Friday 17/06/22

1. In MARKETS, MACRO & ENERGY NEWS, markets tumble, EU leaders back Ukraine, the Bank of England and Swiss National Bank raise rates, Germans are told to cut energy consumption and BG does a deal with Norway
2. In REAL ESTATE NEWS, US mortgage rates jump, HSBC hikes its mortgage rates and West End landlords consolidate
3. In RETAIL & CONSUMER NEWS, Asos suffers, Halfords warns on inflation, UK food prices are set to rise further and UK consumers cut back
4. In MISCELLANEOUS NEWS, US car prices keep rising, Tesla jacks up its prices, Ferrari commits to electric and Revlon files for bankruptcy
5. AND FINALLY, I bring you some job openings for chocolate lovers…

So everyone gets gloomy about the UK’s economic prospects and Sunak is pressed to help…

Fears of looming recession send global markets into tailspin (The Times, Tom Howard) highlights gloom on a global basis as this week of interest rate rises stoked fears of a global recession – and this was expressed in the form of markets falling around the world. Bank of England raises interest rates to 1.25% (The Guardian, Richard Partington) contributed to the panic as the Bank raised interest rates for the fifth time in a row as it reckons inflation could hit 11% as Interest rate ‘on course to reach 3%’ (The Times, Mehreen Khan) points to the money markets indicating interest rates potentially reaching new highs to tame inflation. The markets also had to absorb First Swiss interest rate rise in 15 years stuns markets (The Times, Mehreen Khan) which highlighted a 0.5% increase to take it from -0.75% to -0.25%, with the possibility of more to come.

Meanwhile, European leaders back Ukraine’s big to apply for EU membership (Financial Times, Roman Olearchyk, Victor Mallet and Guy Chazan) highlights growing support for Ukraine as France’s President Macron grandly said “Europe is at your side and will stay there for as long as it takes”. That said, Germans told to conserve energy as Russia cuts gas flows to Europe (Financial Times, Guy Chazan, David Sheppard, Nastassia Astrasheuskaya and Roman Olearchyk) shows that the government is warning its citizens to brace themselves in the wake of Russia’s decision to cut gas supplies while British Gas owner signs deal with Norway firm for extra UK supplies (The Guardian, Alex Lawson) shows that Centrica has signed an important deal to secure domestic energy supplies as part of our overall effort to wean ourselves off Russian supplies. Pre-invasion, we only got 4% of our gas directly from Russia but the EU sourced 40% of its gas from there, so there’s now a lot more competition for existing supplies. * SO WHAT? * It’s good to see that we have something in place to guarantee supplies – but everyone else is going to be doing the same thing at the same time so I’m thinking that prices aren’t going to be coming down in a meaningful way any time soon. 

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 mortgage rates rise, HSBC tries to get ahead of the BoE and West End landlords get together…

US home mortgage rates jump by the most since 1987 (Financial Times, Alexandra White) shows that US mortgage rates have shot up by the most in 35 years due to rising inflation and interest rates, potentially pulling the housing ladder out of reach of many first-time buyers. According to mortgage provider Freddie Mac, the average interest rate on a 30-year fixed rose by over 0.5% to 5.78%. The rate was 3.2% at the start of the year – and a year ago the average was 2.93%. In the UK, HSBC lifts its mortgage rate twice as fast as the Bank (Daily Telegraph, Tom Haynes and Louis Ashworth) showed that the bank raised its mortgage rate by 0.5%, its largest rise in over a year, presumably assuming that the Bank of England is going to continue raising interest rates, which is what Lloyds Bank did last week.

Then in West End landlords Shaftsbury and Capco agree £5bn merger (Financial Times, George Hammond) we see that two of the West End’s biggest landlords, Capital & Counties (aka “Capco”) and Shaftsbury – whose overall estate pretty much covers Covent Garden, Soho, Chinatown and Carnaby Street – have agreed to a merger, subject to shareholder approval. * SO WHAT? * Given how well the area has recovered since the devastation of the Covid years, it probably makes strategic sense for these two players to get together. However, it’s not a done deal as there are still some investors there pushing for a higher price, although the companies themselves expect the deal to complete before the end of the year. I suspect that there will be further consolidation of retail landlords as a way of being able to better protect themselves in the event of another pandemic.

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!

Asos has problems, Halfords suffers, UK food prices are expected to rise and UK consumers cut back…

Asos warns on profits amid ‘significant increase’ in customer returns (The Guardian, Julia Kollewe and Kalyeena Makortoff) shows that Asos had a profit warning at an unscheduled trading update, blaming rising inflation and the increasing cost of returns in UK and Europe. The share price fell close to £8, sobering when you think it hit a high of £59 in March 2021, at the height of the online shopping boom. Asos doesn’t currently charge for returns. Why more shoppers are sending clothes back (The Guardian, Kalyeena Makortoff) talks about the practices of ‘wardrobing’ (returning purchases that have been worn) and bracketing (where the shopper gets different sizes and returns the ones that don’t fit) which are costing online retailers dear and there seems to be increasing incidence of “buyer’s remorse” where shoppers order a lot and then, later on, realise that they can’t really afford it. Charging for returns can stop this, but I guess you have to watch out for over-charging for returns otherwise shoppers will be scared off in the first instance and not buy anything. Web retailers need a post-Covid booster (The Times, Ashley Armstrong) looks at fast-fashion retailers more broadly, observing that Boohoo’s 18-24yr old demographic is perhaps more cushioned from paying out on mortgages or energy bills as they are more likely to be students or living at home, while Asos with its 16-34year-old target market is more vulnerable to inflationary pressures due to earning less than older shoppers. * SO WHAT? * As things stand at the moment, it looks like online fashion retailers peaked during lockdown and they are now in for a difficult period because of the rising cost-of-living and the increasing costs involved with returns (higher energy, fuel and labour costs). I would suggest that these online retailers need pursue ways of reducing returns by introducing tech that gives you more accurate sizing involving avatars etc. and/or partner up with “bricks-and-mortar” retailers to help with returns and reduce costs (e.g. you can return Asos clothes to Next etc.), but some kind of agreement may need to be reached regarding how they would pay for this. Doing this could end up being cheaper for customers, potentially generate sales in the physical stores by just increasing

footfall. * ADDITIONAL NOTE * When I was recording the podcast this morning with Watson’s Daily Ambassador Xenia Baranova, she pointed out that as Asos now owns Topshop, Topman and Miss Selfridge it would make sense to use them for this exact purpose. 

Elsewhere, Halfords’ shares tumble 27% after warning on inflation (Financial Times, Emma Dunkley and Jonathan Eley) highlights a massive fall in Halfords’ share price in trading yesterday as it said that inflation was denting earnings and demand for bikes. * SO WHAT? * Sales in the company’s retail cycling division which boomed during the pandemic are now being increasingly hit by supply chain problems while demand is slowing down due to tightening household budgets. It wasn’t all bad, though – the motoring services business, including Autocentres and National Tyres, now accounted for higher revenues than the bike division. Interestingly, the company said that EV servicing was rising as it continues to train hundreds of specialist electric car technicians.

Consumers continue to face challenges, however, as Food prices expected to soar by 15pc this summer, grocers warn (Daily Telegraph, James Warrington) shows that the Institute of Grocery Distribution (IGD) reckons that food prices will increase by up to 15% this summer, to their highest level for 20years. Meat, cereals, dairy, fruit and veg are all likely to be badly affected because of the war in Ukraine, export bans on certain foodstuffs, Brexit issues and Beijing’s stance on Covid all continuing to dent supplies and prices. In Consumers are already starting to cut back (The Times, Greig Cameron) we see that UK consumers are already trading down and buying less, according to the Lloyds Bank CEO, Charlie Nunn. Tesco says that sales of food have been resilient, but non-food has been “softer” while Diageo, the spirits giant, has been seeing “quite resilient” demand due to drinks sales at bars, restaurants and festivals being pretty robust – although inflation is likely to continue being an issue. * SO WHAT? * Consumers are having a tough time and it’s going to get worse. I guess that borrowing is going to continue to rise, although this can’t go on forever as a massively indebted society could be disastrous for the economy if it is allowed to run for too long.

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 car prices rise, Tesla jacks up its prices (again), Ferrari commits to electric and Revlon files for bankruptcy…

In a quick scoot around other interesting stories today, Soaring US car prices compel buyers to travel thousands of miles for deals (The Guardian, Allan Chernoff) shows that car prices in the US are now getting so ridiculous that people are travelling far and wide to get bargains (although presumably they will be paying a lot for fuel in the process!). One example in this article showed a guy who paid $51,000 for a fully-loaded Toyota RAV4 Prime, flew to pick it up and then drove it back home over eight days (including stops to see friends)!?!? OMG! Price gouging is rife for popular new cars, light trucks or SUVs thanks to low inventories, supply chain issues and production delays. Thank God the UK is a lot smaller! This just goes to show how desperate things are getting in the US…

Meanwhile, Tesla raises prices amid surging costs (Wall Street Journal, Will Feuer) has raised its prices yet again due to increasing supply chain, labour, transportation and raw materials costs and Ferrari to make almost half of its models fully electric by 2030 (Financial Times, Peter Campbell) highlights Ferrari’s commitment to going electric. It announced plans to power 40% of its cars solely by batteries, 40% by hybrid and 20% combustion engine to become carbon neutral by 2030. At the moment, only 20% of its cars are hybrid and it doesn’t yet have a 100% electrically-powered car. The company also announced the launch of its first SUV – called the Purosangue – which will provide competition for the likes of Lamborghini’s naughty-looking Urus, Bentley’s hideous Bentayga (don’t you think a black Bentayga looks just like a London taxi??) and Aston Martin’s very cool DBX, not to mention, of course that Rolls-Royce Cullinan monstrosity.

Then in Revlon files for bankruptcy after supply chain woes and competition struggles (Financial Times, Judith Evans) we see that the US cosmetics group has had to file for bankruptcy protection in a sign that it has lost the battle with celebrity and media-savvy upstarts. This action means it can continue to trade whilst working out a creditor repayment plan. Revlon owns the Elizabeth Arden, Almay and Cutex brands along with the Christina Aguilera and Britney Spears fragrances and now faces a delisting from the NYSE. Revlon: Chapter 11 marks end of easy money era for US financiers (Financial Times, Lex) highlights Revlon’s massive debts as being its main downfall and they are now going to be costing a lot more because of the current rising interest rate environment. Revlon has also failed to keep up with competition after a particularly painful period during lockdown. * SO WHAT? * Debt is clearly the biggest problem here and this is going to be very difficult to eradicate, particularly in the current environment where the cost of servicing debt is going up. On balance, I’d give it a reasonable chance of survival as it has some decent brands and could benefit from an upturn in sales thanks to less WFH and more going into the office and socialising. Yes, other cosmetics brands stand to benefit as well from this, but I suspect there will be some reshuffling of brand popularity as some people either upgrade their cosmetics as an “affordable luxury” and some downgrade in order to save costs.

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 job market is tight out there, so it seems that now is a good time to find a role that you can truly enjoy. What about this: Cadbury World searching for ‘chocolate demonstrator’ with ‘passion’ for sugary treat (The Mirror, Naomi DeSouza and Laura Sharman). It’s a tough job, but someone’s got to do it 😁. Let’s hope they don’t pay in chocolate coins 🤞