Thursday 25/11/21

1. In MACRO & OIL NEWS, Scholz moves forward but German business confidence does not and we look at Turkish lira impact and mounting pressure on OPEC
2. In SUPPLY CHAIN NEWS, UK factories struggle, Mulberry wants to expand in the UK and the drinks industry warns of shortages
3. In CONSUMER, RETAIL & LEISURE NEWS, US jobless claims hit a new low, house prices become even less affordable, Lidl is confident, Nando’s has a ‘mare and Wendy’s looks to expand in Europe
4. In INDIVIDUAL COMPANY NEWS, Freetrade tries a fundraising and IQE cuts forecasts
5. AND FINALLY, I bring you an unusual, yet heart-warming, wedding…

Erdogan digs his heels in, Andrew Bailey pouts, New Zealand lifts interest rates again, London has its first SPAC and big economies band together for oil…

📢 It’s Thursday – so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers where I will do a detailed review of the week as well as chance for Q&A and discussion. The ZOOM call will start at 5.30pm and run until 6.30pm. See you there! I will also be doing another call straight afterwards aimed at university societies. If you want details for that, please ask your presidents to get in contact with me! The details are also on our socials.

Olaf Scholz to become German chancellor after clinching coalition deal (Financial Times, Guy Chazan) shows that the vice-chancellor/finance minister unveiled a new coalition yesterday between the Social Democrats, Greens and Liberals that will succeed the current Angela Merkel administration. He promised the “biggest industrial modernisation of Germany in more than 100 years”, but the fact is that they have at least three pressing areas to address: the pandemic, fiscal policy (both domestic and European) and foreign policy (particularly regarding what to do about Russia, China and Nato). This will be the first three-party coalition since the 1950s and there is a lot to do, especially when you consider Germany fears worst as shortages take toll (The Times), which highlights the latest Ifo business confidence survey that reflects weakening morale in Europe’s biggest economy. Supply chain delays in manufacturing and a rise in Coronavirus infections continue to take their toll as business confidence fell for the fifth straight month.

Meanwhile, What the lira collapse means for Turkey’s economy (Financial Times, Laura Pitel and Jonathan Wheatley) follows on from what I was saying yesterday about President Erdogan going his own way with interest rates and looks at what could be in store for the country after the currency fell 15% against the dollar after he refused to increase interest rates to curb inflation. Citizens could opt to keep more of their money in dollars and euros (Turkish banks allow this and this trend has been growing for the last few years) in order to stop the value of their lira savings from sliding or withdraw all their cash because they might lose trust in the banking system; they will see higher prices as the import-reliant economy will pay more in real terms for goods with its weakening currency, making inflation climb even higher than it is now (about 20%); Turkish banks rely a great deal on funding from abroad, so that will get more expensive, which could increase strain on an already-creaky system; corporate debt could get very expensive (also because of the weak lira), making life even more difficult for the Treasury at a very tricky time.

Then in Opec states and Russia under pressure to increase oil production (Daily Telegraph, James Warrington) we see that the International Energy Agency (IEA) is appealing to major oil-producing countries to bring oil prices down to “reasonable levels”, saying that Russia in particular has loads of extra capacity. * SO WHAT? * This comes in the wake of a number of countries coming together to increase supplies in order to at least pause the rise in oil prices that are pushing inflation up and squeezing household finances. There are rumours that Russia and Saudi Arabia are particularly annoyed with this move and are talking about delaying planned production increases in retaliation. The thing is, this release of reserves is tiny in the scheme of things and, unsurprisingly, it has had pretty much zero effect on oil prices so far.

UK factories struggle, Mulberry aims to increase UK production and you need to get your booze in now…

UK factories struggle to meet record demand as supply issues continue (The Guardian, Larry Elliott) highlights the latest findings from the Confederation of British Industry’s monthly report which says that manufacturers are digging deep into their stocks of finished goods to fulfil their longest order books since at least 1977, when records began. 46% of companies said orders were higher than normal versus 20% who said that they were lower than normal and export orders were at their highest level since 2019. On the downside, stock adequacy was the weakest on record in November and 69% of companies said that they were inclined to raise prices for domestic customers in the next three months. * SO WHAT? * Inflationary pressures continue to build! Will the Bank of England finally crack at the next meeting of the Monetary Policy Committee in a few weeks’ time and increase interest rates??

Meanwhile, Mulberry plans to expand UK plant to boost supply chain (The Guardian, Sarah Butler and Jasper Jolly) shows that the luxury brand is planning on expanding its UK factory after it became apparent that domestic production really helped it get through the supply chain problems that have been holding businesses back. About 60% of Mulberry’s products are now made in the UK versus about 50% pre-pandemic as an extra production line was

added, with another likely to be in the offing if current momentum continues. Sales came back strongly as lockdown lifted and stores opened. Investors powered the share price up by 24% in trading yesterday morning as chief exec Thierry Andretta said that the company was “well placed” for the festive season. * SO WHAT? * It’s interesting to see how increasing domestic production has helped to combat some of the supply chain problems everyone has been having and you do wonder whether this is going to become a permanent trend at least for the next few years.

There’s troubling news in Drinks industry warns driver shortages could mean dry festive season (Financial Times, Peter Foster) as the Wine and Spirit Trade Association said in a letter to transport secretary Grant Shapps that orders were taking up to five times longer to process than they were last year (they’ve gone from three days to 15 days), something that will result in “hugely damaging” impacts on businesses and consumers. The implication here is that we could run out of booze going into Christmas 😱. The Association asked the government to extend its temporary visa scheme for 5,000 lorry drivers, which currently expire on February 28th and accelerate the processing of tests for driving licences. * SO WHAT? * Same old. The shortage of drivers has been particularly tricky, although the Road Haulage Association told the Transport Select Committee yesterday that the UK driver shortfall was now 85,000 versus the summer peak of 100,000. Still, there are going to be a lot of thirsty drinkers over the season and you wonder whether the supermarkets and others have stocked up enough to cover themselves…

US jobless numbers hit new low, UK house prices keep rising, Lidl’s on the front foot, Nando’s is on the back foot and Wendy’s wants Europe…

New US jobless claims at lowest level for 50 years (Financial Times, Callum Jones) shows that new applications for unemployment benefits fell to their lowest levels since 1969 over the last week, according to the latest data from the Department of Labor! This heralds the first time they’ve returned to pre-Covid levels. Meanwhile, inflation continues to rise and consumers continue to spend, although financial optimism among consumers has fallen to its lowest level for ten years, according to findings from the University of Michigan. I know I sound rather repetitive but the pressure continues to build on the central bank to increase interest rates as prices just get out of control!

Talking of which, House prices surge to 5½ times annual pay for first-time buyers (The Times) shows just how outrageously expensive UK property is becoming as the latest figures from Britain’s biggest building society, Nationwide, show that first-timers are having to fork out up to 5½ times their salary just to get on the property ladder. The previous price-to-earnings ratio high was 5.4 in 2007 and it is now way above the long-term average of 3.8. London is particularly ridiculous with a ratio of 9.0, although it’s got a way to go before it hits the record high of 10.2 it reached in 2016! Again – the pressure continues to build for the Bank of England to raise interest rates to reign in some of this madness!

Meanwhile, Lidl to create 4,000 new jobs in UK and add 100 stores (Financial Times, Ian Johnston and Jonathan Eley) shows that the German low-cost supermarket has big UK ambitions over the next four years and will add sites in town centres, retail parks and metropolitan locations. It doesn’t want to faff around with e-commerce as it argues

this doesn’t make sense with its limited-range, low-cost business model and will instead concentrate on getting existing customers to spend more each time they visit the store. * SO WHAT? * OK, so the growth of the German discounters was knocked a bit under lockdown as other supermarkets with delivery networks prospered, but I think that things are shaping up well for the consumer as a Christmas price-war looks like it’s in the offing among all the supermarkets. I respect the fact that Lidl isn’t trying to jump onto the delivery bandwagon – it’s sticking to what it does best and trying to improve its offering 👍. I don’t think that companies get rewarded enough these days for doing that!

Meanwhile, in restaurants, Nando’s losses more than double to £240m (Financial Times, Alice Hancock) highlights Nando’s shocking performance over 2020 as it revealed big annual pre-tax losses. Trading going into the end of the year isn’t looking amazing either but on the plus side the company managed to get through it without mass-redundancies and swathes of closures (but obviously, there was some attrition). * SO WHAT? * Nando’s is one of a select few casual dining chains that has NOT had to fall into administration or undergo a massive restructuring process. It continues to want to expand internationally and refurbish existing premises and expects to make a “slow return” to pre-Covid levels of trading by February next year. Given its position as an “affordable treat”, you would have thought that it should now be able to recover (unless, of course, there is another chicken shortage!).

Talking of “affordable treats”, Wendy’s readies European push as UK relaunch exceeds expectations (Financial Times, Alice Hancock) shows that US fast-food chain Wendy’s plans to speed up its expansion in the UK and to launch in France, Germany and Spain after initial positive signs as it dipped its toe back in markets that it has abandoned in the past. UK sites have done particularly well since a relaunch in June and the expansion will take the form of a number of dark kitchens, dine-in restaurants and drive-thrus. In the past, it withdrew from the UK citing high property costs. Nowadays it has 6,900 restaurants, 85% of which are in the US. Square burger, anyone?!?

Freetrade tries a fundraising and IQE cuts its forecasts…

In other news today, UK fintech Freetrade seeks to double valuation in fundraising (Financial Times, Joshua Oliver and Akila Quinio) shows that the British trading app is trying to capitalise on the trading boom sparked by lockdown boredom as it attempts to raise money that’ll give it a £650m implied valuation. It wants to use the money raised to expand in Europe and pit itself against the likes of rivals like Trade Republic. Freetrade has 600,000 funded accounts now, versus 150,000 it had at the start of the year and it is also aiming to provide cryptocurrency trading functionality. * SO WHAT? * This all sounds good, but ultimately, I think that apps like this need scale to drive down costs because I think that people who trade on these things are VERY cost-conscious and fickle. If you can provide a nice user experience then that’s a bonus, but I’d go for scale every time in this business. There’s a lot of scope for consolidation here!

Then there’s disappointing news in Slow iPhone sales to hit British chip maker (Daily Telegraph, James Titcomb) as one of the UK’s biggest microchip makers, IQE, said that profits could take a big dent due to weaker smartphone sales – a situation that’s being exacerbated by supply chain problems. IQE’s share price fell by 24.4% following the downbeat trading update. It blamed weak mobile phone sales and a slow rollout of 5G networks as the reasons behind the cut in full-year revenue forecasts. * SO WHAT? * You do wonder how much Apple is going to be impacted by this at its next results announcement as it still relies heavily on iPhone sales…

…in other news…

Your wedding day should hopefully be the best day of your life! You have all/most of your loved ones/friends there, it’s an all-day party and the food is good – but what happens if you can’t make it to your own wedding?? Well this couple improvised: ‘My husband couldn’t make our wedding so I went without him – it was amazing’ (The Mirror, Emma Rosemurgey). OK, so it does look a bit unusual, but isn’t it great that they made it work?? Amazing 👏