Watson’s Weekly 17-07-2021

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 CHINA, exports shot up by 32.2% in June vs the previous year (Wednesday), way above expectations of 23% – a good sign, as China is seen as being the world’s factory. China’s GDP growth rate slowed down (Thursday) but was in line with expectations given that Q1’s growth rate of 18% was clearly unsustainable!
• Meanwhile, inflation chat continues to stay high on the agenda given that US inflation rose at the fastest rate since August 2008 (Wednesday), up by 5.4% vs consensus of 4.9%. Pressure continues to mount on Fed Chair Jerome Powell, but it’s also getting more intense on Bank of England governor Andrew Bailey as his deputy touted a year-end inflation level 33% higher than the official target (Thursday) – and that was shortly followed by one of the members of MPC saying that UK monetary policy needs to be tightened (Friday).

• The Great Tech Clampdown of China continues as Chinese authorities want to impose checks on overseas listings (Monday) as the Cyberspace Administration of China announced that Chinese companies that have over one million users will have to pass a security review before listing! This is going to mean that the vast majority of tech companies with overseas listing ambitions are going to face a huge bottleneck! Newly-listed ride-hailer Didi has already felt CAC’s wrath and is currently under investigation, a situation that rivals including Caocao, T3 Chuxing and Meituan are all trying to exploit (Wednesday)
• As if that wasn’t hard enough, the Chinese government’s new guidelines say that key industries like telecoms are going to have to spend at least 10% of their IT budgets on cyber security over the next two years (Thursday), so domestic players like Venustech and Nsfocus Technologies could potentially close the valuation gap on their American equivalents Fortinet and Palo Alto Networks. Cyber security is a hot area elsewhere – the UK’s Darktrace has seen its share price double since it listed in April (Friday) and London-listed Avast is seeing takeover interest from Norton (Friday) at a level that many think is likely to attract competing bids.
• Google was fined €500m by the French regulator (Wednesday) for violating an order to agree licensing deals with publishers. It now has two months to come up with a solution or face a fine of up to €900,000 a day.

• Household savings were up during lockdown (Monday) but they weren’t evenly spread as the richest 20% of households were four times more likely to have saved more under lockdown than the poorest 20% (but that really should be no surprise because it is waaaaay easier to make money if you’ve got money, no?). The middle classes were among the biggest winners because they were most exposed to rising property prices.
• In jobs, the latest ONS figures showed that Britain had nigh on one million job vacancies last month (Friday), powered by the shortage of delivery drivers, hospitality staff, agricultural workers, care workers etc. – which has led to higher pay rates in these areas (Monday). The shortage of workers in areas like hospitality is being made worse by increasing numbers of people being pinged by the NHS app (Friday) but recruiter Hays is pretty optimistic about the jobs market generally (Friday) although it warned of wage inflation. Confusion and frustration resulted from BoJo’s newly announced guidelines (Wednesday) but you can understand why neither side wants to take responsibility (if the government provides clear guidelines it will get sued if people get Covid, but if they leave it to businesses they will get sued instead). Magic Circle law firm Slaughter & May is providing a number of working options for its staff (Wednesday), but I think they are ultimately doomed to failure IMO because working conditions are often more of a reflection of what their clients expect rather than what they do themselves.
• SO HOW ARE WE SPENDING ALL THIS MONEY?? Barclaycard figures say that we spent 38% more at pubs during the Euros footy tournament (Tuesday) and because more bars, cafés and restaurants have been opening up Pepsi increased its full-year forecasts (Wednesday). The uptick in leisure travel is emboldening some – as Ryanair announced it was going to be hiring 2,000 new pilots over the next 3 years (Tuesday) and Center Parcs announced it was going to be developing a new UK site (Tuesday), presumably to take advantage of the uptick in staycations.
• As for retailers themselves, the latest BRC figures show that UK retail sales rose at the fastest rate in Q2 since at least 1995 (Tuesday) due to lockdown lifting, England at the Euros and general joy! Another sign that retail is recovering is that landlord British Land said that it is collecting more rent from more of its retail tenants (Wednesday). In terms of individual retailers, Kingfisher – the owner of B&Q and Screwfix – upped its guidance for the full year (Thursday) as the DIY wave continues, Topshop is to return to physical stores in the US (Tuesday) thanks to a deal between “new” owner Asos and Nordstrom but then Superdrug announced just how bad the previous year has been (Tuesday) and the John Lewis Partnership announced 1,000 job losses (Thursday) as part of its cost-cutting plan.
• In real estate, estate agent Knight Frank said that house sales were down 60% below average last month (Monday) as the end of the stamp duty holiday looms but then Bank of England figures said that house prices were still going up (Thursday). I think we’ll soon reach a point where sales will dry up as the stamp duty holiday ends and activity slows down overall as everyone waits to see what the effect the end of furlough will have. I think that if the expected sudden spike in unemployment doesn’t happen (of if it’s not as bad as everyone is expecting) the housing market could get a second wind. On the commercial property side of things, Blackstone appears to be shifting the weighting of its portfolio (Monday, Friday) and there’s particularly strong demand for drive-throughs in the UK (Monday), which I think is a bit puzzling because I just don’t think they make much sense in the UK. They take up too much room and if you get that “McDonald’s Feeling”, you either go there or get it delivered – why would you get in the car and get it? I think that standalone doesn’t make sense – but if it’s attached to something else (for instance what EG group will be doing with Leon restaurants), it may do OK. But that’s just my opinion!

• It was reporting week for US banks this week – and Goldman Sachs, JP Morgan (Wednesday), Bank of America, Citigroup, Wells Fargo (Thursday) and Morgan Stanley (Friday) pretty much all saw trading levels slow down but advisory fees on M&A and IPOs go up strongly. Investment manager Vanguard made its first ever acquisition (Wednesday) in order to broaden its product expertise. Elsewhere, it was really interesting to see that Apple is teaming up with Goldman Sachs to provide a “Buy Now, Pay Later” service (Thursday), which should get Klarna worried.
• In the UK, insurance company Admiral said that it expected higher profits as claims were really low under lockdown (Tuesday), Revolut got a fat valuation in its latest funding round (Friday), and the Bank of England announced that it is now going to allow shareholder payouts (Wednesday) because it feels that the UK’s biggest lenders are resilient enough to economic risks to resume such actions. This follows similar moves in the US and Europe.

• There was some particularly good news this week for automakers because TSMC said that we’ve now passed the worst of the semiconductor shortage (Friday) and that supplies will be rising. It was also interesting to see that Intel is thinking about making an approach to specialist chip manufacturer GlobalFoundries (Friday) in a bid to broaden its chipmaking expertise and production capacity.

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

My favourite “alternative” story this week was a toss-up between the controversial Domino’s apologises after creating a pizza that ‘insults both Italy and England’ (The Mirror, Rosaleen Fenton) and the hilarious Teacher left in stitches after asking kids to share one thing she should know about them (The Mirror, Courtney Pochin). See you next week!