Starbucks Corp. (NASDAQ: SBUX) recently announced that it was updating its rewards program for Northern America customers to increase the number of redemption options for its customers. The news did not sit well with an analyst at Bernstein who penned a research note warning that the company risked alienating its largest customer segment with new changes to its loyalty program.
The new rewards system does away with the exiting two-tiered structure and offers its customers a much lower threshold for redeeming stars for a cup of coffee, while at the same time raising the threshold for redeeming pricier items. According to the note, the company risks isolating its core group of customers who frequently rely on the rewards programs to supplement their regular coffee budget.
Some of the perks of the new program is that customers will now earn two stars for every dollar they spend at any of the company’s outlets, while they can redeem a cup of coffee for 25 stars. It remains to be seen whether the program shall attract more customers to the company’s store given that foot traffic at most of its North American stores has been declining for a while now.
We should give the company credit for designing the new loyalty program, which is not an easy task, but we’ll have to wait a bit longer for the results to be seen.
According to recent filing by British oil major BP (NYSE: BP), the company’s CEO Bob Dudley was paid a total of $14.7 million in 2018, which was a slight drop from the $15.1 million he was paid in 2017. The pay cut was triggered by a vote passed by the majority of the company’s shareholders in 2016 that slashed the CEOs pay by 40% after they refused to accept the company’s chosen pay policy.
The debate on whether CEOs of public companies are being paid way too much has been raging for a while in the public domain and debate is split into two camps with opposing opinions on the issue. However, my view is that CEOs should be paid an appropriate amount based on their contribution to the company’s profitability and strategic direction.
There are companies such as Apple that have slashed the CEOs pay when the company’s profits fell, which usually results in the CEO and management team working harder to raise profits and earn higher pay and bonuses. There is no exact figure that all CEOs should be paid, but the key is to ensure that shareholders have a say in how much the CEO should be paid.
As the debate continues, just remember that most people want higher pay, but the key to earning more is to increase the value you bring to a company.
Recent data released by the US Customs and Border Protection (CBP) Agency revealed that US importers are incurring much higher costs when purchasing customs bonds for goods imported from China. The spike in the costs of such bonds can be directly attributed to the trade war being waged by the US and China that has seen each country impose retaliatory tariffs against imports from their nemesis.
Many economists have argued against the imposition of the tariffs on Chinese imports saying that they will raise manufacturing costs, which will result in higher prices for US consumers. Although there is broad agreement about the negative impact of tariffs on consumers, the government has granted various exemptions to different sectors that were most negatively affected by the tariffs.
However, despite the exemptions some importers are suffering under the burden of higher costs of customs bonds that have to be paid to the CBP as security for their imports. Many other manufacturers who are indirectly affected by the tariffs are also suffering similar consequences and sometimes it is almost impossible to pass on the extra costs to consumers.
These developments should be a warning to the US government that a protracted trade war might have more negative consequences on the US manufacturing sector than has been currently priced in by the markets.
BlackBerry Ltd. (NYSE: BB) stock has been on a roll this year given that it is already up 24.9% since January and its latest earnings report might be another reason for the stock to keep rising. The company’s latest earnings report revealed that the company had generated a net income of $51 million, which is quite good given that it had posted a loss in a similar period last year, which caused its stock to rally 4.4% premarket.
The positive earnings report is a good signal, but should not be the only metric that an investor uses to gauge the future profitability of the company. Other measures that can help predict a stock’s future performance include the percentage of its stock held by institutional investors as well as that held by company insiders.
The reasoning behind these two metrics is that most institutions usually plan on holding a stock for a considerable period of time such as several quarters or years, which implies that the said institutions actually believe in the company’s future profitability. Most institutional investors are pension funds, endowment funds and mutual funds, which is good sign for blackberry given that currently institutions own over 55% of its outstanding shares.
The percentage of stock held by company executives is also a strong indicator of whether they believe in the company’s future or not. Company insiders currently own over 10% of Blackberry stock, which is also a major positive.
The Bank of Japan today revealed that its buying of Japanese government bonds in the month of March totaled 5.95 trillion yen, which is the lowest level ever achieved under current Governor Haruhiko Kuroda. The BoJ has been on a buying spree since Haruhiko Kuroda took over the reins in March 2013, which is a sign that maybe the central bank has finally realized that its easing program is not working anymore.
The BoJ was the first major bank to embrace quantitative easing following the asset bubble crash of 1992 from which the country’s economy has never fully recovered. Since that time the BoJ has maintained extremely low interest rates as well as implemented a quantitative easing program where it has been buying Japanese government bonds.
The latest data raises questions about the effectiveness of quantitative easing programs in general given how Japan’s economy has never recovered despite the years of aggressive easing. The European Central Bank is also running a quantitative easing program, which it is willing to extend for a longer period that was expected.
I believe that the BoJ’s current dilemma should be a warning sign to the ECB about the dangers of a lengthy QE program, which in many cases usually turns the program into a major hindrance for economic recovery and growth in the long-term.
European economies have had a tough first quarter as reflected in the weak data report by most major European economies including Germany, Italy and France. The poor fundamental data coupled with a dovish European Central Bank have resulted in a very weak euro.
To answer this question, we will analyze the risks and opportunities that might face most Eurozone economies going into Q2 2019. Firstly, there are the ‘yellow vest’ protests in France that have put a major dent into the country’s GDP growth forecasts for the year and it appears that this may spill over into Q2.
On the positive side, there is hope that the US and China will sign a trade deal somewhere in the near future, which could easily happen in Q2, or much further away. If the trade deal is signed in April, there is a good chance that most European economies would see almost immediate gains in their stock markets and in the value of the single currency.
However, an escalation of trade hostilities between China and the US could easily lead to more financial strain on most European economies and could push countries such as Italy into full recession mode. Given the above risks, it is clear that there is a sliver of hope for European countries, but multiple risks still face the region.
Emerging market economies such as Turkey and South Africa saw a jump in the stock prices of companies listed on their stock exchanges following news that the US and China had “constructive talks” earlier today. The biggest gains were seen on the Chinese stock indices which posted gains of up to 3% following the news report during the Asian session on Friday.
Today’s gains could be a strong indicator of what could happen if the US and China sign a trade deal to wend the trade hostilities that have been going on between the two countries for months. Emerging markets stocks have suffered greatly over the past year as the trade war escalated with retaliatory tariffs being imposed by both countries.
The trade war dampened investor risk sentiment forcing investors to seek safety in the US dollar amid an uncertain global economic environment. However, recent developments in the Sino-US trade talks have raised hope that the trade war could soon end, which has boosted investor risk sentiment causing emerging market stock indices to rally.
Emerging market stocks are set to end Q1 2019 with positive gains and it remains to be seen whether the trend shall spill over into Q2 and maybe even the entire year. Thus, I’m quite optimistic about the future prospects of many emerging market countries.
Germany’s Federal Statistical Office today released the final retail sales data for the month of February, which came in above expectations. The retail sales print recorded a 0.90% gains versus the expected 0.90% decline, which surprised both investors and analysts in equal measure.
However, the question on most investors’ minds is whether the latest retail figures are an indicator that the German economy is ready to return to positive growth. The country had disappointing retail sales over the festive season last year, which raised questions as to whether the country would slip into a recession.
It is no secret that most European economies are in trouble with countries such as Italy and France being on the verge of a full-blown recession. Furthermore, Germany is the European Union’s largest economy, which gives it massive sway over the overall state of the Eurozone economic block.
The country has faced major headwinds in the past few months including the tariffs instituted by the USA against German car exports as well as other manufactured goods. However, the positive retail sales data could be a strong indicator that German consumers are doing quite well, which is a positive signal for the overall health of the country’s domestic economy.
The US Department of Labor today released this week’s unemployment insurance weekly summary, which indicated a fall in the number of initial jobless claims for the previous week. This was a pleasant surprise as the number of jobless claims came in at 211,000, which was lower than the expected figure of 222,000 and the previous updated print of 216,000.
The lower initial claims could be interpreted as being a sign that the US economy is doing well, especially when it comes to creating jobs for the workforce. However, this is not exactly true given that the jobless claims are not the same as the actual employment numbers, which are usually reflected in the employment situation summary.
The last employment summary revealed very disappointing non-farm payrolls figures, which were largely attributed to the longest government shutdown in US history. Given that this is the official figure, the current state of the US jobs sector does not appear to be good going by the NFP data.
However, the next non-farm payrolls data is set to be released on Friday next week and investors will be watching closely to see if the prints beats analysts’ expectations. Therefore, it would be prudent for us to wait for next week’s NFP data before deciding whether the US jobs sector is in good health.