Friday 09/12/22

1. In MACRO & OIL NEWS, Xi and MbS are now BFFs, Beijing runs out of fever meds, Exxon announces a massive share buy back and Trafigura divvies out the profits
2. In FINANCIALS NEWS, Big Bang 2.0 is set to be announced and broker Numis cuts bonuses
3. In CONSUMER, RETAIL & LEISURE NEWS, UK household spending falls, Frasers confounds the naysayers and On The Beach takes a hit
4. In MISCELLANEOUS NEWS, the FTC takes on Microsoft and Meta, Tesla goes to Thailand and DS Smith puts in a solid
5. AND FINALLY, I bring you one woman’s “Dating Wrapped”…

So Xi and MbS usher in a “new era”, Beijing gets overwhelmed, Exxon does a massive buyback and Trafigura splits oil profits…

📢 I’m going to be doing my annual P/Review on Thursday 5th January where I will roundup the news of the year in 2022 and then outline predictions for themes in 2023. In order to attend that, you need to register HERE. The idea is that this will set you up for the year by putting everything into context for you and giving you a heads-up of what to expect in the coming year! This will be backed up by publication of Watson’s Yearly, which is the more detailed written version of the presentation that also contains a roundup of every G20 country and how my predictions from the previous edition performed! There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so if you’d like a spot, please sign up!

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:

Xi Jinping hails ‘new era’ in China-Saudi Arabia relations (Financial Times, Samer Al-Atrush and Edward White) heralds a deepening of the existing relationship as president Xi Jinping signed a ton of deals with Saudi Arabia’s crown prince Mohammed bin Salman. This was Xi’s first visit to the region since 2016 and the two sides signed a strategic partnership agreement that involves the two meeting every two years and 34 investment deals in sectors including tech and energy. Interestingly, one of those deals was a memorandum of understanding between Huawei and the Saudi communication minister to install a superfast internet and cloud computing facility in the kingdom and construction deals for 300,000 houses. * SO WHAT? * This just goes to show how weak Biden has become on the world stage as this is yet another snub to the US, after the most recent one where his calls for a cut in oil

production ahead of his midterm elections fell on deaf ears. I think it’s also interesting from the point of view that it gives China another option to turn to energy-wise instead of Russia. No doubt this new closeness will be used in negotiations with Putin if the Russian leader ever decides to get fruity.

Meanwhile, Beijing running out of fever medication as Covid outbreak spreads (Financial Times, Ryan McMorrow, Nian Liu and Sun Yu) shows the immediate consequences of authorities lifting zero-Covid measures amid an outbreak as the capital’s Covid-clinics are filling up at such a rate that supplies of fever-reducing medicine (like ibuprofen) and rapid antigen kits are running out. * SO WHAT? * Tens of millions of people are expected to travel home for next month’s lunar holiday, increasing the risk of the virus spreading from large cities to unprotected rural areas. Most of China’s 1.4bn inhabitants have never been infected and have been vaccinated with domestically-produced vaccines whose efficacy is lower than foreign-made jabs. It sounds like this could get nasty – particularly in the new year. Will the regime relent and bring in the foreign vaccines?

Then in ExxonMobil announces $50bn buyback despite political backlash (Financial Times, Justin Jacobs) we see that the oil supermajor is going to expand its share buyback programme to epic proportions thanks to the huge profits it’s been making from higher-for-longer oil and gas prices. This is to be completed within a two-year window between 2022 and 2024, up considerably from the previous target of $30bn (which is also pretty chunky!) by 2023. * SO WHAT? * Biden has scolded oil companies in the past about financing share buybacks from profits made “while a war is raging”. Yep. Looks like that worked well 🤣. This just goes to show that the president not only has no sway overseas when it comes to oil – he’s just as ineffectual at home as well! On the plus side, the company is going to spend $23bn-25bn on energy projects next year, which is up on the $22bn this year, increasing the money it puts into low-carbon projects.

Staying on the subject of slippery profits, Trafigura hands out $1.7bn in dividends on profits fuelled by war (The Guardian, Alex Lawson) highlights the massive profits made by commodities trading firm Trafigura that will be split amongst its top traders and shareholders! Trafigura is one of the world’s biggest specialist commodity traders and managed to post a record $7bn in net profit over the course of the last financial year which is more than the previous four years combined! * SO WHAT? * The $1.7bn payout is so mind-bogglingly huge that this might be worth keeping in mind for scale: if all 1,100 shareholders were paid equally, each one would get about $1.56m each! Suffice it to say that there will be a lot of people who will be getting way more than that and a lot way below that. It’ll still be chunky though! It is worth pointing out here that although oil and gas companies have had to pay windfall taxes, traders have not – and I don’t ever see that happening as they will argue that they are constantly balancing risk with reward – and on this occasion they got trading the volatility incredibly right! They could equally have got it badly wrong.

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 Bang 2.0 is to be unveiled and UK broker Numis suffers from lack of deals…

I have mentioned this earlier this week but City set for boost as Hunt loosens financial services rulebook (Financial Times, George Parker, Daniel Thomas and Laura Noonan) shows that Jezza is going to reveal all today (don’t worry, I believe he’s going to be fully-clothed) as he attempts to free the City from the Brussels-imposed shackles that were designed to prevent a repeat of the 2008 financial crisis. He’s going to remove the bankers’ bonus cap (doesn’t really mean anything in practical terms, but the optics aren’t great in a cost-of-living crisis), relax the ring-fencing rules in banks (sounds fair if your bank doesn’t have any or much of a riskier trading operation to speak of), reform of the Solvency II rules (which will essentially give insurance companies more money to play with) and a review of MiFID II (which had a seismic effect of investment banking and the provision of investment research). Hunt has tried to rebadge this set of reforms as the “Edinburgh Reforms” rather than the much more exciting and dramatic-sounding “Big Bang 2.0” touted by the ill-fated Kwasi Kwarteng. * SO WHAT? * I have a feeling that these changes are going to be more of a whimper than a bang, but if they reform MiFID II that

could be huge. My career has spanned before and after MiFID I and MiFID II and MiFID II had a profound effect when it was brought in. Let’s see what Jezza has to say and what the reaction is. Markets will probably be a good yardstick for starters! 

Then in Numis cuts bonuses as deals slump (The Times, Ben Martin) we see that UK-broker Numis is cutting bonuses this year as its equity capital markets business (which does all that M&A and IPO stuff) had its worst year for ten years. Revenues fell by 39.2% for the investment banking division and pre-tax profit cratered by 71.9%. It was interesting to note that the head of investment banking said that he felt companies were starting to think about flotations but that nothing meaningful would come to fruition until the second half of next year. Numis/Peel Hunt: brokers try to look on the bright side of deal freeze (Financial Times, Lex) suggests that things could have been worse, all things considered – it’s performed better than rival Peel Hunt, for instance – but it may be helped by its lower relative reliance on UK company financing as it expands in Europe and the US. * SO WHAT? * All brokers will be hoping for more activity in 2023. I maintain that if the Ukraine war ends in a “western-friendly” way (i.e. no Putin and his replacement is someone more willing to deal with the West) M&A activity and financing in general could go through the roof…

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!

Household spending trails others, Frasers confounds the retail gloom and On The Beach sees a drop-off in holiday demand…

UK household spending trails industrialised world as cost of living bites (Financial Times, Valentina Romei) shows that Britain came 41st in a survey of 43 nations that looks at trends in household spending in the latest quarter. The UK saw the worst performance of the G7 countries by far in terms of household spending whereas the US, Canada, Japan and France actually came out quite well. Our dire performance was blamed on rising energy bills (Europeans have benefited from greater state help), booming inflation (ours has been higher than that experienced in the eurozone and the US), lower consumer confidence, early signs of the tight labour market turning (both of which could lead to households reining in spending even more as a precaution) and the impact of Brexit (tempered inward investment due to uncertainty). Not great, eh?

The mood was altogether more upbeat in Young shoppers help Frasers Group defy UK retail gloom (The Guardian, Sarah Butler) as the retailer smashed it out of the park for the first half as its younger shoppers – who were more insulated against the cost-of-living crisis – came to its rescue by spending on clothes. Frasers’ finance director said that youth employment is pretty high and because more people are living with their parents for longer, they are able to spend more of their take-home pay on socialising and

clothes. Its designer chain Flannels continues to grow and the company continues to sniff out bargains among troubled retailers going on the cheap. * SO WHAT? * Despite announcing higher profits, the share price fell by 7% in trading yesterday as investors reacted to weakness in its core sports division and falling sales at its video games chain Game UK. Still, it said that it was confident about its full-year profit targets but will continue to cut the number of House of Fraser department stores. It will then be left with 34 outlets out of the 59 it inherited in the 2018 acquisition.

Then in Package holiday demand dips as UK cost of living crisis hits budgets (The Guardian, Kalyeena Makortoff) we see that online travel retailer On The Beach said that bookings for three-star destinations are starting to fall as households feel the squeeze on their finances. Although premium bookings remained “resilient”, cheaper offerings were suffering. That said, cheaper destinations like Turkey were growing in popularity due to holidaymakers being able to get more bang for their buck but the company has also suffered from the weaker pound hitting investor demand for longer-haul destinations like the Caribbean. Despite all of this, the company announced a return to profit in the year to 30th September. * SO WHAT? * It’s interesting and yet unsurprising to see that there continues to be a marked difference between those at the wealthier end of the scale pretty much living life as before versus those with not quite as much being a lot more cost-conscious.

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!

The FTC gets feisty, Tesla goes to Thailand and DS Smith performs well…

In a quick scoot around other interesting stories today, FTC sues to block Microsoft’s acquisition of Activision Blizzard (Wall Street Journal, Sarah E. Needleman and Dave Michaels) shows that the US Federal Trade Commission (FTC) is taking Microsoft to court over its proposed $75bn acquisition of the gaming company because it believes that the deal will enable Microsoft to control how users outside its Xbox ecosystem will access Activision Blizzard’s games. This sounds pretty interesting coming shortly after the announcement of Microsoft’s deal with Nintendo! Then in Judge hears FTC’s bid to block Meta from acquiring virtual-reality app maker (Wall Street Journal, Jan Wolfe and Salvador Rodriguez) we see that the FTC is now trying to get involved in Meta Platforms’ planned acquisition of Within Unlimited (which is the company behind the popular VR fitness game “Supernatural”) because it thinks that the deal will threaten “potential competition” in the future VR market. * SO WHAT? * This move against Meta is particularly interesting because the FTC is going against the usual pattern of blocking existing mergers in more mature markets by trying to act pre-emptively. I think the grounds sound quite tenuous here, but we’ll have to see how this goes – and in the meanwhile, Meta will just have to take this hit on its metaverse development ambitions.

Elsewhere, Tesla/Thailand: tax breaks electrify local car market (Financial Times, Lex) highlights Tesla’s entry into Thailand. It introduced the Model 3 and Model Y at an unexpectedly low price this week and comes just ahead of the peak car buying season at the end of the year. * SO WHAT? * Interestingly, Thailand is now south-east Asia’s second biggest auto market, which also happens to have very little EV competition! This could be very exciting not only for Tesla, but also for local parts makers like Thai Stanley Electric and Aapico Hitech, which could benefit if/when other car manufacturers set up shop there!

Then in DS Smith lent £100m to pension fund amid chaos (The Times, Russell Hotten) we see that cardboard king DS Smith was doing well enough to lend its own pension fund a chunk of change to get it through the storm caused by the Truss/Kwarteng mini-budget (a cash advance of which has already been repaid while the other portion remains unused). It announced solid half-year results, hiked the dividend by 25% and left its full-year forcasts unchanged. Nice 👍

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…

You’ve no doubt seen your own Spotify Wrapped recently that reviews your year, what you’ve listened to etc. but one woman has decided to take the same approach to another area in her life: Woman makes ‘Dating Wrapped’ PowerPoint with her 2022 dating fails and it’s ‘iconic’ (The Mirror, Grace Hoffman). Brilliant 🤣! Having said that, I would argue that her partner screening process needs adjustment…