Issue 117:2017 08 10:Week in Brief Financial

10 August 2017


NEWS, the word in pink on a grey background

POWER BOOST:  As the government ponders what to do, if anything, about promises made to review consumer electricity and gas prices, here comes some more competition to the supply side.  It is serious competition indeed – Royal Dutch Shell, the oil drilling, refining, and retailing giant has applied for a licence to become a power supplier, and will start with a serious customer – itself.  It will supply its 550 petrol stations in the UK, along with its own offices and refineries (no word at the moment about whether it will be switching to electric engines in its road tankers).  It is unlikely,however, that it will sign up for your domestic supply – it is mainly aiming at the commercial market.  Shell has been pondering the changing nature of energy usage for a while and considering how to protect its long term business as direct (and probably indirect) carbon based demand diminishes.  It is building a large North Sea based windfarm off the Netherlands and is believed to be looking at further investments on the UK shore.  Other than that it does not yet have any direct electricity generation plants, but it has built up a power trading company which deals in the London energy market, for which purpose it buys direct from some solar farms and from both land and offshore wind farms That has enabled it to build a customer base to whom it supplies power as a trader.  But with a licence it will be able to enter the market as a direct supplier – and to build further plants knowing it has longer term contracts in place to take the output.

CITY BOOST:  City of London rental agents have been increasingly glum about short term prospects for rental and value growth in the Square Mile, with muttering from various City occupiers that they may have to move some of their operations into the Eurozone after Brexit, with heavy knock on effects on a market that is already looking at record amounts of new offices under construction for delivery over the next three or four years.  But the gloom lifted a little at the end of last week as Deutsche Bank announced it had signed a 25 year lease for a new London HQ.  The building on Moorfields is 450,000 square feet and is currently a site preparing to begin construction – indeed the new lease is signed subject to the developer, FTSE100 company Landsec, getting detailed planning permission.  The bank has about 5,000 people working for it in London, but currently in several locations; the new building, to be ready in early 2023 (again subject to planning) will accommodate all of them.  Whilst this is very welcome news for the City market, and indeed for the City itself which seems to becoming once again bankers preferred choice as against Canary Wharf, its eastern rival, things are not on the upturn yet.  Some organisations such as Lloyds Banking Group are looking to reduce City occupational levels and move staff out to the provinces, where rents, and living costs, are lower.

WINDIER AND DEEPER:  Regular readers will know that this column takes a keen interest in sources of electrical power generation; as the world looks increasingly to “clean” sources of energy – and uses a lot more electricity – meeting the growth in demand from sources which are per se less efficient, with citizenry who oppose many developments to provide new sources of generation, is becoming a real challenge.  But there is sight on the horizon of a possible large scale solution to this – or more properly, beyond the horizon.  The Norwegian state oil company, Statoil, is looking to the long term, thinking about how it will maintain its business and its earnings when the oil runs out.  It has invested heavily into a project to build wind turbines – not the land and in-shore type, but true deep water turbines which can float in deep oceans, anchored to the sea bed but well beyond sight of land (and land based protestors) and also out of the way of most shipping lanes and bird life.  The principle is simple enough – the turbines have large keels, heavily weighted, so they will float upright; and will be connected to land by submerged cables.  There is much more, and more reliable, wind far out at sea, so the extra costs (not that much greater it is thought, if they get into mass production, than land turbines, as the latter require very expensive (and carbon rich) foundations), could be overcome, so they could be become a main source of supply by the mid 2020’s.  Six turbines will shortly begin generation about sixteen miles off north east Scotland, and another facility is been built ten miles off Aberdeen.  These are not that far offshore, it is true, but they are in the nature of trial projects and need to be close enough to monitor.  If they prove themselves, then the next installations could be much further out.

DON’T DRIVE AND EAT: But drive to the drive-through and drive away with a Greggs. Greggs, the traditional Newcastle-upon-Tyne headquartered bakery with a shop in almost every high street is moving into the drive through business, emulating MacDonald’s whose car sized golden arches it wishes to challenge. At the moment Greggs has just one drive-through outlet, in Manchester, but it has worked well, so the bakery chain is looking to roll out the model, it said, announcing good growth in the half year to July 1st with sales up 7% to a touch over £450m. Of that increase, about half was from existing outlets and half from new outlets. Greggs is also enlarging its range, diversifying from pastries and sandwiches to salads and healthy drinks. But it may have to move faster to keep up with the Big Mac who said recently it is now looking at home delivery to challenge the threat posed by the choice from such delivery specialists as Deliveroo.

NEVER WORK WITH: …children and animals, says the old saw. But Pets at Home are proving that at least partly wrong. Pets at Home does exactly what is says on the (pet food) tin – it provides everything you could possibly want for almost every type of pet that might be found in the home. It operates mainly large sheds on retail parks, the reasoning being that pet owners are happy to stock up just occasionally and to drive to their local retail park to do it. Recently it has added veterinary services to the retail offer – and now grooming parlours for the well turned out dog or cat (or even terrapin, perhaps). Those new additions have tended to be the strongest trading parts of the group, but recently Pets have taken a new line on their core businesses – cutting out special offers and promotions and going for consistent low pricing. That seems to be paying off – the latest four month figures, to 20th July, show sales up 5% overall, and on a like for like basis up 2.7%, (the difference reflecting the opening of five new stores). The veterinary division is still top money spinner though, like for like up 11%, but 19% up adding new openings.

KEY MARKET INDICES: (as at 8th August 2017; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, (unchanged): 3 month 0.28% (unchanged); 5 yr 0.73% (fall).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.12% (fall)

US$: 1 mth 1.23% (steady); 3 mth 1.31% (steady); 5 year 1.86% (slight fall) 

Currency Exchanges:

£/Euro: 1.10, £ weakening

£/$: 1.30, £ weakening

Euro/$: 1.18 € steady


Gold, oz: $1,272, slight rise

Aluminium, tonne: $1,980 rise

Copper, tonne:  $6,363, slight rise

Iron Ore, tonne:   $69.09, 10% rise

Oil, Brent Crude barrel: $52.41 slight fall

Wheat, tonne: £147, rise

London Stock Exchange: FTSE 100: 7,494 (rise).  FTSE Allshare: 4,102 (slight rise)


Steady market again, but much chat around oil (where gossips suggest supplies are quietly rising) and aluminium – where there is talk that the Chinese, now major players in the refining intermediation part of the market, are cutting back on environmental grounds.  That seems a bit unlikely but the aluminium price has moved up.


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