1 February 2019

Scott Reid

1 February 2019

Good morning,

From my vantage point in a newly-acquired but as yet unfurnished Edinburgh tenement where, in desperate cliché, the boiler has decided to pack in, I have some sympathy for the poor souls of America’s Midwest.
 
Sure, yesterday lows of -5°c in the Scottish capital weren’t quite the depths of -33°c experienced in Iowa City (that’s -50°c “with wind chill” for added meteorological drama), but you get my point. Heck, even London was cold enough for a smattering of the white stuff (precisely 6mm according to the Met Office).
 
Despite the seriousness of the situation, it is good to see that America’s chilled-out citizens have turned to zany experiments and bad jokes to warm their cockles. The Chicago Tribune, for example, found that an egg cracked onto a city pavement froze in under four minutes, whilst the New York Post quipped that it was “so cold [that] cops don’t have to yell ‘freeze!” … *ahem*…
 
The chill was most certainly felt on Wall St yesterday where shares in Amazon fell by more than five per cent in after-hours trading to $1,635 after reporting a mixed bag of record profits but slower growth. In a conference call to analysts yesterday, chief financial officer Brian Olsavsky pinned the blame on its Indian market, warning that first quarter revenues were projected to be below the $61 billion that the market expects. If correct, this would mark Amazon’s slowest quarterly rise in at least four years.
 
The FT Lex column suggests this morning that the market gloom is probably overblown. But the downward trend is clearly there, and ferreted away in the results were particularly poor performances by its physical store division, Whole Foods and Amazon Go, neither of which have delivered the high margins Amazon is used to in its cloud computing and advertising businesses. The possible takeaway? Even if you’re Amazon, the retail sector slump – much like the cold – is biting.

News

The SNP and Greens struck a deal to allow the passage of the Scottish Government’s draft Budget in Holyrood yesterday. The deal includes extra funding for education, health and infrastructure and affords greater funding for councils via taxation powers to levy local parking and tourist taxes. The stage one vote passed by 67 votes to 58 with one MSP abstaining.
 
In Brexit-related news, the FT this morning reports on “anger” in London over EU legislation that deemed Gibraltar a ‘Crown Colony’ in order to afford UK nationals visa-free access in the event of no-deal. (£) EU diplomats have warned that Gibraltar may yet emerge as a sticking point for Spanish negotiators seeking further concessions should withdrawal agreement discussions be re-opened.
 
Meanwhile, foreign secretary Jeremy Hunt has warned that the UK’s departure date may need to be extended if an 11th hour agreement is struck in the days before March 29th. The government has also cancelled the parliamentary half-term recess and will now order MPs to sit between February 14 and 25 in order to work through Brexit legislation.
 
Chinese and US trade negotiators are optimistic on reaching agreement by 1 March following a two-day meeting in Washington DC. China has agreed in principle to increase imports of US agricultural, energy and service products, and industrial manufactured goods but specific concessions – and when these might be agreed – have not yet been spelled out. If agreement is not reached, the US has threatened to increase tariffs on a further $200 billion worth of Chinese goods from 10% to 25%.

Business & Economy 

Italy has officially fallen into recession after the Italian economy shrank by 0.2% in the final quarter of 2018. Despite political deadlock between the Italian government and EU commission over greater spending in Italy’s budget, economists have attributed the fall to a wider slowdown across the continent. The Italian economy also fell by 0.1% in the third quarter of 2018.
 
Patisserie Valerie may be sold off “piecemeal” in order to overcome concerns over the unreliability of its accounts after it fell into administration last week. According to sources familiar with the bidding process, contenders once-thought likely to make a bid including Mike Ashley and private equity firms, Rcapital and Endless, have yet to do so before a deadline for offers set at noon today. (£)
 
Npower is to cut up to 900 jobs in the UK as it looks to save costs ahead of “significant losses” expected in 2019. The ‘Big 6” energy supplier made the announcement yesterday having abandoned its planned merger with SSE last month. The company’s statement attributed the move to tough UK retail energy market conditions, including the introduction of a price cap on default tariffs from 1 January 2019.

Markets

What happened yesterday?
The FTSE 100 ended Thursday up 0.39% at 6,969.85 points after a mixed session which balanced solid results from the likes of Shell and Diageo against worries over the EU’s rejection of Theresa May’s calls to reopen Brexit negotiations. The second tier FTSE 250 finished down 0.62% at 18711.75, whilst the pound was 0.14% higher on the dollar at $1.31 and 0.38% against the euro at €1.15.

The latest Nationwide house prices survey showed that values were up 0.3% month-on-month in January following a 0.7% drop at the tail end of last year. Elsewhere, the latest GfK survey of expected economic prospects over the next year showed the index at -39 – its least optimistic in seven years.

In corporate news, Royal Dutch Shell (up 3.78%) was among the day’s high fliers after posting a 36% jump in full-year earnings and 32% increase in Q4 earnings. It was pipped to the post by drinks giant Diageo, however, who saw first half net sales rise by  5.8% to £6.9 billion and operating profit up by 11% at £2.4 billion.

Besides Shell, the oil sector also made strong gains with BP (up 1.70%), Tullow (up 2.09%) and Premier (up 1.51%) all ending Thursday in the green. On the downside were Standard Life Aberdeen (down 5.06%) after being hit by a downgrade to ‘equal weight’ by Morgan Stanley, and BT (down 0.68%) where mixed third-quarter results revealed headwinds in the consumer segment.

Finals  
TSB
Banco Bilbao Vizcaya Argentaria SA
 
Q4 Results
Banco Bilbao Vizcaya Argentaria SA
 
Trading Announcements         
Euromoney Institutional Investor         
RPC Group       
TalkTalk Telecom Group
 
AGMs
Brewin Dolphin Holdings         
Catenae Innovation     
Dukemount Capital     
Euromoney Institutional Investor

UK Economic Announcements
(09:30) Consumer Credit
(09:30) Mortgage Approvals
(09:30) PMI Manufacturing
 
Intl. Economic Announcements
(08:55) PMI Manufacturing (GER)
(09:00) PMI Manufacturing (EU)
(13:30) Non-Farm Payrolls (US)
(13:30) Unemployment Rate (US)
(14:45) PMI Manufacturing (US)
(15:00) ISM Manufacturing (US)
(15:00) ISM Prices Paid (US)
(15:00) U. of Michigan Confidence (Final) (US)
(20:30) Auto Sales (US

Columns of Note

Philip Collins writes in The Times that Theresa May is in a stronger position than the current pollical impasse indicates. He notes that with the passage of the Brady amendment to seek “alternative arrangements” for an Irish backstop on Tuesday night, the Tory party were able to rediscover their unity. Add that to growing alarm at the urgency to avoid no-deal and you can just about see how May’s deal gets over the line. (£)
 
In The Telegraph, Garry White suggests success for Trump in settling the ongoing US-China trade war could give him impetus to revisit America’s settlement with the EU. The EU has warned that agriculture, and opening the EU market to US foods in particular, is clearly not up for discussion. Should the US insist on moving beyond industrial goods – as Trump has pressed with China – there may not be much room for common ground to be found.

Did you know?

Monty Python’s Life of Brian was banned from being shown in cinemas in the city of Glasgow for 29 years between 1979 and 2009 after local counsellors deemed the film blasphemous.

Parliamentary highlights

TODAY

House of Commons
No business scheduled

House of Lords
Legislation
Organ Donation (Deemed Consent) Bill – Committee stage – Lord Hunt of Kings Heath
 
Civil partnership, Marriages and Deaths (Registration Etc.) Bill – Committee stage – Baroness Hodgson of Abinger
 
Scottish Parliament
No business scheduled