August 10, 2017    5 minute read

Disney Cuts the Cord, Markets Jittery and China Cuts Debt

Your Breakfast Briefing    August 10, 2017    5 minute read

Disney Cuts the Cord, Markets Jittery and China Cuts Debt

Disney to Start Streaming Services

The entertainment company is finally taking the plunge into streaming services in a fight back against Netflix.

Editor’s Remarks: Disney’s TV channels, including its ESPN sports offerings, have been suffering as cable and satellite viewers “cut the cord” and cancel subscription services in favour of online and streaming viewing. ESPN alone has lost over 12 million out of 100 million subscribers since 2011. But now Disney is fighting back and has announced its first foray into streaming services with the launch of two online channels that will broadcast its movie and sports content direct to consumers from 2019. CEO Bob Iger announced the new online channels as a “major strategic shift” and stressed the need for a “direct relationship between content creators and consumers.” The bad news for Netflix, which has been on a roll and reached over 100 million subscribers at its recent second quarter results, is that this content will be pulled from their platform.

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Safe Havens Benefit from Geopolitical Worries

Global markets have taken fright over North Korea and the Swiss franc, gold, and the Japanese yen are up.

Editor’s Remarks: Donald Trump’s “fire and fury” comments and North Korea’s threats to strike Guam have sent jitters through global markets. Equity markets from Asia through to the US have fallen, and traditional safe havens are up. The Swiss franc is up close to 1.5%, its strongest one-day rise since 2015, and gold is up 1% to $1275 per ounce, its highest level for eight weeks. The VIX volatility index, which tracks expected asset price volatility implied by option contract prices, is up a further 12% after a 10% rise the day before, although this is from historically low levels. Other traditional safe havens such as the Japanese yen and developed country government bonds also saw inflows. The moves so far are relatively measured, but global markets have been ignoring political risk all year, and any escalation on the Korean peninsula could prove to be a flashpoint.

China Focuses on Debt Ahead of Party Meeting

The government says corporate debt levels are down as Beijing begins to gear up for the Communist Party Congress.

Editor’s Remarks: China’s Communist party congresses are held every five years and this year’s one, the 19th, has been billed as one of the most crucial in decades as close to half of the seats on China’s 25-person Politburo, and five out of seven seats on its supreme standing committee, are up for grabs. President Xi Jinping is looking to consolidate his power base, and one of his major focuses in 2017 has been on maintaining financial stability and control as well as bringing down high debt levels in the Chinese corporate sector. Although it did not release any official figures, the National Reform and Development Council (NDRC) has said that there have been “initial results in lowering corporate leverage and debt risks have been effectively controlled.” China’s total debt-to-GDP hit 257% in 2016, up from 244% in 2015, according to the Bank for International Settlements (BIS).

South African Rand Slides on Zuma Vote

The currency is down close to 2% and still falling after the South African president survives a vote of no-confidence.

Editor’s Remarks: Jacob Zuma’s scandal-hit presidency has now faced nine votes of no-confidence, and he won yesterday’s one by 21 votes in South Africa’s 400 seat parliament. What is worrying the currency market though is that more than two dozen ANC politicians voted against him, showing how unpopular he is, and that the political turmoil could continue into December when the ANC holds its elective conference. The rand has fallen from RS13.2 against the dollar just before the vote to RS13.5, and South Africa has been facing increased criticism from credit rating agencies regarding central bank independence, credit concerns and high government spending. The country is in a recession, with mining companies cutting jobs, and further political turmoil can only add to the rand’s woes.

Slow Sales for Tata Motors

The Indian car company reported a 10% fall in revenue as domestic demand for commercial vehicles falls.

Editor’s Remarks: First quarter net profit rose from Rs25.6bn to Rs37.4bn, but this was only due to a one-off accounting gain related to changes in the method used to calculate pension liabilities at Tata’s UK subsidiary Jaguar Land Rover. Without this gain, the car maker would have been loss-making. CEO Guenther Butschek said that sales “had not met expectations” and flagged cost reductions to improve future profitability. Tata is India’s largest truck maker, and commercial vehicle sales fell 34.8% as new emission standards came in at the beginning of the quarter and sales were disrupted by the introduction of India’s new GST sales tax. Jaguar Land Rover showed poor sales in the UK but was buoyed by strong performances in China and the US.

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