Wednesday 09/02/22

1. In COMMODITIES NEWS, BP rejects windfall tax suggestions, US shale producers face temptation and aluminium prices hit new highs
2. In TECH NEWS, Arm/Nvidia fails while Apple priorities and announces a new service
3. In CONSUMER/PRICE TRENDS NEWS, there’s more gloom on the cost of living, residential rents climb while Joules, Lyft and Chipotle up prices
4. In MISCELLANEOUS NEWS, Peloton’s CEO steps down, we look at the rise and fall of formerly “hot” consumer goods, Ocado loses all of its gains and Tui has high hopes
5. AND FINALLY, I bring you a popular dog artist…

So BP isn’t keen on a windfall tax, US shalers face temptation and aluminium prices reach new highs…

BP rejects calls for UK windfall tax after biggest profits in eight years (Financial Times, Tom Wilson) shows that * stands back in absolute amazement * BP isn’t keen on paying a random retrospective tax after it faced renewed calls to do so after announcing its best profits for eight years 🤣. Obviously, chief exec Bernard Looney objected to such appeals saying that this would take money away from projects designed to boost gas supplies and low-carbon energy. * SO WHAT? * In the past, you would have bet your mortgage on a Conservative government rejecting such a thing out of hand, but given some of the socialist-like things this administration has done so far in its tenure (pretty much nationalised trains, poured huge amounts of money into the NHS etc.), you might have been less confident and bet a tenner instead. For now, at least, the idea of a windfall tax on oil and gas companies has been rejected – but opposition LibDems and Labour are continuing to call for it. The hilarious-if-it-didn’t-have-such-a-huge-impact thing about this is that at the same time as spouting that stuff about diverting money away from projects the company announced that it was maintaining its dividend and earmarking $1.5bn for a share buyback in Q1 2022! What’s THAT then?? Maybe this is the company’s way of saying thank you Mr/Ms Shareholder for sticking by us over the pandemic when our share price fell to a 25-year low! Hmm.

Keeping on oil for a moment, US shale producers: high oil prices not capex produce cash gushers (Financial Times, Lex) takes a closer look at US shale oil producers who

aren’t opening the taps despite a 54% hike in crude oil prices. I touched on this subject recently, but today’s article suggests that the higher-for-longer oil price is putting their discipline to the test by making it increasingly tempting to increase output, especially given that US companies break even at anything between $43 and $56 a barrel on oil from wells in the Permian Basin. Shale producers account for around 70% of US oil output and they are currently producing way below highs reached in early 2020, although that is expected to change. * SO WHAT? * As I said in last week’s article, shalers were burned badly in the past by over-egging it on the investment front to increase production so I suspect they will want to stay within their means at least for a while longer. Still, it is a tricky one. If you invest now and the oil price stays high for a while yet, you could maximise returns – with the danger being that if you wait for oil to stay in the, say, $90-$100 range, you might be leaving a lot of potential profit on the table if prices go back down.

Meanwhile, Fuel costs push price of aluminium to 14-year high (Daily Telegraph, Louis Ashworth) shows that aluminium prices have hit their highest level since 2008! This is due to rising costs of the energy used to make it, dwindling inventories of the metal, lower output from China as it concentrates on the Winter Olympics and ongoing tension between Russia and Ukraine fuelling worries about supply (Russia accounts for about 13% of the world’s supply ex-China). It’s now trading at about $3,200 per ton on the London Metal Exchange and analysts at Goldman Sachs reckon it could climb to $4,000 this year as availability continues to tighten. * SO WHAT? * This is yet another raw material that is adding to production prices as it is used in so many things (kitchen utensils, planes, cars etc.), something that is being passed onto the consumer and, ultimately putting a squeeze on household budgets.

Arm/Nvidia falls through and Apple prioritises…

Given recent newsflow, SoftBank’s $66bn sale of chip group Arm to Nvidia collapses (Financial Times, Richard Waters, Arash Massoudi, James Fontanella-Khan and Antoni Slodkowski) should come as no surprise after regulators in the US, UK and EU voiced concerns about what effects it would have on competition in the global semiconductor industry. Blow to London as UK chip maker Arm eyes US float after Nvidia deal tanks (Daily Telegraph, James Titcomb) shows that SoftBank is now considering an alternative course of action after not being able to sell Arm Holdings to Nvidia and SoftBank: US IPO would compensate most for $66bn Arm deal fail (Financial Times, Lex) says that this is probably the right way to go given its long-established expertise in tech investment (meaning that the valuation it’ll be able to float at is likely to be higher than it would be if it floated in London, where it was listed before SoftBank bought it). The main problem at the moment, though, is timing as there appears to have been a serious sector rotation out of tech recently, which could have a negative effect on the potential IPO price.

There were a couple of interesting stories today regarding Apple. iPad deliveries remain squeezed as Apple prioritises iPhones (Financial Times, Cheng Ting-Fang, Lauly Li and Yifan Yu) shows that Apple is continuing to struggle with clearing an iPad order backlog prompted by

the global shortage of semiconductors. Nikkei Asia’s analysis of delivery times, however, has shown that while delivery times for iPads in some regions have remained long (50-55 days for orders placed in December, for instance), waiting times for iPhones and the Apple Watch have contracted from over a month late last year to around 10 days at the moment. * SO WHAT? * I guess it’s all about prioritising what’s most important to the company. The iPhone remains Apple’s biggest driver so this is hardly surprising – but I guess this just adds substance to what we probably already knew anyway.

Then in Apple will let businesses use iPhones to take customer payments (Wall Street Journal, Will Feuer) we see that Apple has just announced a tap-to-pay feature that will let businesses and retailers use their phones to accept Apple Pay without having to have any extra hardware. It said yesterday that this will be made available to payment platforms and app developers to integrate into their iOS apps. All you would have to do here is hold your iPhone or Watch near the merchant’s iPhone to pay them with Apple Pay or a contactless credit or debit card. Stripe will offer this feature to its customers from this spring. * SO WHAT? * It is thought that Tap to Pay will dent the likes of Block (which is more commonly known as Square but changed its name recently) which makes hardware for stores and businesses that enable the acceptance of contactless payment. This sounds really convenient, don’t you think? I guess that it doesn’t become a MAJOR danger to the likes of Square, though, until there is a reliable Android equivalent.

Consumers continue to face challenges and rising prices…

Households feel the squeeze as living costs soar (The Times, Arthi Nachiappan) cites research from the Bank of America which shows that British consumer confidence about household finances has reached its lowest level since 2017 as rising prices, a hike in national insurance contributions and energy bills are set to hit this spring. To add insult to injury, the Bank of England said that we are racing the worst hit to take-home pay for over 30 years 😱.

Ouch! This is clearly not surprising considering the constant stream of newsflow we’ve been seeing recently that confirms this sentiment.

When you consider things like Joules hikes prices after soaring costs and supply disruption dent profits (Daily Telegraph), which helped the troubled apparel retailer to double profits in the six months to the end of November and, across The Pond, Lyft’s revenue jumps 70% as higher fares offset fewer riders (Wall Street Journal, Maria Armental) and Chipotle CEO says another price increase likely as costs grow (Wall Street Journal, Heather Haddon) it looks like things are going to continue to get tighter for consumers. Well, at least if they want to buy clothes, go there by taxi and eat at casual dining venues!

Peloton’s CEO bows to pressure, we see former winners losing out and Ocado has a tough time while Tui pins hopes on the future…

Peloton chief to step down after activist campaign (Financial Times, Andrew Edgecliffe-Johnson, Cristina Criddle and Sarah Provan) shows that co-founder John Foley has bowed to activist investor pressure and ceded his position as CEO to former CFO of Spotify and Netflix Barry McCarthy. Foley’s wife will also step down as head of the company’s apparel business in the next few months, quietly addressing another investor criticism. He will step up to exec chairman of the company he founded a decade ago and keep the supervoting stock. The shake-up will also result in the loss of 2,800 jobs. * SO WHAT? * The share price rose by 25% on continued bid speculation as this latest development makes it look more likely to sell up. Although Amazon and Nike seem to be the frontrunners in the bidding to buy Peloton, I still wouldn’t rule Apple out as I think that it would be a better fit for both brands as “premium” purveyors in their respective fields. Peloton/Amazon: sales would be healthy exorcise for zeitgeist peddler (Financial Times, Lex) suggests that Amazon has deep enough pockets to buy, but if the asking price is too high it could just go off and make its own version.

I thought that Consumer goods get on their bike (Financial Times, Claire Jones) was worth including today as it takes a look at the lockdown-winners-turned-post-lockdown-losers and where they’re at now as consumers seek out “best restaurants” and “concerts” rather then “home fitness” and “bikes”, according to Google Trends while Ocado loses all its pandemic gains (The Times, Ashley Armstrong) shows that the lockdown-darling has not been immune to higher costs involved in building its high-tech warehouses.

Following recent comments from airlines including EasyJet, Ryanair and Wizz Air, Tui holidays take off as pandemic rules ease (Daily Telegraph, Oliver Gill) highlights optimism from the world’s biggest holiday company, Tui, which is benefiting from pent-up demand for nice holidays and a willingness from consumers to pay prices that have increased by about 22%. * SO WHAT? * Summer bookings are 19% up on pre-crisis levels, but like I have said before, I wonder whether this will slow down as the increased cost of living starts to bite. I would expect demand for more expensive holidays to remain steady or rise (because the people who get these will not be as badly affected by things such as rising utility bills) while budget holidays potentially wane (because the people who get these are more likely to be badly affected by the rise in their cost of living).

…in other news…

Gotta love it when dogs have talent like this: Talented dog earns more than £15,000 selling her paintings online (The Mirror, Cally Brooks and Paige Freshwater). You should read this article – this is one very clever dog!