Watson’s Monthly – DECEMBER 2021 EDITION

Welcome to Watson’s Monthly! The Monthly is a document that gives you roundup of the major stories and developments that happened over the course of January.

This will give you a different view of how things developed over the month and will really help your understanding and recall of the events as they happened.

The advent of the Omicron variant stopped everyone in their tracks this month. It was also the month that the Bank of England FINALLY raised interest rates! The Nord Stream 2 controversy gathered pace and there were some interesting moves for employers.

In OMICRON NEWS…the OECD warned that Omicron’s effects could affect either strengthen or weaken inflation (yeah, thanks for that OECD!). It said that supply chain problems could get worse as movement restrictions are re-imposed, which would cause inflation to strengthen further but then tighter restrictions could harm demand for goods and services, leading to economic slowdown, leading to weaker inflation.

In response, BoJo announced Plan B restrictions in an effort to limit the spread of the Omicron variant, which prompted the CBI to downgrade UK GDP growth forecasts for this year and next – as well as backlash from businesses who were badly affected by the new rules. Pubs and restaurants were being hit by cancellations etc., jobsite Adzuna saw a meaningful drop-off of job vacancies in the sector and the whole hospitality industry called for more help from the government. BoJo experienced a major backlash from his own party and only managed to get approval for Plan B measures thanks to support from Labour MPs when it came to the vote.

Over in Europe, Tui, Europe’s biggest travel and tourism business, decided to cut winter capacity as a result of the Omicron outbreak, but is hanging onto hopes for a better summer.

INFLATION was a major topic of conversation as well this month!

In the US – the Fed saw its steepest rise in inflation in almost 40 years, which prompted Fed chief Jerome Powell to hasten the scaling back of monetary policy and then the subsequent signalling of rate rises to come in 2022.

In Europe – Inflation in the Eurozone hit new highs as the rate hit 4.9% in November, which was way higher than forecasts, putting even more pressure on the ECB – but Germany’s rate was even higher! It hit 6% – its highest rate since 1992!!! ECB board member Isabel Schnabel said in TV interview that “November will prove to be the peak” for inflation, saying that a lot of the drivers behind this figure – rising energy prices, supply chain problems – will fizzle out next year. Despite all this, the ECB once again chickened out of raising interest rates.

Meanwhile, Turkey’s currency fell on concerns that president Erdogan would continue to insist on going against all economic theory – a concern that proved to be well-founded as he did indeed cut interest rates to combat inflation – the exact opposite of what everyone else thinks he should do – whilst simultaneously hiking the minimum wage by 50%! It seems to me like he’s buying himself time and potentially favour with poorer people.

In the UK – the Bank of England surprised the market by raising interest rates to curb inflation that had, yet again, hit new highs with all sorts of pressures coming to bear, including rising wages and rising employment. The IMF had earlier urged the Bank of England to get a grip on inflation.

In energy and oil news – The US made a Nord Stream threat (that it would demand a halt in the use of the gas pipeline) in an attempt to stop Russia from invading Ukraine. EDF suffered a major setback as faults were discovered at one of its nuclear power plants, which led to them shutting down four reactors. Given that Macron recently committed to more nuclear in the power mix, this is tricky timing. Meanwhile, Drax is moving to biomass. The UK power company wants to double the production and sale of wood pellets to burn for fuel and reckons it could remove 12m tonnes of carbon from atmosphere each year. Critics think this is not commercially viable. Also, a giant battery storage site is planned for Teeside, which will be real boon in the pursuit of a smoother delivery of power.

There was relief as OPEC+ stuck with the previously agreed oil supply increase rather than retaliate for last month’s mini-assault by various countries led by the US, putting their pooled reserves on the market. Interestingly, Shell walked away from the Cambo project in the North Sea as, ostensibly, it was getting impatient about waiting to get the go-ahead to drill in this oilfield.

*** COVID POLICY/NEWS TIMELINE ***

ASIA, CHINA – Dec 13th the state media announces the country’s first case of Omicron in Tianjin.

ASIA, AUSTRALIA – Dec 23rd Australia reintroduces strict Covid restrictions after a surge in cases. It made indoor mask-wearing, QR code check-ins and capacity limits at large venues mandatory.

AMERICAS, BRAZIL – Dec 11th the Supreme Court ruled that proof of vaccination must be provided by visitors as soon as they enter the country.

EUROPE, GERMANY – Dec 2nd Germany says it will ban unvaccinated from non-essential shops and events from February, Dec 18th the country banned travel from UK to Germany, with a few exceptions.

EUROPE, FRANCE – Dec 6th France outlines plans to close night clubs for four weeks.

EUROPE, ITALY – Dec 14th Italy pushed out the deadline for its state of emergency until 31st March 2022.

UK – Dec 7th PM Boris Johnson advises WFH from Dec 13th, Dec 14th MPs in England back the government’s Plan B which tightens movement and mask wearing requirements, Dec 20th BoJo warns about the possibility of further restrictions depending on how Omicron spreads, Dec 21st BoJo confirms that NO new restrictions will be put in place in England before Christmas, Dec 26th Wales, Scotland and Northern Ireland reintroduce tighter restrictions but England does not, Dec 29th data released by UK Health Security Agency says that over 90% of community cases in England are Omicron.

NEWS – Dec 10th the UK Health Security Agency predicts that Omicron will be the main variant of Covid in the UK by mid-Dec, Dec 18th London’s Mayor, Siddiq Khan, announces a “major incident” in London due to the number of rising infections.

EV sales are booming and are now making up a higher proportion of new car sales, so Halfords has warned that the government needs to help train specialist mechanics to cope with their increased uptake otherwise there will be problems! Meanwhile, Gridserve has committed to rolling out a big upgrade in the motorway charging network. On the flipside, the government said it is going to cut EV subsidies again this year.

Nissan is building a solar farm at its Sunderland plant to power production of its Leaf as part of company’s £13bn push into decarbonisation. It’s due to complete by May next year and will mean the plant will meet 20% of its energy needs on its own.

British EV start-up Arrival is now making a special vehicle for Uber and Harley-Davidson wants to spin off its electric bike division, LiveWire. Toyota committed even more money to EVs and Tesla shares fell as Musk sold more in order to pay his tax.

Volvo Cars and Northvolt announced a major battery venture as they look to expand both within Europe and further afield. Galp and Northvolt are teaming up to build Europe’s biggest lithium processing plant in a joint venture that will be called Aurora and located in Portugal.

It was an important week for employees this week as a group of Starbucks employees voted to get unionised, something that could spread, IMO, not only within Starbucks itself but also beyond.

The European Commission decided that gig company workers will, by default, be treated as employees rather than contractors and legislation to this effect will apply to all such companies who operate in the European Union.

Back in the UK, Tesco workers threatened to strike but in the end, Tesco caved and offered them a pay rise and some extras so as not to disrupt Christmas. Still, their pay rise was nowhere near as good as the one Harrods restaurant employees managed to extract from their employers, but then if your company is ultimately owned by a Qatari sovereign wealth fund there’s not really much the employers can do to say they can’t afford it given the recent state of the oil price!

Many of us are facing rising energy bills next year that will hit household finances – and we can’t even console ourselves with a cheap-and-cheerful cup of coffee as coffee bean prices have skyrocketed for various reasons (weather, farmers hanging on to beans waiting to get higher prices etc.)!

US retailers said that they were experiencing a Christmas boom in sales while European apparel retailer (and owner of Zara, Massimo Dutti etc.) Inditex unveiled record results. In the UK, Black Friday prompted shoppers to go out and buy more, according to a report published by KPMG and the BRC, and it showed that clothing, toys and jewellery were the most popular items. Bars and restaurants also saw a lot of action and Franco Manca owner, Fulham Shore, announced it had exceeded its targets. Watches of Switzerland said it had run out of Rolexes, and had to restock between August and the end of October, Frasers Group was so confident about its performance that it launched a share buyback, Screwfix is planning on continuing to surf the DIY wave and expand the number of outlets while Ocado saw its share price rise because its legal battle against rival AutoStore seems to be going its way at the moment. It was also really interesting to see that Tesco has decided to use the vast trove of data it has collected over the years via its Clubcard to diversify into advertising.

Evergrande continued to suffer this week as its stock cratered while the government moved in to take increasing control. Concerns increased about the Chinese real estate sector spread and shares of Kaisa Group Holdings were suspended on the Hong Kong stock exchange.

In the UK, property prices keep rising, mainly because the supply of new properties just isn’t satisfying demand and so companies like posh paint company Farrow & Ball are prospering as new owners insist on “putting their stamp on the property”, existing owners spruce up their abodes to maximise selling prices or decide that prices are rising too quickly and want to just say put and upgrade where they already are. Rightmove reckons that the frenzy will subside in 2022 but for now, central London residential rents are rising as people heading back to the city centres.

Nestlé offloaded a massive stake in L’Oréal to L’Oréal (it has held a chunk for years as Nestlé was originally approached back in 1974 to invest in order to fend off attempts to nationalise it by the French government at the time), although it’s still 20.1% left!

French shipping group CMA CGM did a $3bn logistics deal to buy a load of warehouses in the US and Europe along with cloud-based digital platform Shipwire from US tech group Ingram Micro. CMA clearly has the cash because of the shipping boom and Ingram Micro is clearly cashing in on the demand for warehouses and need for efficient logistics.

Microsoft’s proposed acquisition of British AI company Nuance Communications is attracting closer scrutiny of the CMA as part of the current trend of the CMA looking into foreign takeovers of key British assets.

Private equity firm KKR made a £300m investment in PureGym, which will no doubt come in handy for its proposed expansion into Europe.

US private equity firms just can’t get enough of UK assets as Fortress bought Punch Pubs. Fortress was the “other bidder” in the race to buy Morrisons and it is interesting to note that, like Morrisons, Punch Pubs owns the freehold of the majority of its estate – which, presumably, makes it very attractive!

Rentokil announced plans of its biggest-ever deal in buying US rival Terminix for $6.7bn in cash-and-shares.

National Express announced plans to buy Stagecoach as both struggling bus companies try to survive. The combined group would be worth around £1.9bn.

On the other hand, Cineworld was left reeling from getting slapped with a massive fine because it walked away from its proposed purchase of Canadian cinema operator Cineplex. It now has to pay £722m to Cineplex, but is planning to appeal. Ouch.

Clara became the first approved pension superfund and it will give companies who want to exit pensions a possible way out. Clara will take on pension schemes that are no longer wanted by their sponsoring employers.

A new UK clearing bank, called The Bank of London prepared to launch with a $1bn valuation, will be only the second purpose-built clearing bank to open in the UK for over 250 years and is aimed at providing services to business customers.

Abrdn bought Interactive Investor for £1.5bn in order to enhance its retail investor offering. Interactive Investor had been making preparations to do an IPO in 2022.

Lloyds Bank announced major growth plan under the new CEO. He’s wanting the company to move into more racy stuff like property, wealth and commercial and investment banking, so things could get pretty interesting!

The Big Four accountancy firms posted their best financial performance since the collapse of Enron in 2002, mainly thanks to their advisory businesses and all those massive deals!

Jaguar and Porsche bought into BNPL for repairs via a start-up called Bumper – so rather than having to pay a massive bill on credit card, car owners will be able to split the payments.

Adobe introduced a new design software package, called Adobe Creative Cloud, that will put it in direct competition with Australian success story Canva. I think this sounds pretty compelling and could prove to be a useful “on-ramp” for Adobe’s more established professional design software.

Virgin Atlantic got a much-needed cash injection and among all the chaos, BA decided to announce plans to launch a new budget short-haul airline operating from Gatwick!