Wednesday 16/03/22

1. In ACTIONS AND CONSEQUENCES, we consider more actions, sanctions and their consequences on Tesla, energy and agriculture
2. In TECH NEWS, Intel goes large in Europe, Indonesia’s GoTo aims to raise $1.3bn and Arm is to shed employees
3. In CONSUMER/RETAIL NEWS, US punters can’t get enough of flying while in the UK, employment returns to pre-Covid levels and it’s sofa so good for DFS (sorry, I couldn’t resist that)
4. AND FINALLY, I bring you some Starbucks hacks…

So heroism appears amid the sanctions and the consequences continue to flow…

The crisis in Ukraine is beyond words. Many stories that we see now of tragedy, sacrifice and loss make everything else pale into insignificance. However, I will continue to bring you news on this and everything else in the business and financial markets news because it may well have repercussions that have major consequences for us all and that we still need to understand better.

You will no doubt be seeing a lot about this today, but Russian state TV editor fined for video condemning war in Ukraine (Financial Times, Max Seddon) just highlights, I think to many people, the incredible heroism of Marina Ovsyannikova and her one-woman protest on live state TV against the invasion of Ukraine. She was fined $280 for violating public order, but you do worry about her (she could go to prison for up to 15 years under new laws) and her family. Thus far, her profile seems to have kept her out of harm’s way but you just don’t know whether you could say the same about the 15,000 protesters who have already been detained across Russia. I think that what she has done has taken an inordinate amount of courage.

In ACTIONS, Roman Abramovich and other oligarchs hit with new EU and UK sanctions (Financial Times, Valentina Pop, Jasmine Cameron-Chileshe, Laura Hughes and Aime Williams) shows that the noose is tightening (somewhat belatedly!) as the EU and UK put more sanctions on various individuals and the US targeted 11 of the country’s military leaders. The EU and UK also slapped on a 35% import tariff on vodka imports from Russia, Britain blocks luxury exports to Russia worth hundreds of millions (The Guardian, Zoe Wood) highlights a new ban that is bound to hit sales of the likes of Aston Martin, Bentley and Rolls-Royce as exports of cars accounted for £400m out of £2.6bn-worth of goods exported to Russia last year and Gauloises maker Imperial Brands to make full exit from Russia (Financial Times, Ian Johnston) shows that Imperial Brands is making plans to transfer its Russian business to a “local third party” (which sounds like it’s palming off its Russian business to a local while still maintaining a foothold, no?).

However, China warns of retaliation if hit by Russia sanctions fallout (Financial Times, William Langley, Tom Mitchell, Sun Yu, Demetri Sevastopulo and Henry Foy) shows that China is trying to have its cake and eat it by semi-endorsing Russia on the one hand but not wanting to be affected by sanctions (China does a lot of trade with Russia and so will arguably be financing the war indirectly by doing business with it) on the other. China stocks: sanctions and lockdowns spell disaster for shares (Financial Times, Lex) highlights tricky times in China as the Hong Kong and Shanghai markets continued their downward trend despite strong Chinese economic data.

Weakness is occurring because of a combination of concerns about more China lockdowns in the face of rising Omicron cases and the spectre of US sanctions as per the story above. Meanwhile, Russians bid hasty farewell to Instagram (Financial Times, Polina Ivanova and Hannah Murphy) shows that the media site was banned from Monday because of parent company Meta’s stance on the war in Ukraine. Instagram has 80m users across Russia – about 50% of the population – so many made their final farewells in the 48 hours that the government gave them before Instagram came offline. Given Donald Trump’s warmth towards Putin I wonder whether he’ll be offering Russians access to his Truth Social network 😁. In the meantime, many are trying to make workarounds by using VPNs, but as 80% of Russians follow at least one Instagram account outside the country, the shutdown is going to not only cut them off from their countrymen, but from the rest of the world. * SO WHAT? * I thought that this article made a very profound point – that while it is one thing to control the narrative of a country on a daily basis like in China or North Korea, it is quite another to give citizens access to western-style internet freedom and then snatch it away. Will citizens just accept this or will it lead to more dissent?

Meanwhile, the CONSEQUENCES of sanctions keep on flowing as per Musk blames soaring cost of parts as Tesla raises price of all electric cars (Daily Telegraph, James Titcomb), which shows that Tesla has increased the cost of its cars in the UK in the last few days and twice in the US and China over the last week whilst also announcing the delay of many deliveries until November thanks to difficulties sourcing parts and rising raw materials costs. Sanctions and the resultant squeeze on natural resources and agricultural produce is now resulting in previous red lines being crossed as per RWE to bring German coal power stations back online (Daily Telegraph, Matt Oliver) and Farmers look again at GM as turmoil in Ukraine hits crops (Daily Telegraph, Hannah Boland). Net-zero rules to be relaxed in plan to help North Sea (Daily Telegraph, Helen Cahill and Tony Diver) shows that there’s back-pedalling going on re COP26 promises after only a few months as the government considers fracking and getting more oil from Saudi Arabia in a bid to wean us off Russian oil and gas. On the subject of oil, Oil falls below $100 a barrel as China lockdowns threaten demand (Financial Times, Kate Duguid, George Steer and Hudson Lockett) highlights a brief respite for the oil price and Petrol prices to ease on Iran hopes (Daily Telegraph, Tom Rees) shows that things could be easing at the petrol pumps, although I’d always point out that when oil prices go up, forecourts increase their prices in a matter or nanoseconds but when they go down, they take their sweet time to catch up 🤣! The hope identified here is that a new Iran nuclear deal might unlock sanctions on Tehran (but given Tehran’s cosiness with Russia, you do wonder how flaky this might be).

Intel commits to Europe, GoTo aims high and Arm sheds employees…

Intel to spend €33bn on EU semiconductor factories to end dependence on Asia (Daily Telegraph, James Titcomb) shows that the chip making giant is committing a large slug of cash to boost manufacturing in Europe (specifically in Ireland, Italy, Poland and Spain), with the EU providing major incentives for the investment, in order to spread its production exposure outside Asia. The UK was ruled out because we didn’t offer high enough kickbacks! * SO WHAT? * This is good news for automotive manufacturers in particular, I would have thought, because this will bring chips closer to where cars are manufactured, thereby enhancing supply chains considerably. Still, it will take a while for them to come online. It seems that Germany has been doing particularly well from gigafactories in the last few years (Tesla is building one there at the moment) as Intel announced a €17bn “mega site” in Magdeburg, but then I think it makes perfect sense given how important the automotive sector is in Germany.

Then in Indonesian superapp GoTo looks to raise $1.3bn in IPO (Financial Times, Oliver Telling) we see that GoTo, which is Indonesia’s biggest start-up, is looking at raising up to $1.3bn in an IPO by trying to tempt investors to dip

their toes in the country’s burgeoning tech sector. The group was formed last year by the merger of GoJek and Tokopedia and announced yesterday that it would float on the Indonesia Stock Exchange next month with a valuation of up to $29bn. * SO WHAT? * GoTo has a massive customer base and offers ride-hailing, food delivery and payment services to people across the world’s fourth biggest country by population so it all sounds good until you consider that the tech sector continues to be sold off against a background of regulatory clampdowns, rising interest rate expectations and the war in Ukraine. Coupled with doubts about how the company can turn a profit, you do wonder about the timing. If I was being cynical, I would say that this potentially smacks of desperation in that is this perhaps a sign that the company thinks things will get worse from here and that it would rather take the risk listing now than waiting and potentially having to live with a lower valuation if stock markets slide further. This will, however, be a notable coup for the Indonesia Stock Exchange as it is trying to keep tech companies from listing overseas.

On a more sobering note, Arm to save up to 1,000 jobs as chip designer prepares for IPO (Financial Times, Anna Gross) shows that the British chip designer is planning to cut between 12 and 15% of its employees as it tries to streamline its business following the failed attempt of owner SoftBank to sell it to Nvidia because of competition concerns. It is expected to list next year in New York

Americans love flying, UK employment returns to pre-Covid levels and DFS cushions margins..

Airlines say fliers are flocking back, despite higher ticket prices (Wall Street Journal, Alison Sider) shows that travel demand is really taking off despite rising air fares according to airlines such as American Airlines, Delta and Southwest. Interestingly, domestic ticket bookings and revenues in February were higher than 2019 levels since March 2020 and even business travel appears to be showing signs of a return. * SO WHAT? * This is great to hear, but it does make you think how different things are in the US versus what they are like in the UK at the moment! If I was a US airline, I would be looking at potential acquisitions of European airlines at the moment because their downbeat outlook and nightmarish pandemic performance may throw up some once-in-a-lifetime bargains, although it has to be said that American airlines were also hit hard. They do look, though, like they will be recovering more quickly and so if finances permit, I wonder whether we will see any American buyers of European airlines.

UK unfilled vacancies hit record as workers leave labour market (Financial Times, Delphine Strauss) cites the latest

official data from the Office for National Statistics which shows that it’s a candidate’s market out there as job vacancies rise but UK wages fall at fastest rate since 2014 as cost-of-living squeeze bites (The Guardian, Richard Partington) emphasises the fact the wages aren’t going far enough and Families face worst fall in standard of living since 1947 (Daily Telegraph, Tim Wallace) paints an even starker picture in the face of inflation that just keeps on rising. Lots of things for the Monetary Policy Committee to consider at its meeting tomorrow about interest rates…

In retail, DFS cushions profit margins by raising the price of sofas (The Times, Ashley Armstrong) shows that Britain’s biggest sofa retailer has raised the prices of its sofas due to rising raw materials costs, supply chain problems and staff absences. It is painting a positive outlook, however, thanks to store openings, growth in online sales and deepening its market share and has outlined plans to pay out an interim dividend in addition to announcing a share buyback over the next 12 months! * SO WHAT? * This looks and sounds great. However, I think that the business did tremendously well as lockdown progressed and homeware/furniture retailers benefitted from a trend of people investing in their domestic surroundings. However, you don’t buy sofas every year and tightening household budgets are bound to curtail spending on big ticket items don’t you think?

…in other news…

Now that things are gradually edging back to pre-Covid days, I thought you might appreciate Ex-Starbucks barista shares little-known tips – including cup name trick and free food (The Mirror, Julia Banim). The influencer thing was quite amusing I thought…