Thursday 25/03/21

1. In MACROECONOMIC NEWS, the Suez blockage has repercussions, the UK and EU try to move forward, the UK services sector overtakes manufacturing and UK inflation falls
2. In FINANCIALS NEWS, Ant Group regroups, NatWest moves towards an overhaul and Nationwide workers can work nationwide
3. In RETAIL NEWS, Carrefour consolidates in Brazil, John Lewis aims to leave some stores closed and Wickes aims to go it alone
4. In INDIVIDUAL COMPANY NEWS, Tencent gets into hot water, Bally’s makes an offer for Gamesys, Ryanair ramps up flights and GM closes a factory due to chip shortages
5. AND FINALLY, I thought I’d leave you with news of a special creme egg…

So Suez problems cause problems, the UK and EU try to patch things up, services overtakes manufacturing and UK inflation falls suddenly…

📢 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!

Ships stuck in Suez canal heightens pressure on global supply chain (Wall Street Journal, Costas Paris, Parmy Olson and Sarah McFarlane) shows that the current blockage of the Suez Canal by a massive grounded container ship is causing delays and additional costs at a time when things are already tricky because of Covid. Share prices of shipping stocks fell while oil prices rose as Egyptian authorities scrambled in vain to free the vessel which is blocking one of the world’s busiest shipping lanes that connects the Red Sea with the Mediterranean. * SO WHAT? * The Suez Canal is a key shipping artery between Asia and Europe, but is particularly important for the energy industry as about 10% of the world’s seaborne oil passes through it. On the shipping container side of things, it is thought that it could take two days to clear, which means that 110,000 containers could be delayed. Online marketplace specialist ContainerXChange reckons that current delays could increase container rental prices that have already shot up from $200 to $2,000 in the last three months. 

Meanwhile, UK and EU move to calm tensions over access to jabs (Financial Times, Sam Fleming, Michael Peel and George Parker) shows that the two sides are trying to come to some kind of agreement despite Europe’s latest outburst accusing the UK of “vaccine nationalism” and health secretary Matt Hancock saying that the EU has “a ‘best efforts’ contract and we have an exclusivity deal…our contract trumps theirs. It’s called contract law – it’s very straightforward”. We’ll just have to wait and see, but I suspect the mud-slinging will continue.

Then in UK services sector outpaces manufacturing for first time in a year (Financial Times, Delphine Strauss and Valentina Romei) we see that the results of the latest Purchasing Managers’ Index published by IHS Markit and the Chartered Institute of Procurement and Supply show that the UK services sector has returned to outpacing the manufacturing sector for the first time since March last year. This was driven by an uptick in new orders as service providers received advance bookings from customers and manufacturers got advance orders from the hospitality sector and retailers making preparations to reopen after lockdown. Separately, UK inflation driven down by clothing and secondhand car discounts (The Guardian, Phillip Inman) shows that inflation in the UK fell by 0.4% in February, which surprised the majority of economists who predicted a small rise in inflation. It would actually have fallen further had it not been for petrol price rises. * SO WHAT? * Given that the majority of commentators are expecting a sharp rise in spending when the lockdown lifts, this may mean that it will take longer for inflation to hit the 2% level where the Bank of England is likely to step in and raise interest rates in order to stop the economy from overheating.

Ant Group tries to claw its way back, NatWest faces an overhaul and Nationwide workers get a choice…

Jack Ma’s Ant demands bigger fees to rebuild valuation after pulled IPO (Financial Times, Sun Yu) shows that Ant Group is trying to make up for lost revenues in its lending business following a government crackdown by increasing its share of the processing fees from its popular Alipay payments platform. Local banks are saying that they have been asked by Alipay to give them up to 80% more of the processing fees than what they were getting before. * SO  WHAT? * Given that most Chinese consumers pay via mobile apps rather than cards, Alipay has huge pricing power. Until now merchants pay a fee per transaction over Alipay, which is divvied out between Alipay, the customer’s bank and Unionpay, China’s card services company. Alipay’s share of this fee has been going up while the bank’s share has been going down. Given that Ant is having to make up for revenue shortfalls from the crackdown on its lending business – plus its pricing power – you can see why it is squeezing the lenders. It certainly looks like Ant Group holds all the cards here.

Back in the UK, NatWest to overhaul retail business as it tackles fintech rivals (Financial Times, Nicholas Megaw) shows that the high street lender is about to conduct an overhaul of its retail banking business in order to make it more able to fight back against fintech rivals and boost

revenues against the difficult backdrop of super-low interest rates. Staff could be available for longer hours, a suite of investment products for lower-tier savers will be offered and it will put more effort into growing its credit card business. * SO WHAT? * NatWest currently operates about 16% of the UK’s personal current accounts but has a tiny share of mortgages and unsecured lending. Clearly it needs to do something to reinvigorate its fortunes. 60% of NatWest is currently owned by the UK government following a bailout.

Then in Nationwide office staff can work anywhere in UK when lockdown ends (The Guardian, Mark Sweney) we see yet another major employer offering its staff the long term opportunity to work from home. The UK’s #1 building society is set to tell its 13,000 staff that they will be able to work wherever they want to when pandemic restrictions are lifted under a scheme called Work Anywhere. This comes after the results of a company-wide survey saying that 57% wanted to WFH full time, 36% wanted a mix and 6% wanted the usual 5-day week. * SO WHAT? * This is more short-term bad news for office landlords as Nationwide said it intends to close some offices. I personally think that the 100%-WFH situation is going to prove to be a step too far for some as time goes on – it’s fine when everyone HAS to do it as they do now – because I really think that people will realise the value of leaving work at work and not living it while they are at home. Therefore, in the short term, WFH will continue to be popular but I think give it a year or so and many more will start to drift back to the office IMO.

Carrefour expands its Brazilian interests, John Lewis leaves more stores closed and Wickes looks to go it alone…

In a quick scoot around some of today’s retail stories, Carrefour to buy smaller rival in Brazil for €1.1bn (Financial Times, Leila Abboud) shows that the European grocer has decided to buy Brazilian rival Grupo BIG from current owned Advent International, to accelerate growth in its #2 biggest country by sales. It’s the French retailer’s biggest purchase since 2017 and will combine Carrefour Brazil (#1 grocery retailer in Brazil) with Grupo BIG (#3 grocery retailer in Brazil) and will need to pass the scrutiny of the competition regulators.

1,500 jobs go as John Lewis closes stores (The Times, Ashley Armstrong and Louisa Clarence-Smith) is a less chipper headline as the embattled food and department

store operator has decided not to reopen eight of its stores when it emerges from lockdown. The affected stores are Aberdeen, Peterborough, Sheffield, York and its “At Home” outlets in Ashford, Basingstoke, Chester and Tunbridge Wells. John Lewis now has 34 shops versus 50 it had before the pandemic. Tough times.

Then in Wickes plan to go it alone back on track as DIY spend surges (The Times, Ashley Armstrong) we see that Wickes’ owner, Travis Perkins, yesterday submitted a prospectus to the FCA as part of plans to spin it off – something it has been trying to do since 2018. * SO WHAT? * Oh how times have changed! Only a couple of years ago, DIY was in a tailspin as people couldn’t be bothered to get involved in DIY but a pandemic, enforced home imprisonment and boredom have combined to boost interest! I think that this will be a popular IPO as we head into spring and summer and investors will like it because it makes a much clearer distinction between DIY business and trade business (unlike, say, with its rival Kingfisher, that will still own chains like B&Q and Screwfix).

Tencent gets into hot water, Bally’s makes an offer for Gamesys, Ryanair hopes for summer flights and GM has chip problems…

In other big stories today, Tencent confirms talks with Chinese antitrust regulators (Financial Times, Ryan McMorrow) highlights the ongoing scrutiny being felt by big tech companies in China and Tencent: Ma is less as Beijing tightens grip (Financial Time, Lex) points to Tencent almost being too successful for their own good and its massive 40% market share in electronic consumer payments via its WeChat Pay and QQ Wallet platforms make it look ripe for an anti-trust smackdown.

Meanwhile, US casino operator Bally’s takes £2bn bet on Gamesys (The Times, Callum Jones) highlights the ongoing opportunities in US online gambling as Gamesys, the owner of Jackpotjoy and Virgin Games, has agreed to a £2bn potential takeover bid from Rhode Island-based Bally’s, a casino operator. Sports betting continue to be the hot ticket in gambling at the moment! Elsewhere, Ryanair to fly at 80% of pre-Covid levels by July (The Times, Robert Lea) shows that Ryanair is putting a lot of faith in vaccine rollout and GM to shut factory over chip shortage (The Times, Callum Jones) just highlights yet another car company having to cut production because of a shortage of semiconductors.

…in other news…

I thought I’d leave you today with something that I think sounds so wrong but others think feels so right in Double chocolate Cadbury Creme Eggs exist and people are going wild for them (The Mirror, Courtney Pochin). This sounds like too much sugar!!!