Wednesday 25/08/21

1. In MACRO & OIL NEWS, a big US spending package is in the offing, the oil price rises and JPMorgan sells oil and defence while Maersk goes greener
2. In SUPPLY CHAIN NEWS, Asia’s Covid impact has global implications, industries across the UK get hit (so Christmas could suffer), Imagination benefits from the chip shortage and Walmart offers delivery to others
3. In CONSUMER & RETAIL RELATED NEWS, South African unemployment hits eye-watering levels, Just Eat announces a load of call centre jobs, UK retail sales rise (but so do prices) and M&S appears to be on the right track
4. In MISCELLANEOUS NEWS, UK house sales tank in July, WeWork offers PAYG desks and OnlyFans has a disaster
5. AND FINALLY, I bring you some body language insights…

So the US looks to spend more, oil prices rise and both JP Morgan and Maersk try to go greener…

In House Democrats advance $3.5tn spending package (Financial Times, James Politi) we see that the US House of Representatives has approved an outline for Joe Biden’s massive $3.5tn domestic spending package, the detail of which is to be fleshed out later this year. It follows the $1.9tn stimulus package he signed in March and is a major part of his greater economic plan that will put a huge chunk of money into education, child care and green energy.

Meanwhile, Oil price up again after offshore fire (The Times, Emily Gosden) highlights a jump in oil prices yesterday as a fire on a Pemex-owned platform broke out and killed five people. This platform was used to generate power to pump gas into oil wells and so the incident has meant that Mexico’s oil production suddenly dropped by about 25%, hence the oil price rise. So far this week, oil price rises have bounced back after last week’s Delta-powered gloom that resulted in oil’s worst week for nine months.

JP Morgan drops defence and petrol stocks on environmental grounds (Daily Telegraph, Lucy Burton) shows that JP Morgan is at least trying to show willing as the JP Morgan American Investment Trust, with £1.4bn of assets, announced that it was selling its holdings in Marathon Petroleum and Raytheon Technologies due to “poor ESG grounds”. This comes against a backdrop of increasing pressure on investors to put their money where their mouth is on green issues as the whole community has come under fire for extolling the virtues of a greener planet on the one hand while lending large sums of money to those who negatively impact it on the other. The fund now judges stocks using the United Nations Global Compact (UNGC) “severe violators” list – and Marathon and Raytheon are both on it. Interestingly, the fund also said that it had sold out of its stake in Tesla and bought into Facebook due to the former having a less attractive risk-reward profile. * SO WHAT? * Sounds nice, but it’s a drop in the ocean. OK, so others may look to this and use it as a precedent, but there’s still a long way to go. No doubt movements like Extinction Rebellion will claim this as a victory, but I think that what they are doing is just noise. It

seems to me that, over the years, there has been a steady flow of money leaving active funds (which are run by human fund managers) and going to passive funds (which are run by algorithms) and that one way the humans can get one over on their “virtual” counterparts is to play a more active role in the way their funds are invested because this is something that an algo can’t do. Investors have, for years, talked about making real differences to the companies they own shares in but have not always participated as fully as they could have done because as long as the performance is good, they don’t care. Now that their jobs are threatened by algos (and I lost quite a few clients over the years, when I was a stockbroker, to funds that decided to ditch active and adopt passive investing), they have had a very strong and urgent incentive to adapt in order to survive and so it seems that they are actually getting more active in environmental matters than they have done before. Maybe I’m being a bit harsh here on investors, but I really think that this is at least partly the reason behind the growing movement to bring companies to account. At the end of the day, I guess it doesn’t matter WHY we get to being more environmentally-friendly, it just matters that WE DO (although a nice “why” is always going to be a bonus!).

Another company that seems to be moving towards being greener is, interestingly, the world’s biggest shipping company! Maersk spends £1bn on ‘carbon neutral’ container ships (The Guardian, Jillian Ambrose) highlights the company’s purchase of eight vessels that can run on methanol and/or traditional bunker fuel. Methanol is much better for the environment. This is a big step forward in the shipping industry’s fight to decarbonise as it is currently responsible for almost 3% of the world’s greenhouse gas emissions. The vessels are expected to be delivered by early 2024 and will be 10-15% more expensive than bunker fuel container ships and Maersk says that it will, from now on, only order new vessels that can use carbon neutral fuel. Maersk: green fuel for the great freight rate debate (Financial Times, Lex) highlights the current debate among shipowners as to what the right fuel is going to be in the future (especially when you think that ships can have a lifespan of at least 25 years) with ammonia or hydrogen also being viable options. Still, whatever they choose non-fossil fuel options are clearly going to be the way forward.

Covid continues to impact supply chains, UK businesses suffer, Imagination benefits from the ongoing chip shortage and Walmart offers delivery to others…

Delta variant outbreaks in sparsely vaccinated Asian countries disrupt production (Wall Street Journal, Jon Emont and Lam Le) shows that outbreaks in Vietnam and other countries in the region such as Indonesia, Sri Lanka and Thailand are going to add to the whole supply chain problem that is being felt globally at the moment. Such countries have had low vaccination rates and are now suffering particularly badly with the advent of the Delta variant. Western brands such as Adidas and Crocs rely heavily on Vietnamese manufacturing and are currently paying for expensive air freight to keep product flow going and make up for production delays. Fun facts: Vietnam produces over 30% of American shoe imports and it is the #2 supplier of shoes and apparel to the US after only China. Some American companies, including Nike and Gap, have written to Biden asking him to increase US vaccine donations to the country. * SO WHAT? * I really do think that the coronavirus has brought the imbalance in supply chains to the fore and that this will give many companies food for thought regarding how they can avoid such a situation ever happening again. Although production will no doubt be spread to different countries in the short term, I would have thought that the solution for the longer term will be more automation in production and a reshoring of that production because if you’re not paying actual people to do the work then a big chunk of the incentive to manufacture abroad becomes redundant.

From milkshakes to meat: UK businesses battle with shortages (Financial Times, Alice Hancock, Judith Evans and Jonathan Eley) provides further examples of the fragility of supply chains. Thus far, retailers have managed to avoid across-the-board shortages that would induce panic buying, but restaurants, pubs, wholesalers,

healthcare and construction groups are all showing increasing signs of strain. McDonald’s cut milkshakes and bottled drinks yesterday, Nando’s closed 45 stores last week due to a lack of chicken and Greene King and City Pub Group have run out of certain drinks. A monthly CBI survey yesterday showed that the UK retail sector is now at an undersupply level of -21% this month – its lowest on record. * SO WHAT? * I know that government ministers have so far refused to cave to industry demands to allow EU drivers in on temporary visas, but I really do think that they are going to have to U-turn if things get bad in the shops and people start to panic buy. Christmas supplies at risk as staff crisis ‘to last until 2022’ (Daily Telegraph, Tim Wallace, James Titcomb and Ben Gartside) cites warnings from the Recruitment and Employment Confederation, which says that staff shortages are going to continue to put pressure on supply chains – and it’s likely that this could affect Christmas.

Elsewhere, Carmakers hit by chip crisis drive up Imagination sales (Daily Telegraph, Matthew Field) we see that semiconductor designer Imagination Technologies has enjoyed a rise in sales as chip demand from carmakers continues against the backdrop of a global shortage. It saw revenues skyrocket by 55% in the first half of this year as it saw particularly strong growth in China’s fast-growing EV market.

Then in Walmart opens local delivery service to other retailers (Wall Street Journal, Paul Ziobro) we see that Walmart is planning to open up its in-house delivery platform, Spark Driver, to third party businesses so that independent contractors who deliver Walmart items can make additional deliveries at the same time. * SO WHAT? * There’s currently a lot of competition for “last-mile delivery” (the last bit of the journey to the final destination) and this all feeds into the current trend for ever-speedier delivery. What seemed to start off as next-day delivery is now morphing into same-day and faster! Maybe in future we’ll get deliveries of stuff before we’ve even thought of ordering it 🤣!

South African unemployment reaches eye-watering levels, Just Eat generates jobs, UK retail sales rise and M&S gets praised…

If you are ever feeling bad, know that things could always be much worse. Spare a thought for those affected by South Africa jobless rate hits 34.4% (The Times – I changed the headline which says 32.6% because I think it is a mistake) as the headline unemployment rate rose from 32.6% in Q1 to 34.4% in Q2 as businesses cut staff due to the economic impact of the pandemic. This is more than likely the highest unemployment rate in the world right now. Jobs in finance, community and social services and manufacturing have been particularly hard-hit.

Meanwhile, back in the UK, Just Eat to create 1,500 jobs at new Sunderland customer service site (The Guardian) shows that the takeaway company is going to open a customer service site in north-east England as it reshores jobs back from India and Bulgaria. It plans to invest £100m

in the region over the next five years and employ 1,500 people.

Then in Retail sales on the rise but so are prices (The Times, Gurpreet Narwan) we see that the CBI’s latest stats show that retail sales rose this month at their fastest pace in almost seven years, with a net 60% of retailers reporting higher sales in the year to August – the highest level since December 2014. The same survey showed, though, that a net balance of 73% of retailers reported higher prices versus the same month last year. Judging by Brighter outlook for M&S has online lift baked in (The Times, Tom Howard), which highlights M&S’ share price hitting its highest level since the pandemic started, retailers have reason to feel more optimistic as the high street stalwart upped its annual profit guidance last week.* SO WHAT? * It seems that the consumer is proving to be pretty robust at the moment and that the higher prices being passed on to them are not having too much of a detrimental effect. This can’t last forever, but I think that it’s still got legs. As I’ve said before, if the end of furlough has less of an impact than forecasters are predicting, I would expect a very merry Christmas for retailers (if they can get enough product in store, that is!).

House sales fall in July, WeWork offers desk space and OnlyFans gets a shock…

In a quick scoot around some of the other news today, House sales tumble in July after stamp duty holiday deadline (The Guardian, Rupert Jones) cites the latest HMRC figures which show that house sales fell by a whopping 62% in July as homebuyers rushed to complete purchases ahead of the end of the stamp duty holiday deadline at the end of June, when it started to be phased out. Another rush is expected in September just before the whole thing finally comes to an end. * SO WHAT? * You would have thought that this would mean that sky-rocketing house prices would lose momentum as well, but I think that the market could get a second wind if furlough proves less devastating than everyone has been expecting. House prices have risen so much that the savings from the stamp duty holiday would have at least been largely mitigated if not eliminated anyway when compared to price levels last year IMO.

WeWork’s pay-as-you-go desks to boost city centres (Daily Telegraph, James Titcomb) highlights the office provider’s latest bid to tempt people back as it will, from today, offer per day pricing for desks at £45 from over 40 of its properties in the UK and Ireland. People will also be able to rent meeting rooms by the hour from £15. * SO WHAT? * I think that this is a brilliant idea as it will surely create income – but it may also act as a shop window that could tempt daily users to shifting onto longer contracts.

Then in OnlyFans founder blames banks for ban on porn (Financial Times, Patricia Nilsson) we see that last week’s ban on explicit content, powered by banks getting increasingly worried about reputational risks, has put plans for an IPO on much shakier ground. * SO WHAT? * I think that this has torpedoed OnlyFans’ chance of getting a fat valuation if it still plans to go ahead with a flotation. It has seen massive growth from porn-related content, especially under lockdown, but it is now sitting much less prettier than it has been as prudish banks have decided to project a more wholesome image. I wonder whether OnlyFans can switch banks to those who are less worried about such things – is this a job for the likes of Revolut or Monzo, perhaps??

…in other news…

I thought I’d leave you today with Body language expert shares simple hacks to tell what people are thinking (The Mirror, John Bett). She only covers some of the basics, but it is a fascinating area that can really help you in life! When I coach people for interviews, this is one of the things that I like to spend time on because it can actually make a massive difference. However, it’s so useful to have knowledge in this area for a lot of scenarios and it only requires a bit of consistent application to get better at reading and using it.