Watson’s Weekly 11-09-2021

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.

• Germany’s having a tough time at the moment as its manufacturing sector is losing momentum (Tuesday) despite new factory orders in July appearing at first glance to have hit their highest level since records began in 1991. Apparently this was due to a data blip and comes ahead of imminent elections where Angela Merkel is now putting her weight behind CDU/CSU candidate Armin Laschet as her successor (Wednesday) whilst warning of the dangers of a leftwing German government. Given that Germany is the main driver behind Europe, any instability or uncertainty at the moment isn’t going to be great for sentiment.
• Norway’s also faces an imminent election dilemma (Wednesday) as, on the one hand, you have a country that is seen as being staunchly pro-environment but then on the other, it is Europe’s biggest petroleum producer with a humungous great sovereign wealth fund that was built on oil and gas revenues! Put bluntly, voters will be chosing between the Greens, Socialist Left and Liberals who want to stop oil and gas exploration as quickly as possible and Labour and Conservatives – who want the oil industry to make a more gradual change to renewables given that the sector accounts for about 6% of Norway’s jobs.
• Brazil suspended beef exports to China after cases of mad cow disease were discovered (Monday). Brazil is the world’s biggest beef exporter and China is its biggest export market. If this spreads it could be disastrous for Brazil and torpedo President Jair “Tropical Trump” Bolsonaro’s re-election next year. However, I’ve read in some sources that it has been seen as a one-off and exports are back on track (although I haven’t seen that in a source I 100% trust thus far!). It is worth following because if it turns out to be a cover-up and spreads, the long-term damage could be huge (I’m sure that British beef still has remnants of stigma attached after the mad cow disease outbreak over two decades ago).
• In Europe, the ECB said that it would slow the pace of its bond-buying (Friday), but reassured investors that it would be quite gradual.
• In the UK, there were dividend tax rate and National Insurance rate hikes (Wednesday) which will come into force next year and Rishi Sunak confirmed that the autumn budget is to take place on 27 October (Wednesday). On the Covid front, large English venues will be bringing in Covid vaccine passports (Monday) at major indoor venues in England.
• IN COMMODITIES, Aluminium hit another new high after a military coup in Guinea coup (Tuesday). It was only last week that Aluminium prices hit new highs because one of China’s major aluminium producing regions had cut down on energy consumption, meaning a drop in production capacity. Guinea is the world’s second biggest producer of aluminium. Prices of vegetable oil are shooting up (Thursday) as food companies like Krispy Kreme, Bimbo Bakeries and Pepperidge Farm are pitted against oil companies like Marathon Petroleum and ExxonMobil in buying vegetable oil! Oil companies need it for “renewable diesel” and food companies need it to make their products. The food industry is worried that the oil companies are only just getting started and that if they continue to increase their usage, food companies will be priced out of the market.
• IN CRYPTO NEWS, El Salvador debuted bitcoin as legal tender this week (Wednesday) but it had a tricky start as the government had to take its digital wallet app for storing the cryptocurrency offline due to server problems. The app gave Salvadoran citizens $30 of free bitcoin and came back online after a few hours. The price of bitcoin also crashed just one day after the nation spent millions to buy 400 bitcoins (although it then bought 150 more, bringing its total to 550). Then after last week’s warning remarks, SEC threatened to sue Coinbase (Thursday) if it goes ahead with a new digital asset lending product called Lend and issued it with subpoenas for more information. Meanwile, UK regulator called for greater powers against risky crypto ventures (Tuesday) in order to protect UK consumers from dodgy crypto investment promos that you see all over the place online. So far the FCA is all talk and not much action on this.

• The CBI joined everyone else and their dog in calling for ministers to relent on their position on visas for foreign workers (Monday) and to cease “waiting for shortages to solve themselves”. Logistics bosses called for faster truck driver training to ease shortages (Monday) while Iceland said that it thought that the trucker shortage will last into 2022 (Wednesday). Elsewhere, Bed linen and staff shortages force UK hotels to cut back services (Monday) highlighted difficulties in hospitality while Wagamama said it was to find chefs at a fifth of its UK sites (Monday) highlighted difficulties in the restaurant trade. M&S is panicking about an impending import crisis (Monday) when new strict borders controls come into effect next month. It also looks increasingly like Bonfire Night and/or New Year celebrations could be a bit iffy (Monday) because importers are battling with sky-rocketing fireworks prices – a large crate of them will now cost $30,000 versus the $8,000 it used to cost them and Ikea is experiencing shortages in furniture (Wednesday). A recent survey by the European Commission showed that a record one in three EU furniture makers said that they’d experienced supply problems.

• Global dealmaking is on track to reach new highs (Monday) as Refinitiv data shows that global M&A levels are at record levels and is currently on track to overtake the previous all-time high of 2007, just before the financial crisis.
• In terms of individual deal news this week, PayPal bought Paidy (Thursday) and Mastercard bought CipherTrace for an undisclosed sum (Friday) while BrewDog teamed up with Asahi (Monday), Deutsche Telekom did a share-swappy thing with SoftBank to boost its US business (Wednesday) and Morrisons is heading for an auction (Thursday) after bidders were unable to outdo each other. Companies including Oxford Nanopore, EG group and Mishcon de Reya said they were considering IPOs (Friday), presumably to take advantage of hot markets and leisure companies like PureGym and Hawksmoor (Monday) are lining up to do the same.

• The UK consumer is facing cost rises in building materials (Tuesday), real estate (Wednesday) and utilities (Tuesday). Meanwhile they are spending superhero blockbusters (Tuesday) but most definitely not on cars (Tuesday).
• In terms of the retailers themselves, Ted Baker is recovering (Wednesday), M&S is bringing back an old own-label (Thursday), B&M is booming (Thursday) and John Lewis is trying yet another new thing – a fast fashion range (Wednesday) but retail sales overall have slowed down a bit (Tuesday). There’s a new department store in Bournemouth that could herald a new way forward (Thursday) while over in the US, meme stock GameStop appears to be turning a corner after a rough period (Thursday).

• UK private schools in China feel the effects of Beijing’s education crackdown (Monday) as schools like Harrow, Wellington, Dulwich College and Charterhouse – who have been trying to make inroads into the country by having schools there – are not feeling the love. Will their charms diminish as a result? Or maybe rich parents will send their kids abroad for schooling at an earlier age?
• Staying on the subject of China, investor Cathie Wood said that she’d cut her positions in China (Friday) with only those who are least likely to fall foul of the current regime’s crackdown remaining in Ark’s portfolio. On the other hand, BlackRock announced that it had raised $1bn for a China mutual fund (Thursday), although some are sceptical about the merits of doing business in a regime that seems to like to shift the goalposts quite a lot.
• Facebook made the headlines this week with the defence of its acquisition of Giphy (Thursday) and the launch of some new camera glasses in a venture with Ray-Ban (Friday), causing some controversy.

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

My favourite “alternative” story this week was all about the very niche invention in Japanese company makes a robot specifically to keep your cat entertained (SoraNews24, Katy Kelly). Amazing!