Tuesday 27/07/21

1. In MACRO, OIL & CRYPTO NEWS, German confidence has a wobble, France pushes through its health passes (with compromises), shale oil consolidates into a force and Bitcoin gets an Amazon bump
2. In CONSUMER & RETAIL NEWS, UK house prices hit new highs (and could go higher as a mortgage war hots up), the retirement age looks likely to creep up, the West End sees higher footfall, LVMH sees a luxury goods frenzy but B&M worries about price rises
3. In CHINA OVERHAUL NEWS, China continues its tech crackdown but it also puts the mockers on its education sector
4. In INDIVIDUAL COMPANY NEWS, Tesla has a great quarter, Intel announces big ambitions, Ebay opens depots and Philip Morris closes IQOS stores
5. AND FINALLY, I bring you the answer as to whether you can do a 360 on the swings and a heart-warming note to teacher…

So Germany’s confidence takes a hit, France goes through with its health passes, the consolidation of shale oil is creating a force to be reckoned with and Bitcoin gets a boost from Amazon…

Supply problems hit German confidence (The Times, Gurpreet Narwan) shows that rising Covid infection rates and ongoing supply chain problems are taking their toll, according to the closely-watched Ifo survey that tracks German business confidence. Recent severe floods have also made already fragile supply chains more problematic. 64% of manufacturers identified supply chain bottlenecks while 60% of wholesalers and 42.5% of retailers highlighted raw material shortages. All of this is being compounded by a shortage of skilled workers. * SO WHAT? * This doesn’t sound great for the EU’s biggest economy and I can’t see things turning around very soon. Hopefully, the relative strength of the underlying economy will pull it through current difficulties.

In France ratifies revised version of Emmanuel Macron’s ‘health pass’ law (Financial Times, Leila Abboud) we see that France has ratified a more muted version of the health pass system it started to try to push through last week. The original proposals caused a lot of controversy and protest, but after much heated debate over the weekend, a revised version was approved which included less severe penalties for businesses that did not comply, a more relaxed calendar for its implementation and other modifications. * SO WHAT? * This was part of a push by Macron to get more people vaccinated and although the latest amendments offer ample opportunity for syringe-dodgers, the threat of more severe measures seemed to help push more people to get jabbed. As things stand at the moment, around 48% of French people have been fully vaccinated versus 61% in Israel, 54% in the UK and 49% in both the US and Germany. 

Meanwhile, in oil, US shale dealmaking wave is transforming the industry (Financial Times, Justin Jacobs) highlights the ongoing trend of consolidation in the shale oil and gas industry as big players get bigger while the weaker ones fall by the wayside. Interestingly, over $30bn-worth of deals in the sector were done in Q2 and many expect this wave to continue. Players in the industry are clearly seeking out economies of scale to offer better returns and address ongoing environmental concerns. * SO WHAT? * I think this is a very interesting area – and something that OPEC members will be watching closely. Low oil prices last year decimated the US shale producers, while traditional producers like the Saudis managed to muddle through. Consolidation gathered momentum last year among the weakened Americans but I think that as “shale majors” start to emerge from the ashes, OPEC will have a major fight on their hands because the Americans could just turn on the taps during periods of high prices limiting further upside for the oil price. You also wonder whether this could weaken OPEC’s resolve to stick to production targets if they see the shalers do this.

You may have been wondering why Bitcoin suddenly jumped recently – well Amazon job advert fuels bitcoin surge (The Times, Ashley Armstrong) gives the explanation! The cryptocurrency shot up by 12% after Amazon had posted a job ad to “develop Amazon’s digital currency and Blockchain strategy and product roadmap”. This was interpreted as being a precursor to allowing shoppers to pay in Bitcoin, hence the spike. * SO WHAT? * If this proves to be true, it really could be a massive catalyst to Bitcoin’s value as I think this would cement its place in the mainstream. If governments and central banks want to stop this from happening, they will need to act fast IMO!

UK house prices keep on going up, retirement could go further out and the West End sees more footfall…

UK house prices now 30% higher than pre-2008 crisis peak (The Guardian, Miles Brignall) is the sort of headline that is actually becoming a bit boring now – we’ve seen it that often! Anyway, property website Zoopla said that average house prices have risen by up to 5.4% more than they did in June last year and 30% more than they were just before the 2008 financial crisis. Slowing supply of homes on the market helped to push up prices while demand was red hot. Just to illustrate the point, rival property firm NAEA Propertymark said in a report that 40% of UK properties sold in June went for more than the asking price – the highest on record! Two year mortgage rates head for 0.75% in price war (Daily Telegraph, Lucy Burton and Rachel Mortimer) shows just how desperate lenders are to attract buyers by offering the cheapest mortgage deals ever, with Santander, Halifax and Barclays all expected to offer attractive rates. * SO WHAT? * This has all the ingredients of a massive bubble waiting to burst IMO! I’d say that the only difference between this and other bubbles I have seen in the past is that this housing market spike got a major boost by the government’s stamp duty holiday. As I’ve said before, I would have thought that there will be a bit of a slowdown now going into furlough (and the end of the stamp duty holiday) but if the unemployment situation turns out to be not as bad as everyone was expecting, the housing market could shoot up again.

In other consumer-related news, Lifting retirement age ‘could help fight the next recession’ (Daily Telegraph, Tim Wallace) could spell bad news for us all as a member of

the Bank of England’s Monetary Policy Committee (MPC) said that raising the retirement age could be one way of further stimulating the economy. Mind you Gertjan Vlieghe also said that he’d consider negative interest rates to fuel the economy if stimulus were needed, so let’s hope that he is an outlier! However, the fact is that we are all living longer and so financing ourselves into old age is becoming increasingly difficult. In the meantime, there’s good news in London’s West End reports post-Freedom Day jump in footfall (Financial Times, Madeleine Speed) as stats from the New West End Company said that the removal of restrictions has helped footfall to increase by 4% while separate data from Springboard showed that footfall at retail destinations across the UK climbed by 16.5% on Freedom Day itself and by 3.3% on average over the week. Things seem to be recovering slowly but the New West End Company was calling for an extension of Sunday trading hours and business rates reform to hasten the path back to normal trading levels.

As for retailers, Luxury goods frenzy pushes LVMH to new heights (Financial Times, Leila Abboud) highlights a bumper Q2 for luxury goods giant LVMH as affluent customers just couldn’t get enough of its trinkets! It saw particularly strong demand from the US and China and its revenues strengthened by 14% versus Q2 last year – pre-pandemic. This just goes to show that the affluent, who managed to save the most during lockdown, are now spending it! Meanwhile, it’s a different story at the other end of the scale in Discounter feels squeeze from pressure on prices (The Times, Tom Howard) as B&M’s share price weakened on worries that it will have to put prices up due to many suppliers (including Unilever) complaining about rising input costs. Given that B&M’s margins are pretty thin already, rising goods prices are surely going to have to be passed on to the end consumer.

China continues its tech crackdown and it also turns its attention to the education sector…

The ongoing clampdown on Chinese tech stocks is really denting investor sentiment, according to China tech stocks slump as regulators apply fresh pressure (Wall Street Journal, Quentin Webb, Joanne Chiu and Chong Koh Ping), which highlights weaknesses in share prices for Tencent (-7.7%) and Meituan (-14%) as China’s tech regulator orders companies to fix anticompetitive security issues (Wall Street Journal, Stephanie Yang). China’s Ministry of Industry and Information Technology is forcing companies to correct behaviours on user rights, user data utilisation and other infringements of regulations – within six months.

Following on from this, China’s education sector crackdown hits foreign investors (Financial Times, Ryan McMorrow, Sun Yu, Tabby Kinder and Thomas Hale) highlights massive reform of China’s $100bn private

education industry that will basically shut out foreign investors from most of the sector and wipe out existing investments of the likes of BlackRock, Baillie Gifford, Sequoia and SoftBank’s Vision Fund. The new regulations will prohibit companies that teach the school curriculum from making profits, raising capital or even listing on overseas stock exchanges – and they will not even be allowed to accept foreign investment! This is an absolute shocker! The share price of New Oriental Education has fallen by 60% since Friday – when the news of the new regulations started to leak – and New York-listed TAL Education’s market value peak of $59bn it achieved in February has now fallen to a quite frankly humbling sub-$4bn. Gaotu Techedu, which used to be known as GSX, saw its market cap fall from $38bn in January to just $780m yesterday! * SO WHAT? * This is HUGE. It certainly looks like China is ring-fencing foreign access to its tech companies. None of the investors have commented on this but it will be interesting to see what they do next as I’m not sure whether they are going to get anywhere by taking the Chinese authorities to court over this sudden rule change.

Tesla does well, Intel states its ambitions, Ebay plans for more depots and Philip Morris closes IQOS stores…

Tesla’s quarterly profit soars to record $1.1billion (Wall Street Journal, Rebecca Elliot) highlights Tesla’s brilliant performance as the carmaker managed to avoid chip shortage nightmares, according to its Q2 results announced yesterday. On the downside, it said that it was going to have to delay the launch of its semi truck – which is already two years late – to 2022 due to supply chain issues and battery supply.

In Intel sets plan to again become world’s premier chip company (Wall Street Journal, Asa Fitch) we see that chief exec Pat Gelsinger outlined plans yesterday to launch at least one new CPU every year between this year and 2025 in a bid to become the world’s biggest chip maker after falling behind Asian rivals (particularly TSMC and Samsung) over the last few years. This is great, but clearly everyone needs chips right now! Still, at least it’s a move in the right direction.

In other news, Ebay to open depots in delivery boom challenge to market leader (Daily Telegraph, Laura Onita) shows that Ebay is going to try to take the fight to Amazon by opening its first warehouse in the UK that will store and then deliver goods for its sellers. It is clearly trying to surf the e-commerce wave as it saw a 237% rise in corporate traffic on its platform since the start of the pandemic. Nice, but I don’t think Amazon will be quaking in its boots just yet.

Then in Philip Morris stubs out its own heated tobacco stores (The Times, Alex Ralph) we see that Philip Morris International has quietly closed virtually all of the 16 IQOS stores it opened in Britain since the launch two years ago. It had said that it was going to open hundreds of outlets across the UK as part of its plans to wean itself off cigarettes by 2025. It’s rather ironic that a company that has grown from smokers getting addicted to cigarettes can’t wean itself off them!

…in other news…

We’ve all wondered about this at some point. Well the answer that you’ve all been waiting for is here in Maths determines whether you can actually go 360 degrees over a swing (The Mirror, Olivia Rose Fox). At last! However, I thought I’d end today on a positive note in Young boy writes heart-warming note to favourite teacher inviting him to the pub (The Mirror, John Bett). With all the stuff that’s gone on over the last year, I bet the teacher really appreciated this!