Friday 21/05/21

  1. In MACRO, TRADE & CRYPTO NEWS, Eurozone producer prices rise, UK factory output bounces, consumer confidence rises, Aussie beef aims for the UK and crypto continues to intrigue
  2. In PROPERTY NEWS, WeWork loses big and UK house prices keep going up
  3. In MISCELLANEOUS NEWS, Tencent sees a 25% uplift in revenues, Oatly has a great debut and Trainline suffers
  4. AND FINALLY, I bring you an amazing home lockdown project…



So Eurozone producer prices rise, UK factory output rebounds, UK consumer confidence returns to pre-Covid levels, Aussie beef producers salivate at their UK prospects and crypto has another eventful day…

In Eurozone producer price rises are not inflation risk, says ECB’s chief economist (Financial Times, Martin Arnold, Miles Johnson and Valentina Romei) we see that the ECB’s chief economist, Philip Lane, has come out saying that recent rises in producer prices that have been prompted by supply chain issues is just a blip. Clearly, the ECB is sticking to the line that the Fed in the US and the Bank of England is taking – that price rises are just temporary and that the ultra-loose monetary policy will continue without the need for raising interest rates. * SO WHAT? * I think that the ECB is full of it. Data published yesterday showed that German producer prices shot up by 5.2% in April versus a year ago – the highest rise for almost ten years – due to huge price increases in the prices of metals, wood and energy, EU manufacturing input prices were up at their steepest rate for ten years in April and builders, car producers and basic materials manufacturers all reported the biggest hike in input prices since records began in 1992! What is the ECB smoking?!? Even services businesses in the EU are seeing rising input prices. Now although I believe that the US and/or UK will put up their interest rates this year (this is NOT their official line), I think that the ECB has more form for ignoring economic fundamentals when it comes to interest rates (it has kept interest rates at zero for about five years!). We’ll just have to wait and see, but it looks to me like the ECB has not given itself very much wiggle room in the language it used.

Meanwhile, in the UK, UK factory output rebounds after increase in demand (The Guardian, Phillip Inman and Graeme Wearden) cites findings from the latest CBI monthly industrial trends survey which shows that factory output grew this month at its steepest rate since December 2018 with chemicals producers, electronic engineering firms and metal factories displaying the most strength. Manufacturers also expect output to continue to gather pace over the next quarter due to increased customer demand. Orders shot up at their fastest rate since December 2017! A Q2 rebound really looks like it is on the cards as manufacturers get used to a post-Covid and post-Brexit world. Consumer confidence back to pre-Covid levels (Daily Telegraph, Tim Wallace) cites another survey – this time, GFK’s household confidence survey – which shows that households are now as confident about the economy and their own finances as they were back in March 2020, which is in itself the average since the survey started in 1974. It’s all going on, eh!!! It’s almost getting boring seeing all this raging positivity 😂!

There’s not much positivity going on with British farmers though given that Australia’s top beef exporter predicts tenfold UK sales surge on trade deal (Financial Times, Jamie Smyth, Peter Foster and George Parker) highlights the massive boost that the Australian Agricultural Company (AACo) would get if BoJo hammers out a major post-Brexit deal with Australia that involves zero-tariffs and zero-quotas. * SO WHAT? * Obviously, the National Farmers’ Union is warning that this will be a huge blow for British farmers whereas the AACo is emphasising how low current levels of beef exports are so low that they will see a marked increase under the agreement. It is thought that a tenfold increase over time, especially of more expensive cuts, could have a major negative impact on high-end Scottish beef farmers. No doubt Nicola Sturgeon will be using this in her ongoing argument for independence.

Again this week, there’s a ton of comment on crypto! Bitcoin price bounces after cryptocurrency crash shocks market (Wall Street Journal, Paul J Davies and Caitlin Ostroff) highlights a crypto rebound after a torrid week for the likes of Bitcoin, Ether and Dogecoin. In another interesting development, British investment manager Ruffer (which bought £550m-worth of Bitcoin right at the end of last year – so it’s done REALLY well!), said it sold its Bitcoin holdings in April due to increased concerns about the amount of money being borrowed against Bitcoin to invest in other assets (which just increases gearing to Bitcoin, magnifying both gains and losses). Then there was the news of Biden’s team prepares tax avoidance crackdown on cryptocurrency transfers (Daily Telegraph, James Titcomb) which outlines the Biden administration’s plans to have a tax avoidance crackdown on Bitcoin. The Treasury Department said that cryptocurrency transfers worth $10,000 or over should be reported to the Internal Revenue Service. Bitcoin’s value versus the dollar fell by over 5% as the news hit. The US Treasury said “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion”. * SO WHAT? * Cryptocurrencies are taking a right pasting at the moment. As the argument rages about their legitimacy and their place in world economics, the fact is that, however fervent a believer you are, if the governments and central banks don’t like it and crack down on it via legislation and any other means (including launching their own Central Bank Digital Coins) the future for these freewheeling currencies looks tricky. Clearly there will be trading opportunities in the meantime, but there’s always the danger that they will be regulated to death. If you are intrigued by cryptocurrencies and what’s going on with some of the smaller ones, I suggest that you have a look at Cryptocurrency that aims to redesign the web (Daily Telegraph, Matthew Field and Laurence Dodds), which takes a look at the recently-launched Internet Computer (ICP) coin, which has lost almost 60% of its value, versus other cryptocurrencies. The drama continues! FWIW, I think that there are just too many cryptocurrencies popping up out there. I think that a major cull is surely imminent as having too many just dilutes the pot IMO. I’ve never heard of a “merging” of currencies, but I wonder whether there could be some consolidation here – EtherDoge, anyone?!?



WeWork announces a loss and UK house prices continue to rise…

WeWork loses $2.1bn and sheds members as lockdowns bite (Financial Times, George Hammond) shows that office space provider’s losses ballooned to $2.1bn in Q1 of 2021 as it lost over 25% of its members over the past year, spent a ton of cash re-jigging its property portfolio and paid its ousted co-founder Adam Neumann an eye-watering $500m to get rid of him (nice work if you can get it!). This is on top of the $3.2bn loss in 2020 and a halving of its quarterly revenues year-on-year. * SO WHAT? * WeWork is going to make another attempt at an IPO via a SPAC, this time with a valuation of €9bn. The SPAC will inject $1.3bn in cash to WeWork. If you are an investor who loves having their face smashed in whilst getting a wedgie at the same time, this sounds like a great investment for you 😂! The market is going to be flooded with property (it already is being – and in the City of London, for example, they’re building even more!) and WeWork is going to be stuck wearing some more big losses IMO. Surely the only reason for having this IPO is so that early investors can sell out and run for the hills leaving the Johnny-come-latelies to carry the can, no???

In House prices ‘likely to keep climbing’ with shift to working from home (Daily Telegraph, Tim Wallace) we see that the Bank of England’s deputy governor, Sir Jon Cunliffe, is warning that house prices could continue to stay high even after the stamp duty holiday ends due to the continued demand for home-working. Mind you, at the moment, Homebuyers face veto as loan caps hit mortgages (The Times, Philip Aldrick) shows that an increasing number of home buyers are having their mortgage applications rejected due to lending limits that were imposed back in 2014. If house prices continue to increase, this could get even worse unless the limits are changed (it is currently under review). * SO WHAT? * It’s interesting to think that people are being turned away, especially when mortgages are now so cheap. Lifting those limits will definitely be a boon to the market, but given that they were created in the first place to prevent people from getting over their heads in debt, it will be interesting to see what the justification is if they ARE raised.



Tencent posts strong revenues, Oatly has a strong debut and Trainline gets hit…

In other news doing the rounds today, Tencent revenues jump 25% as regulators circle (Financial Times, Ryan Morrow) shows that Chinese social gaming behemoth (and the “T” in “BATS” – the Chinese equivalent of FAANGs) reported very strong Q1 revenue growth above market expectations thanks to the growth in its fintech and business services unit, which includes the highly popular WeChat Pay. * SO WHAT? * Tencent is currently under the microscope from regulators monitoring its past deals and is walking a tricky tightrope at the moment. Will it be next in line for a massive fine?? In the meantime, it continues to invest broadly. Fun fact: did you know that Tencent has a 17% stake in Snap?

Oatly milks New York debut with 30pc gain at the open (Daily Telegraph, Louise Moon) highlights the Swedish oat milk maker’s stellar debut on the New York Stock Exchange yesterday as it had a 30% pop, despite floating at the top of

its $15-$17 range. The money the company raised in the IPO will go towards building new production facilities and new products. * SO WHAT? * Good for Oatly! This all feeds nicely into the vegan trend, but I think it will need to diversify to stay ahead of the competition over the longer term. For now, though, it can’t make product fast enough!

Then in UK rail passengers warned of higher fares in network overhaul (Financial Times, Jim Pickard and Philip Georgiadis) we see that, further to the major overhaul of our railways outlined yesterday, fares are likely to go up. The fare system overall will offer flexible season tickets that take into account more WFH and a centralised ticketing system, among other things. Government reforms derail Trainline stock (The Guardian, Oliver Gill and Harry Yorke) shows that this news caused a 23% drop in Trainline’s share price despite the fact that the competing government website won’t go live for quite some time yet. As I said yesterday, I think that Trainline will be able to make ground in this time and it has much more experience at the complexities of scheduling and ticketing. How much are you willing to bet that the government will complete this particular project on time and to budget?!?



…in other news…

I thought I’d leave you today with an incredible example of lockdown creativity in A dad turned his whole house into a climbing frame for an epic ‘floor is lava’ game (The Mirror, John Bett). What a great dad!

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Some of today’s market, commodity & currency moves (as at 0728hrs 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 **
7,020 (+1.00%)34,084.15 (+0.55%)4,159.12 (+1.06%)13,535.74 (+1.77%)15,370 (+1.70%)6,344 (+1.29%)28,318 (+0.78%)3,487 (-0.58%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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