Thursday 03/06/21

  1. In MACROECONOMIC, MARKETS & CURRENCY NEWS, the Global Corporation Tax debate continues, UK/Asia-Pacific talks are to go ahead, India’s stock market strengthens, the Turkish lira tanks and Standard Chartered goes crypto
  2. In CONSUMER/HIGH STREET/RETAIL NEWS, the US car market heats up, UK mortgage lending loses momentum, UK reopening has mixed results, Amazon Prime Day reverts to June and its sales are set to eclipse Tesco’s while Etsy buys Depop
  3. In INDIVIDUAL COMPANY NEWS, AMC trading goes crazy again, Tesla sources rare earths and Wizz Air goes for it
  4. AND FINALLY, I bring you a great way to deal with sunburn…

1

MACROECONOMIC, MARKETS & CURRENCY NEWS

So the debate on a global corporate tax rate gets to a crucial stage, the UK is cleared to start CPTPP negotiations, India’s stock market rallies, the Turkish lira tanks and Standard Chartered embraces crypto…

📢 It’s Thursday – so it’s time for my 30-minute Instagram Live At Five where I will run through the week’s key stories AND the one hour weekly ZOOM call for paying subscribers where I will do the same but in more detail and with much more interaction 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

*** I’m going to be doing my first Clubhouse event this coming Friday (I have been asked to speak at other events but this is the first one that I’m actually running). I will be talking through some of the week’s key events in a “power half-hour” with my friend and former colleague Ralph Hebgen who was a research analyst for over twenty years, advising some of the world’s biggest financial institutions. It’d be great if you could join us this Friday June 4th at NOON on Clubhouse. It should be a lot of fun as he is hilarious – and one of the best analysts I have ever worked with (he was one of those rare analysts who really know their stuff technically AND is an excellent communicator). That said, it’s not going to be a comedy show – we’ll have serious stuff to talk about! Click HERE for the details – and I hope to see you there! ***

I’ve been talking a bit about this recently but Global corporation tax reform: what are the key issues (The Guardian, Richard Partington) is a really good article that sets out what the score is regarding what G7 finance ministers are going to be talking about tomorrow in their meeting. Basically, the US is suggesting a minimum corporation tax on a global basis that would potentially bring an end to companies endlessly shuffling their profits around the world to minimise their tax spend. The UK is digging its heels in regarding the specific tax treatment of Big Tech and the US threatened to impost punitive tariffs on countries (including the UK) who recently went ahead and implemented their own digital services tax. President Biden’s proposals for a blanket minimum corporation tax is supposed to supersede these unilateral taxes, agreement to which would end a series of failures by the OECD to get anything done on this front. Definitely take a look at this article for a really useful rundown of the detail of what will be discussed!

Meanwhile, Britain cleared to begin talks on joining Trans-Pacific trade group (The Times, James Dean) shows that Britain is now making moves to join the slickly-titled Comprehensive and Progressive agreement for Trans-Pacific Partnership (the “CPTPP”) trading agreement. If the UK went ahead and joined, it would create a trading area

almost equal in size to the EU, according to Japan’s economy minister. Joining the CPTPP would remove tariffs on 95% of goods and negotiations are set to start in the “coming weeks”. * SO WHAT? * I think that this could prove to be pretty big if it goes ahead. However, given that Trump pulled the US out of it when he came to power, the vacuum looks like it will be filled by China – and critics are saying that if the UK DOES join the CPTPP, it will effectively be doing a trade deal with China via the back door.

In other big news, India’s stock market hits high as investors bet on strong recovery (Daily Telegraph, Tom Rees) highlights the strength of India’s Nifty 50 (which tracks 50 of India’s largest companies on the national stock exchange), which hit all-time highs yesterday, reflecting growing investor confidence that the economy will bounce back strongly after daily cases of Covid have been falling sharply. Economists had to trim forecasts to take into account the most recent wave of Covid cases, but many are clearly looking beyond that to recovery.

In currency news, Turkish lira tumbles as Erdogan calls for lower rates (Daily Telegraph, Tim Wallace) shows that Turkey’s currency lost up to 3% against the US dollar as President Erdogan pushed for lower interest rates. It recovered some of the losses when Turkey’s central bank governor said that a rate cut is not set to go ahead. * SO WHAT? * Annual inflation for Turkey is a hefty 17% and Erdogan goes against pretty much everyone else in the world by saying that the solution to this is to CUT interest rates rather than RAISE them. International investors got spooked out by this and sold the currency. Erdogan has a lot of form in just firing ministers who don’t agree with what he says and, given that he sacked the last central bank governor in March a few days after he raised interest rates you do wonder whether the current incumbent is going to stay there for long given his stance. Generally speaking, it is thought that an independent central bank is a good thing because it means (in theory) that the government of the day can’t just manipulate interest rates to suit its own political agenda. However, Erdogan is a wiley operator and seems to do anything to hang on to power (and he has been very successful at this) so I suspect that the governor of the central bank’s days are now numbered given he contradicted him!

Then in Standard Chartered gets on cryptocurrency bandwagon (The Times, Ben Martin) we see that the emerging market-focused British bank announced a partnership with the Hong Kong-based BC Technology Group to launch a crypto-focused brokerage and exchange platform to cover institutional investors and corporate clients in Britain and Europe. It’s interesting to see this move, especially as rival bank HSBC specifically said recently that it would not be starting a crypto trading service due to concerns that inherent volatility makes it unsuitable as an asset class.

2

CONSUMER/HIGH STREET/RETAIL NEWS

Consumer spending prompts mixed results, Amazon Prime Day reverts to June while its sales are set to eclipse Tesco’s and Etsy buys Depop…

Over in the US, ‘Kind of crazy’: how the booming US used car market is driving inflation (Financial Times, James Politi and Colby Smith) highlights just how frenzied America’s used car market is getting. It cites the example of a 2001 Ford F-150 pick-up truck with 184,000 miles on the clock selling for $7,500 – 50% more than it would normally go for – which is symptomatic of what is currently going on. Policymakers are monitoring this situation among a whole host of other indicators as to whether inflation is going to cause the economy to overheat. The cost of second-hand cars and trucks increased by 10% month-on-month in April, and was up 21% versus the previous year, making it a major driver of the recent 4.2% year-on-year surge of the CPI. * SO WHAT? * This is just another example of price rises that will potentially be hitting ordinary consumers in the pocket. Central bankers continue to hold onto the base case of such price rises being a temporary thing that will be followed by a cooling-off period. However, when you consider that you’ve got loads of previously-couped-up Americans with savings and stimulus cheques waiting to be spent (plus higher prices thanks to supply chain issues), it isn’t easy to say for sure whether they will actually calm down. Car prices in particular are strong because of the effect of the semiconductor shortage hitting production.

Back home, UK mortgage lending falls back after ‘frenzied rush’ (Financial Times, Bethan Staton) shows that mortgage lending lost momentum in April after reaching new highs as buyers try to beat the stamp duty holiday deadline but then they resumed their rise once this was extended from the original end-of-March deadline. Cheap borrowing costs and higher savings under lockdown – along with high demand for certain types of property (family-friendly ones in the ‘burbs) has powered the market since – and many would argue this is likely to continue. * SO WHAT? * Given that it takes roughly two months for a mortgage approval to turn into cash in your bank account, it will be interesting to see how the housing market behaves in the next couple of months as the “final” deadline looms at roughly the same time unemployment is expected to spike due to the end of furlough.

Meanwhile, Rain pours cold water on the great reopening (The Times, Gurpreet Narwan) shows that although retailers benefitted from the re-opening of indoor dining last month, the rise in customer numbers fell short of expectations, according to Springboard. Last month was the wettest May on record and it seemed to dampen customer enthusiasm, but it was also affected by ongoing

indoor capacity restrictions. Restaurants cut lunchtime service as staff shortages are ‘frustrating and painful’ (Daily Telegraph, Simon Foy) shows another issue affecting restaurants, citing the chef patron of the two-Michelin-starred Le Gavroche who has decided to cancel lunch service due the lack of staff. Many other restaurants are in the same boat as they all search for suitably trained hospitality staff amid hiring red-tape due to Brexit and previous staff leaving the industry (or country) permanently. Return of high street shopping curbs saving (Daily Telegraph, Tim Wallace) highlights a fall in the amount consumers stashed away last month as they elected instead to spend the money! Bank of England figures show that the rate of savings last month was the lowest since the start of the pandemic as consumers return to more “normal” spending patterns. * SO WHAT? * I think that we are in a bit of a transition period at the moment where some people are still getting their head around more freedoms and it won’t really be until restrictions are fully lifted (and more people are vaccinated) that many retailers and businesses can truly start to make money. It’s interesting to see how the savings rate has fallen, though – and I wonder how permanent a trend this will be. Clearly if more people spend more money as the months go on, it’ll put increasing pressure on the Bank of England to lift interest rates…

Elsewhere, Amazon Prime Day is set for June 21-22 (Wall Street Journal, Dave Sebastian) highlights the fact that the e-tailing behemoth’s big retail event is reverting to its near-normal summer slot after the pandemic booted it into October due to the extra strain that massive e-commerce levels were putting on its logistics network. Amazon is on a hiring spree leading up to the event which saw a 60% uplift in sales for third-party sellers versus the previous Prime Day and it will be the last one with Jeff Bezos as CEO (he is going to continue as executive chairman, however). The Amazon party just goes on and on! Talking of which, Amazon’s UK sales set to eclipse Tesco in four years (Daily Telegraph, Laura Onita) cites forecasts from data firm Edge by Ascential. Good Lord 😱! This will make it the UK’s biggest retailer!

Then in Etsy spends £1.1bn on clothes app Depop as it eyes Gen-Z (Daily Telegraph, Laura Onita) we see that US company Etsy is to buy the second-hand clothing app with a teenage/20-something demographic for £1.1bn. The deal is expected to get Etsy exposure to a younger demographic that embraces pre-owned as 90% of Depop’s users are under 26. * SO WHAT? * The two businesses are expected to operate separately and it seems to make strategic sense given that Etsy’s core customer base is older millennials. The main risk here, however, is that Depop could be a bit faddy and that it benefitted from a one-off boost last year as people had time to declutter their wardrobes. It is worth remembering that Depop is still in loss, but Etsy will probably look past that to get access to a new demographic.

3

INDIVIDUAL COMPANY NEWS

AMC spikes again, Tesla sources rare earth and Wizz Air keeps calm and carries on…

Cinema chain AMC surges after luring DIY traders with free popcorn (Financial Times, Madison Darbyshire) highlights the huge 95% jump in AMC Entertainment’s share price in trading yesterday as retail investors went mad for the company’s promise of free popcorn to investors! They were up as much as 127% on the day before they calmed down (!) after trading was stopped twice on the NYSE! Shares in the world’s biggest cinema operator have shot up by over 450% in the last month alone and an eye-watering 3,000% since the start of 2021! It was the most actively traded stock on US exchanges yesterday. * SO WHAT? * Although this trend of trading in meme stocks is pretty crazy right now, it is worth noting that retail investors now make up about 80% of the AMC’s shareholder base. Generally speaking, retail investors are considered to be flakier than institutional investors, so more volatility is expected.

Tesla to splash $1bn a year on rare minerals from Australia for its electric car batteries (Daily Telegraph, Alan Tovey) shows that Tesla has put aside $1bn a year to spend on rare earths from Australia for its battery packs. This seems to be part of an overall strategy to safeguard the supply of raw materials and comes shortly after recent news that Tesla is looking at ways of securing future supplies of semiconductors. * SO  WHAT? * This is good news, but you do wonder how they will actually cope if/when their sales improve to significant levels.

Wizz Air sees clear sky as Covid storm passes (The Times, Robert Lea) highlights the impact of Covid on the discount airline which announced a hefty annual pre-tax loss yesterday. Wizz is Europe’s #3 budget carrier after Ryanair and easyJet and is optimistic about its prospects because it believes it will benefit from being exposed to a younger demographic in the short-haul market that it expects to recover quickly once restrictions are lifted.

4

...AND FINALLY...

…in other news…

I thought I’d leave you today with a trick I’ve heard about in the past. I thought I’d pass it on to you given that the weather is hotting up at the moment and you might find it useful: Mum swears by shaving cream hack to get rid of sunburn in just 30 minutes (The Mirror, Amber Hicks and Luke Matthews). Sounds soothing, if a little messy!

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Some of today’s market, commodity & currency moves (as at 0752hrs 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 **
7,108 (+0.39%)34,600.38 (+0.07%)4,208.12 (+0.14%)13,756.33 (+0.14%)15,603 (+0.23%)6,522 (+0.50%)29,058 (+0.39%)3,584 (-0.36%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$69.14$71.70$1,896.051.415241.21881109.791.1612638,881.34

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