Watson’s Weekly 17-12-2022

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.

Interest rates get hiked, everyone goes on strike and crypto-mauling continues…

• IN CENTRAL BANK NEWS – it was a big week as the Fed, ECB and Bank of England all raised interest rates by 0.5% (Friday) to curb ongoing inflation.
• IN THE US – the rate of inflation is still rising, but at a slower rate (Wednesday), according to the latest data from the US Bureau of Labor Statistics. This helped push the pound up versus the dollar (Wednesday) as markets went up and bond yields fell.
• IN CHINA – Beijing eased zero-Covid restrictions (Monday) and stopped counting asymptomatic cases (Thursday), which China’s insurance industry responded to by pulling Coronavirus coverage (Thursday). It was also interesting to see that China decided to file a dispute with the WTO (Wednesday) as it decided to push back against wide-ranging US export controls on chips imposed in October by Washington. The WTO has ruled against Washington before, so there is precedent. There will be a sense of urgency on this as Arm Holdings decided it couldn’t supply Alibaba with its most advanced chips (Thursday) because of these controls.
• IN EUROPE – the EU is having a tough time trying to match US “green” incentives (Tuesday) but will be relaxing rules on state aid to narrow the gap, although it’ll have a tightrope to tread because the WTO also has rules on this. The clock is ticking, though, as European EV battery “champion” Northvolt is pressuring the EU to increase subsidies (Friday), presumably with the veiled threat that it could take its weighty order book and manufacturing capability stateside if it doesn’t get what it wants.
• IN THE UK – the public sector is largely on strike! Public sector wage rises this year lagged private sector rises (Wednesday), but some argue that this is just the private sector catching up with the public sector (Wednesday). There is also the opinion that the government is overstating the cost of giving the public sector a higher pay rise (Wednesday) as pretty much half of it has already been factored in to government estimates anyway. The RMT is holding out as other unions agree a pay deal (Friday) but it has done a good job historically with keeping train workers’ wages high (Thursday) as no-one earns less than the average wage of £33,00o (the lowest earner gets £37,740). Meanwhile, UK inflation slowed to 10.7% in November (Thursday), which was below market expectations, but UK manufacturing looks set to fall (Monday) as the latest Make UK and BDO Manufacturing Outlook survey reflected corporate uncertainty. The Bank of England got feisty this week as it warned Sunak not to go too crazy with deregulation of the City (Wednesday) and said that rising mortgage costs will spark an exodus of landlords (Wednesday).

This was yet another week of drama for crypto!

• Investors withdrew record levels of bitcoin from crypto exchanges (Monday) as investor sentiment towards crypto assets continues to darken. Binance described the withdrawal of $1bn of assets being pulled out of its platform in one day as reflecting confidence in its structure (Thursday), which I think is a hilariously optimistic assessment of the situation, while the US Justice Department is now looking into charging Binance execs (Tuesday) for all sorts of dodgy dealing.
• Talking of dodgy dealing, former FTX CEO Sam Bankman-Fried was arrested in the Bahamas (Tuesday) and it turned out that he gave himself priority access to trading systems (Thursday) in what has been described as “one of [the] biggest ever frauds” (Wednesday) as the US Department of Justice charged him.
• In another hilariously bad turn of events, London-listed bitcoin miner Argo Blockchain was forced to deny it had gone bankrupt (Tuesday) after “accidentally” saying it had on its own website 🤣. You just couldn’t make this stuff up!
• Meanwhile, Hong Kong’s recent plugging of bitcoin looks somewhat embarrassing (Thursday) and the incoming chair of the FCA has made his position clear to MPs that he is crypto-sceptic (Thursday), which could be at odds with Sunak’s previously stated desire to help the UK become a crypto hub. Amidst all the drama, bitcoin appears to be holding up incredibly well considering. It is just my opinion but I think something very suspicious is going on in the background as I just do not understand why bitcoin isn’t falling through the floor in response to what seems to be daily scandal and news of asset withdrawals. I think there needs to be an investigation into suspicious trading patterns.

In the world of energy…

• OVERALL, France raised the possibility of winter power cuts (Monday) and power prices in the UK reached record levels (Monday) thanks to low wind speeds killing the amount of electricity being generated by renewable sources. On the plus side, Chancellor Jeremy Hunt is looking at giving businesses more support with their energy bills once winter is over (Thursday), which should provide some relief.
• IN RENEWABLES NEWS – Rolls-Royce rivals in the Small Modular Reactor space are bidding for attention (Tuesday) to supply electricity in the UK. There was excitement as US scientists made a major breakthrough in nuclear fusion technology (Wednesday), although we are still a way off large-scale energy generation from this source. Mind you, with a number of breakthroughs being made this year, you would have thought that there will be more R&D dollars poured into it.
• IN OIL NEWS – oil tanker bottlenecks off the coast of Turkey have been resolved (Wednesday) as proof of insurance for vessels has now been accepted. There had been a bit of a kerfuffle over appropriate insurance cover after the western price cap on Russian oil came into force last week.

IN BUSINESS TRENDS…

• Pessimistic employers are hiring fewer workers for the third consecutive month, particularly in the services sector (Tuesday) and a lack of staff is forcing some restaurants and pubs to cut festive hours (Thursday), something that is being made worse by the rail strikes.
• The number of insolvencies is rising (Thursday), according to the latest data from the Insolvency Service, as they increased by 20% in November versus November 2021 to their second highest level since the beginning of the pandemic.
• The phenomenon of ‘shrinkflation’ is alive and well (Friday) as it turns out that Mini Cheddars – among other products – are seeing package and content size shrinking as makers try to pass on higher raw ingredients prices in ever-sneakier ways…

IN CONSUMER TRENDS…

• Spanish apparel retailer Mango is looking at bringing production closer to home (Monday) and reducing reliance on Chinese suppliers given the rollercoaster ride of the last few years. Levi’s, Dr Martens and Inditex are among those to make the same moves.
• US consumers are spending less (Friday) as the official retail sales figure was weaker than expected. It seems that inflation is seeping through to households…
• UK consumer confidence hit a 50-year low (Friday), but consumers continue to buy products like electric blankets to be more energy-efficient (Tuesday) and save on utility bills. That said, the luxury sector is benefitting from younger people spending (Tuesday) as the demographic is increasingly living with parents, who are insulating them from the worst effects of the cost-of-living crisis. In the residential property market, property website Rightmove said that asking prices fell by their biggest amount for four years (Monday), the latest ONS data showed that London property prices fell in London but rose everywhere else (Thursday) and Credit Suisse reckons that house prices should fall by 10% (Tuesday) as inflation continues to squeeze household finances.

• Currys highlighted interesting trends of consumers using more credit and opting for cheaper models (Friday) as the cost of living crisis continues to bite.
• Inditex had a solid set of results considering (Thursday) and it outperformed rival H&M due to its superior control over inventories (Friday).
• It seems that a trend of big stores coming to the high street in smaller formats is gathering pace (Wednesday) as the likes of B&Q and Ikea are jostling for high street space along with the likes of Tesco Express and Sainsbury’s local.
• Monsoon surprised on the upside (Monday) as it announced intentions to open more stores! What a turnaround considering its collapse during the pandemic!

• Amgen bought Horizon Therapeutics (Tuesday) in a deal worth $28bn, but Amgen’s debt levels will skyrocket as a result at a time where interest rates are high. It does make strategic sense, though.
• US-based private equity firm Thoma Bravo bought business software provider Coupa Software for $8bn (Tuesday) to add further to its collection of acquisitions that include Anaplan, SailPoint Technologies, Ping Identity and ForgeRock.
• Microsoft bought a 4% stake in the London Stock Exchange (Tuesday) as part of a 10-year strategic partnership. This should help to improve the LSE’s data and analytics and enhance its revenue growth.
• UK building materials provider Jewson is being sold off to Danish group Stark (Tuesday) as current owner Saint-Gobain exits its British businesses.

• IN AUTOMOTIVE NEWS – EV demand in Europe seems to be on the wane according to VW (Wednesday), a trend that is reflected in the UK, according to AutoTrader (Tuesday), something that is presumably down to rising electricity costs and the high prices of EVs. Rivian has shelved plans to open a European electric van plant with Mercedes-Benz (Tuesday) to focus on existing production in the US and Tesla investors are getting increasingly frustrated with Elon Musk’s focus on Twitter (Wednesday).
• IN FINANCIALS NEWS – Danske Bank is going to have to pay $2bn for defrauding US banks (Wednesday) following a major money laundering scandal, HSBC has promised to stop funding new oil and gas projects (Thursday) following intensifying criticism of “greenwashing” and fintech Checkout.com saw its valuation slashed by 75% versus its January level (Wednesday) thanks to the overall tech sell-off and increasing focus from investors on profitability rather than growth. In the meantime, insolvency specialists like Begbies Traynor and FRP Advisory look likely to benefit from economic misery (Wednesday). Talking about professional services, KPMG saw its full year revenues rise by 8% to almost $35bn (Wednesday) benefitting particularly from its consultancy business. KPMG is committed to keeping its auditing and consultancy business together (unlike EY, which is thinking of separating them).
• IN TECH NEWS – Twitter relaunched its blue tick service (Monday) where users will have to pay an $8-11 monthly fee for extra features and a bump up the priority list. It will now be available in the US, Canada, Australia, New Zealand and the UK. Elsewhere, Adobe saw Q4 revenues come in above expectations (Friday), which is particularly impressive as rivals such as Salesforce and Okta have said that customers were getting more cautious and taking longer to sign deals.
• AND ANOTHER THING – I thought it was very interesting to see that Canary Wharf just submitted plans for a massive “vertical” life sciences campus (Wednesday) that will broaden its exposure outside financial services as demand for office space weakens.

• 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 “ultimate” 🤣 Christmas present for that special someone who has everything: Former US President Donald Trump sells out NFT trading cards (BBC, Annabelle Liang). Just amazing…