Watson’s Weekly 10-06-2023

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 COLOURED HIGHLIGHT 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.

This was a week where we found that the Eurozone fell into recession, Apple released its VR headset (at last!) and golf’s Rory McIlroy got a nasty shock…

• IN GLOBAL NEWS – the World Bank published its latest global economic prospects report which concluded that the world’s poorest countries have been the biggest losers from the cumulative shocks of Covid, Russia’s invasion of Ukraine and the mass hiking of interest rates by central banks. They lose out because most of their debt is in dollars and interest rate rises are making debt cost more. Also, the OECD released a report and called for governments to rein in spending and only target “people who really need it”.
• IN CHINA – the latest data release from China’s General Administration of Customs showed the exports fell back in May versus May of 2022 but imports came in above expectations, which shows that there is a recovery going on in China although it hasn’t been particularly smooth going recently.
• IN EUROPE – the Eurozone fell into recession in Q1 as revised figures were published by Eurostat painted a less flattering picture of its economy.
• IN THE UK – although we’ve managed to avoid recession thus far, the BCC says we could yet fall into recession this year, so best not get too ahead of ourselves!
• IN AUSTRALIA – there was a shock interest rate rise of 0.25% to 4.1% (markets had been expecting it to remain unchanged) and it sounds like there may be more to come as the country continues its battle against inflation.
• IN OTHER NEWS – El Niño is coming – and that’s going to be bad news because agricultural commodity prices are likely to rise at a time when food inflation is already high. The Kakhovka dam in Ukraine was breached with Russians and Ukrainians blaming each other. The result is the same: displacement of tens of thousands of people in the region due to a huge amount of flooding. UK defence group Chemring saw a big rise in orders thanks to the war in Ukraine and tensions in the Asia-Pacific region.

IN OIL NEWS…

• OPEC decided on oil production cuts and left the door open for more in 2024 but the Saudis are arguably losing their group on the cartel as Russia is largely ignoring the quotas and selling as much oil as possible to finance its war.
• Oil traders are profiting from the energy crisis, particularly at Trafigura, but inflationary pressures, higher interest rates and continued geopolitical tensions will no doubt eventually take their toll. In the meantime, they’ll have the massive $3bn payout to console themselves with!

IN CURRENCIES NEWS…

• The Turkish lira took at dive as Turkey’s central bank was ordered to stop intervening in the currency markets to prop up its currency. Some are taking this as a sign that the new finance minister will be implementing more conventional economic policies…
• IN CRYPTO NEWS – Coinbase has warned that the number of retail investor transactions is falling, which is bad because retail trading makes up around 95% of its transaction revenue and 71% of total group revenues. It was also interesting to note that crypto ownership in the UK more than doubled last year, but the FCA’s going to be clamping down on crypto mis-selling starting in October.

IN BUSINESS TRENDS…

• AstraZeneca is keen on investing more in China as it sees so many opportunities, particularly with the “explosion” of biotech companies in the country and its ageing population. This is going to be quite delicate given the current climate, though!
• Magic Circle law firm Freshfields has boosted trainee numbers by over 35%, bucking the general trend of falling trainee numbers since the financial crisis of 2008. Is this a lead indicator and sign that there’s increasing confidence about a turnaround in deal flow?
• SMEs may be allowed to change their gas and electricity contracts after EDF and Centrica have taken the step to allow some to sign new deals to those who are currently locked into long term contracts.
• Payments fintech CAB Payments Holdings has announced intentions to float on the LSE, which is quite nice for the LSE after last week’s similar announcement by WE Soda. On the other hand, building materials group CRH has decided to quit London and have its primary listing in New York. It’s not that surprising since 75% of its earnings are in the US…

IN CONSUMER TRENDS NEWS…

• A KPMG-REC survey shows that the jobs market is showing signs of cooling as vacancies fell while the number of candidates rose. That said, research from Indeed showed that overall wage growth sped up in May.
• IN MORTGAGES NEWS – longer 35-year loans are seeing higher demand, according to stats from UK Finance, but UK banks have continued to pull mortgages – and HSBC actually withdrew all mortgages after a surge in demand from customers who wanted to get in before interest rates were raised further.
• IN SPENDING TRENDS – retail sales actually fell for the first time in two years as borrowing costs have filtered through to the real economy, spending on cars still lags pre-Covid levels and customers are spending more on groceries because of higher prices. Also, the latest services PMI shows that the services sector got a boost from consumers spending on leisure and tech, which is important because services account for 70-80% of our GDP.

IN ONLINE RETAILER NEWS…

• Amazon is looking into an ad-supported tier for its Prime Video streaming service to generate more revenues.
• Asos is seeing suppliers abandon it after credit insurers withdrew cover due to the company’s weakening profits. In the meantime, Frasers Group has built up a stake of almost 10%…

IN “OFFLINE” RETAILER NEWS…

• Inditex smashed it again, putting rivals like H&M in the shade as it benefited from customers refreshing their wardrobes for the summer.
• Signet (which owns H. Samuel and Ernest Jones in the UK) reckons it’ll take a $750m sales hit this year because demand for diamond rings has fallen – serious stuff because it makes about 50% of its income from the sale of engagement rings!

IN LEISURE NEWS…

• Higher inflation is powering fast-food chains as consumers continue to spend on “affordable treats” and downgrade from pricier restaurants. The latest Barclaycard figures showed that spending on takeaways has increased for 12 consecutive months while restaurant spending has fallen in 9 out of the last 11 months.
• Airline industry body IATA said in its latest report that it thinks airlines around the world are on track to achieve near-record revenues this year as it doubled its profit forecasts. As if to emphasise the point, Wizz Air is the latest airline to show positive momentum as summer bookings are strong and it looks like it’ll return to profit.

IN COMMERCIAL REAL ESTATE…

• US banks are bracing for losses on “performing real estate loans” because customers are trying to reduce their exposure to the asset class, Axa’s real estate arm agreed to buy a French movie studio in an attempt to diversify its assets and big firms are shedding office space as WFM becomes a permanent thing.

IN RESIDENTIAL REAL ESTATE…

• UK construction activity is increasing at the fastest pace in three months but housebuilder Crest Nicholson announced a big fall in profits last year and is cautious on the outlook while it seems that Gove’s reforms have pushed planning approvals to a 14-year low. In the meantime, UK house prices are falling (and might not rebound) but it seems that the buy-to-market isn’t dead yet as B2L specialist Paragon Banking Group announced strong results and a positive outlook while investors look outside London and buy into Manchester and Bristol.
• Further afield, the chief of India’s biggest private mortgage provider, HDFC, reckons that the country’s booming youth population will power the housing market for years to come. This may well be the case considering that well over 50% of India’s population is under 30 and the average age of the first-time buyer is 37-38.

IN INVESTMENT-RELATED NEWS…

• ESG funds saw record outflows from British investors as they got increasingly spooked by market movements and booming inflation and wanted to focus more on getting better returns. Also, the European Commission is about to announce a crackdown on ESG ratings agencies by making sure they declare any conflicts of interest (which, amazingly, they’ve not had to do before!).
• BlackRock announced the acquisition of Kreos Capital, a private credit business, for an undisclosed sum. This is a growing business area because banks are becoming increasingly constrained by not being able to lend to riskier businesses.
• VC giant Sequoia is splitting off its China business as it’s more hassle than it’s worth in the current climate and it will get a completely different name and identity.
• The FCA are investigating serious allegations being made against Crispin Odey, founder of hedge fund Odey Asset Management. This could be a very big deal – and, if he is found guilty, I reckon there could be some big changes given the company and his own high profile.

IN BANKS AND CRYPTO NEWS…

• The lack of deals looks likely to lead to consolidation among investment banks. Big banks have been picking off smaller specialists (e.g. Deutsche Bank buying Numis) and this is likely to continue.
• The US SEC, the markets regulator, is bringing a civil suit against crypto exchange Binance for operating illegally in the US and exposing investors’ assets to major risks.

IN AI NEWS…

• Google and Facebook are being urged by the EU to label AI-generated content.
• The UK is going to hold the world’s first AI regulation summit in autumn, something that was endorsed by Joe Biden in Sunak’s stateside visit.
• In the meantime, lawyers warned against relying on AI too much, particularly as there was a case last month where a New York lawyer had to apologise to a judge for citing court cases generated by ChatGPT that didn’t even exist 🤣!
• Hollywood actors are looking at a new deal regarding the use of AI “digital doubles” as the biggest union, SAG-AFTRA is meeting with studios.

IN OTHER NEWS…

• Apple revealed its new Apple Vision Pro VR headset after much hype. It’s expensive ($3,499), has some impressive features but also 💩battery life 🤣! One for the early adopters at the moment…
• A former ByteDance exec said that officials from the China Communist Party accessed TikTok’s database targeting civil rights activists in Hong Kong back in 2018 to get their network info, SIM card IDs and IP addresses to locate them. ByteDance obviously denies this, but if this is proved to be true this could be the nail in the coffin for the video-sharing app.
• The EU is getting ready to fine Twitter up to 6% of its global revenues if it doesn’t comply with the new digital content regulations that come into force on 24th August. It is thought that they will not hesitate to make an example of Twitter if they dare not to comply with the Digital Services Act…
• A cyber attack hit the BBC, Boots and British Airways this week as a Russian-speaking criminal gang hacked sensitive personal details of the employees of these companies. It hit software used by UK payroll provider Zellis. If they don’t pay the ransom, “Clop” (the name of the gang) will sell the details.
• It sounds like Microsoft is seeking a solution on the Activision Blizzard deal that was recently rejected by the CMA, so a deal may yet be likely…
• Spotify cut 2% of its workforce as it continues to “right-size” after a podcast-related spending and hiring frenzy. It is now focusing more on profitability rather than just raw growth.
• WhatsApp announced a new feature called Channels whereby users can subscribe to updates from celebs etc – in direct competition to Twitter. Given a load of celebs have gone off in a huff because they are being force to pay for a blue tick, perhaps they will all pile over to Channels…

• Hyundai and Kia got sued by NYC for making their cars too easy to steal. This could become a painful precedent…
• GM’s future vehicles are going to get access to Tesla’s Supercharger network starting from next year, following on from a similar announcement from Ford.
• The European Court of Justice overturned a decision that had gone in favour of the Barcelona city government which restricted licences for ride-hailers. This is great for the likes of Uber and Cabify, but not so good for the locals. Talking of Uber, the company is looking to start applying a 10% discount to EV journeys from Heathrow and other airports as part of efforts to decarbonise the taxi service.
• Shares in Carvana jumped by over 50% after it announced a positive outlook for Q2. This came after a very difficult year for the online used car seller, so was particularly welcomed by investors!

• The other big story of this week was the shock merger of the PGA Tour and LIV Golf which has divided the game for the last year or so. It’s the latest example of Saudi money taking over another sport!

My favourite video this week was of this brilliant reaction on the bus in a K-drama! It’s one of those things that, if you really were in this situation, you might think of after the occasion and wish you were quick-witted enough to do in the moment 🤣