Watson’s Weekly 06-08-2022

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.

Pelosi caused a splash, crypto wallets got drained and the Saudi’s ignored Biden…

• Speaker Nancy Pelosi caused all kinds of problems with a visit to Taiwan (Thursday) as she stopped over as part of her tour of Asia where she’ll be popping in to Japan, South Korea and Malaysia. China responded by conducting military exercises close to Taiwan and a lot of angry rhetoric. I think that this may just be sabre-rattling by Biden whose pleas to the Saudis to produce more oil were ignored (Thursday) as his administration considered sanctions against those found to be supporting Iranian oil shipments (Monday) and strong intentions to restrict Russian oil trading were also walked back (Monday) because it would be too disruptive to European countries. Biden seems to be pretty ineffectual at the moment and we also heard that US jobless claims rose (Friday), powered in part by layoffs in the tech sector.
• IN CHINA – manufacturing activity shrunk last month (Monday) as the country continued to suffer repercussions from ongoing Covid lockdowns. Its GDP growth target for year-end is looking very dodgy. The lockdowns had knock-on effects as Hong Kong fell into recession for the second time in two years (Tuesday) with exports and tourism taking a particularly bad knock.
• IN THE UK – manufacturing growth slumped to its lowest level since May 2020 (Tuesday) according to the latest S&P/CIPS stats and the all-important services sector grew at its lowest rate since February 2021 (Thursday). No wonder UK firms are getting increasingly nervous about investment (Monday) according to the latest survey by the Institute of Directors. The Bank of England hiked interest rates by the largest margin in 27 years (Friday) in order to fight inflation that it thinks will hit 13% by year-end. Bad though this is, spare a thought for the Turkish people whose rate of inflation is now just shy of 80% (Thursday), its highest level since 1998.

There was, as always at the moment, a lot of newsflow on ENERGY.

• In its infinite wisdom, the IMF is urging European countries to pass on energy costs to customers (Thursday). The rationale here is that passing on all the costs will encourage “energy saving” and accelerate the shift to renewables. Commerzbank analysts joined the chorus of warning voices saying that Germany will suffer particularly acutely if Russian gas gets cut off (Thursday) and analysts at Cornwall Insight reckon that British businesses will face a 500% jump in energy bills (Thursday) when wholesale prices rise. Individual companies are thinking of ways to reduce energy consumption. French retailer Carrefour is thinking of turning the rotisseries on earlier and dimming the lights (Monday) while UK retailer Iceland faces massive cost increases (Monday) given that it has way more freezers than other supermarkets. Energy-intensive firms will have to shorten operating hours (Monday).
• IN COAL NEWS – we see that Glencore is raking it in from the energy chaos (Friday) as it smashed profit records in the first half thanks to the rising price of coal. Prior to the Ukraine war it had invested a lot in this area and clearly the gamble is now paying off handsomely.
• IN RENEWABLES NEWS – nuclear fusion technology continues to progress. Oxford nuclear fusion start-up First Light Fusion is seeking to raise more funds (Wednesday) to finance the next stage of its research, which sounds like it’s going well.

There were some interesting developments in CRYPTO this week:

• Thousands of crypto wallets linked to the Solana blockchain were drained by hackers (Thursday), in a major blow to all things cryptocurrency. An incident like this isn’t going to do anything to enhance crypto’s reputation!
• There was one incremental bit of good news for crypto, though, as Coinbase signed a deal with BlackRock to hook its clients up to digital asset markets (Friday).

• US CONSUMERS are cutting back and going to dollar stores (Tuesday) in order to cut costs and eBay put in a solid performance (Thursday), something I would expect to continue as people look for ways to raise money by searching their homes for items to sell and buyers look to save money by buying on such platforms. Despite everything, US consumers are still ordering takeaways at DoorDash (Friday) and it was even confident enough to have a positive outlook, despite the cost-of-living crisis.
• GERMAN CONSUMERS are also reining in spending as retail sales fell by the steepest rate on record (Tuesday).
• SPENDING TRENDS ARE EMERGING as Starbucks’ strong sales show consumers still want their daily cup of coffee (Wednesday), they also spend some of their money on Airbnb breaks (Wednesday) and getting around in minicabs as Uber reported a doubling of revenues (Wednesday) – while its Uber Eats business also continues to do well. Brits are also spending on summer outfits and suits, according to Next (Friday). WE ARE GOING TO HAVE TO SPEND OUR MONEY ON air fares as BA has decided to extend its suspension of Heathrow ticket sales (Wednesday) and Direct Line is going to put motor insurance premiums up (Wednesday) after having to contend with higher claims costs while Greggs is putting its prices up for the third time this year (Wednesday). WE ARE NOT SPENDING OUR MONEY on dating apps like Tinder (Wednesday) and its CEO had to take the fall for it (NB Tinder is a brand of Match Group). We are also not spending money on trading stocks as Robinhood laid off 23% of its staff (Wednesday), drinking oat milk (Wednesday) , video streaming subscriptions (Friday) – with the exception of Disney+ and Apple TV+ – or DIY (Wednesday).
• Alibaba is slowly but surely going back to China. Although it wants to keep its New York listing, the SEC plans to kick Alibaba out in 2024 (Tuesday) for insufficient disclosure and SoftBank has been selling down its stake in a big way (Thursday). So much for international expansion to get some growth. The Chinese authorities’ constant pressure is clearly taking its toll.

• IN UK RESIDENTIAL PROPERTY – we see that first-time buyers are looking outside London (Monday) as they are increasingly being priced out while at the other end of the scale, equity release is on the increase (Wednesday), according to the Equity Release Council as homeowners are withdrawing cash from their properties to cover the rising costs of day-to-day living. Despite demand in the housing market remaining strong (Tuesday) and some development in west London being curtailed because the electricity grid has run out of capacity (Monday), thus further limiting the supply of properties, estate agent Purplebricks has somehow managed to make a loss (Wednesday), which is so bad as to be impressive. If an estate agent can’t make money in a market like this, things will surely get terminal when the market falls. Worries about household finances have prompted Nationwide to focus on wealthier clients (Thursday) as they are less likely to default.
• IN OFFICE PROPERTY – some are saying that there are tough times ahead (Tuesday) due to a combination of the fading away of cheap financing (rising interest rates forcing up borrowing costs) and the push for more environmentally-friendly working environments (which entail costly upgrades for the landlord) although actually WeWork has been recovering nicely (Friday) as people return to the office, helping its occupancy rate return to pre-pandemic levels.

• The luxury end of the car market is still going strong – Ferrari reported record profits (Wednesday) and it was even confident enough to raise its full-year revenue forecasts. Mind you BMW sales lost momentum (Thursday) as they were hit particularly badly by supply chain problems – although you do wonder, given arch-rival Mercedes-Benz announced strong results.
• Among Japanese makers, Toyota saw its profits halve (Friday) due to supply chain problems and the effect of China lockdowns – but it did leave its full-year figures unchanged. Rival Nissan said it was going to offer long-term rental EVs in Japan (Thursday) in an effort to stem the flow of its cars (and the precious metals within them) for sale secondhand abroad. Elsewhere, Lucid cut production due to – you’ve guessed it – supply chain and logistics problems (Thursday) and have become the latest EV start-up to discover that the automotive industry isn’t that easy.
• In the UK, car sales continue to slide (Friday), according to the latest figures from the SMMT. This is the fifth consecutive month of falling car sales and I suspect it’s not going to get much better.

• IN SEMICONDUCTOR NEWS – Samsung and Hynix are facing tricky decisions – whether to appease the US or appease China (Thursday) as they want to be able to get access to the $52bn in grants the US is offering to build semiconductor factories in America. If they do so they will have to curtail any further investment in China, which will no doubt irk the Chinese. TSMC is in a similar dilemma (Wednesday) while there were contrasting fortunes for fellow chipmakers as AMD prospered and Intel struggled (Wednesday).
• IN OTHER TECH NEWS – Nintendo’s Q1 performance was disappointing (Thursday) thanks to the ongoing global chip shortage but it expects to get back on track by the end of summer. There was a lot made about Instagram’s chief basing himself in London for the next few months (Wednesday) but it just seems to me that he’s over here to build out its presence and then go back, so no biggie IMO.
• ELSEWHERE – consolidation in the satellite sector seems to be gathering pace as SES and Intelsat are now in deal talks (Friday), traditional ad agencies (apart from S4 Capital, which is having its own problems) are doing OK relative to their digital counterparts (Tuesday) as their “secret sauce” of customer targeting has been severely damaged by Apple’s privacy changes and Pearson is continuing with its migration from analogue to digital delivery (Tuesday), even talking about ways to use NFTs to help it get more revenues on its published works. It was also unsurprising to hear that container shipper Maersk knocked it out of the park again (Wednesday) due to the ongoing effect of supply chain disruptions.

• 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 “alternative” video of the week was the one of Spider-Man dancing in a supermarket. Superb!