Watson’s Weekly 05-06-2021

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.

• In MACRO NEWS, G7 finance ministers started negotiations regarding a minimum corporate tax rate (Thursday) that will make it much harder for global companies to avoid tax by shifting their profits to low-tax countries. On Saturday 5th, news emerged that the US, Japan, Germany, France, the UK, Italy and Canada had managed to reach a compromise of a global minimum tax of “at least” 15% that is likely to pave the way for a wider global accord at the G20 meeting in Venice in July. The UK managed to squeeze more out of the Americans after holding out for specific targeting of Big Tech. The Americans want France, the UK and Italy to cut their own respective Digital Services Taxes immediately, but they won’t do so until any global agreement has been finalised. It will be interesting to see how countries like Ireland, Cyprus and Liechtenstein react to this given they are all on 12.5% currently.
• Inflationary pressures continue to build on governments and central banks given current economic momentum as the coronavirus rollout continues. Manufacturing activity is increasing (Wednesday), Eurozone inflation has exceeded its target (Wednesday), Germany’s inflation rate is now at its highest level since 2018 at 2.5% (Tuesday) – and heading towards 4% according to the latest Bundesbank estimates – while Sweden becomes the last Nordic country to lift restrictions (Tuesday) and Brazil’s GDP has returned to pre-Covid levels (Wednesday). The OECD has given the UK a massive upgrade on its year-end GDP forecast (Tuesday) to 7.2% from the 5.1% it stated only as recently as March, which would mean the UK outpacing the US! However, oil prices are also rising (Wednesday) despite OPEC agreeing to increase production as planned and food prices are at their highest level for 10 years (Friday)! It sounds to me like the official rhetoric is changing from “current inflation is a blip and will calm down” to “we can take some higher inflation pain if it means that employment goes higher”.

• IPOs seem to be losing steam at the moment. Dealogic says that average price rises on the first day of flotation in January/February were 40%, falling to “just” 20% in March/April (Tuesday), excluding SPAC-backed IPOs. Talking of which, the SPAC boom is also losing momentum as fees from SPAC-backed IPOs accounted for only 4.5% of overall investment banking fees in March/April versus a much chunkier 22.5% in January/February (Wednesday). It’s possible for the SPACs to pick up the pace again as there are still 422 of them with $134.4bn to invest, but I think things are quiet at the moment because US regulatory authorities are looking at the possibility of tightening the rules. Meanwhile, Krispy Kreme is looking at flotation (Wednesday) after a five-year stock market absence.
• In M&A, Ferrero bought Burton’s Biscuits (Wednesday) and Etsy bought Depop (Thursday), which looks like a good strategic move for Etsy as it will broaden its demographic.

• Consumers have been very busy! The secondhand car market is going bananas (Thursday), which is something that’s also happening in the UK at the moment. They are also buying property – Nationwide’s latest figures show that UK house prices are now rising at their fastest rate since 2014 (Wednesday) and the costs of moving are increasing (Wednesday), with conveyancing fees more than doubling due to massive demand. Wickes’ strong performance is also symptomatic of a booming house market (Wednesday). When you consider that, for most people, the biggest expenditures in their lives are their house and their car(s), I think such trends will undoubtedly pile on the pressure for governments/central banks to raise interest rates.

• It was interesting to see good results from M&C Saatchi and ITV (Wednesday) as advertising is generally seen to be a leading economic indicator (it’s often the first expenditure to get cut in the event of a downturn and one of the first to get reinstated in the event of an upturn). A meaningful pick-up shows growing confidence among their clients.
• Domino’s is embarking on a major hiring drive in the UK (Wednesday) as workers who took up positions with them under lockdown return to their previous jobs. I think that this is also a really interesting sign regarding the return of business confidence. Interestingly, Wetherspoon’s is keen to hire and is pushing for a special hospitality working visa (Wednesday) because many in the sector are finding it difficult to find the right staff, to the extent that some restaurants are having to close lunchtime service (Thursday).
• There are growing rumblings about the return of business travel in the US (Wednesday) from some airlines and the return of trade shows in the US (Friday) will no doubt help this. I don’t think we’ll see such a quick recovery in Europe as vaccination rollout is further behind and more patchy, but what’s going on in America could be a sign of what could happen.

• Tesla announced plans to spend $1bn a year on rare minerals from Australia for its battery packs (Thursday). This seems to be another part of an overall strategy to safeguard the supply of raw materials and comes shortly after recent news that Tesla is looking at ways of securing future supplies of semiconductors.
• Trading in AMC Entertainment and other meme stocks went crazy again as retail investors got behind them again! AMC’s share price jumped by 95% in trading in the middle of the week (Thursday) as retail investors went mad for the company’s promise of free popcorn to investors – and then they tanked the following day (Friday) after the company filed with regulators a plan to sell over 11million shares whilst also warning investors against buying the stock! I’d say trading this sort of stuff is OK if you are in the right chat groups that catch this sort of thing early, but it is highly highly risky as it does not relate to fundamentals. You can’t blame the company from capitalising on this unforeseen gift!
• Jack Ma’s Ant Group finally received its consumer finance licence from China’s regulators (Friday) after the group made big concessions to keep the party going following a period of around six months of being put on the naughty step by the government for getting too feisty. The new unit will be called Chongqing Ant Consumer Finance and will be able to issue consumer loans, borrow from banks and issue bonds.

• Watson’s Yearly updates: These will be left until the next edition of Watson’s Yearly that will be published shortly

My favourite “alternative” story this week was the one about the rather unique online course in The Japan Ninja Council opens crowdfunding campaign for Nindo, the Online Ninja Academy (Monday). That’d be a good one to put on the CV 😂!