Chequers, curves and cathedrals

By Richard Pickering, Head of Futures Strategy

Deal or no deal?Leave or Remain were the two options offered to UK voters two years ago. However, the act of putting pen to paper at Chequers has underscored the diversity of perspectives on both sides of this debate, and in turn cast light on the wide continuum of viewpoints on the issue. Seemingly few other than the PM and a small band of supporters are happy with the deal on offer. Leavers (and those Remainers that accept the referendum result) are split between those who interpret the only real Brexit as a no deal one (Johnson, Rees-Mogg), and those who take a more nuanced view, favouring a customs union (Soubry – ‘nobody voted to be poorer’); whilst committed Remainers (e.g. Cooper) reject the Chequers agreement on the basis that the customs integration doesn’t go far enough. Meanwhile, with the whiff of blood in the air, Michel Barnier is entrenched in his position that the Chequers deal would not work for the EU. Where does this leave us? If there is no practical and workable solution proposed by the Article 50 deadline, then despite of the plurality of positions, the outcome can only be binary; namely either a clean break and fall back to WTO rules, or a second referendum (3/1 odds), the result of which would likely reverse the previous one (54:46 Remain; YouGov). Spare a thought for Theresa May; occupying probably the most thankless job in the world. The odds are that she will leave her post in the next 8 months (4/7). If I were her, it would be sooner and through personal choice.

Yield curve – Much has been made in the financial press over the flattening US yield curve. A flattening yield curve has predicted each major recession in the US to date, and in a globally synchronised economy this could spell trouble ahead for all of us. But what is actually happening? The most commonly used metric is the ‘2-10 spread’ (the difference in yield between short dated 2-year bonds and longer dated 10-year bonds). Short rates have been rising recently as the Fed pushes up bank rates. However, long rates have stayed flat, meaning that the slope between the two on a chart appears flatter. In normal conditions, longer dated bonds should command a higher yield, due to factors such as: the expectation of inflation, anticipated future bank rate rises, uncertainty around the future, and a premium for illiquidity. Conversely, when investors believe that interest rates and inflation might fall (typically signs of weak economy / recession), the premium can become negative and the curve inverts. So, should we be concerned? The reality is multivariate, and elements such as the weight of money chasing long maturities to match liabilities (central banks, pension funds) comes into play. For now, the Fed glide path remains upwards, other growth indicators are positive, and inverted yield curves tend to precede recession by c. 2 years.

Swoosh – ‘Give your customers what they want.’ Although Steve Jobs famously disagreed, for most businesses, this remains sound logic. Now Nike have taken this one step further by creating Nike by Melrose; a concept store ‘located and stocked by you’. The store is neighbourhood specific, stocking its shelves bi-weekly, based on geotagged customer preference data sourced live from its NikePlus membership group. Here is an example of online best practice transitioning to the physical world. Personalisation is easy online, but in store retailers have been typically reliant on historic sales patterns. In Nike by Melrose, members are recognised as such as soon as they step into a geofenced area of the store, allowing for further personalisation based on individual buying patterns. As an incentive for providing data and making purchases, the membership group can redeem a reward every two weeks from an in-store vending machine. Localisation provides an antidote to clone high streets, and better engages local customers. Not so long ago, Starbucks went through a rebranding exercise to accentuate local design nuances. This local interpretation of a global brand is key to differentiating offline sales and providing a richer experience that might stem the digital tide.

Collection – Ever since Jesus expelled the money changers from the Temple, the commercialisation of religious buildings has had a bad rep. We might wonder what he would have made of the recent move by the Church of England to allow contactless payments in the aisles of 16,000 churches. In reality, however, religion and commerce have been close bed-fellows and as congregations decline this is likely to increase. The vaults of old St Paul’s Cathedral were for many years leased to booksellers and printers (contributing to its destruction by fire in 1666). More recently, new St Paul’s (admission: £18) and other globally renowned religious buildings have drawn significant amounts of tourism spend. It helps if you can find a dead king or two to pull in the crowds (Leicester Cathedral), but most popular has been the introduction of cafes (e.g. Liverpool Cathedral) and coffee shops (St Mary Aldermary in the City). The ripple effect in the latter is quite incredible. On a recent lunchtime visit, the aisles of the church were fully occupied by people eating their lunch (bought from various takeaways in the area), essentially converting the church into a foodhall. In an era of declining religion and community, reinstating these buildings to act as hubs for congregation is surely a noble ambition reflective of their original purpose, and if they can make a few bucks along the way, all the better.

Service stations and service – Transport Focus has this week released a survey of motorway service users; the results being resounding positive (average 92% satisfaction and 25% mood uplift following a visit). It is perhaps ironic in our emerging world of experiential service-led retail, that service stations are one of the few assets to benefit from an official experience ranking. This is particularly so when one considers that dwell time is low (c. 20 minutes), and consumer choice among competing alternatives is limited (technically choice exists, but try telling that to someone on the back seat who urgently needs a pee). The largest cause of dissatisfaction was value for money on F&B, but this (like airports) is an enviable market with regulated supply and captive demand, and in the same way that fuel costs more under these conditions, so does food. The positive report on Westmorland owned stations (family run, farm shop, own brand restaurant) is perhaps suggestive of the wider opportunity for a higher value, boutique offering; users reporting greater intention to deliberately plan a stop at these services.

Catalyst – If you thought that success in business was down to a mix of intelligence, hard work and a bit of luck, you could well be wrong. It might be down to parasites. Scientists from the University of Colorado have found that those people who had been exposed to Toxoplasma Gondii demonstrated a statistically significantly lower aversion to risk, were 1.7x more likely to have studied a business-related degree (probably management), and twice as likely to have started their own business. A study in 42 countries showed prevalence of the infection to be ‘a consistent and positive predictor of entrepreneurial activity’. The parasite, which is typically carried by cats, is thought to affect up to 1 in 3 humans. With workplace productivity high on the agenda of most corporates, the real estate industry is looking to IoT driven solutions, and great minds like Elon Musk are developing neural implant technologies. However, the solution might just be a new pet policy, a few furry friends, and a series of litter trays placed judiciously close to poorly performing team members.


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