Apple Introduces iPhone 7: Water Resistant, Faster, New Camera
Here is this short, preliminary report from Bloomberg:
Apple Inc. unveiled new iPhone models Wednesday, featuring a water-resistant design, upgraded camera system and faster processor, betting that after six annual iterations it can still make improvements enticing enough to lure buyers to their next upgrade.
First Look at the New iPhone 7 and iPhone 7 Plus
The iPhone’s main improvement revolves around the new camera. Past models have had only one lens on the back, but the new version features a dual-lens system on the larger iPhone 7 Plus. The technology allows for sharper, brighter photos with better ability to zoom without degrading quality. Apple released a few details about the new phone on its Twitter account while Chief Executive Officer Tim Cook was giving a presentation at an event at San Francisco’s Bill Graham Civic Auditorium.
Even as iPhone demand has waned in recent quarters, partly due to the lull between product launches, the device continues to be the biggest source of Apple’s revenue. The iPhone is at the center of an ecosystem of products from Apple TV to the Apple Watch that are designed to function in connection with it. The new models will be critical to the holiday quarter, and the world’s most valuable company is counting on them to prop up sales ahead of an expected overhaul of the line in 2017, the iPhone’s 10th anniversary.
David Fuller's view
There are clearly a number of improvements but will it be enough to top Samsung? Many of us will be interested in the reviews, not least from Which Magazine as far as I am concerned. It definitely preferred Samsung’s phone a few months ago but Apple clearly has some significant improvements.
This item continues in the Subscriber’s Area and includes a discussion of Apple’s stock market prospects relative to Samsung.
EU Fiscal Stimulus Is Just a Rule Change Away
Here is the opening of this topical article from Bloomberg:
The European Central Bank is expected to extend its quantitative easing program further during the meeting of its governing council this week. The irony is that while the ECB has various options for continuing a program that isn't working, national governments have relatively few options for embarking on one that most agree is sorely needed. As Mario Draghi and others have said on multiple occasions, the ECB cannot deliver on its own. It needs governments to use fiscal levers to help stimulate spending and growth.
What prevents European governments from doing that right now is ostensibly the Maastricht deficit and debt limits (3 percent and 60 percent of gross domestic product respectively). While the European Commission has said that it would not count some investment spending in those limits, the rules are unclear and make it difficult for countries in breach to invest. What is needed is a change that brings national accounting more in line with reality and the sound principles used in the private sector.
Infrastructure investment in Europe is currently counted as an expense that gets added to (already bloated) national budgets. That fails to account for any multiplier effect the measures might have or the increase in productivity that is unleashed when, say, digital infrastructure is expanded or new transport links are created.
An investment, rather, should be amortized over the period it will be used for, just as it is in the private sector. A company that invests in new machinery, for example, amortizes it over many years. The same could even be true for R&D spending, which can deliver many gains in a knowledge economy.
David Fuller's view
The EU’s political leadership, mainly self-appointed by Germany and France, has tried to align what were 28 separate nations before Brexit occurred. They sought to do this with one-shoe-fits-all rules. These have not worked very well and any attempt to enforce them had been the equivalent of trying to herd 28 cats.
Europe may have more success with fiscal spending, which many financial observers have long said was overdue, including Mario Draghi, president of the European Central Bank.
If GDP growth is weak and monetary policy near zero percent is harming savers and banks, while benefiting only stock markets, fiscal spending to assist economies looks like a logical and necessary response. To the extent that it helps GDP growth, it may also cushion the next stock market downturn.
Japan Demand for Seamless Brexit is a Timely Warning Against Hubris
Here is a latter section of this sensible column by Ambrose Evans-Pritchard for The Telegraph:
It [Japan] wants continuation of the ‘single passport’ system for financial services, and clearing of euro transactions in London. “If Japanese financial institutions are unable to maintain the single passport obtained in the UK … they might have to relocate their operations from the UK to existing establishments in the EU,” it said.
The task force insists on mutual recognition of ‘Authorized Economic Operators’, which could not occur if Britain fell back to the minimalist terms of the World Trade Organisation. If the UK fails to retain the European Medicines Agency, Japanese pharmaceutical companies might shift research and investment to mainland Europe.
It wants guaranteed “access” for EU and UK nationals to work in each other’s country, which is not the same thing as free movement of labour or benefit rights. While the paper stresses that Japan “respects the will of the British people”, it cleaves to the status quo. “The message is essentially that nothing should really change,” said Raoul Ruparel from Open Europe.
The wish-list could perhaps be achieved through a halfway house such as entry into the European Economic Area, the ‘Norwegian model’. It is totally incompatible with the hardline demands of the Brexit triumvirate.
The task force paper is probably music to the ears of 10 and 11 Downing Street, and its release during the G20 summit may have been co-ordinated. It strengthens Theresa May’s hand as she tries to steer through treacherous waters, and pushes within the cabinet for a compromise soft Brexit - or a “seamless Brexit” as Tokyo calls it.
Japan’s demarche should not be read as a threat to Britain. The document is equally addressed to the EU, making it clear that the EU’s own credibility is on the line and that any attempt to ‘punish’ Britain would be intolerable.
It urges the EU to recognize that Britain cannot on its own deliver these terms, and that EU officials must “heed the voices of Japanese businesses to the fullest extent and to do their utmost to cooperate in taking the necessary measures to advance the Brexit negotiations,” it said.
David Fuller's view
AEP’s article is more cautious than The Telegraph’s other article regarding Japan which I posted on Tuesday. A lot is in play right now and the EU is likely to change radically over the lengthy medium term, as I have said before. However, the more immediate question is - might it actually concede to the UK a separate deal in terms of autonomy and sovereign rights, including control over its own borders? There is currently no precedent for this, although it would be in the sensible interests of European trade with the rest of the world. Alternatively, the UK may have no other option but to go for full Brexit, in its best long-term interests. In other words, leave the EU, lock, stock and barrel.
Why London will be an economic powerhouse after Brexit
Here is the opening of this article by Szu Ping Chan for The Telegraph:
London has retained its crown as the leading global city of opportunity and will remain a top destination for years to come despite the UK’s decision to leave the EU, according to PwC.
The Big Four accounting firm said the capital’s status as an economic powerhouse and magnet for innovation had helped it to “pull away” from global rivals this year.
Its report, which ranks the world’s 30 leading cities via a series of measures including ease of doing business, economic clout and liveability, put London at the top for the second straight year, ahead of cities including Singapore and Toronto.
PwC said London’s dynamism meant it would remain “agile and resilient” in the face of the Brexit vote, helping it to take advantage of “opportunities” and overcome challenges in the years ahead.
PwC’s research was conducted well before UK’s decision to leave the EU on June 23. However, it said the prospects for London remained bright.
“We cannot predict what Brexit may mean to the future of London as a pre-eminent world city, we do know it is today one of the world’s most cosmopolitan and well balanced cities, as shown by our research.
"Any effects Brexit may have on London will take place in a process that will evolve over time and not overnight,” it said in a report.
Sadiq Khan, the Mayor of London, said he was confident that London would continue to be “the best place in the world to do business”.
David Fuller's view
PwC is certainly an influential firm but surely this is a very subjective article and rating. The important assessments of Britain post Brexit will come several years from now. Personally, I am very optimistic about the UK’s prospects but they will require good governance and hard work, just like any other important achievements in the histories of countries.
Email of the day
On the post Brexit future for Britain:
David, I have the impression that City AM is running a series of articles to raise spirits in the City in this first week back from the holidays. Well, not a bad thing to do in comparison with the post-Brexit stuck-in-the-mud approach of some other papers I won't name. I particularly like this article in today's edition of city AM.
This is a truly uplifting article. It makes so may good points it is hard to choose one or two (though I know you will agree that London is the coolest place to live on the planet). Its main point is that wages in China have increased 5 fold in 3 years and at the same time, after one region in the USA, "the next most competitive location is the British Midlands from Birmingham to Manchester and beyond, plus the High Tech triangle that runs between King’s Cross, Cambridge and Oxford." I travel the world a lot and my impression is exactly as recorded in this article. I am very excited about the post Brexit future for Britain.
David Fuller's view
Thanks for a very interesting and enthusiastic email of general interest. (Note for subscribers: I have attached the two links which came with this email so that you can access them without leaving the Fuller Treacy Money site.)
There is certainly no harm in raising spirits in the City or anywhere else, with genuine good will and realistic optimism. What those of us who favour Brexit need to avoid is hubris – a repellent and destructive state of mind. There are big, exciting challenges ahead, requiring a realistic can-do spirit. We also need to encourage rather than alienate disheartened Remain voters. The UK needs their energy and constructive input. Personally, I remain very optimistic about Brexit, but I do not underestimate the challenges.
Incidentally, Pippa Malmgren, who wrote the article for City A.M. above is an interesting contributor. An American and successful businesswoman, she was a financial advisor to President George W Bush, before moving to London where she now lives and works. Similarly, the author of this email is a key participant in the High Tech triangle which runs between King’s Cross, Cambridge and Oxford.
Flows vs. Fundamentals the upside risk to EM EPS
Thanks to subscriber for this report from GolDMan Sachs which may be of interest. Here is a section:
The EM equity rally continued in July and August (+8%), albeit at a slower pace than the furious January-March rally (+20%), with MSCI EM sitting at 898 currently, or 2% off the cycle highs from two weeks ago. EM FX has corrected a bit more sharply in recent days, and our EM FX index currently sits just 0.5% above its March 31 close. Although sovereign credit spreads remain near cycle-tight levels, EM credit and local bonds have softened their rally as well in recent days (USD debt +4%, local debt +1% since end-June). As we discussed earlier this summer, an EM-friendly environment with equity being the strongest performer tends to occur during a ‘growth up, rates up’ phase of the cycle, and this has indeed been the macro backdrop (see EM Cross-Asset Strategy Part 1: Identifying ‘EM Risk’).
Much of the discussion surrounding the EM rally has focused on flows and positioning, but EM fundamentals have shown signs of a tepid improvement. EM GDP growth accelerated sequentially in the first quarter of 2016, and monthly data (such as Industrial Production) continued to improve in 2Q (see Exhibit 1). This is not the first time that EM growth has picked up since the global financial crisis – we have seen a few oscillations in sequential growth momentum and the bounce came off a low base in 4Q 2015. However, perhaps more importantly, the differential of EM vs. DM growth has improved in the past two quarters, a development we have not seen since early 2012 (see Exhibit 2).
We have long argued that an improvement in the EM growth outlook is the essential ingredient in adopting a positive outlook on EM equity – both in absolute and relative terms. Consequently, while we are unsurprised that the EM rally coincided with improving growth earlier this year, we have remained sceptical on the rally for two mains reasons: (1) the GDP acceleration did not drive EM EPS higher, and (2) EM growth picked up off a very low base and amid a sharp rise in commodity prices (oil and metals) in late Q1 and Q2, something we do not expect to continue in 2H. Below, we discuss the upside risk
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
Negative yields in some of the world’s largest developed markets has set off a global search for yield which has burnished the allure of many emerging markets. Meanwhile the rebound in commodity prices may have provided the bullish catalyst required to stoke interest in the asset class and is likely to remain a tailwind for the sector as long as prices are rallying.
Enbridge May Have Just Touched Off a 'Supermajor' Race for Pipes
This article by Tim Loh for Bloomberg may be of interest to subscribers. Here is a section:
With Enbridge Inc. planning a $28 billion takeover of Spectra Energy Corp., some investors say the industry’s in store for more deals as pressure mounts on the likes of Enterprise Products Partners LP and Kinder Morgan Inc. to follow suit. The biggest pipeline deal of the year foreshadows a feeding frenzy as those companies that survived the collapse in oil and natural gas prices step up the hunt for bargains. TransCanada Corp. got the ball rolling with the $10.2 billion purchase of Columbia Pipeline Group Inc. earlier in the year.
“We’ve just come through a very tumultuous period,” said Libby Toudouze, a partner and portfolio manager at Cushing Asset Management in Dallas. “Being able to survive the trough in the energy cycle, especially one like this last one that was so long, means you have to be bigger, faster, stronger.”
Enbridge’s deal would vault the Calgary-based company into North America’s largest energy pipeline and storage player. It could also mark the beginning of the "supermajor" era for the industry, according to Rebecca Followill, head of research at U.S. Capital Advisors, since it might “light a fire in the bellies” of the larger pipeline players, setting off a wave of consolidation that could accelerate through the end of 2016.
“Enterprise Products Partners is the other big 800-pound gorilla out there,” Toudouze said. “This puts a little more pressure on them to try to do something in the space.”
Eoin Treacy's view
The MLP sector, which is heavily weighted by pipelines, crashed lower with oil prices. The high leverage employed in the business models of pipeline companies was a major contributing factor in this underperformance. However with increased evidence that oil prices have hit medium-term lows, the relative resilience of North American economic growth and continued low interest rates, it is a natural time for companies to think about acquisitions.
Bond Traders Pare Fed Wagers as Goldman Reverses September Shift
This article by Rebecca Spalding for Bloomberg may be of interest to subscribers. Here is a section:
"With slightly softer data and less ‘time on the clock,’ a rate increase this year now looks a bit less certain," Jan Hatzius, chief economist at Goldman, wrote in a note to clients Tuesday. "While this is just one indicator, the surprise was meaningful, and there may have been some Fed officials feeling lukewarm on a September hike to begin with."
The central bank meets Sept. 20-21 after officials have stood pat on rates this year and twice pared projections for the path of increases. San Francisco Fed President John Williams on Tuesday said the U.S. economy is “in good shape and headed in the right direction” without indicating whether he was leaning one way or another regarding a rate increase.
Eoin Treacy's view
With a wall of debt that needs to be either retired or refinanced coming due in the next few years the Fed is understandably cautious about raising rates without robust economic growth to swell government coffers. In fact since monetary easing has not quite achieved the growth rates envisioned by central bankers, the case for fiscal stimulus is growing, regardless of the potential for it to create a bigger problem later.