Wednesday 30/06/21

1. In CONSUMER NEWS, UK consumer spend increases, unemployment falls but economists warn of furlough ending
2. In CORONA/POST-CORONATREND NEWS, US and UK house price growth hits new highs, UK hospitality takes another hit, US car sales go crazy and United makes its biggest ever plane order
3. In FINANCIALS NEWS, US banks pay out the dividends once more – and UK banks could go the same way – while private equity firm Bridgepoint plans a London listing
4. In MISCELLANEOUS NEWS, Elon talks about big plans for Starlink and the UK unveils a new state aid scheme
5. AND FINALLY, I bring you a wannabe TV star…

So UK consumer spend ramps up, unemployment drops amid furlough warnings…

Consumers ramp up borrowing to fund reopening spending spree (Daily Telegraph, Russell Lynch) cites the latest figures from the Bank of England which show that UK households are starting to borrow again for the first time since last summer. Consumers have generally been paying off personal loans, overdrafts and credit cards during lockdown but last month, net borrowing rose by £280m as they became more willing to take out personal loans and car finance deals. * SO WHAT? * Consumer borrowing has not yet reached pre-Covid levels but it is expected to rise as confidence continues to gain momentum.

UK unemployment drops as firms hire staff amid rebound (The Guardian, Richard Partington) shows that unemployment continues to fall and that the number of employees on the payroll has now risen for six months in a row but then UK recovery at risk as furlough scheme phased out, say economists (The Guardian, Richard Partington) reminds us that the furlough scheme starts to wind down from tomorrow, which is leading to increasing concern about whether this will lead to a sudden spike in unemployment. * SO WHAT? * From tomorrow, businesses will have to contribute 10% of an employee’s wage, which then rises to 20% in August as the taxpayers’ contribution starts to tail off. Obviously, union leaders are calling for more support (of course they are, they have paying members) but I guess they will always push for having this go on for longer whereas the government will want to end it more quickly. That is just the nature of the beast!

US and UK house price growth booms, UK hospitality takes another hit, US car sales are hot and United Airlines buys lots of planes…

US home prices rise at fastest pace in more than 30 years (Financial Times, Mamta Badkar) cites the latest figures from the S&P Case-Shiller national home price index that reflected the effect of strong demand and limited supply of residential properties. Interestingly, a city composite index which covers US metropolitan areas showed the biggest annual increase since December 2005 and a separate report from the Conference Board said yesterday that the proportion of Americans planning to buy homes, cars and big-ticket electrical items rose this month. Homebuyers rush to unlock stamp duty savings (Daily Telegraph, Louis Ashworth and Melissa Lawford) highlights the continued frenzy in the UK property market as removal firms are just being swamped with work due to continued activity in the housing market. The stamp duty holiday starts to taper off from tomorrow, which means that the threshold for homes in England and Northern Ireland to qualify for paying zero will fall from £500,000 to £250,000, cutting the most you could save on a purchase from £15,000 to “just” £2,000. * SO WHAT? * FWIW, I think that there’s probably enough demand in the market at the moment to soak this up, but the situation is more uncertain going into the end of the year given the ending of furlough and caution may start to bite. Interest rate rises will also be a potential risk as they will result in increased mortgage payments that could make household finances tighter – but for now, this does not officially appear to be on the horizon.

With regard to other coronatrends developments, UK hospitality hit by high numbers of isolating staff (Financial Times, Alice Hancock) shows that newly-opened pubs and restaurants are facing closure once more due to staff having to leave to self-isolate after being pinged by the

NHS app having been in close proximity to someone with Covid. Staff are already in short supply in the hospitality industry, so this is just adding insult to injury.

Meanwhile, Car dealers are selling more vehicles above the sticker price (Wall Street Journal, Nora Naughton) shows that cars are in such demand (and inventories are so tight) at the moment that American consumers are having to pay over the odds for cars and trucks and it is now very much a sellers’ market. With supply chains snarled up, holding up new car production, and ever-increasing demand, I would have thought that this situation is likely to continue for some time yet. Demand for new and second-hand cars in the UK is also very robust at the moment. This is clearly a very different picture to a year ago!

Then in United Airlines bets on post-pandemic growth with its biggest-ever jet order (Wall Street Journal, Alison Sider) we see yet more evidence that things are getting better for the US airline industry as United is confident enough to place its largest ever plane order with Boeing and Airbus to power its future growth plans. It is to buy 200 of Boeing’s 737 MAX jets and 70 Airbus SE A321neos for a grand total of over $30bn at list prices!  It is looking to replace most of its smaller, older jets with larger planes that carry more passengers and have premium seats. * SO WHAT? * This is the largest order from a US airline for ten years and could be seen as a real sign of confidence (although I bet they got a massive discount!). This is a serious turnaround for an airline that lost over $7bn last year and relied on government handouts to pay workers. It looks like July will be its first profitable month since January 2020! It is also going to be embarking on a hiring spree – so things really do look like they are picking up again. I have said it before, but I think that airlines will recover more quickly in the US than they do in Europe because of the speed of vaccine rollout versus the slower and more patchy rollout in Europe. In the meantime, airlines will lobby governments as hard as they can to get back to pre-pandemic levels of passenger numbers.

US banks resume dividend payments, UK banks look set to follow and Bridgepoint edges towards an IPO…

I mentioned the potential resumption of dividend payments from banks last week, so US banks to pay extra $2bn in quarterly dividends (Financial Times, Joshua Franklin and Imani Moise) shouldn’t come as that much of a surprise! Banks including Morgan Stanley, Goldman Sachs, JP Morgan Chase, Bank of America and Wells Fargo all announced dividend increases in a reflection of greater confidence as the Fed relaxed restrictions put in place because of the pandemic to make sure they wouldn’t run out of money. Bank expected to follow Fed and lift cap on dividends (Daily Telegraph, Lucy Burton) shows that British banks are likely to follow suit next month, when the Bank of England’s supervisory arm is expected to announce its latest stance on dividend caps. I suspect that share prices of UK banks will continue to rise in anticipation of this move…

Meanwhile, Private equity firm Bridgepoint plans London listing (Financial Times, Kaye Wiggins) shows that UK-based Bridgepoint Advisers has announced an intention to list on the London Stock Exchange at a potential valuation of about £2bn. It’s quite rare for a European private equity firm to pursue a listing and it would join the likes of 3i, Partners Group, Eurazeo and EQT in going public. * SO WHAT? * I think that this is a pretty good move for the company as it is capitalising on the wave of dealmaking that’s going on at the moment plus the fact that borrowing is incredibly cheap at the moment (because interest rates are super-low). US-listed peers including Blackstone, KKY, Carlyle and Apollo are all trading near all-time highs, so now would seem to be pretty good timing! It is expected to use the proceeds from the listing to expand in areas including real estate and infrastructure as well as to open new offices.

Elon wants to put some serious money into Starlink and the UK unveils a new state aid scheme…

In Elon Musk says SpaceX prepared to spend $30bn on Starlink (Financial Times, Patrick McGee) we see that the Tesla founder continues to look skywards as he announced intentions for his private rocket company SpaceX to spend a serious wad of cash on Starlink, its satellite internet network that currently has 70,000 users in 12 countries. His wants to be able to provide global coverage “everywhere except the poles” (and by that I don’t think he’s referring to Poland 😂) by August and have 500,000 users “within 12 months”. He’s certainly not one to shy away from a big target or two! * SO WHAT? * SpaceX currently has 1,500 in low orbit but Musk says that they will number 12,000 when they hit full capacity. A Starlink satellite dish currently costs customers $499 plus a $99 monthly fee, although he concedes that the hardware costs are actually about double that. Another interesting project on top of everything else he does! 

The FT led with UK unveils post-Brexit state aid scheme to support industry (Financial Times, Jim Pickard, Peter Foster and Mure Dickie) as the government is expected today to announce plans for a more streamlined system of state subsidies post-Brexit. This was a topic that caused a lot of friction in the Brexit talks at the end of last year as Brussels wanted the UK to stick with its own rules. * SO WHAT? * There’s a lot of detail here, but I’m not going to go deeply into it because I have to say that I think this it is going to take ages to hammer out the finer details that won’t raise the ire of the Europeans who I expect will go out of their way to nit-pick and say that the subsidies are unfair (and then slap us with tariffs for it). Although this is going to sound somewhat cynical, it is not in the interest of the Europeans to play ball because if they do, other countries may well start getting twitchy and look to leave the EU themselves (especially after the covid-vaccination shambles). I really hope I’m wrong but I think that the UK government is going to get blocked at every possible juncture due to this! 

…in other news…

I thought I’d leave you today with a guy who is clearly grabbing an opportunity with both hands in Man seizes moment to perform incredible magic act in background of live news report (The Mirror, Luke Matthews). Impressive 👏!