Watson’s Weekly 07-08-2021

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.

• The latest PMI from IHS Markit showed that the UK economy is being held back by the pingdemic (Thursday) despite prices rising at their fastest rate for 25 years due to labour shortages, rising wages and higher input costs. The Bank of England changed its year-end inflation forecasts yet again – this time to 4% (Friday), but maintains that this is temporary. I really do think that once a “proper” country’s central bank raises interest rates, there will be a domino effect as others raise theirs because they are all running out of excuses for doing nothing to rein in inflation.
• Supply chain issues persist in the UK and Germany (Tuesday) and this is hurting Germany more given its larger exposure to manufacturing. Germany’s situation is being made even worse because its car industry is currently experiencing an acute shortage of semiconductors. In the UK, there’s still a shortage of lorry drivers, so M&S (Tuesday) and John Lewis (Thursday)are offering extra incentives.

• The travel industry is showing signs of recovery around the world and many governments are trying to implement measures to help things along in this regard. Although French and British governments are trying to implement health passes and vaccine passports respectively (Monday), there’s resistance from protesters in France and MPs in the UK mainly to do with there being human rights and privacy issues.
• According to the latest figures from the UN’s World Tourism Organization, some tourism-centric countries are really suffering from the Covid impact (Wednesday). Places like the Bahamas, Maldives and Fiji weren’t doing too well going into the pandemic and their economies really are being battered now. The Asia-Pacific region suffered particularly badly from the lack of Chinese tourists, but Caribbean countries have started to bounce back thanks to an influx of American tourists.

• As The Great Crackdown of China continues, ed-tech companies hit by the new restrictions (like New Oriental and TAL Education) have started to cut jobs (Monday), but this is just leading to the teachers all becoming freelancers while parents have already formed “tutoring co-operatives” 😂! Chinese parents just can’t get enough of extra-curricular schooling!
• The Great Crackdown of China this week aimed the cross-hairs firmly at online gaming as a state-run publication called the Economic Information Daily described it, somewhat chillingly, as “opium for the mind” (Wednesday) which then resulted in share prices of Tencent, NetEase and Bilibili falling through the floor as investors panicked. Tencent quickly responded by tightening existing/imposing new restrictions on minors playing Honor of Kings (Wednesday) but I’m sure that the authorities will want more. Investors, and hedge funds in particular, will no doubt be playing the brand new game of “Which industry is China going to kill next” (and shorting the appropriate companies) but it seems that the authorities are concentrating their efforts on companies and sectors with particularly racy valuations (Wednesday). Existing and potential investors in China would be well advised to think first about an industry or companies and whether their values align with President Xi Jinping’s regime – and if they don’t (and have a high valuation) then there’s a chance that they could get a right kicking.

• Fintech really did have some fun this week! After a sluggish start in its recent IPO, Robinhood became its own meme stock (Thursday) as superstar investor Cathie Wood of Ark Invest took a punt on the trading app as it started offering options trading. The share price shot up but then it weakened the following day as it turns out that a number of early investors decided to sell about $6.3bn worth of shares over time! No doubt a lot of the investors who bought the previous day were mightily annoyed about that. The timing seems pretty darn fishy to me…Robinhood fans will probably say that this is not a big deal and now that it’s out in the open, everything should be OK now but haters will say this is typical of a meme stock and that it’s all part of the fun of buying into something that is inherently rather risky and prone to regulator intervention.
• Square bought Afterpay in a $29bn all-share deal (Monday), which is likely to shake things up in the world of Buy Now Pay Later (BNPL). I would have thought that Klarna should be getting increasingly nervous given that Apple is working with Goldman Sachs on another BNPL service called Apple Pay Later and banks should also be concerned about such developments as you would have thought that their credit card businesses could be losing out.

• Tesla had a fire at a major battery installation in Australia (Thursday) that was due to be operational this summer, but this will now be delayed. Such battery fires are incredibly difficult to put out – a few months back, a crashed Tesla Model S took eight firefighters seven hours to put out, using 28,000 gallons of water in the process (Monday) – and we saw that, last month, GM recalled all 69,000 Chevvy Bolts it sold between 2017 and 2019 following cases of batteries combusting (Monday). I don’t think that there are enough cases yet for spontaneously combusting batteries to put people off buying EVs per se, but it is a situation worth monitoring.
• On the subject of charging, it was interesting to see a British start-up, called Myenergi, aiming for an IPO (Thursday), although it could still go down the private equity route. It is known for making car chargers that run off roof solar panels.
• It was also really interesting to see that Nissan is involved in thoughtfully recycling Nissan Leaf batteries (Thursday) and putting them to good alternative uses. Given that hardly any batteries are recycled at the moment, this is a decent alternative, but better and more longer-lasting solutions need to be found as EV demand is going to go up considerably over the next few years.
• In power generation more generally, Rolls-Royce got the go ahead to make mini nuclear power plants (Wednesday) and its chief exec reckons this business has the potential to eclipse its engines business (Friday).

• M&A activity proceeded apace. PepsiCo offloaded brands including Tropicana (Wednesday) as part of a broader plan to focus on less sugary beverages, Sanofi bought partner Translate Bio (Wednesday) because it really wants to explore mRNA tech for vaccines and the latest figures show that UK firms have seen a record number of approaches from foreign firms (Wednesday). Parker Hannifin’s takeover bid for Meggitt (Tuesday) illustrates that very point, as does the fact that posh athleisure brand Sweaty Betty was snapped up by American firm (Wednesday).
• Banks continued to make the headlines this week as HSBC saw its profits quadruple (Tuesday), Goldman Sachs decided to up its pay for junior bankers (Tuesday) and although bankers have been pushing for removing bonus caps post-Brexit to attract more talent (Monday), Rishi Sunak was having none of it (Tuesday).
• In the gig economy, Uber’s ridership increased (Thursday), South East Asian ride-hailer specialist Grab has been held back by Covid restrictions in its markets (Tuesday) and there are plans afoot in New York to level the playing field in food delivery (Tuesday) which could have wider implications if widely adopted.
• In automotive-related news, there were solid performances from Stellantis (Wednesday), GM and Toyota (Thursday) and the industry deepened its commitment to EVs (Thursday) while UK online secondhand car specialist Cazoo put in a strong performance (Tuesday) thanks to the red-hot used market being boosted by customers being unable to buy new cars because of the semiconductor shortage. The weakness in new cars sales in the UK was highlighted by the latest figures from the SMMT (Friday).

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

I thought that the most impressive “alternative” story this week was Baker’s mind-boggling cakes look so real people can’t tell if they’re sweet or savoury (The Mirror, Courtney Pochin). What a talent!