Share Prices & Company Research


04 July 2022

Market Round-Up

Since Russia’s invasion of Ukraine back in February, energy prices have hit all-time highs, escalating fears that Russia is reaping the benefits from profits on oil and gas to fund its aggressive attack. Not only are the high prices fuelling the war, but they have also pushed millions of people into poverty as they tackle a cost-of-living crisis coupled with global food insecurity following a lack of supply from Ukraine. In an effort to curb inflationary pressures and prevent Russia benefiting, members of the G7 have agreed to study ways in which they can control energy costs via the possibility of placing price caps on Russian imports of oil and gas. Europe especially is attempting to balance the desire not to fuel a war in Ukraine with the need for natural resources across a continent that relies upon such products. This is an unenviable task and is likely to anger Russia, which is unlikely to accept such terms. The prospect of rationing is being tabled across Germany in particular, which relies heavily on imported natural gas and could be in a for a tough winter period.

Despite the importance of the introduction of the price caps, a G7 official has expressed that there will be many challenges before it can become a reality. Many restrictions have already been placed on Russia, causing Vladimir Putin’s regime to face many economic costs, however, these have not been enough to revamp economic growth or slow down the commodity, energy and food price shocks contributing to the highest inflation levels in decades. In a further development, the proposed plan is to tie financial services, insurance and the shipping of oil cargoes to a cap on Russian oil prices meaning that if any shipper or importer of Russian energy wanted to use the services, they must commit to a maximum price for Russian oil. France has agreed to the price cap mechanism, however, it believes it should go a step further by additionally reducing prices for non-Russian products to help households struggling with the cost of living. The G7 has also urged for a ban on imports of Russian gold to further restrict Putin’s ability to wage war.

In 2021, Boris Johnson announced his plans for an electric vehicle revolution to achieve the UK’s Net Zero target. The Climate Change Committee (CCC) urged that by 2032 at the latest, all new light-duty vehicles sold were to be fully powered by battery-electricity. While this is undoubtedly a success for the country’s green targets, the human toll on the legacy areas of the industry is likely to be reasonably significant with more than 22,000 UK jobs making engines or other traditional car parts being put at risk. The Society of Motor Manufacturers and Traders (SMMT) has recently announced that 15% of jobs in the UK’s automotive industry are in specialist areas including engines, exhaust systems or fuel tanks. These types of jobs involve very few transferrable skills which will leave many workers in structural unemployment. Boris Johnsons’ EV revolution is yet to fully take off, however, the inevitable transfer from traditional combustion engines to modern EV technologies should help to encourage companies to gradually re-train their staff and create a more efficient workforce.

Britain’s automotive sector is also facing further problems in which it is preparing to encounter a 50% increase in energy bills this year, disadvantaging businesses against rivals in the EU. The SMMT has laid out predictions that the industry’s annual energy bill will climb £90m in 2022 despite already being £50m higher than the EU competition. This places great importance on the UK government to work with the G7 to ensure a reduction in energy costs. The industry is likely to feel hard done by as the government has done little to help - the SMMT has asked several times that the sector be offered a discount on electricity prices by granting it “energy-intensive” status. In April, the government laid out a scheme to help energy-intensive industries, but car making was not included.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
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