Friday 18/02/22

1. In MACRO & CRYPTO NEWS, Biden warns of imminent invasion and we look at which Russian companies could suffer while the IMF rues lost growth, the ECB’s chief economist shifts position and Sequoia allocates to crypto
2. In CONSUMER TRENDS/CHALLENGES NEWS, American consumers are primed to spend, the travel uptick lifts Airbus and Australian tourism hopes and shoppers buy Gucci while workers return to offices but look for other jobs and challenges include rising prices on the general shop, Nestle and Reckitt signalling the same and a potentially nasty surprise for EV owners
3. In RETAIL-RELATED NEWS, Amazon makes up with Visa, Ocado expands its deal with Casino and Walmart puts in a good performance
4. AND FINALLY, I bring you sausage whack-a-mole for dogs…

So Biden warns, Russian interests face an uncertain immediate future, the IMF bemoans lost growth, the ECB’s chief economist shifts his stance and Sequoia allocates a slug of money into crypto…

Biden warns Russia is set to invade Ukraine within days (Financial Times, James Politi, Roman Olearchyk and Max Seddon) just highlights the intensifying situation as the US says that Russia is looking for any excuse to invade. Which London-listed Russian firms could be hit by sanctions? (The Guardian, Jasper Jolly) takes a look at who could suffer in the event of invasion-triggered sanctions imposed on Russia. Weirdly, the UK actually has an outsized ability to hit Russia as there is believed to be more Russian gold in London than in any other city in the world. 31 Russian companies with a combined market value of £468bn are listed on the London Stock Exchange and many of them fund the Russian state – London-listed Russian oil, gas and mining companies paid their government £39bn in taxes in 2020. It is thought that most London-listed companies could suffer from sanctions to a greater or lesser extent, although no specifics have been mentioned as yet. In the most extreme case, it is possible that Russian companies operating in the UK, US or EU could be banned from making any transactions with sanctioned entities which could involve the suspension of their shares and inability to issue new debt or shares in London. Rosneft, Gazprom and Lukoil are obvious targets given that they all have primary listings in Moscow and secondary listings in the UK. Other companies that could be a target for sanctions include steelmaker Evraz, in which Roman Abramovich has a 29% stake, and aluminium miner En+ Group.  * SO WHAT? * At the moment, it’s all up in the air regarding what exactly is going to happen, but there are a number of levers that the UK could pull that may have at least have some effect on corporate Russia. Gazprom posts record profits after cost of a barrel soars (Daily Telegraph, Rachel Millard) shows that the state-owned oil producer has been doing very nicely up until now but Invesco to close fund with focus on Russia (The Times, David Brenchley) shows that the

investment manager will close its Emerging European fund, which has major investments in Russian companies, next month. It has been deemed to be no longer commercially viable. Will this be the first of many to abandon Russia?

Meanwhile, UK and eurozone ‘lost year of GDP growth’ (Daily Telegraph, Tom Rees) gives us yet another example of the IMF stating the bleedin’ obvious – that supply chain bottlenecks have been a major drag on economic growth. It reckons that these delays could last into 2023 as they continue to dent recovery prospects. In another unbelievably astounding insight, the IMF’s managing director Kristalina Georgieva said that the Omicron variant has “injected new uncertainty”. Wow. How does the IMF come up with such laser-like insights. This is amazing. Thank God for the gurus at the IMF – where would we be without them to point out stuff that is staring them (and everyone else) in the face…then in ECB chief economist shifts inflation stance to signal policy ‘normalisation’ (Financial Times, Martin Arnold) we see that the chief economist of the European Central Bank, Philip Lane, has shifted his stance on Eurozone inflation by saying that – I hope you’re sitting down for this – inflation looks unlikely to fall below its 2% target for the next two years. * SO WHAT? * This is actually important because inflation projections for 2023 and 2024 feed directly into considerations about what to do now in terms of bond purchases and interest rates. This marks a notable change in position from even three weeks ago and Lane is a major influencer on ECB monetary policy.

Then in Sequoia earmarks $500m for push into cryptocurrency markets (Financial Times, Miles Kruppa) we see that Sequoia Capital, an influential venture capital group, has announced plans to plough at least $500m in digital assets as it aims to dive deeper into cryptocurrency markets. This would be a new fund that would primarily buy into cryptocurrency tokens that trade on third-party exchanges and represents part of a restructuring at the company. * SO WHAT? * This will help Sequoia increase its presence in cryptocurrency projects that it participates in – and when you consider that 20% of its investments in the UK and Europe last year went into cryptocurrency-related  areas it clearly needs room to develop!

Consumers want to spend but prices keep going up and the challenges are piling up…

Americans are emerging from the pandemic ready to splurge on events and travel (Wall Street Journal, Will Feuer) shows that the US consumer is spending and companies including Marriott International, Expedia Group, Coca-Cola and MGM Resorts International are already reporting a rebound from the depths of Omicron and Walt Disney recently reported rising visitor numbers both domestically and abroad, with the per-visitor spend up to 40% higher than pre-pandemic levels.

That willingness of consumers to spend on travel and leisure is reflected in Airbus profits take off as it scales down aircraft size (Daily Telegraph, Howard Mustoe) as the aircraft manufacturer expects to deliver more aircraft this year led by sales of its A320 single-aisle jets which commonly fly between cities in Europe and Australia prepares for tourist wave as it lifts foreign visitor ban (Financial Times, Nic Fildes) shows that the strict border lockdown that is going to be lifted next week can’t come soon enough for the businesses who rely on tourists as their lifeblood. Australia welcomed 9m tourists a year before the pandemic and after pretty much two years of lockdown, the country is expected to see a big influx of the double-vaxxed next week. Gucci drives forecast-beating sales growth at Kering (Financial Times, Leila Abboud) shows that the trend of consumers spending big on luxury is continuing as French luxury group Kering posted stellar Q4 sales at Gucci, a major driver for the group, prompting a share price rise of 7% in morning trading, making it the biggest gainer on the CAC-40. It’s doing well, but rival LVMH is doing better – so there is more to do! * SO WHAT? * All of this clearly shows that the demand is there but I maintain that this could change going into the second half of the year as rising prices hit household budgets hard. I still think that the “top end” of the market will be OK and that they will continue to “revenge spend”, but those underneath this segment will really feel price rises increasingly acutely as time goes on. This could result in cancellations and a re-jigging of plans by holiday-related businesses IMO.

In employment-related developments, Return to UK offices hits highest since pandemic began (Financial Times, George Hammond) shows that people are returning to the office in increasing numbers as the average occupancy of work spaces between February 7th and 11th was 23.3%. It hit 27.5% on February 10th, which was the highest level since the start of the pandemic in March 2020 – however, there is still a long way to go overall to reach pre-pandemic levels of around 60%. Having said that, Half of workers looking for new jobs amid ‘great resignation’ (Daily Telegraph, Tom Rees) shows that around 50% of workers

polled by Ipsos in a recent survey said that they are considering changing jobs as the “great resignation” continues. Apparently, many workers have delayed moving jobs amid uncertainty during the pandemic and they are now getting itchy feet. Some have re-evaluated their work-life balance and are also looking to act on their conclusions. * SO WHAT? * I suspect that the return to the office will be a trickle rather than a flood as WFH arrangements become more permanent. As for the “great resignation”, I think that this is likely to gather momentum given that average pay increases are said to be in the region of 3% versus the 15-20% rise you can get, on average, if you move job and inflation continues to rise. Mind you, TALKING about moving and ACTUALLY moving can be different because changing job can be quite stressful/disruptive initially. I do think, however, that job moves will calm down if wage rises slow.

Consumers still face a lot of challenges though as Three in four shoppers say prices rose last month (Daily Telegraph, Tom Rees) cites the latest figures from the Office for National Statistics which show that 76% of adults in the first half of February reported a rise in living costs over the previous month – a meaningful jump from 62% who reported such in November. Nestlé and Reckitt are the latest to lift prices (Daily Telegraph, Hannah Boland) shows that there are more price rises to come as they battle “unprecedented” inflation themselves  and Why the cost of a cup of coffee is overtaking the rate of inflation (Daily Telegraph, Matt Oliver) shows that some businesses who have been absorbing costs to keep their customers happy are not going to be able to do so for much longer. Prices of an americano have risen by 30% at Starbucks, 21% at Pret and 10% at Caffè Nero between January 2019 and January this year as the rising price of coffee beans and staff wages have bitten deep. Road pricing shock around the corner in shift to electric (Daily Telegraph, Tim Wallace) suggests another potential drag on household budgets as the government considers ways of eking tax out of currently tax-free vehicles by coming up with a new road pricing system whereby road users will be charged by road usage to be tracked by a “black box” telematics device. Payments could then depend on type of road, time of day and how polluting the vehicle is. * SO WHAT? * It’s getting increasingly difficult to identify any areas where prices are decreasing, isn’t it! As I have said before, I think that people won’t pay too much attention to these increases right now but as the months roll by reality will hit. I thought that the road pricing thing was interesting though – and some are complaining that this will be a nasty surprise for early EV adopters who may have opted to go electric at least partly because you don’t have to pay tax. According to the latest figures EVs now make up 11.6% of total sales (which sounds like a lot compared to the 5% level it has been at for so long – but I think this is artificially high given that new car sales have been depressed by the chip shortage) so it’ll be a while yet before the government has to do something to make up the shortfall in fuel duty. Although it is something to think about, there aren’t any concrete plans on this just yet…

Amazon calms down, Ocado expands its relationship and Walmart puts in a decent performance…

In other news, Amazon and Visa resolve dispute over credit card fees (The Guardian, Jenn Selby) shows that the kerfuffle between the two companies over processing payment fees from the latter of the former is now over. Staying with online retailers, Ocado gambles on French expansion with Casino deal (Daily Telegraph, Laura Onita) shows that Ocado is expanding its existing tie-up with

French supermarket chain Casino as they will now sell jointly-developed logistics services to other grocery businesses in France. The software makes it easier for staff to find products when they are packing internet orders. * SO WHAT? * This should be a nice little earner and is a rare bit of good news for Ocado, which has been suffering of late.

Switching to physical retailers, Walmart shows it has further to go (The Times) shows that America’s biggest retailer beat market expectations of profit and sales yesterday at its full-year earnings announcement despite headwinds of supply chain problems and rising inflation. I guess that consumers are still going to be buying the basics whatever happens elsewhere!

…in other news…

I laughed so much when I saw this for the first time: Puzzled dogs play whack-a-mole with sausages and get confused when they disappear (The Mirror, Nia Dalton). Surely this is the best game ever invented, no?