Friday 😱 13/01/23

  1. In BIG PICTURE NEWS, US inflation slows, the US and Japan expand their security alliance while Biden gets in trouble, the Bank of England makes money from Truss and we see developments in energy, commodities and the latest in crypto
  2. In RETAIL NEWS, Tesco, M&S and Very have a strong Christmas while Asos and Halfords face issues
  3. In REAL ESTATE NEWS, Persimmon slows the pace, Savills sees a buoyant top end and a mortgage crunch looms
  4. In MISCELLANEOUS NEWS, TSMC is cautious, PC sales fall, Tesla cuts prices in the US and HBO Max ups its prices
  5. AND FINALLY, I bring you Waitrose vs Warburtons: the crumpet wars (there’s no contest in my book)…

1

BIG PICTURE NEWS

So there are some major developments for the US, UK, energy, commodities and crypto to catch up on…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

Inflation in the US drops to its lowest level in a year (The Times, Callum Jones) highlights that America’s inflation rate grew at its slowest rate in a year over the month of December (the annualised rate was 6.5%), vindicating the Fed’s dramatic hiking of interest rates over last year. The biggest contributor to the slowdown was the fall in petrol prices, but weaker used car prices also helped to take the edge off rising costs for food, rent, vehicle insurance and clothes. Meanwhile, US and Japan agree to expand security alliance into space (Financial Times, Felicia Schwartz, Kana Inagaki and Demetri Sevastopoulo) shows that both countries are extending their security alliance into space (“to infinity and beyond!” – wouldn’t it be great if someone said that in the meeting) in order to defend against any potential attacks on satellites amid growing concerns about threats from China. The implication here is that an attack on either party could lead to the invocation of Article 5 of the Japan-US security treaty which would prompt action “to meet the common danger”. This comes at a time when tensions are rising in the Pacific and Beijing is boosting the number of satellites it puts into space. Meanwhile, some old bloke got caught with confidential documents he stowed away in his garage. Oh no, that’s right – the old geezer in question is the President of the United States in Special counsel to investigate files found at Joe Biden’s home and garage (Financial Times, James Politi and Stefania Palma), which is a story about the potential mishandling of documents that were found in Joe Biden’s residential garage in Delaware and his former private office in Washington! A special counsel has now been appointed to investigate the matter and his lawyer is already getting the excuses in, saying that “these documents were inadvertently misplaced, and the president and his lawyers acted promptly upon discovery of this mistake”. * SO WHAT? * Although you’d have thought that some doddery old octagenarian (well technically he’s going to be 80 in November, but whatevs) leaving documents in a garage shouldn’t be newsworthy, the fact is that this particular one has quite an important job and he accused predecessor and sprightly septuagenarian Donald Trump of mishandling sensitive government records at his Mar-a-Lago estate in South Florida, saying that Trump was “irresponsible”. God knows where this will lead, but it’s certainly not going to burnish Biden’s reputation!

In the UK, Centrica forecasts near eightfold rise in earnings after energy prices soar (Financial Times, Sarah Provan and Nathalie Thomas) shows that British Gas owner Centrica is expecting a near-eightfold rise in its full year earnings even after taking into account new windfall taxes. This is a notable uplift in its projections versus its previous guidance in November. * SO WHAT? * Centrica’s profits are way less than those enjoyed by the likes of

Shell and BP but it is seen as the face of “greedy” energy companies as it is the biggest electricity and gas supplier to British households. It hasn’t endeared itself to the British public by reinstating the dividend it cancelled during the Coronavirus outbreak and then following that up with the announcement of a £250m share buy back in November. That being said, Energy bills forecast to fall further as gas prices tumble (Daily Telegraph, Rachel Millard) shows that Investec reckons that gas prices are going to fall thanks to warmer than usual weather, meaning that the government’s bill for energy bill support will be a lot less than had previously been thought. OK so bills will still be higher than they would normally be, but this is at least better than expected.

Then in commodities news, Copper rallies on hopes of China economic rebound (Financial Times, Leslie Hook and Harry Dempsey) shows that both copper and iron ore prices are rising again as China appears to be opening up its economy after a protracted period of strict Covid lockdowns. Chinese steel mills are starting to build up inventory again and demand is expected to rise across the board, potentially driven by a construction industry that is pretty weak at the moment. Copper/China: red metal’s purple patch is set to continue (Financial Times, Lex) suggests that copper prices are likely to continue to rise given that China usually accounts for over half of copper demand (when it’s not locking itself down every five minutes!) and that construction activity has a good chance of rebounding strongly because Beijing has been channelling significant effort to sort out the real estate industry.

Sweden discovers biggest rare earths deposit in EU (Financial Times, Sam Fleming) shows that the state-owned mining company LKAB has discovered Europe’s biggest deposit of rare earth metals in Lapland, which could definitely help the continent’s efforts to wean itself off over-reliance on imported raw materials. * SO WHAT? * Despite the fact that they are called “rare earths”, they are actually quite common but it is the extraction of the minerals that is the tricky part. Right now, China accounts for over 80% of the world’s rare earths processing capacity and projections are such that demand for metals used in EVs and wind turbines will quintuple by 2030 – so a big discovery in Europe is a welcome development, although we are unlikely to be seeing production for a few years yet.

Meanwhile, there’s bad news in the offing in Liberty Steel to shed quarter of workforce (Daily Telegraph, Howard Mustoe) as the company is going to start consultations with over 440 workers and will idle its West Bromwich plant and convert its Newport plant into a storage facility. Jobs are also likely to go in Rotherham due to the high production costs and the company will now focus its efforts on steel for defence, energy and aircraft-making customers that will get it back to profitabilty.

In crypto news, Wall Street’s top cop trains his sights on crypto (Financial Times, Joe Miller) shows that Damian Williams, the US attorney for the Southern District of New York, is gearing up to take on Sam Bankman-Fried (SBF) and FTX while I didn’t steal funds, says ex-FTX boss (The Times, Katie Prescott) shows that SBF is going to dig his heels in and stick with denial. He made a detailed blog post blaming the collapse of his business on other factors, including a “market crash” and said that “I didn’t steal funds, and I certainly didn’t stash billions away”. * SO WHAT? * He still maintains that if FTX were to start again today, “there would be a real possibility of making customers substantially whole”. He stands accused of the misuse of billions of dollars of customers’ funds to purchase property and making political donations, among other things. Former senior colleagues have been turned and are now co-operating with authorities. As the headlines pile up, it really does seem to me like regulators will HAVE to come in and regulate the world of crypto before more damage is done. I’ve said this before, but I really think that we need to get crypto right NOW before we all start going to the metaverse otherwise all hell will break loose. If you can’t get it right in “2D” then “3D” is going to be a nightmare IMO!

*** NEWS JUST IN – UK GDP rose by 0.1% between October and November 2022, according to the latest ONS stats. This was unexpected and was thanks to stronger services activity linked to the World Cup. Also, Crypto.com just announced that it is going to cut headcount by 20% in the wake of the FTX collapse! ***

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!

2

RETAIL NEWS

Christmas has proved to be a mixed bag for retailers…

Christmas has been merry for some – but not all – retailers as per Cash-strapped shoppers deliver festive boost at Tesco (The Times, Helen Cahill) which shows that Tesco had “strong” Christmas trading – while the CEO cautions that inflation hasn’t peaked yet – and M&S enjoys bumper Christmas with best ever food sales (The Guardian, Sarah Butler) shows that the high street stalwart took its biggest share of the clothing and homewares market in seven years and its biggest ever market share in food over the Christmas period! What was particularly impressive about M&S was that it managed to increase the number of items sold and make its clothing and food offerings more attractive. Demand for air fryers and electric blankets boosts Very (Daily Telegraph, Matt Oliver) shows that online retailer Very.co.uk also had a merry Christmas and were an impressive 20% up on pre-pandemic levels! Fun fact: Very.co.uk sold the equivalent of one air fryer every 30 seconds in the seven weeks to Dec 23rd!

On the other hand, Asos to close warehouses as revenues fall (The Times, Isabella Fish) highlights tough times at the online apparel retailer and owner of the Topshop and Miss Selfridge brands. The company is going to cut office space and shut down three warehouses in the second half of this year as part of a £300m cost-saving plan. The drop in sales was blamed on weaker consumer sentiment, Royal Mail strikes and other problems in the delivery sector which meant they had to implement earlier cut-off dates. * SO WHAT? * This is clearly bad news and I have to say that I think that the Royal Mail strike must have hit Asos harder than other apparel retailers with a “bricks-and-mortar” offering because there would have been no other way for potential customers to get their hands on the goods! In the end, I think that the high street actually got a bit of a boost in the lead-up to Christmas as shoppers became unnerved by the uncertainty of delivery and decided to pound the pavements instead and go old-school! On the plus side, the company reckons that profitability will improve considerably in the second half of the 2023 financial year, partly because it thinks that return rates that spiked when the Ukraine war started will return to normal levels.

In Halfords warns on profits after staff shortages take toll (Financial Times, Abby Wallace) we see that the purveyor of bike and car parts had a profit warning and blamed it on ongoing staff shortages and weakening demand for high-ticket items. Investors took fright and sent the shares down by 20%. * SO WHAT? * It sounds like the company is suffering particularly acutely from the tight labour market – and there’s not really much it can do about it at the moment without incurring more costs and doing things like upping salary. I think that’s a fair point re customers being more reticent about buying big ticket items – and although children’s bike sales were up 4.6% year-on-year, sales of adult bikes were down 12%. However, I would argue that, last Christmas there was a shortage of kids’ bikes and sales of adult bikes were inflated by that whole “wanting to avoid public transport thing” where a lot of people went out and bought a bike. Offering decent and reasonably-priced servicing is, IMO, the way to go as most people haven’t got a clue about how to whip out an inner tube when you get a puncture, let alone how to tinker around with gears – so servicing will at least get customers back into the shop, where they could potentially make other discretionary purchases. This sounds terrible to say, but I am sure that their staffing situation will improve once the labour market loosens up a bit. Longer term, I still like the company, particularly as it is trying to build up and consolidate its car maintenance offering as well – something that should do well in the next few years as people hang on to their cars for longer before they make the change to electric. Halfords is also trying to position itself beyond this as it is training up EV mechanics.

Overall, though, UK retail: barring humbug, Christmas sales have gloomier tale to tell (Financial Times, Lex) acknowledges that there have been some notable retailer successes but says that consumers may have been willing to make a final hurrah before reality hits in January and margins come under focus once more. It suggests that retailers have been finding it increasingly difficult to pass on higher prices and I guess that, by inference, this would imply that the next few months at least are going to be difficult given the absence of the “Christmas incentive”.

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!

3

REAL ESTATE NEWS

Residential and commercial property is another mixed bag at the moment…

Persimmon to slow pace of building as sales fall (The Times, Tom Howard) highlights the situation that one of the country’s biggest builders is currently facing -one where customer demand for their properties has more than halved since the summer, following the rise in interest rates, the end of the Help to Buy scheme and the whole mini-Budget debacle last year. Sales rates were even worse than rival Barratts’ and it looks like the company is going to slow down operations until the market picks up again.

At the “luxury” end of the scale, Savills bolstered by buoyant market for high-price property (The Times, Tom Howard) reinforces that whole thing about the higher you go up the socio-economic scale the less affected people are with our current economic situation. Savills said that it will maintain its full year forecasts as a result as demand for multi-million pound houses has remained stubbornly robust. However, it is worth noting that about 50% of its revenues comes from things like investment

management, property management and consultancy and only 10% actually comes from being a “traditional” residential estate agent. Meanwhile, First-time buyers spend 40pc of their salary on mortgage payments (Daily Telegraph, Rachel Mortimer and Jack Ryan) shows that first-timers are facing a massive affordability crisis that we haven’t really seen since the financial crash. Analysis by building society Nationwide shows that the average first-time buyer is spending a whopping 39% of their net take-home pay on mortgage payments in the final quarter of last year. How London is most exposed to mortgage crunch (Daily Telegraph, Rachel Mortimer) shows that housing affordability is now getting so ridiculous that a whole generation of first-time buyers could be priced out of the market in London. * SO WHAT? * All of this just goes to show the massive difference between the top end of the market and the rest of it! Prices do go in waves and I have no doubt that London will become more affordable again, but for the moment, prices are out of reach for a lot of people and servicing the debt to buy will be much more expensive for a while yet.

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!

4

MISCELLANEOUS NEWS

Tough times for TSMC and PCs while Tesla jacks up prices, as does HBO Max…

In a quick scoot around some of today’s other interesting stories, TSMC gives cautious outlook despite strong earnings (Financial Times, Eleanor Olcott) shows that the world’s biggest contract manufacturer of computer chips outlined a cautious outlook although it did report strong financial earnings so far. It expected 2023 to be a year of “slight growth” because of a cyclical downturn in the chip industry, which is perhaps exacerbated by Sales of new PCs fell 16% in 2022 amid post-Covid glut (The Times, Katie Prescott), which shows weakening PC demand, which is bad news for chip makers as chips go into PCs. * SO WHAT? * FWIW, I still think that demand for chips is going to go up strongly in the longer term, not so much in PCs, but in the automotive industry as people are forced to buy electric cars which have more chips in than “conventional” ones do. TSMC is conducting a global expansion project and building fabrication plants (aka “fabs”) in Japan, the US and Taiwan – and is thought to be in advanced talks with suppliers about its first European fab in Germany.

Meanwhile, Tesla cuts prices across models sold in US (Wall Street Journal, Rebecca Elliott) shows that the company has cut the prices of some of the vehicles it sells in the US by up to 20% as it tries to tempt new buyers. The cuts will mean that some buyers could qualify for the $7,500 US government tax credit! Most notably, the price cuts bring Tesla’s most popular vehicles – the Model 3 and the Model Y – within the qualifying range. * SO WHAT? * This does smack of desperation IMO and I wonder what customer response will be! We have already heard about disgruntled Chinese customers protesting at price cuts of 13%. Competition in EVs is hotting up…

Then in HBO Max lifts price of ad-free viewing as streaming’s growth stalls (Wall Street Journal, Will Feuer) we see that Warner Bros Discovery is hiking the price of its ad-free subscription by $1 a month from $14.99 to $15.99. This will be its first price increase since it launched in May 2020. * SO WHAT? * This will help Warner Bros Discovery finance more original content and further distinguish between ad-supported and non. It’ll be interesting to see whether we see streamers in a race to the bottom on prices as they try to attract an increasingly thrifty client base. I don’t think we’re seeing that now, but we might see this further down the line…

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!

5

...AND FINALLY...

…in other news…

Do you like crumpets? I do. I’ve tried many over the years and for me, Warburtons are still the benchmark. ‘I pitted Warburtons crumpets against Waitrose – one held butter perfectly’ (The Mirror, Julia Banim) shows one woman’s quest to find out if anyone else can even come close! Ever had crumpets with marmite and melted cheddar? That is a good combo. Another “fancier” version is stilton, walnuts and a little bit of lightly crisped sage on the top. You want to go for a little light toasting of the walnuts and the cheese nicely melted in 👍

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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