Friday 29/07/22

1. In MACRO & ENERGY NEWS, US GDP contracts again, Shell and Centrica boom, EDF makes a big loss and German consumers face massive bills
2. In TECH NEWS, Apple outperforms, Amazon posts a net loss, Meta has difficulties and Twitter’s in limbo
3. In CONSUMER GOODS/SPENDING TRENDS NEWS, Nestlé ups prices, Diageo toasts success, while Sky and ITV suffer and Stellantis and Bentley do well
4. In MISCELLANEOUS NEWS, JetBlue agrees to buy Spirit, Jack Ma plans to relinquish control over Ant Group and defence companies get a boost
5. AND FINALLY, I bring you a cute puppy certificate and a Pomplamoose cover…

So US GDP contracts again, Shell and Centrica knock it outta the park, EDF announces a massive loss and German consumers are going to pay the price…

📢 HEADS UP! I’m going to be doing my monthly roundup of JULY next week with Jake Schogger. July has been an incredibly eventful month, so if you want to get the only monthly overview in town, please register HERE to see the Ant and Dec of commercial awareness 😁

US economy shrinks for second consecutive quarter (Financial Times, Kate Duguid and Colby Smith) shows that the US GDP contracted by 0.9% on an annualised basis in Q2 after a 1.6% contraction in Q1. Most economies’ definition of recession is two consecutive quarters of GDP contraction, but the US makes its own rules and says that it isn’t a recession unless the National Bureau of Economic Research says so (they use other “broader” measures). Fed’s Jay Powell calls time on running commentary for rate rises (Financial Times, Colby Smith) shows that the Fed’s chief has decided to stop providing detailed indications of the direction the central bank is going in future because he has been burned in the past by looking like it’s going one way only to then do a U-turn. * SO WHAT? * The cynic in me says America’s in recession but trying all it can to bend the rules to say that it isn’t. The cynic in me would also say that Jay Powell is admitting he’s done a 💩 job of predicting what the economy is going to do and doesn’t want all the extra hassle of talking to the market only to have to get flak for changing his mind later. On the other hand, you

could say that he has had to deal with exceptional circumstances (no-one was REALLY expecting a war – and they certainly weren’t expecting it to go on for this long!) and that communicating nuances of thought to the market is just a waste of time when things are changing so rapidly on a daily basis. It’ll be interesting to see whether this new non-communication strategy will let him do a better job or whether it will just lead to more market volatility as markets try to second-guess his next move with no guidance.

In energy-related news, Shell reports record profits on surging oil and gas prices (Financial Times, Tom Wilson) shows that the oil super-major has broken profit records for the second quarter in a row while Centrica reinstates dividend as profits soar during energy crisis (Financial Times, David Sheppard) shows that the owner of British Gas saw its profits quintuple – all thanks to rising oil and gas prices. Rising oil and gas prices are going to filter through and become massive bills for ordinary people as per German households to pay €1,000 a year to replace Russian gas (Daily Telegraph, Helen Cahill), which shows that the increased costs of replacing Russian gas will be felt by all. Germany is currently racing to fill its gas storage facilities to 95% by November. Meanwhile, over in France, EDF posts its largest ever half-year loss (Daily Telegraph, James Warrington) highlights a nightmare performance by the utilities giant after its performance was badly dented by nuclear outages. The worrying thing here is that it had to shut down about half of its nuclear power stations to repair corroded equipment. That doesn’t sound good, now does it!

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!

Apple has a good time, Amazon has a rough time, Meta is facing challenges and Twitter is in limbo…

In Apple iPhone sales remain resilient as company reports 11% decline in profit (Wall Street Journal, Tim Higgins) we see that although the company posted an almost 11% fall in profit thanks to supply chain problems and China shutdowns, iPhone sales continued to rise despite what’s going on in the wider economy. * SO WHAT? * Overall, the results came in better than expected for the quarter and CEO Tim Cook said that he expects revenues to pick up pace in the September quarter. Nice work 👍.

Then in Amazon posts net loss for the second straight quarter as it manages slower demand (Wall Street Journal, Dana Mattioli) we see that the e-tailing behemoth posted slower sales and a net loss for the second consecutive quarter. Although its cloud computing business put in a decent performance, the overall business was dragged down by ongoing weakness in its core retail operations. Part of the poor performance was due to its stake in EV maker Rivian Automotive, whose valuation has plummeted this year – it accounted for a pretax loss of $3.9bn on its own! * SO WHAT? * It seems that investors were willing to look past these losses as the company’s share price rose by over 13% in after-hours trading. Amazon seems to be comfortable with its efforts to counteract inflation thus far as it has reined in costs here and there.

In Mark Zuckerberg’s bid to reinvent Facebook parent Meta hits early snags (Wall Street Journal, Salvador Rodriguez) we see that Meta announced yesterday that it was going to withdraw some new Instagram features that got heavy user criticism, specifically fullscreen photos and videos and the tweak in the AI that showed you more content from accounts you don’t already follow. * SO WHAT? * Meta is currently in a bit of a rough patch as it continues to feel TikTok snapping at its heels, but it has had hard times before. The company continues its evolution towards the metaverse.

Meanwhile, Twitter ‘rudderless’ as Musk saga hurts advertising business (Financial Times, Hannah Murphy, Dave Lee and Cristina Criddle) highlights tough times for Twitter as the Musk bid continues to cloud the future of the company, resulting in staff departures and plummeting morale. * SO WHAT? * All of this uncertainty is hurting its advertising business as some execs are saying (although it sounds like an excuse to me) that they are concerned Twitter’s focus will be elsewhere while it engages in a legal battle with Elon Musk, who is trying to back out of his takeover bid. On top of that, critics say that Twitter has a reputation for slow product innovation and has a narrower advertising offering compared to competitors like Instagram. This doesn’t bode well for the company’s market share, particularly while its leadership status remains so uncertain.

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!

Nestle and Diageo do well but Sky and ITV are suffering while Stellantis and Bentley put in strong performances…

Continuing the recent newsflow from consumer goods companies (who are basically being very successful at jacking up their prices), Nestlé raises prices but takes hit to margins (Financial Times, Judith Evans) shows that the world’s biggest food company managed to up prices by 6.5% in the first half of the year for brands including KitKat, Nescafé, Maggi and Purina, joining rivals including Kraft Heinz, Danone, Unilever and Mondelez in passing on rising costs to customers. That said, the company saw its margins dented by sudden increases in commodities, energy and freight costs. Another interesting aspect of this was highlighted in Coffee pod sales slip amid return to offices (Daily Telegraph, Hannah Boland) which shows the effect of current labour trends as Nespresso sales in Europe fell, although they were actually up globally thanks to strong growth in North America.

Then in Diageo sales up 20% amid thirst for ‘super-premium’ spirits (The Guardian, Joanna Partridge) we see that the owner of brands such as Don Julio, Johnnie Walker, Smirnoff, Tanqueray and Captain Morgan etc.etc. saw very healthy annual sales as people returned to bars and restaurants. The company added, however, that it was monitoring rising inflation and that it expects the operating environment to be “challenging”. Like all the others, it said that it had managed to pass on higher costs to consumers via higher prices. Diageo: inflation will test the limits of premium pricing strategy (Financial Times, Lex) says that although inflation is clearly going to test its resilience, it is in a good position to benefit from the twin long-term trends of more people drinking spirits and being increasingly willing to go for more up-market brands. Having said that, the latter might lose a bit of momentum in the short term because of prevailing macroeconomic conditions.

Regarding consumer trends, Sky revenues fall as Europeans opt out amid cost of living crisis (Daily Telegraph, Ben Woods) shows that households are cutting extraneous expenditure – and Sky subscriptions are proving to be a casualty. Revenues fell by 14% in the latest quarter. Then in ITV braces for advertising downturn despite World Cup (Daily Telegraph, Ben Woods) we see further

confirmation that advertising spend is being cut as ITV is readying itself for a 9% fall in ad revenue in July and 18% drop in August. We’ll just have to wait and see whether that pans out. * SO WHAT? * Households continue to tighten their belts and I think that all extraneous costs are being looked at very closely. Those that are replicated (e.g. satellite/cable/streaming contracts) are either eliminated or slimmed down. As I keep saying, advertising is often seen to be a leading economic indicator because it is the first expenditure to go when economies weaken and the first to rise when things get better. As things stand now, it seems that advertising budgets are being hit because companies are generally trying to cut costs at the moment and are conscious that they might get less bang for their buck as consumers are going to be less willing to spend.

On the other hand, Stellantis hits record profits but warns on economic clouds (Financial Times, Peter Campbell, Joe Miller and Eri Sugiura) highlights a great performance by the owner of brands such as Jeep, Dodge, Peugeot, Fiat, Alfa Romeo and Maserati (among many others) especially as it manage to do better than rivals Nissan and Volkswagen at dealing with parts shortages and cost inflation. The company is concerned about macro conditions denting consumer confidence but then it has a big order backlog that should take it through to 2023 at least. Flying Spur sales help drive Bentley profits 124pc higher (Daily Telegraph, Howard Mustoe) provides yet more evidence that top-end cars are still selling well as the luxury car maker managed to make more profits in the first half of this year than in all of 2021. Not bad since the average price per unit is €213,000! God knows why, but the Bentayga SUV continues to be its most popular model, accounting for 40% of sales! * SO WHAT? * Although VW-owned Bentley has done well so far, it is readying itself for a potentially tougher second half and weaker sales in China thanks to Covid lockdowns.

Although it seems somewhat incongruous to put it here, I did think it was worth mentioning Housing affordability falls to its lowest since 1999 (The Times, Arthi Nachiappan), which cites the latest figures from the Office for National Statistics that show just how expensive buying a property in England has become! Right now, the average home costs 8.7x the average annual disposable income in the year to March for English properties, 6x for Welsh properties and 5.5x for Scottish ones. Buying now is a brave choice IMO.

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!

JetBlue buys Spirit, Jack Ma announces plans to step back and defence companies benefit…

In a quick scoot around other interesting stories today, JetBlue agrees to buy Spirit Airlines for $7.6bn (Financial Times, Steff Chávez and James Fontanella-Khan) signals the end of a dramatic tussle for the two budget airlines that will now make it the fifth biggest airline in the US (the others being American, United, Delta and Southwest). Frontier Airlines had previously been the preferred partner for Spirit, but that all fell apart on Wednesday. JetBlue: smells like deal Spirit (Financial Times, Lex) heralds this as being a real victory for JetBlue. Next stop: approval from the regulators.

Elsewhere, Jack Ma plans to cede control of Ant Group (Wall Street Journal, Jing Yang and Raffaele Huang) shows the latest development in the “rehabilitation” of the previously rebellious fintech as Billionaire founder said he will now step back following a year of massive pressure from the regulators. * SO WHAT? * This is

a pretty amazing development and just goes to show that no billionaire is too big to take on the government as consistently as Jack Ma has. It does, however, make the long-awaited IPO of Ant Group more likely to go ahead IMO.

Then in Defence firms re-energised by war in Ukraine (Daily Telegraph, Howard Mustoe) we see that BAE Systems and Babcock are among the British companies looking likely to benefit greatly from a huge influx of orders as military budgets from governments around the world get boosted. They are the UK’s #1 and #2 defence companies and are seeing orders increasing across the board for ammo, anti-tank weapons, subs, fighter jets and combat vehicles, among other things. * SO WHAT? * After years of falling defence spend, it looks like the Ukraine war is changing all that. If investors can change their ESG rules, you would have thought that more money would flow through to defence companies so that they, in turn, can invest in more production facilities and product lines. I think that this war is going to transform their futures and I wonder whether we’ll see more consolidation in this sector. 

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…

I challenge you not to smile when you read this: Owner couldn’t be prouder as puppy returns with sweet note on school report card (The Mirror, Nia Dalton). What a good dog!

Then I thought I’d end the week with another cover from Pomplamoose. A nice version of a classic, no?