Friday 20/01/23

  1. In MACRO, OIL & CRYPTO NEWS, Xi Jinping is warned about super-spreading, central bankers talk higher rates for longer and Bailey emphasises likelihood of recession while we see why Harbour Energy is affected by the windfall taxes, the failure of Genesis and the possible rebirth of FTX
  2. In CONSUMER, RETAIL & EMPLOYMENT NEWS, mortgages get harder, shoppers get nervous, AJ Bell brings in the customers, Dunelm delights but Doc Martens and Boohoo suffer, Hotel Choc wants to expand and we look at employment trends in tech and law
  3. In NEW INNOVATIONS NEWS, a hydrogen-powered test flight completes and artists take on AI
  4. In INDIVIDUAL COMPANIES NEWS, KKR curbs redemptions, Netflix’s co-founder steps down, Deliveroo eyes profit and Informa is back in business
  5. AND FINALLY, I bring you the best electric blankets…

1

MACRO, OIL & CRYPTO NEWS

So there are Covid nerves about China, central bankers talk higher inflation and interest rates, we see why Harbour Energy is pouting, Genesis goes down and FTX might return…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

In China’s Xi Jinping warns of Covid spread as millions travel for lunar new year (Financial Times, Kai Waluszewski and Edward White) we see that China’s president expressed concerns about the potential superspreader event of China’s new year holiday which involves the world’s biggest annual human migration as people leave the cities to go to their hometowns and villages. In the next few weeks, it is forecasted that the country’s 1.4bn people will take 2bn trips to see family. Things will no doubt be that much more tense as it will be the first time that urban Chinese will have been home for three years! Authorities are advising people to “not return to their hometowns unless necessary” and that they should not spread “gloomy sentiments” or “rumours” about the pandemic over the holiday. * SO WHAT? * Despite all this, no concrete measures have been announced to stop people travelling home. I am sure

that the leadership will be praying that the fears have been unfounded and that they get through this relatively unscathed but the fact is that more rural areas have not been getting the medical support that the big cities have. IMO, if China can get through this crucial period relatively unscathed I think that the economy will accelerate this year. However, there is also the possibility that we could see it being Wuhan all over again…

Central bankers pledge to ‘stay the course’ on high interest rates (Financial Times, Colby Smith, Chris Giles, Valentina Romei and George Steer) we see that ECB president Christine Lagarde and Fed vice-chair Lael Brainard indicated that there’s still more to be done to combat inflation, meaning that interest rates are still going to be on the upward trajectory. Britain still faces recession, warns Bailey (Daily Telegraph, Szu Ping Chan, Rachel Millard and Simon Foy) tells us that the Bank of England chief reckons our economy is still not out of the woods yet (what a genius he is 🤣!) although we have “turned a corner”, meaning that we will be facing a “long, but shallow” economic downturn. This is still a less positive outlook than that of the eurozone, where there is a growing feeling that recession may be avoided altogether in some places.

Following on from yesterday’s news about Harbour Energy cutting jobs as a direct consequence of having to pay windfall taxes, Harbour energy: UK windfall tax has unintended consequences (Financial Times, Lex) does a really good job of explaining how windfall taxes affect different oil companies and that although Harbour has benefited from high commodity prices in the short term, working on oil exploration is a longer term phenomenon that costs a lot of money. From Harbour’s point of view, the windfall tax is a certainty until 2028 but the problem is that oil prices could go all over the place between now and then – and by investing more money now, they might be exposing themselves to more tax that they might not be able to pay if, for instance, the price of oil just fell through the floor.

Meanwhile, in the wild world of crypto, Crypto lender Genesis files for bankruptcy, ensnared by FTX collapse (Wall Street Journal, Vicky Ge Huang and Caitlin Ostroff) shows that Genesis Global and two of its lending subsidiaries filed for bankruptcy protection late last night as they became the latest crypto entities to collapse. Genesis managed to hold on for longer than rivals Celsius and Voyager who went under last year. Genesis is thought to have lent “at least” hundreds of millions of dollars to FTX. The crypto winter continues – although FTX could rise from the flames (The Times) says that the current chief exec of FTX, John Ray, is thinking about resuscitating the bankrupt crypto exchange as this might recover more value for customers than liquidating assets or selling the platform. It remains to be seen whether this will be possible…

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!

2

CONSUMER, RETAIL & EMPLOYMENT NEWS

Consumers continue to get squeezed, the mixed performance of retailers continues and we look at some employment trends to pay attention to…

In Toughest time to get a mortgage in 15 years as lenders brace for defaults (Daily Telegraph, Eir Nolsøe and Alexa Phillips) we see that banks are getting ready for a surge in mortgage defaults as lenders get more nervous about giving out loans going into the downturn. The availability of mortgages has fallen to its lowest level – apart from the pandemic – for 15 years. Interestingly, despite the lack of landlords, the latest analysis from Hamptons estate agents showed that it is 26% cheaper to rent than buy on average. Still, you wonder how long this will last given that the Bank of England is now actively clamping down on buy-to-let mortgages, which will at the very least deter new landlords (and quite possibly encourage current landlords to exit the market). In the meantime, Nervous shoppers cut spending on pricey items (The Times, Arthi Nachiappan) cites the latest GfK survey which shows that consumer confidence has fallen to near-record lows at the beginning of 2023 and More customers but less money for AJ Bell (The Times, Helen Cahill) shows that even the wealthy aren’t all throwing their money around because although the investor platform managed to attract more customers, inflows of money were not so good (which shows that they are holding back). Consumers continue to be sensitive to what’s going on around them at the moment.

In retailing, Dunelm’s merry Christmas defies the doom-mongers (The Times, Tom Howard) shows that solid demand for electric blankets and heated indoor airers managed to power the purveyor of homewares to a strong final quarter in 2022. Results came in above market expectations and it seems that customers are not necessarily trading down as some of Dunelm’s more expensive Dorma product lines performed strongly. * SO WHAT? * So far so good, but unless the housing market heats up and confidence returns I think that there’s not really that much to hang your hat on from here. This was a nice surprise – but where does one go from here?

Things were less good in Investors stick boot in at Dr Martens (The Times, Isabella Fish) as the company’s share price took at 25% bath in trading yesterday after issuing a profit warning, mainly thanks to problems at its new US distribution centre in Los Angeles which had “people and process errors”. This led to too much stock being shipped faster than intended and a logjam of stock at the

warehouse. On the plus side, the company said that it expected to get back to normality in the first half of the 2024 financial year, although that may be subject to external economic factors. Boohoo warns of sales slump as shoppers return to the high street (Daily Telegraph, Hannah Boland) shows that the online apparel retailer has struggled as shoppers returned to the high street, saying that it expected sales to fall by around 12% for the year to the end of February, reflecting similar issues at Asos. Hotel Chocolat to make fewer Easter eggs amid squeeze (Daily Telegraph, Hannah Boland) is altogether more upbeat in that the company said that it is planning to open around 50 stores in the next three to five years, but acknowledges that it needs to make sure it doesn’t over-egg things (#seewhatididthere) in terms of production of Easter eggs and “play cautious”. Chief exec Angus Thirlwell did a great thing for PR saying that he expected the company to sell out of Easter eggs rather than have excess stock and have to discount, adding that by going to his shops versus shopping online “There’s all the anticipation of buying it, you get a lovely bag. All that comes free”. Free? FREEEEE???? Have you seen that ONE Easter egg from there will cost you £30?!?! Yes, I think I’m going to love that “free” bag 🤣!

In employment trends, I thought it was interesting to see Social media job cuts risk surge of online terrorist content, warns report (Financial Times, Cristina Criddle) as the recent culling at tech companies clearly has consequences, according to a report by Tech Against Terrorism (an organisation which is backed by the UN) although US tech jobs: dismissals do not reverse pandemic-era expansions (Financial Times, Lex) urges perspective on the tech job situation, saying that the cuts come after a period where there was a massive expansion in staff numbers.

I also thought that Watch law firms, not banks, to judge the City’s deep freeze (Financial Times, Helen Thomas) made some interesting points – that although investment banks tend to cut employees quickly, law firms tend not to have to cut quite so rapidly as staff can be more easily deployed elsewhere; secondly, the nature of the work they do tends to last longer after the cycle changes as deals take quite some time to go through the regulatory process after they are initially announced; thirdly, there’s a general reluctance to make cuts as hindsight shows that they had been over-zealous in the past with the axe. As things stand currently, staff numbers could drop anyway thanks to natural attrition, stricter performance reviews and potentially shorter working hours. It remains to be seen as to whether they can ride out the current storm.

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!

3

NEW INNOVATIONS NEWS

Hydrogen takes flight and artists reject AI…

Anglo-US group completes test flight of propeller aircraft powered by hydrogen (Financial Times, Sylvia Pfeifer) shows that ZeroAvia completed a 10-minute test flight in what is being seen as a major breakthrough. It was the biggest aircraft powered by a hydrogen-electric engine, according to the start-up. * SO WHAT?* Flying is one of the most difficult industries to decarbonise and there are efforts by various companies to improve the situation – Rolls-Royce is working on an engine, for instance. ZeroAvia has already

received 1,500 pre-orders for its engines but it will need to raise more money to fully commercialise its offering.

Then I thought I’d mention Why artists are going to war with AI and ChatGPT over copyright (Daily Telegraph, James Warrington) following what I said the other day about OpenAI and ChatGPT as more people are getting concerned about what comes next for AI. Artists are getting increasingly concerned about copyrights particularly around who owns the songs, images and other things that the software creates. It is particularly problematic where AI has generated content on its own. Interesting times ahead!

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!

4

INDIVIDUAL COMPANIES NEWS

KKR gets defensive, Netflix loses its co-founder, Deliveroo perks up and Informa is back in business…

In a quick scoot around some of today’s other interesting stories, KKR real estate fund curbs redemptions in echo of Blackstone move (Financial Times, Antoine Gara) shows that the investment manager has become the latest investment manager to limit fund withdrawals as increasingly nervous clients fight to pull their money out of an area that they think will suffer in an environment where the cost of borrowing keeps going up. * SO WHAT? * Blackstone limited investor withdrawals back in December, so this shouldn’t be too much of a surprise. No doubt the redemption frenzy will continue as other players in the industry look to follow suit.

Elsewhere, Reed Hastings to step down as Netflix chief executive after 25 years (Daily Telegraph, Matthew Field) shows that the co-founder of Netflix is going to step down as CEO and become the executive chairman, in a move similar to Jeff Bezos at Amazon. He leaves on a positive note as the company reported revenues coming in above forecast, but he has presided over a period of

enormous change! Subscriber numbers were better than expected as well, but the competition continues to intensify…

Then in Growth back on the menu at Deliveroo (The Times, Dominic Walsh) we see that Deliveroo managed to deliver a positive trading update as it returned to profitability, prompting upgrades all round for City forecasters. Underlying growth going into the end of last year was strong and although order numbers weakened slightly, the amount per order was actually higher thanks to inflation and rising consumer fees. * SO WHAT? * It’s good to see some good news from Deliveroo for a change, but let’s not get ahead of ourselves – the share price is now 91½p versus the 390p flotation price!

Party time at Informa as tide turns for events (The Times, Helen Cahill) heralds a return to form for the events company after a nightmare lockdown and it raised its profit forecasts again on hopes that the opening of the Chinese economy will provide a further boost! The company has seen bookings return to pre-pandemic levels and it looks like momentum will continue…

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!

5

...AND FINALLY...

…in other news…

Given how cold it is at the moment, I thought you might find this useful: 13 best electric blankets to buy now as cold snap continues in the UK (The Mirror, Brijiena Lovelace and Melisha Kaur). BTW, I have no financial interest here – just thought this might help you!

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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)