Watson’s Weekly 08-10-2022

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.

OPEC sides with the Russians, Truss/Kwarteng eat humble pie and Musk changes his mind…

• The IMF spreads gloom on the world’s economy (Friday) highlights the overall mood at the moment (although Kristalina Georgieva didn’t really say anything particularly unexpected) but I think that there are some signs that inflation could be slowing down (Tuesday) as the Baltic Dry Index continues to weaken and cargo shipowners cancel sailings as global trade loses momentum (Monday).
• IN THE US – there may be early signs that the US economy is cooling as job vacancies fell sharply (Wednesday), according to the latest data from the US Labor Department’s Job Openings and Labor Turnover Survey (“JOLTS”). This was later confirmed by the Bureau of Labor Statistics at the end of the week (it came out after I published Friday’s editions of Watson’s Daily). Does this mean that the Fed’s interest rate hikes are starting to work?
• IN EUROPE – the minutes of the most recent ECB rate meeting highlighted fears of prolonged inflation (Friday) while members of the eurozone continued to be p!ssed off with Germany (Friday) for their own private energy bailout package. In the meantime, Germany signed another LNG supply deal (Friday), this time with Venture Global, a new US exporter of LNG.
• IN THE UK – the government was forced to abandon the proposed scrapping of the top rate of tax (Monday) while Kwarteng said he’d bring forward details of his debt-cutting plan (Tuesday) to calm the carnage caused by his mini-budget announcement. It turns out that the Bank of England didn’t have to buy as many bonds as it thought it would have to (Tuesday) and actually stopped buying them (Wednesday). 2022 has been the worst year for ten years for IPOs (Thursday), but then again this isn’t surprising given that sentiment is so low as the number of businesses going bust is on the rise (Thursday).
• IN TURKEY – inflation has hit 83% (Tuesday), so it looks like President Erdogan’s persistence in cutting interest rates to curb inflation (he’s one of the only leaders in the world to follow this) isn’t working.

In OIL NEWS…

• OPEC+ decided to make deep production cuts (Wednesday), which prompted the US to accuse OPEC+ of aligning with Russia (Thursday), the expectation of which probably prompted the US to talk about oil supply with Venezuela (Friday).
• Regarding specific oil companies, Shell’s latest trading update suggested that its winning profits streak is losing momentum (Friday) as refining and chemical margins have taken a hit while BP Solar launched its biggest UK project yet (Friday).

In ENERGY NEWS…

• North Sea gasfield permits are going to get fast-tracked (Tuesday) in order to boost domestic production for the short term in order to address the current energy crisis.
• Ofgem is already warning of potential blackouts (Monday) as supplies to some gas-fired power stations could be cut off. Tough times ahead…

In CURRENCY NEWS…

• There was some interesting debate as to whether a Plaza Accord II could be in the offing (Thursday) given the dollar’s recent strengthening versus the euro, the yen and the pound in particular. The original Plaza Accord in 1985 entailed a co-ordinated approach by politicians and central bankers to calm the effects of a strengthening dollar. This is speculation but is something that could happen if the dollar continues to strengthen.
• Then we saw that Kim Kardashian paid $1.3m to settle charges with the SEC (Tuesday) as she had been accused of not disclosing the fact that she’d been paid to push EthereumMax on her insta account. Small change for Kimmy, but then again I guess it’s better for the SEC to get something rather than drag things out and potentially get nothing. I think that much more needs to be done to stop influencers pushing digital assets, but we’ll just have to see how this develops.

UK lenders started offering mortgages again (Tuesday) after they all ran away to hide last week! However, two-year fixed rate mortgages broke through 6% for the first time since 2008 (Thursday) and the latest data shows that house sales are now falling at their fastest pace since the pandemic (Friday). Another consequence of last week’s kerfuffle was that UK property funds are now limiting withdrawals (Tuesday) in a move reminiscent of what happened in the early days of the pandemic to stop outflow and the forced selling of assets.

We’re not the only ones to suffer with mortgages, though! European mortgage costs have now hit a seven-year high (Wednesday). This isn’t even taking into account the ECB’s recent interest rate hike, with the prospect of more to come.

In CONSUMER TRENDS NEWS…

• Beer prices look set to soar as CO2 shortages loom (Monday), which doesn’t bode well for fertiliser production either (it’s a byproduct).
• Consumers have been flocking to use Telecom Plus – aka Utility Warehouse – for its discount deals (Tuesday) on gas, electricity, mobile phone, broadband and insurance. The utilities provider announced better-than-expected profits thanks to a bigger-than-expected influx of new customers. Staying on the theme of utilities, water bills might fall (Tuesday) because Ofwat says 11 companies have failed to hit their pollution targets. They will be forced to cut customer bills as a result.
• A report by KPMG and REC shows that hiring momentum is slowing (Friday) as corporate pessimism filters down.

In RETAIL NEWS…

• Tesco said its profits for the year are likely to fall short of expectations (Thursday) as consumers get more frugal. I reckon that Aldi and Lidl will continue to grab market share for the cost-conscious.
• Halfords bought B2B tyre seller Lodge Tyre (Thursday) which will skew its business much more towards cars than push-bikes. I think this is a good thing as I get the impression that interest in cycling is likely to decline. I also believe that cost-conscious consumers will be more likely to hang on to their existing vehicles because a) EVs are still expensive, b) they are more reluctant to splash out on big ticket items at the moment and c) they want to wait until charging networks and more car choices emerge.
• Greggs managed to surprise the market on the upside (Wednesday) as customers lapped up those meal deals but Pizza Express profits more than halved (Friday) thanks to rising flour and cooking oil costs.
• Hays Travel – famed for buying the Thomas Cook high street shops – returned to profit (Friday) for the first time since the pandemic. I would have thought it’s going to be in for another bout of turbulence, though, as rising costs and squeezed household budgets take hold.
• In apparel retailing, H&M turned cautiously positive on China (Wednesday) after a period where customers boycotted it for associating itself with the campaign to highlight the use of forced labour in Xinjiang while Boden saw its US sales jump (Wednesday). No wonder it’s planning on putting more focus on that market!
• Meanwhile, M&S has started to offer digital credit for Sparks loyalty card customers (Friday) for up to £500 on online purchases. This may well encourage more people to get a Sparks card, which means that M&S will be able to access better quality customer data.

• Semiconductor giants Samsung and AMD are turning pessimistic (Friday) thanks to weakening consumer spending that will hit demand for their memory chip and smartphone businesses. FWIW, I think that this will only be temporary as EV-related demand will increase immensely as deadlines for electrification loom.
• Apple got some disappointing news as the EU backed a universal phone charger (Wednesday), which means that it’ll have to use the USB-C standard. This probably means the death of the lightening cable.
• The most dramatic news this week was that Elon Musk has decided to buy Twitter after all (Thursday) and has skilfully managed to shift the conversation away from “how has Elon failed to wriggle out of the deal?” to “is Elon trying to use Twitter to engineer a super-app?”. FWIW, I don’t think a super-app in the mould of WeChat will be possible in the West because a) it was allowed to develop in China without much regulatory hindrance, b) there are now so many decent apps that Twitter would either have to sign them up (expensive) or make their own (expensive and time-consuming) and c) consumers may be less comfortable with one app tracking so much of their activity.
• Although ByteDance saw deepening losses (Friday) as it put money into growth, its TikTok business smashed it in Europe (Tuesday) with sales increasing sixfold to almost $1bn and it announced that it would be launching live shopping in the US (Monday) that would be in keeping with its ongoing efforts to help creators monetise their content.

• IN FINANCIALS – US investment banks are hoping for a dollar-powered buying spree (Monday) that will boost M&A revenues. In Europe, Credit Suisse had a rough time (Monday) because a memo sent by the CEO to employees was interpreted by investors as a sign that something was wrong at the bank after years of scandals dragging it down. UK banks are set to make a killing thanks to higher interest rates (Monday), but they’re probably not going to brag too much about it. On a related note, NatWest raises mortgage rates in line with its rivals (Monday).
• IN CAR-RELATED NEWS – a number of data sources point to weakening used car sales in the US (Wednesday) while Tesla’s deliveries staged a rebound (Monday), Porsche became bigger than parent company VW (Friday) and British car dealership Vertu reckons that car sales will be cushioned in the short term (Thursday) because of long lead times and limited car supplies. In EV-related news, Arrival is seeking more funding (Monday) to keep it going but rising electricity prices are hitting demand for EVs, according to the latest stats from the SMMT (Thursday) particularly as the RAC said that it pretty much costs the same to charge a car at a rapid public charging point as it does to fill one with petrol! Among British carmakers, Aston Martin seems to be attracting the interest of Chinese giant Geely (Wednesday), which is looking to explore “potential opportunities to engage and collaborate” with the company. The already-embattled Jaguar Land Rover is suffering with the strong dollar (Monday) because just over a third of its £8.9bn in debt is denominated in dollars! Ouch!

• 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! 

For me, I really liked the video of the Korean camping guy with all the gadgets HERE in this week’s “alternative stories” section. Talk about camping in style!