Thursday 23/09/21

  1. In MACRO, EVERGRANDE & ENERGY NEWS, the Fed edges towards raising rates, Germany has a wobble, Evergrande calms fears, the US wades in to the gas drama and two more energy companies go bust
  2. In M&A AND IPO NEWS, Netflix buys Dahl’s works, MGM Resorts holds the cards and Toast makes a strong debut
  3. In NEW INNOVATION NEWS, Amazon wants lots of tech in its department stores and a British company makes a battery breakthrough
  4. In MISCELLANEOUS NEWS, CF Industries’ ripples lead to higher food prices and there are some interesting developments for Deloitte and Slaughter & May
  5. AND FINALLY, I bring you a canine Whitney Houston fan…

1

MACRO, EVERGRANDE & ENERGY NEWS

So the Fed warms up the crowd for interest rate rises, Germany falters, Evergrande tries to calm, the US wades into the European gas problem and two UK power companies go bust…

Just to let you know, I am not going to be doing the IG and subscriber calls this evening. They will return next week, however – with a difference! In the meantime, I’m going to be doing a roundup of September with Jake Schogger of the Commercial Law Academy THIS FRIDAY AT 4PM. I will be doing the business news and markets roundup for this month and he will be casting his legal eye over some of the finer points! If you want to attend (it’s free!), please register HERE.

Fed prepares to raise US rates (The Times, Callum Jones) shows that the US Federal Reserve is preparing the ground for raising interest rates – next year. The caveat is that it will only do this if America’s economic recovery continues. It is interesting to note that half of the Fed’s policymakers expect the first increase to be implemented in the first half of next year. Fed chief Jerome Powell said that “If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to assure that inflation runs at levels that are consistent with our goal”. FWIW, I am sticking with my prediction that the US and/or UK will raise interest rates this year because inflation is just running riot at the moment – and what with gas prices, stronger oil prices, higher food prices etc., it’s just going to get worse.

Meanwhile, in Europe, Germany recovery falters in new blow for Merkel (Daily Telegraph, Russell Lynch) highlights the conclusions of the country’s leading economic thinktank, the Ifo Institute, which state that Germany’s economic recovery is being held back by supply chain problems. The institute has cut its GDP growth forecasts by 0.8% to 2.5% for this year as shortages of things like semiconductors continue to impact Germany’s export-heavy economy. For instance, car production accounts for 5% of all of Germany’s GDP, which explains why the country has been particularly hard-hit. * SO WHAT? * It’s a bit of a shame that Merkel’s long tenure is going to end on a bit of a downer and it is unlikely to make things any easier for her preferred successor, Armin Laschet. It seems that a lot of voters remain undecided (some surveys indicate up to 40%!), so things like this could have an impact.

Meanwhile, after a lot of recent drama, Evergrande pledge to make key interest payment soothes fears (The Times, Tom Howard) shows that global stock markets breathed a collective sigh of relief after the massively indebted (to the

tune of $300bn!) Chinese property development company offered assurances that it would in fact be able to meet a key interest repayment of about £26.3m today. It is referring to payment due on its domestic bonds, which mature in 2025. This will buy them some time, but it still needs to do something drastic to dig itself out of its debt-hole.

Keeping with the theme of drama, and following on from what I was saying yesterday about European gas supply from Russia, US vows to ‘stand up’ to alleged gas market manipulation in Europe (Financial Times, Henry Foy and Max Seddon) shows that the US has promised to support European countries affected by Russia’s alleged manipulation of gas prices. Russia is the biggest supplier of gas in Europe and makes up about 40% of imports, but the US has been strongly opposed to the Nord Stream 2 pipeline because it will make Europe more dependent on Moscow. Putin’s iron grip on energy levels leaves Europe increasingly vulnerable (Daily Telegraph, Tom Rees) just points out what Russia really wants from all this – final approval for the Nord Stream 2 pipeline, which is ready to jump into life – and goes into more detail about just how important Russian energy imports are. * SO WHAT? * I have to say that I think that the Americans are all mouth and no trousers on this – they may very well object to Russia’s power, but I don’t think there’s much they can do about it. I don’t think that they can punish Europe and impose sanctions if Nord Stream 2 is approved because I think that European governments owe a primary duty to their citizens and starving them of gas and electricity supplies just because the Americans want to throw their weight around won’t go down well with voters. As far as businesses and households are concerned, Germany’s industrial sector is looking particularly vulnerable while households in Germany and Spain are most likely to suffer major rises in their energy bills because electricity and gas make up a larger percentage of their inflation baskets, which means that they feel price rises and falls more than in other countries. The upward pressure on inflation continues…

Back home, Two more energy suppliers go bust as Kwarteng considers windfall tax (Daily Telegraph, Hannah Boland) highlights the downfall of Avro Energy and Green as being the latest victims of skyrocketing wholesale gas prices. The government continues to look at options to stem the damage and Will the demise of small suppliers kill price competition? (The Guardian, Jillian Ambrose) sounds a warning note as it looks likely that more of the tiddlers in the industry are going to go to the wall. Seven suppliers have now gone bust in just over six weeks. * SO WHAT? * Increased competition has given rise to innovative tariffs and business models over the last ten years, so there are worries that company behaviours will slide if only a core of ten or so companies manage to survive the current environment. Time will tell…

2

M&A AND IPO NEWS

Netflix buys Roald Dahl, MGM could yet hang on to Entain and Toast has a strong IPO…

Netflix snaps up entire works of Roald Dahl for over £500m (Financial Times, Alistair Gray) highlights a really interesting deal where the streaming giant has bought the works from the writer’s family for a big chunk of change! This is the company’s latest effort to consolidate its position as the world’s #1 streaming service. This will give Netflix the rights to develop characters and stories in all sorts of formats and Netflix/Roald Dahl: swallowed by a big, fearful giant (Financial Times, Lex) suggests that this could be to Netflix what buying Marvel was to Disney in terms of giving it access to highly adaptable content. * SO WHAT? * I think that this really could be a brilliant move by Netflix. Road Dahl was an extraordinarily prolific writer – and he didn’t just do children’s books (although that’s obviously what he’s most famous for!) so there really is a lot for Netflix to sink their teeth into here! I’m not sure whether Netflix will get quite the same return on its new purchase that Disney had with Marvel (so far, 25 Marvel-based films have made over $25bn at the box office!), but there is certainly a lot to work with! I, for one, would be a fan of them doing a revival of Tales of the Unexpected, for instance!

I mentioned DraftKings’ pursuit of Entain yesterday but MGM Resorts holds best cards in the pursuit of Entain (The Times, Dominic Walsh) shows that DraftKings are likely to have a fight on their hands to get control despite Entain liking the sound of their chunky offer. MGM Resorts already has a joint venture in place (called BetMGM) and has pointed out that any deal in the US with Entain “would require MGM’s consent”. There are various possibilities here, so we’ll just have to see how the cards fall 🤦‍♂️ (sorry, I couldn’t help myself).

Meanwhile, Toast whets appetite for consumer IPOs with $20bn stock market debut (Financial Times, Nicholas Megaw and Miles Kruppa) highlights the successful market debut of restaurant tech provider Toast, which saw one of the biggest US listings this year when it started trading yesterday. The company generates most of its revenues by taking a cut of payments that are processed via its handheld and desktop checkout devices and although it had a tricky pandemic, it has managed to rebound strongly via the influx of customers as lockdown has lifted as well as an increased demand for delivery. However, Toast: a software titan missing the chance for software profits (Financial Times, Lex) points out that average tech spend by the restaurant industry is very low – about 3% of revenues – and that the bulk of its revenues come from taking a slice of transaction processing, a lot of which has to be paid out to others in the payments ecosystem. The question is, can it really live up to its rating and become insanely profitable?

3

NEW INNOVATION NEWS

Amazon has plans for its department store and there could be a battery breakthrough in the offing…

Inside Amazon’s department store plans: high-tech dressing rooms, its own apparel brands (Wall Street Journal, Sebastian Herrera and Khadeeja Safdar) is a really fascinating insight into Amazon’s take on the department store. Amazon is aiming to open department stores next year and it foresees lots of high-tech ways of enhance the shopping experience like customers scanning QR codes of items they want to try on via a smartphone app with staff then scurrying around to collect said items and put them in the fitting rooms (!). When they are in the fitting rooms, they can then use a touchpad to get more items, but it would also suggest other items based on the customers’ preference. Amazon is still at the ideas stage,

but lots of things are being mooted here. * SO WHAT? * This sounds quite exciting, don’t you think? It’s ironic that the ultimate department store-killer is now moving in to being its own department store! I would have thought that this would be a good move to boost its somewhat patchy approach to apparel and I think that the novelty of high-tech shopping could well catch on. Other operators should take note and enhance their in-store experiences before Amazon blows them away with a superior offering!

Then in Battery breakthrough promises superfast charging for electric cars (Daily Telegraph, Alan Tovey) we see that Northampton-based Mahle Powertrain and Woking-based Allotrope Energy have come up with a new lithium carbon battery that be charged in 90 seconds (albeit the charge won’t be massive). It’s working on a smaller battery to power delivery mopeds that normally take 30 minutes to fully recharge, but the aim is to scale it up! Other advantages of their battery include the fact that it uses common materials as opposed to rare earths and that it can perform consistently in all temperatures. * SO WHAT? * OK, so it’s not quite ready-to-go, but if this can be scaled up to power cars this could be MASSIVE!

4

MISCELLANEOUS NEWS

CF Industries creates chaos and food prices are set to rise while Deloitte partners get richer and Slaughter & May gets its first female leader…

Further to all the fertiliser and CO2 kerfuffle recently, I’d recommend you read the full version of Fuel, fertiliser and food: how a UK ammonia plant threatened nation with crisis (Financial Times) for a deep dive into what went wrong with CF Industries and why it has affected us so much (the shutdown of its two plants immediately put the agriculture and food industries into a tailspin because it produces 40% of the UK’s fertiliser and 60% of its CO2).  Although the government has reached a deal to make sure that operations continue, Food prices: the rising cost of a loaf (Financial Times, Lex) talks of the inevitability of rising food bills as skyrocketing input costs are passed on to the consumer.

In professional services news, Deloitte partner pay touches £1m as Big Four profits rebound (Financial Times, Michael O’Dwyer) highlights higher payouts for UK partners – the highest in ten years – as it continued to benefit from strong demand for its advice on business digitisation and supply chains. Deloitte employs about 2,000 people in the UK.

Then in Slaughter and May elects first female leader and restructures management (Financial Times, Kate Beioley) we see that the UK law firm has chosen its first ever female leader whilst simultaneously having a management sweep-out. Deborah Finkler is now its managing partner and will take over from the incumbents who will retire next year. This is an interesting move, especially as it comes at a time when other law firms are also electing their own female leaders – senior partner Georgia Dawson at Freshfields Bruckhaus Deringer and the new chair of Ashurst, Karen Davies, for instance. Interesting times ahead for the historically conservative company!

5

...AND FINALLY...

…in other news…

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Some of today’s market, commodity & currency moves (as at 0757hrs 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£/$€/$$/¥£/€$/₿

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