Wednesday 23/02/22

  1. In MACRO NEWS, the Ukraine situation heats up and has big consequences
  2. In CAR-RELATED NEWS, Porsche is being lined up for an IPO and Tesla reverts to old tech
  3. In TECH NEWS, Meta pushes Reels and Chinese edu-tech company New Oriental gets hammered
  4. In MISCELLANEOUS NEWS, IHG heralds a bounceback, employers face higher legal costs and there’s a massive scandal at Peloton
  5. AND FINALLY, I bring you an amazing Japanese artist…



So the Ukraine situation worsens and consequences result…

Putin backs separatist claims to whole Donbas region of Ukraine (Financial Times, Max Seddon, Guy Chazan and Henry Foy) follows on from what I was saying yesterday as President Putin moved closer to conflict with Ukraine whilst demanding that the country “demilitarise”, stop pursuing its membership of NATO and pledge neutrality. This all came just hours after Germany halted approval process of the Nord Stream 2 pipeline, as per Scholz takes heat off Germany with decision to freeze Nord Stream 2 project (Financial Times, Guy Chazan), which Ukraine/Russian gas: Germany will have to go cold turkey (Financial Times, Lex) says is going to be painful for Germany given strong domestic demand, massive reliance on energy imports and relative lack of supply. Russia’s central bank still pledges stability (Daily Telegraph, Louis Ashworth) highlights attempts by the bank to calm investor panic by saying that it will take any action necessary to maintain financial stability and Russian stocks swing higher as investors weigh sanctions risk (Financial Times, George Steer and Tommy Stubbington) shows that Russia’s Moex index bounced back to some extent as investors weighed up the potential economic damage of economic sanctions. After recognising breakaway regions in Ukraine, what are Putin’s options (Financial Times, Max Seddon) takes a look at what might come next from Russia as it continues to turn the screw on Ukraine, Europe and NATO. It is looking increasingly likely that Putin won’t stop at the Donbas region and could well push on to Kyiv.

Although our own sanctions were criticised yesterday for being too weak, Further sanctions against Moscow could raise bills for UK firms (The Guardian, Kalyeena Makortoff) suggests that if Russian energy suppliers like

Gazprom Energy are blacklisted in the event of an invasion of Ukraine, businesses could face even more headaches. This company alone accounts for almost 21% of UK gas supplies, according to energy consultancy Cornwall Insight! When you consider that, unlike domestic energy users, there is no price cap for UK business customers – bills could just go moon-bound. Unpicking Russia’s web of UK interests (The Times, Emily Gosden and Louisa Clarence-Smith) mentions the number of Russian companies with London listings that have so far remained untouched, the 19.75% stake in Rosneft that BP owns, Shell’s involvement with constructing Nord Stream 2 and fears of businesses who are wary of the impact that sanctions will have on British businesses. * SO WHAT? * Unfortunately, it seems that there are no solutions, in terms of sanctions, that will be pain-free for UK businesses either directly (because they won’t be able to deal with certain companies) or indirectly (higher energy and raw material prices, for example). Things will change up a gear if Ukraine is invaded.

Meanwhile, S&P falls into correction territory as Russian troops enter Ukraine region (Wall Street Journal, Will Horner and Michael Wursthorn) shows that share prices fell in volatile trading yesterday in response to Ukraine uncertainty. The index has fallen by over 10% since January, which means that it is technically in “correction” territory. Inflation fears as oil nears $100 (The Times, Emily Gosden) shows that oil prices continued to rise on the Ukraine situation and fears that supplies could be disrupted. * SO WHAT? * The world just doesn’t know what Putin is going to do next. If he presses on to Kyiv, things could get extremely ugly indeed at a time when pretty much all economies are struggling to recover from the devastation caused by the pandemic. Still, that devastation could pale in comparison to the potential human cost of an invasion…



Porsche accelerates towards flotation and Tesla goes retro…

Volkswagen revs up plans to spin off Porsche brand (Daily Telegraph, Howard Mustoe) shows that parent VW is making plans to list Porsche on the stock market that could give it a nice cash boost that will help its electric ambitions. VW is thinking of doing this because it reckons investors will prefer Porsche to be separated out of VW (like when Fiat Chrysler spun off Ferrari in 2016). When you consider that Stellantis (which now comprises of Peugeot, Citroen, Fiat, Chrysler, Vauxhall, Opel and Maserati) is worth €51bn and Ferrari is now worth €37bn, you can see that they have a point! * SO WHAT? * VW could potentially raise €20bn in an IPO which would imply a valuation of the whole company of €80-90bn. Given the “hotness” of all things luxury at the moment – not to mention the relative success of Ferrari over the years – I would have thought this would be VERY popular.

Tesla’s reverse on battery cells signals shift for electric vehicles (Financial Times, June Yoon) shows that Tesla is now switching back to old battery technology for all of its standard-range cars as a consequence of the massive rises in battery raw materials prices! Tesla will be using iron-based batteries, aka lithium iron phosphate batteries, in these cars. The tech is commonly used in simpler devices like golf carts and residential power back-up power systems but they are seen as less efficient options for cars and have a lower range because of their lower energy density. * SO WHAT? * Although this is bad news on the efficiency front, it’s actually good news on the pricing front because iron-based batteries are about 30% cheaper per battery cell than the more advanced nickel-based ones. Another advantage of the older tech is that it is more stable (i.e. less likely to catch fire!) and should therefore mean fewer recalls. Still, 88% of EV batteries outside China use the more expensive, less stable lithium ion tech. Will this prompt other car manufacturers to use the older tech? It may be tempting, but given that China makes over 95% of iron-based batteries, car manufacturers may be wary of relying on them too much given current trading tensions etc.



Meta doubles down on Reels and Chinese edu-tech continues to suffer…

Meta’s Facebook escalates TikTok rivalry, launches Reels globally (Wall Street Journal, Salvador Rodriguez) highlights Facebook’s desire to push back against TikTok’s success in the short-form video format as it has now rolled out Reels globally, as of yesterday. In yesterday’s earnings call with analysts, Mark Zuckerberg said that Reels had become Meta’s fastest-growing content format by some margin and users are consequently spending less time on its Feed and Stories formats, which at the moment generate more ad revenue. As a result of this, Meta is going to start testing out new ads that run on Facebook Reels – a good idea given that video now accounts for over 50% of the time users spend on Facebook and Instagram! It’s crazy to think that Reels only started to be rolled out in August 2020 in the US! * SO WHAT? * Short form video is really exploding in popularity wherever you look, be it via

TikTok, IG Reels or YouTube Shorts and platforms are increasingly keen to help creators monetise their offerings to keep that content flowing. Good content attracts eyeballs, and eyeballs attract ad revenues. Simples.

Chinese education group New Oriental posts $876m loss after Beijing clampdown (Financial Times, Eleanor Olcott) shows that Chinese online tutoring company New Oriental announced massive losses yesterday in its first published set of results since Beijing clamped down on the whole online edutech sector last year. This huge loss contrasted greatly with the $229m net profit over the same six month period the previous year! New Oriental has seen its share price evaporate by almost 92% since its peak last year while rival Tal Education had it even worse with a 96% drop. The company said that the losses were mainly due to lay-off costs. * SO WHAT? * Beijing’s clampdown was the kiss of death for the company that had previously been raking it in as kids learned online under lockdown. It has been scrabbling around ever since looking for ways to change its business model – it has invested in a stationary company and a data storage provider, for instance, over the last few months. What a disaster.



Hotels recover, employers face legal uncertainties and Peloton could be in for a MASSIVE headache…

As the world tries its best to emerge from the devastation caused by the Coronavirus pandemic, IHG says travel is back, as demand edges towards pre-pandemic levels (Financial Times, Ian Johnston) shows that InterContinental Hotels Group, which owns Holiday Inn and Crowne Plaza chains, said that business is heading towards pre-pandemic levels and, over the course of last year, returned to 70% of levels reached in 2019. It also said that business travel was also recovering, which is encouraging for profitability! * SO WHAT? * Lots of airlines and hotels chains have been reporting decent recovery in levels of business of late, but as I keep saying, my main concern is that once households go through a few months of paying much higher bills etc. they will rein in spending and cancel at least some leisure travel (especially trips abroad). I hope I’m wrong, though, for the travel industry’s sake.

I thought that Employers face ‘legal vacuum’ when all Covid restrictions lift in England (Financial Times, Delphine Strauss and Daniel Thomas) was worth

mentioning as a potentially less-mentioned-but-nonetheless-important consequence of Covid restrictions being lifted. Basically, from tomorrow, employers will have no guidance in place regarding how to ensure workplace safety and so they could potentially, in future, face big legal bills from workers. Businesses are crying out for guidance but aren’t getting it at the moment. It’s a bit of a mess TBH and something that needs to be addressed ASAP. No doubt insurance companies will also be very concerned…

Then in Inside ‘Project Tinman’: Peloton’s plan to conceal rust in its exercise bikes (Financial Times, Patrick McGee) we see what I think sounds like a major scandal for the troubled purveyor of slick exercise bikes. Allegations centre around Peloton knowingly selling bikes that were rusty, according to insiders. The company suffered a huge financial hit after it recalled treadmills following a tragic fatality last year and seemed to be keen to avoid further recalls (especially of its flagship bike product) by slapping on “rust converter” (what a joke!) on the bikes. According to two warehouse workers, many bikes with “severe” rust were delivered to customers. * SO WHAT? * This sounds like an absolute nightmare waiting to happen. The new CEO batted away recent pressure to sell the company. I bet he wishes he hadn’t been so keen to fend them off now because if this turns out to be true I think that this could sound the death knell of the company. Who’s going to want to buy it now??



…in other news…

I thought I’d highlight the amazing work on show in “I’ll draw one animal for every retweet!” Japanese artist now has to draw 22,000 animals (SoraNews24, Oona McGee). This lady is incredible – and is committed to her promise! Wow 😱!

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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