Watson’s Weekly 17-09-2022

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.

Energy chat intensifies, the UK’s gearing up for a mini-budget and Big Tech faces further pressure…

• IN THE US – the monthly inflation figure came in higher than expected (Wednesday) at 8.3% for August. Although this was lower than the 40-year high of 9.1% for June, it’s still high and increases the likelihood of more interest rate hikes.
• IN THE UK – Kwasi Kwarteng told the Treasury to focus “entirely on growth” (Tuesday), so it’ll be interesting to see what comes in when he announces the new mini-Budget. Something needs to be done given that GDP growth stagnated (Tuesday) although at least it did just about grow (0.2%) and inflation did ease a bit (Thursday) to 9.9% thanks to lower petrol prices. On another note, it was interesting to see that India overtook the UK to have the world’s fifth biggest economy (Monday) and is on course to overtake both Japan and Germany by 2030!
• IN RUSSIA-RELATED DEVELOPMENTS – Russia’s budget surplus disappeared (Tuesday) thanks to shrinking energy revenues, particularly over August. Putin met President Xi Jinping and even acknowledged China’s “concerns” over Ukraine (Friday), but obviously this is all just hot air at the moment.
• IN OTHER MACRO DEVELOPMENTS – Sweden got a new PM (Friday) and Nigeria’s inflation hit its highest level for 17 years (Friday).

In this week’s ENERGY CHAT…

• European ministers came up with an energy plan (Thursday) that included €140bn in windfall taxes and power usage targets. Details continues to emerge.
• UK PM Liz Truss is coming under increasing pressure by businesses (Monday) to give more clarity beyond the six months the government committed to help with energy. UK banks are to conduct energy crisis stress tests (Tuesday) which will see how well they could cope with the combination of a deep economic recession, rising energy bills and defaults. However things work out, it is likely that there will be an energy-related regulatory overhaul (Tuesday) as something similar happened in the aftermath of the financial crisis.
• IN OIL NEWS – Shell’s CEO Ben van Beurden stepped down (Friday), to be replaced by the current head of renewables. Many take this as signalling a new direction.

• UK unemployment hit a 48-year low (Wednesday) but real wages continued to fall (Wednesday), according to the latest ONS figures, as the effect of inflation continues to hit.
• There was a lot of talk this week about scrapping the bonus cap that was imposed by European legislation in 2014. This was designed to put an upper limit on what bankers could earn in terms of multiples of their basic salary in order to encourage them to do the “right” thing rather than chase the bonus. Chancellor Kwarteng edged closer towards scrapping it (Thursday) and this even got the blessing of the Bank of England (Friday). This comes at quite an interesting time as Wall Street jobs are hot again (Tuesday) as jobs in tech and crypto are losing their lustre. I suspect that, if the cap comes in, investment banks will use it (and the current economic backdrop) as an excuse to cut basic salaries (“don’t complain – didn’t you know there’s a recession out there?!?) and hype up the “unlimited” upside of potential bonuses. I really do think this will mean that the best people (at least from Europe) will want to come to work in the UK and have a go at earning much more money…

• Consumers continue to face challenges. Food prices rose by their fastest rate since 2008 (Thursday) with some dairy products being 40% more expensive in August than they were last year and meat prices up by 20% over the same time period.
• IN APPAREL RETAILER NEWS – Zara-owner Inditex reported very strong profits for the first half (Thursday) but rival H&M faltered (Friday) and the UK’s Joules saw its share price crater by almost 50% (Wednesday) as Next decided not to give it a £15m cash injection. Further afield, it turns out that Chinese online behemoth Shein has plans to expand operations in the US (Friday).
• IN GROCERY RETAILER NEWS – Aldi overtook Morrisons to become the UK’s #4 supermarket (Wednesday) while Ocado braced itself for its first ever fall in sales (Wednesday).
• IN GENERAL RETAILER NEWS – John Lewis reported a horrible first half (Friday) as middle classes continued to feel the pinch and THG also suffered from customers cutting their spending (Friday). Elsewhere, Amazon decided to give drivers raises (Wednesday) given the tight labour market.

• CHINESE BANKS – had an interesting week! State banks, including ICBC, ABC etc. cut deposit rates for the first time since 2015 (Friday) to try to encourage spending and they were also told to check their exposure to debt-laden conglomerate Fosun (Wednesday).
• The US Consumer Financial Protection Bureau said Buy Now Pay Later operators will have to follow the same standards as credit card companies (Friday), which doesn’t sound good for the likes of Klarna and Affirm. I’d say it’s probably easier for a credit card company or bank to offer BNPL services than it would be for, say, Klarna to offer bank-like services. I wouldn’t be surprised if Klarna became a takeover target.
• Elsewhere in the financials sector, JP Morgan said that it is expecting a 50% drop in investment banking fees (Wednesday), which is what many of its peers have been saying, but UBS announced a hike in its dividend and a bigger share buy back (Wednesday) as its bid to buy US fintech Wealthfront fell through. It was also interesting to see that the IPO of AIG’s Corebridge fell flat (Friday) implying a waning of investor appetite for flotations given that it’s actually a decent company, profitable and has size.

• Adobe put in a $20bn cash-and-shares bid for rival Figma (Friday) which could be the biggest-ever takeover of a private tech start-up. Investors didn’t like the fat premium, though, and sent the shares down by 17% on the news.
• Amazon is getting sued by California (Thursday) for having “anti-competitive pricing policies, particularly pertaining to third-party sellers.
• Google is facing competition class actions in the UK and EU (Wednesday) regarding the lack of competition in the advertising space, lost its appeal against the EU’s antitrust fine (Thursday) for abusing the dominance of its Android mobile phones operating system and is facing fines in South Korea for collecting personal information without consent (Thursday), alongside Meta.
• It turns out that Meta Platform’s Instagram is falling way behind TikTok (Tuesday), according to an internal document.
• The proposed Microsoft acquisition of ActivisionBlizzard is now facing in-depth investigations in both Brussels and London (Thursday).
• Talking about gaming, Netflix announced a partnership with Ubisoft to boost its growing games division (Monday)
• Zoom announced plans to diversify into e-mail and digital calendars (Thursday), but I have to say I think this is a terrible idea as Microsoft is waaaaaaaaaaaaay ahead of it. If it wants to do something good I think it should concentrate on its core offering and make it unbeatable rather than try and take on some massive behemoths (even Google’s not exactly doing brilliantly!) and chuck cash down a bottomless money pit.
• Oracle saw sales come in above expectations (Tuesday) thanks to the success of its cloud business. It seems that corporates are still spending in at least some areas!
• There’s potential danger ahead for Philips as a product used to combat sleep disorders has been recalled (Tuesday) and it’s now facing a ton of lawsuits. This could potentially be very damaging for the company.

• IN CAR NEWS – the switch to EVs is going to take longer than expected (Monday) and development is slower because of restrictive ESG investment rules (Monday), Tesla is rethinking its plans to make batteries in Germany (Thursday) in favour of the US because it can take advantage of the grants available from the government there and Liz Truss announced an easing in the cost of car-charging (Tuesday) that will be music to the ears of EV drivers! Aston Martin faces more problems as it now has to fight a lawsuit for royalties (Thursday) just after having secured extra cash to keep going.
• Elsewhere, FedEx announced a profit warning (Friday) due to a slowdown in package volumes, creator platform Patreon announced a 20% headcount reduction (Friday) thanks to more competition from rivals and Patagonia’s founder announced plans to transfer ownership of the company to a trust (Friday) and essentially plough all its profits into environmental causes.

• 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! 

Without doubt, my favourite “alternative” story this week was Sushi and onigiri rice balls get a new look with rollable furikake (SoraNews24, Oona McGee) because furikake rocks my world (it really does!) – but as this is probably somewhat niche, you will probably enjoy THIS moment with Allie Sherlock more!