Friday 09/09/22

  1. In MACRO, ENERGY & OIL NEWS, the ECB jacks up rates, Truss unveils her energy plan and the EU is about to debate Europe’s while India and China undermine an oil price cap
  2. In AUTOMOTIVE NEWS, Ford and GM unveil new EVs, Rivian teams up with Mercedes and Cazoo quits Europe
  3. In TECH NEWS, we reflect on Apple’s event while Darktrace tanks by over 30%
  4. In MISCELLANEOUS NEWS, we consider the state of container shipping, a new Botox rival, the latest on EY and Deloitte, ABF’s profit warning and thoughts from a restauranteur
  5. AND FINALLY, I leave you with some thoughts about what happens next…

1

MACRO, ENERGY & OIL NEWS

So the ECB raises rates again, Truss unveils her energy plan, moves are made for the European one and there are two massive elephants in the room on the oil price cap…

It’s a sad day. There’s nothing I can add here that won’t be said elsewhere more eloquently. RIP.

ECB raises interest rates by record 75 basis points (The Times, Mehreen Khan) shows that Europe’s central bank unveiled its biggest ever interest rate rise (+0.75%) and hinted that there was more to come in the battle against inflation. At 1.25%, it’s still way below the US (2.5%) and UK (1.75%) but when faced with an inflation figure of 9.1% last month, the ECB had to take some action!

In the UK, Truss unleashes cash and unknowns with energy package (Financial Times, Helen Thomas) highlights more detail on Truss’s plans to tackle the energy crisis. In essence, average household energy bills are going to be capped at a max of £2,500 for two years (and we’ll all still get that £400 grant). Business support will only be for six months, after which the government has pledged to support “vulnerable industries” but hasn’t given much detail on that. Price freeze will save households £1,000 a year (Daily Telegraph, Tony Diver and Ben Riley-Smith) emphasises the benefit to households, Liz Truss’s £150bn energy plan puts Bank of England on the spot (Financial Times, Chris Giles) looks at the debate between those who think that her intervention will “curb inflation” and provide support through a difficult winter (Truss’s argument) and those who think that more government borrowing and spending will ultimately lead to higher inflation, which will force the Bank of England to keep jacking up interest rates (which is what the majority of economists think). Businesses left in dark over UK’s energy rescue package (Financial Times, Daniel Thomas and Sylvia Pfeifer) shows that the future is uncertain for businesses who are probably pleased about having clarity on the next six months, but less so about the uncertainty thereafter. Whatever happens, Energy crisis: Truss must bust the link between renewables and gas (Financial Times, Lex) emphasises the need for the government to separate renewable energy prices from skyrocketing natural gas prices. At the moment, we are

getting a “blended” price, but it’s the gas-generated stuff that causing all the problems. Separating this out will be a bit fiddly, but I’d say there’s a collective sense of urgency now that might help to get things done. * SO WHAT? * One of the main upshots of all this is that it’ll be a relief for households, provide some relief for businesses (but not as much as they might have wanted) and put the energy sector on notice (particularly renewable operators who’ve done incredibly well from the current arrangement). The other main takeaway here is that there are still a lot of details outstanding, particularly about how this is all going to be funded. I guess Truss has to shoot first and ask questions later given the urgency of the problem here. As for businesses, maybe the government is hoping that the dodgiest ones will fall away in the next six months meaning that any extension of relief will go to more viable entities.

Europe is also having all sorts of energy problems. The US offered to help but US’s gas rescue plan for Europe threatens domestic backlash (Financial Times, Justin Jacobs) shows that, attractive though supplying Europe with LNG is for traders given that they could sell for a very fat profit, there may be domestic resistance to this because many state governors are highlighting that they also have a very urgent need. Still, Ministers to thrash out EU approach to gas and electricity crisis (The Guardian, Jennifer Rankin) says that EU ministers are going to be holding an emergency meeting in Brussels today to come up with a plan on how they are going to attack the current energy crisis. Various proposals will be debated including a windfall tax on oil and gas profits, energy savings initiatives, a cap on the cost of low-carbon electricity and a potential price cap on Russian gas. Now that Russia supplies only 9% of the EU’s gas, the EC reckons it could cope with Putin’s threat to cut it off completely. On the subject of the price cap, India and China undercut Russia’s oil sanctions plan (Financial Times, Andy Lin, John Reed and Max Seddon) would suggest that the price cap is a non-starter as the oil that would have gone to Europe has largely gone to India and China. If you couple that with likely resistance of other EU members at the Brussels jolly, it looks like it won’t happen. * SO WHAT? * Extreme measures need to be taken now as a matter of urgency. In Europe’s case, many countries have had a chance to get their stock levels up ahead of winter and get their industries psychologically prepared so we are now into the sharp end of things. I’m looking forward to seeing the detail!

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

AUTOMOTIVE NEWS

There are a number of new EV announcements while Cazoo flees Europe…

In GM Courts mainstream buyers with $30,000 electric Chevy Equinox (Wall Street Journal, Mike Colias) we see that General Motors has plans to offer customers an affordable electric SUV that will be available from the autumn of 2023. Ford unveils electric version of best-selling delivery van (Financial Times, Peter Campbell) reflects Ford’s ongoing commitment to the transition to electric announcing that the E-transit Custom will go on sale in autumn next year and have a range of about 380km. Fun fact: the existing Ford Transit was the most sold vehicle of any type last year. The fact that the Transit is so popular shows that the new electric version has a lot to live up to! * SO WHAT? * As always, but particularly with the new Ford E-Transit, there is range anxiety which I think is likely to hold back sales as drivers hang on to their existing vehicles to a) save expensive outlay now in the midst of a cost-of-living crisis, b) wait for charging networks to get better and c) wait for EVs to get better/more efficient. Although making the transition to electric is a revolution, the road to getting there is very much evolution.  

Then in Electric vehicle maker Rivian and Mercedes team up in Europe (Financial Times, Peter Campbell) we see that the two have signed an agreement to work together to make battery-powered vans in Europe and share costs. This will be Rivian’s first international expansion but it is thought that production won’t begin until after 2025. * SO WHAT? * This gives Rivian a toe-hold in Europe, but it’s still a long way off. At least it is a step forward – and an endorsement in a way given that the partner is a prestigious marque. I wonder whether it could pave the way for other joint arrangements for other manufacturers.

Meanwhile, UK online car seller Cazoo pulls plug on European operations (Financial Times, Peter Campbell and Lydia Tomkiw) shows that the online car seller has decided to pull out of continental Europe and concentrate on the UK as it rolls back its international expansion ambitions. It had spent almost €200m in Spain, Italy and Germany and struck multiyear sponsorship deals with European football clubs to push its brand. * SO WHAT? * Wow. What a climbdown! After the glory of a SPAC-backed flotation that raised $1bn at peak-SPAC, it seems that founder Chesterman is now eating humble pie. It’ll be interesting to see whether this is just a Cazoo-thing or a sign of a broader slowdown.

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

TECH NEWS

Apple’s new product iterations are good enough and Darktrace sees its shares tank…

Apple: iPhone event is style over substance but sales will increase regardless (Financial Times, Lex) says that the latest iPhone launch was fine – but not really an event, per se, given the lack of groundbreaking tech unveiled. There was no news on the company’s most-anticipated products – driverless cars and mixed reality headsets. Bigger screens, always-on displays and a new watch were all good – just nothing to get too worked-up about. * SO WHAT? * Apple is doing just fine at the moment as it sells to its generally very loyal customer base. It was also interesting to note that it is expanding production in India in a reaction to China’s zero-Covid policy.

Darktrace shares slump after takeover talks collapse (The Guardian, Rob Davies) shows that shares in the British AI and cybersecurity company fell by almost 35% in trading yesterday as US private equity firm Thoma Bravo decided not to buy it after all. Having come this far, under UK takeover rules, Thoma Bravo can’t make another offer for another six months unless there are exceptional circumstances. * SO WHAT? * This makes things a bit trickier for Darktrace and you would have thought it would be hard to find another motivated buyer as Thoma Bravo’s act of walking away after having looked under the hood of the business will make other buyers wary. Also, now might not be a great time for a takeover given that pretty much everyone is expecting global recession. On the plus side, Darktrace managed to post results that showed a jump in sales and a return to profit after last year’s massive losses.

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

We look at some new developments, disappointment for Primark’s owner and thoughts from a restaurant owner…

In a quick scoot around other interesting stories today, Hard landing threat hangs over booming container shipping industry (Financail Times, Richard Milne) alerts us to a slowdown in the container shipping industry as the once-in-a-lifetime boomtimes of the last three years appears to be losing momentum. Just to put things into context, companies including Mediterranean Shipping Company, AP Møller Maersk, CMA CGM and Hapag-Lloyd have made as much money over this time period as the entire previous six decades thanks to soaring demand and freight rates. * SO WHAT? * Although ports are still congested, freight rates have fallen by about a third and profitability is widely believed to be running out of puff. Compounding these factors are fears of inflation and global recession, which will depress trade volumes. Many companies have used the bumper profits to shore-up their balance sheets that still hadn’t fully recovered from the 2008-9 global financial crisis whilst also making strategic acquisitions. The problem is that, during the boomtimes, some of them have bought more vessels. Given that they take two-to-three years to be delivered, they might be coming online at a point when there is no (or much reduced) demand. It’ll be interesting to see if the industry can avoid a hard-landing…

Elsewhere, FDA approves new Botox rival (Wall Street Journal, Jared S.Hopkins) signals good news for the likes of Simon Cowell and other age-dodgers worldwide as AbbVie’s Botox won’t be the only one in the sandbox. The FDA has approved a new antiwrinkle treatment called Daxxify, made by Revance Therapeutics, that is claimed to last six months as opposed to Botox’s four months. Bring on the Daxxify parties 🤣🤣🤣! * SO WHAT? * But seriously, this will be a major blow to AbbVie as Botox has a 70% market share in its niche and is very profitable. Botox sales last year made up 8% of AbbVie’s revenues.

Meanwhile, in the exciting world of accountancy, EY bosses approve radical break-up of Big Four firm (Financial Times, Michael O’Dwyer) shows that EY bosses have voted in favour of splitting their auditing and accountancy businesses. It’s not over yet as the next stage is to put the move to the vote of 13,000 partners worldwide (it employs 312,000 worldwide). Deloitte revenues hit record on back of tech consulting boom (Financial Times, Michael O’Dwyer and Sebastian Foley) shows that EY rival Deloitte managed to boost its global revenues by almost 20% last year thanks to a boom in tech consulting and corporate dealmaking. Deloitte is currently of the mind that it does not want to split its businesses. Fun fact: Deloitte is the biggest of the Big Four professional services firms.

Then in Primark owner expects lower profits as energy bills rise by £100m (The Guardian, Kalyeena Makortoff) we see that Associated British Foods announced a profit warning, blaming a strong dollar and rising costs (including a massive rise in energy bills). It was gloomy about the effect of inflation on customers’ pockets and the rise in the dollar has been making the rising prices of raw materials even more painful. It does not, however, plan on increasing prices at Primark more than had been planned originally. Profit alert hits wider retail stocks (The Times, Alex Ralph) shows that the gloom prompted a mini sell-off of other retail stocks including B&M European Value Retail, Tesco, J Sainsbury, Next and M&S as investors were once again reminded about the increasingly stretched finances of the British consumer. Wagamama owner moves to limit price rises for diners (Financial Times, Rafe Uddin) shows that The Restaurant Group is making moves to help customers as it recognises that raising prices too much won’t help them or their customers. TRG also owns Chiquito and Frankie & Benny’s. Will they do well as an “affordable luxury”, I wonder?

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…

Following the death of Queen Elizabeth II, I thought that you might find this interesting as it answers a number of questions that popped into my head yesterday when I heard the news: Banknotes, coins and stamps: How royal symbols will now change following the Queen’s death (The Telegraph). I’m glad she managed to live to see her Platinum Jubilee celebrations.

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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 **
7,262 (+0.33%)31,774.52 (+0.61%)4,006.18 (+0.66%)11,862.13 (+0.6%)12,904 (-0.09%)6,126 (+0.33%)28,219 (+0.59%)3,262 (+0.82%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$84.070$89.578$1,720.031.158481.00636142.7821.1511720,646

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