Friday 17/09/21

  1. In MACRO, ENERGY & LOGISTICS NEWS, the US economy shows resilience, BoJo has an eye on the next election, Sunak is to unveil new fiscal rules, higher gas prices trigger fertiliser problems, Maersk goes bananas and Yodel heads for strikes
  2. In CHINA CLAMPDOWN NEWS, Didi loses 30% of daily users and we look at some “insulated” China stocks
  3. In RETAIL NEWS, John Lewis pulls through, Superdry makes a comeback, Games Workshop suffers, M&S shuts French outlets and The Hut Group plans to hive off its beauty division
  4. In MISCELLANEOUS NEWS, car rental bounces back, the French lose out on subs while Rolls-Royce benefits, Nikola unveils its first actual truck and JP Morgan launches a digital bank
  5. AND FINALLY, I bring you the ultimate (in my opinion) satisfying theme park…

1

MACRO, ENERGY & LOGISTICS NEWS

So the US economy deals with Delta, BoJo has half an eye on the next election, Sunak is set to be the party pooper, gas price surges endanger fertilizer, Maersk benefits hugely and Yodel workers want to strike…

In a quick scoot around some of today’s “macro” stories, US economy shows resilience during delta surge (Wall Street Journal, Josh Mitchell) cites the latest stats from the Commerce Department which show that US consumer spending at retailers rose by 0.7% in August, rebounding from July weakness, as many educational establishments and offices opened. Strength in sales of groceries, furniture and hardware all helped to make up for the slide in car sales. Unemployment benefit claims increased, but that was probably down to layoffs caused by hurricane Ida, but the overall trend is downward. These figures will probably calm fears of potential damage from the spread of the Delta variant.

Meanwhile, back in the UK, Johnson reshuffles pack with eye on next UK general election (Financial Times, George Parker, Jasmine Cameron-Chileshe and Sebastian Payne) observes that BoJo continued with his ministerial reshuffle yesterday and managed to make his new line-up younger than the previous lot, plus it’s slightly less male-dominated and more ethnically diverse. There’s gossip about an election in 2023 and who might be a leadership candidate if they decide to boot BoJo out, but it’s all just noise at this stage.

Then in Rishi Sunak to set out new fiscal rules to rein in UK borrowing (Financial Times, George Parker and Chris Giles) we have a quick speculative preview of what might happen in next month’s Budget. The focus is likely to be on how to rein in government borrowing, especially given the ever-present threat that interest rates might have to go up to clip the wings of inflation – which would increase the government’s debt servicing costs. It is thought that the aim is to start to put a dent in the national debt by 2024-5, which currently stands at 100% of GDP.

The Great National Energy Headache continues in Fears for UK recovery as record energy prices shut fertiliser plants (The Guardian, Jillian Ambrose) as the record energy prices that have been raging recently have caused two fertiliser plants in the north of England to close down and steel plants to suspend production. The fertiliser plants belong to CF Industries, one of the world’s biggest fertiliser groups. It supplies about 40% of the UK fertiliser market, so you can see how big a problem this is. * SO WHAT? * We

are not the only country to be suffering from ever-higher energy prices – this is happening all across Europe at the moment because of a global boom in demand for gas after a cold winter cut into gas storage facilities. On top of that, gas imports from Norway and Russia have slowed down – and gas supply problems are acutely felt in the UK due to the fact that we rely a lot on gas-fired power plants. This has been exacerbated by low levels of wind-power generation and then there was that fire this week just making a bad situation even worse! Utility bills will be going up – putting more pressure on household budgets, which will in turn put more upward pressure on inflation, which will put more pressure on the Bank of England to increase interest rates.

The logistics sector is seeing some drama at the moment in Maersk forecasts record profits as global shipping goes haywire (Financial Times, Richard Milne) which shows that the world’s largest shipping container company is lifting its operating profits forecasts for the third time this year as volumes of seaborne freight continue to climb. * SO WHAT? * Maersk carries about 20% of the world’s freight by sea and is seen as a bellwether for global trade. The company says that it expects to see strong demand continue well into 2022, so this is certainly positive for Maersk! The third consecutive hike in forecasts has been criticised by some as poor predictive ability, but I guess that no-one could have foreseen how 2021 has turned out! It was quite amusing to see that, when Maersk’s CEO Soren Skou was asked whether there would be yet another hike in forecasts in Q4 he said “I really hope this is it because it’s getting a bit crazy”!

Meanwhile, close to home, Yodel workers to strike, threatening M&S, Aldi and Very deliveries (The Guardian, Sarah Butler) shows that the strain is starting to tell on delivery drivers as Yodel’s workers have voted for industrial action over pay and conditions that will put even more strain on our already-creaking supply chain. This comes at a time when Booker (Tesco’s wholesaler) and Hanson (a cement producer) drivers are also considering strikes. The GMB Union says that its members are unhappy about work-life balance and that agency workers are paid more than those who are directly employed. * SO WHAT? * Clearly the Unions are in quite a strong position at the moment, what with the shortage of drivers etc. so they are obviously going to milk the situation as much as they can. It’ll be interesting to see what stance the government take on this and see whether they spin it into greedy delivery drivers turning the screw and spoiling Christmas for everyone with their strike action. Will BoJo want to strong-arm them to deter more strikes or will it adopt a more conciliatory tone??

2

CHINA CLAMPDOWN NEWS

Didi suffers but there are some “investable” Chinese stocks…

The repercussions of the Great China Clampdown continue in Didi loses 30% of daily users after Beijing crackdown following IPO (Financial Times, Ryan McMorrow) as the ride-hailer has seen a significant drop-off in business since the Chinese government banned it from signing up new customers pending an investigation. Regulators forced app stores to take down 25 of Didi’s apps during this time and the company’s share price has cratered by 40% since it had its New York IPO. * SO WHAT? * This just goes to show it’s not a good idea to take on the Chinese government as you will probably lose!

Further to all this investor discomfort and uncertainty in China at the moment, I thought that China stocks: some sectors more sheltered than tech (Financial Times, Lex) was worth mentioning because it’s quite easy to jump on

the “sell China” bandwagon at the moment when you have famous investors like Cathie Wood and George Soros exiting, or advising on exiting, investments in the country. This article suggests that companies and industries that feed into the country’s longer-term ambitions still offer growth potential, but that they need to fly a bit under the radar and not be seen to be too successful in order to avoid scrutiny by Beijing. * SO WHAT? * There are two overarching aims for China at a macro level – advancing its technology and manufacturing capabilities (a campaign dubbed “Made in China 2025”) and becoming carbon neutral by 2060. This would suggest that the prospects for renewable energy companies and EV makers will still be bright. Solar panel makers include JinkoSolar and Xinyi Solar Holdings, which haven’t been feeling the investor love of late despite decent prospects both on a domestic and international level. EV companies like BYD, Nio, Li Auto and Xpeng also seem to be on the up. There are still gems in China – I guess investors will just have to work harder to dig them out!

3

RETAIL NEWS

John Lewis marches on, Superdry rebounds, Games Workshop suffers, M&S shuts French stores and The Hut Group plans a spin-off…

There were some really interesting developments for retailers in today’s news! John Lewis cuts losses to £29m but warns of Christmas uncertainty (The Guardian, Sarah Butler) highlights a victory of sorts for the embattled retailer as it managed to cut losses for the first half in a better-than-expected performance. The company even mooted the possible return of the famous staff bonus, which was abandoned in March this year for the first time since 1953, and benefited from a major investment in digital retailing. Online sales now form about 75% of the sales mix versus 40% pre-pandemic, total sales were up and even the department store put in a decent performance. It said that it had chartered extra container ships in a bid to save Christmas. John Lewis has survived a near-death experience (Daily Telegraph, Ben Marlow) says that although Waitrose gave the group a major boost, it was good to see the department store business doing OK. * SO WHAT? * FWIW, I still think that Dame Sharon White has benefited from the “low-hanging fruit” with the coronavirus providing a unique opportunity to cut staff and outlets and she’s managed to dress this up with some frippery around things like property development and financial services to get some people excited. I remain firmly of the belief that the real work is going to be sorting out the core business – and quickly. Once the pruning has been done I think she needs to invest in what’s left after taking a good hard look at how to future-proof itself. As far as I’m concerned, property is a long term thing and financial services seems to be fraught with danger when retailers get involved. They all seem to march in thinking that their trusted name will translate into customers using their financial services – but it often seems to underperform expectations IMO. I would have thought that this would be even worse these days given increasing competition from digital/challenger banks.

Then in Superdry riding high again after investors back turnaround plan (The Times) we see that Superdry appears to be dragging itself out of a rut at last under the stewardship of co-founder Julian Dunkerton – to the extent that it is confident about opening a new megastore near Selfridges on Oxford Street (it shut down its outlet on Regent Street). Its share price had a nice 14.9% uplift on its results announcement yesterday, meaning that it has doubled over the last year! I think that Superdry is just another one of those athleisure winners!

On the other hand, there was bad news in Games Workshop takes a hammering from higher costs (The Times, Patrick Hosking) as the seller of Warhammer stuff is suffering from higher freight costs and forex rates going against them and M&S French closures over supply issues (The Times, Dominic Walsh) shows that M&S has given up in France and is now closing 11 of its franchised stores over the next few months, blaming Brexit supply problems. * SO WHAT? * I really think that M&S should just give up on France! It’s tried so many times and failed every time for various reasons. I just think that France doesn’t need M&S because it has better clothing options – and it’s pretty darn good on food! If expats need their fix of Percy Pigs and Colin The Caterpillar cakes, surely they can just use something called the internet OR just pop over! I just don’t know why M&S keeps hitting its head against this Gallic brick wall!

Hut Group to spin off beauty division (The Times, Ashley Armstrong) shows that The Hut Group isn’t letting the grass grow under its feet as just one year on from its $4.5bn London flotation it has just announced that it aims to spin off its beauty division, adding that it could do this with other divisions as well. THG’s beauty business accounted for about 48% of group revenues in the first half of this year, so this is a major part of the business. * SO WHAT? * I think that this is a really interesting idea and imagine that it will be popular with investors because they generally tend to like a “purer” play as it’s easier to invest thematically when the companies you are buying have a clear niche. I would also argue that this will help THG overall should there be another lockdown as sales of cosmetics was hit during the lows of the pandemic as we all wandered around smelly and in our PJs (or was that just me?).

4

MISCELLANEOUS NEWS

Car rentals rebound, the French get angry, Nikola comes out with a “real” truck and JP Morgan launches a new digital bank in the UK…

In other news today, I thought that Car rental: bumps, blind corners and hairpin turns (Financial Times, Lex) was worth highlighting just because of the contrast in fortunes of last year versus this year. The industry’s reliance on the airline industry proved to be disastrous but it cut its fleet numbers and saw demand rise as people used their vehicles in preference to public transport. Avis Budget, Sixt and Europcar have all been doing well and even Hertz, which went bankrupt before being bought, is actually turning a corner as well. Talk about phoenix from the ashes! Mind you, the ongoing shortage of chips for the auto makers could yet prove to be a downer. In the meantime, though, they are doing pretty well and investors will be feeling pretty smug about themselves!

Meanwhile, Rolls-Royce and BAE set to benefit after Australia spurns French submarines (Daily Telegraph, Alan Tovey) shows that two British companies will benefit from a decision by Australia to ditch their A$90bn order of French made subs (which really annoyed the French) as they will supply their expertise. In addition to this, Rolls-Royce’s electric plane takes to the skies for the first time (Daily Telegraph, Joe Curtis) highlights another new development for the company. They seem to be on a roll at the moment what with their other recently announced initiative of making Small Modular Reactors. Good on them! I guess the sooner it can diversify at least a bit from jet engines the better…

In other developments, Nikola shows its first viable electric truck to the world: ‘It’s real!’ (Financial Times, Joe Miller, Claire Bushey and Peter Campbell) highlights progress for disgraced electric truck maker Nikola. Current CEO Mark Russell made light of the company’s reputation for pedalling 🐂💩 on a monumental scale by saying “It’s real, I promise!”, which I am sure endeared him to the investors who believed their ⚽🔒🔒 previously. Still, it seems to be a real truck that can power itself (rather than being rolled down a hill) so I say “Well done for doing something that you said you were going to do” 🤣. This company is going to have to do a lot to build up trust, but I guess this is a step forward.

Then in JP Morgan unveils UK digital bank (The Times, Katherine Griffiths) we see that the British public is going to be treated to – yet another bank 😴. How exciting. But hey – wake up – JP Morgan is behind it! Woohoo! JP Morgan is the largest bank in the US and one of the biggest in the world! I hope you were sitting down when you read this because it is SOOOOOOOOOOOOOOO darn exciting…

5

...AND FINALLY...

…in other news…

Today, I thought I’d bring you this brilliant idea for a theme/play park: Squish, pop and roll your way through Tokyo’s new ginormous bubble-wrap play park (SoraNews24, Katy Kelly). I LOVE bubble-wrap – specifically popping the stuff! Although the small bubbles are pretty good, I am a big fan of the big bubbles as they make a more satisfying pop, no? Also, whenever I get the puffy packaging sometimes where there’s less a bubble more of a big airpocket about the size of your hand, I always save it for my kids to pop when they get back from school! A theme park with this stuff would just be soooo therapeutic IMO, but not sure it’s that Covid-friendly though…

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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