business and industrial bigwigs where the main item on the agenda was how to drag Germany out of its current economic rut. Notable absences from the meeting were Germany’s finance and economy ministers! What?!? The fact that Robert Habeck, the economy minister and Christian Lindner, the finance minister, held their own rival summits on the same day fuelled speculation that the always-fragile coalition of parties at opposite ends of the political spectrum will fall apart, necessitating another election (this is being further fuelled by the ongoing failure to agree on a budget for 2025). * SO WHAT? * The media is speculating that an election could be called for March 9th, which would be six months earlier than scheduled. Germany has been an absolute joke for quite some time now and the economy isn’t going to get better if no-one in charge can agree on anything. This is one of the main reasons why the far-right AfD are doing well as they are feeding off government indecision and turmoil and the electorate’s frustration at Scholz’s inability to do anything. And things might just get even worse if Trump returns to the White House next week as Germany is a major exporter – something that Trump has vowed to target if he gets into office. Some are hoping that this will galvanise the coalition into putting aside their differences to fight back, but it is politicians we’re talking about here so I wouldn’t get too hopeful 🤣!

Back home, UK borrowing costs hit post-election high on eve of Rachel Reeves’ first Budget (Financial Times, George Parker, Sam Fleming and Ian Smith) highlights borrowing costs hitting a post-election high just as we brace ourselves for today’s Budget. Chancellor Rachel Reeves just announced that she was relaxing the rules on borrowing, so this latest development has added extra spice! The Budget is due to be announced at around 1230hrs today.

Why Trump could crush the British economy (Daily Telegraph, Tim Wallace) is an interesting piece which suggests that a Trump win next week could have serious implications for us over here – and that it could potentially have even more impact than today’s Budget! First off, the US is our biggest individual trading partner, making up 17.7% of all of our international trade. Two-thirds of our exports are services (which include a wide range of things from tech, banking, consulting and holidays) but exporters in the pharmaceuticals, automotive (particularly premium vehicles) and whisky industries could potentially see a massive hit. * SO WHAT? * A potential positive here is that Trump tends to concentrate his ire on manufactured goods, so there’s a chance that our “services exports” may not be affected. However, if Trump’s belligerence prompts tariff retaliation from the rest of the world, everyone will suffer and any stimulus the Reeves announces today could be muted or even potentially negated. Talking of a potential Trump win, Bitcoin surge as investors bet on Trump victory (The Times, Louisa Clarence-Smith) highlights bitcoin smashing through $72,000 yesterday as a Trump win is seen as being increasingly likely – and he is seen to be “crypto-friendly” given that he recently vowed to make America “the bitcoin superpower of the world”.

Elsewhere, Saudi wealth fund to switch focus from overseas to home (The Times, Tom Howard) shows that the kingdom’s sovereign wealth fund, the PIF (which has about $925bn worth of assets), is going to slow down its overseas investment to focus more on domestic projects. At the moment, about 30% of its assets are in international ventures and the PIF’s governor said that the aim is for this to come down to between 18% and 20%. * SO WHAT? * This signals the end of a decade-long spending spree on overseas assets including Newcastle United, chunks of Uber, AccorInvest and the LIV Golf tour among other things. This is all part of Crown Prince Mohammed bin Salman’s plan to wean the economy off oil revenues by using the money it generates to spark life in other sectors like tourism, finance and tech. This is bad news for companies that have hopes to attract Saudi money but it seems that the onus has increasingly been on those looking for Saudi money to do more for Saudi Arabia.

In oil news, BP quarterly profits lowest since pandemic (The Times, Emma Powell) reflects a disappointing Q3 for the oil major thanks to weaker refining margins and oil prices. Profits at BP have now hit their lowest level since the pandemic. BP’s share price has fallen 19% since the start of the year, falling behind arch-rival Shell and other American competitors. It will hope that efforts to cut costs and roll back previously-stated environmental commitments will help it weather the current storm.

In consumer trends, Number of UK mortgage approvals at highest level since 2022 mini-budget (The Guardian, Larry Elliott) cites the latest Bank of England figures which show that the number of mortgage approvals for new purchases increased for the fourth consecutive month. Such approvals are often seen as an indicator of future borrowing. * SO WHAT? * If interest rates continue to fall as expected, the number of approvals is likely to increase. I guess that the major near-term fly-in-the-ointment could be a Trump win because that would cause a lot of uncertainty and could potentially mean that the Bank is forced to keep interest rates higher as rising costs (caused by Trump’s tariffs) could potentially stoke inflation.

Meanwhile, UK minimum wage to rise to £12.21 (Financial Times, Delphine Strauss) shows that the UK’s minimum hourly wage will increase by 6.7% to £12.21 from next April and young workers will get an even bigger boost of 16% to £10 an hour. The rate for apprentices will increase by 18% to £7.55. Reeves reckons that this will benefit over 3m workers. * SO WHAT? * This is great news for workers but may be less good for employers who may not have factored this rise into their

plans. Also, this rise is only helpful if it at least stays in line with inflation. At the risk of sounding repetitive, a Trump win could have a significant effect on UK inflation so a hike in the minimum wage may be good in the short term but could be neutralised going forward if inflation stays at current levels or goes higher. Smaller employers are expected to feel the rises more keenly thanks not only to this wage rise, but also to costs related to the implementation of anticipated labour regulations. Will this mean less room for smaller companies to innovate?

In Starbucks Tells Workers to Return to the Office or Risk Getting Fired (Wall Street Journal, Jennifer Calfas and Heather Haddon) we see that the trend for employers’ increased demand to see their workers in the office continues apace as the coffee chain issued an edict to its corporate employees. * SO WHAT? * This is all part of the splash that new CEO Brian Niccol wants to make as the new leader of the ailing chain. TBH, when the jobs market is tight and wages are good, employees can afford to demand hybrid or remote working but we always knew that when times got harder, employers would demand more face time and less FaceTime.

Banks warn UK Treasury of risk of sector turmoil after car finance ruling (Financial Times, Akila Quinio and Martin Arnold) shows that banking leaders, bods from the UK Treasury and the FCA met up yesterday to discuss the potential turmoil in the consumer credit sector following a Court of Appeal decision last week where senior judges ruled in favour of consumers who objected to “secret” commissions on car loans. * SO WHAT? * Lawyers warned that the whole industry could be hit by expensive customer redress. Santander UK delays results after car finance ruling (The Times, Patrick Hosking) highlights one of the immediate effects of the ruling while Close Brothers announced the pause of all motor lending. It is possible that it could also impact areas beyond just the motor finance sector so this is definitely a situation to watch.

Meanwhile, Santander to cut more than 1,400 jobs in UK amid increasing automation (The Guardian) highlights trouble in the UK arm of the Spanish bank as it announced that the headcount reduction would be made as it automated more of its processes. The redundancies have largely been completed as of now, but will actually be completed by the end of the year. Standard Chartered Posts Quarterly Profit, Raises Income Guidance (Wall Street Journal, Kosaku Norioka) shows that it’s not all bad for banks as Standard Chartered managed to unveil

quarterly net profits that came in above expectations. The bank, which makes most of its profits in Asia, lifted its income guidance for the year as a result. On the strategic front, the company intends to double investment in its fast-growing wealth management business while focusing on wealthier international clients and bigger global clients in its corporate and investment banking business. Nice.

Visa Plans to Lay Off Around 1,400 Employees and Contractors (Wall Street Journal, Angel Au-Yeung) signals tough times for Visa’s employees as the credit card company announced layoff plans in an internal memo last week as part of a wider strategy to streamline its international business. Visa currently has over 30,000 employees globally. The company reported its Q4 earnings numbers yesterday and they looked pretty reasonable.

In wealth management, Hargreaves Lansdown savers dump shares for cash (The Times, Tom Howard) shows that the panicked affluent have decided to sell out of their share holdings over the last few weeks in anticipation of a Reeves tax increase on share sales. We won’t have to wait too long to see whether they were right to be concerned!

In a quick scoot around some of today’s other interesting stories, AI drives Alphabet profit boost (The Times, Louisa Clarence-Smith) shows that Google’s parent managed to smash Wall Street’s profit and revenue expectations thanks to AI-driven growth for cloud computing sales and search engine advertising. * SO WHAT? * The feelgood spread to the wider market and lifted the NASDAQ to its record close of the year yesterday. CEO Pichai said that AI enhancements in search were “transforming the user experience” as users asked longer and more complicated questions. Google still faces the possibility of being broken up as the US Department of Justice is taking it on in a lawsuit the accuses the search engine in acting uncompetitively in order to crush the display advertising market and push up prices for both publishers and advertisers.

In social media news, Reddit shares soar 25% as it turns its first profit (Financial Times, Hannah Murphy) highlights the positive surprise that the platform gave to the ‘Street as it managed to turn a profit for the first time since it went public. The market was so surprised, in fact, that the share price jumped by a whopping 25% on the news! It seems that the company’s investments in ad tech that were intended to boost performance, are working. Efforts to push “machine translation” that automatically translates its content so that it can reach wider audiences also helped drive a chunky 47% rise in daily active users over the quarter. Reddit’s CEO said that the company would invest in modernising its search and integrating LLMs into its results data.
Samsung’s smartphone crown slips with company in crisis (Financial Times, Song Jung-a and Christian Davies)

In luxury, Jean Paul Gaultier Owner Puig Brands Posts Higher Revenue Boosted by Fragrances (Wall Street Journal, Andrea Figueras) shows that Puig Brands – which owns the likes of Jean Paul Gaultier, Dries Van Noten and a whole host of perfume brands – reported a decent increase in revenues for Q3 that was above market expectations. Fragrances and skincare were particularly strong but the overall performance stood in direct contrast to those of rivals Coty, Estée Lauder and L’Oréal who have been suffering. And on the subject of luxury woes, Moncler Revenue Falls on Lower Demand in Asia, Europe (Wall Street Journal, Cristina Gallardo) reflects a drop in revenues for Q3 for the Italian fashion group (which also owns Stone Island) which cited lower demand in Europe and Asia as the main reasons behind the disappointing performance. * SO WHAT? * This is mildly concerning as Moncler has been one of the brands that has been holding up well versus its rivals, particularly in Asia, but it seems that it is no longer immune to lower consumer confidence in a number of markets.

In other news, McDonald’s posts biggest decline in global sales in four years (The Guardian, Julia Kollewe) highlights poor performance in the company’s latest quarterly results as it announced a bigger-than-expected fall in sales. This was thanks to weakening demand prompted by falling consumer spending in China and the ongoing impact of the war in the Middle East. * SO WHAT? * This poor set of results comes at a sensitive time for the company as it has just tried to move forward from the whole Quarter Pounder E coli fiasco. The company will now no doubt be hoping that all the bad news is now behind it!

In PwC overcomes China and Australia setbacks in record year (The Times, Tom Howard) we see some positive news from the accounting giant as global revenues rose over the year by 4.3%. This happened despite a poor performance in its Asia-Pacific division courtesy of the combination of a tax scandal in Australia and attracting punishment from the Chinese government for its role in the fall of stricken Chinese real estate company Evergrande. * SO WHAT? * This sounds pretty positive to me, particularly as rivals continue to struggle with the slowdown in consulting revenues. Does this mean that things have bottomed out at PwC as we head into what looks like an IPO-fuelled 2025?!?

Czech group buys stake in Rolls-Royce mini nuclear project (The Times, Emma Powell) highlights Czech power company CEZ’s decision to take a 20% slice of Rolls-Royce’s SMR business for an undisclosed sum. It had already put in an order for units producing 3 gigawatts of electricity in the Czech Republic. Rolls-Royce now owns a stake of around 50% in its SMR business. It is one of the few companies still in the running to develop a fleet of SMRs across the UK. * SO WHAT? * I think that this is a massive endorsement of both Rolls-Royce and its SMR technology. Will the UK government choose one of its own?!? A decision on which companies are to build SMRs in the UK is expected before the end of this year, with contract negotiations to commence in the spring.

This lady’s skills are alarming and impressive all at the same time! Incredible!!! This looks quite therapeutic (but also pretty darn dangerous)!