Friday 18/03/22

1. In MACRO & COMMODITIES NEWS, the Bank of England raises the interest rate, BoJo faces energy conundrums, nickel weakens and Russia appears to settle is bond payments
2. In CONSUMER/TRENDS/RETAIL NEWS, Russians face difficulties, Japanese wages rise, Deliveroo wavers and Trainline savours changing consumer behaviour while H&M broadens its offering, Getir gets a stellar valuation, Ocado suffers and TM Lewin calls in the administrators (again)
3. In FINANCIALS NEWS, Ping An takes a profit hit, HSBC goes meta and Raiffeisen reconsiders Russia
4. In MISCELLANEOUS NEWS, Japan has a major earthquake, Apple faces potential European challenges and P&O does the dirty
5. AND FINALLY, I bring you a “mum hack”…

So the Bank of England raises, BoJo faces difficult choices, the nickel price falls and Russia pays its way…

The crisis in Ukraine is beyond words. Many stories that we see now of tragedy, sacrifice and loss make everything else pale into insignificance. However, I will continue to bring you news on this and everything else in the business and financial markets news because it may well have repercussions that have major consequences for us all and that we still need to understand better.

Bank of England raises rates to 0.75% as inflation soars (The Guardian, Larry Elliott) shows that the Bank of England increased the interest rate from 0.5% to 0.75% yesterday, with 8/9 in the Monetary Policy Committee (MPC) voting for the rise, whilst simultaneously warning that inflation could well rise to around 10% this year. However, the Bank was less aggressive about further rate rises this year than their American cousins, who have said there could be a further six interest rate rises this year! * SO WHAT? * It’s all about trying to curb inflation, but I would say that the forces that are pushing it up will need more controlling. The effect of Russia/Ukraine is, as yet, unknown, so there is a possibility that the MPC may waver in order to see how things unfold.

Meanwhile, Boris Johnson has few quick fixes to deliver UK energy security (Financial Times, Nathalie Thomas and Jim Pickard) takes a look at potential options open to him

as he tries to wrestle with climate commitments on the one hand and an urgent need to get oil from non-Russian sources on the other. He could slow the long-term decline of the North Sea and invest in developing it (but critics say this just won’t be fast enough – it can take up to eight years from discovery to production), he could review fracking again as it seems that there are major potential reserves of shale gas (but critics say that the geology of the UK isn’t suitable), boost offshore wind and solar power (but we’d need to speed up the regulatory and planning process) and turn to nuclear power, but the lead time is very long for new facilities (hence recent chat about extending the life of existing ones). One thing that hasn’t been mentioned is trying to encourage the reduction of demand. I still think that the government is going to tell us all to buy thicker jumpers/wear thermals and commute via bicycle as our “patriotic duty” as a key plank to our “energy supply strategy” 😁.

In Nickel price tumbles below LME limit (The Times, Jessica Newman) we see that the drama continued in nickel trading yesterday after last week’s suspension and this week’s restart debacle as the price came under a lot of selling pressure both in London and on the Shanghai Futures Exchange. Talking of pressure, Russia settles two sovereign bond payments in dollars (Daily Telegraph) shows that Russia has, in theory, made the payments of its bond coupons in US dollars (and not in roubles, as it had been threatening). I say in theory because some creditors have yet to receive their funds. Payment of the $117m is being seen as a bellwether on the effects of sanctions on Russia’s economy.

Consumers face different challenges and alter their behaviour as retailers have mixed fortunes…

Price surges and panic buying: Russia’s war empties shelves and wallets (Financial Times, Polina Ivanova, Valentina Romei and Martin Arnold) shows what it is like for Russian citizens at the moment – basically it’s a nightmare. Prices on things like medical devices, food and electricity have shot up as sanctions bite and they are facing empty shelves and a cost of living crisis as the rouble has been in freefall. Prices have risen for foreign cars (+16%), TVs (+20%), vacuum cleaners (+17%) and smartphones (+12%) since February, according to the state statistics service, while the price of some food products has increased by over 15% in the same period. A banking collapse has been averted after initial fears prompted Russians to make mass-withdrawals. However, it looks likely that unemployment is going to rise as businesses that rely on imports struggle and Western businesses that were big employers pulled out. Also, Russians who earn money from overseas have been unable to reveive international payments as Visa, Mastercard, Western Union and PayPal have suspended operations.

Then in Japan’s top companies raise wages as inflation hits workers (Financial Times, Eri Sugiura) we see that companies including the likes of Toyota, Hitachi and Toshiba have agreed to their highest annual wage increases for seven years against the backdrop of rising raw material and energy prices. * SO WHAT? * It’s all part of efforts by Japanese PM Fumio Kishida to narrow the gap between rich and poor but only a few companies have actually met his target of a 3% pay rise for workers. Given that real wages in Japan have only risen by 0.39% since 2000, according to OECD data.

Deliveroo ‘to stay in the red until next year’ (Daily Telegraph, Helen Cahill) shows that Deliveroo has stated that it “could” break even at some point after the second half of 2023 as it faced pressures from inflation and increased competition from the likes of Uber Eats and Just Eat. I would have thought consumers will also try to cut back on takeaway deliveries as household budgets continue to feel squeezed from all sides. Trainline buoyed by the shift to electronic rail tickets (Daily Telegraph) is interesting as it shows how consumer behaviour is changing as paper tickets are ditched in favour of e-tickets, sales of which have boomed over the last two years. Still, there’s a long way to go for the company as it said that it is now seeing sales reaching 68% of pre-Covid levels.

There has been some interesting news for retailers in Fashion site opens door to brands (The Times) as H&M is

now selling third-party fashion brands on its website for the first time ever in Sweden and Germany. It plans to roll this out with more brands and across more markets. * SO WHAT? * I think that this is definitely the way forward and has already proved to be successful for those selling brands other than their own (like Next) or apparel retailers with sub-brands (e.g. Inditex, Boohoo, Asos etc.) – and even at M&S!

Elsewhere, Getir now worth more than M&S and Sainsbury’s combined at $12bn (Daily Telegraph, Ben Woods) shows that the Turkish start-up now has an implied valuation of $12bn after cash flowed in from investors in its latest funding round. It now means that Getir has achieved “decacorn” status (start-up companies with a valuation of over $10bn!). * SO WHAT? * I know I’m going to be in the minority when I say this, but I really think that this rapid delivery stuff is not going to expand as much as people think. It’s an expensive way of shopping, a competitive market place and requires scale to be properly viable. I think that it will boom as rapid delivery companies compete to buy customers, business will tail off because consumers cut expenditure and then there will be consolidation. In the end, I think it will only work in major cities (a bit like e-scooters IMO).

Ocado reports sales fall as shoppers resume pre-Covid buying habits (The Guardian, Mark Sweney) shows that Ocado’s sales fell in Q1 as shoppers returned to physical stores and pre-Covid shopping behaviours. It also said that it faces an unclear future as rising food prices and cost of living for consumers are likely to have more of an impact as time goes on. It is currently implementing cost cuts as it faces a pattern of falling online consumer spend. * SO WHAT? * This is another business that does well when consumers are time poor and cash rich, but as rising costs bite, I think that more people are going to revert to “old school” behaviours like, you know, actually setting foot inside a shop! I think that it’s been interesting that we haven’t heard much recently about how it is doing with its business where other retailers buy its technology.

TM Lewin calls in administrators for second time in two years (The Guardian, Sarah Butler) shows that the shirtmaker TM Lewin has called in the administrators yet again as it suffers from the trend of WFH and workers slopping around all day in their jimjams/hoodies/joggers. It operated 150 stores pre-pandemic but has been an online-only business since the administrators first came around in June 2020. * SO WHAT? * TM Lewin is just another office apparel maker with a long and proud history to go under. It’s just a sign of the times IMO, as there’s just not the same need for formal office attire these days. Gieves & Hawkes went into liquidation in January, Pink was shut down by its owner LVMH in January 2021 (but has since returned online) while Austin Reed and Jaeger fell into administration in November 2020.

Ping An suffers, HSBC goes meta and Raiffeisen reconsiders…

In a quick scoot around the financials sector, Ping An profits tumble due to Covid and property woes (Financial Times, Ian Smith and Thomas Hale) shows that one of the world’s biggest insurers by market value, China’s Ping An, saw its biggest drop in profits for over ten years last year as it suffered from a double-whammy of a Covid-related drop in demand and awful performance from its property developments.

HSBC expands in the metaverse after shutting high street branches (The Times, Tom Howard) shows that the bank will continue to shut down branches in the real world, but it is planning on expanding in the metaverse as it has bought

a plot of virtual real estate in a part of the metaverse called The Sandbox. It will use the space to engage with customers but did not say how much it paid. HSBC is the second global bank to dip its toes in the metaverse after JP Morgan built its Onyx lounge in a virtual mall in Decentraland. Interesting, no?

Then in Raiffeisen considers Russia exit just weeks after committing to stay (Financial Times, Owen Walker) we see that the Austrian bank is thinking of making a U-turn on Russia – where it generates a third of its profits – given the current situation. UniCredit is thinking about exiting while banks such as JPMorgan, Goldman Sachs and Deutsche Bank have already announced intentions to do so. * SO WHAT? * This is particularly interesting given how important the Russian business is to the company, but the longer this war goes on, the more untenable such a position becomes.

A big earthquake hits Japan, Apple faces potential European challenges and P&O behaves very badly…

In other news, Japanese companies close factories after earthquake in north-east (Financial Times, Antoni Slodkowski) shows that companies in north-east Japan have had to shut down after a major earthquake struck off the coast, not far from Fukushima. Transportation links to the region were cut and many areas were without power for a while and buildings swayed in central Tokyo, about 300km south. Japan nuclear energy: quake rattles Fumio Kishida’s faulty logic (Financial Times, Lex) highlights the fact that this could scupper PM Fumio Kishida’s plans to use more nuclear energy as oil prices rise and countries try to wean themselves off oil and gas imports. * SO WHAT? * Given what happened over ten years ago, it’s not surprising that the Japanese public is very wary of nuclear as a power source. If Kishida doesn’t abandon his energy plans immediately, he is going to face huge opposition – and he’s only been in power for about five minutes! Japan is a tricky place for nuclear power plants given how many earthquakes it has. Europe, however, is more stable and so it is a more viable power source.

Then in Apple’s hold on App Store set to face significant challenge from new European law (Wall Street Journal, Sam Schechner and Tim Higgins) we see that new EU legislation (called the Digital Markets Act) that could be completed as soon as this month could stop Apple from forcing app developers to use its store and payment tools from which it skims 30% for in-app purchases. * SO WHAT? * This could be a big moment and set the precedent for other jurisdictions to follow suit. It’ll be interesting to see how Apple responds.

P&O Ferries sacks 800 sailors and halts crossings for days (Financial Times, Philip Georgiadis, Harry Dempsey, Jim Pickard and Simeon Kerr) highlights yesterday’s shocking news about the company sacking its workers via video message. * SO WHAT? * This is bound to cause a huge amount of reputational damage amongst workers, customers and potential customers alike – not to mention a massive amount of unfair dismissal claims as busloads of contract workers were lined up to take over. You do wonder whether this is a very crude attempt by the company to do this at a time when other jobs could be relatively easy to come by rather than wait until everything falls apart. This is not going to be cheap.

…in other news…

This is a very simple idea, but I’m not sure whether it will be widely adopted 🤣: Mum installs doorbells indoors so she never has to shout for her kids for dinner (The Mirror, Paige Holland). It is tempting though…