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Following are excerpts from an interview with Sir Martin Sorrell, from the World Economic Forum in Davos with Geoff Cutmore and Steve Sedgwick.
SS: So you were a remainer, and indeed you backed Hillary Clinton, as well.
MS: I was a remainer, well, I didn't back Hillary Clinton, but when asked whether she would win or not, that's what I said.
SS: So what's happened? Why did you go so wrong? Why has the world got it so wrong? The pollsters got it so wrong?
MS: Well, because we all, we all talk to one another in this bubble here in Davos, and..
SS: Echo chamber.
MS: Yes, echo chamber, in London, and it's quite true of the East Coast, West Coast liberals, and forget about flyover countries. So I'm clearly out of touch.
SS: Did you feel that Mr. Trump would be catastrophic for business, and how do you feel now?
MS: No, the reverse. I think what he's doing in the US-, the best way I can think about putting it is what you gain on the-, at the moment, because it's really, it's sort of impenetrable at the moment, in terms of trying to figure what will happen internationally, but what you gain on the US roundabouts, you lose on the international swings. Because certainly he is good, he will be good for the US economy. Infrastructural spending, reduction of tax, pulling back money from overseas-, although I…it looks as though that money that gets pulled back will probably go more on dividends and buy backs than investment, that's a big issue, biggest issue that we face with our clients.
SS: I know, I've read your big missive on it last year.
MS: I don't know about the big missive, but, you're very..
SS: No, it was about 30 pages long, and you were picking up-,
MS: No, it wasn't that-, it certainly wasn't 30 pages, anyway, about five graphs. I mean, the simple fact that the S&P 500 in five of the last six quarters has paid out more in dividends and buy backs than retained earnings, so there's this focus on the short-term, and the irony is the controlled structures, the ones that are controlled by an individual shareholder, or by a few shareholders, actually have the position to take a longer term view. So Trump, in the short-term, I think in the next two to three years in the US will be good, but there's a heavy deficit, and at some point in time-,
SS: Sorry, I'll challenge you on that, Martin. How can it be good if he invokes some form of protectionism for an economy that has enormous trade deficits, that is going to be paying up for goods, the consumers will be 60-70% of the economy-,
MS: That's why I said two to three years.
SS: It's going to take that long to come through?
MS: Well, I think it-,
SS: It's going to be quicker than that, because he's taken away Obamacare from about 20 million people.
MS: Well, he's threatening to replace it with something that in his mind is even more effective. One thing that I have noticed, a lot of people said, prior to the election and prior to his success, negative things. I was in Detroit last week talking to one or two people who'd actually had one-to-one contact with him. It was interesting that most of the people that came into contact with him come away highly impressed. He listens, he asks good questions, soft spoken, as opposed to harshly spoken, and-,
SS: Sorry, Martin, if I was a CEO I would say that, having come out of a meeting-,
MS: No, no, no-,
SS: Because I don't want to upset him early on-,
MS: No, no, no-,
SS: Because he'll get his 140 characters and attack me.
MS: I don't think that's true. No, no, I don't think it's true. When you looked the CEOs in the eye, one-to-one, prior to the election and you said, 'Do you really mean to tell me that you believe that Hillary will be less invasive, or more effective for your business?' I think in their heart of hearts, they said, no, they would prefer Trump. Having said that, a lot of the extreme personal stuff, the misogynist stuff, the racial stuff, all that was obviously anathema to all, and quite rightly so, but in terms of their businesses, in terms of regulation, in terms of intervention, I think most industries favoured a more Republican-, the Republican route. So I think it's wrong to say that, but I think-, so it's a question about, you know, well, why were the pollsters wrong? Because nobody really told them the truth. You know, that was a wonderful question in the polling about what would-, you know, 'How do you think your neighbor is going to vote?' That was the giveaway, apparently, amongst the pollsters, as to whether people were telling the truth or not. You know, not, 'What am I going to do?' but, 'What is my neighbor going to do?'
GC: So let's talk a little bit about the difference, now, in levels of confidence that we see in Europe, around businesses, and in the United States.
GC: Are people like you going to increasingly raise investment in the US because you see certainty and confidence, and reduce it in Europe because we have Brexit and slow growth rates?
MS: Well, you say certainty and confidence, that's certainly not there. I think the biggest issue that we grapple with is focus on the short-term. What you have is low GDP growth, I mean, for this year, what, 3.5, 4 maybe, as opposed to 3,3 .5 nominal? You know, WPP's GDP is slightly different, we're heavily into Asia and Latin America and Africa, the Middle East and Eastern Europe, but not to the worldwide economy. So I-, but there's tremendous levels of uncertainty. Political uncertainty here in Europe, what's going to happen in France? What's going to happen in Germany? What's going to happen in Holland, you know, what's going to happen in Eastern Europe? What's going to happen between Russia and the US? China and the US? Things that-, so again, I come down to what you gain on the US swings, you lose on the international roundabouts. But I think for the next two or three years in the US things will be pretty good, but you're in a world of uncertainty. Low growth, very little pricing power, because there's very little inflation, although we will see more inflation in the UK, probably as a result of Trump's policies a bit more in the US, and that eventually will bring a problem, I think, prior to the next US Presidential Election. Because Trump has inherited-, timing is everything. Trump has inherited an economy up here, Obama inherited an economy down there, and obviously there are going to be some challenges further on. But little pricing power at the moment, and therefore a focus on costs, and that's the biggest issue .
GC: Do you think Theresa May will give us a positive story around the Brexit negotiations today?
MS: Well, I hear there are 12 principles.
GC: I hear that too.
MS: That's a-,t hat's a lot for a negotiation, so we'll have to see what the 12 principles are, but she has a firm view, she will be laying out, apparently. She'll be here in Davos-,
GC: What's the right Brexit for WPP?
MS: Well, I was going to say no Brexit would have been the right thing for WPP in the context of the-, I remain extremely worried about whether we're going to maintain a really strong position in Europe. Europe's still very important to us, Germany's very important. Continues to strengthen. With a weak Euro, the Germans export, which is something the British have to do, with a weak pound. I mean, its' interesting, I was reading an article that the weakness in the pound has overcome any GDP weakness that we see as a result of Brexit. We're talking, what, about a 15% devaluation. We have at tailwind, last year, of about 10%, and if you looked at the last quarter, or last half of the year, it was as much as 15%, and of course every time the pound weakens, the international exporters, of which we're one.