Watson’s Weekly 05-02-2022

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.

This week was dominated by inflation, tech ups and downs and Joe Rogan. What a week!

• Eurozone growth weakened (Tuesday) as the latest figures from Eurostat showed that the bloc’s output grew by a pretty sluggish 0.3% in Q4 on Omicron impact and rising energy prices, with particular weakness in Germany being offset by stronger performances from France, Italy and Spain. It’s possible that this could improve once tourist-centric countries like Spain start to pick up the pace as travel restrictions are lifted. Meanwhile, we saw inflation in Germany and Spain remaining high (Tuesday), something that was also reflected in the latest figure for the Eurozone hitting a new high (Thursday) – with rising energy and food prices being the main drivers. Markets were predicting at least two 0.1% interest rate rises this year for the Eurozone (Wednesday), but although the ECB admitted concerns about the current situation regarding inflation (Friday) it continued to do nothing!
• In Italy, Sergio Mattarella was re-elected as president of Italy for another term (Monday), something that he didn’t really felt that he wanted to do, but something he felt duty-bound to continue. Investors breathed a collective sigh of relief because they thought that the popular Mario Draghi would not be able to be replaced with a decent PM, so this created a new status quo.
• In Turkey, we saw inflation getting further out of control (Friday) as President Erdogan’s “unique” way of dealing with inflation doesn’t seem to be working just yet as it climbed from an eye-watering 36.1% in December to 48.7% in January! This puts our fears of the prospect of 7.5% inflation into perspective, though…
• In the UK, Rishi Sunak announced measures to help people pay higher utility bills (Friday), the Bank of England raised the interest rate from 0.25% to 0.5% (Friday) and markets are indicating that there is a 91.5% chance that there will be another 0.25% interest rate rise in March (Friday), followed by another one in May – although Alistair Bailey said that the market shouldn’t get too carried away. Whatevs. I don’t think anyone cares what he says at the moment considering his uselessness last year. He needs to build back some credibility if he wants to keep his job IMO.
• In oil news, oil supermajor Exxon posted its highest profits since 2014 (Wednesday) due to stronger-for-longer oil and gas prices just one week after rival Chevron said something similar. It is also interesting to note that US oil frackers are slowing down production (Friday), which is interesting considering the current strength in the oil price.

• The US job market remained tight (Wednesday) while consumer confidence waned (Wednesday) and it seems that consumer spending is shifting away from goods to more services (Thursday).
• In the UK, house prices were off to a strong start in 2022 (Wednesday), powered in part by a surge in demand for 10-year fixed rate mortgages (Wednesday), but lenders started to pull their cheapest mortgage deals (Thursday) in anticipation of more interest rate rises. Still, research from Savills showed that homeowners made big gains on their properties last year (Monday) due to this aforementioned strong market.
• UK consumers are facing a number of challenges. Food and drink prices are set to rise (Tuesday) and many will face a stark choice between eating or heating (Tuesday) as bills are set to rise by a huge amount.
• In RETAIL, French supermarket operator Casino had a profit warning (Tuesday) as demand for its city-centric formats waned due to the Omicron outbreak. Meanwhile, UK retailers faced a shaky start to 2022 (Friday) as shopper numbers and footfall went lower. However, further out, they are hoping for a boost thanks to Jubilee celebrations this year (Monday). Tesco ditched its discount “Jack’s” brand (Tuesday) and cut the nightshift in some stores (Wednesday) in order to bring costs down. Apparel retailer Joules had a shocking profit warning (Wednesday) which sent its share price down by over 40% (!) and private equity firms lined up to buy Boots (Monday) from current owner Walgreens Boots Alliance.

• Spotify had a nightmare due to a backlash against podcaster Joe Rogan (Monday) and had to hurriedly put in place content warnings after Neil Young and Joni Mitchell took their music off the platform in protest. It also called into question Hipgnosis’ business model (Tuesday) because, despite paying Neil Young $150m for his back catalogue it was powerless to stop him from removing his music from Spotify. Joe Rogan even apologised and said he’d work on making a more balanced offering, although I have to say that this sounds like it won’t work because I suspect that controversy is why his podcast got so popular in the first place! Spotify did say that it reported a rise in the number of users (Thursday) but that wouldn’t have included the latest developments with Joe Rogan etc.
• Meta had a bad week and saw its share price crater (Thursday) due to a downbeat assessment of its prospects in advertising and the fact that it continues to lose the younger demographic on Facebook (Friday), although I think it is hanging on in there with Instagram.
• On the other hand, Google saw stellar Q4 results due to a boom in advertising (Wednesday) and announced a 20-for-1 stock split.
• Snap announced its first quarterly profit (Friday) and its CFO said that its advertising business recovered faster than expected in the wake of Apple’s new privacy rules.
• Amazon announced an increase in Prime prices in the US (Friday) as well as bumper Q4 profits.
• Staying with the tech space, Vista Equity Partners and Evergreen Coast Capital got together to conduct a leveraged buyout of Citrix for $16.5bn (Tuesday) and Sony bought Bungie for $3.6bn (Tuesday), which will make it the third big acquisition in the sector this year after Microsoft’s purchase of Activision Blizzard and Take Two Interactive’s purchase of Zynga.

• Aston Martin committed to a more electric future (Wednesday) by outlining intentions to sell only electric or hybrid cars within four years! It said that it wants to launch plug-in hybrid models in two years and fully electric cars by 2026. Ferrari put in a solid performance (Thursday) as it managed to avoid the semiconductor shortage suffered by volume manufacturers amid continued strong demand for its vehicles. It delivered over 20% more cars last year and profits leapt by 37%. Meanwhile, GM announced strong earnings for 2021 (Wednesday) but it wasn’t such a good week for Tesla as it announced a recall (Wednesday), but it could have been way worse as this just involved an update delivered over the internet.
• Constellation Automotive (which owns brands including Webuyanycar and Cinch) bought 20% of UK dealership Lookers (Tuesday), which probably makes sense right now as sales of used cars are still pretty hot right now.
• In BATTERIES, Britishvolt and its backer, Glencore, announced plans to build a lithium-ion battery recycling plant in Northfleet, Kent (Thursday) that can recycle lithium-ion batteries used in cars and electronic devices. The plant is expected to be up and running in 2023 and capable of recycling at least 10,000 tons of lithium-ion batteries per year, which roughly equates to about 50,000 electric car batteries. It will also be processing scrap from Britishvolt’s “gigafactory” in Northumberland.
• In SEMICONDUCTORS, Infineon is looking forward to another year of chip shortages (Friday) and the global chip industry is continuing to expand (Monday) as Intel, Samsung, TSMC and GlobalFoundries are all investing money in production to keep up with demand.

• Ryanair has hit turbulence in terms of bookings (Tuesday) and is going to offer flight discounts to boost demand after Omicron dented its prospects at the end of last year. Like other rivals, it is hoping for a strong second half of the year and is in a better financial position than competitors such as Wizz, EasyJet and Jet2.
• PayPal had a shocker after it slashed 2022 profit forecasts (Thursday) due to a slowdown in growth of online spending. Its former parent, eBay, is also continuing to push its own payments system and take some of PayPal’s market share.
• Restaurant chains in the US – such as Burger King, Denny’s and Domino’s – are cutting the number of discounted items on the menu (Monday) and/or reducing portion sizes in order to preserve margins while raw ingredients prices, wage bills and running costs all continue to climb. I suspect that if this isn’t already happening over here, it will!

• 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. I have also added to the “Themes for 2022” section. 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! 

I didn’t find quite so many great “alternative” stories this week, but the lady in this article sounds hilarious: Woman leaves table gobsmacked after challenging them to Rock Paper Scissors (The Mirror, Paige Holland). Superb!