Thursday 31/03/22

1. In MACRO & ENERGY NEWS, Beijing cosies up with Moscow, inflation in Germany hits a 40-year high, Germany and Austria talk gas rationing, Shell gets a Cambo extension and BoJo blows colder on wind power
2. In CONSUMER & RETAIL NEWS, homeowners face mortgage rises, Tui repays state aid and retailers sue Visa and Mastercard
3. In EMPLOYMENT NEWS, MAN furloughs 11,000 staff in Russia and the P&O thing confounds Shapps
4. In INDIVIDUAL COMPANY NEWS, Huawei is in a sticky spot, AerCap makes a massive claim, S4 craters and Apollo walks away from Pearson
5. AND FINALLY, I answer the question – is it cheaper to have a shower or a bath…

So the Spring Statement underwhelms, Biden is set to unite Europe and BoJo gets windy…

📢 It’s Thursday – so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers. *** THIS CALL WILL RUN FROM 6PM TILL 7PM, WHICH WILL BE THE NEW REGULAR TIME ***. 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:

• How do you expect UK consumer spending to change over the next 12 months?
• How can China benefit from Western companies pulling out of Russia – and will they decide to do so?

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 😜!

ALSO, I am going to be doing the roundup of MARCH with Jake Schogger of the Commercial Law Academy *** TONIGHT *** so if you want to listen into that, it is at 5pm and you can register HERE. I realise that you might be thinking “Aaarghh, no – not Peter Watson going on for 2 hours solid?!?”, but don’t worry, Jake will be there to keep the party going with his brilliant legal insights! See you there!

Beijing moves to strengthen Moscow ties in wake of Ukraine invasion (Financial Times, Kathrin Hille) shows that China is showing support for its combative neighbour by having its first meeting of their respective foreign ministers since Russia invaded Ukraine a month ago. Russia’s foreign minister is going to visit fellow Russia-supporter India today. China continues to walk a tightrope between supporting Russia on the one hand and trying not to invoke sanctions from the West on the other.

Meanwhile, German inflation hits 40-year high as ECB president warns of ‘supply shock’ (Financial Times, Martin Arnold) shows that Germany has now joined the 40-year club as inflation reached 7.3% – powered mainly by an eye-watering 39.5% jump in energy prices versus the previous year. ECB president Christine Lagarde said in a speech yesterday that rising energy, food and manufactured products prices would continue to squeeze household budgets. This inflation announcement from the Federal Statistical Office only came shortly after another major announcement in Germany and Austria plan for gas rationing over payment stand-off with Russia (Financial Times, Olaf Storbeck, Harry Dempsey, Nastassia Astrasheuskaya and Sam Jones) which shows that the

two countries are preparing the ground for gas rationing as Russia continues to demand that Europe pays them in roubles. Why is Vladimir Putin demanding Russian gas is paid for in roubles? (The Guardian, Phillip Inman) does a good job of explaining why Russia is digging its heels in (pride, plus it’ll boost the value of the rouble) but Russian gas: Putin’s rouble move will damage the currency long term (Financial Times, Lex) concludes that this will further damage the country’s reputation as a counterparty in the long term because it shows that Putin is willing to break contracts that specifically state euro or dollar payments. The fact that they are just ignoring this will further dent Russia’s credibility for the long term. Regarding Germany’s preparations to ration, Berlin helped create Putin regime – now it must retract (Daily Telegraph, Ben Marlow) suggests that now may be the time to rip off the plaster and stop the country’s addiction to Russian oil and gas. However, decades of Angela Merkel and Gerhard Schröder sucking up to Russia is now coming home to roost. By continuing to import Russian oil and gas, Germany is essentially helping to prolong the war in Ukraine by financing it but growing support from the German people for a ban may turn the tide.

Then in Shell’s licence for North Sea Cambo oilfield is extended (Daily Telegraph, Hannah Boland) we see that the licence for the controversial Cambo oilfield has been extended for two years, allowing Shell and private equity-backed Siccar Energy more time to develop the field that is believed to have 180m barrels of oil in it. * SO WHAT? * The licence HAD been due to lapse today and Shell even threatened to walk away after dithering from the government following pressure from environmental campaigners. Output in Cambo is expected to start in 2025 and could keep producing oil until 2050 – but it’s not going to be a solution for the situation we are in at the moment.

In alternatives, Johnson blows cold on wind farm revolution (Daily Telegraph, Ben Riley-Smith) shows that BoJo is losing his fervour for a sudden increase in onshore wind farms in the face of fierce opposition from his own MPs. Planning reforms proposed in 2015 that made it almost impossible for new onshore wind turbines to be built in England have been a hot topic of discussion lately, with the government seeming keen to rip them up to pave the way for new wind farms. Although it sounds like that talk is subsiding, he continues to be pretty keen on offshore wind and nuclear. * SO WHAT? * I get that wind farms can be unsightly and undesirable to live near and so objections sound like they will carry weight. It’ll be interesting to see whether nuclear or vast tracts of solar panels will get more support.

Homeowners face mortgage rises, Tui gets confident and retailers sue card companies…

Homeowners face £1,700 rise in mortgages as cheaper deals end (Daily Telegraph, Oliver Gill) shows that hundreds of thousands of households are facing a major increase in their mortgage bills as they start coming off cheap fixed-rate deals that were signed five years ago. A sudden burst of remortgaging is expected as homeowners try to lock in current rates before they inevitably rise. Mortgage rates are likely to rise as well as they keep up with interest rate rises. This is just one more thing to add to a growing list of things that are getting more expensive at the moment!

Tui to repay Covid state aid as bookings close to pre-pandemic levels (Financial Times, Alice Hancock) highlights confidence from the Anglo-German holiday company as it has committed to pay back over €4bn that it got in state aid over Covid because bookings are strong.

The company said that although winter holiday bookings hit just 66% of 2019 levels, summer bookings are now at 80% and looking like returning to normal by the end of the year. * SO WHAT? * This is great news for Europe’s biggest tour operator but, as I keep saying, I think that confidence here needs to be tinged with caution as I believe that rising living costs (and airfares if airlines have to keep flying around Russian airspace, taking longer and burning more expensive fuel in the process!) will make more people postpone their getaways as household finances continue to take hits from all sides as the year progresses. I think that tour operators and airlines will be hit increasingly hard going into the end of the year for precisely this reason.

Retailers sue Visa and Mastercard (Daily Telegraph, Oliver Gill) shows that over 100,000 British companies are taking the two card giants through the courts alleging that they charge fees on corporate credit cards that can be up to six times the maximum level! The travel and hospitality businesses will be represented in a class action by Harcus Pinker who will be saying that the companies are exploiting their market dominance. This could get interesting and I imagine that lots of companies that use corporate credit cards will be watching how this unfolds very closely!

MAN has to furlough Russian staff and the P&O debacle continues…

Truckmaker MAN furloughs 11,000 staff as Ukrainian supplies run dry (Financial Times, Joe Miller and Peter Campbell) shows that German truckmaker MAN has had to furlough a huge number of its employees after the war in Ukraine has resulted in a “massive” shortage of wiring harnesses. Plants in Munich and Krakow have been shut since March 14th and production has been cut right back at other sites as Ukrainian factories aren’t able to produce or supply the harnesses. * SO WHAT? * MAN is struggling to find alternative suppliers but a key rival, Daimler Truck, stands to gain from this as it said last week that it did not get its wiring harnesses from Ukraine.

Grant Shapps fails to win industry support for plan to hit P&O Ferries (Financial Times, Jim Pickard, Delphine Strauss and Philip Georgiadis) shows that the recent

initiative by the British government to make ferry operators pay at least the minimum wage (by allowing ports to block access to vessels for companies who don’t pay it) looks like it is going to fall flat. The proposed law change looks like it will be putting the ports themselves under pressure by making them take that decision, something that the industry doesn’t want to be responsible for. P&O/UK employment law: flexibility is no excuse for poor enforcement (Financial Times, Lex) shows that although we have a high minimum wage by international standards, underpaying has been going on for years and that the enforcement of related laws has remained pretty lax. * SO WHAT? * This whole P&O thing has been a right shambles, don’t you think? The fact that P&O knew what it was doing was wrong and then just went ahead and did it anyway is a real affront to the spirit of the law. Still, if loopholes aren’t tightened and laws aren’t enforced particularly vigorously then this kind of thing is likely to keep happening…

Huawei has dilemmas, AerCap makes a big claim, S4 gets into trouble and Apollo walks away from Pearson..

In a quick scoot around other interesting stories today, Huawei faces dilemma over Russia links that risk further US sanctions (Financial Times, Ryan McMorrow, Anna Gross, Polina Ivanova and Kathrin Hille) shows that the embattled Chinese telecoms giant is facing a tricky dilemma – keep benefiting from selling their wares in Russia and face even more sanctions, or do they do at least a partial pull-out to appease the West? * SO WHAT? * I would have thought that Huawei would benefit more by getting closer to Russia. It has already suffered massive blows thanks to big sanctions imposed in the Trump era and has made huge inroads there particularly in phones and 5G rollout. Surely the market there has pretty big growth potential and it will have the added benefit, from their point of view, that it will make Russia and China even less dependent on the West. Short-term pain will, however, be unavoidable.

Then in Biggest jet leasing company lodges $3.5bn claim for aircraft stuck in Russia (Financial Times, Sylvia Pfeifer and Ian Smith) we see that AerCap has put in a chunky

insurance claim to cover the loss of its planes and engines that are still parked in Russia. Given the massive sums involved, it is expected that amounts will be contested, so AerCap isn’t going to get this amount of money overnight. Insurers and lessors alike will be watching the outcome very closely!

Elsewhere, Martin Sorrell’s S4 delays results after PwC unable to complete audit (Financial Times, Patricia Nilsson and Michael O’Dwyer) shows that the advertising company’s share price cratered by over a third in trading yesterday as news emerged that its auditor had not been able to sign off the results. * SO WHAT? * Investors don’t like this because it implies something dodgy lurking so I guess we’ll just have to see how this works out. This was especially bad because it is the second time this month that the company has had to delay its results.

Then in Apollo walks away from Pearson after third bid is rejected (The Times, Patrick Hosking) we see that private equity group Apollo has walked away from buying the educational publisher after its latest improved offer of £6.7bn was rejected. Under takeover rules, it will not be allowed to make another approach for at least six months unless another rival bidder moves in or if Pearson invites it.

…in other news…

Given that our bills are getting pretty shocking these days, I thought that you might find Experts explain whether it’s cheaper to have a bath or shower as bills rise (The Mirror, Levi Winchester) quite useful. Clearly it all depends on the length of the shower and the size of the bath, but you will know for sure when you read this…