Watson’s Weekly 18-06-2022

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.

What a dramatic week that was!

• There was a lot of interest rate chat this week! UK and US markets took a pasting as Wall Street tipped into bear market territory (Tuesday) and investors feared for the UK economy (Tuesday) because the latest ONS figures pointed to a slowdown in GDP. With almost 70% of leading economists surveyed by the FT thinking that the US will go into recession next year (Monday) drastic action was needed and the Fed hiked its interest rate by a chunky 0.75% (Thursday) in order to tackle the highest inflation for forty years with the biggest one-time increase since 1994! The Bank of England followed suit on lifting interest rates (Friday), albeit by “only” 0.25% while chancellor Sunak faced calls from the Confederation of British Industry to cut business taxes (Monday) before recession kicks in properly. Meanwhile, Switzerland surprised everyone with a cheeky 0.5% increase in its interest rate (Friday) to take it from -0.75% to -0.25% in its first hike for 15 years!
• IN ENERGY NEWS – BP took a stake of 40% in a massive $30bn Australian renewables project (Thursday) that has the potential to be one of the biggest renewable power hubs in the world! This is subject to regulatory approval, but if it goes ahead it will be a big step towards BP’s climate goals and net zero by 2050. Gas prices rose sharply as Russia cut supplies to Europe (Thursday) and Germans were told to conserve energy as a result (Friday). In the meantime, Centrica signed a deal with Norway’s state-owned oil company Equinor to secure energy supplies (Friday) as part of the UK’s efforts to ensure ongoing supply without Russia.
• IN CURRENCY NEWS – the yen and pound hit new lows versus the dollar (Tuesday) and the yen is now so low – its weakest level for 24 years – that some think Japan’s companies will be more vulnerable to foreign takeovers (Monday) as a result. However, the biggest developments came with CRYPTOCURRENCIES! Bitcoin fell sharply versus the dollar (Tuesday) and investors got spooked so much that many tried to withdraw their funds only to find themselves being blocked by the likes of Celsius Network. To add to the crypto-misery, Coinbase Global announced it would be cutting 20% of its workforce (Wednesday) in anticipation of a “crypto winter”. Bitcoin slid so much that crypto-heavy hedge fund Three Arrows Capital had to resort to Twitter to say it was still solvent (Thursday) in response to speculation that it had suffered fatally.

• US car prices keep rising (Friday), forcing consumers to go to dramatic lengths to buy cars for a price where they are not getting their faces ripped off. Mind you, when they collect their cars from far afield, they have to pay the highest ever prices for fuel (Monday) – $5 per gallon, which they find shocking, but that’s equivalent to £1.07 a litre while we are currently paying about £1.83 per litre!
• IN EV NEWS – Tesla increased its prices again (Friday), Ford announced a recall of almost 49,000 Mach-E cars (Wednesday) and Ferrari reiterated its commitment to electrify (Friday). If you’re into something a bit unusual, how about the world’s first solar-powered car (Tuesday) – yours for the princely sum of only £216,000 😱! Manufacturers were up in arms about the UK government’s decision to ditch the last remaining EV subsidies (Wednesday), but then when you consider the prices of most EVs these days, the subsidies that were on offer weren’t at exactly deal-breaking levels. The government’s argument was that the money would be better used elsewhere and I have to say that I think this will buy them time to sort out (or at least address) our patchy charging network.
• IN BATTERY NEWS – Foxconn is building an EV battery-making facility in its native Taiwan (Thursday), which is a particularly interesting step as it shows just how serious the company-famed-for-iPhone-assembly is about its diversification into EVs. Britishvolt, which is currently building a battery gigafactory in Northumberland is aiming to educate its employees (Thursday) via a venture with Northumberland College that will oversee a qualification on battery technology. It was also interesting to see that the Pentagon signed a $120m deal to build the country’s first major rare earths refinery (Wednesday) as part of plans to reduce reliance on China which processes the vast majority of the world’s rare earths used in all sorts of key tech.

• US retail sales weakened in May (Thursday) in its first month-on-month decline this year while China also saw its retail sales decline (Thursday) thanks to recent strict Covid lockdowns which just goes to show how cautious consumers are being.
• UK consumers are already trading down and buying less (Friday) according to the Lloyds Bank CEO while food prices look set to rise further (Friday) and Sainsbury’s continues to make efforts to stop its customers defecting to Aldi (Thursday) by broadening their price matching. While all this is going on, there may be some potential bumps in the road as UK supermarkets are being forced to move unhealthy foods out of temptation’s way (Monday) and are facing investigation by the Competition and Markets Authority (Tuesday) about competition in the retail fuel market. Meanwhile, Morrisons’ owner, PE firm Clayton, Dubilier & Rice is now planning to sell off properties that have been used by Morrisons’ food production division (Monday). CD&R just had its takeover approved and it was pretty obvious what it was going to do given the price it ended up paying for it! I would expect more asset disposals.
• Consumers are travelling, though, and Whitbread (owner of Premier Inn) is benefiting, as is WH Smith (Thursday) with its strong presence at railways stations and airports finally paying off once more. With the prospect of strikes over the summer, the Department for Transport and the Civil Aviation Authority are calling for airlines to stick to their schedules to minimise disruption (Wednesday).
• IN EMPLOYMENT TRENDS NEWS – the UK labour market remains tight (Wednesday) but rampant inflation means that average wages are falling at their fastest rate for over twenty years (Wednesday). Still, airport vacancies remain at record highs (Wednesday), meaning that employees have the upper hand in wage negotiations at the moment but it was interesting to see that railways workers have been rushing to take voluntary redundancy (Monday), making you wonder why the RMT is getting so aggressive about strikes (although it turns out this scheme was only offered to managers). Unfortunately, poor working conditions persist in Leicester factories (Monday) over a year on from all that Boohoo ruckus.
• IN RETAIL NEWS – H&M posted decent sales (Thursday), but they’re still below pre-pandemic levels, until at arch-rival Inditex, but Asos had a profits warning (Friday), blaming inflation and the rising cost of returns (something that is particularly bad at an online retailer). Elsewhere, Halfords’ share price cratered by a whopping 27% (Friday) as it blamed inflation for hitting earnings and bike demand.

• Concerted pressure on Big Tech seems to be bearing some fruit as the giants are about to sign up to an updated version of the EU’s anti-fake news code (Tuesday) which forces them to address disinformation on their platforms. Talking of Big Tech, Apple signed a big MLS deal (Thursday) worth $2.5bn over 10 years to show football matches on Apple TV. Oracle smashed sales forecasts in Q4 (Tuesday) thanks largely to cloud revenues and Google claims that YouTube shorts are now of a similar scale to TikTok (Thursday) just two years post launch.
• Over in China, the beleaguered Chinese education tech sector is adapting to last year’s crackdown in unusual ways. One former big player in the industry, New Oriental, has managed to think of a way of teaching but getting “paid” for selling product (Tuesday). This way it is not profiting per se from the education itself, but from the goods that it sells whilst educating, thus finding a way round restrictions on making money from teaching what is deemed to be the national curriculum. One teacher on there is teaching English whilst selling steak (!) and it has been a roaring success!

• US mortgage rates jumped by the biggest margin since 1987 (Friday) in anticipation of more aggressive interest rate rises to curb inflation. In the UK, HSBC hiked its mortgage rates (Friday) in anticipation of more interest rate rises coming from the Bank of England. Still, UK new home demand is greater than supply (Wednesday), but you wonder how long that’s going to last for given rising mortgage rates and the ongoing cost-of-living crisis.
• IN COMMERCIAL PROPERTY – Prologis has put in an offer to buy Duke Realty in a deal worth $26bn (Tuesday) that shows continued belief in the warehousing sector. In the UK, West End landlords Shaftsbury and Capital & Counties agreed a £5bn merger (Friday).

• K-pop supergroup BTS announced they were going on hiatus (Thursday) which sent the share price of their management company Hybe into a major tailspin. The boy band brings in about 70% of the company’s total operating profit! It’ll be interesting to see where they go from here, but I think they have a decent chance because K-pop knows the formula that has cracked the West, unlike Japanese J-pop.
• IN INVESTMENT-RELATED NEWS, it seems that ESG is still in the spotlight (Wednesday) after DWS’s recent brush with the law for greenwashing. It is unlikely to be the only guilty party here, so watch this space re other investors…Then it was interesting to see some analysis on ten consumer IPOs last year – and their performance since. Deliveroo has been the worst by far (Monday) as it was worth £7bn on flotation only to see it fall to the current value of “just” £1bn! Another nightmare performer has been ProCook.
• US cosmetics firm Revlon filed for bankruptcy protection (Friday) as it has failed to keep up with the latest trends. Although Chapter 11 means it’ll be delisted from the NYSE, it’ll still be able to trade while sorting out some kind of creditor repayment plan. Massive debts have been the company’s biggest downfall.

• 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! 

I have to say that my favourite “discovery” this week was of the Lego version of the Top Gun: Maverick trailer. It’s just amazing! Here’s the Lego-only one and here’s the Lego/official version side-by-side! Superb!