Market Watch 22.03.2021

1. Deliveroo’s IPO presents a win for shareholder capitalism and transparency.

Beloved UK food delivery outfit, Deliveroo, are set to IPO on the London Stock Exchange in early April. Many avid customers of the firm have received the news via their email, enticing them to participate in the offering. The firm is set to make public £50 million worth of shares available to the public, with those on the email list being the main benefactors. Naturally, there is ambiguity regarding the details. How will the shares be priced? Will it be considered a Tech Company or Consumer staples? The former seems the most appropriate as the crux of the company is the technology that allows consumers to make orders – essentially the “middle-man” between buyer and seller.


The share structure is noteworthy also. The “A” Shares will yield one vote; “B” shares will yield 20. The fact that customers of Deliveroo have been emailed an opportunity to invest in the company, shows an attempt by Deliveroo to inspire an active involvement in the running of the company. This keeps shareholder capitalism fresh in the eyes of the consumer, and promotes enthusiastic engagement of the companies they are investing in. This is what the UK needs. Utilising the votes a consumer has as a by-product of owning shares, seems like a ritual of bygone days. This needs to change. Consumers and investors alike need to understand the intricacies of the businesses they buy from and invest in, especially in an age where ESG is such a hot button issue. In my opinion, shareholder voting is maybe even as important as voting in, say, a General Election. And this is solely because this is a privilege that some people do not have. Thankfully, Deliveroo has somewhat began to rekindle that flame, and hopefully this incentivises other firms to re-establish shareholder voting as a means of company transparency with its consumer base.



2. Long Hot Inflationary Summer?

Federal Reserve Chairman Jay Powell’s comments this week have sparked speculation from economists about how inflation will fare within the next few months. Powell spoke of how there may a slight uptick in inflation along with his sole intention of keeping interest rates at significantly low levels. He also increased the US economy’s growth forecast to roughly 6.5%. Regardless, the US 10 Year Treasury yield hit 1.75%, and a sell-off ensued. Powell tried to sooth investor fears regarding government debt, stating that the financial landscape was “highly accommodative” and that the Fed would not step in unless required to do so. Under this premise, the Fed has signalled no plans to alter the Central Bank’s Open Market Operations - $120 billion worth of bonds being purchased monthly.


Many analysts fear that the Fed will make a poor judgement call regarding inflation, and our waiting patiently for Consumer Prices data over the coming months. With the Fed’s commitment to let inflation run a tad hot, given how it’s been undershooting the Fed’s 2% target, economists are concerned that when the economy reopens, we could see prices rising quite uncomfortably. This is combined with the $1.9 billion stimulus package that President Biden has ushered in, thus adding extra liquidity to the markets. Similarly, the Fed has ruled out interest rate hikes until 2024. Come Summer time, all eyes will be on Powell.



3. Greggs to open more stores, despite first loss in 37 years.

Beloved UK baked goods giant Greggs is set to open around 100 new stores during 2021, in a bid to create 1,000 new jobs. However, this is relatively counter intuitive as for the 2020 financial reporting period; Greggs reported an annual loss of £13.7 million. Obviously, this was due to the Covid-19 influenced social distancing policy that constrained food oriented businesses to keep their doors open to customers. However, this venture is extremely clever as they are taking advantage of the collapse in rents, which is why Greggs is seeking to have half a dozen stores in the city centre of London. Similarly, the company has their sites on a target: 3000 stores. They currently have 2,078. If they succeed, they would outstrip McDonald’s market share within the food industry as they have double the premises of the well-known burger powerhouse. Naturally, this would be make excellent business sense, given that the UK economy is set to open by June 2021. With this in mind, Greggs should be able write off the loss of 2020 and continue to be profitable in the future.



4. Georgia’s political crisis.

The situation in Georgia captured the EU's eyes, which arrived in Tbilisi, the Georgian capital, to mediate the talks among the divided political parties to hope for a peace deal as an outcome. The country’s ruling Georgian Dream party and the opposition United National Movement have been fighting since October’s parliamentary elections. The crisis escalated with UNM leader Nika Melia's arrest last month in a police raid on the party’s headquarters. The UNM refused to take its seats in parliament, accusing the Georgian Dream party that the vote was not fair. The country plays an important role as a NATO ally in a post-Soviet region dominated by Russia. The intervention is an opportunity for the EU to mediate a crisis over democratic rights that has caused a deep gap among the popular parties and prove that the EU can solve the issue. Brussels has faced criticism for its failure to influence events in other neighbouring countries, such as Belarus. During the last couple of days, progress was being made among the parties and the EU delegates in several key areas. But negotiations are stuck on the two unease issues: opposition demands for snap elections and Melia’s release. The EU has to find a solution for a peace deal to demonstrate its role as the senior powerbroker and to underline the importance of democracy and the rule of law in the region. NATO is also watching the situation because of the interest of convincing Georgia to join the military alliance. Both Georgia’s main political parties support the formal application for EU membership in 2024. Still, they should consider that the actual conflict is not a positive sign to make a good impression.



5. Brussels sues Britain.

It has been three months since the UK left the European block and the problems among them start to show up. Last week, Brussels sued the UK at the ECJ over tax breaks in Gibraltar in an act of showing who is more powerful. The European Commission announced that Britain had failed to fully recover €100m of illegal state aid relating to tax breaks given to Gibraltar companies. The accusations against the UK pointed out that the Gibraltarian authorities had failed to claw back all the money more than two years after an EU order to do that. Margrethe Vestager, the EU's competition commissioner, said the illegal state aid gave an “unfair advantage” to some multinational companies. Even if the UK has now completed Brexit, the separation allows Brussels to continue pursuing old disputes to comply with the correct application of EU rules. Brussels has the right to bring cases before the ECJ for the next four years, as long as the complaints concern British branches of the EU law or failure to comply with EU’s regulations. The UK diplomats work closely with the Gibraltar governor and EU representatives to find a solution to the respective issue. This month a new tax accord took effect: the first UK-Spanish treaty on Gibraltar for over 300 years. The treaty establishes that Spanish nationals and companies that move to Gibraltar from Spain will continue to pay tax in Spain.



Thank you to James Ballentine for his collaboration and in-depth analysis!

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