Thursday 08/07/21

1. In MACRO, COMMODITY & CRYPTO NEWS, the global tax deal faces a US challenge, coffee’s set to get more expensive, Binance has a suspension and Bitcoin proves to be baffling for punters
2. In IPO AND M&A NEWS, the China/US crackdown will have repercussions, Authentic Brands aims for an IPO, Wise has a successful debut, Planet Labs goes SPAC-wards and BoJo orders a review of the China microchip deal
3. In CONSUMER NEWS, house prices fall, a mortgage war looms, US travel continues to recover, English double-jabbed can enjoy quarantine-free travel and tight labour markets look likely to limit an economic recovery
4. AND FINALLY, I bring you full English breakfast timings (very important!) and a controversial dessert variant of the sausage roll…

So the global minimum tax agreement ain’t over yet, coffee is about to get expensive, Binance is suspended and crypto punters don’t know what they’re buying…

📢 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!

You may well be “over” the whole global minimum tax thing that I’ve been banging on about for some time now but actually, it’s not over yet! Can a global tax deal survive political gridlock in the US? (Financial Times, Aime Williams) shows that the deal, famously signed by 130 countries, could still fall down as President Joe Biden now has to get it through the Senate, where his Democrats only have a wafer-thin margin of control. The new tax agreement is likely to have to be split in two – for “Pillar 2” that identifies the global minimum tax of 15% which will require lawmakers to change their domestic tax laws and “Pillar 1” that gives countries new rights to tax big companies according to where they generate their revenues which will necessitate amendments to existing treaties and potentially the creation of new ones. If you love all this kind of stuff, you should definitely read this article that goes into quite a lot of detail. At the moment, it is all up in the air!

Some people swerve reading the business news but YOU, as a Watson’s Daily reader, will know that this seemingly boring stuff often has an effect on our daily lives! Jump in coffee bean prices set to filter through to your morning brew (Financial Times, Alex Hamer and Emiko Terazono) proves that very point as a surge in green coffee prices is looking very much like it will percolate down to the prices of your daily cup of joe. Crops in Brazil were decimated by the worst drought in nigh on a hundred years which led to the first supply shortage in the coffee market for four

years. Supplies were also hit by anti-government protests in Colombia which halted exports earlier this year. Coffee futures in New York for June were up by almost 70% from the previous year at their most recent high point, but they have since weakened a bit from this level. * SO WHAT? * The reason why the price of your coffee hasn’t gone up yet is because roasters and coffee buyers generally have forward contracts with suppliers which means that any price swings are insulated for between three to nine months and supply has been eased in some way as cafés and restaurant demand dwindled during lockdown. However, once these come to an end it is likely that the next contracts will be signed at much higher prices. It is possible that some roasters and retailers will absorb some of the price rises themselves as they wait and see what the economy does, but you would have thought that they would pass at least SOME of the price rises on – which will put yet more upward pressure on inflation and, ultimately, interest rates.

In crypto news, Bitcoin exchange Binance suspends European network (Daily Telegraph, James Titcomb) shows that the head of Binance has now promised to work with authorities to iron out legal issues after the world’s #1 cryptocurrency exchange had its European payment network suspended. Changpeng Zhao said he wanted to expand compliance operations and put in new systems to protect customers after a suspension of its Single Euro Payments Area Scheme, which enables customers in Europe to send currency across national borders. This follows on from the intervention last week from the UK financial regulator, the Financial Conduct Authority, which stopped UK customers from withdrawing cash via bank and card transfers after it decided that Binance’s British subsidiary did not have permission to provide regulated services. Naughty naughty. Mind you, when you consider Britons baffled by bitcoin – even after investing (The Times, Ben Martin), it is easy to see why more regulation and/or guidance is needed to prevent serious cryptocurrency-fuelled financial damage to households. This article cites the findings of a survey by Oxford Risk, a behavioural finance specialist, which showed that just 36% of people rated their understanding of cryptocurrencies as “poor” or “non-existent” when they first bought in. 21% added that they didn’t have an understanding of the market even after they’d sunk some money into it!

The China/US thing will drag on IPOs, Forever 21’s owner aims for a flotation, Wise has the UK’s biggest ever direct listing, Planet Labs goes SPAC and BoJo orders a microchip deal review…

Following on from what I’ve been saying this week, China’s crackdown on US listings threatens $2tn market (Financial Times, Hudson Lockett and Tabby Kinder) puts a scary number on the impact that China’s crackdown on overseas listings of Chinese companies could have. Chinese companies who were considering a listing are now reconsidering given the new reforms that were “guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”. * SO WHAT? * Some observers are now saying that there is a very real chance that US listings could be banned outright! As things stand, there are almost 250 Chinese companies listed in New York with a combined market cap of $2.1bn according to the US-China Economic and Security Review Commission. It looks like the biggest losers of this crackdown are likely to be the Nasdaq and the New York Stock Exchange, where Chinese IPOs have raised over $106bn, according to Refinitiv data. If one were to be feeling cynical about this, it looks very much like the Chinese are trying to take back the initiative after Trump-era threats to delist Chinese companies who didn’t meet disclosure requirements. Now it seems like the Chinese themselves will effectively be doing that job for them.

Meanwhile, Owner of Forever 21, JCPenney files to go public (Wall Street Journal, Suzanne Kapner) shows that Authentic Brands Group – the owner of the mixed bag of brands that include JCPenney, Forever 21, Sports Illustrated, Brooks Brothers, Nine West and Eddie Bauer – is planning an IPO, according to documents filed with the Securities and Exchange Commission. The preliminary filing doesn’t give any detail on price or valuation but it does say that it wants to sell $100m worth of stock. Should be interesting given the ragbag of failed/semi-failed brands on the roster!

Then in Wise valued at nearly £9bn after record London direct listing (Financial Times, Nicholas Megaw) we see that British fintech Wise (formerly known as TransferWise) had a very successful market debut yesterday as it eventually floated at over £8, double its implied valuation 12 months ago when it had a secondary share sale. * SO WHAT? * In choosing the direct listing route, the company followed in the footsteps of the likes of Spotify, Coinbase and Roblox and, because of yesterday’s success, some are now thinking that this is a route that will be chosen increasingly often in London among tech groups. After a blockbuster debut, investors should be wary of Wise guys (Financial Times, Bryce Elder) points out that the direct listing cost “just” £13m, about half what Deliveroo paid for its disastrous IPO in March and that it still operates in an area that has very low barriers to entry where price is king – which means that new entrants could potentially undercut it in order to build market share. It has disrupted the world of money transfers by providing cheap and quick money transfers, but it sounds like the real work starts now to justify its valuation on an ongoing basis.

Then Planet Labs launches $2.8bn deal in latest space Spac (Financial Times, Tim Bradshaw) shows that Planet Labs, an imaging business that uses small satellites to capture daily data about how the globe is changing, announced plans to merge with dMY Technology Group IV, a NYSE-listed SPAC in a deal that is expected to complete sometime in Q4 this year. This follows on from other space-related SPACs including Rocket Lab (it builds rockets) and Spire (which also makes small satellites to track Earth data), which launched in March. True to form, Planet is still massively loss-making but plans to become profitable around 2025. No doubt when it lists, it will aim for a “stellar valuation” 😂. I’m so sorry. I just couldn’t help myself.

Following on from controversy that blew up earlier this week, Johnson orders review of China microchip plant deal (Daily Telegraph, James Titcomb) shows that the British PM has overruled ministers and wants to have another look at the proposed sale of Newport Wafer Fab to Nexperia, a Dutch company that is owned by China’s Wingtech. When the deal was announced, objections were raised as to the Chinese getting control of a strategically important asset, so we’ll just have to wait and see how this goes.

House prices slide, a mortgage war looms, US travel bounces back and English double-jabbed get more freedoms while tight UK labour markets threaten to limit recovery…

In a quick look at how things are going for the consumer at the moment, House prices slide after stamp duty holiday tapers off (The Times, Gurpreet Narwan) cites the latest figures from the Halifax which show that house prices fell last month for the first time this year as the end of the stamp duty holiday looms. Mind you, Mortgage price war looms as banks fight to keep momentum (Daily Telegraph, Lucy Burton) shows that buyers may potentially be able to console themselves with even cheaper mortgages as banks will need to fight over them to win their business. HSBC and TSB are now offering the cheapest deals since records began, according to Moneyfacts, and the race to the bottom is likely to continue. * SO WHAT? * Although the end of the stamp duty freebie is starting to take the shine of the house buying frenzy, mortgage lenders are reluctant to let go. It will be interesting to see how activity evolves especially when furlough comes to an end. If things aren’t as bad as everyone is expecting I wonder whether the housing market will get a second wind – which will be great for these mortgage providers.

Travel, one of the industries hardest hit by the pandemic, is continuing its recovery. Travel is bouncing back strong, and airlines are racing to keep up (Wall Street Journal, Alison Sider) shows that passengers are continuing to flock back in America and it’s happened so quickly that it’s causing delays and cancelled flights as airlines and airports struggle to cope with the sudden uptick. Some of the problems have been caused by storms, others by staffing shortages (they cut too many staff too quickly) but they are at least on the recovery track. Back home, Quarantine-free travel to start for double-jabbed residents of England (Financial Times, Sebastian Payne, George Parker and Philip Georgiadis) heralds the restart of quarantine-free travel from July 19th, with details to follow. It’s good to see such moves but, clearly, there are risks.

Then in employment-related news, Recovery at risk as firms struggle with staff shortages (The Guardian, Richard Partington) cites findings from a report by the Recruitment and Employment Confederation (REC) and KPMG which show that Britain’s employers are facing the biggest shortages of staff since the late 1990s, Pay rates surge due to record slump in workers, say hirers (Daily Telegraph, Russell Lynch) cites the same report but from the pay point of view and Working hours rules to be relaxed to ease UK lorry driver shortage (The Guardian) highlights a bit of a short-term solution to the shortage of lorry drivers – they will be allowed to work longer hours! No doubt pressure to allow overseas workers will continue as this doesn’t sound like a solution for the long term! There’s also bad news in UK passport holders at back of queue for ski season jobs (Daily Telegraph, Louis Ashworth) as Brits who want to work a ski season are going to face massive difficulties as employers are not keen to go through all the new Brexit red-tape to hire them. You do wonder what other areas this is going to affect as time goes on…

…in other news…

There are certain life skills that many people strive to master over the years. Making the perfect roast dinner is part art, part science as each individual element is not difficult per se, but the bringing together of all the elements at the same time, to the table – hot – is a skill that is honed over time! Another life skill that takes time to master is the making of the Full English (Welsh, Scottish, Irish – depending on where you come from!) breakfast! Here is something that might help you on your quest to master it: Exact timings you need to follow to cook the perfect English breakfast (The Mirror, OliviaRose Fox). You’re welcome 👍. And now for something more controversial: Viral dessert sausage roll recipe using Mars bars has left the internet divided (The Mirror, John Bett). This just looks wrong in my opinion! What do you think?