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 BIG PICTURE NEWS...
Another dramatic week, eh…
- China announced its latest GDP growth target (Monday) which came in at only 5.5% – its lowest level for thirty years! This took into account its zero-Covid approach, the disruptive effect of its “common prosperity” policy and probably the fallout from the Russian invasion of Ukraine. Interestingly, there was a sharp increase in defence spending – something that Taiwan in particular will take note of (Wednesday) as there is a real risk that China could be to Taiwan what Russia is to Ukraine at the moment.
- US inflation hit 7.9% in February (Friday) – its highest level in 40 years! This put even more pressure on the Fed to raise interest rates, but Fed chief Powell has already flagged that he will be in interest rate hike mode at the next meeting.
In COMMODITIES AND ENERGY…
- Everyone is trying to look for alternative sources of fuel (Tuesday) given that the US and UK have now banned Russian oil imports (Wednesday) but Germany isn’t being so strident about it (Tuesday) because it needs it so much. Things are getting so desperate that the US is talking to controversial Venezuelan president Maduro again about supplying more oil (Wednesday) and BoJo is putting the possibility of fracking on the table again (Thursday) but despite rivals like Shell pulling out of Russian oil interests (Wednesday) French company Total has decided to stick with its Russian assets (Monday).
- In METALS, gold breached the $2,000 level (Tuesday) but the real star of the show this week was nickel. Nickel prices jumped so much that trading was suspended in London (Wednesday) and in Shanghai (Thursday). It is thought that the nickel price was also powered by a short squeeze (Wednesday). Carmakers are now worried that EV buying will suffer as a result (Wednesday) because nickel is a main “ingredient” of EV batteries, batteries are generally the most expensive part of an EV and the huge price rise in the metal will be passed on, meaning that EVs will be even more expensive than they already were.
- In ENERGY, there was good news for Rolls-Royce’s plans to build Small Modular Reactors (Tuesday) as business secretary Kwasi Kwarteng asked the government to assess its designs. Clearly there is an increased sense of urgency to get these mini-nuclear reactors out there to solve our energy shortfall.
Meanwhile, there were some interesting currency developments this week…
- Bitcoin jumped up suddenly this week (Thursday) on news that federal agencies are now officially looking into crypto regulation. Crypto fans are trying to put a positive spin on this saying that this is a sign it’s being taken seriously, but I think this is not a story to get excited about. If anything, regulation will restrict activities – not free them up! Also, the optics of Russian oligarchs ferreting away their ill-gotten stashes via digital assets isn’t a good look, so you do wonder why everyone’s getting so excited about this. A bit like turkeys voting for Christmas, surely? In the UK, the FCA is cracking down on crypto ATMS (Monday), which is says are being used to launder money – and later on in the week, it ordered them all to shut down. There are/were 81 of these machines, mainly in convenience stores and supermarkets.
- Russia’s rouble fell to record lows versus the dollar (Tuesday) as fears continue of a run on banks where everyone tries to get their cash out at the same time, something that could collapse Russia’s financial system.
The Russian war against Ukraine continued to rage and there were appeals for China to get involved and act as mediator (Monday). However, China’s not known for doing this and I suspect there will be limits to its involvement given its close relationship with Russia.
ACTIONS AGAINST RUSSIA CONTINUED TO HAVE CONSEQUENCES...
- Visa, Mastercard and Amex pulled out of Russia (Monday) meaning that transactions for cards issued in Russia won’t work outside Russia and those issued elsewhere won’t work in Russia, meaning that banks started to over over to the Chinese UnionPay system (Monday) in response.
- “Magic Circle” and Big Four accountants cut links with Russia (Tuesday) as investment banks Goldman Sachs and JPMorgan joined them (Friday), as did the world’s biggest insurer, Marsh McLennan. Putin warned companies pulling out that they could have their assets seized (Friday).
- Still, a growing list of companies continued to head for the exit (Friday), including Next (Monday), McDonald’s (Wednesday) and many luxury firms (Wednesday).
- The net continued to close in on oligarchs like Roman Abramovich (Friday) as assets were seized/frozen and there was talk of Russia defaulting on its debt (Friday).
- A food crisis is looming (Monday) as the wheat price keeps climbing due to the fact that the war is going to disrupt supply (Friday) as, combined, Russia and Ukraine account for 12% of total calories traded in the world. The fact that Ukrainian farmers won’t be able to plant now would imply that the shortage will continue for some time yet. Also, the price of fertiliser is going to rise with energy prices (Tuesday) as producers including CF Industries and Yara International look like they are going to double their prices. This will push food prices up as well.
- There’s a shortage of building materials (Monday) as rising energy costs are leading to an increase production costs, which is hitting small and medium-sized companies particularly hard.
- Russian airlines have been decimated due to sanctions (Monday) and Russian flag-carrier Aeroflot is seeing years of progress just evaporate (Friday). Talking about aviation, jet leasing firms are facing a massive $10bn hit (Friday) because they can’t get their planes out of Russia. The Russians are changing the law making it illegal to hand back any aircraft. More broadly, all airlines are facing difficulties (Thursday) as a combination of rising fuel prices and the inability to fly over Russian airspace (which makes routes longer) is going to make fares more expensive and/or reduce their margins.
- Russia’s second biggest bank, VTB, is preparing to pull out of Europe (Monday), not long after its larger rival Sberbank did the same. Mind you, domestic business is likely to suffer (Wednesday) as customers withdraw their savings.
- Nickel prices shot up (as I said above), which prompted concerns that electric cars are going to get more expensive (Tuesday), as nickel is important for batteries, which are generally the costliest part of an EV.
PRESSSURES CONTINUE TO SQUEEZE THE UK CONSUMER...
- House prices rose at the fastest rate for 15 years (Tuesday), according to the latest Halifax figures but many homeowners have decided to spend to extend (Tuesday) if the number of applications for extensions and home improvements were anything to go by. It’s going to cost you more to console yourself with a Greggs sausage roll because of rising wheat prices (Wednesday) and you won’t be able to binge-watch your blues away without shelling out more money as Netflix is increasing its subscription prices (Friday).
- Despite all the pressures, the latest Barclaycard data is showing that consumption increased last month (Tuesday) as offices opened up, but it is possible that we’re just spending on the same amount of stuff – but we’re just paying more for it!
THERE WERE SOME INTERESTING M&A DEVELOPMENTS THIS WEEK...
- Orange and MasMovil are in exclusive talks to combine in a €19.6bn deal (Wednesday) which, if it went ahead, would leapfrog them over Vodafone into second biggest telecoms company in Spain behind Telefónica.
- Google bought cybersecurity company Mondiant for $5.4bn (Wednesday) in an all-cash acquisition that will really help Google close the gap with big rivals Microsoft’s Azure and Amazon’s AWS.
- China seems to be limbering up for some Russian bargains (Wednesday) as the rouble continues to plummet and more companies suffer with sanctions.
- Back home, it turns out that Stagecoach has ditched National Express’s all-shares offer (Thursday) for an all-cash offer from German investor DWS. Given the founders of Stagecoach are keen to leave, it’s hardly surprising that they are inclined to accept a higher all-cash offer. It will also get less regulatory hassle given that DWS isn’t a transport company! It was also interesting to hear that the prospects for M&A in the UK are looking up (Monday) according to a survey by UK broker Numis. This was especially interesting to hear given that Peel Hunt said only recently that deal flow had been slowing down.
IN OTHER NEWS...
- TikTok is having a tough time at the moment (Monday) because although the platform is very popular for sharing Ukrainian-related videos, there has been a huge proliferation of false/fake news. This will no doubt lead to more calls for increased content moderation.
- ESG investment may change due to the Russian invasion of Ukraine (Thursday) because a lot of ESG funds have shunned defence companies because they make weapons/fighter jets etc. but there is now a growing argument that they should be included – and that by avoiding investment, the companies themselves have lost out. Many governments have already committed to spend more on defence budgets because of Putin’s actions, so spending on defence-related equipment is bound to rise exponentially.
- Toyota’s truck arm, Hino, lied about emissions tests (Tuesday), which prompted an investigation. Its share price fell by a chunky 17%, its biggest one-day drop in 20 years!
- BMW shares took a dive despite it publishing its biggest profit in its history (Friday). Sometimes the journey is more exciting than arriving at the destination!
- China’s smartphone makers are having trouble in Russia (Thursday) because the weakening rouble means that companies like Huawei, Oppo and Xiaomi are having to raise their prices constantly. Shipments have been cut for now.
AND IN UPDATES FOR WATSON'S YEARLY...
- 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” stories of this week were the weirdly cheesy A self-driving car that delivers ramen is Nissan’s newest automotive innovation (SoraNews24, Casey Baseel) and, of course, the secret to fluffy towels in Mrs Hinch fans swear by £1.50 hack to get old towels feeling ‘softest they’ve ever been’ (The Mirror, Courtney Pochin).