Thursday 28/10/21

1. In MACRO & TRENDS NEWS, we take a look at yesterday’s UK Budget, advertisers’ bullish spending intentions and inflation winners
2. In AUTOMOTIVE-RELATED NEWS, GM and Ford rue chip shortages, UK car production hits new lows and Hertz announces Uber links while BP and Daimler reveal hydrogen plans
3. In BANKS NEWS, Deutsche benefits from deals, Santander benefits from mortgages and Nubank benefits a fresh business model
4. In INDIVIDUAL COMPANY NEWS, Facebook faces an FTC probe, Samsung gets a chip boost and advertisers flock to Spotify
5. AND FINALLY, I bring you an inspirational drumming granny…

So the UK Budget was announced yesterday, advertisers look like they want to spend and we take a look at who wins from rising/strong inflation…

📢 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.

Budget 2021: Rishi Sunak sets out ‘moral’ mission to limit state and cut taxes (Financial Times, George Parker, Chris Giles, Delphine Strauss and Tommy Stubbington) gives a decent overview of yesterday’s Budget. This is Sunak’s third budget and it looks very un-Conservative in that he’s increasing spending on the public sector by hiking taxes to their highest levels since 1950! The spending is meant to boost “left-behind regions” and help moves towards BoJo’s aim of having a “high-wage, high-skill economy”. Cue much grumbling from the Conservative back benches, which quietened slightly when Sunak said he’d cut taxes ahead of the next election (which is what the party is most known for). The economy has actually done a lot better than had originally expected, which allowed him to splash the cash to a certain extent. The share of public spending vs GDP is going to rise by 2.5% during the course of this parliament, which I think is quite chunky. For businesses, the business rates increase slated for 2022 has been cancelled and R&D credits for UK companies investing money abroad will stop while government-backed R&D funding will increase. For individuals, there will be an overhaul of alcohol taxes that will depend on the drink’s strength, a rejigging of universal credit, a rise in the minimum wage for those over 23 from April 2022 and a freeze in fuel duty. I’d say that For low-tax Tories, the Budget was thin gruel (Daily Telegraph, Ben Wright) is a decent enough reaction to yesterday’s Budget, basically coming to the conclusion that it’s nothing to get excited about from a growth perspective. However, there are many other stories on individual areas such as Services upgrade for truckers (Daily Telegraph, Alan Tovey), which looks at a £32.5m cash sum to improve parking facilities that will make trucking an attractive career choice 🤔, Tech start-ups hail easing of visa restrictions for foreign workers (Daily Telegraph, James Titcomb) which highlights help with attracting foreign high-skilled workers and Boost of £1bn for makers of chargers and electric cars (Daily Telegraph, Alan Tovey) which signals moves that could go some way towards helping the transition to EVs. Scarring from pandemic will be far less than financial crisis (Daily Telegraph, Louis Ashworth) shows that there may indeed be scope for tax cuts before the next election as the article highlights the latest figures from the Office for Budget Responsibility (OBR) which show a major downgrade of predictions about the extent of the damage to the UK’s economy caused by Covid. The new forecasts show that the pandemic’s long-term effect

on Britain is way smaller than the damage caused by the financial crisis, but the OBR is at the more pessimistic end of the scale when it concerns predictions. * SO WHAT? * Overall, you are never going to please everyone with a Budget: “You’ve given us too much money. Please give it to another industry!”, said no-one, EVER 🤣! There will be the usual hysteria on Twitter etc. about “government lies”, smoke and mirrors etc. by “experts”, but the fact is that this is very tricky especially coming out of the biggest pandemic the world has ever seen. I do find it interesting, however, to note that for a Conservative government, Covid has forced it to do very un-Conservative things (e.g. “nationalising” the railways, increasing taxes and the role of the state etc.)! I wonder whether this is a concerted effort to make things difficult for Labour. It seems to me that Labour wants to be more moderate, but the Conservatives have done very Labour-like things which could mean that voters won’t see that much difference come election time. Given that the electorate rejected Corbyn’s socialism/communism-lite at the last election, you wonder what direction that Labour could go now…

UK advertisers poised to spend an extra £1bn on campaigns (The Guardian, Mark Sweney) cites research from the Advertising Association and Warc which shows that advertisers are projected to spend almost £1bn in additional spending this coming festive season than they did last year. The £7.9bn projected spend will be the highest quarterly spend on advertising since it started compiling the data in 1982! Last year, companies cut ad spend in response to the pandemic but clearly the situation is rather different this year – and spending on digital advertising is expected to be particularly strong and the out-of-home advertising sector is expected to bounce back dramatically after spend on billboards/posters/bus ads etc. evaporated last year. * SO WHAT? * Ad spend is often seen to be a decent bellwether for the overall economy, so the projected increase in spend implies that we’re in for a decent “golden quarter”!

There has been a LOT of chat about inflation recently, hasn’t there! Well Diamond in the rough? Inflation pressure may help some firms (The Times, Emma Powell) is an interesting article that identifies companies that actually do well in a high inflation environment. Tesco might benefit because it has the biggest market share of the UK grocery market (and the strongest buying power), so its margins may be better than rivals; Hays (the recruiter) will benefit because it takes a percentage of the successful candidates’ first year’s salary, which is being driven higher by wage inflation due to labour shortages; Rentokil Initial (the business services group) is highly indebted but at a fixed rate, which means that higher inflation will actually make its debts cheaper by comparison; Hargreaves Lansdown (the wealth manager) could also benefit because a higher interest rate driven by higher inflation would mean that they’d earn more from client cash deposits. * SO WHAT? * It’s interesting to hear who will BENEFIT from higher inflation and interest rates because most commentary tends to concentrate on who is going to SUFFER! 

GM and Ford are gloomy on chip issues, car production hits new lows, Hertz does a thing with Tesla and BP/Daimler look at hydrogen for lorries…

Profit falls at GM and Ford as chip shortage takes toll (Wall Street Journal, Mike Colias) shows that the two US carmakers said that supply chain disruptions should improve from Q4 and thereafter but that dealership lots will still be running at less than full capacity well into next year. Both companies benefited from record pricing and sales of the more profitable SUVs and trucks.

Meanwhile, in the UK, Car production hits 39-year low as Covid, chips and closures bite (The Times, Robert Lea) cites the latest figures from the Society for Motor Manufacturers and Traders (SMMT) which show the cumulative effects of ongoing supply chain and post-pandemic issues. The gloom continues…

Hertz links up with Uber to offer 50,000 Tesla rentals (Wall Street Journal, Nora Naughton) highlights a deal between Hertz and Uber where the former will make a ton of vehicles available for the latter to be part of Uber’s ride-sharing network. This comes shortly after news of its big order from Tesla broke, and is a good move by Hertz I think, because it gives half of its order a “home”! * SO WHAT? * One thing that did occur to me this morning is

that Hertz’s order could be a really good way for prospective Tesla drivers to do a longer test drive than they would normally get (when you look at the website, it seems that you only get 30mins). Given that, for many people, driving a Tesla is quite a leap from their existing vehicle, I would imagine that hiring one from Hertz for a few days would actually be quite an attractive prospect. Given that owners generally seem to love them, I wonder whether Tesla could actually push this as a thing!

Then in BP and Daimler reveal plans on hydrogen fuel stops for lorries (The Times, Emily Gosden) we see that BP and Daimler are in talks to power lorries by “green” hydrogen by 2025 where BP will develop hydrogen refuelling stations. BP signed a deal with Daimler Truck which said that it could use renewable electricity to produce and supply hydrogen for up to 25 new HGV refuelling site in Britain, while Daimler committed to supplying UK customers with hydrogen fuel cell powered trucks from 2025. * SO WHAT? * This is particularly interesting because HGVs have been thought to be a tricky problem for purely electric power. It sounds like a decent idea and, who knows, maybe we’ll see more hydrogen fuel options going forward as a result of this. I think it’s a good idea to have different power options! FYI “green” hydrogen can be produced with no emissions by using renewable electricity to split water into hydrogen and oxygen via electrolysis.

Deutsche benefits from M&A, Santander benefits from mortgages and Brazil’s Nubank is looking fresh…

Deutsche Bank counts on M&A boom as trading slows (Financial Times, Olaf Storbeck) highlights a decent quarter overall for profits thanks to the bank’s boom in M&A revenues while trading revenues cooled. Like many rivals, the bank also benefitted from a sharp reduction in provisions for bad loans related to the pandemic, which also helped to boost the bank’s bottom line. * SO WHAT? * This sounds like a decent enough performance for the German bank, which has had a very tricky few years. There’s still a lot of room for improvement though!

Santander profits jump alongside soaring UK mortgage demand (Financial Times, Daniel Dombey and Siddharth Venkataramakrishnan) shows that the Spanish bank is continuing on its path to recovery thanks to rising profits in the UK (strong mortgage demand and higher customer balances) and a solid performance in the US.

Meanwhile, How Brazil’s Nubank became a $30bn fintech (Financial Times, Michael Pooler) takes a look at a hot banking start-up (well it started in 2013) which has recently hit an implied valuation of $30bn following a recent funding round. It filed for an IPO in the US yesterday that could seal its place as a major fintech player. Its lack of baggage and abundance of innovation compared with the incumbent Brazilian banks has boosted its popularity. It now claims to be the biggest independent digital bank outside Asia in terms of customer numbers, having expanded into Mexico and Colombia. * SO WHAT? * It is interesting to note that former employees have said that there is a major focus on customer service, data science and innovation and it has grown into a full-service financial institution providing personal loans, savings and business accounts. It also offers insurance and investment products. It has also attracted a $500m investment from Warren Buffett’s Berkshire Hathaway, among many other big-name/high-profile investors. 

Facebook gets investigated, Samsung knocks it out of the park and Spotify sees lost of ad traffic…

In a quick scoot around some of today’s other interesting bits of news, Federal Trade Commission srutinizing Facebook disclosures (Wall Street Journal, John D.McKinnon and Brent Kendall) shows that the FTC is starting to look into whether the social media company violated a 2019 settlement over privacy concerns. * SO WHAT? * Given recent newsflow, I would have been disappointed if there WASN’T an investigation into Facebook! On a related note, Facebook is due to be holding an event today that is expected to unveil a strategic revamp that will put it on track to be a major player in the “metaverse”. If you want to see more about the metaverse, please read about it in today’s Quick Bites that was written by Yenli Nguyen!

Elsewhere, Samsung posts record quarterly revenue from chip boom (Wall Street Journal, Jiyoung Sohn) highlights success for the consumer electronics/handset/chip maker. This came in above analyst estimates and just highlighted the ongoing strong demand for digital products and services. The company said that component shortages should begin to ease in the second half of 2022.

Then in Advertisers tune in as Spotify takes on the world (The Times, Callum Jones) we see that sales at the music streamer rose by a chunky 27% thanks to advertisers flocking to it as they targeted its huge number of free users. It now has 172m premium subscribers and 220m monthly active free users. The quarterly earnings beat analyst expectations and the company continues to benefit from its growth in podcasts.

…in other news…

I’ve seen this video before, but it popped up again on my YouTube and I have to say I can’t stop watching it! If you saw this lady in the queue at the supermarket you would never know what a demon she is with the sticks! She quite literally rocks ⇒ click here for the granny drummer 😱🤘