Watson’s Weekly 16-10-2021

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 MACRO NEWS…

• US inflation rose higher than market expectations (Thursday), reaching levels seen over the summer, which were themselves the highest for 10 years! Grocery prices were a major driver.
• There was a lot of talk about the UK interest rate rising earlier than had previously been flagged (Monday) as an MPC member hinted over the weekend that the market is right to be pricing in an interest rate increase THIS year, (Tuesday). Then we heard that members of the MPC were banned from talking to outsiders (Thursday) as there were rumours that one let slip that interest rates weren’t going to rise in the November meeting (Thursday). Later in the week, there were reports that other members of the MPC were cautioning against raising the rate too early, so it sounds to me like the Bank of England is indirectly telling the market that there will be an interest rate increase at the December meeting, unless something drastic happens! Against that backdrop, the IMF downgraded its forecasts on the UK economy (Wednesday) in its latest World Economic Report, saying that rampant inflation is going to hamper our recovery.
• Germany continues to lose confidence (Wednesday) as the latest ZEW Institute’s future expectations indicator survey is at its lowest level since last spring. This is just the latest survey to reflect doom and gloom in Europe’s biggest economy.
• Vietnam’s recovery falters (Thursday) because it had a severe lockdown and its migrant population went home and are having difficulties coming back because they don’t have the money, transport or Covid vaccination papers.

In COMMODITIES NEWS…

• Coal is bouncing back (Thursday) according to a report by the IEA which says CO2 emissions are on track to hit their highest ever annual increase. Countries are increasingly relying on coal-fired power generation to meet the sudden rise in energy usage. Also the fact that China is ramping up imports of coal and natural gas (Thursday) is sure to keep commodity prices high.
• The oil price looks like it’s staying stronger for longer (Monday) because OPEC didn’t increase production recently and now some sectors trying to replace gas with oil. WTI prices hit new highs at $82 a barrel (Tuesday). In the meantime, shale oil producers are facing higher costs (Friday), which means that they need a higher oil price to be profitable.
• Aluminium and zinc prices hit new highs (Thursday) because aluminium is VERY energy intensive and has now reached highest level for 13 years while Zinc prices set to go higher because Zinc smelter Nyrstar plans to cut European output by 50% due to rising energy prices.

In CRYPTOCURRENCY NEWS…

• The US is now bigger than China on bitcoin mining (Thursday), which is hardly surprising considering that cryptocurrency has been subject to recent crackdowns (and the fact that China is going to be launching a digital version of its currency at next year’s Winter Olympics). The US is now the world’s biggest bitcoin mining hub! Meanwhile, Bitfury Group is looking at flotation within the next 12 months (Monday) and if it went ahead, it would be the biggest ever listing for a European cryptocurrency company.
• Coinbase wants to launch an NFT market place (Wednesday), which will be based initially on the ethereum blockchain.

• Felixstowe featured a lot in this week’s news! The week started off with news that the backlog at the Port of Felixstowe is getting pretty bad (Tuesday), to the extent that Maersk is telling ships to avoid it (Wednesday) and it looks like UK problems at ports are set to continue (Thursday).
• Over in the US, President Biden has changed the rules to allow the Port of Los Angeles to remain open 24/7 (Thursday), but it’s not a given that his approach is going to work (Friday) because the whole of supply chain needs to be addressed for everything to get back on kilter. In the meantime, some big US retailers are now so desperate that they are chartering their own ships (Monday) in order to avoid having empty shelves.
• In terms of the ongoing effects of supply chain problems, warehouse space is at a premium (Friday) as everyone wants to store more and there’s bad news for pigs as visas are going to be granted for overseas butchers (Friday) to carve them up. There has been a shortage of slaughterhouse workers which has caused a backlog on farms, so this may go some way to easing the pressure on this bit of the supply chain.

• Car and home sales fell in China (Wednesday) because the shortage of semiconductors has hit car sales and China’s crackdown on debt has made people twitchier about getting caught up in developers with dodgy finances.
• UK consumers are not feeling so confident (Tuesday) according to latest BRC/KPMG survey and it seems that, according to the latest Barclaycard data that we’re spending on groceries and fuel. Given the prospect that food costs are set to rise (Thursday), food producers are already indulging in shrinkflation (Tuesday) and Christmas dinner looks like it’s to be more expensive (Tuesday) because CO2 producers will be able to increase prices soon, you can understand the concern. If you add into that mix that utilities companies are getting sneaky with direct debits (Friday), you have a recipe for a meaningful tightening of household finances. FWIW, I think that, despite this, everyone is going to be focused on having a decent Christmas because we had it taken away at the last minute in 2020 and they will be willing to spend more on Buy Now, Pay Later and on credit cards to have that. Q1 next year could be a bit tricky, though, in my opinion. However, if unemployment doesn’t rise as much as economists are projecting I think that there is a possibility that confidence could bounce back quite quickly.
• In real estate, house prices are picking up again (Thursday) due to there being a shortage of supply, buy-to-let has been slowing down (Monday) which is contributing to rents going up (Wednesday). Mortgage rates are set to go higher (Monday) and if you’re thinking of feathering your own nest, there’s bad news because home renovations are getting pricier (Tuesday). Further afield, Evergrande is prompting concerns of further defaults (Monday) and it missed another interest payment (Tuesday). The drama continues…

• France wants more nuclear power (Wednesday) in a reversal of Macron’s initial intentions when he came to power. He cites recent experience of shortages in power being due to the unpredictability of renewables (plus he’s probably talking his own book here because France is big in nuclear power).
• LG Chem compensates GM (Wednesday), which I think is a big deal because you would normally expect LG chem to put up more of a fight for its batteries, which were alleged to have caused fires in the Chevrolet Bolt, which then resulted in a massive recall. I think that the fact that LG Chem decided to foot the bill is a major admission on its part…
• Pod Point to list in London (Tuesday), which you can understand because it will obviously want to take advantage of the fact that it is the market leader in the UK in the provision of EV home-charging kit. It is still loss-making, though!
• It was interesting to see that LinkedIn shut down in China (Friday), but I don’t think anyone will be surprised. There aren’t any more big US social media companies left in China now!

• Watson’s Yearly updates: These will be left until the next edition of Watson’s Yearly that will be published shortly

You are going to think that I have gone soft but my favourite “alternative” story this week was Mum ‘lost for words’ by Morrison worker’s act of kindness after food shortages (The Mirror, Rosaleen Fenton and Fatima Aziz). It’s just nice to have your faith in humanity restored every once in a while!