Watson’s Weekly 01-10-2022

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

Markets hate the mini-budget, sterling crashes badly and Porsche flies the VW nest…

• The OECD reckons that leading economies are sliding into recession (Tuesday), according to its latest report. Not exactly surprising but I guess this sort of thing just makes it official.
• The World Bank reckons that China’s GDP growth is going to lag the rest of Asia for the first time since 1990 (Wednesday) due to ongoing Coronavirus lockdowns and its massively-indebted real estate sector. I think this is pretty incredible given that for as long as I can remember, you could always rely on China as a growth engine.
• IN EUROPE – it looks like the ECB is going to make another big interest rate hike (Thursday) to attack inflation, the OECD reckons Germany will hit recession hard (Tuesday) and the latest Ifo survey reflects rock-bottom corporate confidence in Europe’s biggest economy (Tuesday) while later in the week, Germany’s inflation rate hit a 70-year high at 10.9% in the year-to-September. In any other week, this story would have had far more prominence, but Italy took a lurch to the right as Giorgia Meloni is to become Italy’s first female Prime Minister (Tuesday). This is going to make things trickier for the EU because she is way more populist than her predecessor, Mario Draghi (who was very pro-EU).
• IN THE UK – Kwarteng doubled-down on tax cuts (Monday) while the markets bombed (Friday) and many people were highly sceptical of the Kwarteng-Truss plan to get us to 2.5% annual GDP growth (Tuesday), all of which put the new PM under a lot of pressure as Labour took a massive lead in the polls (Friday). The Fed warned of possible contagion prompted by the UK’s plan (Tuesday) and things got so bad that the Bank of England launched a massive £65bn emergency bond-buying programme (Thursday) to avert massive outflows. All of this caused the pound hit a 37-year low (Monday) and Deutsche Bank warned that sterling’s massive collapse could mean shop prices rise by 15% (Tuesday). On a very slightly more positive note, some City forecasters reckon that gas prices will fall sharply next year (Monday), meaning that Truss’s energy bailout will not cost quite as much as expected.

In ENERGY NEWS…

• The UAE signed a deal to supply Germany with LNG (Monday), which is great, but a drop in the ocean for what Germany really needs. Still, it’s a move in the right direction. Later in the week, Chancellor Olaf Scholz latest announced a massive €200bn energy aid package (Friday), designed to help households and businesses.
• There was potentially good news for the UK as French utility EDF is looking to extend the life of two nuclear power plants in Britain (Thursday) which were due to close in March 2024. EDF actually operates all eight of our nuclear power plants currently.

In CHARGING news…

• Hertz and BP announced an EV charging partnership in North America (Wednesday), which takes Hertz’s foray into EVs to the next level. What a turnaround since the lows of the pandemic!
• Britishvolt continues to look precarious (Thursday) as its finances aren’t great, but we’ll just have to wait to see whether it’s too high profile to fail.

In CAR NEWS…

• Porsche’s IPO went ahead (Friday) and it wasn’t a disaster – which was good! It priced at the top of the range and didn’t tank – which was impressive considering what markets did this week. However, it’ll be interesting to see how it fares in a month or two without support of the deal underwriters!
• UK carmaker output was a bit meh (Thursday), according to the but a decimated sterling is not good for the industry. About 75% of cars made in the UK are for export (where a weak pound is useful) but a lot of parts are imported (where a weak pound is not so good because this adds to expense). Aston Martin’s nightmare continued as its share price fell to a new all-time low (Thursday) and Jaguar Land Rover is retraining its staff (Thursday) to help with the shift to EVs, but they’re being a bit coy about how much this is all going to cost!
• In EVs, we saw Arrival’s first all-electric van roll off the production line (Friday) – which is better late than never – and Chinese EV specialist Nio said that its European expansion was slowing (Wednesday) because of the energy crisis.

In CONSUMER NEWS…

• Pandemic savings have evaporated (Monday), according to a report by KPMG as it seems that a lot of the money that we saved under lockdown has gone as household budgets have been squeezed. It’s getting so bad that retirees are raiding their pension pots in higher numbers (Thursday) to cope with higher living costs.

In RETAIL NEWS…

• Amazon is going to do another Prime Day sale event (Thursday) in an effort to boost online sales and advertising revenues.
• In the UK, the signs are that Christmas isn’t looking very merry (Monday), according to the latest figures from Springboard. In apparel retailers, H&M saw a drop in profits (Friday) as the costs of pulling out of Russia pretty much wiped out all of their profits and Next cuts its profits and sales forecasts (Friday) in response to falling customer spend due to the cost-of-living crisis. Boohoo also warned that sales and profits would fall short of previous expectations (Thursday) for the same reasons. In grocery retailers, Morrisons had a disastrous Q3 (Thursday) as profits got sliced in half by what it called “temporary and transitional factors” and Aldi said its profits fell (Tuesday) but that customers are switching to it “in droves”.
• In the US, the embattled Bed Bath & Beyond saw its losses widen (Friday) as its leadership vacuum continues, Peloton started selling its bikes at Dick’s Sporting Goods (Friday) as it broadened its distribution channels and Nike’s share price fell sharply (Friday) as it reported high inventory levels ahead of the key Christmas season.

In LEISURE NEWS…

• Kent brewer Shepherd Neame reported a return to profit and revenue growth (Thursday) after a turbulent few years but Mitchells & Butlers warned of a hit from energy costs (Friday) despite the government’s recently-announced support package.
• It’s interesting to note that travel groups are still seeing strong demand (Monday), but I wonder how long that will last given the current state of the economy!
• There seems to be a trend at the moment of musicians cancelling their tours (Friday), which is a shame, but it’s largely because they can’t be insured for cancellation due to Covid and the costs are simply too high.

• Apple announced an expansion of iPhone production in India (Tuesday), which reflects a move to diversify its supply chains, which are very China-centric. It still makes most of its handsets in China, but this is a positive development, particularly as US-China relations aren’t great.
• Intel announced the imminent sale of new videogame graphics chips (Wednesday) to take on rivals Nvidia and AMD. It is going to target a gap in the market for cheaper games chips.
• Facebook parent Meta is freezing hiring plans (Friday) as part of a wider move to cut costs and SoftBank is cutting 20% of its London staff (Friday) as the repercussions of general tech weakness continue to bite.
• In ASIAN TECH NEWS, the region’s biggest metaverse platform Zepeto announced ambitions for global expansion (Wednesday) and NASDAQ-listed Grab announced that it would make its first profit by 2024 (Wednesday), which I’ll believe when I see as its cash burn rate is impressive.

• M&A activity is rising (Thursday) but IPO activity is falling (Thursday) while the City is likely to see an increase in takeover bids (Thursday), particularly from American companies given the current strength of the dollar.
• Funnily enough, Biffa just accepted a £1.3bn takeover bid from US private equity firm Energy Capital Partners (Wednesday). This is lower than the original bid, but you would have thought that, in a market like this, it was the smart thing to keep this alive.
• UK car dealership Pendragon got a £400m takeover offer from its biggest shareholder, Hedin Mobility (Tuesday). Given that its share price spiked by 20% on the news, it seems like the market reckons there could be other bidders out there.

• Watson’s Yearly updates 2021/22: there have been updates in the G20 statistics (some inflation and unemployment rate changes) as well as country updates. Please click HERE to see Watson’s Yearly and the changes. Changes have been highlighted in this purple colour 👍 You will be able to see how themes and countries develop throughout the year by reading this document! 

There was a clear winner for me in this week’s best “alternative” story: Innocent office snap is boggling people’s minds over odd high heel optical illusion (The Mirror, Julia Banim). It took me aaaaaages to work this out!