David Fuller and Eoin Treacy's Comment of the Day
Category - Autonomies

    Amazon to Cut Prices at Whole Foods as Acquisition Closes

    This article by Mark Gurman and Matt Townsend for Bloomberg highlights the continued polarisation in the retail sector between those with a technological/low cost advantage and conventional stores. Here is a section:

    The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday -- the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, some vegetables, and some types of organic fish. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.

    "This is a pretty impressive array of bold moves on the first day of an acquisition -- unprecedented, we would say," said Carol Levenson, an analyst at Gimme Credit.

    The moves by Amazon inflame an already raging price war in U.S. groceries -- a sector known for razor-thin profit margins.

    German discount grocers like Lidl and Aldi are expanding in the U.S. and Wal-Mart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade. Shares of grocery-store chains fell on the announcements.

    Kroger Co. declined as much as 2.4 percent while Sprouts Farmers Market Inc. sank 2.5 percent. Wal-Mart Stores Inc., which sells the most groceries in the U.S., also dropped 0.8 percent.

    Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said.

    Beyond price cuts and increased distribution, Amazon Prime will become Whole Foods’ customer rewards program, allowing shoppers to rack up Amazon rewards when they purchase pasture-raised eggs, organic milk and kombucha.

     

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    China's Robot Revolution May Affect the Global Economy

    This article from Bloomberg caught my attention. Here is a section:

    “By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.
    Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI. 

    “Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything, medium-skilled workers conducting routine work are doing better than average.”

     

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    Facebook Usage Among Teens Set to Drop in U.S

    This article by Sarah Frier for Bloomberg may be of interest to subscribers. Here is a section:

    “Teens and tweens remaining on Facebook seem to be less engaged –- logging in less frequently and spending less time on the platform,” Orozco said. “At the same time, we now have Facebook-nevers, many children aging into the tween demographic that appear to be overlooking Facebook altogether, yet still engaging with Facebook-owned Instagram.”

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    Hollywood, Apple Said to Mull Rental Plan, Defying Theaters

    This article by Anousha Sakoui for Bloomberg may be of interest to subscribers. Here is a section: 

    Movie studios are considering whether to ignore the objections of cinema chains and forge ahead with a plan to offer digital rentals of films mere weeks after they appear in theaters, according to people familiar with the matter.

    Some of the biggest proponents, including Warner Bros. and Universal Pictures, are pressing on in talks with Apple Inc. and Comcast Corp. on ways to push ahead with the project even without theater chains, the people said. After months of negotiations, the two sides have been unable to arrive at a mutually beneficial way to create a $30 to $50 premium movie-download product.

    The leading Hollywood studios, except for Walt Disney Co., are eager to introduce a new product to make up for declining sales of DVDs and other home entertainment in the age of Netflix. They have discussed sharing a split of the revenue from premium video on demand, or PVOD, with the cinema chains if they give their blessing to the concept. But the exhibitors have sought a long-term commitment of as much as 10 years for that revenue split, which the studios have rejected, the people said.

     

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    Japan: Ignore Autos and Electronics to Profit

    Thanks to a subscriber for this article by Emma Wall for Morningstar may be of interest to subscribers. Here is a section:

    With a shrinking working population, Japan has record low levels of unemployment and the economy is poised to receive a boost once this lack of supply filters down to wage growth. But there are equities which can profit from the tight labour market according to Weindling; he invests in recruitment firms that provide permanent and temporary workers.

    Suppliers Immune from Domestic Threats
    While the population is ageing, Weindling points out that a Japanese company does not need a Japanese customer base to thrive.

    “There is no reason why Japan should not continue to make things. Factory automation and robotics are not a threat to Japanese industrials in the way that they are to US companies – they are the solution to a dwindling workforce,” he says. “More automation is a good thing, and the larger industrials will continue to take market share. It is a multi-year, structural shift.”

    That does not mean he backs the exporters of old, however. The international names which have long been synonymous with Japan are electronics firms and auto-makers; Toyota, Canon, Mitsubishi and even Sony are no-go areas for Weindling.

    “No one buys cameras anymore, so why would I buy Canon,” he says. “We don’t own any of those household names. Their prospects are considerably lessened. Japan’s export market is no longer about cars and electronics, it is about condoms, baby milk, skin cream, medicine. Japan is known across Asia for high-quality products, reliability and high safety standards. These are the companies you want to be invested in.”

     

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    Chinese automakers covet FCA

    This article by Larry Vellquette for Automotive News may be of interest to subscribers. Here is a section:

    Why, after two years on the block, is FCA apparently drawing interest from at least one potential Chinese buyer now?
    The answer: FCA's global network and product — specifically Jeep and Ram — fit the requirements the Chinese government has set for attractive acquisitions.

    Quality gap
    Chinese automakers have openly dreamed of cracking lucrative North America for a decade, spending millions to display their vehicles at high-profile U.S. auto shows. Early efforts showed that Chinese automakers had a long way to go before they were ready to compete here.

    But in more recent years — through knowledge and expertise gained via joint ventures with the world's largest and most successful automakers — Chinese companies have closed the quality gap.

    And the automakers feel like they finally have closed that gap enough to start selling their products in the U.S., said Michael Dunne, president of Dunne Automotive, a Hong Kong investment advisory company and an expert on the Chinese auto industry.

    They also are under pressure from the government to expand beyond China, Dunne said. A government directive dubbed China Outbound pushes Chinese businesses to acquire international assets from their industries and operate them "to make their mark," much as Geely has done since acquiring Volvo in 2010. Bloomberg reported last week that Chinese companies plan to spend $1.5 trillion acquiring overseas companies over the next decade — a 70 percent increase from current levels.

     

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    Wall Street's "fear gauge" nears 3-month high as "fire and fury" sparked stock-market slump

    This article from MarketWatch covers most of the relevant points on the uptick in volatility in response to heightening brinksmanship with North Korea. Here is a section:

    The downdraft for the equity market comes amid rising geopolitical tensions, after a North Korean army commander said “sound dialogue” isn’t possible with U.S. President Donald Trump and “only absolute force can work on him,” according to state media. North Korea also laid out detailed plans of how it would launch a missile strike on U.S. military bases in Guam.

    The recent testy exchange underlines mounting tensions between Pyongyang and Washington that Wall Street investors are fretting could risk an all-out nuclear war between the nations.

    Against that backdrop, the VIX has been steadily rising over the past three sessions coinciding with a pullback in stocks and a jump in demand for assets perceived as havens including gold GCZ7, +1.03%   which was trading around a two-month high and 10-year benchmark Treasurys TMUBMUSD10Y, -0.47%, which were hovering at yearly yield lows around 2.22%. Bond prices move inversely to yields.

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    Apple Signals Resilient IPhone Demand Helped by Supporting Cast

    This article by Alex Webb for Bloomberg may be of interest to subscribers. Here is a section:

    “There is some relief from the fear of a significant pause before the 10th anniversary iPhone refresh,” said Michael Obuchowski, chief investment officer at Merlin Capital LLC in Boston, which holds Apple stock. “I’m beginning to think it won’t matter if the new iPhones aren’t that exciting.”

    Apple is likely to introduce three new handsets this year: a revamped top model, known for now as the iPhone 8, and upgrades to the existing iPhone 7 and iPhone 7 Plus, people familiar with the plans have told Bloomberg News. The high-end iPhone will include an organic light-emitting diode screen, and inadequate OLED supplies mean that it will not be as readily available as the cheaper handsets at launch, the people said.

    Cook said reporting about the new versions of the iPhone “has created a pause” in consumer buying “that is likely larger than previously.” Apple’s stock has soared on expectations that the new high- end smartphone, which will also include a front-facing three- dimensional sensor to enable facial recognition, will spur a resurgence in demand that will carry into the holiday quarter and beyond. Sales growth of the company’s flagship product has slowed over the past two years as the market has become increasingly saturated and competitors have offered cheaper products with similar capabilities.

    New Technologies
    Slowing smartphone sales have prompted Apple to invest more heavily in developing new technologies. It’s working on smart glasses, an autonomous driving system, improved health and fitness offerings, and its own semiconductor technology.

    Research and development spending jumped 15 percent to $2.9 billion in the most recent quarter. Apple unveiled the early fruits of its spending on augmented reality technology in June, releasing a set of tools which let developers build AR software for the iPhone and iPad when the next operating system for those devices is rolled out later this year. Cook has over the past 18 months repeatedly said how excited he is about the prospects for AR.

    Cook is preparing to release Apple’s first new hardware category since 2015. The HomePod, the smart speaker that will go on sale in December, is the company’s response to Amazon.com Inc.’s Echo and Alphabet Inc.’s Google Home speakers. The company is hoping that advanced acoustic capabilities will encourage consumers to pay $349 for the device -- almost three times as much as the Google Home.

     

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    Pepsi Says It's Facing the Same Trends That Are Battering Retail

    This article by Janet Freund for Bloomberg may be of interest to subscribers. Here is a section: 

    Retail’s “shifting sands and macro headwinds will make near-term earnings beats challenging” for PepsiCo, Wells Fargo analyst Bonnie Herzog said in a note to clients. Still, PepsiCo gets a large proportion of revenue from snacks, which are easier to sell online than beverages, she said. That means the company is better positioned to adapt than some of its peers.

    PepsiCo’s comments were similar to those made by Coca-Cola CEO James Quincey, who told Bloomberg in May that when shoppers skip trips to the local mall and shop online, they also forgo buying Coke at a vending machine or food court. Coca-Cola investors will be watching to see how that may hurt second-quarter results on July 26.

    Nooyi’s remarks were “an acknowledgement to the intensifying competitive environment that will likely get more so with Amazon involved,” Bloomberg Intelligence analyst Ken Shea wrote in an email. Still, some consumer products companies will be more vulnerable than others to change, and PepsiCo’s “huge distribution reach and agility arguably make it less vulnerable” to changing shopper behavior than its peers, he said.

     

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    New Cyberattack Goes Global, Hits WPP, Rosneft, Maersk

    This article by Giles Turner , Volodymyr Verbyany , and Stepan Kravchenko for Bloomberg may be of interest to subscribers. Here is a section:

    The hack quickly spread from Russia and the Ukraine, through Europe and into the U.S. A.P. Moller-Maersk, operator of the world’s largest container line, said its customers can’t use online booking tools and its internal systems are down. The attack is affecting multiple sites and units, which include a major port operator and an oil and gas producer, spokeswoman Concepcion Boo Arias said by phone.

    APM Terminals, owned by Maersk, is experiencing system issues at multiple terminals, including the Port of New York and New Jersey, the largest port on the U.S. East Coast, and Rotterdam in The Netherlands, Europe’s largest harbor. APM Terminals at the Port of New York and New Jersey will be closed for the rest of the day “due to the extent of the system impact,” the Port said.

    Cie de Saint-Gobain, a French manufacturer, said its systems had also been infected, though a spokeswoman declined to elaborate, and the French national railway system, the SNCF, was also affected, according to Le Parisien. Mondelez International Inc. said it was also experiencing a global IT outage and was looking into the cause. Merck & Co. Inc., based in Kenilworth, New Jersey, reported that its computer network was compromised due to the hack.

     

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