Friday 15/09/23

1. In BIG PICTURE NEWS, the ECB hikes rates, higher fuel prices bite, Maersk dabbles with green methanol and China attacks the EU’s move on EVs
2. In CONSUMER, RETAIL & LEISURE NEWS, US consumer prices rise, the wage differential between London and the rest of the UK widens, Carrefour gets punchy on shrinkflation, Lidl suffers, John Lewis delays turnaround, THG’s shares tank and Chick-fil-A ponders a return to the UK
3. In TECH NEWS, Apple’s problems in France could spread and Arm has a strong debut
4. In MISCELLANEOUS NEWS, we look at gathering momentum in IPOs, Spire benefits from NHS strife and Hipgnosis sells assets
5. AND FINALLY, I bring you an amusing dog trick…

So the ECB increases rates, higher fuel prices bite, Maersk looks at alternative fuel and China pushes back on EVs…

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ECB interest rate rise likely to be its final swing at inflation (The Times, Jack Barnett) shows that ECB president appears to have called the peak of interest rate tightening to combat inflation, a statement that boosted UK and European markets. The ECB’s key deposit rate was raised by 0.25% to 4%, which is its highest level since the euro was launched in 1999. It’ll be interesting to see how other central banks react to this.

Given current strong oil prices, Fuel Prices Are Soaring. Who Is Feeling the Pinch? (Wall Street Journal, Bob Henderson) is an interesting article that highlights who is suffering the most. Diesel, jet and marine fuel prices are skyrocketing and this is having a knock-on effect in the construction, transportation and agricultural sectors given that they are the biggest guzzlers. OPEC+ production cut extensions, receding fears of a US recession and rising demand for fuel have all powered Brent crude prices north of $90 a barrel. Jet fuel prices have risen by over 50% since early May, hitting Delta Air Lines, American Airlines and Spirit Airlines most recently. Higher diesel prices are also hitting homeowners with heating oil tanks

and farmers, who are harvesting their crops. * SO WHAT? * All of this will push up prices of plane tickets and food – and this is already having an effect on inflation.

Rising fuel prices always prompt renewed efforts for alternatives and Maersk forms green methanol start-up in decarbonisation push (Financial Times, Richard Milne) shows that the container shipping giant has set up a new company, called C2X, to produce green methanol which it thinks will be key to decarbonising global trade. * SO WHAT? * The shipping industry has proved to be one of the most difficult industries to decarbonise and, according to OECD estimates, it accounts for around 3% of global greenhouse gas emissions as it continues to be almost wholly reliant on fossil fuels. The plan is for C2X to pump out 3m tonnes of green methanol per annum by the end of the decade. Green methanol is made from biomass or captured carbon and hydrogen produced by renewable energy. It’s expensive, but the aim is for C2X to provide it at more reasonable prices. I hope this goes well!

Meanwhile, there was definite push-back following yesterday’s news about the EU launching an investigation into state subsidies of Chinese EV manufacturers and whether tariffs should be imposed to even the playing field for European manufacturers in China attacks EU’s ‘naked protectionist act’ on electric cars (Financial Times, Joe Leahy and Gloria Li) as China’s commerce ministry said it would protect the “legitimate rights” of its companies. It said that it would have “a negative negative impact on China-EU economic and trade relations”. Chinese automakers have enjoyed about $57bn in government subsidies in the five years to 2022, which is almost five times that spent on incentives in the US until Biden brought in the Inflation Reduction Act. Electric vehicles: EU/China trade spat highlights the plight of European automakers (Financial Times, Lex) says that the current tension is a reflection of the precarious position that European automakers now find themselves in and that EU tariffs could have material blow-back for VW, which gets over half of its net income from Chinese operations and BMW, which gets over 30%. China is not going to take this lying down – it’s on!

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!

US retail prices rise, UK wage differentials widen, Carrefour gets punchy, Lidl has an off-day, John Lewis delays its turnaround, THG’s shares tank and Chick-fil-A might be coming to the UK…

Retail spending bolsters hope of soft landing for US economy (The Times, Jack Barnett) cites the latest US retail sales figures published by the Department of Commerce which reflect rising retail sales. This would suggest that American consumers continue to be willing to spend in the face of higher interest rates and inflation squeezing household finances. * SO WHAT? * Consensus suggests that the US economy will have a “soft landing” with inflation falling to the long-term target of 2% without incurring a recession, which is always a danger when central banks raise interest rates too high too quickly. Unemployment has remained low and its GDP growth has been ahead of other G7 members.

In the UK, Income gap between London and rest of the UK hits new high (Daily Telegraph, Melissa Lawford) cites the latest ONS data which shows that the income gap is at its widest since 1997. The gap is now a whopping 78% and is more than double the 34% recorded in 1997. As for the “levelling up” agenda – what agenda??

In retail news, Carrefour puts ‘shrinkflation’ price warnings on food to shame brands (The Guardian) highlights measures being taken by French supermarket Carrefour to shame food manufacturers including the likes of Nestlé, PepsiCo and Unilever. It has put price warnings on products in its French stores that have been subject to “shrinkflation”, where manufacturers cut pack sizes rather than increase prices, in a bid to garner customer support ahead of contract talks between supermarkets and suppliers. * SO WHAT? * This is clearly a publicity stunt designed to put pressure on the food producers but Carrefour itself is not above indulging in a little shrinkflation in its own-label products! Ultimately a deal is going to be hammered out because both sides need each other, but it’s interesting to see the kerfuffle!

Meanwhile, Expansion and price cuts drive Lidl into the red (The Times, Tom Howard) shows that Lidl GB has been hit by a combination of the costs of aggressive expansion, keeping prices low and wages high which meant that it made a loss of £75.9m last year versus a profit of £41.1m the previous year. * SO WHAT? * I don’t think this is anything to worry about particularly – the company’s sales were up by almost 19% on the previous year,

for instance! I would imagine that the benefits of that spending will come through, but the company will be making more investments this year. The thing is that Lidl is a private business so doesn’t have to answer to shareholders every five minutes, which means that it is better able to make longer term strategic decisions without everyone suddenly losing their 💩.

However, in John Lewis turnaround delays threaten White’s future (Daily Telegraph, Hannah Boland) we see that chairman Dame Sharon White has now said that her turnaround plan will take two years longer than she’d originally thought. She had targeted a “sustainable profit” by 2026, but that’s now been shoved back to 2028. John Lewis posted a loss of £59m for the first half of 2023, which is better than it was last year. * SO WHAT? * You could take the news as a sign things are going in the right direction or you could also say that she has failed miserably in turning things around and that she’s desperately trying to buy herself more time. The company hinted yesterday that there would be no bonus yet again this year which means that there will only have been one bonus paid since Dame Sharon joined in 2020! I personally think she’s failed and I do not understand her apparent reticence to do much about the core business or why she has appointed execs with no retail experience. Those two things alone would surely have slowed any progress. She came in just before Covid hit so although things were bad then for all retailers, it gave her the perfect excuse to cut the business down to size so that it could then move forward once the pandemic died down – but it’s not working from what I can see. I say the company should find a replacement, kitchen sink all the bad stuff (maybe get her to do any more layoffs and some other difficult stuff if needed) and pay her off to leave and “pursue other interests”. Maybe then the new person can address the core issues at long last!

In Beauty retailer THG’s shares drop amid sales warning (Daily Telegraph, Daniel Woolfson) we see that shares in THG fell by a whopping 21% yesterday after it announced a £100m loss for the half year, adding that full year sales would be lower than expected. It blamed inflation for a tricky 18 months and it has suffered particularly acutely from the rising cost of commodities. That said, pressures are now easing.

Then in restaurants news, Chick-fil-A to re-enter UK market (The Times) shows that the American fast food brand is looking once more to expand in the UK four years after it closed its debut pop-up outlet. It currently runs over 2,800 restaurants in the US, Canada and Puerto Rico and plans to open five restaurants in the UK in the first two years.

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!

Apple’s troubles could spread and Arm has a great debut…

I mentioned a story about Apple’s problems in France yesterday, but France’s Apple spat risks spreading to other EU members (Financial Times, Leila Abboud and Ian Johnson) shows that now Belgium, Germany and Italy are among the countries monitoring what France’s regulator is going to do about Apple’s iPhone 12, which it deems to emit too much radiation. * SO WHAT? * If France is not satisfied, it could order a recall – and if that happened it’s likely that other EU countries will follow, which would be a

real headache for Apple. The French junior minister for digital affairs has given Apple a deadline of 15 days to update the phone’s software system to comply with the EU standards.

Arm shares rise 25% on Wall St debut (The Times, Robert Millers) highlights a successful market debut for Arm in New York. Owner SoftBank, which bought Arm for $32bn in 2016, still has a 90.6% stake in the company that is now worth about $65bn. SoftBank had tried to sell Arm to Nvidia for $66bn but that collapsed last year on competition concerns.

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!

More flotations wait in the wings, Spire benefits from NHS strife and Hipgnosis sells assets…

In a quick scoot around some of today’s other interesting stories, The trickle of flotations that could become a flood (The Times, Katie Prescott) latches on to the excitement from the Arm debut, which could prompt other companies to do their own IPOs. Company flotations in 2022 were sparse to say the least (their number fell by 60% versus 2021) but it seems that the IPO market is starting to make stirring noises. Grocery delivery group Instacart is up next, Birkenstock filed for a US IPO on Tuesday, Vietnamese games developer VNG is also looking to list stateside but there could also be others like Reddit, TikTok/ByteDance, marketing automation business Klaviyo and software business Databricks. Investment bankers, lawyers, accountants and other advisers will be crossing their fingers, praying, lighting candles etc. for more IPO activity, that’s for sure!

Elsewhere, Spire points the way to health revolution as revenues grow (The Times, Max Kendix) shows that Spire Healthcare Group,

which is one of Britain’s biggest private healthcare companies, has posted strong revenue growth in the first half. It is benefiting from record waiting times for NHS treatment prompting people to go private instead.

Then in Hipgnosis sells $465m of music to strengthen financial position (Financial Times, Daniel Thomas) we see that Hipgnosis Songs Fund, which buys the rights to songs, is to sell some of its music catalogue to address the big discount between its share price and its net asset value. It will sell 29 catalogues of music – including those of Nelly and the Kaiser Chiefs – and use the proceeds to fund a share buyback programme and cut debt. This comes after shareholder concern over the company’s disappointing share price performance. The company said that it will retain 80% of its current portfolio and focus on older – and potentially more valuable – music catalogues. * SO WHAT? * Hmm. This does smack a bit of desperation, but it sounds like the company is taking the right steps. You do wonder, though, whether music rights as an asset class are quite as attractive/lucrative as the company thought they would be when it was all launched in 2018.

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…

I am a dog person. If you like dogs, I think you’ll like this dog prank! Have a great weekend!