Watson’s Weekly 14-01-2023

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.

Japan signs deals, UK supermarkets outperform pessimistic expectations and the M&A drought continues to have consequences…

• FROM A GLOBAL PERSPECTIVE – the World Bank cut 2023 growth forecasts (Wednesday) and said that there could be a second global recession within three years in its latest report. That is a very big range, so kind of useless but hey…
• IN THE US – Inflation growth slowed down to its lowest level in a year (Friday), showing that the interest rate hikes the Fed put through last year are taking effect. Biden is in trouble (Friday) because he left confidential documents lying around and there’s going to be an official investigation. This is ironic because he criticised Trump for doing the very same thing!
• IN JAPAN – Japan also deepened military ties with the US (Monday) which actually extended to space (Friday) to protect satellites. It also signed a defence agreement with the UK (Wednesday)
• IN EUROPE – some new data points suggest that the EU’s recession could be shallower than expected (Tuesday) as employment and factory output improved. In France, president Macron outlined plans to increase retirement age from 62 to 64 (Wednesday) but I’d imagine he has his work cut out as this is bound to be unpopular and he doesn’t have the majority to force this sort of thing through any more. In Sweden, we saw the government pushing back against pressure from Turkey (Monday) who is making Sweden’s proposed membership of NATO more problematic. Sweden also plans a new law that will aid the construction of nuclear power plants (Thursday) in ongoing efforts for European countries to wean themselves off Russian oil.
• IN THE UK – the Bank of England warned that inflation could be higher for longer (Tuesday) and we heard at the end of the week that the UK economy grew in November, making it more likely that the central bank will keep the upward pressure on interest rates. There was good and bad news for UK businesses this week re the energy support scheme (Tuesday). The government plans to give businesses energy support for longer than the initially-suggested April to extend it by a year, but the amount of support would be less.
• IN RUSSIA – war in Ukraine and sanctions against Russia seem to be taking their toll (Wednesday) as the public deficit is now higher than had originally been predicted.

IN ENERGY NEWS…

• Centrica predicts an almost-eightfold increase in earnings on higher energy prices (Friday) although the gas price has fallen recently due to unseasonably mild weather meaning that the government might not have to pay so much in energy subsidies (Monday) as it had originally thought.
• UK wind power generation hit a new high (Thursday) thanks to blustery conditions. Wind made up 46-59% of all UK electricity generation over the last week and has only dipped below 30% once in the last 11 days!

IN COMMODITIES NEWS…

• The LME/nickel review is now out (Wednesday), which highlights what went wrong last year when nickel trading was suspended on the LME for a week. The main conclusion was that the exchange should do more to monitor off-exchange positions.
• Copper and iron ore prices have been rallying (Friday) on hopes that the end of strict lockdowns in China will mean that construction demand will return as the wheels of the economy start turning faster.
• Sweden discovered the biggest deposit of rare earths in the EU (Friday), which could be a big help in the Continent’s efforts to wean itself off over-reliance on imported raw materials (the supply of which is heavily controlled by China).
• UK coal got a stay of execution (Thursday) as one of Britain’s last coal-burning power plants is going to be kept going for another two years in the ongoing move that most countries are making to diversify energy sources in the near-term.
• Saudi Arabia just launched a $15bn mining fund (Thursday) to use oil money to buy a non-oil future. The venture will buy into overseas mining assets.
• Oil prices have been rebounding (Monday) on hopes that China demand will return and analysts at UBS and the Bank of America reckon the oil price will peak at $110 per barrel this year. Meanwhile, it looks like the G7 oil cap on Russian oil is hurting Russia (Thursday) as it is potentially costing Putin £140m in lost revenues per day.

IN CRYPTO NEWS…

• We see that the US attorney for the Southern District of New York is gearing up to take on FTX founder Sam Bankman-Fried (Friday) while SBF continues to maintain that he didn’t steal funds (Friday) and even goes as far to say that it FTX had still been going he would have been able to make good on the debts.

IN “TRADITIONAL” CARS NEWS…

• Rolls-Royce had a “momentous” year (Tuesday), thanks to rich clientele personalising the **** out of their cars. It just serves to highlight the massive difference between the spending patterns of those at the top end of the socio-economic scale and those lower down.

IN EV NEWS…

• EV production looks set to slow (Wednesday), according to the latest quarterly review from The Advanced Propulsion Centre, a body that promotes a zero-emissions future for the automotive industry. It says that cars are still too expensive for most customers, especially at the moment.
• In INDIVIDUAL COMPANY NEWS, Rivian had a clearout of the executive team (Wednesday) after a disappointing 2022, Tesla got a lot of flak for cutting prices of its cars in China (Tuesday) from disgruntled existing owners, but then followed that up by announcing it would cut prices in the US (Friday), so we’ve yet to hear how that’s going to be received. In the UK, Israeli truck start-up Tevva commenced production of electric lorries (Wednesday) at its Essex plant. It aims to sell 1,000 units this year!

IN BATTERY NEWS…

• There was a ton of news on ailing would-be British EV battery manufacturer Britishvolt this week as it sought to sell a majority stake to a consortium of investors (Tuesday). An Indonesian investor emerged (Wednesday) which prompted another offer to come out of the woodwork (Thursday). Meanwhile, it was interesting to see some research from the RAC which showed that, at current prices, charging your EV at a motorway service station cost more than filling a petrol tank (Tuesday)!

IN CONSUMER TRENDS NEWS…

• Millionaires are leaving the UK (Thursday), according to research migration consultancy Henley & Partners, as they feel the attractions of living here are lessening due to having to pay more tax.
• For the rest of us, the cost-of-living crisis is resulting in more people using credit cards and cash (Thursday) to afford things and stick to budgets respectively and the tightening of household finances has meant that online retailers had their worst fall in sales since records began in 2000 (Tuesday). Things are expected to get worse and mortgage defaults are looking increasingly likely (Thursday), food prices could be higher for longer (Thursday), according to the World Economic Forum’s annual global risk report – but on the plus side, petrol prices hit their lowest level since the outbreak of the Ukraine war (Wednesday).

IN RETAIL NEWS…

• It was a big week of results for supermarkets! Sainsbury’s (Thursday), Tesco (Friday) and M&S (Friday) had a strong Christmas – and their strength just highlights a difficult potential future for Waitrose.
• In ONLINE RETAILERS, Amazon said it would close three UK warehouses (Wednesday), but net-net there would actually be more jobs; Asos said it would close warehouses and cut office space (Friday) as it continues to suffer a post-Covid hangover; Boohoo is to cut staff at its Soho office (Wednesday) but, on the other hand, Very had a very merry Christmas (Friday) as it managed to sell an air fryer every 30 seconds in the seven weeks to December 23rd!
• ELSEWHERE, Majestic Wine announced its second-biggest ever trading performance over Christmas (Wednesday) and electrical goods maker AO seems to be seeing success (Wednesday) in its “pivot to profitability”. JD Sports benefited from GenZ buying (Thursday) but Halfords announced a profit warning (Friday) as it’s still having problems finding enough staff. It was also interesting to see car dealer Lookers announcing a strong performance (Thursday), but you do wonder how long this is going to last in the current economic environment as many customers are going to be thinking particularly hard about buying big ticket items like cars. Pent-up demand won’t last forever and current circumstances are a perfect excuse for consumers to keep driving their existing cars before switching to electric IMO.

IN EMPLOYMENT NEWS…

• White-collar recruiter Robert Walters says that there’s a slowdown in global hiring (Wednesday) while the US tech layoffs continue (Monday). Disney is getting workers to return to the office four days a week (Tuesday) as the new/old CEO cracks the whip and think-tank IFS talks about the damage that disrupted education and recession could have on current grads (Wednesday), although I’d argue that this may make them more resilient in the longer term!

IN RESIDENTIAL REAL ESTATE NEWS…

• There’s a ticking timebomb for the UK’s middle earners (Monday) who will be coming off fixed rates in the coming months to face major increases in mortgage payments, first-time buyers are now spending a whopping 40% of their salary on mortgage payments (Friday) and it’ll get even harder to rent as the Bank of England wants to crack down on buy-to-let mortgages (Wednesday). Meanwhile, posh estate agent Savills is seeing a buoyant top end of the market (Friday) but it sounds like developers are not very confident about the outlook as Barratt said it may well build fewer houses if the market doesn’t improve from here (Thursday) and Persimmon said that its would be slowing the pace of building properties (Friday) as it has been hit particularly hard by the end of Help To Buy, the rise in interest rates and the mini-Budget debacle of last year.

IN COMMERCIAL PROPERTY NEWS…

• The number of commercial property deals has fallen to its lowest level in over ten years (Thursday), but that might have something to do with landlords being hit by falling property values (Tuesday). In the meantime, TV and film studios got a nasty shock (Thursday) as the Valuation Office Agency’s most recent assessments of rateable value will mean they have to pay massive increases in property taxes.

IN BANKS & INSURANCE NEWS…

• US banks are facing the possible end of the rate rise cycle (Wednesday), meaning that earnings may be near their peak because they tend to make higher profits when interest rates are high, but US investment bank Goldman Sachs announced it was cutting over 3,000 jobs (Wednesday) as the number of deals has just dried up. This was actually reflected elsewhere as research showed that US lawyers’ billable hours his a new low point (Wednesday). They would obviously be much higher if there were deals knocking around! Interestingly, some Chinese banks are trying to attract customers by offering foreign mRNA Covid vaccines (Wednesday) if they deposit a certain amount of money! In INSURANCE news, Direct Line scrapped the dividend (Thursday) as its Q4 performance was badly hit as the sudden cold weather snap resulted in a spike in claims.

IN OTHER FINANCE NEWS…

• Personal investing platform Vanguard continues to do well (Monday) as money just flows in to its no-frills fund while co-founder of Hargreaves Lansdown, Peter Hargreaves, is tearing his hair out about Hargreaves Lansdown’s disappointing performance (Monday) and is calling for a culling of 50% of the workforce!
• Elsewhere, accountancy giant EY said it was putting aside $2.5bn to invest (Monday) after it splits its audit and consultancy business. This is a chunk of change and I think it could be used to buy struggling specialist businesses, e.g. law firms or M&A boutiques that may benefit from access to the bigger balance sheet a company like EY can provide.

• TSMC outlined a cautious outlook for semiconductors (Friday) although it did report strong financial earnings. It said that it thought there would be a downturn in the industry, potentially exacerbated by falling PC sales. Still, it is continuing with its global expansion and I think that demand will be underpinned by rising demand from the automotive sector in the coming years as more people buy electric cars.
• Apple hired workers in India in preparations to open its first flagship stores (Monday). Things are looking exciting for Apple in India, the world’s second biggest smartphone market.
• There seems to be contrasting fortunes in satellites as OneWeb closed its site in Alaska (Monday) while SpaceX announced it would be increasing the number of launches (Monday).

• AstraZeneca bought biotech company CinCor in a $1.8bn deal (Tuesday) as it wants to expand its pipeline of heart and kidney drugs.
• HBO Max increased prices of its ad-free subscription by $1 a month (Friday) from $14.99 to $15.99 in what will be its first price increase since May 2020. I guess this will just make the offering more differentiated from its ad-supported membership.

• 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 the one about the bizarre tourism video to big up Kagoshima in Japan in Kagoshima City releases catchy promotional video with weird dancing, bushy eyebrows, no pants (SoraNews24, Dale Roll)! It’s unlike any tourism video I’ve ever seen 🤣🤣🤣 – and yes, that is “pants” in the American sense of the word 👍