Watson’s Weekly 09-05-2020

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 THE US – President Trump has been ratcheting up the anti-Chinese rhetoric (Tuesday, Thursday) and threatening to impose more taxes if President Xi decides to pull out of the agreement they reached in January
• IN CHINA – Exports are actually rising (Friday), although doubters say this is a one-off as China catches up with the backlog. Domestic tourism is also starting to pick up (Monday) and consumers are spending as Lego and Dominos Pizza are among those seeing a sales uptick (Monday). Even VW is seeing car sales being not far off what they were this time last year (Thursday)
• IN EUROPE – more countries are talking about or lifting restrictions (Tuesday, Friday) BUT there are going to be difficult balances to be struck between workers and unions on one side wanting safety guarantees and businesses and politicians on the other trying to get the economy going. There’s trouble brewing between Germany and the ECB (Wednesday) as the country’s highest court ruled that if they don’t get a proper explanation as to specific objectives of the ECB’s massive bond purchasing programme, they won’t let the Bundesbank (Germany’s central bank) pay into it. This would be a problem given that Germany is Europe’s biggest economy. ECB President Christine Lagarde batted this away (Friday), but I think there could be potential trouble if this dents investor confidence. Cracks in Europe, perhaps?
• IN THE UK – the government decided to delay a planned business rates review by one year until 2022 (Thursday), something that will be particularly painful for retailers looking to conserve as much cash as possible. The Bank of England did nothing to lighten the mood as it said that the UK is facing the worst recession for 300 years (Friday). Thanks for that 👍

• Well we heard from the aircraft makers last week but this week got off to a bad start as Warren Buffett revealed that he’d sold all of his airline stocks (Monday) at a shareholders’ meeting. He sold chunky stakes in Delta, American, Southwest and United Airlines
• Aeroplane engine makers are feeling the pinch. Rolls-Royce is going to make cuts (Monday) but there are no details as yet, but GE cut 25% of its workforce (Tuesday) as it sped up pre-coronavirus cost-cutting plans
• Airlines hit more turbulence as Virgin Atlantic cut about 1/3 of its staff and quit Gatwick (Wednesday), although Gatwick was probably relieved that Norwegian Air got a state bailout (Tuesday)
• When the airlines suffer, they don’t do it in isolation – car rental companies are having a nightmare as 2/3 of their business comes from airlines. Avis Budget, Enterprise and Hertz are all having major problems (Tuesday) although Hertz managed to avoid bankruptcy by agreeing a deal with lenders to extend a payment deadline
• Airbnb sacked 25% of its workforce (Wednesday) on the one hand, but then said that European bookings were up on the other

• Social distancing gadgets are garnering a lot of interest (Monday) as companies like Fitbit (watches), Salesforce (CRM software) and Midlands-based company called Wearable Technologies (“smart” hi-viz jackets) offer their products as workable solutions to the social distancing problem
• Demand for PPE is keeping companies like Gompels Healthcare, ICL Tech, Doncaster Plastics busy (Tuesday), but problems will no doubt emerge as to how to prioritise orders due to higher demand when people start going back to work
• Apps helping healthcare professionals are seeing a spike in usage (Wednesday) e.g. eConsult and accuRx
• Nintendo has benefited from lockdown (Friday) with strong software and Switch console sales. However, can this be sustained as we enter the end of the traditional console cycle? Sony and Microsoft will be bringing out their new consoles this year, so gamers may seek out something new…
• Halfords is benefiting from the renewed interest in cycling (Thursday) as people try to commute without using public transport and Peloton is benefiting from strong demand for solo online workouts (Thursday) as gyms remain closed and people continue to be nervous about exerting themselves in close proximity to strangers

• Netflix is starting to crank up content production again (Wednesday) with filming restarting already in South Korea, Japan and Iceland. Sweden will restart this month and Norway will be next month. This will be of immense relief to all concerned as people have been binge-watching so much content that the cupboard for new stuff is looking rather bare! This will put pressure on other studios to follow suit but it will no doubt present all sorts of logistical problems…
• California is going for the jugular of Uber and Lyft (Wednesday) by suing them for misclassifying their drivers as contractors rather than employees. If Uber and Lyft lose, they will face a massive increase in employment costs but they also announced big job cuts (Thursday). Mind you, Uber finished the week on a high by announcing the purchase of a big stake in e-scooter company Lime (Friday) and will fold its existing e-scooter business, Jump, into it
• The US meat shortage is continuing (Thursday), so plant-based protein alternatives like Beyond Meat should try to take full advantage of this opportunity! They have the ability to flex margins, so can make prices more competitive
• Liberty Global and Telefonica agreed to merge their UK-based Virgin Media and O2 businesses (Friday). This will give BT a proper competitor! It’ll probably be subject to all the usual regulatory approval bits and bobs so won’t complete for a while yet…

• Watson’s Yearly updates: This week, I have made a few updates including Trump getting feisty with China, the highest US unemployment rate since WW2, Brazil’s interest rate cut, Argentina approaching debt default, India lifting a ban on alcohol, the success of the UK’s “bounce back” loans, Germany taking on the ECB, Spain’s “phase one” easing of lockdown restrictions, Putin’s lowest approval ratings for 20 years and Iran cutting four zeros off its currency!

My favourite “AND FINALLY” stories of this week were the rather ridiculous Woman in hysterics after receiving fake AirPods that were bigger than her head (The Mirror, Paige Holland https://tinyurl.com/y9o47avb) and the superb A British nurse is the chosen superhero in new Banksy artwork (MSN, Paul Sandle https://tinyurl.com/yadhfqc3). Have a great weekend out there!