Wednesday 12/01/22

  1. In MACROECONOMIC NEWS, the US, Europe and UK are all looking at ongoing high levels of inflation
  2. In CONSUMER/RETAIL NEWS, wage inflation, home working, rising second hand car prices and house price difficulties hitting Gen Z become the norm while Lidl joins Aldi in low prices commitment, Very has a very good Christmas, Games Workshop suffers and Boots attracts prospective buyers
  3. In EV NEWS, China car sales rise with Tesla doing well and VW not so much, while Rio Tinto moves to electric trains to haul iron ore
  4. In MISCELLANEOUS NEWS, Heathrow passenger numbers hit a record low and Darktrace rises
  5. AND FINALLY, I thought I’d mention the new version of Fresh Prince of Bel Air…



Inflation chat dominates the headlines again…

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High inflation is ‘severe threat’ to US jobs recovery, Jay Powell warns (Financial Times, Colby Smith) highlights an interesting direction from the Fed chief as he said in his Senate confirmation hearing yesterday that in order to power labour markets higher for longer “we are going to need price stability”. This comes at a time when an inflation report, due out today, is thought likely to point to inflation hitting an annualised rate of 7%, which would be the highest in 40 years! Powell signalled a willingness to increase interest rates more aggressively if necessary. * SO WHAT? * Jay Powell is definitely softening the ground for a rate rise. I thought it was quite interesting how he framed it, though – about inflation being potentially damaging to the labour markets – because a lot of the argument for keeping rates on hold has been about waiting to see what happens with employment. It’s a subtle shift from saying that inflation and labour markets are being looked at separately (i.e. don’t change interest rates because we want to prioritise employment) to now saying higher-for-longer inflation could HARM labour markets. I would have thought that this will ratchet up the pressure on the ECB in particular to raise rates.

Talking of which, Inflation in rich economies surges to a 25-year high (Financial Times, Valentina Romei and Martin Arnold) cites official data released yesterday which shows that inflation in the OECD group of developed nations

reached 5.8% in November, 1.2% higher than November 2020 and the highest rate since May 1996! This was largely driven by energy prices, which shot up by 28%, and food prices. Given this backdrop, Bundesbank’s new chief takes aim at Lagarde over inflation (Daily Telegraph, Russell Lynch) shows that Germany’s new central bank chief, Joachim Nagel, is not letting go of his opinion of inflation in Europe and said that the ECB need to do something about it. ECB chief Christine Lagarde didn’t rise to it, though, and just waffled on saying “People can trust that our commitment to price stability is unwavering”. In the meantime, consumers’ standard of living gets more and more expensive by the day.

Nearer home, Britain ‘about to suffer far worse price rises than rest of Europe’ (Daily Telegraph, Tim Wallace and Tom Rees) shows that Jari Stein, chief European economist at Goldman Sachs reckons that we’ll be worse off than Europe as the Europeans have already passed “peak inflation” reached in the final quarter of 2021 at 4.6% and that factors driving its rise, like Germany’s VAT increase, will drop out while other things, like wage inflation, are already losing steam. In contrast to that, he argues that we have yet to reach what he thinks will be a peak of 7% mainly because of the increase in the energy price cap. He also expects three interest rate increases this year in the UK, taking it to 1% by year-end versus the ECB, which is likely to keep interest rates on hold for this year and next. * SO WHAT? * It just seems to me like inflation keeps going up and when economists can’t justify it, they change the goalposts by fiddling around with their interest rate targets and what they’d be comfortable with. I’d argue that the ECB should have increased its interest rate YEARS ago after cutting them deeply during the global financial crisis of 2007/8, but they chickened out of that. It would be interesting to see what WOULD make them change, because if inflation reaching high after high after high doesn’t make them, will they EVER increase rates??



It’s still a candidates’ market but consumers face ongoing challenges while Lidl goes low, Very does very well, Games Workshop suffers and Boots gets some interest…

So it’s still a candidates’ market at the moment and UK recruiter warns of wage inflation during fierce battle for staff (Financial Times, Daniel Thomas) shows that volume recruiter Robert Walters is seeing increasing staff shortages in the areas of tech, legal and financial services. It said that it expected profits to be ahead of expectations for the full-year and candidates will be interested to note that the company found that job movers were generally able to secure pay increases of 15-20% when they switched jobs! Meanwhile, Three in four professionals would quit over home working (Daily Telegraph, Simon Foy) cites a survey from another recruiter, Morgan McKinley, which says that 71% of professionals would think about quitting if they are not allowed to work from home. * SO WHAT? * Clearly, it is a job seekers’ market at the moment and candidates are calling all the shots. I would have to say that, as an ex-headhunter, securing a 15-20% uplift when going to a new job is not THAT unusual (and if you’re not securing a chunky uplift, you’re not doing it right). I also think that the WFH thing will evaporate in a more difficult market when jobs are harder to come by. I’m sure that many employers will be secretly hoping for unemployment levels go up so that they can lord it over their minions and chain them to their desks once more 😁, but until then, they need to pony up the dough to a) ensure people stay and b) attract new people. Let’s hope that other “softer” efforts to keep employees (like improving their working environment) stay in place when the job market changes.

Consumers still face hurdles, though, and Rising house prices and loans Zap Gen Z (The Times, Arthi Nachiappan) cites a report from the Royal Society of Arts which says that Generations Z-ers (those born between 1996 and 2010) lack economic security and will face financial problems as they get older as they lose current financial support networks like the BOMAD (Bank Of Mum And Dad). Received wisdom suggested that Millennials (born between 1981 and 1995) would be the first generation to earn less than their parents due to price rises outstripping wage rises but Gen Z-ers are having to deal with massive house price rises, student loans and upcoming increases in national insurance. Worryingly, over 50% of young people in

work have “financial precarity”, which is the phenomenon of not being able to cover all their expenses on a monthly basis. The proportion of those in financially precarious positions was highest in the 22 to 24 age group. Second-hand car prices soar by 30% (Daily Telegraph, Howard Mustoe) shows that one of the other of life’s “big ticket” items is continuing to go moon-bound as figures from Auto Trader reflect the massive upsurge in used-car prices as buyers swerve the purchase of new cars due to semiconducter-shortage-driven long lead times. * SO WHAT? * Finances are getting tighter and tighter and prices all around us are going higher and higher. As long as wages continue to rise faster than prices, there shouldn’t be too much of a problem – but this can’t go on forever. BTW, if YOU are concerned about your finances, why not listen to my podcast on personal finances HERE. This is where I interview my wife, who is a chartered financial planner. It’s not specific advice per se, but it might help you with some general principles 👍.

In the meantime, as far as individual retailers are concerned, Lidl joins Aldi in supermarket battle with low price pledge (Daily Telegraph, Laura Onita) shows that Lidl also signalled intentions, like Aldi did, to keep prices low. Christian Hartnagel, Lidl’s chief exec, said that “As inflation continues to rise, I want to reassure each and every one of our customers that we remain resolute in our promise of being the destination for the lowest grocery prices in the market”. * SO WHAT? * This is going to make things tough for the likes of Tesco, Sainsbury’s, Asda and Morrisons and will put a LOT of pressure on them to lower prices or watch their market share fall away again.

Elsewhere, Festive sales at online retailer Very surpass pre-Covid levels (Daily Telegraph, Laura Onita) show that the Very Group had a very merry Christmas powered by strong demand for consoles and Christmas decorations. Sales came in above pre-pandemic levels! On the other hand, Rise in freight costs weighs on profits at Games Workshop (Daily Telegraph) shows that one of lockdown’s big winners suffered a 3.7% fall in pre-tax profits, blaming the impact of extra shipping and freight costs over the last six months.

Then in Private equity giants Bain and CVC join forces for potential Boots bid (The Guardian, Sarah Butler) we see that two of the world’s biggest private equity firms are looking at making a joint bid for Boots. Current owner Walgreens Boots Alliance is thought to want to offload the UK high street stalwart for around £10bn. The Great US Private Equity UK Shopping Spree continues!



China car sales rise and Rio Tinto looks at electric trains…

Electric vehicles drive growth for China car sales (Wall Street Journal, Yoko Kubota) shows that China’s car market turned a corner last year with car sales rising for the first time in three years. This was powered by strong sales of EVs despite the ongoing global chip shortage and Covid outbreaks hitting production. Figures from the China Passenger Car Association showed that Chinese brands including XPeng and NIO were strong and while Tesla raises the bar with ‘impressive’ numbers in China (The Times) highlighted success for the foreign makers and VW sells 10,000 fewer electric cars in China as chip crisis hits deliveries (Financial Times, Joe Miller) reflected some disappointment, which it blamed on semiconductor

shortages. China is VW’s biggest market but it has been losing ground in the last few years thanks to increased competition from the likes of younger domestic brands like BYD and Great Wall Motors.

Elsewhere, I thought it was worth mentioning Rio opts for batteries to drive cut in emissions (The Times, Emily Gosden) because it shows that the Anglo-Australian mining giant is going to use four battery-powered trains to take its iron ore wagons across Australia as part of efforts to reduce its carbon emissions. The company currently uses 220 diesel locomotives on 1,500km of track between its mines and the port. America’s Wabtec Corporation got the order to make the trains and they will start production in 2023. * SO WHAT? * OK, so this is a tiny weeny drop in the massive ocean in terms of reducing the carbon emissions of a MINING company, but it is a step in the right direction and, who knows, maybe this will help to hasten a shift from diesel powered PASSENGER trains to electric ones in the future.



Heathrow passenger numbers fall and Darktrace rises…

Heathrow passenger numbers hit 50-year low (Daily Telegraph, Oliver Gill) confirms what we’ve probably all suspected – that passenger numbers were down considerably at Heathrow in 2021. Official figures put a number on this and it turns out that Heathrow handled its lowest number of passengers since 1972 despite their numbers tripling over the festive period (not sure whether Novac Djokovic was one of those, but I guess we’ll have to confirm that with his clumsy box-missing agent 🤣). It is appealing to the aviation regulator to increase landing charges over the next five years, but at the same time you can understand why airlines are pushing back on this given the pummelling they’ve taken over the pandemic. The tough times continue…

Then in Shares jump as Darktrace lifts sales forecasts by 44pc (Daily Telegraph, James Titcomb) we see that the share price of cybersecurity company Darktrace jumped as it lifted its sales forecasts considerably in its half-year trading update. Darktrace: starting to shine again on upbeat forecasts (Financial Times, Lex) shows that there appears to be light at the end of the dark tunnel of the last few months where the company’s share price cratered by 60% since its September 2021 peak. * SO WHAT? * The company was hit particularly badly by a sell note published by broker Peel Hunt last year – but now Darktrace’s share price is back at lower levels after being accused that its marketing was overstating the reality, the broker has switched its recommendation from a “sell” to a “hold”. Its future now depends on how successful it will be in becoming the go-to for corporate cyber defences, so only time will tell…



…in other news…

OK so maybe I’m a bit slow to the party but I noticed something on my feed today that blew my mind! I used to watch Fresh Prince of Bel Air like many others, but there’s a remake that’s about to hit our screens and it looks amazing IMO! The story of how it came into being was pretty incredible as well. One young guy made a trailer for a re-imagining of the show making it a much darker drama – and you can see it HERE. This trailer went viral and when Will Smith saw it, he was blown away! So they decided to work together and HERE‘s the trailer for the new version that’s going to hit our screens in the UK next month. I think that the idea behind this is genius! What do you think? The story behind the guy who did the original trailer, Morgan Cooper, is pretty amazing as well – and he’s working with Will on the new version! How amazing is that?!?

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Some of today’s market, commodity & currency moves (as at 0750hrs 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 **
7,491 (+0.62%)36,252.02 (+0.51%)4,713.07 (+0.92%)15,153.45 (+1.41%)15,942 (+1.10%)7,183 (+0.95%)28,766 (+1.92%)3,597 (+0.84%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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