By Mark Richards.
As we do at the beginning of every month, CL News looks back over the month just ended. So what did March bring us? As we have long predicted, what it did not bring was the UK leaving the European Union. It did bring signs of a thaw in the US/China trade dispute – which was warmly welcomed by world stock markets – but it also brought some real signs of the way the car industry is changing. March also brought us the world’s most diligent mouse and news that McDonald’s had spent more than £200m on applied common sense…
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
The big story
At the beginning of February, we wrote an article asking if driverless cars would ultimately lead to the end of the traditional car industry. At the beginning of March, we looked at the pace of change in the car industry – and that was a recurring theme throughout March. Looking at the notes I keep for this Round-Up, more than 50% of my notes on the US concern the car industry – but nowhere is there a note about the traditional giants of the industry like Ford or Chrysler. Instead, the notes are about Uber, Lyft and Tesla.
For all of my life, there have been three inescapable facts about cars: people drove them, people (or their employers) owned them, and the cars were powered by the internal combustion engine.
Now, all that is changing: we are moving towards driverless cars powered by electricity or the hydrogen cell. And those cars are increasingly owned not by individuals or their employers, but by companies like Uber and Lyft – and/or their drivers – inevitably leading to a decrease in car ownership.
These changes will have huge implications for the traditional car industry. The German economy has powered Europe for the last 10 to 20 years and the country’s biggest single industrial sector is making cars. The German car industry employs over 800,000 people and accounts for 20% of the country’s exports.
Meanwhile, over in America Lyft has made its debut on the New York stock exchange with the company valued at $24bn (£18.5bn), the biggest public offering since the Chinese company Alibaba. The figure will seem small when Uber floats: despite continuing to lose around $1bn (£770m) every quarter, the company is expected to be valued at $120bn (£92bn).
Need more evidence of how the car industry is changing? Tesla is on course to outsell BMW and Mercedes in the US and car sales have fallen in China for the first time in decades. The battle for the future of the car industry will be fought ever more fiercely between the tech giants and the traditional companies, but when the dust has finally settled the industry – and employment in that industry – will look very different. March 2019 may have just been the month when the tech giants won the first skirmish in the war.
So what happened in the UK?
There was, of course, the usual round of gloom from the retail sector. Debenhams issued a profit warning and Sports Direct boss Mike Ashley duly contemplated a £61m bid for the company. At the time of writing the Debenhams board appears to have secured re-financing to fend off Mr Ashely’s amorous advances, but you suspect it is only a matter of time…
More widely the high street suffered its worst February for ten years with sales down 3.7% and John Lewis paid its lowest bonus to staff since the 1950s. What was once Staples and is now Office Outlet went into administration, but as I am typing this on a chair I bought from – where else – Amazon, I suppose I must hold my hand up and plead guilty for that one. At least sales at Gregg’s were sharply up, rising 9.6% in the seven weeks to 16th February, thanks to an old favourite of this column, the vegan sausage roll.
Elsewhere in the UK, there was the usual mixture of good and bad news. Chancellor Philip Hammond delivered his Spring Statement, making no secret of his desire to avoid a ‘no deal’ Brexit and promising a £26bn ‘deal dividend.’
But despite the undeniable uncertainty, the UK economy continued to turn in some impressive figures as unemployment fell to its lowest level for 45 years and 32.7m people were in work. Figures from the Office for National Statistics showed that the economy had grown by 0.5% during January – more than double economists’ predictions of 0.2%.
Toyota announced that it would build its new hybrid car in Derbyshire – a welcome shot-in-the-arm for the UK car industry which (unsurprisingly, given our main story) saw manufacturing fall for the 9th month in a row. There was also bad news in the housing market, which recorded its first annual fall in prices since 2012.
What did the UK’s FT-SE 100 index of leading shares make of it all? It had a good month, rising by 3% to 7,279 where it is up by 8% for the first quarter of 2019. The pound fell slightly, ending March 2% down at $1.3036.
Countdown to Brexit
Yet again, all the really important news regarding Brexit came at the end of the month as Theresa May brought her Withdrawal Agreement back to Parliament for a third time on Friday, March 29th – the day on which the UK should have left the EU – only to see it defeated yet again. This time it failed by 58 votes, with the DUP once again refusing to support it.
There were plenty of high profile Brexit supporters, such as Boris Johnson and Jacob Rees-Mogg, who did support the WA – fearing that it was accept a bad deal or risk losing Brexit altogether – but in truth, the Prime Minister never look likely to do enough to convince either the DUP or 25 die-hard Brexit MPs.
So where does that leave us now? On Monday, April 1st there will be another series of indicative votes as MPs look for something they can agree on. The Prime Minister has no control over this and – having promised to stand down if her deal passed – she will face plenty more calls for her immediate resignation as her deal lies in ruins.
If nothing is agreed – such as a further extension to Brexit – then the UK will leave the EU on April 12th. Depending on your point of view we will ‘crash out’ with no deal, or we will move to trading on World Trade Organisation terms. The situation is further complicated by European elections, due to be held in late May: if the UK is still in the EU then it must send MEPs to Brussels.
Having written a year ago that I expected the Brexit deadline to be extended I now expect we will see yet another 11th-hour compromise brought back before Parliament. But patience is now wearing thin on all sides. However this ends, I suspect it will not end well, and more than 1,000 days after the UK voted to leave the EU every option – deal, no deal 2nd referendum or general election – remains possible.
What happened in the rest of the world?
We have already mentioned the resumption of the US/China trade talks and the accelerating changes in the car industry. In the US the month started with bad news on jobs as the pace of growth in the economy slowed: unsurprisingly the Federal Reserve then said that it saw no need for any further interest rate rises this year.
Perhaps the most interesting – and potentially far-reaching – development was in Italy, which welcomed Chinese Premier Xi Jinping. We have written previously about China’s ‘Belt and Road’ initiative and – with worries about the German car industry and the French economy stagnating – why wouldn’t the populist government in Italy look to closer ties with China? Despite the concerns of her European neighbours the upside for Italy is clear – a flood of Chinese investment and greater access to Chinese markets and raw materials.
The controversy over Chinese telecoms company Huawei continued as the US warned Germany that intelligence sharing could be at risk if it used Huawei equipment in the country’s 5G network. Huawei merely shrugged and reported that sales for 2018 had passed $100bn (£77bn) and that profits were up by 25%.
Back in Europe a new populist, anti-immigration party led by Thierry Baudet – inevitably dubbed the ‘Dutch Donald Trump’ – became the largest party in the Dutch Senate. With European elections due in May we can certainly expect to see far more Eurosceptic MEPs returned – which perhaps explains why the EU would prefer the UK not to take part in those elections…
Those of you who have read this Round-Up for any length of time know that last year there was ‘volatile,’ ‘very volatile’ – and then there was the price of Bitcoin. Having flirted with $20,000 (£15,000) at one point last year, the price of the currency steadily declined, with some commentators questioning whether Bitcoin would be replaced by a different crypto (or virtual) currency.
Well, so far in 2019 Bitcoin has behaved like a sensible, long-established currency. It started the year at £2,891 and then fell to £2,597 by the end of January. The pessimists were out in force, but by the end of February it had made up most of the lost ground and it closed March at £3,133 where it was up 9% for the month and 8% for the year as a whole.
For most of March, I was worried. I had one link in the ‘And finally’ section – and that was tenuous at best. Fortunately, a mouse came to my rescue – and then the stories were like buses. You wait for days for one to come along…
Gloucestershire pensioner Stephen Mckears was baffled. Every night he left a few things out on his workbench (in his garden shed, where else) and every morning they were neatly back in their plastic tub.
It wasn’t Mrs Mckears doing some late night cleaning and neither was it a friendly neighbourhood ghost. So what was it? Questioning his own sanity, Stephen set up a camera in his garden shed with the help of a neighbour.
…And discovered that a mouse was tidying his workbench. Whatever Stephen left out, the mouse duly tidied away in the plastic tub. “I have started calling him Brexit Mouse,” quipped Stephen, “As he is stockpiling things for Brexit.” Given what I have written above, ‘Brexit’ may be on duty for some time to come…
A lot less successful than Brexit the Mouse was British Airways flight BA3271 from London to Dusseldorf which – everyone blamed everyone else, obviously – landed in Edinburgh. BA refused to say how many passengers were affected by the mistake but one of them, Sophie Cooke, a management consultant was not amused. She said that the plane sat on the tarmac at Edinburgh for 2½ hours before flying on to Dusseldorf. “The toilets were blocked,” she said, “And they ran out of snacks.”
Had Sophie had a little more time she could have visited what may become Edinburgh’s latest tourist attraction. Local mum Cecilia Leslie has a collection of more than 500 cloth nappies. Cecilia now collects limited edition nappies (no, I did not know there was such a thing either) and recently paid £160 for a pair of nappies of which there were only 100 made. Asked how he felt, Mr Leslie said there “worse things” that his wife could be addicted to.
Sadly, all too many of us are addicted to the occasional McDonald’s and to help us with our choice the chain has just spent $300m (£227m) on an Israeli technology company that specialises in artificial intelligence. According to McDonald’s CEO Steve Easterbrook “It [the AI] can know the time of day and it can know the weather” thereby helping the chain serve the right food for both the time of day and the weather.
Now call me old-fashioned but I wonder whether you really need to spend more than £200m to know that you should take the breakfast menu off at three in the afternoon, or whether it wouldn’t just be simpler to pop your head out of the door and say, ‘You know, Chuck, the sun’s shining, maybe we should put a few more salads on the menu?’
But what do I know…