Friday 02/09/22

  1. In MACRO, CURRENCY & ENERGY-RELATED NEWS, Eurozone jobless hits a new low, sterling flirts with dollar parity, Germans face a wait for energy price relief, “Don’t Pay” gathers momentum, Network Rail braces itself and energy companies discuss a solution
  2. In TECH NEWS, Nvidia has China problems, Microsoft/Activision faces scrutiny, Twitter tries to edit and OnlyFans booms
  3. In CONSUMER/CONSUMER GOODS NEWS, hurdles for consumers pile up, Reckitt Benckiser has a ‘mare, Campbell Soup raises sales guidance and Pernod Ricard toasts a strong performance
  4. In MISCELLANEOUS NEWS, Credit Suisse aims to cut staff, Polestar makes a big loss and Aussie lithium refiner touts for customers
  5. AND FINALLY, I bring you the reason why milk neutralises spicy heat…

1

MACRO, CURRENCY & ENERGY-RELATED NEWS

So Eurozone jobless numbers fall, sterling weakens and the energy price impact deepens…

Eurozone jobless rate hits record low of 6.6% in July (Financial Times, Martin Arnold) shows that the number of unemployed in the Eurozone dropped to an all-time low of 6.6% of the workforce, which is impressive given the current energy and cost-of-living crisis. * SO WHAT? * I’m sorry to sound pessimistic, but I do wonder how long this is going to go on for as spending by both corporates and individuals continues to get squeezed. If factories limit hours to cut their electricity bills, surely the next step is cutting employee numbers in manufacturing. Also, I would have thought the service sector (which includes areas such as hospitality) will see a sharp rise in unemployment unless governments manage to get things right and stimulate their respective economies in the right way at the right time.

Pound slump raises risk of dollar parity (Daily Telegraph, Tom Rees and Eir Nolsoe) highlights the pound’s ongoing fall versus the greenback as the energy-crisis prompted sell-off continues. Sterling has not reached parity with the dollar (i.e. £1 = $1)  yet, but it seems to be heading that way – and the market is increasingly betting that it will hit this low. * SO WHAT? * This is clearly bad for Brits wanting to go on holidays to America and British importers – yet another thing to think about for the incoming PM. 

Meanwhile, on the subject of rising energy cost impact, Germans must wait for energy relief (Daily Telegraph, Patrick Mulholland) cites Germany’s finance minister as saying that although he’s about

to release “a massive release package” to take the edge off rising energy costs, he admitted that no direct household support would be forthcoming for at least a year and a half because of administrative delays! In the UK, ‘Don’t Pay’ energy bill protest gathers steam (Financial Times, Jennifer Williams) highlights the current state of the “Don’t Pay” campaign which advocates cancelling direct debits to energy companies en masse on October 1st. It is gathering momentum and some are drawing comparisons with the Poll Tax protests over 30 years ago where people pushed back against Margaret Thatcher’s proposed tax. Although I understand the sentiment here, I would say that if you didn’t pay poll tax, nothing would really happen in your daily life. If you don’t pay your utility bills, you will get cut off (and may have to pay a hefty fee to get reconnected).

At the corporate end of things, Network Rail braces for £1bn energy bill as costs rise by more than 50% (The Guardian, Alex Hern) shows that it’s not just pubs, restaurants and factories who are concerned about the massive rise in utility bills – Network Rail is as well and it expects its costs to increase by over 50% in the next financial year. Network Rail negotiates energy prices ahead of time and is locked into a low price for 2022 that will expire. Acknowledging the current situation, Industry backs plan to save businesses and homes up to £18bn a year (The Guardian, Alex Lawson) shows that Energy UK, the industry’s trade body, is pushing a plan that could save homes and businesses up to £18bn a year by separating prices charged for electricity generated from gas (which costs loads currently) and electricity generated from renewable sources (much cheaper in comparison). It is being considered by the government as one solution.

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

TECH NEWS

Nvidia hits China problems, Microsoft hits Activision problems, Twitter tries out the edit button and OnlyFans makes a huge payout…

China condemns move threatening access to advanced Nvidia chips (Financial Times, William Langley and Richard Waters) shows that US officials have told chipmaker Nvidia that it is going to need special licences to sell Chinese customers two of its processors that are used to accelerate AI calculations as relations between the US and China continue to be strained. They are used in military applications and in data centres. Needless to say, China doesn’t like this and Nvidia: metaverse chipmaker gets reality check (Financial Times, Lex) points out that Nvidia could potentially lose out on up to $400m in sales as a result of this, while investors sent the share price down by 12% on fears that the measures could be broadened. China is one of Nvidia’s biggest markets and is not easily replaceable. * SO WHAT? * This is all part of the needling between the two countries and America’s desire to retain a competitive advantage against China and Nvidia is caught in the middle of all of it. Given that Nvidia is the world’s second most valuable semiconductor maker after Taiwan’s TSMC, I doubt that the US government is going to compensate it.

Elsewhere in tech, Microsoft’s $75bn Activision deal threatened with in-depth UK competition probe (Financial Times, Jane Croft and Richard Waters) shows that the UK’s Competition and Markets Authority (CMA) is throwing a spanner in the works of this massive deal by demanding that Microsoft addresses antitrust concerns by

next week. The CMA argues that this deal will harm the likes of Sony and other console game makers while also potentially making things less competitive in new markets like gaming subscription services and game streaming. * SO WHAT? * The CMA is the first regulator in the world to openly question the deal and will perhaps embolden others to do the same. If the current deal went ahead as is, Microsoft would suddenly become the world’s third biggest gaming company by revenues behind China’s Tencent and Japan’s Sony. Interestingly, Brexit has meant that the UK’s CMA now has the power to veto prominent deals – in the past, this would have been Brussels’ responsibility…

Then in Twitter is testing a long-awaited edit button (Wall Street Journal, Salvador Rodriguez) we see that the embattled social media platform will soon be testing a much-vaunted “Edit” button (something that Elon Musk was also banging on about). It’s being tested internally at the moment, but will then be rolled out gradually to different sets of users. The button will enable users to edit tweets a few times in the 30 minutes post-initial publishing. How incredibly exiting…

OnlyFans site owner rakes in $517m payout (Daily Telegraph, Matthew Field) shows that the Ukrainian-American owner of the British adult subscription website OnlyFans has paid himself a dividends of over half a billion dollars in the last 18 months! The site was launched in 2016 by British entrepreneur Tim Stokely, who stood down as CEO in December. Porn certainly seems to pay in this case!

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

CONSUMER/CONSUMER GOODS NEWS

Consumers face more hurdles and consumer goods companies have mixed fortunes…

Consumers continue to face pressure from all sides. UK house prices rise at annual rate of 10% despite steeper mortgage costs (Financial Times, Valentina Romei) cites the latest figures from Nationwide which show that house prices rose at a double-digit rate for the tenth month in a row in August due to the lack of properties on the market (although the 10% figure was down on the 11% the previous month) and Diesel prices pick up again in ‘ominous’ sign for drivers (Daily Telegraph, Rachel Millard) shows that pressures are starting to increase again on drivers after two months of falling prices. Asda owner rakes in $1bn from soaring fuel prices (Daily Telegraph, Helen Cahill) highlights just how much EG Group’s fuel division has made in the first half of the year – and comes just a week after it announced it was buying 129 petrol stations from the Co-Op group for £600m. All of this has conspired to hit consumer confidence about household finances and Sun and strikes deter high street shoppers (The Times, Constance Kampfner) cites the latest data from the British Retail Consortium which shows that visits to the high street were below pre-pandemic heights last month due to the hot weather and rail strikes. Rising inflation is clearly putting pressure on spending and the BRC’s chief, Helen Dickinson, is calling on the next PM to freeze the business rates multiplier next year to avoid inflation running out of control. All eyes will be on Christmas for retailers now.

In news on consumer goods companies, Reckitt left in the lurch as chief joins Starbucks (Daily Telegraph, Laura Onita) shows that the chief exec of the company behind brands such as Dettol and Durex, Laxman Narasimhan, has left after three years to take the CEO job at Starbucks, triggering a 5% fall in the Reckitt’s share price. Reckitt Benckiser: surprise CEO departure causes market shivers (Financial Times, Lex) says that the concern of investors is understandable given that the company is now leaderless at a crucial stage. * SO WHAT? * These things happen. It doesn’t sound like it’s a Reckitt Benckiser thing – it’s a Laxman Narasimhan thing. Still, it’s not happening at a great time.

Then in Campbell Soup raises sales guidance despite inflationary pressures (Financial Times, Lydia Tomkiw) we see that the canned food company raised its guidance for the fiscal year and announced higher sales. It said that cost savings and productivity improvements will help it mitigate the effects of inflation. It wasn’t the only consumer goods company to do well, though – Pernod Ricard raises a glass to €10bn sales (The Times, Dominic Walsh) shows that the drinks group put in a strong performance across the board as it broke the €10bn sales barrier for the first time with the fastest growth rate in over 30 years. It seems that premium and super-premium brands saw strong demand as “an affordable treat”. * SO WHAT? * Pernod Ricard is the world’s second biggest drinks company behind Diageo and brands include Absolut, Chivas Regal, Glenlivet and Mumm. The question, though, is whether booze will continue to be seen as “an affordable treat” or an extraneous expense as consumers continue to feel the pinch.

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

Credit Suisse faces job cuts, Polestar has a ‘mare and Aussie lithium’s making its move…

In a quick scoot around other interesting stories today, Troubled bank looks to cut jobs (The Times, Ben Martin) shows that Credit Suisse, Switzerland’s second biggest lender, is going to cut about 10% of its staff after a review by the “new” chief exec. * SO WHAT? * This follows recent news of salary cuts at Goldman Sachs and job cuts at Berenberg, which have been prompted by a major slowdown in deal flow. Credit Suisse has the additional problem of having been involved in a number of scandals over the last few years that the new CEO is trying to clear up. I expect more cuts to come across investment banking.

Meanwhile, Carmaker Polestar slumps to $1bn loss (Daily Telegraph, Howard Mustoe) shows that the EV maker saw big losses for the first half despite sales almost doubling. Its rapid expansion and flotation costs combined to drag down performance. Polestar was set up by Polestar and bought by

China’s Geely prior to its June flotation. On the plus side, it’s got a decent $1.4bn cash buffer against additional losses and is going to launch the Polestar 3, an electric SUV, in October. Still, its share price has fallen by 46% since listing and fell 18% in trading yesterday…

Then in Australian lithium refinery targets carmakers diversifying from China (Financial Times, Nic Fildes) we see that Australia’s first battery-grade lithium refinery, which is the world’s biggest outside China, is now touting for business with EV makers as it looks to meet rising demand from companies who want to diversify their supply chains. Tianqi Lithium Energy Australia is jointly owned by Chinese group Tianqi and Aussie company IGO and is seeking to supply global automakers with lithium hydroxide, the refined product used in EV batteries. * SO WHAT? * Refinery knowledge is strong in China, so ventures like this are a good idea. Having said that, you do wonder whether Beijing could “weaponise” this knowledge and forbid such ventures in retaliation for all the flak they are getting.

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…

Ever wondered why milk (although not all milk – as you will soon see!) neutralises spicy food? Wonder no more by reading Doctor explains scientific reason drinking milk can help after eating spicy food (The Mirror, Amber O’Connor).

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Some of today’s market, commodity & currency moves (as at 0634hrs 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 **
7,149 (-1.86%)31,656.42 (+0.46%)3,966.85 (+0.3%)11,785.13 (-0.26%)12,630 (-1.60%)6,034 (-1.48%)27,639 (-0.04%)3,186 (+0.05%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$87.942$94.020$1,699.371.154620.99708140.3131.1579920,096

(markets with an * are at yesterday’s close, ** are at today’s close)