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09/02/2017

Weekly News Bites: Free as a bird

Our top picks from this week's Morning Chat

Free as a bird: With about two-thirds of the S&P 500 having reported results, fourth-quarter earnings are on track to have risen by 8.3% – a booming performance. Yet, investor unease is palpable. Prices for US government bonds – considered the safest assets in the world – continue to climb: the 10-year yield has fallen to 2.35%. Part of this stems from the erratic nature of the US President’s tweets. Just yesterday, he chastised department store Nordstrom’s for no longer stocking his daughter’s clothing brand, chastised the judiciary and insisted his travel ban is widely popular. (9/2)

The invisible bland: The British Parliament voted overwhelmingly yesterday to begin the formal process of leaving the EU. Separately, another debate over the recent trebling in lettuce prices raged – the result of flooding in Spain, where 80% of Europe's winter vegetables are produced. But former Conservative cabinet minister Lord Tebbit refused to let a colleague call it a "crisis", saying no rational person would describe it so. Lord Tebbit, an octogenarian who has lived through World War II, makes a fair point. Let's instead call it a triumph for the invisible hand of supply and demand. (9/2)

Talking shop: Aldi has become the UK's fifth largest grocer, with a market share of 6.2%. Ten years ago, it was just the tenth largest, with less than 2% of the market. Aldi and other discount grocers have caused huge disruption in the sector, wresting business away from traditional players. Part of the success has been based on forcing the industry behemoths to engage in a ruinous price war, a strategy that played to the strengths of small, lean players which tend to stock much fewer items, most of which are self-branded. The pressure has been telling, over the past five years Tesco's shares are down 40%; Sainsbury's are down 10%. (8/2)

Changing the subject: Germany's Social Democratic party nosed ahead of Chancellor Angela Merkel’s Christian Democrat/Christian Socialist bloc in an opinion poll for the first time in over a decade. New SD leader, Martin Schulz – former President of the European Parliament – has proved a game changer, with voters flocking to the party on his message of reducing inequality and taking a hard-line approach against the UK during upcoming Brexit negotiations. (7/2)

Frankly my dear, I don't give a Dodd: US President Trump has ordered a review of the landmark Dodd-Frank legislation, a series of laws meant to ensure another 2008-level financial crisis will not recur. It also sought to end "too big to fail" banks. However, the cost of compliance with the myriad regulations has sky rocketed, ironically giving an implicit advantage to large financial institutions. No surprise the US bank sector has surged more than 25% since November. (6/2)

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