Watson’s Weekly 18-01-2020

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.

• There was relief all round as the US and China signed a “phase one” trade deal (Thursday), but there are still tariffs on $360bn-worth of Chinese goods and stickier issues of intellectual property and state subsidies to be overcome for a full trade deal. This’ll do for now…
• China announced a slowdown in its GDP growth rate (Friday) to 6.1%. Although this is its slowest growth rate for almost 30 years, it’s still within the range of 6-6.5% forecast by the government. Reasons cited for the slowdown included impact from the US-China trade war, a continued clampdown on debt, slower income growth and rising food price inflation stemming from the African swine fever outbreak denting purchasing power. The government does, however, expect a turnaround in sentiment in 2020
• Vladimir Putin announced a major reshuffle in his government (Thursday) as his whole cabinet (including Prime Minister Dmitry Medvedev) resigned to make way for sweeping constitutional changes. Vlad has been suffering in the polls and probably felt he needed to do something drastic to at least arrest the slide for the time being
• Turkey announced its fifth interest rate cut in a row (Friday) in order to stimulate the economy. What’s weird here is that when inflation is high (Turkey’s inflation rate now stands at 11.9%), pretty much every other central bank would cut interest rates in order to encourage saving over spending. President Erdogan believes that the opposite is the case…

• Gap decided on a major strategy U-turn (Friday) as it said it would NOT split itself in two after all. The strategy, announced about a year ago, was to split Gap (with a few of its smaller brands) and sub-brand Old Navy into two separately quoted entities. Since then, business have worsened for both sides, top management has “stepped down” and it was thought that going through this at such a sensitive time would be too difficult
• Amazon’s Jeff Bezos announced that he’d be investing $1bn in his India business (Thursday) to digitise small and medium businesses in the country, putting him head-to-head with local hero Mukesh Ambani, head of Reliance Industries, who will be flying the domestic flag via his new venture JioMart
• Shopper numbers fell on the UK high street(Monday) according to data from Springboard due to a combination of higher business rates, increasingly thrifty customers, relentless online competition and heavy discounting on Black Friday/Cyber Monday cannibalising Christmas sales. I would suggest that having a general election in December may well have had an effect as well as there was a general air of uncertainty in the lead-up
• In the UK, Boohoo.com announced strong numbers (Wednesday) and the company is now worth more than M&S which probably shows you how far Boohoo has come and how far M&S has fallen! Northern upmarket supermarket Booths had a good Christmas (Thursday) and Revolution Bars toasted its seventh consecutive record-breaking Christmas (Thursday). The latter seems to back the theory that consumers are spending more on experiences than “things”, as Mitchells & Butlers found out recently.

• China cars sales fell for the second year in a row (Tuesday), which is disappointing given that it’s the world’s biggest car market. This was blamed on a slowing economy, US-China trade tension and a rise in secondhand car sales. EV sales were also down due to cuts in government subsidies. On the plus side, European car sales were up (Friday)
• Tesla’s valuation neared the $100bn valuation mark (Wednesday), a level that will trigger a humungous package of bonuses for founder Elon Musk
• There was also some interesting news at the end of the week (after Watson’s Daily was published) that Foxconn Technology Group is entering into a joint venture with Fiat Chrysler to assemble electric cars. Foxconn has, up until now, been Apple’s leading assembler of phones but it is seeking to diversify its business. The venture will develop and build EVs in China and run networks of connected wireless vehicles

• It was generally a good week for American banks with Citi and JP Morgan among those doing well (Wednesday) although Goldman Sachs suffered (Thursday) because it had to put money aside for fines. Visa bought Plaid for $5.3bn (Tuesday) to help broaden its access to fintech firms and its reach outside cards
• The UK government rescued Flybe (Wednesday) which came in for major criticism from IAG and Ryanair heads for being deemed unfair

• In the “Consumer/less packaging” section of “Themes for 2020”: Asda has joined rivals including M&S, Tesco’s and Sainsbury’s in launching a low-plastic “sustainable store” that will let customers in Leeds to fill up their own containers with certain items like coffee, rice, pasta, breakfast cereals and other items. It will also get rid of plastic packaging from mushroooms, cucumbers and flowers. Nestle has also made a commitment to spend £1.6bn on trying to replace plastic packaging with something more sustainable
• In the “Country-by-country” section, I will be putting in updates regarding the potential impact of Russian constitutional change, the rollercoaster of public opinion in Iran, the impact of the Taiwan election result and Argentina’s record high inflation

My favourite “alternative” story of the week this week was, without a doubt Gymnast’s viral challenge sounds easy – but no one understands how it’s possible (The Mirror, Luke Matthews https://tinyurl.com/wh7q7c9). Incredible!