Friday 22/07/22

  1. In MACROECONOMIC & STEEL NEWS, the ECB hikes rates (at last), Italy calls a September election, South Africa announces a major interest rate increase and Tata makes a threat
  2. In RETAIL NEWS, Amazon buys deeper into healthcare, Ocado rethinks expansion and Frasers sees profits boom
  3. In TECH NEWS, Big Tech looks at the big picture in Indonesia, Snap posts its weakest ever sales and Baidu overtakes Tesla
  4. In MISCELLANEOUS NEWS, US airlines recover, Didi gets a big fine and S4 Capital is in trouble
  5. AND FINALLY, I let you know what a “chipwatch” zone is…

1

MACROECONOMIC & STEEL NEWS

So the ECB gets its head out of the sand (eventually), Italy braces for impact, South Africa makes a mahoosive hike and Tata threatens…

*** PLEASE NOTE – MONDAY’S EDITION IS GOING TO BE LATE (Watson’s Weekly may also be late, but I’ll see what I can do). I’m going away this weekend and won’t be back until later on Monday. I WILL still do a Monday edition, though –  I’ll just publish it later in the day (I wouldn’t want you to miss out now, would I!). ***

In ECB raises rates for first time in more than a decade (Financial Times, Martin Arnold and Ian Johnston) we see that the ECB has only gone and actually done something about rising inflation 😱! It decided to raise interest rates by 0.5%! This is the first increase for over ten years and its first 0.5% increase since June 2000! Apologies for the excessive use of exclamation marks but it is quite dramatic, particularly as the 0.5% increase was probably at the top end of most people’s expectations.

Italy’s president calls snap elections after Draghi quits as PM (Financial Times, Amy Kazmin and Silvia Sciorilli Borrelli) continues the farce in Italian politics as Draghi’s latest resignation prompted the dissolution of parliament and an inevitable election, which will happen on September 25th. * SO WHAT? * This surely means that Italy will not be able to meet key deadlines to unlock the next instalment of the EU coronavirus recovery fund and will make Italy’s already perilous finances even worse. It looks like populism is on the rise again in Europe…

Italy leads sell-off as ECB acts on debt fears (The Times, Mehreen Khan) shows the immediate reaction to all this as investors sold Italian government debt, the Euro and European stocks. Investor sentiment towards the zone is clearly not good right now – and I would have thought it unlikely to improve much. Germany’s got massive energy problems and a weak coalition government, Macron has lost his majority and Italy doesn’t have a government. Not good.

Then in South Africa announces biggest interest rate rise in nearly 20 years (Financial Times, Joseph Cotterill) we see that South Africa’s central bank has just announced its biggest interest rate rise since late 2002 – 0.75% – to bring the rate to 5.50%. This was above market expectations, but was blamed on the bigger-than-expected effect of the Ukraine war on food and fuel prices. It looks like the market is increasingly expecting the US to be the next to hike interest rates by 0.75%…

Hot on the heels of the mini-triumph I referred to yesterday, Tata threatens to close Port Talbot steelworks without £1.5bn of aid (Financial Times, Anjli Raval, Sylvia Pfeifer, Harry Dempsey and Chloe Cornish) shows that the owner of Britain’s biggest steelworks, Tata Group, is pressuring the government to cough up some subsidies to help it cut carbon emissions. It is currently one of the biggest emitters of carbon dioxide. I suspect that tricky negotiations will 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!

2

RETAIL NEWS

Amazon gets deeper into healthcare, Ocado has a rethink and Frasers Group plans expansion…

Deal gives Amazon signal of Amazon healthcare ambitions (The Times, Callum Jones) highlights Amazon’s purchase of American healthcare provider 1Life Healthcare, the owner of One Medical, in a deal worth $3.9bn in total. * SO WHAT? * This will give Amazon’s existing healthcare business (called Amazon Care) a major boost. At the moment, Amazon Care offers virtual appointments and follow-up visits, but One Medical is a primary healthcare specialist with online and in-person services covering 182 offices and 25 markets across the US. Amazon/One Medical: no Rx for bloated healthcare spending (Financial Times, Lex) reckons that Amazon’s increasing involvement in healthcare could attract regulatory scrutiny given the current administration’s suspicions about Big Tech’s market power.

Meanwhile, Ocado reviews UK expansion as shoppers cut back (Financial Times, Jonathan Eley) shows that the online retailer/tech company has announced that it may slow down its expansion as UK customer spending slows down on online grocery shopping. The company has already built two new customer fulfilment centres this year in Bicester and Luton but are reviewing

others. * SO WHAT? * It is interesting to note that sales at Ocado Retail, which is its e-commerce JV with M&S, fell by 8% in the first half. Overall, it seems that the online grocery market has shrunk by about 20% since peak lockdown as shoppers have returned to stores and average basket sizes have fallen by about 13% to about £120 over the first half of the year. Although they are playing it down, it is worth noting that Ocado has not signed up a major new client for its tech since Japan’s Aeon in December 2019. On the plus side, the company left its full-year guidance unchanged.

Then in Mike Ashley’s Frasers Group plans more stores as profits soar (The Guardian, Sarah Butler) we see that the owner of Sports Direct, Jack Wills, Game and Evans Cycles (and a whole load of brands besides!) is so confident about its outlook that it is looking at making more acquisitions and store openings. Some of the reason for this confidence probably comes from the fact that sales rose by almost a third and profits have recovered nicely since lockdowns. * SO WHAT? * It sounded like there were grand plans for a lot of Frasers Group brands but House of Fraser will continue to shrink with the ultimate idea being to have only 20 to 30 House of Fraser outlets. Things are looking good at the moment for the company, but it’s difficult to tell whether this is because there’s proper momentum or whether their current figures have been flattered by having monumentally 💩 ones under lockdown.

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

TECH NEWS

Big Tech makes sacrifices, Snap has a nightmare and Baidu beats Tesla

Big Tech signs up to Indonesia’s strict content law (Financial Times, Oliver Telling and Cristina Criddle) shows that the world’s biggest tech groups – including Apple, Microsoft, Google, Amazon, Netflix, Spotify, Meta, TikTok and Twitter – have all registered for a licence at Indonesia’s communications ministry which will allow content censorship and give access to user data. Indonesia is seen as a particularly attractive market (it has the world’s fourth biggest population, which is also quite young) to such an extent that these big players are willing to allow law enforcement agencies to step in and act if any of the platforms publish content that disturbs “society” or “public order”. * SO WHAT? * This is quite an interesting move as social media is often plugged as being about the freedom of expression. Given the combined size and power of these companies, you would have thought they could all have got together and refused to back down. However, I suspect that they feared that the prospect of just one of them going in and making a killing while everyone else watched on from the moral high ground was too much to bear! Jakarta has spun this as ensuring that there is a “positive” digital space in the country. 

Elsewhere, Snap posts weakest-ever sales, sending shares tumbling after hours (Wall Street Journal, Sarah Donaldson) shows that the fleeting social media platform has just published its weakest-ever quarterly results as a listed company. * SO WHAT? * Basically, it got massively hit by Apple changing its privacy policy that then killed Snap’s ad revenues and it hasn’t recovered since. The company’s share price fell by a chunky 26% after the results were announced.

Then in Baidu races ahead of Tesla with launch of Robotaxi with detachable steering wheel (Wall Street Journal, Raffaele Huang) we see that China’s Baidu (often seen as “China’s Google”) announced the launch of a new autonomous car that it aims to use for its robotaxi service in 2023 – which is almost a year before Tesla is planning on mass-producing a similar vehicle. * SO WHAT? * This sounds impressive, but I would have thought it isn’t necessarily a bad thing NOT to be first in this market as I would expect a lot of people to be sceptical about it initially. By the time they get over their fears, Tesla will just rock up with its model (which will no doubt learn from Baidu’s experience). The whole world will be looking on with interest at how driverless taxis fare in China.

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

MISCELLANEOUS NEWS

Airlines recover, Didi gets a $1bn slap and S4 Capital has a nightmare…

In a quick scoot around other interesting stories today, Airlines are making money again, but they can’t keep up with surging travel demand (Wall Street Journal, Alison Sider) shows that rising costs and airport/staff shortage shenanigans are taking the edge off what has actually been quite a successful period for airlines. They are making money again as travel demand has increased but higher fuel prices and labour costs are already eating into margins (and I would have thought this will be particularly painful when passenger numbers fall going into the winter months). American Airlines, United Airlines and Alaska Air all said that this quarter was the best ever for this time of year but they are all wary that the good times may lose momentum amid the cost of living crisis.

Didi fined over $1bn by Beijing for ‘vile’ breaches of Data laws (Financial Times, Ryan McMorrow and Cheng Leng) highlights a  $1bn fine that’s just been slapped on ride-hailing company Didi Chuxing in additional penalties for founders breaching the country’s data security laws. The Cyberspace Administration of China investigation torpedoed Didi Chuxing’s business and led to it delisting from the New York Stock Exchange just one year after its $4.4bn IPO last June. * SO WHAT? * This came as part of the overall crackdown by Chinese authorities on the tech sector as a whole. Normally, I’d say that this may draw a line under things and

Didi can look forward to recovering from here, but given China’s penchant for just imposing laws and fines when it wants to (and sometimes retrospectively), you just don’t know. I would have thought nervousness about this sort of thing will limit upside potential for a while.

Then in Shares in S4 Capital sink 40pc after profit warning (Daily Telegraph, Matt Oliver) we see that Sir Martin Sorrell’s advertising baby has had an absolute shocker after news of a profit warning sent its share price off a cliff. Staff costs are growing faster than sales and so now the company is cutting costs and imposing a hiring freeze. This is the company’s latest nightmare following the late publication of its results. * SO WHAT? * S4 Capital attracts a lot of attention because it was founded in 2018 after Sir Martin Sorrell was effectively booted out of the company he founded and subsequently grew over 30 years to be the world’s biggest advertiser, WPP. S4 Capital: shares nosedive as rising overheads weigh heavily (Financial Times, Lex) points out that S4 Capital’s growth thus far has depended on acquisitions, for which its own shares are often used as capital. However, that only works well if your share price is going up. If it’s down in the doldrums, this becomes less attractive – and then when you don’t get growth via this route investors start looking more closely at what’s ACTUALLY under the hood of the business. Given that advertising is often a lead indicator of the economy – and that we are now in a cost of living crisis – what they see there isn’t likely to be pretty. And that could lead to even more downside (and a bit of a spiral).

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…

Imagine the scene. You’re on the beach. There’s a light breeze. You can feel a touch of warmth on your skin as the sun shines down, but there’s a faint rumble in your stomach. You open the flimsy box of fish and chips, grab that weird fork thingy and then – suddenly – a seagull swoops down and grabs as many chips as it can get away with! Aaaaaaaaaaaarghhhhhh! Whaaaaaaaaaaaaaaaaaaaaaaa! Noooooooooooooooooooo!

Well, Brighton Beach has your back (or rather your chips), my friend, in Deliveroo creates special song to stop seagulls stealing food in ‘Chipwatch’ zones (The Mirror, John Bett). Thank God for academics at educational institutions who spend their time coming up with special songs to chase the birds away. All that time and money is not going to waste…although surely you could get the same result by playing “Baby shark” or something 🤣

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Some of today’s market, commodity & currency moves (as at 0631hrs 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 **
7,271 (+0.09%)32,036.9 (+0.51%)3,998.95 (+0.99%)12,059.61 (+1.36%)13,247 (-0.27%)6,201 (+0.27%)27,915 (+0.40%)3,270 (-0.06%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
97.26104.911,714.931.195761.01859137.9161.1739323,085.0

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