Tuesday 09/11/21

  1. In MACRO, ENERGY & CRYPTO NEWS, central bankers have different ideas on inflation, gas prices skyrocket, China’s power-down has supply chain impact, mini-nukes get funding and Bitcoin booms
  2. In CONSUMER NEWS, world labour markets improve, UK consumer confidence continues to wane but high street spending rises
  3. In M&A AND IPO NEWS, Viasat buys Inmarsat, McAfee gets taken over and Gymshark calms IPO hype
  4. In MISCELLANEOUS NEWS, Tesla shares judder, PwC pumps up the jobs in China and Clarks’ CEO abandons
  5. AND FINALLY, I bring you an air cheesecake recipe…

1

MACRO, ENERGY & CRYPTO NEWS

So central bankers have different approaches, gas prices rise, China’s power issues have repercussions, Rolls-Royce’s mini-nukes get more funding and Bitcoin strengthens…

Central bankers take sharply different readings of inflation threat (Financial Times, Martin Arnold, Chris Giles and Colby Smith) highlights stark differences between the approaches of central banks as the US Federal Reserve and UK’s Bank of England look like they are on the verge of increasing interest rates to curb inflation whereas the European Central Bank is saying that the situation in the bloc is “completely different” to other countries, meaning that there is no need for them to raise interest rates. * SO WHAT? * The ECB dragged its feet for years in the aftermath of the financial crisis in terms of what it did with interest rates – cut, cut, cut, then pretty much nothing thereafter – despite all around increasing theirs (which, I would argue, gave them more wiggle room to cut them when the pandemic hit). Therefore, I don’t find it surprising that they are continuing to sit on their hands, especially since it seems that the region’s economic activity and employment rates aren’t as strong as they are in the UK and US.

Meanwhile, in energy, Record surge in gas prices as Russia fails to send extra supplies to Europe (Daily Telegraph, Rachel Millard) shows that Russia could indeed be tightening the screws on Europe as wholesale energy prices spiked up yesterday. Russian state gas behemoth Gazprom did not book extra pipeline capacity for yesterday and today, implying that the amount of gas coming into Europe has remained unchanged despite previous pledges to supply more. Putin had told Gazprom to start refilling European gas storage sites from November 8th. * SO WHAT? * It’s likely that demand will continue to rise, making things even more difficult for energy suppliers – 19 of whom have collapsed since the start of September in the UK alone. Russia supplies about 40% of Europe’s gas, so the lack of supply is particularly painful as we head into winter.

In China power failure turns heat on rest of world (The Times, Ashley Armstrong) we see that the current power crisis in China is resulting in factories having to close down entirely – or severely restrict production to two days a week. Roughly half of China’s provinces have introduced power restrictions, meaning that there’s potentially more havoc to come in supply chains ahead of Christmas. This is because the Chinese government is prioritising power for

high-value production and energy for heating homes as the weather gets colder and, unfortunately for the factory owners, they are often only given a day’s notice before having to shut the power off. * SO WHAT? * Energy-intensive sectors like metals and cement production are likely to be hit particularly hard, but power limits are affecting more and more areas as time goes on. Factory owners have been told to brace themselves for months of energy restrictions. Clearly, this is going to affect the amount of product we get over here over the coming months. Sainsbury’s, for instance, is finding that it is taking 40 days for Argos products to get to the UK from Asia – which is twice as long as normal. The inflationary pressures continue to mount! 

Given all these energy problems, Rolls secures funding for mini nuclear reactor plan (Daily Telegraph, Howard Mustoe) sounds quite positive, although news of more funding for Rolls-Royce’s project to develop a new generation of smaller, cheaper nuclear reactors (called Small Modular Reactors) won’t help the current situation. The aim is for Rolls-Royce to make up to two flatpack power plants every year by the early 2030s for a cost of about £1.8bn each – a snip when you consider that reactors under construction for Hinkley Point C cost up to £23bn! If all went according to plan this would mean that Rolls-Royce’s SMRs would generate around a seventh of the power of Hinkley for less than a twelfth of the price! After this funding, Rolls-Royce will own 80% of the venture with France’s BNF and America’s Exelon Generation. * SO WHAT? * OK so this may not be a complete solution (there will be security issues and the SMRs could become terror targets, for instance) but it seems like a good idea to broaden the energy mix. Let’s hope that tech for renewables (and tech for electricity storage) continues to advance quickly – because I, for one, would rather that we DIDN’T need nuclear! As things stand right now, though, investing in some nuclear does sound like the sensible thing to do.

In case you haven’t noticed, Bitcoin has been putting in a storming performance recently. Bitcoin rally driven by growing inflation fears (The Times, Alex Ralph and Callum Jones) suggests that the surge has been powered by a combination of last month’s first ever Bitcoin ETF launch and other moves by The Commonwealth Bank/Gemini and Singapore’s welcoming of the cryptocurrency that are bringing it ever-closer to the mainstream. Some have been saying recently that investors have been buying into assets such as gold and Bitcoin in order to insulate them from the effects of inflation (and resultant higher interest rates). Meanwhile, politicians and central bankers continue to express concern and do nothing (apart from China, which basically banned it)…

2

CONSUMER NEWS

World job markets improve, UK consumer confidence wobbles continue and high street spending rises…

Labour markets recovering faster than expected, jobless figures show (The Times, Gurpreet Narwan) cites the latest figures from the OECD which show that the number of unemployed in developed economies has fallen significantly since July, faster than expected. This has been helped by the surge in economic activity following the lifting of lockdowns. We are now seeing labour shortages, rising wages and a prevalence of signing-on bonuses! It did add that the number of people not working was actually higher than what the unemployment figures are suggesting because many who had left the job markets during the pandemic just haven’t returned, meaning that the number of available workers has actually shrunk. Interesting to know, but it’s not exactly earth-shattering!

Meanwhile, Fears over energy bills and tax rises hit consumers’ confidence, figures show (Daily Telegraph, Russell Lynch) cites the latest YouGov poll which reflected consumer concerns about rising prices sending sentiment plummeting to their lowest level since March, when Britons were stuck in the third Covid lockdown – but then again Bond boosts cinema spending as consumer demand drives recovery (The Guardian, Richard Partington) cites the latest figures from the British Retail Consortium which show that total sales are rising as consumers get their Christmas shopping in early for fear of rising prices and delivery problems. Clothing and footwear sales have been strong, online takeaway spending has also been solid and spending on cinema tickets has also been brisk. Interestingly, given what I have been saying recently about consumers being keen to spend for Christmas even if it means them taking on more debt, the latest figures from Barclaycard shows that overall spending on credit cards went up by 14.2% in October versus a year earlier as people spent on travel, digital entertainment and subscription services.

3

M&A AND IPO NEWS

Viasat bids for Inmarsat, McAfee gets taken over and Gymshark calms IPO chat…

UK satellite firm Inmarsat agrees $7.3bn takeover by US rival Viasat (The Guardian, Mark Sweney) shows that the British satellite communications company has submitted to a takeover by Viasat, making it the latest UK tech firm to be taken over by a foreign company. The American company said that it wanted to work with the UK government to help the company grow. * SO WHAT? * Given that Inmarsat plays a key role in our economy and national security, it is possible that the deal could be reviewed under the National Security and Investment Act 2021, which was brought in originally to protect strategic national assets. This could be an interesting test to see if the legislation has teeth, especially in the context that Chinese-owned Nexperia’s proposed takeover of Newport Wafer Fab and Nvidia’s proposed takeover of Arm are also being looked at…

In McAfee targeted for $14bn buyout after going public (Daily Telegraph, Hannah Boland) we see that the antivirus software company is now being bought by a private equity firm consortium for $14bn just over a year since it returned

to the stock market in October 2020. The consortium comprises of firms including Advent International and Permira Advisers and the offer came in at a 21% premium to McAfee’s share price pre-takeover. * SO WHAT? * This is one of the largest buyouts of the year and presumably the consortium wanted to lock in to increased spend on cybersecurity. If all goes well, the deal will complete in H2 of 2022.

Gymshark damps IPO talk after adding to US team (Financial Times, Daniel Thomas) shows that although the fast-growing British sportswear company has been talking to banks and investors about an IPO, founder Ben Francis says that an IPO is not imminent. Revenue growth at the company remains strong with sales almost doubling to £400m in the 12 months to July. Separately, it just added US entrepreneur Gary Vaynerchuk as advisor for marketing and brand development in North America, which is a good move as it makes more than 50% of its sales over there. * SO WHAT? * I think that there is no need for Francis to hurry his next move and it is totally in keeping with the way that the brand has grown so far that they should have an uber-influencer like Gary V as an adviser considering his ubiquity! Still, Gymshark is up against some very big brands in a highly competitive area so the next steps are going to be crucial – especially if it decides to sell offline as well as online!

4

MISCELLANEOUS NEWS

Tesla falls, PwC China beefs up and the Clarks boss walks away…

Following on from what I said yesterday, Musk’s share sale tweets put brakes on Tesla (The Times, Callum Jones) shows that the company’s share price fell by 4.9% after the results of his Twitter poll suggested that he should sell 10% of his 17% stake to pay a tax bill. The market had expected Musk to sell up to 6% of his holding, so the 10% figure caught it by surprise, hence the adjustment.

Elsewhere, PwC adds 20,000 jobs in China expansion (Daily Telegraph, Simon Foy) shows that the Big Four accountancy firm intends to employ 20,000 more staff in China. This will be part of a $1.25bn expansion strategy called “the new equation” that will make PwC in China almost double the size of its UK operations. This is a big bet, particularly against the current uncertain backdrop! Will others follow??

Back home, Clarks chief walks out after nine months at shoe chain (Daily Telegraph, Laura Onita) shows that Victor Herrero, Clarks’ sixth chief exec in six years, got itchy feet and walked away from his role, although it is thought that he will take on a broader role with Lion Rock Capital, a private equity firm which owns a majority stake in the company. What is it about shoe companies that is sooooo bad?!? I guess Herrero was just brought in to be the bad guy who made unpopular cost-cutting decisions etc…

5

...AND FINALLY...

…in other news…

I thought I’d leave you today with the quick recipe in How to make a Japanese Air Cheesecake with just three ingredients (SoraNews24, Oona McGee), but I would also recommend sprinkling this gingerbread crumb from Grasmere on there to finish! I get absolutely no kickback from this – I just love their gingerbread! I guarantee this is unlike any gingerbread you’ve ever tasted. If you ever manage to get yourself to Grasmere in the Lake District, you should definitely pay this place a visit – it is a brilliant little shop 👍.

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Some of today’s market, commodity & currency moves (as at 0759hrs 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 **
7,300 (-0.05%)36,432.22 (+0.29%)4,701.7 (+0.09%)15,982.36 (+0.07%)16,047 (-0.05%)7,047 (+0.10%)29,265 (-0.82%)3,507 (+0.24%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$82.02$83.48$1,820.231.356321.15949112.861.1698967,907

(markets with an * are at yesterday’s close, ** are at today’s close)