Monday 24/05/21

  1. In MACRO, TRADE & COMMODITIES NEWS, Sunak feels the pressure, Aussie wine has UK hopes, commodities get a slap from China and the UK building boom faces hiccups
  2. In CONSUMER & CORONATRENDS NEWS, the UK housing market roars ahead, second hand car prices strengthen, hospitality faces a labour shortage, gyms gain in popularity and city centre retirement villages pop up
  3. In IPO AND M&A NEWS, SPACs go lukewarm, Made.com prepares for lift-off and Kansas City Southern goes with Canadian National
  4. AND FINALLY, I bring you a fun hotel and a mask “fail”…

1

MACRO, TRADE & COMMODITIES NEWS

So Sunak feels the heat, Aussie wine looks for a UK boost, commodities tumble and the UK building boom faces speed bumps…

In Sunak under pressure to back Biden’s plan (The Guardian, Rupert Jones and Richard Partington) we see that the UK chancellor is facing more pressure to back US proposals for a global minimum rate of corporation tax of “at least 15%” ahead of a G7 meeting in Cornwall next month. Labour is trying to force the government to commit to the plan that is being backed by 130 countries, with the aim of getting something sorted this autumn. * SO WHAT? * If this all went ahead, at least there would be something in place and it would make it much more difficult for Big Tech companies to just shuffle money around to low tax countries. TBH, I would have thought that the UK would have signed up to this anyway given that countries like Germany, France, Canada, Italy and Japan are endorsing it, so it’s probably a canny move by the shadow chancellor Rachel Reeves to take the credit by getting ahead of it. It’ll be interesting to see how this will hit countries that have benefitted from this until now, like Ireland.

Following on from last week’s comment on potential Aussie beef imports, Australian winemaker raises a glass to prospect of UK free trade deal (Financial Times, Nic Fildes) shows that Aussie wine makers could also benefit from a free trade agreement with the UK. * SO WHAT? * This sounds like it could be pretty good for both sides. Australian wine exports to China dropped by a whopping 96% when the country decided to impose a massive 218% tax on them last year as part of increasing tensions between China and Australia, so given how much we drink over here, I would imagine the UK would slot in nicely! Also, given Brexit and likely price rises of booze coming from the continent due to extra taxes/red tape etc., Brits could also benefit from quaffing Aussie nectar. I imagine that UK producers will grumble about this, but TBH from what I’ve seen, domestic wine is sold at a premium anyway so I wouldn’t have thought that this is going to have much impact on them.

There’s been a lot of debate recently about rising raw material prices and the pressure it is pushing on inflation, so China targets ‘speculators and hoarders’ to stop commodity boom (Bloomberg.com, Martin Ritchie, Winnie Zhu and Annie Lee) shows that China, after momentarily torpedoing Bitcoin last week, has been turning its attention to rising commodity prices as the National Development and Reform Commission (NDRC) has come out and said that it will come down very hard on excessive commodity speculation and the spreading of fake news after calling in leaders of top metals producers for a meeting yesterday. This statement hit metals prices across the board and is the culmination of weeks of pressure in the sector. * SO WHAT? * It’s ironic that China is now trying to put a lid on prices given that it was actually responsible for ordering a cutting of production which led to a lot of these prices anyway. Still, it remains to be seen whether this is just a short term hit or not.

Talking of a shortage in materials, Building boom is held back by a shortage of key materials (The Times, Robert Lea) shows that builders and DIY-ers alike are having increasing problems in buying what they need to finish their projects. The latest official figures show that average prices of all building materials and components has increased by almost 8% year-on-year – but concrete reinforced steel prices have shot up by almost 20%, structural steel by 17% and timber by 16% – and activity continues to increase! * SO WHAT? * At the moment, it seems that there are no signs of demand abating – and we are now entering peak time for when people want to tinker with their homes! If you factor in a red-hot property market with more people moving, I do not see things slowing down until at least the end of the year. These shortages reflect similar situations in places like the US, who are having the same problem – especially with timber. Projects are likely to take longer and cost more – another potential factor that will have to be taken into account regarding inflation!

2

CONSUMER & CORONATRENDS NEWS

The UK housing market pushes on, second hand car prices rise, hospitality faces staff shortages, gyms see more action and retirees are coming to city centres…

As I was saying, Housing market at levels last seen before 2007 crisis (Daily Telegraph, Tom Rees) shows just how hot the UK property market is right now. Data from estate agent Knight Frank showed that more money went into the market over the last year since November 2007 while house price growth is now at its strongest level since August 2007. * SO WHAT? * It will be interesting to see how much activity falls before the next deadline for the stamp duty holiday. Activity slowed significantly going into the first deadline at the end of March and I think it is likely to fall again, especially with the prospect of the end of furlough. I would have thought that a lot of people are going to want to wait and see what happens with that, so a pause is likely IMO. Whether it will just wither away after that or get a second wind, I don’t know at this stage! 

In other news on what consumers are spending their money on, Second-hand car prices soar as production falters (Daily Telegraph, Alan Tovey) cites findings from Car Dealer magazine which shows that prices have risen by about 6.2% on average this month after a 2% price rise in April as drivers try to secure a mode of transport for commuting that doesn’t involve breathing in other peoples’ germs. This is the biggest increase it has ever seen! * SO WHAT? * A lot of people are wanting cars right now and with the lack of chips choking off the supply of new cars, second hand is the next best thing. The relative lack of supply of used cars has been made worse by car hire companies who have not been feeding large numbers of near-new cars into the system as they would do normally. Instead, they are hanging on to them for longer because of higher demand due to Covid. Prices are going up faster than dealers can track them, such is the demand right now! Figures from Autotrader also reflect strong demand. Again, surely this has got to be another factor that needs to be taken into account when thinking about inflation/putting up interest rates!

In coronatrends news, Staff shortages looms for hospitality sector (The Times, Dominic Walsh) shows that a number of restaurants are facing difficulties attracting the number of employees they need to cope with rising consumer demand! Posh restaurants and more standard places run by the likes of Mitchells & Butlers are having particular difficulties attracting “back-of-house” staff that

are most commonly done by workers from the EU, most of whom have gone home. * SO WHAT? * Although some of these companies are talking a good game now, I really think that wage inflation will rear its head soon given what is going on in the US right now. With the problem being exacerbated by a lack of EU nationals and staff who have gone into careers in other sectors, I don’t see why wages wouldn’t rise!

Elsewhere, UK class sales soar despite demand for online sessions (The Guardian, Sarah Marsh) cites findings from ClassPass, which provides access to fitness classes across the UK, which show that over the last week alone it recorded a 600% week-on-week rise in the number of new members as lockdown restrictions relax. Two of its top London fitness studios, Blok and Digme, saw reservations shoot up tenfold since in-person classes relaunched! * SO WHAT? * I think that this momentum is likely to continue as gyms etc. are opening in the run-up to the traditional peak gym season as punters want taught beach bodies rather than saggy winter lockdown ones (and I include myself in this!). It just remains to be seen whether this momentum continues for the longer term. FWIW, I think that it has a decent chance of doing so because people will want to train hard (there’s always the danger at the back of your mind that the gyms might have to close again IMO) and it all feeds into the whole wellness thing that everyone is keen to adopt. OK, so things tend to go in waves, but I think that this one has a decent chance of going on for a while…

There’s an interesting phenomenon outlined in How retirement villages are becoming part of high street life in the UK (The Guardian, Julia Kollewe) as some high streets around the country are redeveloping their high streets, after all the shop closures last year, not just into student flats, gyms and crazy golf courses – but also retirement homes! It homes in on one that’s been built between Balham and Clapham, but there are other developments around the country that cater to older people. Local planners reckon that making town centres more residential will help to boost life in deserted high streets. * SO WHAT? * I completely agree with the planners on this one. I think that you have to have more residential to put a bit of life into the high streets, especially if physical shops are leaving. I’ve said before that I think that the massive spaces once occupied by department stores could become mini-cities in themselves which would attract even more people into city centres. I really believe that we now have the once-in-a-generation chance to build our high streets back better with more innovative planning, but I guess a lot of this will come down to cost and the potential return that developers can get.

3

IPO AND M&A NEWS

SPACs cool off, Made.com prepares to float and Kansas City Southern goes with a different suitor…

In other news doing the rounds today, For startup leaders, SPACs have lost their allure (Wall Street Journal, Heather Somerville) shows that the SPAC frenzy we saw at the end of last year and the beginning of this is losing its momentum due to companies seeing their SPAC-backed peers endure stock price cratering and tough earnings calls with investors. * SO WHAT? * This was bound to happen as companies that weren’t really ready for it turned to the stock market to raise funds and have come a cropper. This was fine while things were booming but now companies are increasingly getting a reality check and are becoming more cautious. I wonder whether London will change its SPAC rules just in time for the downturn?!? Private equity firms must be loving this as it means that they have less competition for assets. 

Elsewhere, Making investors comfortable is the task for sofa boss (The Times, Ashley Armstrong) shows that Made.com is planning on a stock market listing in London that could value it at £1bn. It has considered listing before but it seems that the company thinks that now is the time to float given the rise in online shopping (plus, presumably, the red-hot property market – which is always good for furniture sales). Is this a business at its peak, or is there more to come?? I think it stands to do pretty well at least in the short term!

Then in Kansas City Southern to combine with Canadian National Railway in roughly $30billion deal (Wall Street Journal, Dave Sebastian) we see that KCS is now going to get together with CNR after concluding that CNR’s offer was superior to the one it had in the bag with Canadian Pacific Railway. The whole reason for this deal was to stitch together Canada, the US and Mexico. This is not a done deal yet and Canadian Pacific is still in the running, so we’ll just have to see how this plays out…

4

...AND FINALLY...

…in other news…

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Some of today’s market, commodity & currency moves (as at hrs 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 **
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