Monday 17/10/22

1. In MACROECONOMIC NEWS, Truss faces even more pressure and Goldman Sachs predicts deeper recession in 2023
2. In FINANCIALS NEWS, City hiring slows, Goldman Sachs plans a major overhaul and Credit Suisse looks to sell assets
3. In REAL ESTATE NEWS, UK house prices keep rising and first-time buyers are giving up
4. In INDIVIDUAL COMPANY NEWS, BMW shifts Mini Electric production to China, Britishvolt faces disaster, Asos prompts financial concern and Meta’s version of the metaverse falls short
5. AND FINALLY, I bring you a beer spa…

So Truss faces intensifying pressure and Goldman Sachs predicts a deeper recession…

Liz Truss battles for survival as City figures and MPs call on her to quit (Financial Times, Sebastian Payne and Daniel Thomas) shows that there’s no let-up for Liz Truss, who some people are now calling the zombie Prime Minister (former Chancellor George Osborne referred to her as “PINO”, Prime Minister In Name Only 😱! Ouch). Calls for her to resign are intensifying from all sides and Tories hold secret talks on crowning new leader (The Times, Henry Zeffman and Steven Swinford) says that the knives are already out and she’s a goner. As things stand at the moment, the rules of the 1922 Committee state that her leadership can’t be challenged for 11 months, but it is possible that, if there’s enough of a groundswell of opinion, the rules could be changed. * SO WHAT? * This is an absolutely outrageous situation and the prospect of yet another mud-slinging leadership contest at such a crucial time is highly unappealing – and would be hugely damaging to the economy. It was bad enough holding it over a “quiet” period in the summer, but to do it now as the nation faces a recession and a very expensive winter would just be disastrous IMO. There’s talk of a Sunak/Mordaunt return, but it’s just rumours at the moment. Even though the current government is in all sorts of array, I would rather we get some leadership in “from within” NOW than go through the drama of an election and get into a worse situation.

Meanwhile, Goldman Sachs expects worse UK recession in 2023 (The Guardian, Gwyn Topham and Phillip Inman) shows that the US investment bank reckons the UK will enter a deeper-than-originally-expected recession next year but interest rates and inflation will be lower-than-originally expected. The bank published a report yesterday that took into account weaker growth momentum, much tighter finances and rising corporation tax from next April. * SO WHAT? * I know their analysts/economists are paid to do this, but I think this is going to be a useless report given that we haven’t heard more detail from the new Chancellor, Jeremy Hunt, and we have no idea what’s going on with the government at the moment! This will have a massive impact on where we will be next year, so anything said right now is likely to be out of date very quickly. FWIW, I believe that Truss needs to go because you just don’t know whether anything she says will actually stick because she’s U-turned so many times in such a short space of time! It’s just a case of HOW it’s done. It also shows that the leadership process proved to be pretty useless as it was her own MPs that voted her in – they can’t even blame the public!!!

*** NEWS JUST IN – Jeremy Hunt, the new Chancellor, is going to announce plans on how the government is going to cut the deficit two weeks before the original October 31st date in order to calm markets at 11am THIS MORNING. It’s likely that he will “torch” much of Kwarteng’s mini-Budget proposals. ***

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City hiring drops while Goldman and Credit Suisse plan respective overhauls…

Hiring in City drops by a third as banks prepare for downturn (Daily Telegraph, Patrick Mullholland) shows that hiring in the City of London has fallen by 31% in the financial services sector over the last quarter, according to recruiter Morgan McKinley. The drop-off in IPO activity is having a knock-on effect and we’ve already heard that banks like Goldman Sachs and Berenberg have plans to cut headcount. Even magic circle law firm Allen & Overy, which had to increase pay twice over the last year in a competition to attract and retain talent, has said that it is no longer going to increase associates’ salaries and has binned the pay review for senior associates completely.

Goldman plans sweeping reorganisation, combining investment banking and trading (Wall Street Journal, Justin Baer) shows that the investment bank is going to be combine various business areas in a bid to streamline its operations. It wants to put its investment banking and trading business together into one division, its asset and wealth management into another and, thirdly, it will have another division that will compose of transactional banking that

will be the home of things like its fintech platforms like GreenSky as well as ventures with Apple and GM. Q3 earnings are due tomorrow, so many are expecting a reorganisation to be announced around this time. * SO WHAT? * This all sounds reasonably logical – but it also sounds like there will be ample excuse for the company to cull staff. I suspect that any “quiet quitters” and employees who were a bit too vociferous about WFH at the tail end of lockdown will be joining the queues of the unemployed pretty soon…

Then in Credit Suisse prepares Swiss business sales to raise capital (Financial Times, Owen Walker) we see that the Swiss bank is looking at selling bits of its domestic bank to raise funds that will cover big losses. In addition, a load of job cuts are expected to be made ahead of a strategy overhaul announcement due in two weeks. Assets that could be up for sale include a stake in SIX Group (which runs the Zurich stock exchange), an 8.6% holding in Allfunds (a Spanish investment company), two Swiss banks, Swisscard (a JV with American Express) and a famous grand hotel in Zurich, the Savoy. * SO WHAT? * Tough times – but if there’s any time you can put changes through it’ll be now IMO as there will be ample excuse for the bank to wield the axe and cut deep.

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!

House prices rise but first-timers evaporate…

House prices rise despite turmoil over mini-budget (The Guardian, Gwyn Topham) cites findings by Rightmove which show that asking prices for houses in the UK went higher in October despite all the kerfuffle caused by Kwarteng’s mini-Budget announcement. The average property price hit a new record of £371,158 but the online estate agent warned that it always takes a bit of time for what’s going on in the real economy to filter down to the property market.

First-time buyers quit market as loans dry up (Daily Telegraph, Alexa Phillips) cites the same report from Rightmove but homes in on the fact that demand from first-time buyers has fallen by 21% over the past two weeks versus the same period a year ago. Overall demand has fallen by 15% over the same time period. * SO WHAT? * Even though a cut in stamp duty came into force last month, I think that more buyers will be worried about rising bills, macroeconomic uncertainties and the prospect of companies cutting staff numbers as we teeter on the edge of recession.

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!

BMW moves some production to China, Britishvolt faces disaster, Asos causes concern and Meta looks like it’s falling short…

In a quick scoot around other interesting stories today, BMW to end electric Mini production in UK next year (Financial Times, Peter Campbell) shows that BMW has confirmed that it will stop building the Mini Electric in Oxford next year and build an updated version with a longer range in China next year that will be exported globally. It will be manufactured by Great Wall Motors, BMW’s Chinese JV partner. This will leave the Oxford plant dependent entirely on petrol models for the rest of the decade. * SO WHAT? * I don’t like being a downer, but this doesn’t sound great for the Oxford factory. It is also a blow for Britain’s bid to be a key manufacturer of EVs given the popularity of the electric model.

Mind you, things could be worse – at least it’s definitely got a future for the next few years unlike Britishvolt in emergency funding talks to avoid pre-Christmas collapse (Financial Times, Peter Campbell, Harry Dempsey and Harriet Agnew), which shows that the much-hyped British start-up is in danger of running out of money by Christmas unless it manages to conjour something out of current talks with seven potential “strategic investors”. * SO WHAT? * This is an article from a couple of days ago but I wanted to include it here given that I have been talking about Britishvolt’s precarious situation for a while now and that things seem to be coming to a head. Possibilities range from investors buying a minority stake to a full takeover. One potential “saviour” is Tata Motors, which already owns Jaguar Land Rover but whoever ends up coming to the rescue will need to help Britishvolt get around £200m to keep it going until next summer. The good thing is that it has received “tremendous feedback” from the batteries it has produced so far. It is also worth mentioning that it is seen by many as the best site for battery mass-production in the UK and one of the best locations in Europe thanks to the abundance of land, cheap clean energy from an undersea interconnector and deep seaport. So maybe someone will be tempted! Mind you, volatile financial markets will scare some away in the meantime…

Elsewhere, Credit insurer cuts cover for Asos amid cash fears (Daily Telegraph, Eir Nolsøe) shows that leading credit insurer Alliance Trade (previously known as Euler Hermes) cut insurance cover for Asos suppliers by over 50% in the last few weeks. Credit insurance is taken out to protect suppliers from a buyer going bust after placing an order but then not paying. If no cover is in place, the next best thing is to ask for cash upfront. * SO WHAT? * This could make things difficult for Asos because it would affect its cashflow if suppliers demand earlier payment or collateral. Asos is due to announce annual results on Wednesday following a warning that full-year profits will be at the bottom end of its target range due to falling sales.

Then in Company documents show Meta’s flagship metaverse falling short (Wall Street Journal, Jeff Horwitz, Salvador Rodriguez and Meghan Bobrowsky) we see that internal documents show that the tech is, so far, glitchy and not particularly attractive to users and lacks direction. At the moment, its flagship offering, Horizon Worlds, is performing below expectations regarding active users. Rather worryingly, the majority of visitors to Horizon (which is a collection of interactive virtual spaces, aka “worlds”) tend not to return to the app after the first month and its user base has declined. * SO WHAT? * It doesn’t sound great at the moment, but I think that Meta is big enough and financially strong enough to make it work – but I suspect there’s going to be a lot more pain yet. I guess it all depends on how much financial pain Meta is prepared to take and how long it is prepared to throw money at it. If it proves to be THAT much of a problem for the mighty Meta, maybe it should join up with a rival…

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 must say that I was not aware of this before but apparently beer spas are a thing as per Our Japanese reporter visits Czechia’s famous beer spas and boozily bathes in a bath of beer (SoraNews24, Katie Pask). It certainly sounds like a pleasant experience!