Thursday 17/03/22

  1. In BIG PICTURE NEWS, we look at the latest developments in Ukraine/Russia, Russia’s approach to default, Putin’s promises, China’s intervention, the US interest rate rise and nightmare in commodities
  2. In RETAIL/HIGH STREET NEWS, US retail sales rise, Walmart wants more staff, Schultz returns to lead Starbucks and the UK high street evolves
  3. In MISCELLANEOUS NEWS, insurers brace themselves for Ukraine/Russia-related claims, EQT eyes a Barings deal and Linktree goes unicorn
  4. AND FINALLY, I bring you a debate on how to say “cucumber” and dog karaoke…

1

BIG PICTURE NEWS

So heroism appears amid the sanctions and the consequences continue to flow…

📢 It’s Thursday – so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers. *** THIS CALL WILL RUN FROM 7PM TILL 8PM. NB THIS IS DIFFERENT TO THE USUAL TIME ***. Apologies for the different time tonight – this time I’m going to parents’ evening for my eldest son and the times we got given clash with the time for the normal Zoom call. As usual, during 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:

  • Which sectors do you think insurance companies will make most payouts to and why due to the Russian invasion of Ukraine?
  • How would you solve the slowdown in the airline industry?

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 crisis in Ukraine is beyond words. Many stories that we see now of tragedy, sacrifice and loss make everything else pale into insignificance. However, I will continue to bring you news on this and everything else in the business and financial markets news because it may well have repercussions that have major consequences for us all and that we still need to understand better.

Ukraine and Russia explore neutrality plan in peace talks (Financial Times, Max Seddon, Roman Olearchyk, Arash Massoudi and Neri Zilber) highlights major progress on peace talks including a ceasefire and a Russian withdrawal if Kyiv commits to neutrality and a limit on its armed forces. I thought this was interesting given the insight of veteran reporter John Simpson in Ukraine: Putin will search for a way to save face (BBC news). However, amid the optimism, there is doubt that Putin is really committed to peace and that all he is doing it buying time to let his forces regroup. In the meantime, US to send armed drones to Ukraine following Zelensky’s plea for help (Financial Times, James Politi, Lauren Fedor and Felicia Schwartz) shows that the US is trying to keep the pressure on by supplying 100 drones, anti-aircraft and anti-armour missiles to Ukrainian forces, whilst stopping short of what Zelensky really wants – air cover. Time is ticking and Default looms as Russia hits deadline for dollar bond payments (Financial Times, Tommy Stubbington and Max Seddon) shows that the country is teetering on the edge of its first default since 1998 as investors await $117m in

coupon payments while Putin vows to lift Russian salaries and pensions to cushion sanctions (Financial Times, Polina Ivanova) highlights an attempt to appease citizens who are going to be suffering from major economic sanctions imposed by the West in response to Russia’s invasion of Ukraine. Prices of imported goods have shot through the roof due to the cratering of the rouble and panic buying has magnified the problems, leading to shortages in some areas.

Elsewhere, China makes rare intervention to bolster confidence after market rout (Financial Times, Tom Mitchell, Ryan McMorrow and William Langley) highlights a new commitment by the Chinese government to support the economy in Q1, although it did not give any specific details as to how it would do this. Still, it is official recognition that the economy is slowing down. Then in Fed lifts rates for first time since 2018 as prices surge (Daily Telegraph, Tim Wallace, James Titcomb and Tom Rees) we see that the chairman of the Federal Reserve, Jerome Powell, announced an interest rate rise from 0.25% to 0.5% in an attempt to curb inflation that hit a 40-year high of 7.9%. US economic growth rate forecasts were cut and the Fed is expected to increase interest rates a further six times this year to fight inflation.

This all happened against a backdrop detailed in Russian oil shortfall threatens ‘biggest supply crisis in decades’ (The Times, Emily Gosden) where the International Energy Agency stated that the oil markets are staring a major crisis in the face with oil prices reaching vertiginous levels and oil producing countries like Saudi Arabia standing on the sidelines and watching everyone else suffer. This is a direct result of the sanctions being imposed on Russia for invading Ukraine and the IEA said that recent actions are “threatening to create a global supply shock”. Energy firms risk ‘running out of cash’ over volatile price swings (The Times, Emily Gosden) shows that energy companies and traders are getting increasingly desperate and are now appealing for help from governments and central banks as they are being left exposed by bets they made on prices going badly wrong because of unprecedented price volatility. And if that wasn’t bad enough, London Metal Exchange suffers fresh glitch during nickel trading (Financial Times, Neil Hume and Philip Stafford) shows that trading in nickel was suspended yet again just moments after it started trading again yesterday following a week-long suspension after newly-installed limits on price declines failed to kick in. Electronic trading was halted but telephone and physical trading carried on. The market reopened at 2pm. Who ever said that commodities were boring?!? * SO WHAT? * Russia’s invasion of Ukraine has made us painfully aware of many things, but our reliance on Russian commodities has definitely been one. The problem here is that it’s not easy to switch to new suppliers overnight. Even if there is a ceasefire/withdrawal in the short term it is unclear how long sanctions would last.

2

RETAIL/HIGH STREET NEWS

US retail sales continue to grow, Walmart wants more staff, Sholtz returns and the UK high street evolves…

US retail sales grew 0.3% in February (Wall Street Journal, David Harrison) cites the latest official data from the Commerce Department that retail sales are still growing in the US, albeit at a slower pace thanks to higher prices and repercussions of the Russia/Ukraine war. Spending at restaurants and bars increased by 2.5% in February, which was the biggest increase since May last year. Walmart aims to hire 50,000 US workers by end of April (Wall Street Journal, Sarah Nassauer) highlights the retailer’s hiring intentions as part of plans to expand its retail and other businesses such as health, wellness and advertising. Meanwhile, Starbucks to be led by Howard Schultz again as US workers push to unionise (The Guardian, Lauren Aratani) shows that Starbucks’ former chief will replace current chief exec Kevin Johnson, who signalled his intention to retire last year. His reappointment has been portrayed as absolutely not being a knee-jerk reaction to troubled times and burgeoning unionisation of employees – it was something that was going to happen anyway. This will be the third time that Schultz has “done a Steve Jobs” and will take the role on an interim basis until a permanent replacement is found. * SO WHAT? * I don’t know about you, but it feels to me like the Russia/Ukraine situation is barely touching the sides over in the US, whereas we are feeling it every day over here (although this is nothing compared to the nightmare Ukrainians and those much closer to the war are experiencing, obviously). Consumers are continuing to spend and it’s interesting to see how Walmart is expanding with a view to giving employees the

chance to build a long-term career by offering training on digital skills and boosting wellness capability. The return of Schultz at Starbucks is also fascinating to see and although it has been played down, clearly the unionisation of its baristas is causing great concern at the top. I suspect that rival coffee shop chains will be watching with interest how Schultz goes about quelling the rebellion as much as shareholders will be. It will also be interesting to see how what he does about the China market and particularly whether he gets more aggressive about expanding over there.

Back in the UK, Restaurant and leisure groups warn Ukraine war will push costs higher (Financial Times, Ian Johnston) shows that companies in these sectors are preparing themselves for tricky times ahead as Fever-Tree lowered its profit guidance for 2022 because of higher commodity prices, The Restaurant group (owner of Wagamama and Frankie & Benny’s) also bemoaned higher input costs (including higher energy prices) but kept year-end forecasts unchanged and the Gym Group remained mindful of higher utility bills whilst sounding a cautiously optimistic note that it expected to return to pre-Covid levels by the end of the year. More broadly, High street hope as number of vacant premises declines (The Times, Ashley Armstrong) cites the latest figures from the Local Data Company which show that the number of empty shops and restaurants has fallen in Britain for the first time since 2018. It’s also good to see that the vacancy rate in shopping centres has fallen as well, which is notable because it an area of particular weakness during the pandemic. * SO WHAT? * It’s good to see that there has been a revival in fortunes of a high street that has been largely decimated over the pandemic. However, input costs keep rising and consumers won’t be able to absorb price rises forever so there is a delicate balance to be struck here. 

3

MISCELLANEOUS NEWS

Insurers brace themselves, EQT moves to increase its Asia presence and Linktree goes unicorn..

Insurance industry braces for soaring payouts from war in Ukraine (Financial Times, Ian Smith and Stephen Morris) highlights the impact that Russia’s invasion of Ukraine could have on the insurance industry as stranded planes, bombing damage and unrecoverable debts are likely to translate into mammoth insurance claims and lawsuits over the coming months and years. Insurers have acted quickly to limit the exposure by refusing any new contracts that could incur Russia-related losses and have also rewritten policies to cut the country out of future claims (and/or charge exorbitant premiums for ships crossing disputed waters). * SO WHAT? * Lloyds of London is expected to take a big hit with war and share prices of political risk specialists Lancashire and Beazley have fallen steeply in the last few weeks as a result. The world’s biggest insurer, Marsh, says that if stranded planes aren’t recovered from Russia, it could create the “single largest aviation loss in history” with a potential loss of around $5bn – more than the loss suffered after 9/11. At the end of the day, it’s nigh on impossible to get an accurate idea of the magnitude of the loss at now, especially as the situation is still “live”, but whatever it is it will be massive. And if that happens, ultimately we will ALL be paying for this with higher premiums for everyone – putting further pressure on household budgets.

EQT ramps up Asia presence with €6.8bn Baring deal (Financial Times, Kaye Wiggins and Tabby Kinder) highlights private equity firm EQT’s agreement to buy Baring Private Equity Asia that will boost assets under management by €17.7bn and broaden its presence in the Asian region in a cash-and-shares deal. EQT/BPEA: Asia deal boosts global ambitions for Swedish private equity (Financial Times, Lex) sounds pretty relaxed about the valuation, but there is a slight niggle in my mind that the firm is wading into a region that is in turmoil at the moment what with China’s incredibly strict approach to Covid pushing companies out of places like Hong Kong and the potential threat of China invading Taiwan.

Then in Linktree joins the unicorns in latest funding round (The Times, James Hurley) we see that the company that creates landing pages for links to share on social media platforms has just completed a funding round that has pushed its implied valuation to $1.3m – firmly into “unicorn” status (the valuation has to be $1bn or more). * SO WHAT? * This sounds interesting, but I worry that it is a bit of a one-trick pony and that valuations like this could attract other entrants that could nibble away at its supremacy.

4

...AND FINALLY...

…in other news…

Now here is a story about something that you won’t have given a second thought about until to get into it: Woman dumbfounded to learn she’s been pronouncing cucumber ‘wrong’ her entire life (The Mirror, Paige Holland). She really does make a very good point and, in the process, contributes to the list of life’s great questions. But if that has got you scratching your head and questioning your very existence, then maybe bring yourself back to normality by listening to Singing dog performs Diana Ross in impressive karaoke duet with owner (The Mirror, Nia Dalton). The gusto and emotion that the dog displays is impressive 👍

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Some of today’s market, commodity & currency moves (as at 0747hrs 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 **
7,292 (+1.62%)34,063.1 (+1.55%)4,357.86 (+2.24%)13,436.55 (+3.77%)14,441 (+3.76%)6,589 (+3.68%)26,655 (+3.47%)3,215 (+1.4%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$97.84$101.22$1,934.241.3171.10386118.7751.1930840,682.7

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