30 July 2018

Adam Shaw

30 July 2018

Good morning, 

In what is set to be a busy week for corporate news, one organisation is likely to draw more interest than others: Tesla.

It’s been a turbulent few months for the electric car manufacturer, which reports its second quarter earnings on Wednesday. 

In June, it announced job cuts affecting approximately nine per cent of its 40,000 employees as part of a restructure designed to help the company hit production targets and reach profitability. This followed an exodus amongst the executive ranks of the organisation.

Then came the slanderous Twitter attack by chief executive Elon Musk on Vern Unsworth, one of the British cave divers who played a major role in the rescue of 12 boys and their football coach from a cave complex in Thailand. Unsworth had described Musk’s attempts to help in the rescue a “PR stunt”, a comment with which Musk took umbrage, lashing out in response. 

Musk later apologised and could possibly have been forgiven if this was the first time he had let his temper get the better of him. Except, it was not. During a call to brief analysts after Tesla’s last quarterly earnings update, Musk described some of the questions as “boring”, “bonehead” and “dry”, prompting concerns about his erratic behaviour.

In a column for the Financial Times a couple of days ago, Dan McCrum suggested that Tesla’s board might have to consider the “once unthinkable” and consider whether the company might be better off without Musk.

All this is set against the backdrop of a company that has failed to turn an annual profit in the 15 years since it was founded, reported a net loss of $2.24 billion in 2017, and was struggling to his production targets for the Model 3, its first mass market vehicle.

I was fortunate enough to drive a Tesla last year and can attest to the fact that they are remarkable machines. However, if Wednesday’s figures show that the company continues to struggle to hit its targets, further questions will likely be asked of Musk’s leadership.

News

Voters in Zimbabwe are participating in the country’s first election not involving Robert Mugabe. The former president, who led Zimbabwe for almost four decades after the country officially gained independence, was ousted in a coup last year. The incumbent Emmerson Mnangagwa of the ruling Zanu-PF party is thought to have a narrow lead but is facing a strong challenge from Nelson Chamisa, who leads the opposition Movement for Democratic Change (MDC).  

Special measures are in place to protect mourners at the funeral of Dawn Sturgess, who died earlier this month after being exposed to the nerve agent Novichok. Funeral directors have been working with Public Health England (PHE) to minimise any risk to the congregation attending the service in Salisbury today. There will be no pallbearers and the coffin will be in situ before mourners arrive. A spokesman for PHE reiterated that the risk to the public remains low.

Red Tractor, the UK’s biggest farm approval scheme, is failing to detect breaches of welfare standards as only one in 1,000 farms that it certifies receives an unannounced inspection. Just 50 of last year’s 60,000, or 0.08%, of inspections were unannounced, meaning farmers can clean up and remove sick or dead animals. Last week, Red Tractor expelled a pig farm after it received undercover footage of welfare violations filmed by animal rights activists. A subsequent unannounced visit found several breaches of standards.

Business & Economy 

Deutsche Bank has relocated almost half its euro clearing activities from London to Frankfurt in the latest sign of the City’s potential to lose out from Brexit. Just six months ago, Deutche Bank’s euro clearing operation was conducted almost entirely in London. Stefan Hoops, Deutche Bank’s global co-head of institutional and treasury coverage, said jobs would not be relocated as a result of the move, saying: “It’s the same London-based person who clears a transaction. We’re just using a different clearing house”.

Heathrow Hub, the sponsor of a rival project to expand capacity at Heathrow Airport, has submitted a pre-action letter, paving the way for the organisation to seek a full judicial review of the government’s decision. The letter, obtained by Sky News, was sent by law firm DAC Beachcroft on behalf of Heathrow Hub, and accuses the Department for Transport of failing to provide information about the decision-making process under freedom of information laws. Heathrow Hub favours a cheaper scheme to extend one of the airport’s existing runways.

Cancelled Northern Rail services have resumed following a timetable shake-up. Last month, Northern cancelled 168 services per day to relieve chaos caused by the new timetable, introduced in May. Services in Manchester, Merseyside and Lancashire are partially resuming while all trains on the Lakes Line, in the Lake District, are being reinstated. The remaining 25% of its cancelled trains do not restart until September. Northern has faced calls for it to be stripped of the franchise due to the disruption and passenger dissatisfaction.

 Markets 

The week ahead
Last week was a busy one for corporate and economic news and it will be more of the same this coming week.

On Thursday, the Bank of England Monetary Policy Committee is expected to raise interest rates to 0.75% – the  first time they will have been above 0.5% since 2009. Although nothing can be certain, it has been reported that just one member of the nine-strong committee now stands opposed to increasing the base rate.

There are also a significant number of FTSE 350 companies announcing interim results this week, including: BP, Centrica, Shire, BAE Systems, Capita, Lloyds Banking Group, Rio Tinto, St James’s Place, Aviva, Barclays, and Royal Bank of Scotland.

Across the Atlantic, the US July jobs report will be published on Friday. It is anticpated that it will show another strong month of growth and that unemployment has fallen below four per cent.

On the US corporate front, 145 constituents of the S&P 500 will report earnings. Tuesday will see Apple publish its second quarter earnings, whilst Tesla is scheduled to announced its figures on Wednesday.

Interims
Dialight, Forterra, Foxtons Group, JKX Oil & Gas, Keller Group, Reach, Senior, XP Power Ltd. (DI)
 
Trading Announcements
Cranswick, CYBG, Fuller Smith & Turner, IQE
 
AGMs
All Asia Asset Capital Limited (DI), B&M European Value Retail S.A. (DI), China New Energy Limited, Cranswick, G3 Explortation Limited (DI), Greka Drilling Ltd (DI), Kibo Mining, National Grid, Plastics Capital, Redstoneconnect, Trader Media East Ltd GDR (Reg S)
 
EGMs
B&M European Value Retail S.A. (DI)

 UK Economic Announcements
(09:30) Consumer Credit
(09:30) M4 Money Supply
(09:30) Mortgage Approvals
 
International Economic Announcements
(10:00) Business Climate Indicator (EU)
(10:00) Consumer Confidence (EU)
(10:00) Economic Sentiment Indicator (EU)
(10:00) Industrial Confidence (EU)
(10:00) Services Confidence (EU)
(15:00) Pending Home Sales (US)

Columns of Note 

In the Financial Times, Rana Foroohar says that the US business community should sit up and take note of the Democratic party “returning to its roots”. She highlights the case of Alexandria Ocasio-Cortez, the 28-year-old “democratic socialist”, who beat establishment favourite Joseph Crowley in a Democratic primary a few weeks ago, despite accepting no corporate funding. Foroohar contends that this is symbolic of a Democratic party reverting to its pre-Clinton ethos of worrying about citizens rather than consumers. Foroohar argues that rather than being concerned, business should embrace the changes as many of the initiatives – universal healthcare, affordable further education etc – would be good for the economy. 

Writing in The Telegraph, Matthew Goodwin, professor of politics at the University of Kent, outlines how the Conservatives are drifting from their voters. He outlines how the make up of Conservative voters is different today than it was before 2016 – more working class, more pro-Brexit and more opposed to free movement, allowing the party to hoover up former UKIP voters. However, the prime minister’s Chequer’s deal has gone down poorly amongst the base, denting her and the party’s poll ratings. This and the fine margins following the last election clears Jeremy Corbyn’s path to Downing Street, Goodwin says.

 Did you know?

The smell of the air after a storm is caused by Geosmin – a chemical released by dead soil bacteria. Humans are hyper sensitive to it, capable of detecting it at a concentration of 5 parts per trillion. Scientists believe that during human evolution, this chemical helped our ancestors to search for water after a drought.

Parliamentary highlights 

House of Commons
 
In recess until 4 September
 
House of Lords
 
In recess until 4 September
 
Scottish Parliament
 
In recess until 3 September