Monday 31/01/22

1. In MACROECONOMIC NEWS, the UK mulls Russia sanctions and we look at how a Swift ban might affect it as Mattarella rides again in Italy and the Bank of England looks likely to raise interest rates again
2. In CONSUMER/RETAIL NEWS, BoJo aims to help with bills, homeowners are sitting on big gains, freelancers go 9 to 5, gym numbers increase, retailers hope for a Jubilee boost, private equity firms line up for Boots and supply chain problems persist
3. In BUSINESS TRENDS NEWS, the chip industry faces enticing prospects and fast food chains cut the discount menu
4. In MISCELLANEOUS NEWS, Spotify hurriedly puts in place content warnings, Hello Kitty has designs for the metaverse and the UK government puts money into graphene
5. AND FINALLY, I bring you hologram registers…

So sanctions are being discussed, Mattarella stays on and the Bank of England is expected to raise rates again…

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UK prepares to put sanctions on Russian oligarchs in event Ukraine is invaded (Financial Times, Jim Pickard) shows that legislation is going to be set out later today that will target Russian assets while BoJo is set to hold talks with Vladimir Putin. * SO WHAT? * As things stand at the moment, Britain can only impose sanctions on Russians linked to the destabilisation of Ukraine, so this new legislation will throw the net wider as it will include “any individual and business of economic and strategic significance to the Kremlin”.

Talking of sanctions, Will Russia be cut off from Swift if Moscow invades Ukraine (Financial Times, Sam Fleming, Martin Arnold and David Sheppard) looks at whether a ban on using the SWIFT international payments network (a Belgian not-for-profit co-operative) is actually possible and whether it’ll actually do anything. SWIFT operates a messaging system for banks, enabling payment transfers and recording them on servers in Europe and the US. In the

past, when some Iranian banks were cut off from SWIFT in 2020, the country’s exports fell off a cliff. Cutting Russia off from SWIFT had been called for by the US in the wake of the annexation of Crimea in 2014 but nothing ever came of it. Russia accounted for 1.5% of total transactions on SWIFT in 2020, but it has also developed its own alternative system called SPFS which is used for about 20% of domestic payments although it’s not as slick as SWIFT. * SO WHAT? * It is worth noting here that although SWIFT is actually neutral, over 40% of its payments are in US$ so the US effectively controls it. Governments are thinking about targeting Russian banks and making a co-ordinated push so that Russian payments aren’t just diverted elsewhere. However, many believe that targeting banks like Sberbank, VTB and Gazprombank would have more effect. Also, if Russia is disconnected from SWIFT, it would make paying for gas, oil, metals etc. much harder for buyers in other countries at a time when supplies are already tight. The debate continues…

The drama continues over in Italy in Draghi gains vital time for policy revamp after Italy re-elects Mattarella as president (Financial Times, Amy Kazmin) as the guy who was looking forward to a more relaxed life of pipe and slippers and the freedom of a bus pass (I presume retirees get perks like this in Italy 😜) has decided to step up and continue in his role as president of Italy. The 80 year-old said very recently that he did not want to do so, but for the sake of the country’s stability he is staying on for a second term as he won a landslide victory on Saturday night after the eighth round of voting! * SO WHAT? * Many, especially businesses, are pleased that he is staying on to provide some stability for Draghi’s fragile national unity government. It will mean that Draghi, as Prime Minister, will stand more chance of pushing through difficult policy overhauls to turn the country’s economy around. There had been fears that things would have fallen apart had Draghi taken over the presidential role from Mattarella – not because he’s rubbish, but because there was no credible successor for him in his role as Prime Minister. That crisis has been averted for now, so all eyes will be on what Draghi manages to do in the coming months.

Back home, Bank of England poised to raise interest rates as high inflation takes toll (The Guardian, Richard Partington) shows that everyone expects the UK’s central bank to raise interest rates when it meets this Thursday in an effort to curb inflation that is squeezing household finances. Markets are expecting a rate rise from 0.25% to 0.5% given that the official inflation rate hit 5.4% in December, its highest since March 1992.

BoJo is looking at ways to tackle bills, homeowners are sitting on paper gains, freelancers get jobs, the number of gyms increases, retailers hope for a Jubilee boost, buyers line up for Boots and supply chain problems continue…

Given the current conversation surrounding huge hikes in utility bills and the effect this will have on finances, Boris Johnson aims to help low-income households with energy bills (Financial Times, Jim Pickard) shows that BoJo and Sunak are close to announcing a package of measures to help low income households. They are going for a targeted rather than blanket option and need to get such measures in place before February 7th when the energy price cap increases. Analysts reckon that the average household bill will rise from about £1,300 a year to almost £2,000 after the continued surge in wholesale gas prices! We’ll just have to see what the two are going to come up with…

Meanwhile, British homeowners bank £800bn gains (Daily Telegraph, Helen Cahill) cites findings from estate agent Savills which show that homeowners made big gains on their properties last year as average house prices rose by over 10% in 2021, powered by the ongoing race for space, super-cheap mortgages and the end of the stamp duty holiday. Interestingly, the return to office working is now driving interest in city centre properties once more. * SO WHAT? * Although gains like this are actually meaningless until the property is actually SOLD, they do help to boost confidence in that owners “feel” that they could make paper gains if they wanted to.

In consumer and retail trends, Freelancers opt for security over being their own boss (Daily Telegraph, Harry Brennan) shows that the number of self-employed has fallen for the second year in a row as freelancers go back into the job market to embrace the warm cuddliness of being employed, according to trade body Ipse. Interestingly, until 2020, the number of freelancers increased each year – growing by 40% between 2008 and 2019. Maybe such workers have opted to splash out on gym memberships as per Gyms win in survival of the fittest (The Times, Dominic Walsh), which shows that the number of gyms in the UK

has increased by 10% to about 4,400. Interestingly, other businesses that have grown in number include those to do with paintball and Laser Quest, ten-pin bowling venues and cinemas. Other businesses that have fared less well include bingo halls, snooker clubs and nightclubs. Still, Can a Jubilee help sales go platinum? (Daily Telegraph, Russell Lynch) shows that there are hopes that celebrations for the Queen’s Platinum Jubilee, to celebrate her 70 years on the throne, will give the UK economy a boost. The main bit that most people will be interested in is the four-day weekend starting on Thursday June 2nd but we will have to spend enough to offset the impact of a lost day at work. Interestingly, official analysis of the 2012 Diamond Jubilee holiday pointed to an overall £1.2bn loss to the economy, which was not actually that great in the scheme of things. * SO WHAT? * You would have thought that the leisure and travel industries would be very keen on this and maybe it will help to keep the party going for staycation venues and overseas trips alike. They will no doubt be pushing for an extension of the VAT tax break which is due to expire at the end of March.

In retail, Private equity funds join suitors circling ahead of Boots auction (Daily Telegraph, Oliver Gill and Laura Onita) shows that potential buyers are lining up to buy Boots in an auction from current owners Walgreens Boots Alliance. CVC, Apollo, KKR and Advent are among the investment firms interested in buying but they could face competition from the likes of Sainsbury’s and Tesco as expressions of interest are due to be submitted by the middle of February. * SO WHAT? * I would have thought that the investment firms could outspend the supermarkets, but equally I think a supermarket buying Boots would make much more strategic sense given the overlap, cost-savings and cross-selling opportunities that could arise.

Unfortunately, though, No relief for retailers as supply chain issues rise (Daily Telegraph, Louis Ashworth) shows that various experts reckon global supply chain bottlenecks are set to continue throughout 2022, which will just add fuel to the furnace that is inflation at the moment. This runs counter to recent commentary regarding the loss of momentum in the Baltic Dry Index, which implies that supply chains are over their worst. Freight rates continue to stay high and such costs will increasingly be passed on to the customer.

The global chip industry lets the good times roll while restaurant chains cut budget menus…

I keep mentioning chip shortages and in For chip industry, global supply crunch pushes next target to $1trillion (Wall Street Journal, Jiyoung Sohn and Meghan Bobrowsky) we see that chip companies, coming off their best year of sales ever as they were powered by the global semiconductor shortage and rising demand, are expecting the size of the market to double to $1tn over the next

decade. Global chip sales rose by 25% in 2021, according to Gartner and shortages are expected to continue, driving sales up even further. Intel, Samsung, TSMC and GlobalFoundries are all pouring money in so that they can ensure their slice of the action.

Elsewhere, Burger King, Domino’s pull back on value menus as costs rise (Wall Street Journal, Heather Haddon) shows that high inflation is now having an impact on the humble value menu at some restaurants. Burger King, Denny’s and Domino’s are among those cutting down the number of discounted items or cutting portion sizes in order to preserve their margins as raw ingredient prices, wage bills and running costs are all rising. Tough times, but at least customers are still spending at the moment.

Spotify makes hasty changes, Hello Kitty wants to take over the metaverse and the UK government invests in graphene…

Spotify adds Covid content warnings in bid to quell Joe Rogan boycotts (Financial Times, Anna Nicolaou) shows that the streaming giant is in crisis management mode as a couple of aging artists (Neil Young and Joni Mitchell) withdrew their music from Spotify in protest at Rogan’s stance on vaccination (although I thought James Blunt’s offer to release new music on Spotify in protest was kind of hilarious IMO). It said that it would add content advisory warnings to podcasts that mentioned Covid-19 and Joe Rogan apologizes, Spotify publishes content policy in response to Neil Young outcry (Wall Street Journal, Anne Steele) shows that the man at the centre of the controversy responded. * SO WHAT? * This is a bit of an annoyance for Spotify given that they paid over $100m to secure exclusive access to Joe Rogan’s podcasts but I’m sure everyone will get over it. The only way that I think this could get worse is if higher profile younger artists did the same thing. THAT might become a problem…

Then in Hello Kitty prepares to charm metaverse (Financial Times, Eri Sugiura and Leo Lewis) we see that the company behind Hello Kitty, Sanrio, has designs on taking on the likes of Disney by making a splash in the metaverse. In order to do this, Sanrio is looking at partnerships with Amazon, Netflix and other tech behemoths as well as launching NFTs. * SO WHAT? * You heard it here first! World domination by Hello Kitty! Good luck. When I was a stockbroker, I remember working with Sanrio and I have to say that these senior execs had THE BEST business cards ever – plastered with silver Hello Kitty logos! Sanrio is an interesting company…

And finally, Graphene start-up wins backing from UK Treasury and CIA-linked firm (Financial Times, Daniel Thomas) highlights an investment by the UK government in Paragraf, in efforts to help the Cambridge-based start up commercialise the use of graphene in electrical devices. Graphene has generated a great deal of excitement over the years as it is very strong, flexible and has amazing conductivity. The big problem has been trying to make it commercially viable. The race continues…

…in other news…

We’ve all heard of cashierless stores by now, but what about new innovations in the tills themselves? Floating hologram registers coming to Japanese convenience stores (SoraNews24, Oona McGee) highlights an interesting development that could help to reduce the spread of viruses. How amazing is this??