Watson’s Weekly 02-07-2022

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.

It looks like we’re going all Cold War II now as NATO and the G7 shift mindsets and adapt to a more aggressive world. Another war affecting many of us – the war on inflation – continues to rage as governments and central bankers try their best to head off a global recession. Not too much drama then?!?

• NATO has reacted to Russian aggression by making four major announcements (Friday) about a step-up in NATO forces, a new US base, new members in the form of Finland and Sweden and a new ten-year manifesto that cuts Russia out. NATO also managed to push China up the agenda (Wednesday), classing it as “a challenge to our interests, our security and our values” while also saying that “China is not our adversary”. Talk about ruffling feathers!
• The G7 meetings were all about imposing new sanctions on Russia (Tuesday), like imposing price caps on Russian oil imports (Monday), but I think they will be difficult to impose given India’s propensity to funnel Russian oil in to Europe (Monday) by mixing it will oil from other origins.
• The BIS – aka the central bank of central banks – cautioned that the global economy was reaching a point past which it would lose control of inflation (Monday). Meanwhile, Russia defaulted on foreign debts for the first time since the 1918 Bolshevik revolution (Tuesday). Russia can pay, but it only wants to do so in Roubles, which no-one wants to accept.
• IN THE US – we saw revised GDP data which showed that the US economy might be weaker than originally thought (Thursday), something borne out by the sharp slowdown in consumer spending.
• IN CHINA – quarantine restrictions were cut thanks to falling numbers of Covid cases (Wednesday), which should help China to bounce back, but we all know in the back of our minds that strict lockdowns could be imposed again if recent history has taught us anything.
• IN EUROPE – the ECB floated the possibility of a 0.5% rate cut (Wednesday) to address the problem of runaway inflation, French president Macron backed his PM Elisabeth Borne to push through planned reforms (Monday) although he is on much shakier ground these days and Spain’s inflation figures hit double digits (Thursday). In the meantime, Sweden made a 0.5% interest rate hike (Friday).
• IN THE UK – Rishi Sunak pondered knotty problems (Wednesday) including whether to go ahead with a windfall tax on UK electricity generators, whether to cut corporation tax and whether additional cuts should be made to fuel duty. The governor of the Bank of England warned that UK inflation could be higher for longer (Thursday) and suffer more than other nations. He even floated the possibility of a future 0.5% interest rate rise. Clearly he’s trying to give himself some wiggle room.
• IN ENERGY NEWS – France faces the possibility of electricity rationing (Monday), Japan asks its citizens to save power (Tuesday) and our own National Grid is talking about paying households to change their electricity usage (Tuesday). It was rather concerning to see that Germany’s Uniper, which owns a number of our power stations, is in talks to get state aid from the German government (Friday) and its share price cratered accordingly on the news.
• IN COAL NEWS – BP’s annual review of energy shows that global demand for coal is, unsurprisingly, going up (Wednesday) as countries scramble for immediate generation capacity. It was not surprising to see net zero regulations being diluted to allow Britain to use more coal (Tuesday) and it was interesting to see that China is actually benefiting from many countries’ aversion to Russian coal (Friday) as it now has access to plentiful discounted cheap Russian supplies – pretty useful given that China is a major consumer of coal.
• IN CRYPTO NEWS – we saw the failure of the Three Arrows Capital crypto-focused hedge fund (Thursday) and Celsius Network continues to face suspicion (Thursday) as its previous boast about being less risky than a bank are looking decidedly questionable.

• There’s more evidence that SPACs are just yesterday’s news as British car-charging start-up EO ditched a SPAC-backed flotation in favour of getting private funding (Monday). It seems that we are seeing this kind of thing more and more these days.
• UK corporate confidence has hit a 15-month low (Thursday), according to the latest Lloyds Banking Group survey and it’s not hard to see why. SMEs are finding the going particularly tough (Monday) as they have less robust cash buffers and warehousing capacity, meaning that they are more exposed to supply chain problems than larger firms. Local builders are also failing at an increasing rate (Monday) thanks to rising raw materials and labour costs despite strong demand for their services.

• IN EV NEWS – Tesla sacked 200 in the Autopilot division as part of current cost cuts (Thursday) whilst also “strongly encouraging” workers to head back to the office (Friday). Stellantis moaned about high EV prices (Thursday), but I think it may be no bad thing to ensure that more effort is put into the charging network. After all, having an EV would be useless if you can’t ever charge it! VW made the prediction that it will overtake a “weakening” Tesla by 2025 (Wednesday) as VW thinks it’ll have superior abilities in scaling production. Elsewhere, GM is ramping up its production of the electric Hummer (Friday) and Lotus said it is going to phase out all new petrol models from next year (Wednesday).
• IN “TRAD” CAR NEWS – UK car production is on the up (Thursday), dealership Lookers is reporting higher profits (Thursday) but JLR is complaining that some dealerships are selling UK-spec cars overseas for much higher prices (Monday). Aston Martin is seeking outside funding (Friday) but spooked investors about its impressive debt pile.

• US consumers are spending less than expected (Friday) as rising prices concentrate minds.
• UK consumers are also paying higher prices, buying frozen foods and avoiding scratchcard purchases (Wednesday), all as real disposable wages continue to fall (Friday). That said, PwC is giving about half of its staff wage hikes (Monday) and grad salaries are on the rise (Monday), according to Adzuna.
• IN RETAIL NEWS – US home goods retailer Bed Bath & Beyond axed its CEO (Thursday) following sluggish performance. In Europe, H&M profits rose (Thursday), Mulberry is doing well enough to reinstate its dividend (Thursday) and Cath Kidston got a new owner (Thursday). Walgreens Boots Alliance abandoned the sale of Boots (Wednesday) and subsequently said that it would be throwing some money at it (Friday) to give it a boost. In supermarkets, Heinz stopped supplying Tesco with product (Thursday) but I think they both need each other and will have to come to a compromise on the prices they charge. Morrisons had a downbeat trading update (Thursday) and has been discounting product to keep the customers coming in, but it’s not looking good. It was interesting to see that B&M decided to leave its year-end profit forecasts intact (Thursday) despite overall fears about the fate of the British consumer.

• Big Tech companies including Meta and TikTok could face civil liability lawsuits (Wednesday) if they are found to encourage children to get addicted to their platforms.
• IN CHINA – Tencent and ByteDance announced job cuts (Friday) despite the fact that the authorities’ crackdown on them looks like it is coming to an end. China’s most valuable AI company, SenseTime, saw its share price halve (Friday) thanks to a lock-up expiry. This means that early investors were prohibited from selling their shares until this date, so it seems like a lot of them decided to take the first opportunity to do so.

• IN REAL ESTATE – some of Britain’s biggest landlords were sold off this week (Thursday) as analysts at the Bank of America concluded that the UK office property market is on the verge of a downturn. In residential property, Knight Frank’s latest report says that prime London rents have now returned to pre-Covid levels (Tuesday).
• Robinhood shares shot up initially on takeover hopes (Tuesday) but then fell as crypto exchange FTX said that it was not in the running.
• Snap announced it was going to launch a new subscription option (Thursday) called Snapchat+ for $3.99 per month. Presumably it’s doing this in response to the fact that it has been losing out on ad revenues ever since Apple changed the rules.
• Talking of ads, Deliveroo announced that it will be doing more advertising (Thursday) in order to diversify earnings streams.
• Hello Kitty’s parent company Sanrio unveiled a new deal with Alibaba (Friday), putting the cat on course to stardom in China!

• 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! 

My favourite video this week was the one of Steve Carell trying out British snacks for the first time! I do love a reaction video 👍