Monday 20/09/21

  1. In GAS & MACRO NEWS, gas shortages hit the US and UK, energy prices are set to push up inflation, chicken producers face CO2 shortages and Japan narrows down PM candidates to a choice of four
  2. In UK CONSUMER NEWS, confidence takes a hit while job satisfaction remains steady but businesses call for more help
  3. In TECH NEWS, big tech companies continue to gobble up smaller players and TikTok cuts screen time for youths
  4. In MISCELLANEOUS NEWS, Evergrande bosses are to face the music, BP more than doubles solar and aircraft sales rise
  5. AND FINALLY, I bring you an amazing tightrope walk and how to make instant coffee taste great…

1

GAS & MACRO NEWS

So panic sets in about gas, which will put upward pressure on inflation as chicken producers worry about CO2 and Japan narrows down the field for its next PM…

There’s a lot of panic about gas at the moment. Natural gas prices surge, and winter is still months away (Wall Street Journal, Ryan Dezember) highlights the growing problem in the US and is particularly shocking considering that the US has been known for its super-cheap gas prices since the financial crisis, especially since the frackers flooded the market. Roughly speaking, gas is burned to produce electricity, but it is also used to make steel, plastic and fertiliser (which I mentioned last week). The US Energy Information Administration is due to publish fresh estimates of the current volume of natural gas in storage. Gas is produced as a by-product of oil drilling, but there hasn’t been much of that going on as producers have concentrated on profitability than embarking on new projects. Gas supplies in America have been depleted by the cumulative effects of a number of weather events including a freeze in Texas, June/July saw drought which hit hydropower very hard and last month saw Hurricane Ida effectively shutting down the Gulf of Mexico’s entire gas production capabilities. Then in Government plans gas rescue package as a million families face energy bill price hike (Daily Telegraph, Lucy Fisher, James Titcomb and Ben Riley-Smith) we see that things are getting tricky in the UK with energy companies calling for a government bailout due to sky-rocketing wholesale natural gas prices and Business Secretary Kwasi Kwarteng will be holding a discussion today with the energy industry and consumer groups after talks were held with the chief exec of Ofgem yesterday. There are various options available, but the pressure is on given that four smaller energy providers have already ceased trading in the last few weeks. It turns out that the loss-making renewable energy supplier Bulb is appealing for new funding and there are pessimistic estimates that if things carry on the way they’re going, there may only be 10 companies remaining by the end of the year versus 55 currently. * SO WHAT? * In terms of how all this “macro” stuff is going to filter down to individuals, What does the natural gas price mean for UK consumers (Financial Times, Owen Walker and Claer Barrett) says that, at the moment, 22m British households are connected to the gas grid. 38% of the UK’s gas demand goes to domestic heating and 29% for generating electricity. 15m of those households are protected by the energy price cap because they are on standard tariffs or use prepayment meters and so won’t be directly affected by rising wholesale gas prices because this has all been pre-bought and hedged by the energy companies. However, the problem may hit customers if more of these companies go bust in the next few weeks and months because when that happens Ofgem will switch affected customers to new suppliers – and once they are switched over the new

company’s standard variable rate they have six months to stay or switch again without paying a penalty. Taking all that lot into account, though, this is bound to put more upward pressure on inflation, the conclusion reached in Energy prices will push up inflation across Europe, economists warn (Financial Times, Valentina Romei) and something that How to make sense of the inflation data (Financial Times) looks into as inflation around the world continues to rise. The latter concludes that both sides of the inflation argument have merit, as those who think rising inflation will become harder to control the longer it goes on for and those who point to the reasons for this higher inflation as being temporary are both right – but also that central banks are getting closer to having to take action to rein things in.

As if this panic wasn’t enough, UK’s biggest chicken producer says industry is at breaking point (Financial Times, Judith Evans) shows that 2 Sisters Food Group, which also owns the (in)famous Bernard Matthews turkey processor, has warned that the meat industry is in crisis due to a lack of CO2 that is used to stun birds for slaughter and keep packaged meat fresher for longer. This is because CO2 is one of the by-products of fertiliser production and we heard last week that US fertiliser producer CF Industries shut down factories that supply 40% of the UK’s fertiliser due to rising energy prices – but it also happens to produce 60% of the UK’s commercial supply of CO2, hence the problem. This comes as the British Poultry Council warned that processing plants only hold between five and seven days’ worth of CO2 on site – so the clock really is ticking. In addition to this, Ocado said that it has cut back delivery of frozen foods because of a shortage of dry ice, which is made from – you’ve guessed it – CO2! Pork processors also use CO2. * SO WHAT? * It sounds like something needs to be done very quickly – otherwise, as the owner of 2 Sisters, Ranjit Boparan, warned – “Christmas will be cancelled”.

Moving away from gas-related stories, Unpredictable race to replace Suga sparks rush to hire political consultants (Financial Times, Leo Lewis and Kana Inagaki) shows that the candidates to replace Yoshihide Suga as the leader of Japan’s ruling party, the LDP (and potentially Japan’s next Prime Minister), have been narrowed down to four: Taro Kono, Fumio Kishida, Sanae Takaichi and Seiko Noda (the latter two are female FYI). * SO WHAT? * It seems that the race is so close that fund managers who are worried about who will replace the market-friendly predecessor Shinzo Abe (Suga was his chosen one so he was basically just carrying on from him) are now hiring in political consultants to give them a steer on the outcome as is could have an impact on their portfolios. They are particularly concerned about what the new PM might do about the Foreign Exchange and Foreign Trade Act (Fefta), which could be used to quell shareholder activism by making it easier to reclassify some Japanese companies as being important to national security. Whoever wins the leadership election now may well become the PM in the next general election, which must be held by the end of November – so the implications could be pretty serious.

2

UK CONSUMER NEWS

Confidence suffers, job satisfaction stays the same but businesses ask for more help…

The UK consumer is having to wrap their head around a lot of issues at the moment. Confidence hit by fears for job security (The Times, Gurpreet Narwan) cites the latest findings from the Centre for Economics and Business Research (CEBR) which found that consumer confidence had fallen in August, although they are still optimistic overall. There were wobbles about house prices, job security and the potential deterioration of personal finances. Still, Job satisfaction in UK remains steady but low earners feel more stress (Financial Times, Delphine Strauss) cites a report published by the Resolution Foundation which shows that 54% of employees said that they were satisfied with their jobs in the decade to 2019 versus 59% in the early 1990s. On the other hand, it showed that the lowest earners had more dissatisfaction despite their wages rising in relative terms. The report identified increasing levels of stress due to being overwhelmed by their workload. * SO WHAT? * I think it’s understandable that UK consumers are losing a bit of confidence given that we’re going into the end of furlough

and facing an autumn/winter ‘flu season. If you now add into that higher prices from input costs being passed onto consumers, the prospect of rising utility bills from skyrocketing gas prices and fears of supply chains hitting Christmas I would have thought sentiment isn’t likely to improve any time soon. Let’s hope that the consequences of furlough ending will be better than some have been predicting!

Meanwhile, on the employers’ side, Firms plead for help to beat crunch (The Times, Ben Martin) shows that the government is facing more calls to help businesses who say they need help to navigate the shortage of staff and supply chain disruption. According to an annual survey by the CBI and Pertemps Network Group, about 75% of companies are panicking about labour shortages hitting their competitiveness and they are pushing for help in the short-term as well as wanting a boost for training that will help them in the longer term. * SO WHAT? * It is unsurprising that businesses are pushing for as much help as they can get, so it will be interesting to see how much they get from the government (if anything). Clearly the government is trying to cut outgoings in an attempt to claw us back to a more balanced financial state after the huge borrowings post-Covid, so I would have thought that any aid, as such, is not likely to be overly generous.

3

TECH NEWS

Big tech companies continue to shop for smaller ones and TikTok cuts screen time for younger users…

Big Tech companies snapping up smaller rivals at record pace (Financial Times, Kiran Stacey, James Fontanella-Khan and Stefania Palma) highlights data from Refinitiv which confirms what we probably all already know – that the world’s biggest tech companies have been buying up smaller rivals at a record rate so far this year. This is still happening despite much closer deal scrutiny these days from the White House, the FTC and Congress as the likes of Apple, Facebook, Google, Amazon and Microsoft continue to be accused of strangling competition and giving customers narrower choices. Fun fact: according to the FTC, Apple, Facebook, Amazon, Google and Microsoft made 819 acquisitions between January 2010 and December 2019 that went under the radar because they did

not meet reporting requirements. Microsoft has been the biggest acquirer of small asset among this group, with second place going to Amazon. * SO WHAT? * It seems like the noose is closing on Big Tech, but will there be a feeling of sweeping change in tech like we’re getting in China at the moment, or will it just be a series of whimpers??

Talking of China, the clampdown continues in TikTok maker caps screen time for youths in China (Wall Street Journal, Sha Hua), a story which shows that the owner of TikTok (and its Chinese version Douyin), ByteDance, has announced that it is going to restrict access to users under 14 years old to 40 minutes per day with a new “youth mode”. * SO WHAT? * This ties in with the recent clampdown on youth gamers but will only apply to those who registered under their real names and being under 14. Cue a spike in older siblings taking pocket money from younger siblings to use their login details to get longer TikTok/Douyin time 🤣! In addition to this, content for younger users on Douyin will be made up of science experiments, museum exhibitions and history lessons. The clampdown continues…

4

MISCELLANEOUS NEWS

Evergrande’s problems continue, BP more than doubles its solar capability and aircraft sales rise…

In a brief look at some of the other big stories today, Evergrande bosses face ‘severe punishment’ after securing early redemptions (Financial Times, Tom Mitchell and Sun Yu) shows that six senior execs at the embattled real estate giant are going to face “severe punishment” for selling out of some group investment products before then publicly telling retail investors that it could not repay on time. Things just continue to go from bad to worse at the developer and its share price fell by up to 18.9% in trading today.

Then in Lightsource BP clinches $1.8bn to more than double its solar empire (The Guardian, Jillian Ambrose) we see that Lightsource BP, the oil major’s joint solar venture, will more than double this business’ global expansion by 2025 after agreeing a finance deal worth $1.8bn to develop a ton of solar farms by 2023. BP has among the punchiest renewable energy targets for a major oil company.

Meanwhile, Aircraft sales show signs of life after pandemic slump (Financial Times, Sylvia Pfeifer, Philip Georgiadis and Claire Bushey) shows that the recent spat between Boeing and Ryanair shows that the aircraft makers are getting their mojo back following the lows they experienced last year. They are currently arguing about the supply of new Max 10 jets, but this will probably give rival Airbus confidence as well.

5

...AND FINALLY...

…in other news…

Today, I thought I’d bring you the amazing feat in Daredevil tightrope artist takes 70 metre high walk across River Seine (Metro, Harrison Jones) and an interesting way of improving the flavour of instant coffee in Tokyo coffee master reveals easy trick to make instant coffee almost as good as fresh-brewed (SoraNews24). Who knew?!? Interesting, although maybe just get a coffee pod machine…

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Some of today’s market, commodity & currency moves (as at 0757hrs 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 **
6,988 (-0.56%)34,584.88 (-0.48%)4,432.99 (-0.91%)15,043.97 (-0.91%)15,511 (-0.90%)6,573 (-0.74%)30,517 (+0.64%)3,614 (+0.19%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$71.33$74.79$1,752.871.369351.17138109.861.1689245,585.01

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