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Week In Review: Heat In The Kitchen

By Johnny Liu, Global TAA Analyst, Multi-Asset Investing

World leaders came under the cosh at the Climate Change Summit. Meanwhile, corporate and economic newsflow was largely overshadowed by political upsets in the UK and US.

No holiday

It was the end of the line for beleaguered UK travel giant Thomas Cook. The 178-year-old firm collapsed after failing to secure sufficient funding from creditors. This followed a series of profits warnings earlier in the year. The news triggered a full-scale repatriation of over 150,000 stranded holiday-makers, the cancellation of all bookings and the expected loss of 21,000 jobs.

Trouble has long been brewing for travel agents, with shop numbers falling by 23% in the past five years. The internet, budget airlines and changing holiday patterns are blamed for undermining traditional business models; Brexit uncertainty and a weak pound have finally put the lid on the pot for Thomas Cook. But others assert that management ineptitude was the real reason for the demise of a company with 22 million customers and £9.6 billion of sales. In particular, questions are being asked about the £20 million in executive bonuses forked out over the past five years.

Adding to the gloom, UK firms Pearson, IAG, Carnival and Imperial Brands all issued profit warnings. The FTSE All-Share Index ended virtually flat over the week to the close on Thursday.

Pressure cooking

Heralding this year’s Climate Change Summit at UN headquarters in New York came a brutal message from top scientists that climate change is hitting “harder and sooner” than expected. World leaders were instructed to bring concrete plans for cutting greenhouse gas emissions, and not the usual nebulous promises.

For the first time, youth climate activists played a key role. Their spokesperson, Greta Thunberg, was unsparingly scornful of world leaders and their ineffectual climate policies. She demanded “bold action and much greater ambition” and warned policymakers the young are watching them.

An ill wind

Over-heating was not an issue for the Eurozone economy. A key indicator showed that German private-sector activity shrank for the first time in six-and-a-half years in September, as the slump in manufacturing unexpectedly deepened and growth in the services sector stalled. The Ifo economic institute said it’s likely Germany is already in recession this quarter, citing the US -China trade conflict and Brexit as the principle causes. It was a similar picture in France, with manufacturing and services sub-forecast.

The FTSE World Europe ex UK Index recovered ground lost earlier in the week, ending only fractionally lower by Thursday’s close.

Bad day at the office

The chaos surrounding the stock market listing of work-space rental firm WeWork has much to do with the behaviour of its controversial founder and CEO Adam Neumann. Following last week’s abortive IPO attempt, WeWork’s board and investors this week forced Mr Neumann to step down. Mr Neumann has been criticised for receiving over US$700 million in share sales and loans ahead of the listing, and for taking a $5.9 million payment from WeWork for a trademark he owned. Additionally, WeWork has been renting properties belonging personally to Mr Neumann. Nepotism and pot-smoking number among his other alleged misdemeanours.

The US S&P 500 Index ended flat over the week to Thursday’s close.

Oh no you don’t

Politics overflowed with drama worthy of the best TV soap. The US Democratic Party opened formal impeachment proceedings against President Donald Trump. This was prompted by allegations he sought to coerce the Ukrainian leader into damaging his political rival Joe Biden. There will doubtless be strong support for impeachment from the House of Representatives, where the Democrats have a majority. However, the Republican-controlled Senate is likely to block it – unless evidence and public opinion sway them.

Meanwhile, UK Prime Minister Boris Johnson, having just attended the conference on climate change, felt the temperature rise uncomfortably back home. MPs were told to return to work after Mr Johnson’s shut-down of parliament was deemed unlawful by the Supreme Court. Amid the ensuing political furore, opposition leader Jeremy Corbyn shied away from calling for a vote of no confidence in Mr Johnson, wary of triggering an election when his own party is also deeply divided over Brexit. The British pound initially spiked on news of the court ruling before slipping back.

And finally…

When his restaurant lost its coveted three-star status for using English fromage in a classic French soufflé, it was whey too much for French celebrity chef Marc Veyrat. Outraged, he vowed to sue Michelin for demoting his exclusive Alpine restaurant to two stars.

"They dared to say that we put cheddar in our soufflé of Reblochon, Beaufort and Tomme," exploded Monsieur Veyrat, an acknowledged curd nerd. Pressed further, he explained that the Caerphilly crafted dish was yellow because he had added saffron – not because it was madE with cheddar. Monsieur Veyrat spoke of the amateurism of Michelin’s reviewers and questioned the culture at the organisation.

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