European gas prices spike as Russia starts cutting supply

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28th April 2022

Bite-sized business news from the UK and beyond

Good morning Kellogg’s is taking the UK government to court over new rules that would prevent some cereals being sold in highly visible part of stores because of their high sugar content. The maker of Cornflakes, Coco Pops and Frosties says the rules ignore the nutritional value of adding milk to cereal, something it claims 92% of consumers do.
This raises a couple of questions: 1) will changing the location of unhealthy food do enough to tackle obesity and 2) who are the 8% of the population eating dry cereal?!

Today's stories

European gas prices spike as Russia starts cutting supply
Mixed earnings fortunes for Big Tech

RUSSIA
European gas prices spike as Russia starts cutting supply

What’s going on?
Yesterday in a major escalation, Russia cut off gas supplies to Poland and Bulgaria in a row over how payments should be made. The move rocked energy markets across Europe.

Why is this important?

Since March Russia has demanded that “unfriendly” nations – that is those who are critical of its invasion of Ukraine - pay for gas in rubles. But they’ve refused to do so stating that the contracts call for payment in euros or dollars.

But on Wednesday Russia went through on its threat and cut off supplies to Poland and Bulgaria. This sent European gas prices as much as 24% higher in anticipation that Russia will start halting shipments to other countries as well.

Poland said it was prepared for the move and could cope without Russian gas by using supplies from the US and Middle East. 90% of Bulgaria’s gas comes from Russia and it said it was working on alternative sources but for the time being no restrictions on gas use was needed.

Following the invasion of Ukraine, Western allies have sought to distance themselves from Russia by imposing tough economic sanctions including freezing the assets of wealthy Russians and excluding the country from international payment systems. But there was a reluctance to outlaw Russian gas as the EU is heavily reliant with 40% of supplies coming from the country.

Zooming out

The West have agreed to phase out Russian energy but with different timescales. The UK and US are much less reliant on Russian energy imports and will end them by the end of the year. It will take longer for the EU to wean itself off Russian gas but the short term reality is that energy prices - already five times higher than they were a year ago - will rise and continue to feed soaring inflation.

Other stories to keep you in the loop

Highest starting salaries in the UK revealed
UK retail sales slump as soaring energy prices hit households
Post-Brexit trade barriers increase price of food imported from EU
GlaxoSmithKline sales boost from shingles jab and Covid antibody treatment
Spotify’s subscribers rise to 182m despite Joe Rogan controversy
KPMG to cash in on tech funding boom with new venture
Tasty year for Gousto as revenues surge to £315m
Thousands of consultants now working to achieve Chartered status, one year after qualification’s launch

TECH
Mixed earnings fortunes for Big Tech

This week sees the first quarter results of five of the biggest tech companies in the world: Microsoft, Alphabet, Meta, Amazon and Apple. Together these companies make up around 20% of the S&P500. Microsoft and Google-owner Alphabet kicked off proceedings reporting mixed fortunes.

Microsoft made a strong start, beating revenue and profit expectations. Revenue from its cloud computing business was up 46%, and the main driver of the company’s outperformance. Another star performer was LinkedIn, the business bought in 2016 for $26bn and is now growing at 30%+ a year with $10bn in sales.

But Alphabet disappointed investors, missing revenue and profit expectations. While advertising revenue, from platforms like Google and YouTube, grew strongly by 22% year-on-year, the company said there are signs that businesses are spending less on digital advertising.

Alphabet is also investing heavily in its cloud computing business to catch up to rival services from Microsoft and Amazon. This, along with its extra spending to attracting visitors to its sites, meant that profits took a hit.

The company tried to soften the blow for shareholders by announcing a $70bn buyback of its own shares, one way to eat into its ginormous $170bn cash pile.

Stat of the day

In 2021 89% of UK adults listened to the radio at least once a week, the same proportion as 30 years ago

Interesting links from around the web

The Twitter thread that will make you better at Excel
How to put your diet on autopilot
A breakdown of what everyone gets paid at the biggest investment banks

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