Monday 30/09/24

Israel widens assault on Iran-backed militants with strikes against Houthis (Financial Times, Polina Ivanova, Malaika Kanaaneh Tapper and Steff Chavez) shows that Israel has decided to lean into its current momentum and broaden its attack to the Houthi rebels in Yemen, no doubt emboldened by its recent successes against Hizbollah. The IDF attacked Houthis yesterday at a number of power plants, ports and other infrastructure. It also launched more attacks on Lebanon yesterday. Although the US and other western powers have repeatedly called for Israel to de-escalate its actions, Netanyahu is ignoring this and has vowed to continue until the 60,000 people who have been displaced near Israel’s northern border can return home. The death toll continues to rise. * SO WHAT? * In addition to the human cost, which is shocking, I would have thought that Israel’s broadening of targets will hit supply chains. It’s just my opinion here but I would have thought that now those who’d chanced it by using the Red Sea for passage (Chinese freight seems to have been able to pass through more successfully than others, although they’ve been attacked as well) will now want have to avoid the area. This is bound to adversely affect shipping times and costs, which will presumably be passed on to end customers.

Meanwhile, in Europe, ECB to cut interest rate in October, economists predict (Financial Times, Olaf Storbeck) shows that economists at Goldman Sachs, JP Morgan, BNP Paribas, T Rowe Price and Danske Bank think that the ECB will make a 0.25 percentage point cut at its next meeting thanks to a string of data releases portraying more weakness than expected. Underwhelming inflation data in France and Spain along with a weaker-than-expected PMI for the Eurozone imply that action is needed from the ‘zone’s central bank. * SO WHAT? * This shift is notable because, until now, consensus was that the ECB wouldn’t cut interest rates again until December after two cuts in June and September. The next meeting is on 18th October.

Then in Austrian far right secures historic election win (Financial Times, Sam Jones) we see that Austria’s far-right Freedom Party, the FPÖ, enjoyed a historic victory in Austria’s parliamentary elections yesterday, which will be a boon to the pro-Russian, anti-establishment movement in central Europe. * SO WHAT? * The FPÖ has led national opinion polls for almost the last two years but the scale of its victory was bigger than expected. Negotiations to form a coalition government will now commence but it is likely that this will take some time given the vast ideological differences between all the parties involved.

Starmer visit to Brussels could lead to overhaul of Brexit deal (The Guardian, Michael Savage & Jennifer Rankin) highlights a meeting scheduled this week between PM Starmer and the ECB president Ursula von der Leyen which could potentially be used to reset relations with Europe. * SO WHAT? * It is believed that this meeting could set things up for an EU-UK summit next spring

while further discussions are likely to progress through the autumn. At the moment, there is no suggestion that the UK will rejoin the EU customs union or single market.

Back in the UK, Winter fuel cut savings will be far less than Reeves expected, new analysis finds (The Guardian, Michael Savage) shows that the proposed cut in winter fuel payments for pensioners won’t actually raise as much as she’s hoping because there has been a 152% rise in the number of applications for pension credit – and you have to be able to claim pension credit in order to keep getting those payments. What is also interesting here is that being eligible for pension credits also opens up eligibility to another raft of benefits, which could all add up to around £700m of previously unforeseen costs! Meanwhile, Pensioners race to buy heat-saving kit ahead of winter fuel allowance cut (Daily Telegraph, Hannah Boland) highlights other actions that pensioners are taking as the prospect of the benefit cut looms – DIY stores, including B&Q, have seen a boom in sales of heat-saving equipment since the policy was announced four weeks ago (sales are up by almost 20% versus the same period last year!). Popular items include loft insulation and energy-efficient lighting. From tomorrow, a typical household’s energy bill will increase by £149 over the year, because of an increase in the price cap, which will exacerbate the government’s proposed scrapping of the winter heating allowance worth up to £300 for 10million pensioners. * SO WHAT? * This is not sounding good, and as I said before, it’s not a good look for Labour to be shirking on the non-doms whilst cutting heating benefits from pensioners. So if the government has to raise money somehow, where else could it look? Well National insurance on pension contributions ‘could raise billions’ (The Times, Patrick Hosking) mentions the possibility of the government introducing national insurance on employer pension contributions, according to Sir Steve Webb, the former pensions minister who held the post between 2010 and 2015. He said that this could potentially raise up to a net £16bn per year and would be politically more palatable than other measures mentioned thus far. It wouldn’t go down well with employers, though, as they’ve already been hit by rises in the minimum wage and higher interest rates (that whole thing about “day one rights” is also going to hurt as well, if it really is adopted). Webb added that reducing the tax-free lump sum taken on retirement or bringing in a flat rate of relief, other mooted measures, could potentially hit millions of public sector workers (again, not a good look). The IFS and Resolution Foundation have also suggested applying national insurance to employer contributions as a means to raising revenues for the government. Reeves has still got a few weeks before the Budget and needs to consider the options available as the clock is ticking and both business and consumer confidence are fading away…

Further to what I said earlier, Business confidence falls to three-month low (The Times, Tom Saunders) highlights the effect of government dithering/gloom-mongering as a survey by Lloyds Banking Group has shown a dramatic fall in business confidence from the highs reached in July and August. * SO WHAT? * It seems that businesses are still cautiously optimistic, but clarity is needed from the government before anyone can do anything. Until then, I think that we’re all in limbo!

The IPO market will take the slow road to recovery (Financial Times, Lex) suggests that the IPO market may be grinding to a halt now as the US presidential election looms large in November as markets are likely to get a bit tetchy around the vote. * SO WHAT? * So far this year, New York flotations have raised about $26bn – comfortably beating the $20bn raised last year and smashing the somewhat paltry $8bn raised in 2022. However, to put that into perspective, this was the sort of amount that was being raised every six months prior to the 2020-21 boom! Some are saying that 2024 has been a transition year after big market volatility in 2022 and 2023 but we are unlikely to see the IPO market roar back to life until 2025 when the dust settles in America (assuming Trump doesn’t incite another Capitol Hill riot if he loses).

In Back to the office, say bosses. Thank goodness for that, say property firms (The Guardian, Jane Croft) we see another spin on the whole RTO trend – this time from the perspective of property companies! Property companies will be very relieved because there’s a chance that more people working in offices will herald to fuel a return to form. * SO WHAT? * A tumultuous period

over the last two years has meant that London office vacancy rates have reached 10%, the highest level for 20 years and up from about 5% before the pandemic hit (although this is still better than New York with vacancy rates of 14%). Vacancy rates in Hammersmith are around 19.3% while the Docklands’ rate is about 16.2%! Rising vacancy rates in places like Canary Wharf have hit valuations hard, so the growing trend of companies ordering RTO (including Amazon, Santander, Boots and PwC) is music to the ears of property companies. Although the longer-term impact of hybrid working is, as yet, unknown, you would have thought that the market is yet to find its level. Still, you would have thought that occupancy will rise from current levels…

Then in More than two people chase each job in tighter market (The Times, Lauren Almeida) we see that jobhunters are facing their toughest competition in three years as the number of vacancies has fallen, according to job site Adzuna. This means that there are, on average, 2.09 jobseekers per vacancy. It was also interesting to note that the average duration of job postings is 35.8 days, which shows that companies are taking longer to make offers, while legal job postings close the fastest at 31.2 days. There was a major decline in job vacancies in the travel industry. * SO WHAT? * According to Tony Wilson, a director at the Institution for Employment Studies, these stats show that competition for jobs is returning to normal levels, which means that the Bank of England may feel more justified in making interest rate cuts (because more competition for jobs means that wage inflation is less likely to get out of control).

In the world of luxury, LVMH Expands Industry Influence With Investment in Moncler (Wall Street Journal, Andrea Figueras) shows that LVMH is making an indirect investment into Moncler by buying a 10% stake in Double R, an investment vehicle controlled by Moncler’s chief exec. An agreement between Double R and LVMH means that the latter will increase its stake in the former to a maximum of about 22%, which would eventually give LVMH a 4% stake in Moncler. * SO WHAT? * This looks like an opportunistic move by the luxury giant for a smaller company that would complement its array of brands at a time where a number of luxury plays are wobbling (although actually, Moncler has managed to do OK in China – unlike many others!). LVMH puts its stamp on Moncler’s style (Financial Times, Lex) suggests that this is a good move for Moncler as well as it will give it more “currency” to attract talent, get better advertising opportunities and ease access to prime locations for its physical outlets. I’d also add that having LVMH in your corner will also give you access to greater financial heft and expertise.

Meanwhile, at the more affordable end of retail (!) M&S eyes Midlands mega-warehouse as it prepares for online sales boom (Daily Telegraph, Hannah Boland) shows that the retailer is looking to taking over a massive distribution warehouse in the centre of England in order as it continues to see more success in online sales of fashion and homeware. A decision is yet to be made on this, but the fact that it is even considering such a move would suggest that things are going pretty well and that it’s confident about the outlook!

In leisure-related news, Guinness World Records to open London entertainment venue (Financial Times, Eri Sugiura) highlights a fun development coming to London – Guinness World Records’ first permanent entertainment venue which is expected to open to visitors in 2026 and

will offer over 60 games and competitions that will encourage kids and adults to break records! The company is owned by Vancouver-based Jim Pattison Group and aims to open at least 10 venues across the US, Asia and Middle East over the next five years. * SO WHAT? * GWR already has offices around the world where staff travel out to verify world record attempts and it is looking to diversify its revenue streams. This sounds like a great idea – and I shall definitely be visiting!!! Venues will also have restaurants, café’s and shops (I wonder whether they’ll offer hotdog eating competitions as well)!

In Restaurants ponder price increases as new tip-sharing law comes into force (The Guardian, Sarah Butler and Shane Hickey) we see that the embattled restaurant sector is facing yet more hurdles as legislation is being introduced tomorrow to ban the withholding of tips paid by customers – whether in cash or by card – and service charge payments from workers. This new law is designed to raise the earnings of about 2m hospitality workers and follows a number of high-profile stories which show companies taking money that had been intended for staff. * SO WHAT? * Some chains, including the Ivy Collection, have already made their move by increasing their workers’ hourly rate of pay by a set amount while others have revised their tipping policies to make sure that the tips do actually go to the workers. That being said, the whole sector has been suffering from higher wage bills (higher minimum wage) and input costs (food price inflation) and it looks increasingly likely that they’ll have to push such costs on to the customers.

In a quick scoot around some of today’s other interesting stories, Who’s left at OpenAI? Sam Altman consolidates power after failed coup (Financial Times, Cristina Criddle and Madhumita Murgia) follows on from the recent spate of senior exec departures from the OpenAI and concludes that, as Altman looks like he’s one of the last OGs standing, he’s going to be in a position to surround himself by his own team. This should make future decision-making a lot easier but could arguably mean that there will be fewer safety valves to stop things getting out of control…

Defense-Tech Startups Need a New Supplier: Anyone but China (Wall Street Journal, Heather Somerville) is an interesting article which highlights the direction and difficulties being faced by the defence industry which is trying to develop weapons to counter China – but without Chinese components. * SO WHAT? * China is the dominant supplier of batteries, motors, sensors, rare-earth materials and a plethora of other components used by US defence companies! It’s expensive to untangle companies from their reliance on Chinese components but it’s a necessary move to make given increasing hostilities and uncertainty of the geopolitical environment. Clearly, at the moment, this is impossible give China’s dominance in the “nitty gritty” of tech – however, it is something that everyone has to move towards to avoid disastrous situations in the future.

In Fortnite launches creating ‘super peaks’ of broadband demand (The Times, Katie Prescott) we see that internet service providers are pushing gaming companies to be more open about their product launches in order to prevent broadband networks from getting overlwhelmed. A spike in demand is expected tomorrow when an update of Fortnite will occur at the same time as a number of Uefa Champions League games that will be livestreamed.

In EV news, Electric car demand slumps to four-year low (Daily Telegraph, James Titcomb) cites figures from the Department of Transport which show that just 13% of drivers plan on buying a 100% EV as their next car. Meanwhile, the demand for combustion-engine cars has gone up – 37% of drivers say they’ll buy one versus 31% at the same time last year. It looks to me like Labour’s plan to bring forward the 2035 deadline is getting increasingly precarious…

Elsewhere, NIO Shares Jump After Unit Secures $1.9 Billion Investment (Wall Street Journal, Amanda Lee) highlights a very chunky investment from its parent company and a group of Chinese investors. The parent company is NIO, but the company that’s getting the investment is NIO China (aka NIO Holding), which makes the cars. The cash will come in two tranches but will be completed by the end of this year. EV development sucks up a LOT of cash – so this is going to come in very handy!

I thought that, in the current climate of China paranoia, Are Chinese cars spying on you? (Daily Telegraph, James Titcomb) was worth mentioning as it is a question that many will have at least briefly considered! Many consumers have been dazzled by the (often superior) tech gadgetry available in very reasonably-priced Chinese EVs but there is always the uncomfortable question about whether it could all be used to spy on you. Last week, we saw calls from the US to ban vehicles with components that have “a sufficient nexus” to China and that could “remotely manipulate cars on American roads”. * SO WHAT? * The conclusion here is that yes, there is a risk, but there’s not all that much you can do about it given the prevalence of Chinese components in EVs. I guess you could just ban Chinese EVs altogether, but if you want to encourage more people to buy EVs such a move would restrict choice and limit the number of people who can afford to buy new ones. It would also slow the transition as a result.

Then in Deloitte UK partners pocket £1mn despite slowdown (Financial Times, Simon Foy) we see that Deloitte’s UK partners managed to take home about £1m for the fourth consecutive year despite a major slowdown in revenue growth thanks to poor demand for advisory services. * SO WHAT? * Clearly the hardships they will have to endure on such a paltry sum will garner much sympathy from the overall population (particularly from their public sector cousins) but surely things will improve from here. Yes, underlying consumer and business confidence has taken a knock recently as everyone’s on tenterhooks ahead of the upcoming Budget, but other data points have been positive – and I would expect that IPO pipeline to pick up once again (particularly once the US presidential election has been decided). Once that starts to perk up, I would have thought that its advisory business will be right back on track – and it’ll be lean, too, because of all the cuts they’ve been making.

I really do like a bit of table tennis! Well this rally is absolutely mesmerising!!!