Thursday 01/07/21

1. In MACRO & ECONOMIC INDICATOR NEWS, the City carves out a global tax exemption, Japanese business sentiment hits a new high, M&C Saatchi sees an ad recovery, Haldane warns on inflation, factories raise prices and so will boozers (probably)
2. In CONSUMER & HIGH STREET NEWS, consumers save more but older workers may suffer when furlough ends, Dixons benefits from WFH but Gap decides to shut down
3. In WORLD TRADE NEWS, the global chip shortage hits car production in China and Japan as well as Ford specifically
4. In MISCELLANEOUS NEWS, Didi’s debut dazzles, Robinhood gets a chunky fine, Nordic payments group merge and Apple staff pout
5. AND FINALLY, I bring you the cutest job interview combo…

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

📢 It’s Thursday – so it’s time for my 30-minute Instagram Live At Five where I will run through the week’s key stories AND the one hour weekly ZOOM call for paying subscribers where I will do the same but in more detail and with much more interaction 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

Financial services sector set for carve-out from new global tax rules (Financial Times, Chris Giles and George Parker) shows that the UK is about to get an exemption for financial services from the new global rules on taxing multinational companies which means that London’s biggest banks won’t have to pay more tax on their profits in other countries. Rishi Sunak got the exemption by climbing down on the UK’s digital services tax that targets America’s Big Tech companies. * SO WHAT? * This is all part of ongoing OECD talks that are supposed to conclude today where countries are hammering out details about where multinationals will pay their taxes and what the minimum corporate tax rate might be. As always, the devil will be in the detail but this is an important early indication of where things are going.

The overall economic mood continues to improve elsewhere in Japanese business sentiment hits two-year high (Financial Times, Robin Harding), which cites the Bank of Japan’s Tankan index that shows Japanese manufacturers are feeling their most confident since the final quarter of 2018. On the other hand, sentiment in the services sector was disappointing as hotels, restaurants and transportation continue to suffer. Closer to home, Advertising on recovery road, says M&C Saatchi (The Times, Simon Duke) highlights a hike in profit forecasts for the year after a better-than-expected performance for the advertising agency over the first five months of the year. The company indicated this was the case about a month ago. I’m always banging on about advertising being an important one to watch as a lead economic indicator. It has this reputation because advertising spend is one of the first things to be cut going into an economic downturn, but is one of the first things to come back when an economic uptick is expected – and this seems to be where we are at right now.

Ongoing chat about inflation is like the smell that never wants to go away, but Andy Haldane warns of inflation rises (The Guardian, Richard Partington) shows that the departing long-time Bank of England chief economist can’t resist having one last dig on his way out of the door as he warned that inflation danger should not be taken lightly and that action should be taken (i.e. interest rates should rise) sooner rather than later, a stance that goes against what the majority of the Monetary Policy Committee is thinking right now. They have said that inflation will peak at 3% by the end of this year, but he said that “By the end of this year, I expect UK inflation to be nearer 4% than 3%”. * SO WHAT? * If this became the case, it could force the Bank of England to raise interest rates sooner and by more than they had planned. He added that a sudden change in stance on the interest rate that would be forced on the central bank as a result of rampant inflation would result in businesses and households facing higher living and borrowing costs and governments facing increased debt-servicing costs. His argument is that it would be better to raise interest rates GRADUALLY sooner to avoid the pain that a sudden change in stance would cause if no action was taken. Interestingly, Fears over inflation with factories set to raise prices (The Times, Philip Aldrick) shows that the British Chambers of Commerce (BCC) said in its latest survey that UK companies were the most concerned about inflation than they had been in almost ten years and that the proportion of UK manufacturers looking to raise their prices over the coming months was at its highest level since 1989! The official stance at the moment is that price rises are temporary and will calm down over the ensuing months.

Such price rises are having repercussions around the world and Your next round of drinks might be more expensive (Wall Street Journal, Alistair MacDonald) is just one example of how they could affect YOU! This article talks about how some winemakers, brewers and distillers are absorbing higher costs for now, but that rising prices for cardboard, aluminium, labels, transportation and energy are stacking up and likely to result in higher prices for the end consumer. * SO WHAT? * FWIW, I would have thought they’d be better off hiking up their prices now whilst lockdown freedom euphoria continues to build, rather than wait too long. I imagine that we will be seeing more of this um-ing and ah-ing in different industries as companies ponder how much they can actually raise their prices and when they should actually do so without alienating their customers. 

Savings surge, older workers look more vulnerable, Dixons gets more positive and Gap decides to ditch stores in the UK and Ireland…

Savings surge raises hopes for recovery (The Times, Philip Aldrick) cites the latest figures from the Office for National Statistics which show that the savings ratio, which tracks the amount that households save as a share of their disposable income, increased to 19.9% in Q1. * SO WHAT? * This is notable as it is the second highest level ever recorded as people spent £9.9bn less than they did in Q4 of 2020. It remains to be seen how much of this will be splurged on new trinkets and “experiences” as lockdown restrictions lift completely or whether the British public have picked up a new saving habit!

I’ve been talking a lot recently about what’s going on in the jobs market and Older workers most at risk after furlough phase-out (The Guardian, Phillip Inman) highlights findings by the Resolution Foundation which show that older workers will be most vulnerable to being made unemployed in the second half of this year as the government’s furlough scheme is phased out. It reckons that about 25% of workers aged between 55 and 64 could face unemployment as a result of this wind down. There will undoubtedly be tough times ahead.

Meanwhile, on the high street, Dixons returns to dividend list after gaming boost (Daily Telegraph, Laura Onita) shows that Dixons Carphone has a renewed spring in its step as it announced the resumption of dividend payments due to strong performance that has been powered by massive demand for TVs, laptops and games consoles under lockdown. Working from home has been a godsend for the company and it now feels confident enough to resume the annual dividend. The company’s share price jumped up by 5.9% on the news and it added that it thought that it would continue to benefit from the WFH trend and hybrid working in general. Burgeoning online sales (that now account for just over 45% of the company’s annual revenues) managed to offset the 55% fall in its loss-making mobile phone business.

On a rather less positive note, Gap to shut all 81 UK and Ireland high street stores (Daily Telegraph, Louise Moon) we see that the fashion retailer Gap has decided to pull the plug on its UK and Ireland stores in addition to selling off outlets in continental Europe as part of a massive shake-up. Closures will be phased within the month from the end of August. Customers will still be able to buy Gap clothes online when the stores shut down. * SO WHAT? * This is a massive fall from grace from a store that became ubiquitous from the 90s. Still, if you sell boring clothes that aren’t particularly good quality what do you expect?!? I just think that the competition has got better over the years and maybe it just got stale/over-confident after growing so large. It’ll be interesting to see what they do in America. There are so many better alternatives to buy your “basics” these days IMO, so I really think the company needs to take a good hard look at itself and adapt otherwise this death by a thousand cuts will just continue.

The global chip shortage continues to have repercussions and tourism continue to be covid-vulnerable…

Global chip shortage hits car production in China and Japan (The Guardian, Joanna Partridge) highlights the ongoing impact of the chip shortage as figures released yesterday from China show that manufacturing growth hit a four-month low due to the shortage, with figures from Japan’s Ministry of the Economy Trade and Industry reflecting the same phenomenon. Car production has been adversely affected and UK car dealer Pendragon (which owns brands like Evans Halshaw and Stratstone) says that the supply of cars is likely to be restricted going into the second half of this year. Ford to idle or curb output at more plants because of chip shortage (Wall Street Journal, Mike Colias and Nora Naughton) just backs this up even more as the blue oval considers cutting output at a number of its factories in July. Some observers have predicted that supply will ease in Q3, but it doesn’t look like it at the moment! * SO WHAT? * This must be incredibly frustrating for all concerned given that consumers are feeling increasingly confident about buying new vehicles. This means that all concerned parties may not get as much in revenue as they could have done without the supply

bottlenecks. I guess consumers may be a bit more understanding than usual about the time it takes to get their cars given what we’ve all been through, but this won’t last forever. Also, I think that there is a risk that the longer these delays extend, the bigger the risk of people who may have been toying with the idea of buying a car now may slide into delaying a purchase for much longer so they can buy an electric car. I don’t think that many people have actually commented on this, but I really think there is a risk that new car sales could start to dry up in the coming years as consumers wait until charging networks expand and EV prices come down.

Meanwhile, Covid tourism freeze could cost global economy $4tn by year end (The Guardian, Rob Davies) shows that the varying approaches on movement restrictions between countries is going to make a big dent in the global economy, according to a report by the United Nations Conference on Trade and Development (Unctad). No 💩, Sherlock! According to this report, countries like Turkey, Ecuador, Spain, Greece and Portugal all likely to be badly affected. Pandemic losses have risen to $2.4tn so far and they are getting higher by the day. * SO WHAT? * This pandemic has been exponentially tougher for smaller, poorer countries that rely on tourism but aside from handing out vast quantities of cash until flying restrictions ease completely, I would say that things are going to continue to get worse before they get better.

Didi debuts, Robinhood gets a slap, Nordic payment companies get together and Apple employees push back…

In other big stories doing the rounds today, Didi shares rise in biggest US listing by Chinese company since Alibaba (Financial Times, Miles Kruppa) highlights the trading debut of Chinese ride-hailing company Didi Chuxing on the New York Stock Exchange. It floated at $14, had a bit of a pop then settled at just below $15 as it raised $4.4bn.

Robinhood ordered to pay $70m penalty to US regulator (Financial Times, Madison Darbyshire) shows that the retail trading platform Robinhood has been ordered by the Financial Industry Regulatory Authority (FINRA, a Wall Street regulator) to pay over $70m in penalties for causing “widespread and significant” harm to its customers in addition to $12.6m plus interest for trading losses. * SO WHAT? * I think there are going to be loads more complaints like this until Robinhood smartens up its act. The sudden growth in retail investing and the gamification of investment was bound to have casualties but I think a lot more needs to be done to make sure that people are not getting in over their heads.

Meanwhile, Nordic payment groups merge to take on big tech (Financial Times, Richard Milne) shows that the big mobile payment providers in Norway (Vipps), Denmark (MobilePay) and Finland (Pivo) are going to merge in order to give themselves more scale to take on the likes of Apple, Google, Alibaba and PayPal. The new entity will be one of the biggest bank-owned mobile wallet groups in Europe but will obviously be scrutinised by regulators first. If all goes well, the deal could complete by the end of this year or the beginning of 2022. * SO WHAT? * I think you really need scale in the payments business if you want to be taken seriously. This is a big step but a necessary one to keep competitive – but will it really be enough??

Then in Apple not bending on flexible working (The Times, Louisa Clarence-Smith) we see that Apple is telling its staff to *!ss off if they don’t want to go along with the plan to come into the office on Mondays, Tuesdays and Thursdays from early September. Apple says that its innovations come as a result of in-person collaboration and they want to make sure it continues whereas disgruntled staff complain that they are being made to choose between working for Apple and quality of life. * SO WHAT? * I have to say that I think Apple does not need to bend to such demands. If people feel that strongly, they should just leave as there will be PLENTY of other people out there ready to take their place. I suspect that more companies will have to change their WFH policies as circumstances change.

…in other news…

I thought I’d leave you today with the heart-warming story in Mum takes toddler to her job interview with his own CV after she couldn’t find childcare (The Mirror, Luke Matthews). Ahhhhhhh 😍! If only more companies were like this!