Friday 28/05/21

  1. In MACROECONOMIC NEWS, a new global corporate tax approaches reality
  2. In CAR-RELATED NEWS, GM restarts production, Tesla sources chips and Johnson Matthey benefits from rising car sales
  3. In RECOVERY TRENDS, the UK faces a shortage of workers, diners rush out, Pets at Home gets a treat and Airbus gets bullish
  4. In MISCELLANEOUS NEWS, HP and Dell crank out the profits and HSBC shifts focus
  5. AND FINALLY, I bring you a bored cat…

1

MACROECONOMIC NEWS

So a new global corporate tax approaches…

New global code to trap corporate tax avoiders (The Times, Philip Aldrick) shows that an agreement on a global minimum corporation tax is getting closer to reality as all G7 countries – apart from the UK – have signed up to the proposal of a 15% rate. The UK is holding out for reforms

specifically aimed at digital giants such as Google and Facebook. Fortunately, it seems that the US is moving towards meeting some of these demands and sources say that a solution could be announced next week (there’s a G7 meeting of finance ministers next Friday). If this all goes ahead with the twin reforms of digital taxes and the minimum global rate, things could move quite swiftly. The 137 countries involved in all this would be expected to get behind the proposals next month, followed by the G20 the month after. Amazing (if it happens)!

2

CAR-RELATED NEWS

GM restarts, Tesla goes chip shopping and Johnson Matthey benefits from higher car sales…

GM to restart several factories idled by computer-chip shortage (Wall Street Journal, Nora Naughton) highlights the reopening of a small number of General Motors’ production facilities that had to shut down due to chip shortages. Facilities in Michigan, Canada, Mexico and South Korea are all slated to reopen next month and GM’s CEO Mary Barra said that although she expects Q2 to be lacklustre as a result of the shutdown, sales will bounce back again in the second half of the year. * SO WHAT? * Chip shortages have been a nightmare for the automotive industry and most manufacturers have had to shut down facilities at some point or another in the last few months. Interestingly, fellow chip shortage-sufferer Ford has said that it believes the shortage will get better as the year goes on, but rival Stellantis is more pessimistic saying that the problem could leak into 2022.

Given the above, Tesla set to pay for chips in advance in bid to overcome shortage (Financial Times, Kathrin Hille, Edward White and Richard Waters) highlights a very unusual step being taken by an automotive company – that it will buy chips before it needs them in order to secure steady supply. It’s even going one further than that in that it is in the early stages of looking at buying a semiconductor fabrication plant in order to mitigate the effects of a global shortage! * SO WHAT? * The problem is that buying your own fab is heinously expensive to do – some say that a

cutting edge one can cost up to $20bn and it can be very tricky to run well. Tesla/Samsung: plans to secure chip supply could extend delivery times (Financial Times, Lex) is a fascinating read that highlights a number of additional issues. Semiconductor specialists like Samsung have built their supply chains over a number of years and it can take at least three months between sourcing raw materials to actually producing chips and then it can take years to add capacity. Tesla’s requirement for particularly sophisticated chips will also cost money as well because automotive chips not only have to be more advanced than their cousins used in smartphones etc. – they have to be more robust and last longer. Some commentators have also said that the chip makers will need to get paid in advance by customers – which is what Tesla is looking at doing – but then again, advance contracts could be unpopular because they mean that makers won’t be able to make more money if the chip prices rise (which is, I presume, what they will be doing for a while given the current demand situation).

Then in Johnson Matthey set to pull into fast lane as growth accelerates (The Times, Robert Lea) we see that the British industrial tech company which specialises in catalytic converters that reduce emissions suffered a great deal last year as it announced a 22% fall in pre-tax profits for the year ending in March. Not only was it hit by poor demand last year, it also shed almost a sixth of its workforce. On the other hand, it reckons it can show growth of 10% this year and start paying pre-pandemic level dividends again due to improving business conditions and rising metals prices (it specialises in the platinum group of metals).

3

RECOVERY TRENDS

The UK faces worker shortages, diners dine, Pets at Home benefits from the lockdown boom and Airbus talks about increasing production…

I keep on going on about this but Thaw in UK labour market leaves employers scrambling to recruit staff (Financial Times, Delphine Strauss) shows that some areas of the economy are seeing such a sudden pick-up in demand for staff that there is now a shortage – especially in the pandemic-hit hospitality sector. It seems that employers who are finding it difficult to recruit may also find it increasingly difficult to retain existing staff as well, meaning that the balance of power in the employer/employee dynamic may be shifting. Diners rush to restaurants as indoor rules ease (Daily Telegraph) just emphasises the demand side of the equation as data from OpenTable shows that in the week to last Monday, the customer numbers were 132% of the levels they were in a pre-Covid 2019. * SO WHAT? * Although wages are going up right now, I think it is possible that some of the sting could be taken out of this for employers as you could argue that more potential staff are going to be coming online when furlough ends, but I’m not 100% sure about how many people will definitely take a job straight after. According to the latest figures, about 8% of the total workforce are still on furlough.

Best in show award for Pets at Home (The Times, Ashley Armstrong) shows that the UK’s biggest pet supply store is

continuing to benefit from rising pet ownership under lockdown. The company believes that pet ownership increased by 8% last year, with 10% of the population now believed to be pet owners. Clearly, pets can live for quite some time and so the benefits of lockdown are likely to last for some time yet. The company posted an 8.7% increase in retail sales for the year ending March, which was helped a lot by online sales. Another interesting phenomenon is the rising trend of couples in their thirties buying pets rather than having children (presumably at least some of them may want children later!). * SO WHAT? * I suspect that Pets at Home will continue to benefit from the pet-owning trend for quite a while yet! They may also be able to expand from their traditional retail park setting to town centres given the amount of space available at the moment.

Then in Bad news for climate as Airbus gets ready for a sales bonanza (The Guardian, Jasper Jolly) we see that Airbus has informed suppliers that it expects to go into record production of its best-selling planes within the next two years because it expects a strong bounce back for the aviation industry. It says that it will increase production of A320 single-aisle aircraft to 45 a month (up from 40) rising to 64 per month by the spring of 2023. The A320 is particularly suited to short-haul which is expected to be the segment that recovers the most rapidly. * SO WHAT? * This sounds pretty darn bullish when you are in the middle of a travelling nightmare, but lead times for planes are very long so a lot of forward planning is required! After a nightmare 2020, I guess they HAVE to paint a positive picture otherwise they will be toast.

4

MISCELLANEOUS NEWS

HP and Dell announce strong profits and HSBC shifts focus…

Following a lockdown which boosted demand for their respective products on increased WFH and home-schooling/online learning, HP and Dell post strong profits, point to bullish outlook for PCs (Wall Street Journal, Maria Armental) shows that demand is still strong as they both reported decent quarterly results. PC sales were at their highest level for a decade last year and HP expects PC demand to continue to run. It is also possible that the current chip shortage will actually prolong this uptick into 2022.

Then in HSBC withdraws from US retail banking (Financial Times, Tabby Kinder) we see that HSBC has ditched its US retail banking network as it continues in its efforts to concentrate on Asia, where it makes most of its profits. It will still maintain a small presence in the US with such branches becoming “international wealth centres” for private banking and wealth management customers. HSBC: US exit shows bank if delivering on promises, slowly (Financial Times, Lex) suggests that this latest move shows that Europe’s biggest lender is serious about cost cuts and increased focus on where it really makes its money after 40 years of banging its head against a brick wall.

5

...AND FINALLY...

…in other news…

As a pet owner myself, I can always understand why fellow owners want to treat their furry friends from time to time. However, as with kids, the expected outcome is not always guaranteed as per Woman left in stitches at her cat’s unenthusiastic response to his new toy (The Mirror, Rosaleen Fenton). This is how a cat says “what-ever” 😂!

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Some of today’s market, commodity & currency moves (as at 0624hrs 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 (-0.10%)34,464.64 (+0.41%)4,200.88 (+0.12%)13,736 (-0.01%)15,407 (-0.28%)6,436 (+0.69%)29,145 (+2.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$67.16$69.63$1,891.271.419281.21831109.891.1649937,398.89

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