Monday 24/10/22

1. In MACRO & ENERGY NEWS, President Xi confirms a third term, the race for UK PM hots up, Italy’s commitment to Europe will be tested, Paris turns down the lights and offshore wind companies chase Asian business
2. In CONSUMER TRENDS & RETAIL NEWS, transatlantic travel rises while UK consumer spending falls, wine prices are set to rise, first-timer mortgages are withdrawn and companies try to help as Morrisons goes sale-and-leaseback and Frasers buys into Asos
3. In TECH NEWS, it’s a big week for Big Tech but Apple is expected to improve profit growth
4. AND FINALLY, I bring you some incredible Korean street food (that involves Spam!)…

So Xi gets another term, the race for PM continues, Meloni looks likely to test the EU, France dims the lights and European wind companies vie for Asian business…

China’s Xi claims third term as Communist Party leader (Wall Street Journal, Keith Zhai and Chun Han Wong) highlights not only the affirmation of President Xi Jinping’s third five-year term in office, but also the fact that he has stuffed his Politburo Standing Committee with allies and protégés, none of whom immediately stand out as a successor. Since he got the top job in 2012, President Xi has centralised power increasingly into his own hands and pulled away from a more market-oriented outlook. With that out of the way, China’s GDP growth falls short of target as property and zero-Covid woes mount (Financial Times, Thomas Hale, Hudson Lockett and Edward White) funnily enough solves the mystery of why this release was delayed (it was due out last week). The country’s GDP rose by just 3.9% year-on-year over Q3, which is way below its 5.5% full-year target. Clearly, Xi didn’t want anything to spoil his party! The cumulative effects of a super-strict Covid lockdown policy and the country’s hugely indebted real estate sector are really taking their toll and there is no obvious end in sight…

Meanwhile, the early start of the UK’s pantomime season continues in Boris Johnson pulls out of Conservative leadership contest (Financial Times, George Parker and Sebastian Payne) as BoJo eliminated himself from the running for leadership after previously talking up his chances. It’s now a two-horse race between Rishi Sunak and Penny Mordaunt. If Mordaunt doesn’t get 100 MPs as backers by 2pm today, Sunak become PM. If she does, then there’s another vote that will have to take place between 3.30pm and 5.30pm today and if Mordaunt still has the support, there will be a vote for Conservative Party members and we get a decision on Friday.

Elsewhere, Meloni’s premiership set to test Italy’s relations with Brussels (Financial Times, Silvia Sciorilli Borrelli) highlights a potential period of uncertainty for Europe as Italy’s new Prime Minister – right-wing nationalist, Giorgia Meloni – was sworn into

office over the weekend, taking over from pro-EU veteran Mario Draghi. Given that she is known for her fiercely critical anti-Brussels speeches, the EU will no doubt be viewing her appointment with trepidation although her initial cabinet appointments would suggest that she is actually looking to play nice. Europe needs to pull together in these difficult times otherwise Putin’s plans to split it will have worked…

In energy-related news, Paris dims the lights as blackouts threaten Macron’s reputation (Daily Telegraph, Tom Rees) shows that decades of underinvestment in France’s nuclear power plants is coming back to haunt President Macron. Paris is turning off the Eiffel Tower’s flashing light show one hour earlier than usual, lighting at other public monuments will be lowered at 10pm and the thermostat is being turned down in public buildings and swimming pools. * SO WHAT? * The risk of power shortages is causing palpable concern as over half of its nuclear power plants are out of action – troubling when nuclear power now accounts for 70% of France’s electricity. This has meant that France has gone from being Europe’s biggest net exported of energy to an importer. As things stand currently, France will have to rely on a smooth reintegration of their nuclear power plants, a mild winter and/or help from other countries in order to avoid blackouts.

European offshore wind companies push into Asia to beat Chinese rivals (Financial Times, Christian Davies and Eri Sugiura) shows that European companies including Vestas and GE Renewable Energy are pursuing Asian expansion via joint ventures and partnerships in order to get established enough to take on what is expected to be a huge uptick in demand in the region. South Korea, Taiwan and Japan have all committed to increasing their share of renewables as part of their respective energy mixes and electronics companies including TSMC, SK Group and Samsung Electronics have all promised to achieve 100% renewable electricity in their global operations by 2050. * SO WHAT? * At the moment, European manufacturers are thought to be 5-10 years ahead of Chinese technology and so it is imperative that they get a proper foothold in the markets NOW in order to establish themselves and potentially fend off competition from 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!

Consumer trends continue to evolve and some interesting news is emerging from retailers…

Transatlantic travel soars as Americans make most of strong dollar (Financial Times, Claire Bushey, Oliver Barnes and Philip Georgiadis) shows that transatlantic travel is on the up, thanks at least in part to Americans jetting over to the UK and Europe to take full advantage of the strong dollar! Revenues at United Airlines between the US and Europe shot up by a chunky 40% in Q3 versus the same period in 2019! And that was despite fares being 30% more expensive than they were last year! * SO WHAT? * I think we’ll see this trend continuing as long as dollar strength remains, particularly as I suspect there will be a lot of pent-up demand after the travel restrictions we’ve been seeing over the past few years.

Meanwhile, in the UK, Consumers rein in spending as confidence falls to a record low (The Times, Arthi Nachiappan) cites the latest report from Deloitte which shows that consumer confidence has fallen to its lowest level since its consumer tracker report started in 2011. And on a more anecdotal level, Clubbers replace pubs with supermarkets (The Times, Dominic Walsh) shows that there is an increasing trend among young clubbers to load up on cheap supermarket booze before heading out to nightclubs as they try to save costs where they can, according to a quarterly report on the late-night sector from the Rekom Night Index. TBH, I used to do that all the time as a student 🤣 but it seems that 88% of respondents are changing their habits in the face of the cost-of-living crisis as the cost of a night out has increased from £68.03 to £73.36 over the last quarter. * SO WHAT? * It’s interesting to see how spending habits are changing as 18-24 year olds are still going out but they are changing what they are spending their money on. Almost 30% have cut down on clothing, hair and beauty treatments while over 40% said they’d drink at home before going out. The spend on drinks at home has increased by 15% since the March Rekom report, so it’s unsurprising! Great news for supermarkets and possibly companies like Majestic Wine, but this heralds more bad news for pubs at a tricky time.

Talking about wine, there’s bad news in Price of rich red wine to soar as UK abandons duty freeze (Financial Times, Nic Fildes and Judith Evans), which shows that the price of some of Britain’s wine could be going up thanks to the U-turn on a plan to freeze duty rates. * SO WHAT? * This could force the price of a bottle of wine through the psychological £10 barrier and because of this – along with the amount of Brexit-led admin costs – producers may just decide to avoid the UK altogether, despite it being a lucrative market 😱.

It looks like options for house-hunters are closing in as UK banks withdraw first-time buyer mortgages in wake of ‘mini’ Budget (Financial Times, Siddharth Venkataramakrishnan and Emma Dunkley) shows that banks have actually taken 60% of their

mortgages targeted at borrowers with small deposits off the market since the start of the year. This is clearly making it much harder for first-timers to get on the housing ladder. * SO WHAT? * This sounds disappointing but given that house prices have shot up so much I actually think it’s getting increasingly difficult to justify buying a place and that perhaps restricting the number of 95% mortgages out there is not such a bad thing. It could perhaps protect some consumers from themselves. Clearly, I am not a property expert – this is just my opinion!

Bearing all that lot in mind, Companies offer perks to offset cost of living crisis (Financial Times, Daniel Thomas and Michael O’Dwyer) shows that 20% of companies are giving staff extra benefits (e.g. shopping vouchers, free parking and help with travel costs) to help them cope with the cost-of-living, according to a national survey of UK businesses conducted for the FT by the Chartered Management Institute, while most are still offering below-inflation pay increases. * SO WHAT? * At the risk of sounding repetitive, I really think that such things like this and one-off bonuses are better for companies (and employees, ultimately) to combat the effects of inflation rather than hiking their wage bills up by 10% across the board. I am of the mind that lump sums are better because a) they FEEL more substantial and because b) companies are not committed to big wage hikes over the longer term. It’s way easier to raise wages than it is to reduce them so although it may be a short-term hit, I think this makes more sense for the long term financials of companies.

Meanwhile, in the world of retailing, Morrisons seeks sale and leaseback (Daily Telegraph, Gareth Corfield) shows that Morrisons is looking at selling-then-leasing-back five shops out of its 500-strong portfolio for about £150m. When current private equity firm owner Clayton Dubilier & Rice bought Morrisons last October, it pledged not to “engage in any material store sales or leasebacks”. However, according to UK takeover rules the purchaser can ditch pledges made during a deal after just one year – and clearly CD&R is taking advantage of this! Is this the beginning of the slippery slope??

Then in Frasers builds 5% stake in Asos to become fourth-largest investor (The Guardian, Joanna Partridge) we see that Mike Ashley has built up a cheeky stake of over 5% in troubled online apparel retailer Asos. A statement is due from Asos today. * SO WHAT? * This looks quite dramatic, but as I always say, Mike Ashley is known for hoovering up deals on the cheap of distressed assets. I often refer to them as “Mike Ashley’s Bag of 💩” as he does tend to buy some right old stinkers which he no doubt aims to polish and roll in glitter at some point down the line. I do, however, think that Asos is particularly interesting for Ashley given all of his retail interests. If he actually went ahead and bought it, it might be a useful way of harnessing all the other stuff he’s got together in a well-developed online portal.

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!

There’s a whole lotta tech coming up…

Big Tech earnings forecast to slow in Q3 as ad sales fall further (Financial Times, Richard Waters) shows that the biggest US tech companies are due to report this week. Analysts estimate that the combined revenue growth of Alphabet, Amazon, Apple, Meta and Microsoft are going to slow down to just under 10% for Q3 as the whole industry faces a number of headwinds, including more regulatory pressure, rising costs and an investor shift away from growth companies. How they do will be closely watched as a measure of current market sentiment and consumer spending.

That said, Better profit growth expected at Apple (The Times, Emma Powell) shows that Apple is expected to report a rebound in sales growth when it reports its quarterly numbers this week. Its hardware sales are generally stronger in the December quarter thanks to the Christmas season and September release of new products. Will it be able to do well despite the rise of the dollar??

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…

Although I’ve never set foot in South Korea, I am fascinated by the country and am a big fan of its food! Actually, I think that Korean food should be way bigger in this country than it currently is! Anyway, feast your eyes on this ridiculous street food sandwich. It’s incredible (and somewhat unhealthy)!