Monday 07/03/22

  1. In MACRO & OIL NEWS, China aims low on growth, appeals are made for China as mediator, crude oil goes higher as the US talks to Venezuela and Total sticks with its Russian assets
  2. In ACTIONS & CONSEQUENCES, UK lawyers, Visa, Mastercard and Amex withdraw from Russia, Moscow pivots to the Chinese card system and Next heads for the exit. Meanwhile, a food crisis looms, there’s a shortage of building materials, Russian airlines are decimated, VTB prepares to pull out and private schools could lose out
  3. In MISCELLANEOUS NEWS, TikTok is exposed, prospects improve for UK M&A and the FCA warns about crypto being used for money laundering
  4. AND FINALLY, I bring you the secret to fluffy towels…

1

MACRO & OIL NEWS

So businesses continue to head for the exit…

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.

There have been a few delays with this week’s Weekly and Yearly, but I will be updating both of these publications today! In the meantime, have a listen to the discussion between Ralph and I on a) cutting off Russia from Lloyds of London, b) the effect of companies pulling out of Russia and c) the potential effect of cutting Russia out of indexes like the MSCI and FTSE. They are boring-sounding but could have major implications! Also, have a go at the QUIZ to see how much you remembered from last week 👍.

China sets lowest growth target in 30 years as Ukraine fallout looms (Financial Times, Edward White and Thomas Hale) highlights the unveiling of China’s latest GDP growth target which, at just 5.5%, was set at its lowest level for three decades. This reflects ongoing strict Covid measures, the slowing effect of the implementation of its “common prosperity” policy and fallout from the Russian invasion of Ukraine (although the latter was not directly mentioned). The budget included a steep increase in defence spending – up by 7.1%, which is its biggest increase in three years. * SO WHAT? * China continues to have big debt problems with local governments and the property sector and so a lower GDP target might give the government more wiggle room to address this.

Meanwhile, Ukraine says China is ready to act as a peacemaker (Financial Times, Edward White) shows that although pressure is increasing on China to get involved

with finding peace for Ukraine (Ukraine’s foreign minister said on Saturday that “China is interested in stopping this war”, the fact is that it does not have much experience in playing the role of peacekeeper and many countries will be wary of China’s involvement given its history and some say that China’s supportive noises are just a smokescreen after only recently announcing that its relationship with Russia has “no limits”. * SO WHAT? * It looks like China is full of it (at the moment at least). It continues to criticise the West’s ostracism of Russia, stopped broadcasting Premier League football matches over the weekend because it thought that the Chinese audience would see protests and refused to translate comments by Andrew Parsons, the International Paralympic Committee president who condemned Russia’s aggression at the Paralympic opening ceremony. HOWEVER, I think that if it DID actually decide to do something rather than just offer hot air and criticism, I think it is the only country in the world that has the power to slow Putin down at the moment because he really does need China – especially in a post-apocalyptic, sanctions-riddled world after the war in Ukraine has stopped.

In oil news, Crude oil price jumps on talk of US oil ban as Russia steps up shelling of civilian areas (Financial Times, John Reed, Stefania Palma and Derek Brower) shows that oil is continuing its upward trajectory after it looks increasingly like a ban on oil imports from Russia is a distinct prospect, something that would squeeze prices up even further. US officials hold Venezuela meetings amid hunt for alternative oil supplies (Financial Times, Michael Stott and Gideon Long) shows that the US is now in active talks about alternative oil suppliers for if a Russian oil embargo comes into force. This is notable given the frosty relations between the two countries over the last few years in particular and leader Maduro’s ongoing cosiness with Russia. It was also interesting to see, after BP and Shell’s withdrawal from Russian interests last week that Oil major Total sticks with Russia despite exit of rivals (Financial Times, Sarah White and Leila Abboud), showing that it’s not going to move unless the EU brings in more sanctions. Maybe it is hoping to stay long enough to clear up and buy up bargains in the wake of everyone heading for the exit.

2

ACTIONS & CONSEQUENCES

We take a look at more actions and their consequences regarding Russia’s invasion of Ukraine…

‘Magic circle’ law firm Linklaters to exit Russia amid Ukraine crisis (Financial Times, Kate Beioley) shows that top UK law firm Linklaters said it was pulling out of Russia – the first leading law firm to close its Moscow office. It has over 70 lawyers there and said that it would help to relocate them within the firm. Lawyers cut ties with Kremlin-linked clients as reputational risks mount (Financial Times, Kate Beioley) shows that others, like Allen & Overy and Freshfields Bruckhaus Deringer, are doing the same. Baker McKenzie, which advises the Russian government, has also said that it is exiting some relationships completely, although it didn’t say who they were. * SO WHAT? * This is going to be painful for the law firms, I would have thought, as Russian entities have been a very lucrative source of income over the years. However, pressure from the government and pressure from their own staff is clearly telling, but I think that the key here is whether these moves are going to be a mere mothballing exercise or a complete long-term withdrawal. If it is the former, then I suspect that they could get back to the way they’ve operated before pretty quickly, but if it’s the latter it’ll be interesting to see where all of that work actually goes.

Then in Visa, Mastercard and American Express suspend operations in Russia (Financial Times, Mamta Badkar and Jamie Smyth) we see that the big three payment networks have all said that they would suspend operations in Russia. Once all current transactions are completed, transactions for Visa cards issued in Russia won’t work outside it and cards issued elsewhere won’t work in Russia (so it seems that cards issued and used in Russia are still OK). Amex went one further and said it would terminate all business operations in Belarus. It must be a nightmare paying for things at the moment after Apple Pay and Google Pay also stopped working last week. Still, Moscow to use Chinese card system (Daily Telegraph, Tom Rees) shows that Russia’s biggest banks are starting to move over to the Chinese card system UnionPay following the implementation of all these measures, with Sberbank and Alfa Bank being among the first to make the switch. Meanwhile, Fashion giant Next joins the exodus from Russia (Daily Telegraph, Laura Onita) heralds the latest

company to leave Russia. TBH, this looks a bit token as it sells goods online and has a distribution centre in Russia with only 160 permanent and agency staff. It is mothballing the warehouse and turning off the website indefinitely.

In terms of consequences, Food crisis looms as Ukrainian wheat shipments grind to halt (Financial Times, Emiko Terazono) underlines the major effect that the war is having – and will continue to have – on world food prices as Russia and Ukraine supply about a third of the world’s wheat imports. Wheat prices are rising because supplies have been interrupted and if farmers in Ukraine don’t start planting soon, the situation will get even worse. Wheat can last for several months in the correct storage but as countries seek alternative suppliers countries like Turkey, Lebanon, Somalia, Syria and Libya rely extremely heavily on Ukraine for its grain and will be hit particularly acutely. This, along with ongoing rising prices for other commodities, will continue to push inflation upwards, something also illustrated by Europe faces building material shortages as energy prices soar (Financial Times, Harry Dempsey) which shows that rising energy costs and “chaotic” EU policies are hitting building materials makers such as Austrian based brickmaker Wienerberger. Wienerberger is the world’s biggest brickmaker, but it has pointed out that many smaller rivals have had to shut up shop as they lose the battle against rising costs.

Other sufferers are identified in How Russia’s airline industry was pushed to the brink in a week (Financial Times, Philip Georgiadis, Sylvia Pfeifer, Ian Smith and Steff Chávez), which goes into more detail about how a combination of catastrophic sanctions has decimated Russia’s aviation industry in a very short space of time. A lot of airspace is restricted to them, companies aren’t allowed to sell, transfer, supply or export aircraft or components and maintenance has stopped – plus many flights are no longer insurable thanks to the Lloyds of London ban. Sanctions-hit Russian bank VTB prepares to pull out of Europe (Financial Times, Owen Walker) shows that VTB, Russia’s second biggest lender is going to wind down its European operations just days after Sberbank did the same thing. On a more individual basis, Private schools face income loss with ban on oligarchs’ children (Daily Telegraph, Helen Cahill) highlights a problem that some independent schools could face – that some of their pupils have to exit, leaving a potentially sizeable hole in school fee income.

3

MISCELLANEOUS NEWS

TikTok comes under the spotlight, UK M&A looks good and the FCA wants to crackdown on crypto ATMs…

In other news today, TikTok becomes information battleground in Ukraine (Financial Times, Cristina Criddle, Eleanor Olcott and Hannah Murphy) shows that the proliferation of well-meaning and not-so-well-meaning content on Russia/Ukraine is highlighting the limitations of the platform regarding false/fake news. It is showing old/inaccurate videos but the platform is now ramping up the platform’s team of moderators to address the issues as well as AI. * SO WHAT? * This is another example of why there really needs to be a crackdown on the type of content on such platforms as some of the information could have deadly consequences – and the platforms themselves need to take more responsibility.

Then in UK companies set sights on M&A spree (Financial Times, Daniel Thomas) we see that increasing numbers of head honchos are keen to get involved in M&A this year,

according to a study by UK stockbroker Numis. Their findings showed that a whopping 86% of FTSE250 company directors reckon they’ll be indulging in some form of M&A during the course of this year and 75% of investors are expecting high volumes of M&A as well. * SO WHAT? * It seems that SPACs did well in 2020, private equity firms were hot last year and now it is arguably the turn of the corporates themselves to indulge themselves by shopping to enhance their existing businesses. Private equity is still expected to play a major role, but it’s just that corporates look increasingly minded to join them in the fray this year. If this is true, you’d expect prices to be quite toppy in an environment with more buyers.

I thought that FCA warns of money laundering risk from ‘Bitcoin ATMs’ (Daily Telegraph, James Titcomb) was worth mentioning because it seems that there is another crypto loophole here being used to launder money as some ATMS let you deposit up to £250 per day or £1,000 a month without the depositor having to do a full ID check. Criminals indulge in “smurfing”, which is where a lot of people make lots of smaller deposits to avoid hitting money laundering thresholds. Yet another reason to regulate the world of crypto!!!

4

...AND FINALLY...

…in other news…

I thought I’d leave you today with something that may enhance your day: Mrs Hinch fans swear by £1.50 hack to get old towels feeling ‘softest they’ve ever been’ (The Mirror, Courtney Pochin). Fluffy towels!

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