Friday 19/11/21

  1. In MACRO & ENERGY NEWS, Turkey’s Erdogan does an Erdogan and National Grid sees booming profits
  2. In CAR-RELATED NEWS, European car sales get more anaemic, Ford and GM get involved in chips and Apple aims for driverless
  3. In M&A AND IPO NEWS, Unilever sells its tea business, Carlyle ditches its Metro Bank bid and India’s Paytm has a disastrous debut
  4. In MISCELLANEOUS NEWS, Alibaba indicates a weakening in Chinese consumer spending, consumer confidence rises in the UK, Costa offers M&S food and Naked Wines is hit by drinkers returning to pubs
  5. AND FINALLY, I you some shocking cheese-related content…

1

MACRO & ENERGY NEWS

So Turkey goes rogue and the National Grid profits…

I don’t think that there is a better song that embodies Turkish President Erdogan’s way of “dealing with” inflation than Frank Sinatra’s My Way 🤣! Turkey defies warnings and cuts interest rates (Financial Times, Adam Samson and Laura Pitel) shows that Erdogan is not averse to sticking his fingers in his ears and saying “lalalalalalala” to the massive chorus of voices telling him that if you want to curb inflation you increase interest rates (Turkey’s inflation rate currently stands just shy of 20%! And this is after three rate cuts since September!!!). Erdogan’s latest move really dented the lira sending it to a record low yesterday, making the price of imported goods higher, which then gets passed on to consumers, which then makes inflation worse. * SO WHAT? * Erdogan is known for being in the minority for believing that high interest rates CAUSE inflation rather than control it. It’s true that there are many other factors causing prices to rise at the moment, but he stands alone as many countries around the world are trying to raise rates

rather than cut them. Despite critics accusing him of bankrupting the country, he has a huge amount of control that makes it very difficult to dislodge him. He is a very canny operator.

Meanwhile, National Grid profits surge on back of European crisis (Jillian Ambrose) shows that consumers’ collective misery regarding rising energy prices is the source of National Grid’s joy as its subsea power cables that connect the UK to the continent managed to generate booming revenues. It charged higher prices to transmit electricity via its cables running from the UK to France and Belgium in addition to benefiting from the start of the North Sea Link, the longest subsea power cable in the world linking the UK to Norway’s hydropower. Profits rose by a whopping 86% in the first half versus the same period a year ago and was pumped up by a combination of rising electricity prices over the last few months and the acquisition of Western power Distribution (WPD), the local power grid company. Interestingly, the surge in profits related to earnings from its subsea power cables more than offset the September shutdown of one of the UK’s most important power cables running to France due to a fire.

2

CAR-RELATED NEWS

European car sales weaken, Ford and GM decide to do something about chips and Apple veers towards driverless cars…

Global microchip crunch drives car sales to record low across Europe (Daily Telegraph) cites the latest figures from the European Automobile Manufacturers’ Association (ACEA) which show that new car registrations fell by 29% – and these figures include the UK, Iceland, Norway, Switzerland and EU countries. This was the fourth consecutive month of falling deliveries but companies are starting to say that the worst of the chip shortage crisis is over. Mind you, Ford, GM step into chip business (Wall Street Journal, Mike Colias and Ben Foldy) shows that some of the manufacturers are taking matters into their own hands as Ford announced a strategic agreement yesterday with semiconductor maker GlobalFoundries to develop chips (which could potentially lead to joint US production) and GM, which later said that it was entering into agreements to co-develop and manufacture chips with Qualcomm and NXP Semiconductors. * SO WHAT? * Semiconductor shortages have been the bane of the automotive industry for the last six to twelve months and car sales have really suffered at a time where they could

have boomed given strong demand. Whether consumers will still be in the mood to buy cars when household budgets continue to get squeezed tighter and tighter as time goes on remains to be seen. In the meantime, I imagine that the secondhand market will continue to stay strong!

Meanwhile, Apple electric car may lack a steering wheel (Daily Telegraph, Howard Mustoe) shows that the tech giant is said to be heading down the fully automated car route in the secretive “Project Titan” car project that Apple has been working on since 2014. Progress in cars has blown somewhat hot and cold over the intervening years but the new leader of the division, Apple Watch executive Kevin Lynch, is keen on the driverless option that will give him a blank canvas for design. * SO WHAT? * I am pretty sceptical about this. As we’ve seen over the years, building and developing cars is a massive money pit. Elon Musk has managed to blag/charm/inspire his way to extracting oodles of cash from star-struck investors for years and it’s only recently that he’s managed to turn a profit. Yes, Apple has tons and tons of cash but surely it would be better to contribute to cars in a different way (software, design or connectivity, perhaps?). I think that this would be an eye-wateringly expensive vanity project for Apple. That said, its main iPhone assembler Foxconn just released three EV prototypes, so maybe there could be some mileage in this (sorry for the pun but I just couldn’t help myself).

3

M&A AND IPO NEWS

Unilever sells off tea, Carlyle abandons Metro Bank and Paytm has a terrible market debut…

Unilever sells tea division in £3.7bn deal (The Times, Ashley Armstrong) highlights the sale of the consumer goods giant’s tea division (which includes the PG Tips and Lipton brands and is called Ekaterra) to private equity firm CVC Capital Partners, after it bid for it successfully in an auction process. This brings to a close a near-two-year sale process after Unilever said it was looking to exit the business as younger customers were abandoning tea to drink coffee and other things such as kombucha. It was considering spinning off the division in an IPO as well, but clearly CVC’s purchase put paid to all that. Yet another deal in the bag for private equity!

In the financials sector, there was disappointing news in Metro Bank plummets as Carlyle withdraws (Daily Telegraph, Simon Foy) as US private equity giant Carlyle decided to walk away from takeover talks with the challenger bank, sending its shares down by almost 20%,

leaving the troubled lender back at square one and Paytm shares fall 27% on trading debut after India’s biggest IPO (Financial Times, Benjamin Parkin and Hudson Lockett), which highlighted a disastrous first day as a quoted company for the Indian fintech company. It raised $2.5bn in the IPO, which gave it a valuation of $20bn but big investors Ant Group and SoftBank sold down their holdings. Domestic institutions were doubtful about its plans to get to profitability and competitive threats from the likes of Google and Flipkart etc. have eroded its early mover advantage. * SO WHAT? * Fans say it can grow because of its wide usage (it has 50m active monthly users) but detractors doubt its competitive advantage as it is too broadly stretched in too many areas. Paytm/Ant: IPO flop weakens Indian play for China tech stock money (Financial Times, Lex) draws attention to the fact that Ant Group still has a massive shareholding and that tricky relations between China and India make a sale of this stake increasingly likely. It adds that the company is lossmaking and boasts dodgy metrics to make itself look good and that there are other decent rivals like PhonePe (bought by Walmart in 2018) constantly nibbling away at its market share.

4

MISCELLANEOUS NEWS

Alibaba sees consumer spending slowdown, UK consumer confidence picks up, Costa offers M&S food and Naked Wines suffers from pub-goers…

In a quick scoot around some other interesting stories today, Alibaba warns of slowdown in Chinese consumer spending (Financial Times, Eleanor Olcott and Cristina Criddle) shows that the Chinese e-tailing giant’s US-listed shares fell by over 10% as it announced that it was having to make big cuts to its sales forecasts because it said that Chinese consumer spending is slowing down. This has been backed by recent official economic data which have shown that retail sales increased by just 2.5% year on year in August, way below market expectations of 7%, but it is also due to increased competition from rivals such as Pinduoduo and JD.com.

Nearer home, Rising consumer confidence boosts spending spree hopes (The Times, Simon Duke) cites GfK’s consumer confidence index which shows that consumer confidence is actually edging higher in the run-up to Christmas despite rampant inflation and the prospect of higher interest rates. It’s positive for retailers as the appetite for big-ticket purchases is rising – which will be useful going into next Friday’s Black Friday shopping event and the whole festive period. It seems that British

consumers are adopting the adage “Keep Calm – And Carry On Spending!”. * SO WHAT? * As I have said before, I expect this positivity to continue into the end of the year – but there’s a danger that there will be an almighty hangover in January. If January turns out to be OK, I think that the economy could get a second wind.

Then in Costa to serve Marks & Spencer food at coffee shops (Daily Telegraph, Laura Onita) we see that M&S will sell sandwiches and hot food in over 2,500 Costa Coffee outlets as part of an effort to tempt workers who no longer commute every day. M&S’s food-to-go sales have suffered under lockdown because fewer commuters means fewer lunchtime/on-the-way-home trips to M&S, so a wider network sounds like a good idea in theory. It’s good for Costa as well as it has suffered from lack of deliveries due to driver shortages. Peppa Pig latte, anyone?? * SO WHAT? * This sounds good, but I thought that commuters tend to go to Costa as well! This makes me sceptical as to whether this is actually any good in practice as people who work from home are surely less likely to go out to Costa aren’t they? Fun fact: Costa is the UK’s biggest coffee shop chain.

Naked Wines left exposed as drinkers race back to pubs (Daily Telegraph, Hannah Boland) shows that Naked Wines has had to cut sales forecasts (what?? Going into Christmas??) because it said that more people going to pubs = lower sales. Shares in the company fell almost 24% on the back of this news in trading yesterday and worries increased about the impact of supply chains. Is this just a one-off? Or is it something that’s going on across the board at supermarkets or other wine retailers?

5

...AND FINALLY...

…in other news…

I love cheese. There – I said it! It stemmed from me working at the cheese counter in Sainsbury’s when I did my A-levels. So imagine my surprise when I saw This Morning chef horrifies fans with cheese and mince pie sandwich recipe (The Mirror, Paige Holland). Wha—– 😱😱😱??? However, I must admit to having had a sense of satisfaction when I read American tries British cheese for first time and ‘feels like they’ve been lied to’ (The Mirror, Courtney Pochin). THANK YOU – we do indeed have brilliant cheese in this country!

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Some of today’s market, commodity & currency moves (as at 0758hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
7,256 (-0.48%)35,870.95 (-0.17%)4,704.54 (+0.34%)15,993.71 (+0.45%)16,222 (-0.18%)7,142 (-0.21%)29,750 (+0.51%)3,560 (+1.13%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$79.68$81.99$1,857.241.349351.13451114.361.1893655,980

(markets with an * are at yesterday’s close, ** are at today’s close)