Watson’s Weekly 19-03-2022

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.

This week was characterised by more Russian aggression, more sanctions and more repercussions. Let’s try and untangle all that!

• China had a shaky week on the markets as Hong Kong and Shanghai kept falling (Wednesday) due to a combination of worries about more lockdowns in the face of rising numbers of Covid cases and the knock-on effects of sanctions on Russia. Americans alleged that China has considered Russian requests for military equipment (Tuesday) to bolster its war in Ukraine.
• Russia seemed to make its bond payments (Friday) although much of the week was spent speculating about whether it was going to pay (Thursday) or whether it would follow through on its threat to pay in roubles (Monday). Some creditors are yet to receive their funds, so the payment is not a definite! Putin has vowed to increase Russian salaries and pensions to mitigate western sanctions (Thursday).
• The US lifted its interest rates for the first time since 2018 (Thursday) from 0.25% to 0.5% to curb record inflation levels, adding that they would make six further increases this year whilst also cutting GDP forecasts.
• In the UK, the Bank of England increased the interest rate from 0.5% to 0.75% (Friday) to tame inflation. 8 out of the 9 MPC members voted for a hike, so this is a strong signal, although they are less aggressive than the Americans about further increases.

Meanwhile, in commodities…

• In oil, the US retreated from talks with Venezuela about increasing oil supplies (Tuesday), following their self-imposed ban on Russian oil, while the International Energy Agency warned of the “biggest supply crisis in decades” (Thursday) – although oil prices had a bit of a respite because investors thought that China lockdowns would dampen demand (Wednesday). Still, the oil price is so high now that it looks like ConocoPhillips, Chesapeake Energy and Contintental Resources are on the verge of another shale boom (Tuesday).
• In energy, BoJo is having to reconsider fracking in the UK (Friday) and drilling for oil in the North Sea (Wednesday) in order to make up for the oil that it won’t be buying from Russia. Cuadrilla is putting pressure on the UK government (Tuesday) to get fracking restarted. The situation is getting so desperate that German utilities company RWE has said that it will be bringing coal power stations back online (Wednesday). Japan’s PM suffered a severe set-back in his ambitions to re-engage with nuclear power (Friday) after a major earthquake hit Japan – once again in the Fukushima region.
• The London Metal Exchange had a glitch shortly after trading in it restarted (Thursday) but when it did get back eventually, the price came under a lot of selling pressure (Friday) both in London and Shanghai.

Meanwhile, there were some interesting developments in crypto:

• El Salvador prepared for the launch of a “bitcoin bond” (Monday) to raise at least $1bn to boost its “pile” of bitcoin, but this looks like desperation on the part of  President Nayib Bukele as his country is in a dire financial situation with a massive budget deficit.
• It seems like NFTs are cooling off at the moment as average prices are slowing, as are daily volumes traded (Monday). Is this just a pause for breath before going to the moon or the sign of things to come?

Various industries and geographies are facing difficulties as sanctions against Russia broaden.

• In AGRICULTURE, German drug and agrochemical conglomerate Bayer is threatening to stop supplying Russia with crop supplies (Tuesday) unless it ceases its war against Ukraine. In the meantime, we all face the prospect of food shortages and higher prices (Monday) as Russia is the world’s biggest exporter of fertiliser. As with oil, red lines are having to be crossed in order to ensure that supplies suffer as little disruption as possible and there’s even talk about reintroducing genetically modified crops (Wednesday) as Ukrainian farmers won’t be able to plant for the next season.
• In AVIATION, aeroplane lessors are facing big losses (Tuesday) because they can’t get their planes back and insurance companies are already starting to cancel policies related to Russia. Putin signed a new law allowing aircraft to keep flying (Tuesday) by allowing them to be registered domestically, but would you want to fly on a plane that isn’t being maintained by the companies that specialise in this and with no supply of parts except from what they already have available?? Things are actually going pretty well for airlines in the US (Wednesday) as passenger demand is such that price rises aren’t putting them off. On the military side of things, Germany is buying Lockheed Martin’s F-35s (Tuesday) just weeks after it announced a major increase in defence spending.
• OTHER INDUSTRIES are feeling repercussions. In the AUTOMOTIVE INDUSTRY, Tesla just raised the price of all of its cars (Wednesday) because of the rising price of parts, the INSURANCE INDUSTRY is bracing itself from massive numbers of claims (Thursday) coming from the Ukraine/Russian war, and the PROFESSIONAL SERVICES INDUSTRY is facing a tricky withdrawal (Monday) that could take quite some time in many cases while the listing pipeline in London dried up (Monday) and Russian firms were kicked out of FTSE indexes (Tuesday). Meanwhile, funding for start-ups may take a dive (Monday) as Russian money is shunned.

Russian individuals are also being targeted. Various oligarchs, including Roman Abramovich, are having their assets seized and movements restricted (Wednesday) and Grant Shapps even threatened to “cripple Russia’s aviation and shipping sectors” (Monday) while luxury British brands like Aston Martin, Bentley and Rolls-Royce have blocked exports to Russia (Wednesday) and Instagram was shut down (Wednesday).

• Consumers saw their wages fall at their fastest rate since 2014 (Wednesday) as wage rises failed to keep track of inflation, they are facing higher bills and rent (Monday), rising food prices because fertiliser prices are skyrocketing (Tuesday) and Uber’s raising its prices by 20% (Tuesday). On the positive side, the UK has decided to scrap remaining Covid restrictions (Tuesday).
• In terms of consumer behaviour, although Deliveroo talked about a disappointing outlook (Friday) and Ocado suffered from shoppers returning to physical stores (Friday), speedy rival Getir got a stellar valuation at its latest funding round (Friday) as investors continue to gamble on the belief that people want things within ten minutes and it turns out that Trainline is benefiting from more people buying e-tickets (Friday).

As for retailers…

• In the US, retail sales rose by 0.3% in February (Thursday) while Walmart announced plans to hire 50,000 US workers by the end of April (Thursday).
• In the UK, M&S is launching in-store branches of the Early Learning Centre (Monday), H&M is selling third-party fashion brands (Friday) and DFS is raising its sofa prices (Wednesday) to protect its margins.

• Apple faces potential European challenges in the form of new legislation (Friday) that will loosen its stranglehold on app sales.
• In semiconductors, manufacturers stockpiled raw materials so should be OK for a while (Monday), Intel announced plans to spend €33bn on manufacturing facilities in Europe (Wednesday) and Arm is going to cut its workforce by 12-15% (Wednesday) as part of a slimdown ahead of an anticipated flotation after owner SoftBank failed to sell it to Nvidia.
• HSBC is closing down physical branches but expanding in the metaverse (Friday) following in the steps of JP Morgan.
• P&O sacked 800 of its staff over a video call (Friday), which obviously didn’t go down well. A lot of discussion is ensuing as to the legality of this very drastic action…

• 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 of this week was Singing dog performs Diana Ross in impressive karaoke duet with owner (The Mirror, Nia Dalton), whose gusto is something to be admired 🤣!