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HM The Queen
KPMG’s royal connection

KPMG’s Zoom call with HM The Queen this week — to mark the accountancy firm’s 150th anniversary — was remarkable in many ways. Not least the poise of the monarch and her loyal Counters of the Bean when inevitable connectivity problems arose (who was hogging the bandwidth at Windsor Castle, one wonders?) Nor Her Maj’s evident knowledge of the business (although having Michael Peat, the P in KPMG, as one-time Keeper of the Privy Purse and Private Secretary to HRHs Charles and Camilla might explain that). But perhaps most remarkable is what this single video conference has done for KPMG. With partners still in the dark about this year’s profit share, and fallout from its audits of the collapsed Carillion still to come, royal approval has worked wonders for morale. On the company LinkedIn page where the Zoom recording is posted, staff now gush: “I am proud to be a member of the KPMG family”; “what a fantastic Christmas present”; and “a firm that defines culture and inclusion.” Steady on . . . Even more remarkably, it has proved accountants can do humour (of sorts). Other posters quip: “What a coup, in the nicest sense of course!”; “I am sure Her Majesty The Queen has a strong view on IFRS 9 & 17”; “And did you help her with her tax return?” Better still, the Queen has inadvertently enabled us all to play Zoom Buzzword Bingo, Royal Edition. Play the video and listen out for these classic online meeting phrases: “Nice to see you!”; “Sorry, Ma’am I’ve lost you”; “You’ve just disappeared, all of you!”; “I’m still here!” Look out for the Queen’s Speech on Microsoft Teams . . . 

Robin Ferris 
Fintech to food tech

UK fintechs have taken credit for helping people through the pandemic with nifty payment apps and online delivery services. But one Hackney-based techie has adapted the approach for those in need of more than fast fashion or an artisanal beard trimmer. A year ago, Robin Ferris created ‘tech for good’ business Bankuet to plug the gap in the supply chain for food banks. Then, when coronavirus hit the UK a few months later, he scaled up the business to negotiate deals to get tonnes of dietary essentials to struggling families from supermarkets such as Tesco and Morrison. Now, with The Trussell Trust finding food bank demand up 61 per cent this winter, Ferris is running a special Christmas campaign. He wants those who can afford it to donate £10 via the Bankuet donation platform to help with festive foodstuffs over the coming weeks. And it seems the local support-group ethos of the first lockdown has been revived electronically. “The team at Bankuet are encouraged by the generosity of the nation . . . something we are making possible at a click of a button using any device.” He’s also granted City Insider’s Christmas wish — by proving there is such a thing as an east London tech entrepreneur you can feel thankful for . . .

Ormonde Jayne
Eau, how clever

And finally, City Insider’s award for Zoom call of the Year — hopefully a one-off event. Runner-up is Yolt Technology Services for managing to keep five financial journalists on a call about banks’ application programming interfaces for 90 minutes . . . by making it a virtual wine tasting, with bottles delivered to the door. But the winner is Linda Pilkington, founder of London perfume company Ormonde Jayne . . . for enabling personal virtual samplings of up to seven of her exclusive fragrances. What clinched it? The name: Eau de ParZum®.



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European stocks stabilise ahead of US inflation data

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European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.



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Potash/grains: prices out of sync with fundamentals

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The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue

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Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.



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