Monday 04/07/22

  1. In ENERGY & CRYPTO NEWS, we look at European and Japanese reliance on Russian gas, the rise in demand for solar panels, potential Rolls-Royce SMR sites and crypto woes
  2. In INVESTMENT & BANK NEWS, ESG faces scrutiny, the PE investment bonanza slows and British banks rake in more than their European counterparts
  3. In CONSUMER NEWS, Brits face new higher mortgages as they come off fixed, insurance prices rise and more firms pass costs on to customers
  4. In MISCELLANEOUS NEWS, EV sales rise in the UK, Tesla deliveries fall and the company takes a Bitcoin hit, Amazon uses e-bikes, Shein faces lawsuits and the UK moves towards US-style class actions
  5. AND FINALLY, I bring you the latest instant noodle trend and a gadget to cool you down…

1

ENERGY & CRYPTO NEWS

So Russian gas continues to disrupt, solar panel demand rises, Rolls-Royce identifies sites for Small Modular Reactors and Celsius users still can’t get their money out…

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This is stating the bleedin’ obvious but Europe at risk of recession amid concerns Russia could cut gas supplies (The Guardian, Jasper Jolly) shows that Nomura analysts reckon that Europe faces a high risk of recession due to higher oil and gas prices as well as falling demand in the US, which is its biggest export market. They reckon the European economy will start contracting in the second half of this year (i.e. NOW!) and for recession to go on till the summer of 2023. Meanwhile, Shipping boss says Japan has no choice but to buy Russian gas (Financial Times, Harry Dempsey) just goes to show the (im)practicalities of cutting off supplies of Russian LNG, with it being impossible for the likes of Mitsui OSK, the Japanese shipping conglomerate. As I have said before, Japan is particularly reticent about upping nuclear power since Fukushima and is also getting cheap LNG supply from Russia, having signed long-term deals. This just goes to show how difficult it is to break the addiction to Russian energy supplies, even if you want to…

In renewables news, The heat is on as soaring electricity bills boost demand for panels (The Guardian, Alex Lawson) shows that customer interest in solar panels has been increasing given the rising cost of powering our homes! Apparently, eBay searches for

solar panels and solar power batteries went up by 54% and 134% respectively in June, versus the same period last year. The rise in energy bills is effectively shortening the time it will take for an installed system to pay for itself, much as the rising cost of fuel is making the purchase of electric cars more viable. On a more different scale, Rolls-Royce reveals site shortlist for first small nuclear reactor factory (Financial Times, Sylvia Pfeifer) shows that the Rolls-Royce-led consortium that is pushing to roll out its Small Modular Reactors has unveiled its shortlist of proposed locations. Richmond in North Yorkshire, Sunderland, Deeside in Wales, Ferrybridge in West Yorkshire, Stallingborough in Lincolnshire and Carlisle are all candidates. The company is continuing to pressure the government to fast-track the development of these reactors so that at least one could go online in 2029. It’s getting real!

Moving into the world of crypto, Celsius customers are losing hope for their locked-up crypto (Wall Street Journal, Vicky Ge Huang) shows that things aren’t getting any better for Celsius Network customers who want to get hold of their money. But it’s not just Celsius that’s doing this – Babel Finance, CoinFlex, Voyager Digital and Finblox have also frozen withdrawals. Basically, crypto lenders have been touting themselves as offering the same or similar services as traditional banks but with much better returns while customers remain blissfully unaware that they lack the legal oversight and protections that banks and brokerages get. In the meantime, Celsius is fielding advice on a potential bankruptcy filing and it looks like, in the small print, the terms on the Celsius website say that customers may not be able to recover the cryptocurrencies in their accounts or any collateral they put up for loans. * SO WHAT? * It is not looking good at the moment for these platforms. It remains to be seen whether governments and regulators will be comfortable watching individuals lose huge amounts of money to “teach the industry a lesson” by letting them go bust. Some might say that if you’ve got enough money to gamble on something that doesn’t exist then there’s no reason for taxpayers to bail you out. There’s still no whiff of regulation though…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

2

INVESTMENT & BANK NEWS

ESG face more pressure, private equity seems to be losing momentum and British banks make more than their European counterparts…

Scrutiny of ESG claims for private investments grows (Financial Times, Adrienne Klasa) looks at the increasing focus on how ESG-compliant/friendly investments really are. Getting an ESG “badge” for your fund can help to ensure inflows and therefore increases the temptation of bending the rules to justify its classification. Even Brookfield Asset Management, which raised a $15bn impact fund last month and has ex-Bank of England governor Mark Carney as vice chair, is declining to share any impact goals and how it will measure its investments. Meanwhile, ESG rules give Russia and China defence edge (Daily Telegraph, Howard Mustoe) highlights the plight of Britain’s defence industry, which says it’s being held back by ESG rules that require investors to avoid defence stocks despite the need to boost defence becoming abundantly clear in the wake of Russia’s invasion of Ukraine. * SO WHAT? * I‘ve said this many times before both here and on the podcast, but I think that the interpretation of what constitutes being ESG-friendly and what doesn’t can be extremely wide. I’ve always said that “ethical” investors in the past could often find ways to shoehorn companies into the portfolio by bending the rules if they thought it would improve overall performance. However, now that ESG investing is becoming more prevalent I think that it is time that it was monitored more closely – although doing that is likely to be very difficult.

The great private equity deal boom comes to a crashing halt (Daily Telegraph, Oliver Gill and Simon Foy) is an interesting article which suggests that the wave of private equity investment may be losing its momentum as it’s getting more difficult to access debt in the

current economic climate (this debt is often used to finance purchases), it’s getting more expensive because of rising interest rates and the previous feelgood factor of the IPO market is petering out. Interestingly, the article refers to a number of deals just coming off the table (e.g. the sale of caravan operator Parkdean, while Bourne Leisure’s sale of Butlin’s is rumoured to be close to collapse) while those who can’t back out are now facing tough choices (Clayton, Dubilier & Rice’s purchase of Morrisons, for instance). * SO WHAT? * As corporate M&A starts to dry up, it seems that private equity is finding it harder to access the financing that often power their deals. If the value of their respective portfolios go south due to the reduced number of potential buyers in the market, some of them could later be sitting on big losses. The only major catalyst I can see for economies to get better at this moment in time is for the Ukraine war to come to an end, ideally with Putin not being in power. As long as he’s in power, countries and industries will be wary of him going to war all over again – but if he’s not, and he’s replaced by someone who is more western-friendly then there could be a big market boom, which the PE companies would no doubt use to exit their investments. That does not seem likely at the moment, though.

British banks defy EU pressure with higher profits than France for first time since 2015 (Daily Telegraph, Lucy Burton) is an interesting article which shows that British banks have made more money than their French rivals for the first time since 2015, despite the EU trying to force staff to leave London to go to Europe following Brexit. No doubt this will prompt renewed efforts on either side of the Channel to reinforce their positions. Interestingly, Britain’s banking sector was the world’s fourth most profitable last year after China, the US and Canada.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

3

CONSUMER NEWS

Consumers continue to face more pressure on their budgets…

UK mortgage holders face higher bills as their fixed-rate contracts expire (Financial Times, Nick Peterson) highlights a potentially scary prospect for those on short-term fixed rate mortgages. According to the latest Bank of England stats, 83.1% of existing mortgage holders are on fixed-rate contracts, with up to 32.7% of those on agreements of 24 months or shorter. Mortgage rate have shot up and those on short-term agreements face a nasty shock when their rates expire. For instance, mortgage rates that were about 1.5% at their lowest level at the end of last year will now be more like 3.6%, which will mean a major rise in repayments. Ouch. * SO WHAT? * Painful though this may be for some, for others it could prove to be disastrous. They may not be able to face the new repayments, which means that they may be forced to sell their houses in what is looking like a market that is slowing down. The more this happens, the more houses come onto the market, putting further downward pressure on prices.

Meanwhile, UK motor insurers headed for underwriting losses as inflation bites (Financial Times, Ian Smith) shows that motor insurers, after having a bumper year in 2020 when the number of claims was miniscule, are now facing underwriting losses this year and next as roads get busier. * SO WHAT? * Rising inflation, higher prices for secondhand cars and parts and higher repair costs are squeezing their finances – and you know what that means? Yes, you’ve guessed it – higher premiums! MORE expense for consumers!!! That is, unless they decide to use some of the cash they stashed during the good years to cushion the blow…

Then in Most firms vow to put prices up (The Times, Katie Prescott) we see that the latest report from the BRC shows that a record number of businesses plan to pass on higher energy and materials costs onto their customers as business confidence crumbles. Two thirds of companies reckon their prices will rise over the next quarter, a record high. More pressure for the consumer…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

4

MISCELLANEOUS NEWS

EV news is a mixed bag and lawsuits come into the conversation…

In a quick scoot around other interesting stories today, Sales of electric cars pass half a million in the UK (The Guardian, Jasper Jolly) highlights the number of electric cars sold in the UK, 20% of which are made by Tesla – but don’t get too excited because that still only represents about 1.2% of the cars on British roads currently! Demand for EVs is on the up, no doubt helped by sky-high petrol prices but, as for Tesla itself, Tesla deliveries fall due to China Covid shutdowns and supply shortages (Financial Times, Richard Waters) heralds disappointing news at a time when it is shedding employees while Tesla faces writedown after Musk’s Bitcoin bet backfires (Daily Telegraph, James Titcomb) adds insult to injury as the company’s purchase of $1.5bn in Bitcoin last year is proving to be painful with a $440m writedown on its holdings of the cryptocurrency. This is equivalent to 9% of its annual profits last year and Tesla’s share price has fallen by about 44% so far this year.

On a more positive note for EVs, Amazon turns to fleet of e-bikes for deliveries across London (The Guardian, Sarah Butler) sounds quite interesting as the company said it is going to be launching a fleet of e-bikes and a team of delivery staff on-foot to replace a number of van deliveries via “micromobility hubs”. The company plans more such hubs around the country this year as part of efforts to cut its carbon emissions! Sounds good, no?

Then in China’s fast-fashion giant Shein faces dozens of lawsuits alleging design theft (Wall Street Journal, Dan Strumpf) we see that Shein’s apparent disregard for copyrights has resulted in it collecting a lot of lawsuits over the last few years. Shein – now valued at over $100bn – or its Hong Kong-based parent company Zoetop have been named as defendants in at least 50 US federal lawsuits over the last three years for copyright or trademark infringement. Shein has either brushed claims off by blaming suppliers or paid undisclosed amounts to settle but it seems that the incidence of such cases continues to increase, with fast-fashion often being the culprit. It’ll be interesting to see whether there is a crackdown here as it seems that we are overdue one!

Talking of lawsuits, UK moves closer to US-style class actions (Financial Times, Jane Croft) uses the example of a “class action” lawsuit that many of us didn’t realise we are involved in – that of the £10bn lawsuit against payments company Mastercard, where the claim is that it broke EU competition law by imposing unfair “interchange fees” on customers between May 1992 and June 2008 for the use of debit and credit cards. * SO WHAT? * Mastercard is fighting the lawsuit, but it seems that this lawsuit has opened up others against the likes of BT, Apple and Qualcomm. We are involved in these lawsuits because of an “opt out” clause which means that those who are affected are automatically included and efforts to push such class-actions have been powered by cash-rich litigation funders seeking big rewards. This could potentially be big business!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

5

...AND FINALLY...

…in other news…

In markets, there is a saying that “The trend is your friend”. It seems that is true here in Making spicy instant ramen fried rice, Korea’s latest viral food trend (SoraNews24, Dale Roll). Looks like quite a good way to spice up your life 😀. Meanwhile, I know from when I lived in Japan that it can get pretty darn hot (and extremely humid!) in the summer – and with government pleas for individuals and companies alike to save electricity by limiting use of aircon here’s an interesting way to keep cool: Sony’s wearable air conditioners selling like cold cakes in heat-stricken Japan (SoraNews24, Master Blaster). Looks a bit strange, but if I was in Tokyo’s heat right now I’d definitely use one!

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Some of today’s market, commodity & currency moves (as at 0633hrs 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 **
7,169 (-0.01%)31,097.26 (+1.05%)3,825.33 (+1.06%)11,127.84 (+0.9%)12,813 (+0.23%)5,931 (+0.14%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$106.650$111.83$1,812.931.210411.04319135.2701.1604219,103.8

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