Tuesday 05/10/21

1. In MACRO, OIL & SUPPLY CHAIN NEWS, the German economy heads for slowdown, US oil hits a seven-year high, the UK fuel shortage is set to continue and the pork industry faces challenges
2. In RETAIL NEWS, US retailers fear a Halloween shortage while Tesco and Sainsbury’s are mooted as the next acquisition targets
3. In TECH NEWS, Facebook, Insta and WhatsApp break down and The Hut Group takes a pasting
4. In MISCELLANEOUS NEWS, Evergrande shares are suspended, Volvo aims for an IPO and Monzo gets rejected
5. AND FINALLY, I bring you a labrador who knows how to use a torch…

So the German economy looks set for a slowdown, US oil price reach new highs, the UK fuel crisis looks set to continue and the pork industry faces difficulties…

German economy heading for sharp slowdown as confidence plunges in vital car industry (Daily Telegraph, Tom Rees) suggests that ongoing pessimism in the car industry is dragging down the wider economy. * SO WHAT? * Essentially, the European economy’s main driver is Germany and the German economy’s main driver is the car industry! It has been more affected than most by the semiconductor shortages and leading German thinktank, the Ifo Institute, says that the situation “remains critical” as its closely-watched gauge of business confidence has fallen sharply since the three-year high in July.

US oil hits 7-year high after Opec+ resists calls to accelerate production (Financial Times, David Sheppard and Tom Wilson) shows that US oil prices hit a new high as Opec and its chums decided to tighten the screws on Europe and Asia in particular by not deciding to produce more oil, which would bring the price down. It even ignored White House appeals to relent in the midst of a global energy crunch. * SO WHAT? * Big energy consumers like the US, Europe and China, are worried that out-of-control energy cost inflation could scupper their respective economic recoveries. The price of US oil benchmark West Texas Intermediate (WTI), shot up by 3% after the Opec+ meeting to over $78 per barrel while Brent Crude, the international benchmark, hit $82 a barrel, its first time in three years. This will make everyone keen to redouble efforts in electric vehicles and renewable energy…

Meanwhile, Shortages ‘could go on for further week’ despite military help (The Guardian, Kalyeena Makortoff and Graeme Wearden) shows that the current shortages could carry on, with the Petrol Retailers Association reporting yesterday that 20% of forecourts in London and the South East were still out of fuel versus 8% across the rest of the country. This is due to higher population and fewer fuel stations per head. The shortage is due in part to a lack of drivers and although the government has recently relented on giving overseas workers in certain sectors temporary visas, Overseas interest in UK truck jobs keenest among those not qualified (Financial Times, Delphine Strauss) shows that, at the moment, those who are most interested in driving jobs here don’t have the right qualifications, according to research from Indeed, the job site. Ah well, it’s early days!

Porkenomics: no longer bringing home the bacon (Financial Times, Lex) takes a look at problems in an altogether different supply chain – the pork industry. CO2 shortages and lack of workers are snarling up the supply chain stretching from abattoirs to meat processing plants. In the meantime, the pigs are getting fatter and farmers are having to keep feeding them (on animal feed, which is continuing to rise in cost) as they aren’t being slaughtered at the normal time because of all the delays. * SO WHAT? * Costs for meatpackers continue to rise and the overall takeaway here is that there really could be shortages going into Christmas. I wonder whether all of this will lead to another spike in the purchase of freezers – something we saw happening last year under lockdown. If so, you would have thought that the likes of AO World etc. would benefit…

US retailers fret about Halloween while investors try to guess the next supermarket takeover target…

In US retailers fear supply shortages ahead of Halloween (Financial Times, Obey Manayiti and Andrew Edgecliffe-Johnson) we see that US retailers are worried about another lost Halloween because they don’t know whether they will be able to get the supplies in (China supplier difficulties, pile-ups at ports etc.), despite there being a strong potential bounce-back with people wanting to celebrate again. It will be an interesting indicator as to how Christmas is likely to go…

Meanwhile, after all the excitement about the Morrisons’ takeover, investors are trying to guess who might be next on the private equity firms’ shopping lists. Sainsbury’s shares rise as it is tipped as the next takeover target (The Guardian, Kalyeena Makortoff) shows the obvious choice

(and TBH the only choice IMO) although Tesco braces for bids in private equity’s supermarket sweep (Daily Telegraph, Laura Onita) shows that even Tesco, the UK’s biggest supermarket, may not be immune. * SO WHAT? * I’ll stick my neck out here and say that talk of Tesco being taken over is complete rubbish. Sainsbury’s is possible at a push but I just think that there are so many other more attractive and less mature businesses to buy out there. If you are a private equity firm sitting on a massive pile of cash why would you want to buy into a highly competitive business in a very mature domestic market versus anything else? The UK’s Big Four supermarkets comprises of Tesco, Sainsbury’s, Morrisons and Asda. Asda was bought by the EG Group, Morrisons has just been bought by CDR and Tesco’s is just way out in front leaving Sainsbury’s as the only possible target, to my mind. I can see the rationale behind buying Morrisons because of its attractive property portfolio and, arguably, the potential for geographic expansion (it’s stronger in the north, for instance) but I think Sainsbury’s would require a LOT of work for not necessarily that much of a return. Yes, it could be done, but I don’t think it’d be worth it.

Facebook has a ‘mare and The Hut Group takes a kicking…

Some Facebook, Instagram, WhatsApp services restored after hourslong global outage (Wall Street Journal, Talal Ansari and Robert McMillan) highlights yesterday’s massive six-hour outage of the three services due to networking issues, which Facebook later apologised for. * SO WHAT? * OK, so the company restored services but I think the incident served to underline just how much people rely on it. Does it mean that people will abandon? I don’t think so. In a way, you’d think that another company could see this and decide to capitalise on it with a rival service – but Facebook’s just so huge I don’t think this will be possible. The outage was the largest in its history. Facebook is really getting a hammering newsflow-wise at the moment, but I have no doubt that it will bounce back. It is just too big not to.

I thought that Hut Group suffers another day on slide (The Times, Ashley Armstrong) was worth mentioning because it points out that THG, the British e-commerce company, has now seen its share price fall by a whopping 25% in the last two weeks! It was seen as a real success when it floated last year but sentiment has cooled recently. A lot of big investors such as Goldman Sachs, BlackRock, Credit Agricole and Deutsche Bank have sold off chunks of the stock and some blame a profit warning from AO World last week as a catalyst for an e-tailer sell-off which also hit the share prices of Moonpig, Ocado and Asos. There are also concerns following recent suggestions that it is thinking about selling off its beauty business, which some say will alter the whole nature of the company. It is thought that founder Matthew Moulding will address such concerns at a capital markets day next week.

Evergrande’s shares are suspended, Volvo aims for a float and Monzo gets rejected…

In the latest development in the ongoing demise of the world’s most indebted property company, China on the brink of property crisis as Evergrande shares suspended (Daily Telegraph, Ben Gartside) highlights the share suspension of Evergrande itself in addition to Hopson Development, another Chinese property company, which is thought to be in the running to buy a 51% stake in Evergrande Property Services for over £3.8bn. * SO WHAT? * This would be Evergrande’s biggest sale so far as it tries to put a dent in its massive $305bn debt black hole (remember last week it sold a 20% stake in Shengjing Bank). Despite a few asset sales recently, Evergrande continues to face interest payment deadlines and concerns are growing that its asset sales won’t be able to keep pace with paying back its debt.

Elsewhere, Volvo Cars announces IPO that could value group at more than $30bn (Financial Times, Joe Miller) shows that the  Chinese-owned Volvo Cars announced plans for an initial public offering (IPO) as it tries to benefit from the wave of interest in the growth of its all-electric Polestar brand. A Stockholm float could give the company an implied valuation of over $30bn, $10bn of which will be attributed to its almost 50% stake in Polestar. It will aim to raise around $3bn by issuing new shares and Volvo Cars: IPO will get investors’ pulses racing (Financial Times, Lex) says it’s right to list following its best-ever first half results and recent news on Polestar which will give it a decent leg up on its rivals.

There was disappointing news in US regulator puts dent in Monzo’s ambition to expand across pond (The Times, Tom Howard) as the company decided to withdraw its US banking licence application before it was officially rejected by US regulators. Monzo had applied in April last year. It will still try to make inroads in the US via its existing partners, but for now it seems that US regulators are not inclined to grant banking licences to loss-making start-ups.

…in other news…

I just thought I’d leave you today with the impressive Clever Labrador who’s scared of the dark learns how to use torch in adorable TikTok (The Mirror, Edward Kay). How clever is he??