Monday 12/04/21

  1. In MACRO, MARKETS & VACCINE NEWS, the US and UK economies look likely to take-off, EU/UK trade negotiations continue, Kwarteng makes takeover concessions and the LSE has its best Q1 for IPOs since 2007 while there are vaccine developments in China and Europe
  2. In CONSUMER/RETAIL NEWS, Britons are set to unleash spending, UK drive-ins field massive bookings and London super-prime properties sell like hot cakes while Roadchef hires, online groceries get profitable and Next does a tie-up with Homebase
  3. In INDIVIDUAL COMPANY NEWS, Alibaba gets a massive fine, Shell plans ultra-fast chargers and BrewDog emerges
  4. AND FINALLY, I thought I’d leave you with a weird TV commercial for a Japanese sports drink

1

MACRO, MARKETS & VACCINE NEWS

So confidence rises, EU/UK trade negotiations continue, Kwarteng relaxes takeover rules and the LSE has a bumper Q1 while China changes tack on vaccines and Europe speeds up its distribution…

📢 Hello everyone! I’m baaaaaaaaack!

US economy poised for best growth since 1983, inflation lurks (Wall Street Journal, Gwynn Guilford and Anthony DeBarros) reflects a broadening general confidence that the US economy is on the brink of a return to Reagan-era economic growth. The US achieved GDP growth of 7.9% in 1983, a level that has not been reached ever since, but a Wall Street Journal survey of economists suggests average expectations of 6.4% economic growth for 2021 due to federal stimulus and the successful vaccine rollout. However, as I have mentioned on previous occasions, the trick to sustaining economic growth will depend on how well the inevitable rise in inflation is managed as consumers open up their wallets at the same time. Rising confidence set to drive economic rebound (The Times, Louisa Clarence-Smith) shows that the feelgood is rising this side of the Pond as well as a survey by YouGov and the Centre for Economics and Business Research (CEBR) shows that consumer confidence is at its highest level since 2018 and official data reflects rising business confidence as lockdown restrictions ease. The end of furlough later this year is a cloud on the horizon, but it is unlikely to spoil near-term euphoria. Other surveys are also showing gaining momentum: BDO’s latest survey says that job market optimism is at a three-month high, Deloitte’s latest quarterly poll of 100 financial directors from FTSE350 companies shows levels of optimism not seen for 14 years as well as an overall feeling that the pandemic effects won’t be as bad as had been previously thought and another survey from the Federation of Small Businesses found that confidence among its members were at their highest levels since 2014. The economic runway appears to be clear and ready for take-off!

Meanwhile, EU and UK edge towards accord on trade rules for Northern Ireland (Financial Times, Jim Brunsden, Laura Noonan and George Parker) shows that negotiations between the two sides appear to be making progress (but this is a negotiation so there is always a lot of posturing and BS involved) to the extent that hopes are increasing about the prospect of an agreement that could reduce current tensions. EU Brexit commissioner Maros Sefcovic and his UK equivalent David Frost are thought to be meeting to discuss progress this week. We’ll see how that goes – it sounds positive but I’ll believe it when I see it! I guess, given the recent violence, that neither side wants to be seen as the bad guy here.

Then in Kwarteng makes concession on new UK takeover regime (Financial Times, George Parker) we see that business secretary Kwasi Kwarteng is going to relax the scope of the government’s National Security and Investment Bill (NSIB) that was initially introduced to stop unwelcome foreign takeover approaches to key industries in the UK. A bill was introduced on Friday to change the stake threshold that would necessitate government notification from 15% to 25% (i.e. they would have to be notified if a foreign investor built a stake of 25% in a company in one of the specified industries) and follows closely on the heels of Kwarteng narrowing the type of foreign investments that would trigger the new takeover rules last month. * SO WHAT? * The whole idea of the NSIB was to stop China and/or other countries using the UK’s economic vulnerability during the pandemic to build up stakes in (or takeover) British businesses in key areas such as tech and biotech. Many businesses complained that the new rules would create huge amounts of red tape around uncontroversial deals and this new threshold brings us into line with similar guidance in the US.

In markets news, London Stock Exchange has best first quarter for IPOs since 2007 (The Guardian, Miles Brignall) highlights a bumper first quarter with the IPOs of Deliveroo and Trustpilot in addition to a number of smaller firms on the Alternative Investment Market (AIM), according to data from EY. Despite Deliveroo’s poor performance since flotation there are still some big names in the pipeline such as Darktrace (a cybersecurity company that has a mooted valuation of up to £3.8bn), the EG Group (which owns petrol stations etc. and is the one that bought Asda recently that could get a £10bn valuation) and BrewDog. It looks like this year will also be a year of big bonuses for investment bankers!

Then in vaccine news, China considers mixing vaccines to bolster efficacy (Financial Times, Yuan Yang and Primrose Riordan) shows that the Chinese Center for Disease Control and Prevention (CDC) is considering the mixing of vaccines and varying doses in order to boost efficacy in a rare public admission of doubt over its own jabs. This isn’t great news for the 20-odd countries who China is supplying, especially if you are Cuba who has used the Sinovac jab to great effect and has become the country with the third-highest rate of innoculation. * SO WHAT? * When you consider the results of a recent study which showed an efficacy rate of 3% for one dose of Sinovac 😱, and a 56% rate with two, you can understand the reticence. Further doubt persists over Chinese vaccines as no-one has yet published Phase 3 data.

Meanwhile, Europe steps up vaccination campaigns after slow start (Financial Times, Victor Mallet, Olaf Storbeck and Donato Paolo Mancini) shows that things are at last improving on the continent as France, Germany and Italy accelerate the rollout as everyone tries to battle the third wave. The French have been among the most vaccine-sceptic in the world, but this has changed as the pandemic has developed.

2

CONSUMER/RETAIL NEWS

Consumers ready themselves, top-end London property continues to attract money while retailers benefit from lockdown lifting…

Britons prepare to spend their savings as lockdown eases (Financial Times, Katie Martin and Chris Giles) reflects the expectation of big spending as non-essential shops and services open across England and consumers get the chance to spend the extra £180bn they’ve saved (roughly equal to around 10% of the UK’s annual GDP!) in person rather than online! * SO WHAT? * It remains to be seen whether this turns into a “summer of fun” or a longer-lasting boom. Of course, not all households will have saved money over lockdown – but the hope is that spending of wealthier households will lead to more hiring and more activity generally that will generate opportunities for many.

Then in UK to hit ‘peak drive-in’ this summer as outdoor cinema bookings boom (The Guardian, Mark Sweney) we see that there has been a huge surge in the number of events being listed to run from this week onwards as restrictions are lifted. Ticketing website Eventbrite has reported a 300% increase in listings for drive-ins like the 50s-themed “The Big Unlock Grease Party” in Newcastle priced at £35 per car! Other events like in-car karaoke, comedy and bingo have also proved to be very popular. * SO WHAT? * I think that this is great, but at the same time think that this really could be the peak for such events as people actually go back to the real cinema and other leisure venues. Yes, summer and Christmas events were hugely popular last year – but we didn’t have any vaccines back then. That Newcastle event sounds like a lot of fun, though!

London’s ‘super-prime’ luxury home market was world leader in 2020 (The Guardian, Miles Brignall) shows that some people were still spending vast sums under lockdown as data released by Knight Frank showed that London had the most super-prime (classed as homes worth $10m+) home sales in the world in 2020, beating rivals New York and Hong Kong by quite some margin. This stands in contrast to the current situation with “normal” home prices in the capital, which are falling as more people flock to the ‘burbs and work from home.

Meanwhile, there’s good news in Roadchef set for staycation summer with hiring spree (Daily Telegraph, Hannah Boland) which highlights the motorway service operator’s plans to hire 1,000 staff in order to cope with the expected upsurge in summer demand as people travel around the country for domestic holidays. These will be new roles across the board from entry-level to managerial positions. * SO WHAT? * This is great news for jobs and could be reflected elsewhere as restrictions lift. I would expect rich pickings to be had from servicing consumers who are incredibly eager to spread their wings and splash a bit of cash.

Covid growth turns online grocery profitable (Financial Times, Jonathan Eley) cites research from Atrato Capital which suggests that major volume uplifts of online grocery shopping during the pandemic have meant that the business has become consistently profitable for conventional UK supermarkets for the first time in almost 20 years. Until Covid hit, the costs of providing the service have rarely covered the costs of picking and delivery, but now volumes have increased to the extent that it is now actually profitable. Online grocery now makes up about 14% of the total grocery market and both picking and delivery costs have fallen. * SO WHAT? * This is clearly good news for supermarkets and it provides more flexibility to their customers.

Then in Next and Homebase announced garden centre tie-up (The Guardian, Miles Brignall) we see a rather unusual combination as the two retailers have agreed to a partnership that will see Homebase put mini garden centres in its fashion stores. The new venture will be called Garden by Homebase at Next and will aim to offer customers access to gardening advice, plants, pots and tools. Homebase has been up for sale since November as Hilco bought it for £1 in 2018 after a disastrous few years under the ownership of Australia’s Wesfarmers, which bought it for £340m in 2016. * SO WHAT? * I think this sounds like an absolute disaster! How random is this?? I can MAYBE understand some sort of homewares venture going on between them for indoor and outdoor furniture, for instance, but clothing and pot plants? WTAF?? I would suggest that the core audience is different and that the situation of stores (presumably in town centres) will preclude any big garden-related purchases because you just don’t want to be carting this stuff around. This is why garden centres have big car parks! I think this sounds absolutely ridiculous and am amazed that Lord Wolfson, chief execc, is supportive. He’s a canny lad, so maybe there’s something here that I’m not seeing but good lord…

3

INDIVIDUAL COMPANY NEWS

Alibaba gets a kick in the nuts, Shell plans ultra-fast chargers and BrewDog rises from the ashes…

Alibaba’s rivals on alert after China’s regulators hand out record fine (Financial Times, Yuan Yang) shows that Chinese tech giants such as Tencent Music and Meituan will be quaking in their collective boots as Alibaba got slapped with an absolutely mahooosive $2.8bn fine for antitrust violations on Saturday. China really is cracking down on tech right now. * SO WHAT? * This is clearly a large amount of money but, to put it in perspective, it is equivalent to 4% of Alibaba’s 2019 revenues. I actually think that this will be positive for Alibaba as the fine will surely remove a cloud of uncertainty and potentially draw a line under all the shenanigans that have been taking place since last year’s clash between Jack Ma and the government (this is assuming, of course, that the government doesn’t decide to fine them again for some reason) and may bring Ant Financial (Jack Ma is a key figure here) closer to the IPO that got cancelled last year. Uncertainty will, however, cloud Tencent and Meituan until a figure can be decided upon.

Then in Shell plans thousands of ultra-fast vehicle chargers on UK forecourts (The Times, Emily Gosden) we see that the oil major plans to install 5,000 rapid and ultra-rapid EV chargers in Britain by 2025. It will also invest in on-street public charging points following the February acquisition of Ubitricity and forms part of its low-carbon strategy. There are currently over 100 “rapid” 50KW and “ultra-rapid” 150KW chargers on its forecourts in Britain, so there is clearly some way to go. * SO WHAT? * I think that it will be important for EV sales to have more chargers on forecourts as people will see that there are chargers available when they fill up their current petrol/diesel-powered vehicles. If they become ubiquitous, it is likely that this will have a very positive knock-on effect on EV car sales. The current state of and future plans for the charging network are things that are more deeply discussed in the WATSON’S MONTHLY publication I have published today. Please take a look!

Then in Survival is no small beer as grateful BrewDog emerges from lockdown (Daily Telegraph, Laura Onita) we see that BrewDog, the UK’s biggest craft brewer and leading player overseas, is putting a horrendous year behind and is now breaking even as the evaporation of sales in bars and restaurants has been mitigated by online and supermarket sales. It is preparing to list but co-founder James Watt has admitted that Deliveroo’s recent disastrous float may mean that the company decides to list in New York instead. He predicts a tough 12 months ahead but will hopefully benefit from a huge uplift in sales now that restrictions are lifting.

4

...AND FINALLY...

…in other news…

I thought I’d leave you today with a superbly weird Japanese TV ad for a well-known Japanese sports beverage in All heart, no CG in beautiful, mind-bending Pocari Sweat video (SoraNews24, Casey Baseel). Yes, this slightly salty-tasting drink is called Pocari Sweat. You will be interested to know that one of its main rivals is a drink called Calpis. Yep. Everyone that goes to Japan makes these observations and yes, I admit, I still find them amusing. Juvenile, I know – but there you are…😂

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Some of today’s market, commodity & currency moves (as at 0736hrs 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 **
HOLIDAY33,800.6 (+0.89%)4,128.8 (+0.77%)13,900.18 (+0.51%)15,234 (+0.21%)6,169 (+0.06%)29,539 (-0.77%)3,413 (-1.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$59.10$62.70$1,740.311.370531.18893109.541.1567060,362.68

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