Friday 10/06/22

1. In MACRO & GAS NEWS, China digs in with Covid but exports rise, the ECB aims to raise interest rates and European gas prices rise even more
2. In TECH NEWS, Big Tech spends big to fend off legislation, Apple goes deeper with BNPL, Facebook rethinks news payments, Twitter continues with the Musk bid and chip shortages could dent prospects for next-gen phones
3. In EMPLOYMENT/SUPPLY CHAIN NEWS, the UK labour market continues to be tight, Unison gets frisky, feed and fertiliser costs keep rising and the supermarket/supplier relationship gets testy
4. In INDIVIDUAL COMPANY NEWS, Reliance edges closer to Boots, AO gives up in Germany, DFS gets less comfortable and State Street denies the rumours.
5. AND FINALLY, I bring you a very naughty (but also impressive) seagull…

So China digs in but sees exports rise, the ECB decides to increase interest rates and European gas prices get an unexpected bump up…

China digs in for permanent zero-Covid with testing and quarantine regime (Financial Times) is a really interesting article that refers to China building hundreds of thousands of permanent coronavirus testing and quarantine centres in many of its big cities. Lockdown measures and mass testing were imposed yet again in Shanghai in the Minhang district just one week after President Xi Jinping’s government declared victory in protecting the city from Covid after a two-month lockdown. * SO WHAT? * What an absolute nightmare for all involved. I do think it is pretty shocking how the authorities have deemed it enough of an issue to make these kinds of facilities permanent but I guess that this means that it will be easier in future to react to outbreaks of any kind – not just Covid. Still, it’s pretty much an admission that pandemics are here to stay and I guess that construction of such facilities will provide construction jobs…

On the plus side for China, Export surge shows China on the mend (The Times, Mehreen Khan) shows that China’s exports rose by a chunky 16.9% in May versus the previous year, in a sign that the economy may be bouncing back after the nightmare of Covid lockdowns. This was more than double market expectations and is the biggest jump since the start of the year.

I was glad I was sitting down when I saw this headline: European Central Bank to raise interest rates for first time since 2011 (The Guardian, Phillip Inman) shows that the ECB is planning to increase interest rates next month in order to curb inflation. It indicated that a 0.25% increase was on the cards – not a 0.5% increase hoped for by some – with further rises to come. * SO WHAT? * Given that Italy’s debt to GDP ratio rose to a hefty 160% during the pandemic, it is likely to be the country that could suffer most from a increase in interest rates given that its debt servicing costs will also rise.

Just to make things even more interesting in the field of energy, Gas prices jump after fire cuts US shipments to Europe by a fifth (Daily Telegraph, James Warrington) highlights news of a fire at a major export terminal in the US! This caused a massive kerfuffle because it threatened to wipe out deliveries and make global supply issues even worse than they already are! UK gas prices immediately shot up by up to 39% but then settled down to “just” 22% above what they were before the news while European prices rose by 16% at one point. The Freeport LNG facility on Quintana Island in Texas accounts for about 20% of all US gas exports and will be shut for at least three weeks. * SO WHAT? * I guess it could have been worse – and come in the depths of winter. Still, the timing is still not great given that Europe is currently boosting imports of US gas in its bid to wean itself off Russian supplies. This will all just add to the “joy” that is inflation…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Big Tech fights back with money, Apple goes it alone on BNPL, Facebook wobbles on news payments, Twitter ploughs on and chip shortages could affect next-gen phones…

Further to what I was saying the other day about new Big Tech legislation chatter, Big Tech has spent $36million on ads to torpedo antitrust bill (Wall Street Journal, John D. McKinnon, Ryan Tracy and Chad Day) shows just how much America’s Big Tech companies want to bury the bill that has been described as “one of the most radical policy proposals’ to regulate them. As I said before, the bill will essentially prevent them from using their platforms from giving their own products preferential treatment, which is why Big Tech is lobbying so hard. In contrast, groups supporting the legislation have poured in a massive $193,000 into their campaign 🤣! The lion’s share of Big Tech’s spend kicked in since May 1st ahead of this summer’s vote and represents one of the biggest ad campaigns embarked on by the industry for years. Talk about bringing a pea-shooter to a gun-fight! Tech says that the bill will make it harder to offer popular services but critics say that letting it slide will just hand it even more power than it already has. The drama is hotting up!

Further to Apple announcing its BNPL launch, Apple sidelines Goldman Sachs and goes in-house for lending service (Financial Times, Tim Bradshaw, Siddharth Venkataramakrishnan, Imani Moise, Joshua Franklin and Gary Silverman) deepens the intrigue as the tech giant said that it would offer these BNPL loans direct to consumers, bypassing previous banking partners including Goldman Sachs! These short term loans will be made through its wholly-owned subsidiary, Apple Financing LLC! As things stand currently, Goldman does have some involvement by enabling Apple to access Mastercard’s network because Apple does not currently have a licence to issue payment credentials directly. However, Apple will be doing the underwriting and lending via Apple Financing. * SO WHAT? * All of this means that Apple will be able to earn interchange fees from every transaction, give it more control over the data and help to accelerate its push into financial products. On the downside, if the customer defaults, Apple has to wear the loss. Intriguingly, Apple will be able to use customer data – like seeing how long you’ve owned an iPhone or how often you buy apps – to help decide whether you are a good customer or not! Although it won’t charge late fees for late payments, it will restrict access to additional short-term credit. Apple: new financing arm banks on credit (Financial Times, Lex) cites this move as a notable moment in Apple’s development, although there are clearly risks. Getting into BNPL at a time where global economies are not looking great does make you wonder about the timing, but then again you could

argue that iPhone owners tend to be more creditworthy overall and so the risk may not be as bad as it could be. The other thing that is particularly intriguing about this whole thing is that Apple will effectively be able to monetise all that data it’s been collecting on us over the years! Having said all this, it’s not certain that Apple’s move will be a success. After all, Apple has 1.8bn active devices worldwide – but according to eMarketer, only 44m Americans actually used Apple Pay last year (although I’d argue that this is probably going to continue to rise as time goes on).

Then in Facebook rethinks news deals, and publishers stand to lose millions in payments (Wall Street Journal, Alexandra Bruell and Keach Hagey) we see that Meta Platforms’ Facebook is revisiting its commitment to paying for news, leading to some news organisations to ready themselves for potential revenue shortfalls. * SO WHAT? * Interestingly, Facebook paid average annual fees of over $15m to the Washington Post, $20m to the New York Times and $10m to the Wall Street Journal so that it can use the content for its curated News section where users can read the content free of charge. Facebook had signed 3-year deals with these organisations in 2019 and they are up for renewal. Some are saying that the company is looking to shift away from news and towards products that bring in creators of short-form video content while its attentions are also being drawn to the metaverse. There’s everything to play for at the moment…

Elsewhere, Twitter to share data with Elon Musk as it presses ahead with vote on $44bn deal (Financial Times, Hannah Murphy) shows that the company is still going to go ahead with sharing data about its content with Elon Musk despite the latter overtly wobbling on the whole takeover deal. It also plans to hold a shareholder vote on the deal by early August. * SO WHAT? * Clearly, this shows willing by Twitter and I would have thought if Musk looks at the data as it may be a sign that he really will go ahead with the deal (but possibly at a reduced price?). The drama continues…

Then in Chip shortage threatens cutting-edge tech needed for next-generation smartphones (Wall Street Journal, Asa Fitch and Jiyoung Sohn) we see consequences of the ongoing global semiconductor shortages as the world’s two top-end chip manufacturers (TSMC and Samsung) are facing increasing difficulties re meeting deliveries. Some analysts are warning that the shortfall of some of the most advanced chips could be up to 20% by 2024 and beyond which would slow down overall tech development in areas including high-performance computing, AI and autonomous driving. Tough times – but until supply chains normalise, this is an inevitable consequence.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Unions get feisty, the labour market remains tight and supply chains face ongoing pressure…

Scramble for staff with tech sector top of league (The Times, Mehreen Khan) cites a monthly jobs report by KPMG and the Recruitment and Employment Confederation which shows that British businesses are continuing to have issues hiring as demand for staff is still extremely strong. Demand is strongest in the IT and computing sector as well as hospitality and catering. Overall, though, it’s a job-seeker’s market, which probably explains Unison warns of public-sector strikes unless pay deals match cost of living (Financial Times, Jim Pickard and Delphine Strauss) and the increasing confidence that unions are feeling at the moment. Britain’s largest union is pushing for inflation-linked wage increases for NHS and government workers and has warned of potential strikes if it doesn’t get what it wants. * SO WHAT? * As I said earlier, it is very much a job-seeker’s market at the moment and so unions can definitely take advantage of employee frustration. This won’t last forever, which is why I think unions are getting so feisty right now because they want to take advantage of it while they can and increase membership.

Meanwhile, supply chains continue to suffer in Steak dinners under threat as feed and fertiliser costs mount (Daily Telegraph, Tim Wallace) as meat processors are

warning that households will have to go for cheaper cuts of meat because farmers have had to cut back on fertiliser they use to grow grass to feed their cattle, meaning that they have to slaughter them earlier in the season. This yields lower quality meat and is only going to get worse with the closure of one of CF Industries’ fertiliser plants. * SO WHAT? * Just to give you an idea of the current situation, steak prices are up by 5% year-on-year, according to the ONS, with steakhouse chain Hawksmoor, saying that it is paying 25% more for steak than it was in spring last year. This is all resulting from the culmination of fewer people going to restaurants over Covid, Europeans starting to eat more of the cuts we like in the UK, fewer farmers and not enough cattle. More pressure on consumers’ wallets!

Then in Tension between supermarkets and suppliers over price rises (The Times, James Hurley) we see that, according to the Groceries Code Adjudicator, the relationship between supermarkets and suppliers is worsening for the first time in almost ten years as inflation turns the screws. Lidl is the worst at complying with the code while Aldi is the best as 80% of suppliers said that they have asked for at least one price increase over the past year. Other problems reported by suppliers include more delays in payments and invoices as well as forecasting errors. * SO WHAT? * Tensions will no doubt continue to build as supermarkets try balance the need to shield their customers from price rises whilst at the same time keeping their suppliers onside.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Boots get closer to fielding a buyer, AO leaves Germany, sofa demand falls and State Street denies the rumours…

In a quick scoot around other interesting stories today, Reliance Industries and Apollo Global Management in £5bn bid for Boots (The Guardian, Sarah Butler) shows that Boots is getting close to getting a buyer, which could be good news for stability and give it potential growth opportunities in India while Household electrical retailer decides to wash its hands of German market (The Times, Jessica Newman) shows that AO World has decided to call it quits in a German market that just wasn’t’ working for it. This came following a strategic review in January and it expects the withdrawal to cost it up to £15m. * SO WHAT? * AO World has been in Germany since 2014 and it has accounted for about 10% of the group’s revenue but AO World’s international business just hasn’t been consistent enough. The good times the company experienced under lockdown certainly seem to be a distant memory now…

Spending squeeze means demand for sofas starts to sag (The Times, Ashley Armstrong) shows that the cost of living crisis is hitting sofa demand, prompting a profit warning from DFS – a trend backed by figures from Barclaycard which shows that spending on furniture is falling. * SO WHAT? * I would add that a buoyant housing market is generally good for furniture retailers, but if things are slowing down there these retailers will feel the consequences. Also, the company did well under lockdown as more people stayed at home and given that sofas are generally a big ticket item, demand is likely to be particularly vulnerable in an economic downturn.

Given the rumours yesterday, I thought I’d mention State Street knocks down Credit Suisse takeover rumours (Financial Times, Owen Walker and Brooke Masters) as any investor excitement over a takeover of the embattled Credit Suisse proved to be unfounded. Back to the drawing board then…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

There are times when you have to stand back and admire the genius of nature. This is one of them: Notorious seagull who worked out how Tesco doors work steals £300 of crisps (The Mirror, Liam Buckler). I’ve heard of seagulls nicking chips or ice cream – but walking into a supermarket and stealing crisps is a new one on me! Although he likes mini cheddars (good choice), his favourite snacks are Doritos apparently…