Wednesday 23/03/22

  1. In MACRO & OIL NEWS, Biden cuts Trump tariffs, Sunak gears up for his Spring Statement, Russia chokes off oil and we look at the consequences
  2. In AUTOMOTIVE NEWS, Musk opens his German gigafactory, auto loans face more challenges and Nvidia targets the industry
  3. In FINANCIALS NEWS, NatWest does BNPL and ESG investing gets more criticism
  4. In INDIVIDUAL COMPANY NEWS, Alibaba ups its share buy back plans, Toss takes on Grab and Kingfisher banks on more DIY
  5. AND FINALLY, I show you how to make something my mum makes…

1

MACRO & OIL NEWS

So Biden lifts tariffs and Russia chokes off oil…

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.

I AM GOING TO BE HOLDING THE MONTHLY ROUNDUP NEXT WEEK WITH JAKE SCHOGGER OF THE COMMERCIAL LAW ACADEMY. Please register HERE to attend (it’s free). This will really help you as I will navigate the major events and developments that have happened over the course of March in the business news and financial markets and Jake Schogger will be overlaying this with legal insights. We always have a lot of fun with this despite the subject matter (!), so it’d be great to see you! This will save you time and give you better understanding of how things are currently developing in the world.

Biden lifts tariffs on UK steel and aluminium (Daily Telegraph, Giulia Bottaro) shows that President Biden lifted steel and aluminium import tariffs that had been imposed by Trump following talks aimed at getting to some kind of post-Brexit trade agreement. In return, the UK will suspend tariffs on things like whisky, jeans and motorcycles. * SO WHAT? * I don’t think this is that exciting in itself (unless you are in the British steel industry, of course!) but it would imply that the door is at least open to more.

Back in the UK, Sunak to keep part of windfall cash despite appeals to cushion cost of living crisis (Financial Times, Chris Giles and George Parker) reminds us that the Chancellor is going to be announcing his Spring Statement today with lots at stake as everyone faces massive pressures on household finances. Official forecasts show that the budget deficit is actually £20bn better than had been expected but everyone is going to want more financial support right now and I guarantee everyone is going to say that it’s not enough, whatever it is! I’ll report back when we have a concrete idea on what he actually brings in rather than speculate on what could be. Many critics have been pushing for there to be a windfall tax on the oil industry, noting their stellar recent profits (and penchant for doling money out to their shareholders in the form of dividends) and for that money to be used to cushion the blow for households but North Sea sector confident Sunak tax plans will not target energy profits (Financial Times, George Parker, Chris Giles, Nathalie Thomas and Tom Wilson) would imply that this isn’t going

to happen (or at least that the oil industry is trying to play mind games with the government!).

In Russia chokes major oil pipeline in further threat to global supplies (Financial Times, Derek Brower, Myles McCormick, Justin Jacobs and Nastassia Astrasheuskaya) we see that Russia is going to cut back capacity on the Caspian Pipeline Consortium’s pipeline that runs from Asia to the Black Sea for two months to be repaired. This announcement caused oil prices to spike initially (although they then calmed down) and was made just before Biden’s trip to Europe where it is believed that more sanctions on Russia will be discussed. Amid all the chaos, Global oil trading giant warns of diesel rationing (Daily Telegraph, Rachel Millard) shows that Vitol, the world’s biggest oil trader, reckons that diesel could be rationed as Russia is a major supplier to Europe (which gets about 50% of its diesel from Russia) and the UK (we get around 20% of our diesel from Russia) and supplies are looking decidedly iffy although Diesel shortages will not lead to rationing promises No 10 (The Times, Emily Gosden) shows that the government has dismissed this (for the moment, anyway!). German regulator prepares for potential energy rationing next winter (Financial Times, Joe Miller) highlights further concerns in Germany about power next winter as major industrial groups start getting letters from network operators asking them to detail their energy needs in the event of possible shortages due to sanctions on/from Russia. * SO WHAT? * There are already shortages, but it looks like they are going to get worse. I suspect that the UK government’s dismissal of Vitol’s suggestion is a knee-jerk reaction designed to stop people from hoarding oil (like pasta and loo roll under lockdown) and that this may well change. Spring/summer may offer us a respite to some degree but lack of energy/power/oil from then on is a massive elephant-in-the-room.

In the meantime, Carnival warns rising fuel prices will have ‘material impact’ on recovery (Financial Times, Alice Hancock) shows that the world’s biggest cruise company has warned that the impact of uncertainty on fuel prices is going to have a major impact on the company’s recovery, particularly as cruise ships rely heavily on diesel. The company said that it expected to make a loss in Q2 but bounce back to profitability in Q3. * SO WHAT? * This is a cruel blow for the industry after having limped through Covid, barely alive. I do wonder how this industry will survive and imagine that only the strongest and biggest will have the resources required to do so. I suspect that there will be a lot of business failures here. BTW, Carnival operates P&O Cruises – but it has nothing to do with P&O Ferries of the current notoriety! That is owned by DP World, a logistics company based in Dubai.

2

AUTOMOTIVE NEWS

Germany’s gigafactory opens, auto loans face tough times ahead and Nvidia targets the auto industry…

Musk revs up crows at German opening (The Times, David Crossland) shows that Elon Musk was at his new €5bn German gigafactory’s opening ceremony yesterday, personally handing over the first made-in-Germany Tesla cars to 30 buyers, with Chancellor Olaf Scholz in attendance. It has employed around 3,500 workers out of the 12,000 it aims to take on – and when the plant is at full capacity it will churn out 500,000 cars a year – more than the 450,000 EVs that VW sold worldwide in 2021. Nice. Another chapter in Tesla’s history done!

Meanwhile, Auto loans: rising rates and fuel prices will make lenders shift gears (Financial Times, Lex) shows that although auto sales shot up in 2021, a lot of it was powered by car loans. This was fine in a low interest rate environment, but outstanding debt rose from $84bn to $1.46tn over this time period and the risk here is that it will come home to roost against the prospect of an environment where interest rates are set to rise aggressively to take the edge of inflation. Banks that are particularly active in this area – Ally Financial, Capital One, Wells Fargo and JP Morgan Chase – have seen growth in the automotive segment as loan growth elsewhere has proved to be sluggish at best. Car loans have contributed hugely

to pre-tax profits. * SO WHAT? * It looks like the good times in auto loans may have passed as consumers are likely to put the brakes on and postpone/cancel car purchases as inflation continues to bite. Things have not been TOO bad thus far for the lenders because any defaults would have been mitigated by the super-hot used car market meaning that they can still sell cars from owners who have defaulted for a decent price. Once that market starts to falter, however, the market could accelerate its slowdown and lenders will have to look elsewhere for growth. I suspect that this isn’t just going to be an American thing – I definitely think it could happen here as well!

Then in Nvidia targets auto growth amid chip shortage (Wall Street Journal, Asa Fitch) we see that chip maker Nvidia is seeking to broaden its offering within the automotive space where it currently supplies chips to run infotainment systems in cars. It also wants to supply chips that power complex driver-assistance systems and is already seeing major growth in its automotive division. * SO WHAT? * The market is looking pretty good for chip makers who supply the automotive industry because car makers such as Tesla, Ford and GM continue to add chip-hungry features to their cars. Things are going so well in this area, in fact, that rival Intel is even feeling confident enough to float its Mobileye self-driving unit on the stock market in the middle of this year. The future’s looking bright even if there are some clouds on the horizon with consumers having less money to spend because of inflation.

3

FINANCIALS NEWS

NatWest does BNPL and ESG comes in for more criticism…

NatWest to launch ‘buy now, pay later’ credit scheme this summer (The Guardian, Rupert Jones) shows that the bank is jumping onto the Klarna et al. bandwagon and will be offering BNPL services this summer. In doing so, it will be the first UK high street bank to offer this. * SO WHAT? * The BNPL market is currently dominated by Klarna, Clearpay and Laybuy – and although Monzo is actually the first UK bank to launch in this segment, it is the biggest UK household name to get involved. This could theoretically work well given that it has a huge customer base but it hasn’t given any details as to how it will work yet. The FCA NEEDS to get its act together re regulating this area given the increasing take-up it is seeing – and with interest rates and household costs rising, the risk of more defaults increases by the day.

Meanwhile, ESG investing comes under fire yet again! Most recently, it has been held responsible for limiting development in the defence sector by shying away from it due to ESG concerns but City’s ethical investors are ‘sleepwalking us into a crisis’ (Daily Telegraph, Rachel Millard and Lucy Burton) highlights criticism from a Jupiter Asset Management fund manager – who holds shares in Shell – that ESG investors are to blame for the current energy crisis because they have not invested in this part of the energy sector for environmental reasons. Shell seeks to woo ethical investors in North Sea revolution (Daily Telegraph, Lucy Burton and Rachel Millard) shows that Shell is starting to revive plans to drill in the Cambo oilfield off the Shetland Islands only a few months after publicly stating it would walk away following pressure from environmentalists. However, it will still need to win the backing of investors to develop this project. It’ll be interesting to see what Nicola Sturgeon has to say about this now considering she was opposed to Shell drilling in Cambo. TBF though, the environment has changed somewhat since the pre-war days.

4

INDIVIDUAL COMPANY NEWS

Alibaba splashes the cash, Toss and Grab tussle and Kingfisher bets on a continuation of the DIY boom…

In other news today, Alibaba increases share buyback programme to $25bn in boost to stock (Financial Times, Ryan McMorrow) shows that the embattled Chinese e-tailer has boosted its share buyback plan from $15bn to $25bn over the coming two years as part of efforts to boost investor confidence after a tough period where it has been subject to a prolonged tech crackdown. * SO WHAT? * Its Hong Kong-listed shares jumped by 11.2% on the news and China’s top economic official, Liu He, made noises intimating that Beijing would soon end its “rectification” of China’s major tech platforms.

South Korean super app Toss takes on SoftBank-backed Grab in south-east Asia (Financial Times, Song Jung-a and Christian Davies) shows that Viva Republica, one of South

Korea’s most highly-rated fintech start-ups, is looking to raise up to $1bn from investors in Q2 to pour into its super app Toss as a direct rival to Grab and GoTo in south-east Asia. Punchy. * SO WHAT? * South Korean fintechs have found it tricky to crack overseas markets thus far despite throwing a lot of cash at them but Viva Republic’s CEO says he will be taking a more targeted approach. We’ll just have to see how that goes.

In Kingfisher becomes third member of the £1bn club (The Times, Ashley Armstrong) we see that the company that owns B&Q has breached the £1bn in profits barrier, making it only the third British retailer ever to do this (the other two were Tesco and M&S)! It smashed analyst forecasts and showed that fears a pandemic-fuelled DIY boom wouldn’t last were unfounded. This seems to me like a pretty good place to be in as we head into BBQ and DIY season, but clearly there are risks ahead as – you’ve guessed it – household budgets are being squeezed.

5

...AND FINALLY...

…in other news…

For a change, I thought I’d show you how to do something my mum does a lot for my boys. Here’s how to do something that is actually practical rather than “just” aesthetically pleasing: The Japanese art of making trash containers from old papers (SoraNews24, Oona McGee). Go on – give it a go!

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Some of today’s market, commodity & currency moves (as at 0758hrs 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 **
7,477 (+0.46%)34,807.46 (+0.74%)4,511.61 (+1.13%)14,108.82 (+1.95%)14,473 (+1.02%)6,659 (+1.17%)28,020 (+2.92%)3,271 (+0.34%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$110.23$116.70$1,920.351.325721.10160121.0971.2036542,112.3

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