Tuesday 22/04/25

US markets fall as Donald Trump attacks Fed chairman Jerome Powell (The Times, Emma Powell) reflects gloom stateside as US markets dropped while Trump continued to insult Fed chief Jerome Powell. The dollar also fell versus a basket of six major currencies to its lowest level since April 2022. Trump reacted angrily last week to Powell raising concerns about the negative impact of tariffs on the US economy and said that his “termination cannot come fast enough”. The president demanded immediate interest rate cuts. * SO WHAT? * The Fed is supposed to be independent, unswayed by whoever’s in charge of the White House. This is why markets react negatively – because if they think that the central bank can’t act without political interference then they take its actions less seriously because it is no longer able to act objectively. This, in turn, also increases the risk of losing control of the economy which can also result in currency weakness. Can Trump fire Federal Reserve chair Jerome Powell? (The Guardian, Leuren Aratani) reminds us that Powell’s term is supposed to run until May 2026. Although Trump is not allowed to sack him by law, there is currently a case making its way through the supreme court that could give the president more power over federal agencies and get him booted earlier. Trump has wanted Powell to cut interest rates all along (put bluntly, when interest rates go down, markets go up because it’s cheaper to borrow/invest which encourages businesses to invest and consumers to spend). However, given how badly markets have reacted to Trump’s tariffs, an interest rate cut now could well take the edge off – but Powell would argue that if the Fed does this now, it could once again stoke inflation and mean that the central bank would have to raise interest rates again. In other words, an interest rate cut now would have a limited effect.

Companies and countries continue to react to Trump’s tariffs. DHL Suspends High-Value Deliveries to U.S. Consumers Amid Tariff Turmoil (Wall Street Journal, Kimberley Kao) shows that Deutsche Post is suspending high-value shipments to the US due to customs clearance bottlenecks in the wake of new US rules. These rules mean that goods worth over $800 are subject to tighter customs processing versus the previous threshold of $2,500, causing delays. Hongkong Post did something similar a few days prior. Meanwhile, Beijing warns countries not to act against China in trade deals with US (Financial Times, Joe Leahy) has warned that it will retaliate against countries that negotiate trade deals with the US “at the expense of China’s interests”. China continues to react to the tariffs in China pulls back from US private equity investments (Financial Times, Harriet Agnew, Alexandra Heal, Antoine Gara, Kaye Wiggins and Cheng Leng) where state-backed funds have been pulling back on investment in the funds of US-headquartered private capital firms in response to pressure from the government.

Conversely, Boeing investors brace for fallout from Trump tariffs (The Guardian, Jasper Jolly) shows that China has started to turn back Boeing’s planes in protest while Air India keen to buy jets rejected by China as tariffs bite (The Times, Tracey Boles) highlights a bit of opportunism on Air India’s part to take up the unexpected slack resulting from this trade war. * SO WHAT? * Ultimately, this tariff malarkey is going to be painful for all concerned. Bilateral deals between individual companies seem to be the way forward at the moment, but I would have thought that this will evolve into more urgent discussions on trade partnerships that exclude the US in the medium to longer term.

Elsewhere, Harvard sues Trump administration over funding freeze (Financial Times, Andrew Jack) shows the Ivy League university fighting back against Trump’s suspension of $3bn of federal funding and increasing efforts to take more control. The government has accused Harvard of failing to address antisemitism on campus, hence the suspension. Harvard faces an existential test of its financial brainpower (Financial Times, Lex) shows that the White House can attack the university’s research funding, student aid and its tax-exempt status. Research funding is the easiest stick with which to beat the university while the other two may be a bit trickier and take more time. It could try to raise tuition fees and sell more executive education or perhaps split off its research activities so that different parts could fight separate battles with the White House. Whatever it does, its alumni perhaps need to step up to protect their alma mater in its time of need…

Further reaction to this turmoil is reflected in The Swiss Alps ski village that is luring nervous Americans (Financial Times, Mercedes Ruehl) which shows that some rich Americans are looking to secure bolt holes/investments outside the US as turmoil increases back home. A new development of apartments in the Swiss village of Andermatt has seen a major spike in interest from Americans in the year so far with over a third of this year’s sales and deposits being made in the week before Easter! * SO WHAT? * There seems to be a pattern forming of Americans both in the US and abroad making contingency plans to move assets to places like Switzerland in reaction to the uncertainty caused by Trump’s administration. A partner at KPMG in Zurich observed that the number of Americans contacting the firm regarding the taking up of residency there have more than doubled this year versus previous years.

China’s CATL says it has overtaken BYD on 5-minute EV charging time (Financial Times, Kana Inagaki and Wang Xueqiao) heralds an amazing development in the field of EV battery technology! The world’s biggest EV battery maker reckons that it has made a battery that can offer even faster charging than BYD, which last month unveiled a battery that could get a 470km charge in about 5 minutes. CATL says that its battery can get a 520km range from just five minutes of charging! Western rivals pale in comparison as Tesla vehicles can get 321km-worth of juice – but in 15 minutes – while Mercedes-Benz’s recent CLA can get 325km worth within 10 minutes using a fast-charging station. * SO WHAT? * This is amazing, don’t you think?? Not only will this mean the end of range anxiety – it’ll mean that the headache of installing charging networks will soon disappear. If you can get a decent charge within 5 minutes you could just have charging stations at existing petrol stations. On the downside, everyone’s going to want these batteries and you could argue that this will mean that China gets another category-killer. I would suggest that non-Chinese companies need to be supported to ensure that there is an alternative to the Chinese option but whether there is an appetite to do this right now is another question…

Britain to boost explosives production to cut reliance on imports (Financial Times, Sylvia Pfeifer) shows that Britain is about to expand the manufacture of explosives as BAE Systems has adopted new production methods that remove the need for nitrocellulose (aka “guncotton”) and nitroglycerine whilst also scaling up manufacturing capacity significantly, which means that it will be less reliant on the US.

Then in Steel, energy and sports cars: how China poured over $100bn into Britain (Financial Times, Any Borrett) we see that years of China investment into Britain ($100bn since 2000, according to research by the Rhodium Group) will be tricky to unpick if we want to go down that road. * SO WHAT? * About a third of Chinese spending on major UK projects has been in the fields of energy, tech and transport, according to the American Enterprise Institute think-tank. Now that we are seeing an unravelling of globalisation and a renewed mistrust of other countries and their ulterior motives, concerns about foreign ownership of key assets are emerging. This has been prompted most recently by Chinese ownership of British Steel’s Scunthorpe plant, although it has been brought up many times on previous occasions (remember Newport Wafer Fab??). However, I’d argue that the geopolitical landscape has changed now and the difference between allies and rivals has blurred significantly. This is going to sound somewhat defeatist but I am very sceptical that a push to more independence will make us fully self-reliant – but even some movement towards this end is better than none! The problem is that if Chinese are taken out of the picture for acquiring big assets, it means that prices will just rise for everyone else because there will be fewer buyers in the market. This might also hamper innovation and investment because less money from fewer funders could slow developments down somewhat.

In a quick scoot around some of today’s other interesting stories, Nomura to buy Macquarie’s US and European asset management units for $1.8bn (Financial Times, David Keohane and Nic Fildes) highlights a $1.8bn all-cash deal that will bump up Nomura’s funds under management to about $770bn. Since taking the top job at Nomura in 2020, Kentaro Okuda has been trying to shift the financial group’s focus towards wealth and asset management. * SO WHAT? * Once the deal completes, Nomura’s investment management business would earn about 60% of its revenues from outside Japan versus about 30% today – so this really is a big deal! This move is part of broader efforts to smooth out volatile revenue streams from trading and investment banking.

Following on from what I said last week about disgraced former star fund manager Neil Woodford starting a new retail-investor focused subscription-based investment service called “W4.0”, Neil Woodford times his second coming to perfection (Financial Times, Lex) suggests that although this sounds like an attractive idea in theory, the whole concept of “copy trading” (copying the trading patterns of others) is a lot riskier than it seems. The likes of EToro and others have popularised this type of trading despite its most popular trader only outperforming the S&P500 in two out of the last five years. * SO WHAT? * I’d say that Woodford’s offering is more attractive as he’s a proper fund manager with a ton of experience but then again, ETFs and other passive funds have proved to be an effective and cheap way for people to get exposure to markets. As I said before, I reckon that if W4.0 does well, then it could become an attractive acquisition target for the likes of eToro and Robinhood. This would give Woodford a handy payoff…

In retail news, Asda bets on convenience stores in hunt for growth (Daily Telegraph, Hannah Boland) shows that Asda is now aiming to double the number of new convenience store openings this year as part of chairman Allan Leighton’s plans to turn the company around. * SO WHAT? * Sorry, but this sounds like desperation to me. Everyone and their dog now does a convenience store format and it seems to me to be a very outdated way to go. IMO, Asda desperately needs to find and clearly define its own niche to distinguish it in a very crowded market OR perhaps have a proper convenience store format that isn’t just an expensive smaller version of its larger

shops. It should make them like “combeni” in Japan where they are a hub of truly top-selling goods and innovative products that change all the time. The smaller stores we see in this country are just so dull that anything pushing in a new direction would surely be good news, don’t you think?? Impressive though Leighton has been in the past, it seems to me that he’s stuck there and needs to do something truly innovative otherwise the likes of Aldi and Lidl will continue to eat his lunch.

Then in Halfords’ hard pedalling could steer it towards a takeover (Financial Times, Lex) we see that momentum at the cycling and motoring retailer is improving according to its latest trading update. Its share price boomed by an impressive 14% last week after languishing since the summer of 2021. Right now, Halfords’ motoring business accounts for about 80% of sales versus 20% from bikes. * SO WHAT? * The argument here is that this positive momentum should make it appear on the takeover radar. I’ve always said that I think that motoring is the way for this company to go. You’ve got people hanging onto their petrol cars for longer, which means that they need more maintenance and as the switch to EVs accelerates, there should be more business incoming from that as well. As far as I can see, the bike business has peaked. If I were to make a parallel here, I’d say that the biking business is to Halfords what the high street business was to WH Smith. IMO, Halfords should ditch bikes and go all-in on motoring, particularly as all these tariffs on China are going to hit badly on the cycling business. I reckon you’ve got three types of buyers for bikes – parents (who buy cheap bikes for kids, knowing that they’re going to grow out of them), commuters (who tend to buy one bike and ride it until it falls apart) and cyclists/triathletes (who often buy multiple bikes). The only ones worth bothering with if you want to make money are the cyclists/triathletes because they are less likely to flinch at the high prices of super-light bikes. Everyone else is too price-conscious to make any proper money IMO. But who would want to buy a bike business now? Maybe someone like Mike Ashley could come along and mesh it in with Evans Cycles. Actually, there could be value there at the right price because if they were put together, got some cost savings going and ditched unprofitable sites, they could end up with a better overall asset that could be sold off.

OK – so last week I brought you a bit of a ridiculous interaction between a very rich individual who wanted to sort out a flight – but today I bring you the demands of this guy’s friend, Mckenna, who needs to leave New York because “It’s just, like, really cold here and it’s grey and I thought it was supposed to be springtime here…the grey is giving me a headache” 🤣🤣🤣 (it was March). Spending $110,000 on a flight to Geneva from New York because “it’s not giving spring” is, well, quite something don’t you think?!?