Tuesday 07/07/20

  1. In MARKETS & MACROECONOMIC NEWS, bullish China chat lifts markets and the ONS makes a massive mistake
  2. In ENERGY-RELATED NEWS, oil refiners suffer, Iberdrola outlines a clean energy push and Tesla supplies a Dorset plant
  3. In RETAIL-RELATED NEWS, high street footfall rises sharply, Pret cuts jobs and stores and Boohoo takes flak
  4. In INDIVIDUAL COMPANY NEWS, Uber buys Postmates, Cineworld countersues and the Big 4 accountants are told to split
  5. AND FINALLY, I bring you a breakfast sandwich and a very impressive omelette…



So China boosts markets and the ONS gets it massively wrong…

Bullish talk from China lifts markets (The Times, James Dean) highlights Chinese state media encouraging investors over the weekend to create a “healthy bull market” as being taken as a sign that the state will support domestic stocks. This explains the 5.7% rise in the Shanghai Composite in trading yesterday – its biggest one-day rise in five years. This had a knock-on effect in the region and continued, albeit to a lesser extent, elsewhere.

UK’s growth rate could be revised after large revisions to official data (Financial Times, Chris Giles) shows that the Office for National Statistics (ONS) has been making mistakes over the last twenty years in measuring prices and output in the telecoms industry and will be correcting them! Whaaaa?!? Making these corrections will increase the growth rate of the economy over the last two decades, cast doubt over the whole productivity crisis and force a rethink over how inflation is measured. * SO WHAT? * This will have a massive effect on the performance of the telecoms sector but it is not known at this stage how much of a ripple-effect it will have elsewhere. The ONS says that it will have more of a handle on this in October. How embarrassing!



Oil refiners continue to suffer, Iberdrola invests big in clean energy and Tesla comes to the UK…

Oil crash piles pressure on bloated refining sector (Financial Times, Derek Brower and David Sheppard) highlights the plight of oil refineries as the impact of lower oil prices, weak demand and high inventories is taking its toll. Falling supplies are making the crude refiners’ processes more expensive, which is eating into their margins. Given this fall in supply, it is thought that refining capacity will need to be cut and European facilities appear to be most at risk because they are generally older and there are initiatives to move away from the use of some fossil fuels. * SO WHAT? * There was probably too much oil refining capacity before Covid-19 hit anyway as the whole industry has been facing pressure from various governments’ plans to phase out fossil fuels and increased competition from newer plants in Asia. The UK, for instance, is planning on banning the sale of new petrol or diesel cars sometime in the 2030s – so the incentive to invest in making new plants or improve efficiency is dwindling.

Iberdrola plans €10bn-a-year clean energy push (Financial Times, Daniel Dombey) shows that Spanish utility giant

Iberdrola is going to invest €10bn a year in renewables and networks as it sees the aftermath of the coronavirus as being a unique opportunity for the energy sector to reinvent itself. The idea would be for this to create “green” jobs as well as benefiting the planet. Fun fact: Iberdrola owns Scottish Power, which is now a 100% wind energy company. * SO WHAT? * It’s great to see such a high-profile company committing to a cleaner future because it may have a halo effect and persuade others to do the same. This does not sound like empty words either – €10bn a year is a lot of money!

In Tesla plugs first energy plant into UK grid (Daily Telegraph, Ed Clowes) we see that Tesla has supplied its Megapack high-capacity batteries and Autobidder control software to Harmony Energy and Spanish company FRV’S energy storage site in Poole. This represents Tesla’s first ever dabble in the UK power sector and its lithium ion batteries will provide 15 megawatts of wind-generated electricity to Dorset and its surrounding areas. Harmony plans to build more energy storage plants in the UK. * SO WHAT? * This sounds like an interesting initiative. Power generation is one thing – but storing it is another. Power storage is key to the realistic and more widespread use of renewable energy IMO because it smooths out all the peaks and troughs, providing a more consistent power source. Storage has often been the major difficulty given the UK’s variable and unreliable weather, so this sounds like progress is being made.



High street footfall shoots up, Pret cuts jobs and outlets and Boohoo faces criticism..

Footfall on high street surges by up to half (Daily Telegraph, Laura Onita and Lizzy Burden) shows that – surprise, surprise – the opening of pubs, bars and restaurants over the weekend after three months of lockdown has boosted high street visits by over a third on Saturday and 50% on Sunday, according to data from Springboard. London saw the biggest rise in footfall. * SO WHAT? * IMO footfall means nothing if it’s not accompanied by punters actually BUYING stuff! Visits to shopping centres and retail parks, where the food and drink provision is less, saw limited uptick and a fall in footfall respectively. There is a long way to go yet and, unfortunately, survival for many outlets is not a certainty – especially given that they can be closed at short notice if more cases are reported.

Following on from what I said yesterday, Pret a Manger to close 30 stores and could cut more than 1,000 jobs (The

Guardian, Rebecca Smithers) shows that the company will make cuts amid “significant operating losses” due to the lockdown. There will be a general staff restructuring, a review of the current business model (which focuses on supplying office staff) and a sale process will be initiated for the lease of its main support office in London Victoria. Unsurprising given the ubiquity of its offering.

Boohoo shares shredded by claims factory workers are exploited (The Times, James Hu) highlights the massive 23% fall in Boohoo’s share price yesterday as it admitted poor conditions in its Leicester factory after a Sunday Times reporter did an undercover exposé. Low wages and poor social distancing adherence were brought to light in a town that has been told to extend its lockdown due to more coronavirus cases. * SO WHAT? * This was clearly embarrassing for the company that has been benefiting so much from rising levels of online shopping during lockdown, but it sounds like this is something to do with dodgy subcontractors rather than Boohoo itself. I wonder whether Boohoo will just take a one-off financial hit to do some deeper due diligence on its suppliers and carry on as before. The danger, though, is that this one incident exposes bigger weaknesses in a business model that has so far been extremely successful.



Uber buys Postmates, Cineworld fights back and the Big 4 are given a deadline…

In other news making the broadsheets today, Uber to buy Postmates for $2.65billion in stock (Wall Street Journal, Heather Haddon) highlights Uber’s latest move to consolidate its position in the restaurant and grocery delivery market. This all-paper (i.e. all stock changing hands, no cash) deal will make Uber the #2 delivery service in the US by market share, with DoorDash being in #1 and Grubhub in #3 position. * SO WHAT? * Scale is important in a business like this where margins are thin and competition is fierce. Rivals may well be forced into offering discounts in order to remain attractive to customers and restaurants. Great for the consumers!

Elsewhere, Cineworld will fight rival Cineplex over lawsuit row (Daily Telegraph, Hannah Uttley) shows that Cineworld is countersuing Canadian rival Cineplex after the latter initiated its own lawsuit to force the former to stick with its previous commitment to buy Cineplex. Cineworld pulled

out of its takeover of Cineplex last month saying that Cineplex had breached a number of agreements on which the deal was resting. * SO WHAT? * We’ll just have to see how this plays out. Presumably, Cineworld would want to walk away completely, but it looks at the moment like the most likely outcome will be that the two parties will be forced together but on different terms.

UK’s biggest accountancy firms told to split off audit arms by 2024 (The Guardian, Rob Davies) is big news, but perhaps not entirely unexpected given that rumblings on this have been rife for the last few years as more high profile bankruptcies have been blamed on dodgy accounting. The Financial Reporting Council (FRC), the industry body, has told EY, Deloitte, KPMG and PwC to separate out their auditing divisions by June 2024. * SO WHAT? * The Big Four have made some feeble attempts to separate out their audit and consultancy businesses since the failures of companies such as Carillion and BHS, but it seems like the FRC has lost its patience. The whole problem has stemmed from the age-old cosy practice of auditors signing off a clean bill of health on dodgy accounts in return for them getting more lucrative consultancy business. This has been going on for ages and any moves to end the practice have proved to be very slow.



…in other news…

I thought I’d leave you today with some breakfast-making projects. Egg sandwich breakfast hack goes viral and people can’t wait to try it (The Mirror, Luke Matthews https://tinyurl.com/yaxgjl6o) looks entirely doable whereas this version of an omelette looks like it requires some serious practice!

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Some of today’s market, commodity & currency moves (as at hrs 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)