Friday 30/07/21

1. In MACRO, VAX & SCANDAL NEWS, the US has a wobble, German inflation hits new highs, Biden calls to pay vaxxers, AstraZeneca mulls its vaccine future, Nikola’s Milton is charged and Didi considers going private 😱
2. In POST-CORONATRENDS NEWS, Airbus gets more confidence and millions come off furlough while Nestlé and Diageo benefit from people returning to offices and bars
3. In CAR-RELATED NEWS, VW disappoints in China (but Bentley doesn’t!), BoJo encourages the purchase of UK-made electric vans and we look at the charging conundrum
4. In INDIVIDUAL COMPANY NEWS, Amazon disappoints, Lloyds Bank has a sunnier outlook, Raymond James buys Charles Stanley and Robinhood has an underwhelming debut
5. AND FINALLY, we find that spoons are what dreams are made of…

So the US loses a bit of momentum, Germany’s inflation reaches new heights, Biden tries to encourage more vaccine take-up and AstraZeneca ponders its vaccine future while Nikola’s Milton gets charged and Didi considers going private…

US recovery falters in the second quarter as prices rise (Daily Telegraph, Tom Rees) shows that although America’s GDP rose by a very respectable 6.5% on an annualised basis in the June quarter, it was way below market consensus of 8.5%. Given that Q1 saw an annualised GDP rise of 6.3% Q2 was pretty muted in comparison, which is a bit disappointing given how much stimulus Biden and chums have thrown at the economy. There are rumblings among forecasters now that the recovery may further lose momentum over the next few months. As with many other economies, growth is being held back by supply chain issues and a contraction in the investment in new property. This latest revelation may well take some of the pressure off the Fed regarding inflation, but even so consumer spending still climbed by 11.8%.

Talking about inflation, German inflation hits highest level since 2008 (Financial Times, Martin Arnold) cites the latest figures from the Federal Statistical Office which show that big price rises for clothing, food and leisure powered inflation to new heights (3.1% higher than July last year). Germany’s inflation is rising faster than most other European countries due to the cumulation of a number of one-offs like last year’s temporary cut in VAT, a new carbon tax and a revision of the basket of products used to come up with the figure. Mind you, this is likely to rise further given that increasing raw materials costs and shortages along with supply chain issues are likely to lead higher prices being passed on to the consumer.

On the subject of vaccines, Biden pushes incentives and mandates to increase vaccinations (Financial Times, James Politi and Peter Wells) shows that Biden is keen to do more to get more people inoculated, calling for states to offer $100 cash rewards to get jabbed and the forcing of federal workers to prove they’ve been vaccinated or wear two masks and get regularly tested. Such announcements reflect rising concerns over the recent spread of the Delta variant which has been taking the edge off American optimism regarding the taming of the pandemic.

In AstraZeneca casts doubt on future of vaccine unit (Daily Telegraph, Julia Bradshaw and Hannah Boland) we see that the embattled pharmaceutical company could be going off in a huff after the hassle it’s had with the EU and other world regulators over its non-profit Covid jab. They

are considering the possibility of making the division profit-making either in partnership with another pharma company or by spinning it off. It sounds like it is going to make a decision by the end of the year. * SO WHAT? * To the cynically minded, the whole anti-Oxford/AstraZeneca jab thing looks like a massive stitch-up by “high-ups” slagging off its safety and efficacy (they seemed to stick the boot in when it turned out that they weren’t getting deliveries) while others, who were not so public-spirited, made oodles of cash out of providing their jabs. Pfizer and Moderna in particular have benefited hugely from the financial rewards – AstraZeneca booked sales of $900m from sales of its vaccine in Q2 versus Pfizer’s $7.8bn! You can’t blame AstraZeneca for considering this option given the way it has been treated… 

Then in juicier news developments, Nikola founder Trevor Milton charged with securities fraud (Wall Street Journal, Corinne Ramey) we see that the founder of electric truck start-up, and 🐂💩-er-in-chief, was indicted yesterday on two counts of securities fraud for allegedly lying to investors about its trucks and one count of wire fraud. If he is convicted of one of the securities fraud charges, he could face a maximum of 25 years in jailtime. * SO WHAT? * From an outsider’s point of view, the sheer scale and audacity of this man’s lies is just unbelievable! Still, he’s got good lawyers, so maybe they’ll get him off with six months inside and a slap on the wrist 😂. It’s amazing to think that Nikola was at one point worth more than Ford despite having not made anything! Such is SPAC-backed hype, eh. Will another SPAC-backed electric start-up, Lordstown Motors, also get flushed down the same toilet I wonder??

Given the recent major Chinese crackdown on tech, Didi Global considers going private to placate China and compensate investors (Wall Street Journal, Jing Yang) looks like things are getting pretty desperate for the recently-NASDAQ-listed Chinese ride-hailer that had the rug pulled from underneath it by its own regulator (the Cyberspace Administration of China) just days after its IPO. It is looking increasingly like going private is the least-bad option available to the company in order to satisfy Chinese authorities and furious investors. In terms of timeline, Didi raised around $4.4bn in its IPO on June 30th by selling ADRs at $14 in the biggest stock sale by a Chinese company since Alibaba in 2014 and its shares went to $18 in the first few days before the CAC announced a security probe into the company on July 2nd. It then took a load of Didi’s apps from app stores on July 9th. The shares closed at $9.87 yesterday. * SO WHAT? * This whole thing was a complete fiasco and it’s quite right that shareholders have filed class-action lawsuits as a result. I do think, however, that a “take-private” is probably the most elegant solution to the whole shebang, particularly if the company uses its allegedly-ill-gotten-gains to pay shareholders $14 or more per share. This is still under discussion, but the CAC itself is supportive of the plan. China really is showing who’s boss at the moment…

Airbus gets more confident and millions come off furlough while Nestlé and Diageo get a lift from more normality…

It’s good to see that there are more signs that we are edging out of the coronavirus abyss in Airbus outlook is sunnier as it flies back into profit (Daily Telegraph, Alan Tovey) as the plane-maker managed to return to profit in the first half of this year and lifted its forecasts for the full year. It remains cautiously optimistic because of Covid-uncertainty, but for now things are slowly starting to “take-off”. Rival Boeing said on Wednesday that it managed to deliver over double the number of airliners in the first half versus a year ago, so it seems that recovery is happening after a disastrous year last year.

Millions are off furlough in the rush to reopen (The Times, Gurpreet Narwan) cites the latest HMRC figures which show that almost three million people have come off furlough since March, bringing the current total who are still on it to less than two million. Around nine million were on it in May last year, so this looks like progress. The latest ONS figures show that the number on furlough may even be less than this. * SO WHAT? * There is a lot of concern

that the end of furlough will reveal a raft of zombie businesses that have been kept on life support and that there will be a sudden spike in unemployment as a result. This could put a stop to the red-hot (although it appears to be slowing down this month) housing market which could dent sentiment and slow the economy down. However, as I keep saying, there is the possibility that projections are overly-pessimistic – and if that’s the case, the economy could get a second wind going into the end of the year.

There are other signs of a gradual return to normality as Coffee gives Nestlé a lift after commuters return to office (Daily Telegraph, Hannah Boland) shows that the food giant has benefited from increased sales of instant (Nescafé) and capsule (Nespresso) coffee as workers are freed from the shackles of their home offices. Interestingly, coffee shops are still finding it hard to get workers back through their doors despite the return to office. Smirnoff owner toasts rising sales as drinkers return (Daily Telegraph, Hannah Boland) says that drinks giant Diageo saw sales rise by 8.3% and operating profits by 75% in the year to the end of June, which also indicates the positive effect of a return to work. This was also reflected by a trading update from pub group Mitchells & Butlers (which owns Harvester and All Bar One), which said that it was seeing an uptick in business after restrictions were eased on May 17th that allowed more indoor trade.

VW disappoints in China (but not Bentley!), BoJo wants home-built electric vans and the charging network needs work…

VW to ‘reinvent’ itself in China after profits drop in largest market (Financial Times, Joe Miller) shows that VW is taking a long hard look at itself as profits from its mid-range cars fell sharply in the company’s biggest market and its new range of EVs were met with a collective “meh” response. The company intends to do more to appeal to younger customers – and given that Asia now accounts for about 50% of total profits, you can see why VW is keen to get things right. Mind you, Strong sales in China help steer Bentley to record (The Times, Robert Lea) shows that its more luxurious marques are still doing rather well – Bentley’s first half profits for 2021 exceeded any full year profits in their entire history! China accounted for 30% of all Bentley’s sales! * SO WHAT? * I’ve said before that the Chinese markets seems to be split by age at the moment with younger buyers more keen than their elders on going for domestic marques whereas older people still seem to like buying foreign brands. I think that VW is right in wanting to address this asap given that you would have thought younger people are going to be the future market! 

Moving seamlessly on from Bentayga’s to vans (!), PM gets big companies to go for UK-made electric vans (Daily Telegraph, Oliver Gill) shows that BoJo has cajoled seven of Britain’s biggest companies (BP, BT, Royal Mail, Tesco, Direct Line, Severn Trent and ScottishPower) into spending hundreds of millions of pounds to go “domestic electric” with their van fleets. Bosses still say, however, that charging networks need to be much better in order to facilitate this and EV charging: a (battery) chicken-and-egg problem (Financial Times, Lex) gives a really good overview of what the current state of affairs is. As things stand, the UK has around 25,000 charging stations (= one for every 20 EVs), which is about 10% of what we’ll need in 2030 when new petrol and diesel cars will be banned. Europe has 225,000, but the European Automobile Manufacturers’ Association reckons it’ll need about 6m. We are currently at a bit of an impasse as those who can’t charge at home are less inclined to buy an EV if the public charging network is poor. Automakers are putting money into efforts to address this but it was interesting to see that Elon Musk tweeted last week that there were plans to open up Tesla’s charging networks up to other EVs by the end of the year – which should help things. * SO WHAT? * I suspect that start-ups such as Arrival and Rivian will be heartened by BoJo’s move, but given the distances these fleet vehicles will have to cover, you can understand the companies’ concerns about current network availability. I still maintain that charging is a story for the next few years but that I think that standardising batteries and chargers will make things way easier (and cheaper) and making them “swappable” will be even better in the long run, especially if battery recycling improves.

Amazon loses it a bit, Lloyds Bank has reasons to cheer, Raymond James goes shopping and Robinhood has a disappointing IPO…

In a quick scoot around other big news today, Amazon posts $113bn in sales but disappoints Wall Street (Daily Telegraph, Io Dodds) shows that although profits and sales stormed ahead, they fell short of analyst expectations, which explains why the share price fell by 5% in after-hours trading. * SO WHAT? * These were the first set of results under new CEO Andy Jassy, who took over from Jeff Bezos earlier this month. Bezos has moved role to become executive chairman (and play spaceman 😂). Amazon is going to be facing increasing pressure from US regulators and lawmakers to break itself up or to clip its own wings. It’s interesting to see that both Facebook and Amazon seem to be hunkering down, waiting to see what’s going to happen to them as regulators around the world line up to give them a bit of a kicking.

Meanwhile, in the UK, Lloyds lifts full-year targets as UK outlook brightens (Financial Times, Nicholas Megaw) echoes the current feel-good in the banking sector as profits at the UK lender jumped ahead of analyst expectations, giving it confidence to up its year-end forecasts. The company also announced the purchase of pensions specialist Embark Group for £390m which should help to boost its insurance and wealth divisions.

Talking of consolidation in the finance sector, Raymond James strikes deal to acquire Charles Stanley for £279m (Financial Times, Joshua Oliver) highlights US financial group Raymond James’ purchase of Charles Stanley, the 229-year-old City stalwart, as the latest deal in a rapidly-consolidating sector. The takeover is subject to shareholder approval and follows a number of deals as smaller wealth managers attempt to consolidate assets against a backdrop of rising tech and compliance costs. * SO WHAT? * This sector is very fragmented and ripe for consolidation. We’ve already seen the likes of Tilney and Smith & Williamson merge, Quilter hoovering up smaller rivals and Rathbones buying wealth manager Saunderson House. I suspect this is going to continue!

Then in Robinhood’s stock price falls after IPO (Wall Street Journal, Peter Rudegeair, Corrie Driesbusch and Caitlin McCabe) we see that the trading platform’s market debut proved to be a damp squib. It kicked off at $38 per share (at the bottom of its previously stated range) and then proceeded to fall by more than 10% before recovering to $34.82. Still, Robinhood’s employees were allowed to sell (this doesn’t normally happen – there’s normally a lock-in period) and co-founders Vlad Tenev and Baiju Bhatt each made $47.5m out of it, so I guess they don’t give a toss! * SO WHAT? * It’s good that Robinhood managed to get the deal away but it remains to be seen where it will go from here. I still think that the main danger with this stock will be regulation. It’s cut corners and burned users in its bid to get to this point and I don’t think they can keep doing that forever if they want to be seen as being “legit”.

…in other news…

I thought that the likes of eBay had banished the phenomenon of the car boot sale years ago, but maybe there’s hope for it yet in ‘Ikea’ spoon bought for 20p at car boot fair goes for more than £2k at auction (The Mirror, Joshua Smith). Not a bad return, eh?