Thursday 10/02/22

  1. In MACRO & ENERGY/OIL-RELATED NEWS, we look at how sanctions against Russia could hurt Europe, BoJo goes brave/stupid, the UK oil regulator is against a windfall tax and there was a major step forward in nuclear fusion
  2. In UK REAL ESTATE & CONSUMER TRENDS NEWS, the housing boom reflects a north-south divide, Barratt booms, lenders withdraw super-cheap mortgages, L’Oréal blooms, car insurance premiums rise, Disney+ subscribers approach 130m and Uber’s revenue jumps
  3. In SUPPLY CHAIN NEWS, Maersk sees light at the end of the tunnel but companies face challenges right now
  4. In INDIVIDUAL COMPANY NEWS, Amazon gets classed as a supermarket, Bosch tries reskilling and Arm faces an expensive problem
  5. AND FINALLY, I bring you canine yoga…



So we weigh up Russia sanctions, Bojo goes brave/stupid, the oil regulator opposes a windfall tax and a breakthrough is made with nuclear fusion

📢 It’s Thursday – so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers. In this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

  • Should oil companies pay a windfall tax? Why?
  • Who should buy Peloton and why?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

How could sanctions against Russia hit European economies (Financial Times, Valentina Romei, Martin Arnold, Natassia Astrasheuskaya) takes a look at how badly Europe could suffer if sanctions on Russia are taken out in response to an invasion of Ukraine. Firstly, Russia is the EU’s biggest energy supplier, accounting for about 40% of the bloc’s natural gas imports and almost one-third of its crude oil imports. Gas reserves are running very low, which has pushed prices up over the last few months – and this trend would continue if sanctions were to be imposed. Also, European oil companies such as BP, Total and Shell could suffer disruption to their Russian operations. Secondly, Russia is a major commodities exporter, supplying around 40% of the world’s palladium (which is used in catalytic converters for cars which cut down emissions) as well as around 30% of titanium which is key for the aerospace industry. Both Airbus and Boeing use a great deal of the metal – Airbus gets about 50% of its titanium from Russia, for instance. Thirdly, banks and counterparties could be hit by sanctions. Russian entities owe around $60bn to the EU and it’s possible that money deposited in EU banks could be frozen. Fourthly, trade with Russia could suffer but then again that has been in gradual decline since its annexation of Crimea. * SO WHAT? * As with all these things, just slapping sanctions on a country like Russia is not going to be without its consequences. And that’s not including any sanctions that THEY might impose as well. The impact could also be lessened by China’s help on an interim and ongoing basis. The drama continues…

In Boris Johnson weighs early end to Covid self-isolation rule in England (Financial Times, Jasmine Cameron-Chileshe, Olivia Barnes and Jim Pickard) we see that the PM announced intentions to end the legal requirement to

self-isolate after a positive Covid test as part of a “living with Covid” plan that is to come in one month ahead of schedule. This comes in the wake of new data from the Office for National Statistics showing that the infection rate is rising across the UK. Denmark recently became the first European country to lift all Covid restrictions (but its government continues to advise people who test positive after displaying symptoms) while in South Africa, people who don’t have symptoms have not had to self-isolate after testing positive since earlier this month. * SO WHAT? * After so many restrictions for so long this does sound counter-intuitive but then again I don’t think you’re ever going to get 100% agreement on this. Maybe this is just another example of the government pitching something publicly and then gauging the reaction before moving forward (possibly with amendments).

Then in Oil regulator opposes windfall tax (Daily Telegraph, Helen Cahill) we see that the chairman of the Oil and Gas Authority is resisting calls by politicians baying for a windfall tax on the industry. Tim Eggar said that the money oil companies made by oil producers like Shell and BP should instead be invested in North Sea assets. * SO WHAT? * He argues that a windfall tax would do nothing to help tackle the global shortage of gas but then I would argue that neither does the £1.5bn BP earmarked for a share buyback and resumption of dividend payments that BP announced the other day. The counter-argument to this would probably be that it needs to keep investors happy and that keeping them happy will ensure smoother funding etc. (if investors see that the government can dip its fingers into oil majors’ profit on a whim they will be less inclined to buy the shares, for instance). I just think they don’t want to pay. Labour reckons that the tax would bring in around £1.2bn to help ease the pressure on domestic energy bills but you never really know until something like this is actually brought in.

I thought that European scientists in ‘landmark’ nuclear fusion breakthrough (Financial Times, Tom Wilson) sounded really interesting because it says that a group of European scientists set a new record for the most energy to be generated from nuclear fusion. They managed to produce 59 megajoules from a five-second reaction that was enough to boil around 60 kettles using a “tokamak” machine in Oxford. OK, so it doesn’t sound like too much but given that this is the first time that they’ve generated more energy than the machine has consumed in over fifty years of trying, this is a major breakthrough! * SO WHAT? * Nuclear fusion is the holy grail of energy because when atoms are fused via this process, they do not produce a significant amount of radioactive waste (unlike nuclear fission, which we currently use). This process also produces no greenhouse gases and the chemicals used in the process are pretty much inexhaustible. Just to give you an idea of how powerful this is, a small glass of fuel could potentially power an entire house for hundreds of years! The biggest difficulty with nuclear fusion so far is how to make it commercially viable. This is a milestone development, but nuclear fusion on a grand scale is still some way off.



The UK real estate boom continues and we take another look at what consumers are spending their money on…

Housing boom has a north-south divide (The Times, Tom Howard) cites the latest findings by online estate agency Rightmove which points out that the boom is not evenly spread around the country. Margate is an outlier with house prices more than doubling since 2012 but other top destinations include Dover (up 91%), Basildon (up 96%) and around Bristol (up 96%) but overall, the south east continues to be very strong. Many northern towns have missed out, but the overall average has been a rise of 53% since January 2012. Barratt building on success as demand for homes rockets (The Times, Tom Howard) highlights booming profit margins for the past six months and ongoing confidence in the new-build market despite worries of rising inflation and increasingly expensive mortgages. Talking of which, Banks withdrew 1pc mortgage deals as interest rate rise hits home (Daily Telegraph, Rachel Mortimer and Giulia Bottaro) shows that banks are shutting the gates as expectations of further interest rate rises from the Bank of England increase. * SO WHAT? * For the moment, at least, the housing boom is continuing. However, I think that once the cumulative effect

of higher interest rates, inflation and household bills start to kick in, this should slow things down considerably.

In terms of spending on other things, Infinite appetite for beauty’ drives record sales at L’Oréal (Financial Times, Leila Abboud) shows that the world’s biggest cosmetics maker put in a great performance last year – further confirming the trend we’ve been hearing from the likes of LVMH and other luxury brands – and expects supply chain problems and inflationary pressure to dissipate in the second half of this year. It added that it will be paying its highest dividend to date – a 20% increase on what it was a year ago! What a statement of confidence!

Consumers continue to spend on streaming, as per Disney’s earnings show rebound in Disney+, parks businesses (Wall Street Journal, Robbie Whelan) – so it seems that, unlike with Netflix, there is still streaming subscription momentum to be had – and Uber fourth-quarter revenue jumps as customers go out, keep ordering in (Wall Street Journal, Preetika Rana) shows that consumers have been ordering deliveries via Uber Eats (which posted its first ever quarterly profit!) and booking their rides. * SO WHAT? * Rising inflation is pretty much everywhere at the moment and pressures on household budgets continue to tighten. Car insurers rush to raise rates as inflation takes a toll (Wall Street Journal, Leslie Scism) shows further pressures on US consumers, something that we’ve also seen in the UK. Consumers can’t continue to spend at the current rate forever!



Maersk sees light at the end of the tunnel but shipping costs still bite…

Maersk expects supply chain problems to ease this year (Financial Times, Richard Milne) shows that the world’s second-biggest container shipping company reported a massive 55% revenue increase over last year but added that it expected global supply chain woes to calm down in the second half of this year. It proposed a sevenfold hike in its dividend and announced a $1.7bn acquisition of US logistics company Pilot Freight Services. Wow!

How rising shipping costs hit UK firms (The Guardian, Joanna Patridge) reflects what Maersk has said, but at a grass-roots level. It takes the example of a small gin manufacturer that had a nightmare ordering bottles. Logistics analysts are now predicting that annual shipping costs could continue to hit new highs as disruption to international shipping is likely to continue. * SO WHAT? * Just to illustrate the point, the manufacturer in the article was able to bring a shipping container from China to the UK for between $2,500 and $3,000 pre-Covid but this price hit a peak of an eye-watering $18,000. It has since come down to $10,000 but this is still a big rise versus pre-Covid times. It just doesn’t look like things will be changing any time soon. It’ll be interesting, though, to see whether rising interest rates curb spending that will ultimately dent trading volumes…



Amazon gets classified, Bosch aims to retrain and Arm faces problems…

In other news, Amazon classed as supermarket by regulator and must obey code to protect suppliers (Daily Telegraph, Laura Onita) shows that Amazon has now been officially classified as a supermarket by the Competition and Markets Authority, which will bring with it stricter rules governing the way it treats suppliers.

Then in Bosch to spend €2bn on reskilling workers as car industry shifts to electric (Financial Times, Joe Miller) we see that Europe’s biggest car parts supplier announced

plans to spend around €2bn on retraining a proportion of its 400,000 employees to ensure job losses that will occur in the switch to EV production will be kept to a minimum in future. This is a good move and I am sure is something that will be encouraged at other car and car-related manufacturers.

And finally, Arm facing colossal bill to pay off boss of Chinese unit (Daily Telegraph, James Titcomb) shows that Arm may have to pay hundreds of millions of dollars to the head of its Chinese joint venture as it tidies up its accounts ahead of an IPO. Chief exec of the joint venture, Allen Wu, is digging his heels in and is demanding a huge amount of money to give up control. Arm will really need to sort this out if it is to get its proposed IPO away.



…in other news…

I know that this is the third consecutive day of ending with a dog story but I love dogs! I promise that tomorrow will be different, but in the meantime Talented Labrador performing yoga with his owner steals people’s hearts (The Mirror, Nia Dalton) is a great way to start your day right, no?

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Some of today’s market, commodity & currency moves (as at 0759hrs 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 **
7,659 (+1.22%)35,768.06 (+0.86%)4,587.18 (+1.45%)14,490.37 (+2.08%)15,527 (+1.87%)7,165 (+1.94%)27,690 (+0.40%)3,486 (+0.17%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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