Friday 06/05/22

  1. In MARKETS, MACRO & INDUSTRY TRENDS NEWS, US markets plunge, the Bank of England raises the interest rate, UK businesses have a tough time, German and French manufacturing suffers while Finland and Sweden face a tricky NATO problem
  2. In LOCKDOWN WINNERS/LOSERS NEWS, we look at lockdown winners-turned-losers (Shopify, Peloton and Netflix), loser-turned-winner (Trainline) and a continued winner in DoorDash
  3. In CONSUMER TRENDS/RETAIL NEWS, car sales are likely to weaken (but Bentley sales are strong!), Etsy has a rough patch and pig farmers appeal to Tesco
  4. In INDIVIDUAL COMPANY NEWS, Twitter gets more financing and Shell makes big profits
  5. AND FINALLY, I bring you a baby sumo wrestler…

1

MARKETS, MACRO & INDUSTRY TRENDS NEWS

So US markets move, it’s the Bank of England’s turn to raise the interest rate, UK businesses hit turbulence, German and French manufacturing suffer while Finland and Sweden face a NATO dilemma…

Fears of inflation and recession send US technology shares reeling (The Times, Callum Jones) show that tech stocks had their worst trading session on the NASDAQ since March 16th 2020 with Amazon, Netflix and Apple taking big hits. This was largely due to investor fears about the effects of inflation and possibly the ongoing sector rotation from growth stocks (where the value tends to be in future earnings potential) to value stocks (where the value is something that is more tangible in the present or near-term).

Bank of England warns of UK recession this year as it lifts interest rate (Financial Times, Chris Giles) shows that the Bank of England decided to raise interest rates from 0.75% to 1% in order to curb inflation, but it added that it expected the UK economy to go into recession this year and that inflation would rise above 10%. Rising cost of borrowing is of little benefit to savers (Daily Telegraph, Will Kirkmam) makes the point that savers are unlikely to benefit from a higher interest rate because their spending power will shrink more thanks to inflation.

UK businesses hit hard by rising energy and material prices, official data show (Financial Times, Valentina Romei) cites the latest figures from the ONS which shows that around 50% of UK businesses say that the prices of materials, goods or services bought in March were higher. 23% of businesses said that increased prices were passed

on to the end consumer, but things have been particularly difficult for the hospitality sector. Rampant inflation puts the brakes on services sector growth (The Times, David Byers) cites the latest S&P Global/CIPS services purchasing managers’ index – which covers retail, hospitality and leisure services – that confirms this trend of rising costs. Fuel, energy costs and wages weighed most heavily on respondents.

Things aren’t any better on the Continent either as German and French factories hit by Ukraine war and China lockdowns (Financial Times, Martin Arnold) reflects the findings of the S&P Global/CIPS Eurozone manufacturers’ purchasing managers’ index which show the cumulative effect of the Ukraine war, skyrocketing commodity prices and the Coronavirus lockdowns in China. New orders were harder to come by and although order books are still full – at least in part because of supply chain challenges – you wonder whether, by the time the backlog calms down, whether the customers are still going to be there.

Meanwhile, Finland and Sweden face security dilemma ahead of Nato decisions (Financial Times, Richard Milne and Henry Foy) highlights a delicate – and urgent – problem faced by the two countries who are currently thinking about joining NATO – that even if they did become official members, they would not be covered by Article 5 (which is the defence commitment that an attack on one member will get a response from all of the alliance – the bit that makes them want to join in the first place!) for up to a year. Although signing up these two members is likely to be fast-tracked, it might take longer for all the members to existing members to approve – ratifying NATO’s most recent member, Macedonia, took nine months (although I’d argue that surely it will take less time than this given the current circumstances). The drama continues…

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

LOCKDOWN WINNERS/LOSERS NEWS

We look at lockdown winners who are losers, a lockdown loser that’s become a winner and a winner that’s still a winner…

In a look at examples of companies that were lockdown heroes but are now recovery zeroes, Shopify shares fall as earnings underwhelm (Financial Times, Shotaro Tani) shows that Shopify’s Q1 earnings fell below expectations – and its share price fell by almost 20% on the news as a result. Although its sales over the three months were actually up by 22% year-on-year, this represented the company’s slowest ever growth rate. The share price has tanked by over 70% so far this year. * SO WHAT? * Shopify did brilliantly over lockdown as more people used its platform to set up online stores and sell things but the opening up of physical shops has eaten away at this growth. Although they have suffered recently, this didn’t stop the company from buying San Francisco fulfilment start-up Deliverr for $2.1bn in a mostly cash deal in order to boost its logistics chops so that it can better compete with Amazon. Online shopping continues to expand and I personally would have thought that there is enough space here for a company such as Shopify to thrive alongside rivals.

Then in Peloton seeks minority investment to shore up business (Wall Street Journal, Cara Lombardo and Dana Cimiluca) we see that Peloton is looking at selling a 15-20% chunk of itself in order to bolster its flagging finances. The valuation of the company was about $50bn at its peak, but is now languishing at around $5.6bn. It has already changed its chief exec and has plans to cut 2,800 jobs – but these measures have not been enough to arrest the slide. * SO WHAT? * FWIW, I think that the true value of Peloton lies in its community and services rather than the manufacture of bikes (and other things). As far as I’m concerned, its bike is not really that different from anything else in the market and it benefited from slick marketing and perfect timing during the pandemic. However, in order to survive long term I think that it should concentrate on developing its community. Anyone can make bikes. I think it’s much harder to build engaged communities.

Investors sue Netflix after fall in subscribers (Daily Telegraph, Helen Cahill) caps off an absolutely 💩 few weeks for the streaming giant as it turns out that some investors are claiming that the company misled them about its ability to retain customers after unveiling its first subscriber loss in more than ten years. They allege that the company made “materially false” statements about Q1 subscriber growth, misleading them about the company’s prospects given that expectations were for the company to add another 2.5m subscribers, when it actually lost 200,000. The class action represents investors who bought Netflix shares between October 19th 2021 and April April 19th 2020. * SO WHAT? * It never rains but it pours. Although this does, at first glance, sound a bit like investor sour grapes, the sheer difference between the expectations and actuality in subscriber numbers does look a bit iffy. This will probably be a further drag on the shares until it is resolved. Maybe now is the time for Netflix to sort out its dirty laundry while sentiment is already bombed out.

On the flipside, Trainline is back on the right track (The Times, Dominic Walsh) is an example of lockdown-loser-turned-winner as this article shows that the online ticket seller has seen business return to pre-pandemic levels as ticket sales have more than tripled, helping it to narrow its losses. * SO WHAT? * The company’s share price rose by 9.3% as it predicted strong growth this year, which then resulted in analysts upgrading full-year forecasts. This is a good performance and I would have thought that things should go well into the end of the year as more people start to travel further afield after two years of Covid.

Then in DoorDash revenue rose 35% last quarter as consumers continued to order in (Wall Street Journal, Preetika Rana) we see that US food delivery operator DoorDash had a decent Q1, perpetuating its winning ways in lockdown, but its growth rate is slowing down – something that rival Uber Eats is finding. In the UK, both Deliveroo and Just Eat Takeaway are also seeing a bit of a slowdown (the latter is currently trying to offload its US business GrubHub). * SO WHAT? * DoorDash’s market share is now 57% and it has benefited from its strong delivery network. Can it keep growing though?? I think that success in this industry depends on scale, because this can help to drive costs down. I suspect there will be further consolidation in the industry.

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 TRENDS/RETAIL NEWS

Car sales are predicted to waver (although not at the premium end) while Etsy faces rebellion and Tesco faces calls from farmers…

New car sales hit the brakes as customers struggle (The Times, Robert Lea) shows that the UK’s automotive industry body, the Society for Motor Manufacturers and Traders, has downgraded sales forecasts for the year by a chunky 9%, taking into account booming car prices, the effect of a rising cost-of-living, upwardly-mobile interest rates and ongoing supply chain problems. Not a problem if you’re doshed-up enough to buy at the top end, though, according to Bespoke cars power up profits at Bentley (The Times, Robert Lea), which points to a rather different picture in the world of expensive cars. Although unit volumes faltered slightly over Q1, the average selling price increased from £145,000 to £215,000 as keen owners customised their cars. * SO WHAT? * OK, so top end sales are still fine, but I really think that sales of “normal” cars will ease given how much strain household budgets are coming under. In addition to this, I think that more car owners are going to hang on to current vehicles for longer than they normally would as they are holding out for EVs. Short-to-mid-term financial pressures are the perfect excuse not to buy now and the closer we get to the 2030 EV deadline, the more people will convert to an electric future.

Then in Etsy: ecommerce platform takes on the fee fighters (Financial Times, Lex) we see that the online crafts marketplace is currently experiencing a bit of drama as the company decided to raise transaction fees from 5% to 6.5% last month, causing uproar among sellers on the plaform. 18,000 sellers went on “strike” in response while Etsy tried to justify the increase by saying that it needs more money to compete with the likes of Amazon. * SO WHAT? * The fact is that buyer numbers have slowed down so Etsy is looking for more revenues from sales. In this environment it makes sense for the company to raise its transaction fees as it won’t be able to make sales in enough volume.

Further to what I been saying recently about farmers and the agricultural industry, Pig farmers urge Tesco to help crisis-hit sector or risk losing UK supply base (The Guardian, Zoe Wood) shows that farmers represented by the National Pig Association (NPA) have written an open letter to Tesco appealing for them to pay a “fair price” for its pork in order to support the future of its British supply base. An industry poll suggested that 80% of producers would go bust within a year unless their finances improve. * SO WHAT? * I said before that supporting our farming industry is of paramount importance, and one of the lessons we have learnt from the pandemic, Brexit and the Ukraine war is that we need to be able to produce more of our own food. I wonder whether the government will get involved or just leave it to the supermarkets to sort the situation out.

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

INDIVIDUAL COMPANY NEWS

Musk’s bid for Twitter gets more financial backing and Shell knocks it out of the park…

In a quick scoot around other interesting stories today, Larry Ellison, Binance and Sequoia back Elon Musk’s $44bn Twitter bid (Financial Times, Arash Massoudi, Scott Chipolina, Joshua Oliver, Antoine Gara and James Fontanella-Khan) shows that a whole load of financial heavyweights have boarded the Elon Musk fun bus by chucking him a load of money to help finance the purchase of Twitter and Musk ready to take on chief executive role at Twitter (Daily Telegraph, Gareth Corfield) shows that Musk will act as interim CEO of the company until he finds a permanent head if his bid is successful, which sent shares in Tesla down by 8% as investors fear his attention will be distracted. Twitter buyout: fortunes made in risk asset bull market find their way to Musk buyout (Financial Times, Lex) makes the point that if the bid succeeds to

take the firm private, it will be a good way of re-engineering the company away from prying shareholder eyes before floating it again a few years down the road.

Following on from BP’s recent stellar performance, Shell makes record profits as Ukraine war shakes energy markets (Financial Times, Tom Wilson) highlights Shell’s best ever quarterly profits while Shell: record profit makes life no easier for oil producer (Financial Times, Lex) argues that commodity prices will come down over time as worries increase about economic recession and take the edge of these stellar performances. I would counter that by saying that a resurgence in China after lockdowns and the planned massive infrastructure spend by the government will provide support for commodity prices for some time to come (but this won’t happen until the lockdowns in China cease IMO).

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…

This is quite possibly the cutest thing I’ve seen in a while: Sumo wrestler vs. 16-month-old toddler: The cutest match you’ll ever see (SoraNews24, Oona McGee). The little boy looks like he’s having a great time!

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Some of today’s market, commodity & currency moves (as at 0751hrs 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 **
7,503 (+0.13%)32,997.97 (-3.12%)4,146.87 (-3.56%)12,317.69 (-4.99%)13,903 (-0.49%)6,368 (-0.43%)3,002 (-2.16%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$109.17$111.82$1,874.581.231781.05125130.5141.1716536,407.9

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