Watson’s Weekly 12-11-2022

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.

US inflation slowed down, crypto exchange FTX went belly-up and China’s zero-Covid policy continued to have repercussions…

• IN THE US – midterm elections went better for Biden than had been predicted (Thursday) and markets were relieved when figures showed that the US inflation growth rate slowed down a bit (Friday).
• IN CHINA – exports shrank (Tuesday) as China’s zero-Covid policy restricted output. Although shenanigans at a major Foxconn factory that supplies Apple have been grabbing the headlines (Tuesday), it’s likely that other manufacturers will also be experiencing the same problem of disgruntled and frustrated workers. As for Foxconn itself, the Taiwanese tech giant said that is committed to investing in China (Friday) despite current problems. And it’s not just manufacturers who will be affected either – cruise lines have already pulled out and are looking at a recovery in 2024 (Tuesday) as they have to plan at least a year in advance. Given that even “cruises-to-nowhere” have also been banned, cruise lines are giving up for now – which is not ideal given that the Asia-Pacific region had accounted for up to 20% of major cruise lines’ global revenues pre-2019.
• IN THE UK – there’s a lot of speculation now about what Jeremy Hunt is going to put in next week’s Autumn Statement. The new Chancellor is rumoured to be looking at a stealth raid on inheritance tax (Tuesday), but I think I’ll wait to hear what the actual statement says next week. Surely there will be more of a raid on the more affluent.

IN ENERGY NEWS…

• It looks like Germany is on course to avoid gas rationing this winter (Friday) as consumption has fallen and a relatively warm couple of months has meant that it hasn’t had to dip into its reserves. This can, of course, change if there is a cold snap but it looks OK for now.
• Rolls-Royce outlined more detailed plans for the rollout of its Small Modular Reactors (Thursday) as it had identified four initial sites and the need for 30 in total to meet around 20% of the UK’s power needs.

I thought it was also worth mentioning that shipping companies are looking likely to pull capacity (Wednesday) in order to arrest the slide in freight rates. The BDI has been weakening and companies like Maersk have been seeing a slowdown in activity as demand recedes and supply chain bottlenecks un-clog.

IN CRYPTO NEWS…

• FTX ended up filing for Chapter 11 bankruptcy right at the end of the week, but it all started out with news that Binance was going to buy FTX (Wednesday), then Binance walked away after doing a bit of due diligence (Thursday), which hit bitcoin (and other cryptocurrencies) and prompted one of FTX’s major investors to write-down its $214m investment to ZERO (Friday)! All of this drama is likely to take the shine off cryptocurrencies for at least the short term and one analyst reckoned that bitcoin will lose 25% in a matter of weeks (Friday).
• Another crypto exchange, this time Coinbase, got into trouble with regulators this week. Coinbase was censured by Germany’s financial watchdog, BaFin (Wednesday) for not having a “proper” business structure in place and that its German operations had “organisational deficiencies”. Given the current climate, you’d think that crypto platforms are all going to have to play nice with the regulators or they will just fail – like FTX and others.

• Meta cut 13% of its workforce (Thursday) to combat slowing revenue growth and the difficult economic conditions. Cuts were particularly deep in its recruitment division. Zuckerberg is pouring tons of money into the metaverse. Investors keep whinging, but there’s nothing they can do as he has the majority of the voting rights. Given the troubles that Swiss wealth managers UBS and Julius Baer have had experimenting with holding client meetings in the metaverse (Monday), it sounds like he’s going to have to throw a lot of money at it to make it even halfway decent.
• TikTok said that it was overhauling its US business in response to the advertising slump it’s experiencing (Wednesday) and it actually cut global revenue targets by at least $2bn for the full year (Thursday). I think it’s giving itself some wiggle room before expanding its offering, which will no doubt soak up a lot of money. As I’ve said before, it’s looking at providing other content in music and gaming, for instance.
• The drama continues at a Musk-led Twitter! Twitter said that user growth had picked up since Musk took over (Wednesday) but there were a few hiccups as well this week as Twitter asked some sacked staff to come back (Monday) when it realised it needed them after all 🤣 and Twitter ditched the grey “official” checkmark just hours after launching it (Thursday) 🤦‍♀️. Musk said “please note that Twitter will do lots of dumb things in the coming months”, so it sounds like we are in for some corkers…
• An app called Mastodon is where some disgruntled Twitter users are going now (Thursday) but although there are some similarities, there are some major differences and Twitter is obviously on another planet scale-wise. Some said that Signal could have been the Next Big Thing when WhatsApp altered its privacy policy, but nine months on things haven’t really changed – and it’s thought the same could happen with Mastodon.

• It was bad news for the likes of FanDuel, DraftKings and BetMGM in America as the state of California has rejected a bid to overturn the ban on sports gambling (Thursday). This is a big deal because there are so many sports teams in a state with an economy that is roughly the size of Germany. Flutter Entertainment is the Irish gambling company that owns FanDuel and this development is a real blow as sports betting in America has been a growth business since it has been legalised in a number of states over the last few years.
• IN RESTAURANT AND PUB NEWS – Loungers (which owns Cosy Club) is going to launch a new diner brand (Monday) called Brightside. It will offer “comfort food-style dishes…in nostalgic surroundings” and sounds like a great idea, particularly if you had positive memories of places like Little Chef and Happy Eater back in the day! Domino’s orders are dropping (Friday) but there’s hope yet with the World Cup just around the corner! Young’s is doing well (Friday) as thirsty workers and tourists are powering solid trading at the pub chain but trading at Wetherspoon’s is slowing down (Thursday), no doubt a factor in why it’s reducing the size of its pub estate by 39 outlets.
• IN TRAVEL NEWS – Ryanair posted booming half-year profits (Tuesday) after a strong summer and is pretty bullish about its prospects for next year. This is particularly impressive when you consider that the likes of Lufthansa, IAG and Air France are all cutting capacity.
• IN RETAIL NEWS – online furniture seller Made.com called in the administrators (Monday), got a bid from one of its co-founders rejected (Tuesday) only for Next to buy it on the cheap for £3.4m (Thursday). It bought the brand, domain name and IP but still let the staff go. IN APPAREL RETAIL, Primark is thinking about shutting down stores in Germany (Wednesday) as profitability has fallen to “an unacceptably low level”, Joules is in talks with its founder to get a cash injection (Tuesday) whilst also considering a CVA. Meanwhile, two UK high street stalwarts had contrasting fortunes as M&S saw profits plunge by 24% (Thursday) thanks to tricky times for its Ocado JV and WH Smith reported sales at a 14-year high (Friday) thanks to the post-pandemic travel boom. IN GROCERY RETAIL, UK food price inflation hit a 14-year high in October (Wednesday) while Aldi and Lidl go from strength to strength (Wednesday) thanks to increasingly budget-conscious customers as B&M reported weaker sales (Friday), which I found surprising given that they are at the budget end of the spectrum and should do well in current economic circumstances. IN US RETAIL NEWS, Amazon said it would be cutting costs (Friday) as it unveiled a new warehouse robot (Friday) that would further automate processes. Gap said that it would be selling its apparel on Amazon in North America (Friday) and Ralph Lauren put in an expectation-beating performance (Friday) thanks to wealthy customers continuing to be insulated from the cost-of-living crisis.

• IN RESIDENTIAL PROPERTY – while stamp duty receipts hit record highs (Monday), home repossessions are set to double (Friday), according to the latest figures from the Ministry of Justice. However, house prices are falling at their fastest pace in almost two years (Tuesday) and the threat of negative equity approaches (Tuesday). Housebuilder Persimmon reported falling sales and prices (Wednesday) and cancellation rates are also on the rise.
• IN COMMERCIAL PROPERTY – high energy bills have pushed UK businesses to rethink how they use their offices (Tuesday) as some are consolidating their spaces to save money while developer Hammerson has benefited from consumers returning to shops (Wednesday), which is good news for the company’s retail-focused client base.

• Renault mapped out its future (Wednesday), saying that it would split itself into five divisions and deepen its partnership with Geely. It would then potentially float off its Alpine and new EV divisions.
• British electric van start-up Arrival announced delays to its first working prototype (Monday) and then saw its share price crumble by a third after warning that it might run out of cash (Wednesday).
• Foxconn announced plans to invest $170m in EV truckmaker Lordstown Motors (Tuesday) and jointly develop an EV.
• Lucid said it planned to raise up to $1.5bn on share sales (Wednesday) as yet another start-up EV company just continues to burn through cash.
• In an ironic twist, Lithium groups Green Lithium and Altium Metals announced plans to build facilities in Teeside (Tuesday) just when the future of EV battery manufacturer Britishvolt’s future hangs in the balance.

• IN EMPLOYMENT TRENDS, middle managers in America are losing their jobs (Wednesday) in a “white-collar recession” that could well make it over here as middle managers are more expensive to employ while many workers for “blue-collar” jobs are still in short supply. Also, although there have been mass layoffs in Big Tech there is still big demand for tech workers (Thursday) in a number of industries including banks and insurers. Cue tons of new workers annoying colleagues by saying “Well, when I was at Facebook/Twitter/Google etc…”. In the UK, global law firms are scaling back hiring (Tuesday) as profits are falling rapidly due to higher costs and a lack of M&A and IPO action.
• IN MEDIA NEWS, Disney losses more than doubled despite strong subscriber growth (Wednesday) because of the amount of money being invested in films and TV, Amazon boosted its Prime offering by making a big expansion of its music catalogue (Monday) and ITV is bracing itself for an ad slump (Thursday) despite a World Cup boost. On the plus side, it’s about to launch its new streaming service ITVX, which will combine ITV Hub and BritBox with a load of new shows.
• IN INDIVIDUAL COMPANY NEWS, Walgreens Boots Alliance agreed to buy private equity-backed Summit Health (Tuesday) in a deal worth about $9bn to boost its capabilities into medical care. It was also interesting to see that former vaping king Juul Labs got a cash bailout and sacked about a third of its staff (Friday) to stave off bankruptcy. How the mighty fall!

• 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! 

This week, there was one clear winner for the best video of the week – it was the one of the baby in training!