Wednesday 01/12/21

  1. In MARKETS, MACRO & OMICRON NEWS, Powell’s words and Omicron impact markets and the travel industry while Eurozone inflation hits new heights and a Bank of England policymaker says Omicron could mean higher-for-longer inflation
  2. In FINANCIALS NEWS, Nubank reins in expectations, Clara becomes the first pension superfund, a new UK clearing bank is set to launch, TSB closes ¼ of its branches and Wise targets rapid growth
  3. In RETAIL-RELATED NEWS, Inditex take a hit on nepotism, UK retail pulls out the stops and West End footfall recovers
  4. In MISCELLANEOUS NEWS, the China clampdown continues with Macau and Didi while the CMA tells Meta to sell Giphy
  5. AND FINALLY, I bring you a cooking hack for when things get salty…

1

MARKETS, MACRO & OMICRON NEWS

So Powell and Omicron hit markets while inflation keeps rising…

Omicron variant and Fed chief deliver one-two punch to stocks (Financial Times, Kate Duguid, Derek Brower and Naomi Rovnick) highlights the combined impact that the spread of the Omicron variant and words of Jerome Powell have had on markets in trading yesterday. Markets were already weaker on concerns about the economic impact of the new variant and then the Fed chief pushed them down even more by saying that he was more minded to accelerate the central bank’s monetary tightening programme to control inflation, which in itself prompted speculation that interest rates would come under focus next. Omicron variant starts to hit travel, business flights and events (Wall Street Journal, Benjamin Katz and Jenny Strasburg) highlights industry-specific impact as EasyJet reported falling bookings and business travellers get twitchier and event organisers experience cancellations.

Then in Inflation in eurozone soars to 4.9% – highest since euro was introduced (The Guardian, Phillip Inman) we see that inflation across the eurozone hit a level in November that was way higher than market forecasts, putting even more pressure on the ECB to raise interest rates. Omicron risks pushing inflation even higher, policymaker fears (Daily Telegraph, Tim Wallace) cites MPC member Catherine Mann as saying that the new Coronavirus variant may push inflation higher for longer as consumers stock up to avoid going out and factories and ports shut down, exacerbating existing problems with supply chains. * SO WHAT? * All these pressures continue to tighten and yet central banks are sticking to their guns and leaving interest rates unchanged. As I have said before, I think that the Omicron outbreak gives them a decent excuse to sit on their hands for longer but if inflation keeps rising at the current pace they are going to have to do something!

2

FINANCIALS NEWS

Nubank acknowledges reality, Clara and the Bank of London break new ground, TSB shuts branches and Wise does well…

Nubank IPO: São Paulo fintech’s valuation would rank it over Itaú (Financial Times, Lex) gives us an interesting update on what’s going on with Brazilian fintech Nubank and its IPO plans. Although it now has over 48m customers and is an exciting fast-growing operator in a very staid field, its hopes of potentially tripling its valuation in under six months have evaporated as it finally took a dose of reality and reduced expectations of its forthcoming IPO. Mind you, even at this new lower level, Nubank would be bigger than Brazil’s biggest lender – Itaú Unibanco! * SO WHAT? * Nubank was originally looking for an opening price that would value it at over $50bn, but it is now looking for something just above $40bn (which is still pricey). The outlook for Brazil’s economy isn’t all that great either what with President Bolsonaro fiddling around with the country’s finances to buy himself votes ahead of next year’s election and expectations of weak GDP growth. Although growth opportunities are still present in an industry that has an average return on equity of about 20% (versus 10% in the US and 5% in the UK), the lower valuation is still expensive and it may yet have to revise this down further…

Back in the UK, there were a couple of historic events. Clara named as first company to create pension superfund (The Times, Patrick Hosking) highlights Clara Pensions as being the first pensions aggregator to get approval from The Pensions Regulator to take on pension schemes that are no longer wanted by their sponsoring employers. The company will get cracking on tucking into more than 5,000 defined benefit pension schemes that closed to both new accrual or new members years ago. Many pension schemes have become increasingly unwieldy over the

years and so aggregators like this will offer a potential exit route for companies who just don’t want to be responsible for this any more. UK clearing bank set to launch with $1bn valuation (Financial Times, Siddarth Venkataramakrishnan) heralds another interesting development as The Bank of London is to launch in the UK, being only the second purpose-built clearing bank to open in the UK in over 250 years. It is aimed at business customers and will provide clearing and settlements, transaction banking and facilitation to companies who want to offer bank-like services. It wants to hire over 3,000 employees over the next five years across the UK, Europe and North America. It’s nice for businesses to have a bit more choice in who they bank with but it’s too early to tell yet how successful it will be versus the incumbents especially as I would have thought that businesses are likely to be more conservative than individuals and be more inclined to wait and see how things go for the new bank before committing to it. On the downside, TSB to close quarter of its branches (The Times, Katherine Griffiths) highlights TSB’s latest branch closure plans. It is inevitable, given customers’ increasing online migration but is a blow to those who rely on physical branches.

Then in Wise after the event, but now on the path to rapid growth (The Times, Patrick Hosking) we see that the company (formerly known as Transferwise) that enables individuals and SMEs to transfer money across borders cheaply was confident enough to raise full-year revenue guidance despite margins being squeezed by costs related to hiring new teams, building new products and expanding geographically. Investors gave it the benefit of the doubt in trading yesterday as its share price rose by 7.7% but although Wise: remittance disrupter hits targets, bolstering bull belief (Financial Times, Lex) admits that the company continues to gain traction with business users, it is looking fully-valued against the likes of Mastercard, PayPal and Square. Still there is a lot of potential in remittances, so the company’s projections may not be entirely unfounded!

3

RETAIL-RELATED NEWS

Inditex makes an announcement, UK retail makes the final push and West End footfall recovers…

Inditex shares fall after it appoints founder’s daughter as chair (Financial Times, Daniel Dombey and Sarah Provan) shows that nepotism is alive and well in modern-day Spain as Amancio Ortega, Spain’s richest man and controller of around 60% of Inditex’s shares, made his daughter Marta Ortega the company’s new chair. Ortega jnr. has worked at the group for 15 years, particularly on Zara’s brand image, and “lived and breathed this company since [her] childhood” – but it’s still a cosy little number, no? * SO WHAT? * This disappointed investors because a) it took them by surprise, b) it was seen as a backward step for those who hoped the family’s influence would lessen and c) that it was not a perfect succession solution. However, it seems to me that every other position is going to be taken up by “outsiders” who deserve it and the timing is pretty good as the group that owns Zara, Massimo Dutti, Pull&Bear and Stradivarius is rebounding nicely from the pandemic. I wonder what the next chapter will bring!

Meanwhile, back home, Operation Save Christmas: all hands on deck to meet festive deadline (The Guardian, Sarah Butler) shows how M&S in particular is preparing to “save Christmas” by sending 3,000 staff from HQ out to branches to help pick and pack Christmas online orders! Given the number of issues in supply chains, companies are having to resort to increasingly creative solutions to get everything done, like using more rail and air freight (Tesco in particular has been switching to rail), chartering their own ships, using cargo bikes etc. Will Christmas be saved?? Well it seems that consumers are doing their very best to prepare in West End footfall at pre-Covid levels (Daily Telegraph, Hannah Boland) as landlord Shaftsbury says that footfall returned to 2019 levels over the weekend and is now about 80% of where it was pre-Covid for the rest of the week. * SO WHAT? * It seems that everyone is pulling out all the stops to have a good Christmas this year but I think it is going to be even more of a race against time than it usually is! It’s still too early to gauge what the Omicron impact is going to be, so we will just have to wait…

4

MISCELLANEOUS NEWS

The China clampdown continues and the UK regulator wants Meta to sell Giphy…

In other interesting news stories today, Macau gaming: Beijing junks the junkets and imperils local economy (Financial Times, Lex) shows that China’s clampdown on excess and “undesirable” behaviours is continuing in the world of gambling. Before the pandemic hit, Macau relied on gambling for a whopping 86% of its tax revenues but because of travel restrictions due to the pandemic current tax receipts stand at just a third of pre-Covid levels. Beijing’s clampdown on gambling has led to share prices of Suncity and Summit Ascent being decimated by 50% and 60% respectively and it seems like the government’s hopes of weaning Macau off gambling and on to financial services are fading.

Clampdowns continue elsewhere in Didi’s woes intensify as Beijing tightens ride-hailing rules (Financial Times, Ryan McMorrow and Tabby Kinder) shows that new rules

were announced yesterday that will tighten the screws on China’s already-embattled ride-hailing groups. There are to be limits on fees that companies can earn from each ride and operators are “encouraged” to provide drivers with benefits such as insurance. Didi remains prohibited from signing up new users after the June flotation in New York debacle and it is still possible that the company will have to delist. New guidelines also want ride-hailing companies to formally employ some of their drivers, which will increase costs. * SO WHAT? * Didi is in a right mess and seems to be powerless in the face of an angry government and no one really seems to know what’s going to happen next. What a contrast to the hype it enjoyed in the run-up to its New York listing!

Then in Watchdog orders Facebook parent Meta to sell Giphy (The Guardian, Mark Sweney), we see that the UK’s regulator has only just gone and put its foot down!  Meta is, unsurprisingly, considering an appeal. * SO WHAT? * Good luck to the Competition and Markets Authority. I think that this is going to be a matter of principle for both sides rather than anything else – but whoever wins I think that the lawyers are going to benefit the most! 

5

...AND FINALLY...

…in other news…

I thought I’d leave you today with the useful cooking hack in Mum blows people’s minds with speedy cooking tip to fix food that’s too salty (The Mirror, Zahna Eklund). I did know this but have thus far not had to use it! Still, I thought this may come in useful some day!

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Some of today’s market, commodity & currency moves (as at 0751hrs 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 **
7,059 (-0.71%)34,483.72 (-1.86%)4,567 (-1.9%)15,537.69 (-1.55%)15,100 (-1.18%)6,721 (unch)27,915 (+0.33%)3,577 (+0.36%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$68.32$71.70$1,785.251.331581.13210113.391.1762757,105

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