Just in case you’re inclined to think the storm clouds have lifted entirely in 2019 amid the across-the-board rally and collapse in cross-asset vol., FedEx and BMW served notice on Tuesday and Wednesday that the world is still laboring under the threat of slowing growth and, relatedly, trade concerns.
The FedEx news wasn’t all that surprising, honestly – or at least not from where we’re sitting. It is disheartening, though. The guide down (coupled with a top and bottom line miss) was of course the second in three months, and word-searching the call transcript for the word “macroeconomic” turns up multiple hits.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue”, CFO Alan Graf said, adding that “Asia volume weakness, which we experienced during peak season, deepened post Chinese New Year.” Here’s what Alan said about China and Brexit:
You could tell me, are we going to get a trade deal done with China and is Brexit going to come out good. I could give you a lot better answer about FY ’20 than I can sit in here for a moment. But we sort of have to plan for both ways and obviously the leverage right now that we have is in our international revenues, on a very large fixed cost basis. So in terms of a plan, we have a plan. No question, we have a plan, we’re executing.
What’s that Mike Tyson quote about “plans” again?
COO Raj Subramaniam was pretty blunt about things. You’ve probably heard this soundbite by now, but just in case:
We had a bad quarter. No doubt about it. I’m disappointed in it. But I’m not letting one bad quarter decide how we’re going to manage this business for the next five years.
To be clear, this is more than just “one bad quarter”. FedEx plunged 35% in 2018 and December might as well have been the worst month for the shares in history.
The point here isn’t to beat up on FedEx. Rather, it’s simply to say that this is one global bellwether who is still struggling mightily and that says something about the economic outlook. Period.
Meanwhile, BMW on Wednesday said pre-tax profits in 2019 will be “well below” last year’s. The automaker is all set to try and turn things around with a €12 billion cost cutting initiative aimed (I guess) at cushioning the blow from spending on electric vehicles and, of course, the trade conflict.
BMW is in many ways the poster child for Donald Trump’s crusade against European cars, although the president often cites Mercedes, presumably because he thinks it sounds better (remember the “rid Fifth Avenue of Mercedes” bit?).
Read more on BMW and the trade conflict
Dear South Carolina BMW Workers: Soon It Will Be Time To Do Your Patriotic Duty By Losing Your Job
Friday’s Trade Narrative Is Brought To You By Delicious American Corn And U.S.-Built BMW SUVs
As Bloomberg writes on Wednesday, “the [trade] struggles are adding to challenges from higher spending on new electric cars, while efforts to comply with stricter carbon emissions regulation will also drive up manufacturing costs.”
The shares plunged the most since September on the news.
Needless to say, European autos didn’t need this. The SXAP is off by nearly 2% on Wednesday.
And while the gauge is up handily from the January 3 lows (along with everything else on the planet), it’s down more than 25% since early 2018 as trade concerns continue to weigh on sentiment.
All in all, the FedEx guide down and the BMW news together serve as a rather poignant reminder that we’re not out of the proverbial woods just yet when it comes to the deleterious effects of the trade war and the drag from what’s morphed into an honest-to-God synchronous global slowdown.
