Monday 17/01/22

1. In MACRO NEWS, China’s GDP growth slows, investors have an Italian wobble and BoJo fights for survival
2. In BUSINESS & EMPLOYMENT TRENDS, road freight costs ramp up, UK construction companies fail and recycled plastic prices boom while UK wage rises are set to calm although factory wages strengthen
3. In RETAIL NEWS, Visa’s Amazon problems continue while the Issa brothers consider a Boots takeover
4. In MISCELLANEOUS NEWS, EV sales overtake diesel in Europe, City Airport hopes (prays??) for business travel to return and Fever-Tree pushes Schweppes aside
5. AND FINALLY, I thought I’d bring you a plastic bag collection and a ridiculous invention…

China’s growth slows, Italy has a Draghi wobble and BoJo fights to keep his job…

I published Watson’s Yearly last night. I will be updating this regularly. Given how long this document is, I would recommend that you dip into it rather than read it all in one sitting! Also, you’ll get the most out of it if you regularly come back to it. I’ll let you know when we’ve updated it as well via an update section in Watson’s Weekly. There is no other document like this as far as I am aware because this will update throughout the course of this year. Have a read HERE. Silver subscribers and above can access this. If you want to upgrade your subscription – and lock in current prices before they go up at the end of this month – please click HERE.

China’s GDP growth slows as Covid lockdowns and property woes hit demand (Financial Times, Thomas Hale and Sun Yu) cites the latest data from the National Bureau of Statistics which shows that China’s GDP growth slowed down to 4% year-on-year, its slowest pace in 18 months in Q4. * SO WHAT? * It is interesting to see how quickly China’s GDP has lost momentum because it was the first economy to bounce back in the pandemic. In many ways, it is seen as a potential lead indicator as to what will happen elsewhere because of this but I suspect that many will be looking at the differences between China’s bounce-back and the issues that they face. The main differences, in my opinion, are the parlous state of the real estate sector (which is much more of an economic driver in China than in many economies) and the impetus for big, fast-growing Chinese companies to repatriate – or at least make sure they’re not getting too much input from non-Chinese.

Then in Draghi’s bid for the presidency spooks Italian investors over reforms (Daily Telegraph, Tom Rees) we see that investors are getting particularly jumpy at the prospect of Prime Minister Mario Draghi changing office and becoming President in the Presidential elections to be held next Monday. * SO WHAT? * Draghi has been the glue that has held Italian politics together since taking up current President Sergio Mattarella’s invitation to be Prime Minister at a time of great instability in the country. Investors are now worried that the far-right may take the vacant PM position, which would bring a lot of uncertainty to Italy’s current situation, especially if they decided to unravel any of the reforms that Draghi put in place.

In Boris Johnson draws up survival plan as calls to quit grow louder (Financial Times, George Parker, Jasmine Cameron-Chileshe and Laura Hughes) we see that the PM is fighting for his political life by embarking on a strategy of a) blaming others and b) trying to shift the news narrative onto more electorate-friendly things (e.g. Michael Gove’s “levelling-up” white paper, ways to reduce the pressure of household bills, a freeze on the BBC licence fee and more use of the military in controlling the influx of migrants crossing the English Channel). His unofficial survival plan is now referred to in Whitehall as Operation Save Big Dog and his new policies called Operation Red Meat. * SO WHAT? * I personally do not think that BoJo can survive this. The fact that we are now in “mid-term” with Labour in array and the LibDems being in the political wilderness means that NOW would be a good time to switch leaders as it might give voters positive vibes about the government being proactive and give the new PM a decent crack at winning the next election. It would probably help a lot as well from a PR perspective if the next leader wasn’t an Etonian!

Costs ramp up all over the place and wages are expected to slow…

Road freight costs soar by third as fuel costs hit hard (Daily Telegraph, Louis Ashworth) cites data from the Transport Exchange Group (TEG) which says that road freight rates shot up by almost a third last year due to driver shortages and fuel prices. Fuel costs themselves rose by about 25% over the year and the amount of admin brought on by Brexit also worsened the headache for hauliers. * SO WHAT? * Haulage is generally not a high margin industry so most, if not all, increased costs will be passed on to the consumer which will put further upward pressure on inflation.

Given that we seem to keep hearing about massive demand in the construction industry, Hundreds of UK construction businesses collapsing every month (Financial Times, Gill Plimmer and George Hammond) shows that many small operators are going bust every month because material prices have shot up and the pool of skilled workers has shrunk post-Brexit, pushing wages higher. Prices of timber, steel and cement have all been rising and contractors have not always been able to pass the costs on. Larger builders have generally been able to get through these tricky times by using their bargaining power but smaller firms have not been so fortunate.

Recycled plastic prices double as drinks makers battle for supplies (Financial Times, Judith Evans) is a really interesting article which highlights rising prices for the most common type of recycled plastic, flaked PET, as demand has boomed considerably due to the likes of Coca-Cola, PepsiCo, Nestlé, Keurig Dr Pepper and Danone all

targeting at least 25% of recycled content in their packaging by 2025. Prices for bales of used bottles, which are needed to make the flakes, have tripled since January 2021. * SO WHAT? * It’s great, on the one hand, that these companies have committed to being more sustainable and there are other moves being mooted, like introducing bottle return schemes for used bottles where they are not already in operation, to improve the situation further. Still, margins are thin in this industry and so this is another cost that is likely to be passed on to the customer, putting further upward pressure on consumers.

In employment trends, End of the ‘great resignation’ threatens to wipe out rising wages this year (Daily Telegraph, Louis Ashworth) shows that there are commentators out there who think that wage growth is going to lose momentum as the cost-of-living crisis is going to put more people off switching jobs. The argument here is that workers delayed such moves in 2020 due to uncertainty but now that things had settled to a degree, this pent-up demand came back with a vengeance! * SO WHAT? * There are a number of pressures that will be brought to bear this year on the consumer like the increase in National Insurance contributions in April as well as higher costs generally (especially with utility bills, although BoJo might try to do something here in the hope that people forget his inappropriate partying). I would argue that the opposite may be the case to what is suggested in this article – if people are feeling the pinch in terms of rising prices, they will be MORE likely to want to switch jobs especially if, as a number of headhunters have said recently, the average wage increase of job changers is 15-20%, which is comfortably above inflation. Still, Factory pay deals soar as inflation accelerates (The Times, Arthi Nachiappan) shows that manufacturers are agreeing pay settlements of up to 14% after years of pay freezes as things stand at the moment.

Visa’s Amazon problems persist and the Issa brothers eye Boots…

Last-minute deal needed to keep UK-issued Visa credit cards working on Amazon (The Guardian, Rupert Jones) highlights the spat that’s been going on between Visa and Amazon since November as Amazon has accused Visa of charging too much for processing credit card transactions. Amazon has threatened to stop accepting Visa CREDIT – I said CREDIT – cards on its platform if Visa ignores it. The ban could come on Wednesday unless a last minute solution is found. This is an epic game of corporate chicken, no? Surely Amazon will win this one given that it is thought that 89% of Britons use Amazon, according to Mintel.

Then in Issa brothers eye £10bn swoop for Boots (Daily Telegraph, Tom Rees) we see that Asda’s owners, the Issa brothers, are looking at a potential acquisition of the pharmacy chain that has effectively been put up for sale by current owners Walgreens Alliance Boots. Bain Capital and CVC Capital Partners are also thought to be considering a joint bid. * SO WHAT? * Having just bought a massive supermarket, you would have thought that the Issa brothers are going to have to dig deep into debt somehow to pull this one out of the bag. However, if you consider their business mix, it might be quite an interesting combo with petrol stations, Asda and Boots all coming together as I am sure there are lots of potential cross-selling opportunities here. It’s early days yet, though.

EV sales overtake diesel sales, City Airport crosses its fingers and Fever-Tree does a job on Schweppes…

In other interesting news today, European sales of electric cars overtake diesel models for first time (Financial Times, Joe Miller) shows that sales of electric cars have overtaken those of diesels for the first time in December. A combination of generous incentives in Germany and elsewhere (although not here though – our government cut subsidies!), as well as tightening restrictions on emissions, have contributed to over 20% of new car sales across 18 European markets being 100% battery powered. * SO WHAT? * This is hardly surprising – and it was always going to happen someday! You would have thought this trend will continue…

City Airport boss banks on revival of business travel to pre-pandemic levels (Financial Times, Philip Georgiadis) highlights the optimism of the airport’s boss, Robert Sinclair, that the travel industry will bounce back sharply

after the Omicron scare. He’s still hanging on to the hope that business travel will return and, given that London City airport has the highest proportion of business flights of all UK airports, it does sound very much like he is talking his own book! * SO WHAT? * I think that Sinclair must be smoking something. There are definitely pockets where business travel could well return quickly, but from someone who had to do a fair amount of business travel in the past I think that the joy of travel fades very quickly in most cases. The longer people use videoconferencing, the more they get used to it and I suspect that there are many Zoom calls that happen before someone finally decides to buy the plane ticket and make the move. I think it will take at least a year or two before business travel even approaches pre-pandemic levels. I think that leisure travel is a different question, though – because people will certainly be desperate to go on holidays after an extended period of staycations!

I thought that it was interesting to note that Schweppes gives way to Fever-Tree in America (The Times, Dominic Walsh) because this is a huge win for Fever-Tree as it signals the first time that Schweppes has been overtaken in the US in terms of value. America is the world’s biggest premium spirits market. Long live gin, eh?!?

…in other news…

People do the strangest things. Some people collect the weirdest things. This lady is a prime example of both: Brit holds the world record for collection of 10,000 plastic bags worth thousands (The Mirror, Caitlin Arlow and Martin Fricker) chronicles her journey and that her collection is worth “thousands”. Really?? Then there’s the invention you never thought you needed in Turn your water bottle into a Japanese toilet! (SoraNews24, Oona McGee). Whaaaaaaa-?? The lady in the advert looks pretty pleased with herself though as she sprays “toilet” water over everyone 🤔. Maybe someone like Lewis Hamilton should get one of these as he seems to like spraying people with champagne (but I’m not sure the mini toilet could cope)…