by Erick Mokaya, Avondale Asset Management
t´s been a light week for earnings as the Q2 earnings season winds down with a whimper. There has been growing and glowing interest in Europe as an investment hub this week. Retail customers are blending the online and in-store experiences companies commit to being omnichannel retailers. Meanwhile, after the Wannacry cyber attack last weekend, we have been reminded that cyber security threats loom large and we all need to be wary.
Editorâs note: Thanks again to Erick Mokaya (@probinginvestor) for his great work in writing this weekâs piece.
Macro and International Outlook
Europe is attracting renewed interest
âItâs nice to hear people talking about Europe in a positive way. Weâre really seeing growth in a broad way you havenât seen in 5 or 10 years. The political risk in Europe is coming down. Europe is in the 3rd inning of a recovery. The US, depending on Trump, is somewhere between the 7th and 9th inning.â â Polygon Global Partners LLP Founder Reade Griffith
âAll of a sudden we have stability in France, in Germany, in the Netherlandsâand more political uncertainty in the United States. Europe is the place to invest, because itâs been very much underinvested.â â Marathon Asset Management CEO Bruce Richards
âEurope has been a long stretch of either disaster or disappointmentâŚ.Youâve finally got attractive growth, better inflation data, reasonable valuations and much better earnings prospectsâ â Skybridge Capital Partner Troy Gayeski
The global economy is growing moderately
âGlobal recovery is gaining momentum, yet growth remains moderate and GDP is still below potential in many countries, with the balance of risks tilted to the downside.â â G7 Finance Ministers and Central Bank Governors Communique
US Inflation has been below target
âThe reflation trade was probably overdoneâŚInflation has been below target for a while. Itâs been unexpectedly difficult to get inflation up.â â  Former Fed Chair Ben Benanke
The Swedish Central Bank is considering  a variable inflation target
âThe Riksbank is considering changing the target variable for the inflation target to the CPIF. As inflation will always vary around 2 per cent, a variation band of +/- 1 percentage point is being also considered to illustrate this uncertainty.â â The Swedish Central Bank
Markets are underestimating political risk
âIt always puzzles me a little bit that markets are very blase about political risk until the last momentâŚ.Iâm not counting on major changes in the tax code or infrastructure.â â Ben Benanke Former Fed Chair
Financials:
The art and luxury goods market is showing signs of strengthening
âSo, what is the state of the market for the art and luxury goods that Sothebyâs sells? In short, the market is starting to show signs of strengtheningâŚ.East and Southeast Asiaâs buyers were prepared to pay top prices for excellent quality art and jewelry.â â Sothebys CEO Thomas Smith
The IASB released IFRS 17 on insurance contracts and it´s a big deal
âThe International Accounting Standards Board ⌠issued IFRS 17 Insurance ContractsâŚ{to} help investors and others better understand insurersâ risk exposure, profitability and financial position.â â IASB
âItâs a big deal as it means accounting policies will change for all contracts, and profits could be more volatile than todayâŚMore of the profit from a contract will be deferred over the contract period, which could mean increased volatility in earnings.â â EY Partner Kevin Griffith
Retail
Accelerated merchandise growth at Wal-Mart in the quarter
âThe U.S. e-commerce GMV growth accelerated significantly, up approximately 69%. Through the lens of strong, efficient growth, Iâm pleased with the results.â Â â Wal-Mart EVP and CFO Brett Biggs
Trends in retail are secular
âthese changes that weâre seeing are secular and not cyclical. On the consumer side, we see continuing shifts in shopping trends, driven by the rapid adoption of technology, and for some of our customer segments, a greater emphasis on value and on experience. As for the retail industry overall, weâve known for some time that the United States is over-retailed compared to other markets, so itâs not surprising to see the contraction in retail square footage.â â Macyâs CEO Jeffrey Gennette
Customers are blending the online and in-store experience
âI think the interesting thing for us is over 45% of our orders on homedepot.com the customer is actually choosing to pick up into our storesâŚ.this whole customer engagement is becoming a blended element between online and in-store, and the customer is choosing in some cases, they start the shopping experience online, they finish in-store orâŚvice-versaâ  â Home Depot CEO Craig Menear
Retailers are making a stronger commitment to omnichannel
âweâre all in on being a meaningful omnichannel retailer. We have a massive brick-and-mortar presenceâŚour challenge is, of course, on the product side, to make the product offering in those stores more relevant and more effective, and then to leverage, as an omnichannel retailer, those store assets, our people, our inventory, our physical facilities, for customers who prefer to buy online.â â Kohlâs Corp CEO Kevin Mansell
âAnd third, we remain committed to becoming a world-class omnichannel retailer.â â J. C. Penney CEO Marvin R. Ellison
More chains are turning to automation to resolve labour costs issues
âWe have more and more chains coming to us looking at how to resolve labor issue, how do we offset the higher cost of labor through automation.â â Middleby CEO Selim A. Bassoul
Sales improved in March and April compared to February
âwhile sales results for the quarter in total didnât meet our expectationsâŚsales in February were down high single digits and improved to down 1% in the March/April combined period. April sales and traffic metrics were both positive mid-single digits, and traffic metrics actually led sales during that month.â â Kohlâs Corp CEO Kevin Mansell
Thereâs an ongoing casualization trend
âthereâs a continuing trend around casualization that we need to be mindful of really kind of across the board.â â Nordstrom Co-President Peter E. Nordstrom
Technology:
Cyber threats are growing and are having devastating effects
âWe recognise that cyber incidents represent a growing threat for our economies and that appropriate economy-wide policy responses are needed. No point of cyberspace can be absolutely secure as long as cyber threats persist in the surrounding environment.â â G7 Finance Ministers and Central Bank Governors Communique
âLast weekâs WannaCry ransomware attack was another example of the devastating impact cybercrime can inflict on individuals, companies and countries around the worldâŚ.Itâs important that the tech industry and customers work together to defend against these attacks from cyber criminals.â â Cisco Systems CEO Charles Robbins
Seasonality impacted ad revenues for Tencent
âFor the first quarter, for the first time our digital subscription video revenue exceeded our video advertising revenue thatâs partly a seasonal factor because the first quarter is seasonally weak for advertising and seasonally strong for consumer digital spend, so we wouldnât necessarily expect that to be the case in subsequent quarter.â â Tencent Holdings CFO John Lo
Cisco is focusing more on software and subscriptions
âWe set out 18 months ago to transition the business to one of more software and subscription. At the time, 8 quarters ago, it was $2 billion on our balance sheet. Today, weâve more than doubled that, up 57% this quarter to $4.4 billion and accelerating.â â Â Cisco Systems CEO Charles Robbins
Even Kohls is touting machine learning
âwhile we increased fulfillment levels from our stores, our overall fulfillment costs remain nearly constant as a percent of digital salesâŚ.by using machine learning to improve the algorithms that determine how to optimally fill orders with our network of stores and EFCsâ â Kohlâs Corp CEO Kevin Mansell
Automotive:
Winning in autonomous is going to take scale and know-how
âYouâve got to be able to make these vehicles at scale and youâve got to have the manufacturing know how to put thousands and tens of thousands of vehicles out in the field.â â General motors VP of Global Strategy Michael Abelson
Materials, Energy:
Contango in spring makes for a stronger summer in the freight market
âThe product market is normally more in Contango when we come to the spring marketâŚIf the contango is very strong this spring and summer, itâs quite likely that we might see a stronger freight market in the summer.â â Avance Hodings President Christian Andersen
China is driving the world demand in the bauxite market
âthe vast majority of bauxite demand sits in China. There is some third-party demand outside, but for the most part itâs a China storyâŚ.thereâs an insatiable appetite in China to bring that in-country in either stockpile or use.â â Alcoa CEO Roy Harvey
Copyright Š Avondale Asset Management