Thursday 15/07/21

  1. In MACRO & BITCOIN NEWS, China’s Q2 GDP growth slows, the US and UK central banks take more inflation flak, UK house prices jump and Bitcoin miners move
  2. In FINTECH & BANKS NEWS, Apple moves into Klarna territory and US banks have a profit boost
  3. In RETAIL NEWS, Waitrose’s owner outlines 1,000 job cuts and Kingfisher increases profits guidance
  4. In MISCELLANEOUS NEWS, we see opportunities in Chinese cyber security and LG committing to EV battery materials
  5. AND FINALLY, I bring you some hilarious truths from kids…

1

MACRO & BITCOIN NEWS

So China’s GDP growth calms down, Powell and Bailey face more inflation flak, UK house prices climb and Bitcoin miners migrate…

📢 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!

China’s economic growth slows in the second quarter (Wall Street Journal, Jonathan Cheng) cites the latest official figures which show that GDP grew by 7.9% in Q2 – rather less than the 18% year-on-year GDP hike in Q1! This was in line with market expectations, however, as everyone thought that the Q1 rate was unsustainable. Overall, though, this helped to boost China’s H1 GDP growth to a very healthy-looking 12.7% versus H1 of 2020. * SO WHAT? * If things continue to go like this, it looks highly likely that the GDP growth prediction made by Chinese Premier Li Keqiang of “6% or more” will turn out to be very much like “or more”! Things are looking pretty good across the board for China now with the latest data from China’s National Bureau of Statistics showing stronger industrial output, retail sales and fixed-asset investment.

Meanwhile, central bankers on both sides of the Atlantic continue to absorb pressure to increase interest rates in Jay Powell dismisses claims of Fed complacency on inflation (Financial Times, James Politi) as the US central bank chief faced tons of questions about the Fed’s response to the most recent inflation figure of 5.4% – a figure that is waaaaaay higher than the central bank was expecting – and Risk of 4% inflation this year (The Times, Philip Aldrick) shows that the Bank of England’s Deputy Governor, Sir Dave Ramsden, is having a bit of a wobble. He said at a speech last night that “I wouldn’t be surprised to see the whole inflation rate potentially rising as high as 4 per cent for a period later this year”, essentially rejecting

the Bank’s most recent prediction of 3%, hinting that stimulus may have to be rolled back earlier than it had been expecting. In the meantime, headlines like UK house prices rise by 10% amid stamp duty holiday rush (The Guardian, Hilary Osborne) will continue to ratchet up the pressure on Andrew Bailey at the Bank of England. * SO WHAT? * I know that this isn’t a popular opinion and that I don’t have any fancy models or anything, but I am sticking to my prediction that the US and/or the UK is going to increase interest rates THIS year because the inflation numbers continue to run riot and we haven’t even fully opened up our economies yet! In the UK, for instance, if the feared rise in unemployment due to the end of furlough does not materialise, there could be another big boost to the economy. Will the Bank move the goalposts yet again or will it finally crack under the pressure??

China crackdown sends Bitcoin miners to United States and Kazakhstan (Daily Telegraph, Io Dodds) shows that Bitcoin miners are migrating to the US and Kazakhstan following the recent crackdown by China’s government on cryptocurrency. According to figures from the Cambridge Centre for Alternative Finance (CCAF), America’s share of global Bitcoin mining shot up from 4.1% in September 2019 to 16.8% at the beginning of April, while Kazakhstan’s share went from 1.4% to 8.2% over the same time period. However, China announced a nationwide ban on cryptocurrency payments in May, so this is likely to change even more. While China’s global share went from 75% to 46% in the same time period, US states including Texas and Wyoming are offering Bitcoin miners favourable regulation and ready access to cheap energy. * SO WHAT? * The Great Crackdown continues, but I really think that the biggest danger to crypto in the next few months and years is going to be tighter regulation first of all and then competition from central bank-backed crypto (remember recent figures from the Bank for International Settlements which showed that almost all central banks around the world are dabbling in their own cryptocurrencies).

2

FINTECH & BANKS NEWS

Apple looks like it’s going to eat Klarna’s lunch while the US banks enjoy fat profits…

Apple in talks to launch ‘buy now, pay later’ rival to Klarna (Daily Telegraph, James Cook) shows that Apple and Goldman Sachs are jointly developing a service called “Apple Pay Later” where Apple will provide the punters and Goldman will be the one lending the full payment amounts for repurchases until they are completed. * SO WHAT? * Is this time for Klarna to go bye-bye? Well Fintech: Apple may squash the buy now, pay later party (Financial Times, Lex) contends that all of these Buy Now Pay Later (BNPL) merchants need to get very worried. Share prices of Afterpay and Zip in Australia as well as US-listed affirm all shed 10% on the news. Klarna is Europe’s most valuable fintech start-up, but continues to be loss-making and Apple is well-known for being late to the party and then taking over. I would have thought that Apple’s deep pockets will enable it to buy market share quickly and its massive (around 500m iPhone users have enabled Apple Pay!) – and loyal – user base will really help in what is a growing

market. Maybe this will accelerate the pace of consolidation in this area as everyone tries to gain scale in order to protect themselves against Apple’s might. M&A bankers will be rubbing their hands at the prospect!

Talking about bankers, Bullish consumers boost profits at biggest US banks (Daily Telegraph) shows that strong results from Bank of America, Citigroup and Wells Fargo followed on from solid performances from Goldman Sachs and JP Morgan the day before although they continue to be a bit cautious about the ongoing effects of Covid on economies. Still, it wasn’t the disaster that they’d previously predicted with huge numbers of clients defaulting on loans. On the downside, like their rivals, trading revenues fell but dealmaking fees were up. * SO WHAT? * It’ll be interesting to see how long it takes for trading revenues bounce back, but I would have thought that advisory fees will continue to climb given ongoing M&A activity. Market volatility was one of the biggest drivers of trading revenues, but then again if investors continue to believe and back a global economic recovery I think that money will continue to pour into the markets. 

3

RETAIL NEWS

Job cuts are announced at Waitrose and John Lewis and Kingfisher surprises with a positive statement…

John Lewis and Waitrose owner to cut 1,000 jobs in stores (The Guardian, Sarah Butler) highlights plans from the John Lewis Partnership (JLP) to cut jobs as part of an ongoing effort to reduce costs by £300m a year by 2022. This follows on from the recent closure of 16 John Lewis stores and the loss of over 2,500 jobs. JLP currently employs over 80,000 people. * SO WHAT? * Culling stores and employees is just fiddling around in my opinion – as is its new venture in real estate – and it’s just putting off what should be done right now! JLP really needs a change in strategy, a facelift and a clear direction. At the moment, it’s doing all the low-hanging fruit stuff but I think that it should get on with future-proofing its core business. It has loyal customers and a good brand name – but it needs to perform major heart surgery to avert a terminal decline into

obsolescence. With rival M&S making moves to improve its offering in both food and non-food, JLP needs to watch out!

In Screwfix owner takes flight as it increases guidance on profits (The Times, Robert Miller) we see that Kingfisher, the owner of B&Q and Screwfix, announced an unscheduled trading update yesterday and raised its interim profit guidance. The main drivers for this were continued strength in demand from both new and existing customers and its e-commerce business continues to be a decent performer. * SO WHAT? * It looks like the DIY trend continues to grow as the combination of lockdown and a strong housing market have prompted people to spruce up their existing abodes or “put their stamp on” properties they’ve just bought with the savings they’ve made on stamp duty! The question is whether this momentum will continue after the end of the stamp duty holiday and furlough. Although I would expect a slowdown into the end of the year (people generally don’t tend to do much DIY in the colder months) there’s still a lot to go for in the coming months.

4

MISCELLANEOUS NEWS

We see opportunities in Chinese cybersecurity and LG announced a big investment in electric battery materials…

Following on from all this recent flexing from the Cyberspace Administration of China (CAC) towards Chinese tech companies, China cyber security: the tech stocks investors have overlooked (Financial Times, Lex) shows that China’s cyber-security industry is now, somewhat belatedly, making strides in catching up China’s fast-growing tech sector. The government’s new guidelines require key industries, such as telecoms, to spend at least 10% of their IT budgets on cyber security over the next two years. In addition to this, a new data security law covering data usage will come into force from September. * SO WHAT? * China’s tech sector has been able to grow exponentially over the years with very little in the way of oversight. That is clearly changing now and the clampdown

is likely to benefit a number of domestic players in the cyber security industry like Venustech and Nsfocus Technologies, whose valuations have lagged their US counterparts like Fortinet and Palo Alto Networks considerably. Maybe now is their time to shine given the current environment?

LG to invest $5.2bn in production of electric vehicle battery materials (Financial Times, Song Jung-a) shows that South Korea’s LG Chem has earmarked $5.2bn in funds for the production of EV battery materials over the next four years in an effort to wean itself off reliance on China. Its chief exec, Shin Hak-cheol, said that “We will reinvent our company as the world’s largest battery material producer” and use the money to invest in partnerships across mining, smelting and refining. * SO WHAT? * This sounds like a good shout strategically as demand for EV-related parts and materials is only going to go up – and reducing reliance on China is a good idea for everyone as supply chains are so hugely skewed at the moment.

5

...AND FINALLY...

…in other news…

Kids can be brutally honest at times! When I saw this I just couldn’t stop laughing: Teacher left in stitches after asking kids to share one thing she should know about them (The Mirror, Courtney Pochin). Ah the honesty 😂!

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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