18 December 2018

Tom Gillingham

18 December 2018

Good morning,

If the apocryphal emperor was searching for some new clothes in the dying days of 2018, he’d perhaps turn to the online fashion behemoth ASOS. He’d be encouraged by friends, would likely get a hefty discount, and could avoid the hassle of traipsing into one of Britain’s increasingly harried town centres.
 
Sadly for ASOS, if these fine new clothes turned out not to be his satisfaction, he would have a multitude of free options to return them and therein, it seems, lies the rub.
 
The company blamed discounting and weak November sales for yesterday’s surprise profit warning; the online retailer had forecast profits of £119 million this year but looks set to make only £52 million. This shock announcement came hot on the heels of Mike Ashley’s comments that last month was the worst November for the retail sector in living memory.
 
At a time when high street clothing retailers are facing Armageddon, ASOS’s predicament is a reminder that the online super-sellers are not immune to the severe headwinds facing the sector. After a tough day’s trading, the company’s shares ended yesterday down by 37.5%.
 
What then, does this revelation mean for the sector as a whole? In the short term, the ASOS contagion spread fast yesterday, with retailers – traditional and online – taking share price hits. Next and M&S were amongst the notable UK casualties. There was also news that Laura Ashley is fleeing to China, with 40 UK stores potentially set to close and reports as glum as Victoria Beckham’s public persona following a £2m loss for the former Spice Girl’s luxury fashion brand.
 
In the medium term, the Brexit-shaped elephant in the room may now be starting to stamp its feet. The received wisdom is that weaker consumer confidence brought on by uncertainty tends to hit the ‘nice-to-haves’ like youth-focused clothing first.
 
Although, as ever, People on Twitter want to challenge that notion, with one wag suggesting: “I love ASOS blaming poor sales on ‘political uncertainty’... cos teenagers are holding off buying £15 pleather skirts til they find out if TM’s deal can get through Parliament”.
 
So, it’s now a case of watching retailers’ post-Christmas sales updates to see if November really has given way to a catastrophic December. If the sales slide continues, already jittery shareholders who were promised the finest things could suddenly find themselves very exposed.

News

Yesterday afternoon Jeremy Corbyn appeared to march his troops up the hill of a no confidence vote in the Commons, before dramatically turning and marching them back down again as it was claimed the Prime Minister had given way to his demand of setting a date for the meaningful vote on the Brexit deal. Just a few hours later, however, he tabled a vote of no confidence in the PM herself (useful explainer here). This appears to have amounted to very little as the Government has said it will not debate the motion and – for now – life moves on.
 
The Office of Rail and Road has outlined plans which would allow passengers to desert failing train operators for better-performing rivals (£) under plans to allow companies to run the same routes. More competition will be introduced to the UK’s rail network from April, with the aim of cutting fares, boosting the overall number of trains at quiet times and increasing innovation.
 
Much further from home, astronomers have identified what is believed to be the farthest known object in our solar system. The International Astronomical Union’s Minor Planet Centre said the discovery was made using a telescope in Hawaii, and the remote pink cosmic body, which is some 11 billion miles away, has been named “Farout”.

Business & Economy

As mentioned in the introduction, the retail industry suffered a tough day yesterday, with just under £1.4 billion wiped off the stock market value of the sector (£). This followed ASOS raising concerns about consumer confidence and spending ahead of Christmas by issuing a profit warning.
 
The country’s ‘big four’ auditors face up to dramatic changes despite the Competition & Markets Authority (CMA) stopping short of calling for a full-scale break-up of the accounting giants’ auditing and consulting arms (£). The CMA said they should be split into separate operating businesses with distinct accounts, management and remuneration.
 
The Royal Chartered Institute of Surveyors (RICS) says house prices will stagnate in 2019 and the number of sales will fall as a mixture of Brexit and affordability constraints hit the market. The body’s latest survey found that prices will come to a standstill nationally, and in London and the south-east they are likely to “pull back” slightly.

Markets

What happened yesterday?

In the US, the S&P 500 ended the day down 2.08%, and the Dow Jones Industrial Average had a similarly tough day, closing down by 2.11%. Investors blamed ongoing trade tensions with China – a high-profile Xi Jinping speech failed to quell concerns – and heightened worries about the health of the retail sector.
 
The FTSE 100 finished the day down by 1.1%, having failed to shrug off the gloom descending on the retail sector. Beyond ASOS, M&S and Next were other notable casualties, losing almost 5% each.
 
The pound broadly held its ground against the euro, trending at around £1.11, despite ongoing Brexit uncertainties and the latest Eurozone data falling short of expectations.

Finals
Schroder UK Mid Cap Fund
           
AGMs
CIP Merchant Capital Limited NPV
DotDigital Group
European Metals Holding Limited (DI)
Sareum Holdings
Schroder Income Growth Fund
Scottish Oriental Smaller Companies Trust

Int. Economic Announcements  
(07:00) Wholesale Price Index (GER)
(09:00) IFO Business Climate (GER)
(09:00) IFO Expectations (GER)
(13:30) Building Permits (US)
(13:30) Housing Starts (US)

Columns of Note

Ever wanted to get the inside track on how a Tory vote of confidence works in practice? Of course you do. Graham Brady, the chair of the 1922 Committee, tells his story of last week’s dramatic events as the ‘48th letter’ was handed in.
 
Writing in the Times, Rachel Sylvester suggests Theresa May and Jeremy Corbyn are locked in a “dance of death” (£) as they play for time, and put national interests at risk as the ultimate Brexit deadline ticks closer each day.

Did you know?

Edinburgh – despite it being on the east coast of Scotland, is more westerly than Bristol, in the south-west of England.

Parliamentary highlights

TODAY 
 
House of Commons
Oral questions
Justice (including Topical Questions)
 
Ten Minute Rule Motion
European Union (Revocation of Notification of Withdrawal) - Geraint Davies

House of Lords
Oral questions
Support to the government of Nigeria in its efforts to end the violence between herders and farmers - Lord Suri
 
Future of transport policing in Scotland - Lord Faulkner of Worcester
 
Whether the Government have received any new information about the seven
allegations against Sir Edward Heath left open at the end of Operation Conifer - Lord Lexden
 
Effects on waiting times for NHS patients of NHS Foundation Trusts offering private healthcare services - Lord Brooke of Alverthorpe

Scottish Parliament
Ministerial Statement: Preparations for EU Exit

Ministerial Statement: The Conduct of Reviews and Inquiries

Stage 1 Debate: Damages (Investment Returns and Periodical Payments) (Scotland) Bill


TOMORROW
 
House of Commons
Oral Questions
Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office (including Topical Questions)

Prime Minister's Question Time

House of Lords
Oral questions
Requiring banks to maintain a presence of high street - Lord Lea of Crondall

Debate
How sport, recreation and the arts contribute to the wellbeing of society - Lord Moynihan

Scottish Parliament 

Portfolio Questions:
Social Security and Older People
Communities and Local Government