Tuesday 11/05/21

1. In MACRO, COMMODITIES & CURRENCY NEWS, China’s population growth slows, iron ore is just one part of the commodities boom, a US pipeline gets attacked, renewables grow at their fastest rate and the pound strengthens
2. In CONSUMER/RETAIL NEWS, American consumers spend on hotels and secondhand cars, UK consumers look at private schools, Hotel Chocolat aims to repay furlough, Pret joins Tesco and Greggs get back on track but jobs are still vulnerable
3. In INDIVIDUAL COMPANY NEWS, Meituan gets into hot water, THG does a deal with Japan’s SoftBank and Panasonic looks vulnerable
4. AND FINALLY, I bring you an amazing bacon and eggs skatepark…

So China’s population growth slows, the commodities boom continues, a US pipeline gets hacked, renewables grow and the pound strengthens…

China’s population grows at slowest rate in decades (Financial Times, Sun Yu, Tom Mitchell and Thomas Hale) cites data from the National Bureau of Statistics pertaining to the one-a-decade census. The census was completed in December and shows the lowest rate of increase between censuses since China began collecting data since 1953. * SO WHAT? * Clearly, this isn’t going to be an overnight dent to the economy, but it will become a growing headache despite the government reversing its infamous one-child policy in 2015. Somewhat worryingly, births were down by 18% versus 2019 – the lowest number since 1961. The population is aging rapidly as the over 65s make up 13.5% of the population versus 8.9% in 2010. FWIW, I think that the figures may paint a particularly bad picture because the census was taken last year – a year that was rather unusual for obvious reasons. Still, China needs to address this problem sooner rather than later otherwise it will end up going down the same road as Japan.

Meanwhile, Iron ore hits record high as commodities continue to boom (Financial Times, Neil Hume, Emiko Terazono and Anjli Raval) shows that the iron ore price reached a record high in trading yesterday fuelled by strong demand from China and Commodities boom sends bulk shipping costs to decade highs (Financial Times, Harry Dempsey and Neil Hume) highlights the knock-on effects as rates for ships carrying commodities are also shooting up. The Baltic Dry Index (BDI – and no, it’s not got anything to do with Noel Gallagher’s former band Beady Eye 😂), which monitors rates for the three biggest classes of ships according to dead weight tonnage (DWT), has risen to its highest level for over ten years as a result! The sizes are Capesize (≥100,000DWT), Panamax (60,000-80,000 DWT), and Supramax/Handymax (45,000 to 59,999 DWT). According to Clarksons Platou Securities, capesize vessels are asking for $41,500 per day to hire immediately – double what it was a month ago and nigh on eight times last year’s averge! Peter Haugen, an analyst at Kepler Chevreux, thinks that it could even go to $100,000 per day in the second half of this year. Iron ore demand is certainly a major factor in the price rises but other factors include

record high US course grain exports and the current trade spat between China and Australia. * SO WHAT? * This looks like something that is only just gathering pace as countries around the world try to kick-start their economies with spending on new infrastructure projects and consumers are unleashed after being shackled by Covid. I really do think that these input price rises are increasingly going to be passed down to the end consumer, resulting in higher prices overall. If you combine rising wages AND raw material costs, it’s pretty much impossible to avoid inflation – which will result in interest rate rises. As I have said before, despite what central bankers say, I really think that we’ll see interest rate rises in the US and/or the UK THIS YEAR as a result of this sudden rise in demand.

Things are getting a bit tricky currently in US pipeline attack stoking cyber fears (Daily Telegraph, Matthew Field and James Cook) as a group of hackers, called DarkSide, stole 100 gigabytes of data from one of the US’s main energy pipelines and used it to lock the computers of the Colonial Pipeline. This instantly stopped movement of almost 50% of the east coast’s fuel supply! Officials are still struggling to get it back online and there is increasing pressure on President Biden to do something to stop the flood of cyber attacks. * SO WHAT? * A business opportunity perhaps for companies selling cybersecurity software and services? Even if they aren’t sophisticated enough to stop an attack like this, it will bring cybersecurity to the fore and companies will no doubt be discussing their current statuses.

Elsewhere, Global industry grew at fastest rate since 1999 last year (The Guardian, Jillian Ambrose) cites findings from a report by the International Energy Agency (IEA) which says that the renewables industry grew considerably last year despite the disruptive effects of Covid. Wind power capacity almost doubled last year and solar power grew by over 50% due to increasing demand from governments and corporations to “build back better”. It sounds like we are going in the right direction!

Then in Pound lifted by fading chance of referendum (The Times, Gurpreet Narwan) we see that the pound hit its highest level versus the dollar since February. It is thought that this was due to the SNP’s failure to get an outright majority in last week’s elections, which prompted investors to think that the chances of Indyref2 going through were weaker. Suddenly, holidays to the US are looking less expensive than they have been…

American and British consumers start spending, Hotel Choc pays back while Pret and Greggs make progress…

American consumers are starting to spend again and Marriott points to rising demand amid Covid-19 vaccine rollout (Wall Street Journal, Dave Sebastian) shows that consumers are starting to spend again in the US and Canada, especially in ski resort destinations. In addition to leisure travel, though, Marriott said that it is also seeing some growth from corporate and group bookings as it announced its Q1 results. China occupancy rates have been rising while European rates continue to fall. Looking to buy a used car? Expect high prices, few options (Wall Street Journal, Nora Naughton) shows that consumers are increasingly spending on cars and average prices are going up due to a combination of the global chip shortage affecting the availability of new cars and supply of secondhand cars tightening due to people hanging on to leased vehicles for longer. The supply of secondhand cars was also affected by rental car companies cutting their fleet numbers earlier than usual in the pandemic, leaving them fewer vehicles to sell later on.

Meanwhile, back home, UK consumer spending rises above pre-pandemic levels for first time in 2021 (Financial Times, Valentina Romei) shows that the British public is spending again as many sectors reopen again. Barclaycard figures show that spending was up in April as lockdown lifted and UK GDP figures due to be released tomorrow are expected to show that the economy grew in March. Sports and outdoor equipment and furniture retailers saw particularly strong growth along with DIY stores. The fall in clothing store spending is slowing down with those aged between 16 and 24 being particularly keen to buy new outfits! Growth in private school fees slows during pandemic (Financial Times, Bethan Staton) shows that more parents are deciding to send their kids to independent schools. This is probably due to a combination of increased worries that kids have missed out educationally over the pandemic, fees have increased at a slower rate than they have done for the past two decades and because their parents have actually managed to save money.

And as for high street purveyors of tasty treats, Hotel Chocolat will repay furlough cash (The Times, Charlie Parker) shows that the posh choccy company has announced that it will pay back furlough money after a strong performance over the year, Pret aims to cater for all tastes by moving to Tesco (The Times, Dominic Walsh) highlights a new direction for Pret as it announced that it is going to open stores in Tesco supermarkets in a trial partnership and Greggs profits ‘are heading back to pre-pandemic levels’ (The Times, Charlie Parker) shows that the company thinks profits will be “materially higher” than expectations due to a strong bounce back since reopening, according to a trading update yesterday. Still, British retailers say closures and job losses still a risk despite lockdown easing (The Guardian, Larry Elliott) reflects warnings from the British Retail Consortium that it is too early to see the April pick-up as a sign of full economic recovery and that ministers should still reform business rates. * SO WHAT? * It just seems to me that there is a huge amount of consumer-powered momentum building on both sides of the Atlantic with consumers spending on big ticket and “smaller ticket” items as well – and we’ve not even got our freedom back fully! Hotel Choc’s confidence speaks volumes, Greggs’ trading update shows a real turnaround for the company from previously dire predictions and Pret is showing that it is willing to pivot in order to wean itself off almost total reliance on office workers. Input prices are increasing and there will be more confidence that they can be passed on to the end consumer. As I keep saying, I think that inflation is going to go through the roof (central bankers are saying that there is going to be an initial blip followed by a calming down – but I just don’t think it’s going to calm down as much as they say it is) and interest rates will have to go up to take some of the heat out. Re the BRC, they are just doing their job trying to ease their members’ burden from outdated business rates. Mind you, the government might think that if they wait long enough, the rates won’t actually look that bad!

Meituan may have just shot itself in the foot, THG does a deal with Japan’s SoftBank and Panasonic faces an uncertain future…

In a quick scoot around some other big news stories today, Meituan shares slide after chief posts ancient poem (Financial Times, Ryan McMorrow) shows that the Chinese food delivery giant saw its share price crater by almost 10% in trading yesterday after its chief exec posted a poem on social media that investors interpreted as something criticising President Xi Jinping. The company is currently under antitrust investigation by the Chinese government which accuses it of abusing its market dominance. The company subsequently deleted the poem but you know that the damage has been done! * SO WHAT? * Tough times for Meituan – but then again it has been one of those Chinese companies that has benefited from years of unfettered freedom to grow. Publishing the poem was clearly inadvisable – especially when you know what happened to Jack Ma when he criticised the banks and government. Maybe they know that they are going to pay a massive fine anyway and just published the poem in a fit of pique…

Elsewhere, The Hut Group strikes complex joint venture deal with SoftBank (The Guardian, Rupert Neate) shows that the successful British online retailer has struck a joint venture deal with SoftBank to give it an option to buy a 19.9% stake in THG Ingenuity (a tech division that has not yet been formed) for $1.6bn. SoftBank investment division will also take a $730m stake in THG via a share placement. * SO WHAT? * This sounds like quite an exciting venture and the fact that THG can raise this much money for something that hasn’t been formed yet is testament to the company’s success thus far. The new division will be a tech platform that companies can use to sell brands around the world using a team of social media influencers. Wow!

I thought I’d quickly mention Panasonic: profits depend on Tesla as client not competitor (Financial Times, Lex) because it makes the excellent point that Panasonic’s departure from being Tesla’s main battery supplier will not be easy as it will have to sink more money into improving technologies at a time where many car manufacturers try to bring battery tech in-house in order to lower margins. Batteries are still pretty small in terms of what they contribute to Panasonic’s overall profits and the company’s 57% share price gain over the past year has mainly been on the back of good news from Tesla.

…in other news…

I thought I’d leave you today with the design masterpiece in Artist creates unique skatepark that looks like a frying pan full of bacon and eggs (The Mirror, John Bett). I think you could make a fortune if you set a cafe up right next to it selling bacon/sausage butties as the park itself would probably send subliminal messages to the skaters, making them feel particularly hungry 😂.