Friday 16/06/23

1. In MACRO, BUSINESS TRENDS & OIL NEWS, the ECB raised interest rates, China unveiled disappointing numbers, Siemens invests in China and Informa bounces back while oilfield services consolidate
2. In FINANCIAL SECTOR NEWS, HSBC and Standard Chartered get pressure to take on crypto clients, Citigroup cuts jobs, Revolut gets a brutal valuation cut, Odey gets broken up and ESG guidance rates tobacco companies above Tesla
3. In REAL ESTATE-RELATED NEWS, more lenders raise mortgage rates and household finances get drained
4. In MISCELLANEOUS NEWS, battery powered planes run out of juice, Fuller’s toasts a rebound and Frasers buys more Asos
5. AND FINALLY, I bring you an amazing photo and how it was done…

So the ECB raises rates, China looks glum, Siemens invests in China, Informa bounces back and oilfield services consolidate…

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:

ECB raises interest rates by quarter of a point to tame inflation (The Guardian, Anna Isaac) shows that the ECB decided to raise all three of its interest rates – for the eighth successive time – by 0.25%. The deposit rate (this is paid on commercial bank deposits) hit 3.5%, which is its highest rate since 2001! It said that there would be more to come in order to tame inflation.

Chinese economic data fuels gloom over recovery (Financial Times, Thomas Hale, Joe Leahy and Hudson Lockett) shows that the People’s Bank of China cut its main policy rate for the first time in 10 months from 2.75% to 2.65%, reinforcing worries about the fragility of the post-Covid recovery. This came just a few days after the central bank surprised the market with a cut in the seven-day reverse repo rate (which is used as a bellwether for short-term banking sector liquidity) and authorities brought in tax breaks for business. Economists expect more measure to be implemented in order to jolt the economy back to life. Other data published by the National Bureau of Statistics yesterday reflected further pessimism about the country’s growth prospects – retail sales and industrial production fell below expectations and youth unemployment hit 20.8% (while overall unemployment stands at 5.2%). Glum Chinese graduates go viral with pictures of misery amid jobs anxiety (The Guardian, Amy Hawkins and Chi Hui Lin) reflects the frustration of young Chinese as they share photos on social media in poses of dejection in a “lying flat” trend, a sort of quiet protest about their lack of prospects.

That said, Siemens unveils big investments in China and Singapore factories (Financial Times, Mercedes Ruehl and Patricia Nilsson) shows that the German conglomerate has announced major investments as part of its broader strategy to diversify in Asia and expand in the Chinese market. Whilst it is increasing its presence in China, it is also hedging its bets by choosing Singapore as its hub for exports in the region. Still, when you consider the ongoing US-China tensions you can see how important the country is to the growth plans of many companies as we have seen increased commitment to the Chinese market by VW, AstraZeneca and Tesla.

Meanwhile, Informa: corporate schmoozing returns with a vengeance (Financial Times, Lex) shows that the UK trade events and academic publications company is bouncing back strongly as it announced that it was trading above expectations and is now on track to post £3bn of revenues for the full year of 2023. This is 30% more than last year and better than its 2019 high while its operating margins were also higher, at around 25%. * SO WHAT? * The strength of this bounce back just goes to show how important in-person events are – and Informa is in pole position to take advantage of their return!

In oil news, US oil services: consolidation means more pricing power (Financial Times, Lex) highlights consolidation among the oilfield services firms who do all the grunt work for the oil majors in order to give themselves better pricing power. Yesterday, Patterson-UTI Energy and NexTier Oilfield Solutions had an agreement to merge in an all-stock deal that would create an enlarged company with an enterprise value of $5.4bn, with Patterson in the driving seat. * SO WHAT? * The deal makes strategic sense in that they have complementary skills and and the bigger resultant entity will no doubt help with ongoing labour shortages and rising material costs. Better pricing power and margins are likely to ensue. 

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!

HSBC and Standard get pressured, Citi makes cuts, Revolut takes a hit, Odey’s toast and ESG rules look silly…

There was a lot of financials sector newsflow today! In HSBC and Standard Chartered pressed by Hong Kong regulator to take on crypto clients (Financial Times, Kay Wiggins, Eleanor Olcott, William Langley and Chan Ho-him) we see that the Hong Kong Monetary Authority, the territory’s banking regulator, is pushing lenders including HSBC and Standard Chartered to welcome crypto exchanges as clients despite the current climate where they are largely seen as pariahs! As things stand currently, banks don’t ban crypto clients per se. However, exchanges are seen to be a risky bet considering that they can be prosecuted if platforms are prosecuted for dodgy dealings. * SO WHAT? * Hong Kong has form as a crypto hub! It was actually home to the notorious FTX until it moved to the Bahamas while Tether and Crypto.com were also launched there. However, the party came to an end when Beijing decided to crack down on crypto in 2017 but now Hong Kong seems to be actively courting crypto platforms again – and it just introduced a new licensing framework specifically for crypto platforms this month in order to make itself more attractive to them.

Elsewhere in the financial sector, Citigroup job cuts to hit 5,000 in first half of 2023 (Financial Times, Stephen Gandel) shows that Citigroup will have hit 5,000 job cuts by the end of this month as the sluggish deal pipeline has hit investment banking and trading jobs particularly hard. It is expected that severance costs will increase expenses in the region of $400m in Q2 versus Q1 but added that investment in IT would mean that it could operate effectively with a smaller headcount. * SO WHAT? * Citi is just another bank that has been swinging the axe as a result of poor deal flow BUT I pointed out earlier on this week that the heads of Goldman Sachs and Morgan Stanley reckoned they could see light at the end of the tunnel. That will be of scant comfort to those who’ve already lost their jobs, or will do by the end of this month.

Talking of reductions, Revolut investor cuts book value by 40% (Financial Times, Siddharth Venkataramakrishnan) reflects the

decision of VC firm Molten Ventures to cut the valuation of its stake in fintech Revolut as it waits the regulators’ decision as to whether to offer it a banking licence in the UK. The regulator has dragged its feet on the decision, which may have been a function of difficulties with top management, disagreements with investors over share classes and a problematic audit from BDO – not to mention criticisms of its company culture. Tricky times – but it’s not looking good for Revolut.

Then in Odey Asset Management to be broken up (Financial Times, Antonia Cundy, Madison Marriage and Laura Noonan) we see that Odey Asset Management will be no more as it will be dismantled! It is in advanced discussions to transfer various funds and staff to rivals. * SO WHAT? * This comes barely a week after the FT published the results of its damning investigation and I think the swiftness of its demise is pretty shocking. I must say that I thought a swift name change, a management reshuffle and some kind of PR campaign could have put it back on track but the withdrawal of various banks who acted as custodians and prime brokers presumably meant that its operations would have just ground to a halt.

I thought that I would include The crazy world of ESG where tobacco companies are more ethical than Tesla (Daily Telegraph, Oliver Gill) because it does highlight the ridiculous nature of how something that sounds so admirable is effectively a box-ticking exercise that has silly outcomes. Data company S&P compiled an ESG assessment which showed that Tesla ranks below companies like oil giant Chevron and tobacco company Philip Morris International. Critics say that ESG classification is just a box-ticking exercise that gives credit for meeting certain criteria and even investment big guns BlackRock and Vanguard are feeling increasing pressure to abandon the ESG agenda. * SO WHAT? * OK, so it probably is a bit of box-ticking exercise, but then again how else are you going to do it? Investor Baillie Gifford says that such an approach takes out any nuance but given how complicated ESG actually is (there are so many interpretations) I don’t know if there’s any other way. Given how ridiculous some of the outcomes are, though, surely there should be weighting changes to reach more balanced conclusions.

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!

Lenders raise mortgage rates and put more pressure on household finances…

Homeowners and would-be homeowners alike continue to face real difficulties as options narrow as per Two of UK’s biggest lenders to raise mortgage rates (Financial Times, Siddharth Venkataramakrishnan, James Pickford and Joshua Oliver) which cites NatWest and Nationwide as being the latest mortgage lenders to announce that they were increasing their mortgage rates in the expectation that the Bank of England will make further interest rate increases to tame inflation. This will be the second time that NatWest will have increased its rates. * SO WHAT? * The danger is that such rate hikes will suck a huge amount of money out of the economy as household disposable incomes evaporate. No doubt many other providers will follow suit.

Talking of which, Mortgages to drain savings of 3 million households (Daily Telegraph, Szu Ping Chan and Melissa Lawford) cites the Institute for Fiscal Studies (IFS), a leading think tank, as concluding that a lot of households are going to have to pay £2,000 more when they come to remortgaging, meaning that they will have to raid their savings and/or increase debt to meet their new obligations. * SO WHAT? * Logic would suggest that spending should fall as more people come to remortgage, but we will just have to wait and see. If consumer spending DOES fall, this will be bad news for any industry or company that is subject to the vagaries of discretional spending. That should be happening more at the moment, but maybe this really will tip the balance.

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!

Electric planes run out of juice, Fuller’s has a ‘mare and Frasers buys more Asos…

In a quick scoot around some of today’s other interesting stories, Battery life grounds electric planes (Daily Telegraph, Howard Mustoe) shows that Italian electric plane developer Tecnam has decided to postpone work on its new aircraft after finding that the battery would have to be replaced after just a few hundred flights. Its original delivery target of 2026 will not be hit as a result and so the company decided to stop making the P-Volt. It will now wait for technological developments that increase battery capacity and decrease weight before coming back again. What a shame!

Elsewhere, Fuller’s hails rebound in trade at City pubs as it reveals full-year results (The Guardian, Julia Kollewe) shows that the pubs

group has benefited from workers’ return to the office as its city centre pub estate enjoyed greater footfall after a dip during the rail strikes. It remains positive about the outlook and also benefited from the return of tourists. Total revenues grew by 33% but its central London business saw a 40% boost. Worth a toast, no?

Then in Frasers lifts stake in resurgent Asos (The Times, Isabella Fish) we see that Asos saw its share price rise thanks to a combination of the success of cost-cutting efforts and bid speculation as Frasers Group increased its stake in the online fashion retailer for the fourth time in a month (it now has 10.6% of the company, enough to block a potential takeover bid). Although active customer numbers fell over the quarter, adjusted pre-tax earnings were up, profit per order increased by 30% and inventory levels fell by 15%. Yes, its share price has plummeted by 71% over the last year, but now it seems to be going in the right direction!

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…

The end result of this photoshoot is pretty stunning – and I don’t think you’d guess how it was done!