Watson’s Weekly 14 -10-2023

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 COLOURED HIGHLIGHT 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 was the week where Hamas shocked Israel, Country Garden fell in the danger zone (again) and Birkenstock’s IPO underwhelmed…

• HAMAS STRUCK THE HEART OF ISRAEL – Hamas launched a multi-faceted attack from the Gaza strip and stormed Israel by land, air and sea. Israel imposed a “complete siege” on Gaza in retaliation. Other news and media outlets will cover this better than I can, but in terms of economic/market impact, oil and gas prices surged, as did the share prices of defence companies like BAE Systems.
• IN THE US – inflation remained unchanged at 3.7% for September, which was higher than the market had been expecting. This means that there will be more pressure on the Fed to increase interest rates further but then one of the senior officials hinted that interest rates had actually peaked, which sent markets higher.
• IN THE UK – the IMF published its latest forecasts, which said that UK interest rates are going to remain higher for longer, but let’s face it – the IMF have been pretty rubbish at their predictions with the UK, perennially underestimating us! Then we saw data published by the ONS which showed that the UK returned to growth in August, making it look more likely that we’ll avoid recession again. That said, our GDP growth is pretty anaemic currently.

IN COMMODITIES NEWS…

• OPEC increased its oil demand forecasts as it expects strong demand from India, China and other Asian countries over the next two decades, with much of the growth coming this decade.
• ExxonMobil put in an offer to buy Pioneer in a $60bn deal that will be the biggest oil and gas deal since the late 90s! This is a huge bet on US oil production and will cement its status as the major player in the US fracking industry.
• France’s Total signed a massive LNG supply deal with Qatar. It is one of the longest deals of this type ever signed and the deliveries (for an undisclosed price) from Qatar to France will continue until 2053!

IN RENEWABLES NEWS…

• The world’s largest offshore windfarm project, called Dogger Bank, off the coast of Yorkshire started to power the UK grid. When fully up to speed, it will produce enough power for 6m homes a year by the time it is complete in 2026.

IN BUSINESS TRENDS…

• There’s talk now of another EU anti-subsidy probe into Chinese companies – this time for steelmakers! The EU vendetta against Chinese companies continues after recent rumblings in the automotive and domestic appliance industries. This time, they are joining forces with Washington (presumably because the US is threatening the EU with the reimposition of tariffs on EU steel if they don’t play ball!) as Biden is keen not to lose the vote of US steelworkers in next year’s election. Mind you, Chinese EV suppliers are finding ways to skirt existing sanctions by investing heavily in companies in “free trade” countries such as South Korea. I have no doubt that this is a massive loophole that Biden’s opponents will exploit if he doesn’t close it himself!
• Talking of EVs, there was an interesting article on how the salvage business will have to evolve to cope with increasing numbers of EVs coming to scrapyards in the years to come. I think that this could be a very lucrative new business in the future and it will have high barriers to entry given the expertise and costs it will entail…
• It looks like Poland is vying to take Germany’s place as the premier manufacturing destination of Europe as it is benefiting from Western companies bringing supply chains back from Asia. One observer reckoned that Poland could be the only country in Europe – or possibly even worldwide – that has seen industrial production not only exceed pre-pandemic levels but also return to its pre-pandemic growth trend! Although it already has automotive production it’s pushing to move into higher value manufacturing and is already seeing interest from Intel and TSMC.
• It looks like the wheels are falling off the luxury trend as LVMH said that it suffered a slowdown in Q3 particularly in the US and Europe. All that post-pandemic “revenge spending” seems to be losing steam…

IN EMPLOYMENT TRENDS…

• More US law firms are pushing for employees to be in the office for at least four days a week! Hiring is slowing down, according to a BDO poll of polls, as business confidence has been hit by worries about the state of the economy. Mind you, it’ll be interesting to see what effect the recent stats about GDP growth will have on sentiment and whether this will ease concerns. I guess this is reflected in the falling number of job vacancies.
• Recruiters reported this week and it was a bit of a mixed bag. Robert Walters did OK in that it avoided another profit warning, but then again it makes 84% of its money outside the UK these days, but PageGroup warned it would not hit annual earnings targets while Hays managed to benefit from supplying temps. All of them said that client confidence has been on the wane, though, and that the recruitment process is getting longer while candidates are being more hesitant about taking up offers.

IN CONSUMER TRENDS…

• Non-alcoholic beer popularity is rising while spending at pubs and bars increased last month, according to the latest stats from Barclays.
• Consumers continue to face hurdles though as many have problems paying energy bills, something that might get worse as gas prices hit their highest level for seven months. On the plus side, food price inflation hit a 15-month low!

IN RETAIL NEWS…

• Boots’ owner, Walgreens Boots Alliance, is planning to cut $1bn of costs despite the UK business actually performing well. WBA tried and failed to sell Boots last year and there are rumours that it is under pressure to concentrate on its US business and cut out its international operations.
• In apparel retail, Next is on the verge of buying FatFace and Jigsaw is benefiting from the return-to-office trend as sales of smart attire are strong. Will there be more momentum going into Christmas in the office party season?
• Selfridges fell into loss despite a rise in sales thanks to higher debt interest costs. At least the business seems to be going in the right direction though!
• Waitrose is in talks with Amazon about a tie-up. This could be good for Waitrose, which came to the end of a long-standing partnership with Ocado a few years ago.

IN LEISURE NEWS…

• Pubs are suffering and are cutting opening hours to survive and Marston’s said it was streamlining its menu in order to cut costs.
• It was interesting to see that The Restaurant Group (owner of Wagamama) is going private after accepting a £506m takeover bid from private equity giant Apollo. Caprice Holdings (owner of The Ivy Collection, Bill’s etc) managed to turn a profit for the first time since the pandemic!
• In travel-related news, FirstGroup has had a strong summer and things are getting back on track while easyJet was confident enough to buy new planes and commit to restarting dividends after record profits over the summer.

• IN ASIA – China’s Country Garden is under the spotlight again as being in a dodgy financial position due to it expecting that “it will not be able to meet all of its offshore payment obligations…”. Given that this company had been, until recently, seen as a “safe bet” in a sector riddled with debt, the main concern now is who’s going to be next and what sort of shocks are coming next! Elsewhere, the IMF reckons that Australia has the highest level of mortgage stress in the world, which is clearly bad for consumers.
• IN THE UK – the latest RICS survey reflected UK house prices falls and this low demand is hitting companies like Travis Perkins, which had to cut its prices to shift product as a result. Meanwhile, mortgage defaults are rising at their fastest rate since 2009 as homeowners contend with higher interest rates and the Bank of England voiced concerns about the rising popularity of 35-year mortgages and their long-term impact on household finances.

IN TECH NEWS…

• Saudi Arabia’s collaboration with the Chinese has raised concerns about access to advanced chips used in the development of AI. Although China’s access to advanced chips is supposed to be subject to restrictions, its close ties with Saudi Arabia could be seen to be a rather large loophole!

IN SOCIAL MEDIA NEWS…

• Meta is about to face scrutiny on manipulated content and “deepfakes” after it refused to remove a Facebook video wrongfully describing Joe Biden as a paedophile. Separately, concerns are increasing about the risks of fake news as both Facebook and X have cut their moderator capacity in an effort to cut costs and it seems that X has already failed the Israel-Gaza test as the platform has been flooded with fake news and disinformation.

IN MEDIA NEWS…

• Disney is going to raise prices at its theme parks to mitigate the weakness in its TV and streaming business but it has also just signed a 10-year deal with sports betting company Penn Entertainment to bring gambling to Disney’s ESPN! Will this last, though??
• Netflix subscriber growth in the UK has slowed down to its lowest level since it launched in the UK a decade ago! It’s still the UK’s most popular streaming service but it clearly needs to hang onto the subscribers it already has and find ways of squeezing more money out of them!

IN BANKS NEWS…

• HSBC deepened its China ties by buying rival Citi’s wealth management business in the country for $3.6bn. This is particularly notable because many other Western businesses are going in the opposite direction and either leaving China or separating out their businesses there so as not to fall foul of current or future sanctions either by the Americans or by the Chinese as tensions continue.
• Metro Bank managed to survive thanks to a dramatic £925m rescue deal and promptly said that it would make £30m of cost savings per year from 2025, supposedly without cutting branches!

IN INVESTMENT NEWS…

• A report by the Association of Investment Companies showed that investors are getting “greenwashing” fatigue and ESG funds are continuing to see outflows.
• Odey Asset Management shut down its wealth management business following recent allegations of founder Crispin Odey’s sexual misconduct. Odey himself continues to strenuously deny all the allegations made against him, but more and more allegations are piling up.

• IN TOBACCO NEWS – Big Tobacco companies are digesting the effect of Sunak’s recent “assault” on smoking while the FDA banned the sale of Vuse Menthol e-cigarettes and the UK launched a consultation on disposable vapes as Philip Morris called for a pushback on the WHO’s “attack” on vapes.
• IN IPO NEWS – Birkenstock’s IPO was pretty disappointing after it priced at $46 a share. Maybe the IPO deluge might slow down after recent mediocre performances from those who tried to make the leap.
• IN PHARMACEUTICALS NEWS – GSK signed a massive £2.5bn shingles vaccine deal with China’s Zhifei as part of its efforts to double the global sales of its shingles vaccine by 2026. Elsewhere, Ozempic was found in trials to be effective for kidney problems – causing other companies that make products to treat kidney disease to fall! Is there anything this drug can’t do??

My favourite “alternative” video from this week was the push-up inspo one! It’s amazing how versatile push-ups can be!