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7 May 2022 THE WEEKThe Bank of England’s Monetary Policy
Committee and the US Federal Reserve
both met to consider interest rates.
Ahead of the meetings on Thursday,
the BoE was expected to raise it again
by a quarter-point to 1%, to combat
prices now rising at their fastest rate
in 30 years. The Fed was expected to
impose the first of several half-point
rises this year – as well as outlining
plans to shrink its $9trn balance-sheet
via “quantitative tightening”. The moves
coincided with renewed fears about the
health of the global economy following
a raft of downbeat data from Europe
and Covid-hit China.
The combination of gloomy data and
rising bond yields continued to weigh on
stock markets, following steep declines
last month. It was reported to be Wall
Street’s worst April in 52 years. The S&P
500 index of big US firms tumbled by
8.8%; the tech-dominated Nasdaq by
13.3%. Most other world stock markets
also produced negative returns in April.
The FTSE 100 was the one safe haven –
gaining almost 0.4%.
Billions of dollars were wiped off the
value of Tesla after founder Elon Musk
sold shares worth $8.5bn to help finance
his purchase of Twitter. Shares in the UK
chemicals producer Johnson Matthey
jumped by a fifth on takeover speculation
after New York’s Standard Industries took
a 5% stake. Apple employees rebelled
against plans to return full-time to
offices, claiming the move would make
the company whiter and more male.Amazon: shock reversal
Anyone looking for signs that the US economy is slowing “had plenty to gawk at” last
week, said DealBook in The New York Times. Exhibit number one? Even the mighty
Amazon has suffered its first loss in seven years. Shares in the e-commerce giant tumbled
by 10%, eradicating $150bn of value, after it reported a $3.84bn quarterly loss. The
group’s near 20% stake in the electric vehicle company Rivian was partly to blame, noted
Dominic Rushe in The Guardian – it lost $7.6bn following a 50% collapse of Rivian’s
shares. More worrying, though, is that the retail juggernaut’s growth rate has slumped to
its lowest “in nearly two decades”. Founder Jeff Bezos, who has taken a personal $14bn
hit, once described Amazon’s business as a “flywheel” – a perpetual growth machine, said
The Daily Telegraph. But the trends that fuelled its “rip-roaring” ascent – globalisation,
low interest rates and efficient supply chains – have gone into reverse. Indeed, analysts
predict the online retail business “will decline by double digits this quarter”. It’s hard to
believe that Bezos is happy “watching the steady decline of his empire” since he handed
over to Andy Jassy as CEO last year, said Matthew Lynn in The Sunday Telegraph.
Unless there’s progress soon, prepare for the founder’s “shock” return.
HSBC/Ping An: Chinese fox
HSBC is under attack from “an unconventional activist”, said Peter Thal Larsen on
Reuters Breakingviews. The Chinese insurer, Ping An – HSBC’s largest shareholder, with
an 8% stake – wants the $125bn bank to spin off its Asian operations. The case for a
split has “simplistic appeal”: Asia generated almost two-thirds of HSBC’s $18.9bn pre-
tax profit last year, and some argue that “a standalone Asian business could be worth as
much as the whole bank today”. But such calculations “ignore HSBC’s reliance on trade
and capital flows between East and West”. Moreover, a purely Hong Kong-based Asian
lender could be even more vulnerable to “geopolitical headaches”. HSBC top brass must
summon all their diplomatic skills and “deliver a polite no”. We should see this proposal
for what it really is, said Alex Brummer in the Daily Mail – a Chinese power grab. “It can
be no coincidence that Ping An decided to go public in its ambitions over the May Day
weekend sacred to socialists.” Ping An is “the fox seeking to get inside the HSBC chicken
coop”. It’s up to HSBC’s board, UK regulators and the other 90% of shareholders to
keep Beijing’s influence at bay. “There is no such thing as benign Chinese capitalism.”
Citigroup: Nordic noir
Jittery European markets had a real Nordic noir moment on Monday when a “flash
crash” on the OMX Stockholm 30 index sparked “an abrupt sell-off across European
equities that briefly wiped out s300bn”, said Bloomberg. The incident, which began
when a trader at Citigroup’s London desk made an error inputting a transaction,
highlights the risks of “computer-initiated sell orders”. The problem was “not the mistake
per se”, said John Plassard of Mirabaud & Cie, “but all the algorithms and stops that
were triggered”. This is another embarrassment for Citi, said Sophie Mellor in Fortune.
The “fat-finger error” recalls a similar incident in 2020 when a trader who meant to
send an $8m interest payment to creditors of the cosmetics company Revlon transferred
$900m instead. Citi was ordered to clean up its act. Clearly, there’s some way to go.
BP/Shell: pressure builds for a windfall tax
Big Oil has hit a seemingly unstoppable
gusher of cash. In its latest quarterly results,
BP announced that earnings “more than
doubled from a year ago, to their highest
level in more than a decade”, said Cat Rutter
Pooley in the FT. The oil major celebrated
its $6.25bn haul by “bumping up” its share
buyback programme by another $2.5bn,
which pleased shareholders. Still, the oil
majors should “brace for the calls for a
windfall tax” to help ease the burden for
those hit hardest by the cost-of-living crisis.BP’s energy profits took the edge off a
massive “bottom line loss” – driven by the $24bn write-down
of its Russian assets, including its stake in oil giant Rosneft, said
James Sillars on Sky Business. But even the $20bn black hole
hasn’t silenced those agitating for a levy – “so far rejected by
ministers” on grounds that it “would harm investment in the
country’s greener future”. Yet the issue is becoming ever morepolitically toxic, said Helen Cahill in The Daily
Telegraph. On the morning of Thursday’s local
elections, Shell was “poised to unveil a record
£7bn quarterly profit” – prompting fears of “a
backlash in polling booths”. Downing Street
has responded with threats of a tax if BP
and Shell fail “to support efforts to secure
Britain’s energy supply”.The Chancellor, Rishi Sunak, appears to have
left the door “ajar”, said The Observer. But
since Britain’s big drillers are already planning
more North Sea expenditure and low-carbon
projects, it feels like an empty threat. “This
has the hallmarks of a piece of political theatre intended to head
off public anger.” Experts may warn that households “face a
choice between heating or eating” – even as BP observes that it
has “more cash than we know what to do with”. But this is mere
“government grandstanding”, which gives Big Oil “very little to
worry about”.BP’s Clair Ridge platform, North SeaSeven days in the
Square Mile