Watson’s Weekly 10-12-2022

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.

China retreated on its strict Covid stance, Jezza announced “Big Bang 2.0” and Fenwick departs.

• China’s State Council outlined more relaxed measures regarding Covid (Thursday) but Covid clinics got a sudden spike in demand for fever medication (Friday). The relaxation of measures is coming at a tricky time as there’s an outbreak, we’re close to the lunar new year when many in the big cities travel back to see their families in the countryside and everyone’s been vaccinated with sub-par vaccines. I really hope that history won’t repeat itself here. I really think that president Xi needs to order a ton of foreign vaccines and get busy with using them before that mass-exodus spreads the virus again. In other more positive news for China, President Xi and Crown Prince Mohammed bin Salman of Saudi Arabia announced a “new era” in China-Saudi Arabia relations (Friday) and signed a ton of deals, including one with Huawei to install superfast internet and a cloud computing facility. I’d say this is bad news for Russia (China can go somewhere else for its oil now) and the US (it’s yet another slap in the face for Biden).
• IN EUROPE – the EU is desperately scrambling around to scrape together dosh to offer as incentives to manufacturers (Monday) as the US’s IRA legislation has made it pretty darn tempting to scoot on over Stateside to claim their free money from Biden’s enormous stash. In the meantime, the EU proposed more sanctions on Russia – this time on the mining industry (Wednesday). This could be very painful for Russia as it has been a major source of inward investment.
• IN THE UK – Rishi Sunak is under increasing pressure to accelerate the introduction of anti-strike legislation (Wednesday) in order to prevent the whole of the public sector holding the government to ransom. This is something that Maggie Thatcher did in the past, but I wonder how effective/enforceable any such measures could really be…
• IN SOUTH AFRICA – President Cyril Ramaphosa remains as president (Tuesday) as the ANC got behind him in the face of pressure to resign for abusing his position.

IN COMMODITIES NEWS…

IN OIL – OPEC stood ready to act as the EU oil price cap came into force this week (Monday) and traders saw price volatility (Tuesday) as the news was digested by the markets while the number of oil tankers built up off Turkey (Tuesday) as authorities there demanded to see the correct insurance paperwork. Elsewhere, ExxonMobil announced a massive share buyback (Friday) – which shows that it doesn’t care about what Biden says – and commodities trading firm Trafigura said it would be splitting $1.7bn in dividends (Friday) as it made an absolute killing on volatility in oil prices.

IN GAS – Europe cut gas demand by a quarter (Tuesday) which will help as we enter winter but on the other hand, exports of British natural gas to Europe reached their highest level for six years (Tuesday).

IN LITHIUM – Canada’s Sigma Lithium is building a lithium mine in Brazil (Monday) that could start commercial production of battery-grade lithium in Spring next year. Given that demand continues to rise and that prices have increased tenfold since the start of 2021, you can understand the decision to do this!

IN CRYPTO NEWS…

Stablecoin specialist Circle decided not to go ahead with a SPAC-backed IPO (Tuesday), Coinbase (Tuesday) and Genesis (Tuesday) suffered from ongoing FTX fallout while a judge from the High Court forced Binance to hand over user data (Tuesday) as part of an investigation and the Treasury is in the final stages of putting together some rules to regulate crypto (Tuesday). The net appears to be closing in…

• IN EMPLOYMENT NEWS – new government legislation was introduced this week, giving employees the right to flexible working from day one (Monday), a departure from the current rule where you only get the possibility after 26 weeks, with only one request being possible every 12 months. Meanwhile, a survey by REC and KPMG showed that the number of permanent hires fell for a second consecutive month (Thursday) as uncertainty appears to be showing some signs of seeping into the job market.
• IN CONSUMER NEWS – European customers tighten their belts (Tuesday), UK customers are buying more but spending less (Tuesday) because of general inflation but specifically, increases in the price of food (Wednesday) and fuel (Wednesday), all of which has resulted in UK household spending trailing the rest of the G7 countries (Friday).
• IN RETAILER NEWS – Black Friday in the US turned out to be pretty disappointing (Wednesday) as sales over Thanksgiving weekend were disappointing. In the UK, there seems to be a trend of big retailers opening high street convenience stores as both Asda (Wednesday) and B&Q (Tuesday) are both heading there while, in supermarkets, Lidl and Aldi continue to increase market share (Wednesday) mainly at the expense of Morrisons and Sainsbury’s ploughs £550m into making prices lower for shoppers (Tuesday). Meanwhile, Frasers Group announced strong H1 results (Friday) thanks to younger shoppers spending on clothes and Bond Street department store Fenwick announced that it will depart its flagship store (Wednesday) at the beginning of 2024. It still operates eight others, but it is a sign of the times that another West End department store bites the dust.
• IN LEISURE NEWS – Cancelled Christmas parties, due to rail strikes, are causing many pubs a real nightmare (Thursday), although Mitchells & Butlers – which owns Harvester, Toby Carvery and All Bar One – announced a decent performance (Thursday) thanks to returning office workers and Marston’s saw sales increase (Wednesday) thanks to World Cup fever. Meanwhile, On The Beach saw package holiday demand for three-star destinations dip (Friday) while premium bookings remained resilient and IATA reckons airlines will return to profit for the first time since 2019 (Wednesday). Increased footfall at airports has been good for the likes of SSP – which owns Upper Crust and Caffe Ritazza – which saw a return to profit (Wednesday) and said it would be targeting North America for expansion, something that sounds like a good idea given that the recovery in air travel there looks more robust than it does in the UK and Europe IMO.

THE REGULATORS TIGHTEN THE SCREWS ON TECH COMPANIES…

• Amazon came to an agreement with the EU regulators (Wednesday) after three years of wrangling over its unfair advantage over third-party sellers on its website and has committed to increase visibility of rival products. The FTC said that it was suing Microsoft to block its proposed acquisition of Activision Blizzard (Friday) and is also looking to disrupt Meta’s proposed acquistion of VR app-maker Within Unlimited (Friday). TikTok’s owner ByteDance continues to face difficulties in talks with the Biden administration (Wednesday) designed to assuage ongoing concerns about national security that TikTok’s handling of user data allegedly poses. Meanwhile, in the UK, Nexperia (the Dutch subsidiary of Chinese firm Wingtech) is now fighting back against the UK government’s decision to stop the purchase of Newport Wafer Fab on national security grounds (Tuesday)…

THEN IN GENERAL TECH NEWS…

• Apple is accelerating plans to move production out of China (Monday), particularly in India and Vietnam, whilst also reducing its reliance on Foxconn. Talking of Foxconn, disruption at its main Zhengzhou plant has caused a 29% fall in its revenues (Tuesday) but it reckons that normal production patterns will resume in the New Year.
• A report from Magna reckons that TikTok may escape the worst of the global ad slowdown (Tuesday), something that is given credence thanks to the fact that it doubled advertising revenues in 2022.
• Google is planning on further integrating its Maps and Waze teams (Thursday) although Waze will continue to be a standalone product. Google bought Waze in 2013 for $1.1bn.
• Microsoft signed a 10-year ‘Call of Duty’ deal with Nintendo (Thursday), which may be partly motivated by addressing worries that its proposed acquisition of Activision Blizzard could restrict “COD” access via other platforms, including Sony.

• IN BATTERY NEWS – the price of lithium ion batteries went up for the first time since 2010 (Wednesday) as prices for the raw materials continue to rise. Talking of which, Chinese battery makers look set to dominate supply to European car makers (Wednesday) as the likes of CATL and Envision AESC have the most battery production capacity. FWIW, I think that we will be building problems for the future as China will be so dominant in battery supply that negotiating with China more generally will get much more difficult. Batteries could be to China what gas and energy has been to Russia and could be used as a very powerful political tool in the future. This is another reason to pursue other technologies like hydrogen fuel cells, for instance. I also think that if the supply of battery materials is getting tricky now when the numbers of EVs on the roads is still so small, it will just get exponentially worse as demand ramps up to meet emissions targets…
• IN EV NEWS – Tesla launched the Model 3 and Model Y in Thailand, its latest new market (Friday) just before the peak car buying season. This could be particularly exciting as there is very little competition in EVs in Thailand. Toyota announced plans to launch six electric models by 2026 (Tuesday). On a completely different scale, Glasgow start-up Munro Vehicles announced a new fully=electric 4×4 (Wednesday), saying that it expects to make 50 cars next year and scaling up thereafter. The SUV will cost around £50,000 and go for up to 16 hours on a full battery.

• The European Commission has unveiled legislation designed to force banks to move business to the EU (Thursday) in Brussels’ latest bid to take the City’s lucrative clearing house business.
• Jeremy Hunt announced a bit of deregulation in financial services (Friday). It wasn’t the “Big Bang 2.0” that predecessor Kwarteng was talking about – it was badged as the “Edingburgh Reforms” by Jezza – but it did get rid of the bankers’ bonus cap and relaxed the ring-fencing rules in banks with more to come in the reform of the Solvency II rules and review of MiFID II.
• IN INVESTMENT BANKING – Morgan Stanley announced that it will be cutting 2,000 jobs (Wednesday) on fears of a global recession, but also because of a lack of IPO and M&A deals. UK broker Numis said it will be cutting bonuses because of the lack of deals (Friday) but did better than rival Peel Hunt (Friday) due to the former’s lower relative reliance on UK company financing.
• IN PROFESSIONAL SERVICES – PwC is actively poaching EY partners (Monday) as it tries to capitalise with unease at EY over the potential splitting of the audit and consultancy businesses.

• 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” story this week was this weirdly compelling video of a climber vs a parkour “crew” seeing who could hang on a bar the longest! This really was quite something!