Watson’s Weekly 18-09-2021

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 the US – the Democrats announced details of a proposed tax increase (Tuesday) – boosting the top corporate tax rate from the current 21% to 26.5% and implementing a 3% surtax on people who make over $5m. Clearly the Republicans were up in arms about this, partly because it would erase the tax cuts Trump implemented when he was in power.
• In the UK – the OECD’s latest report shows that the UK’s economy grew at the fastest rate among developed countries in Q2 (Thursday). The monthly rise of 1.2% was the biggest jump since the Bank of England gained independence in 1997! Having said that, the latest data from the Office For National Statistics shows that output increased by just 0.1% in July versus the 1% reading for the previous month (Monday) as the number of people being pinged for being in contact with potential coronavirus carriers – and the spread of the Delta variant – increased sharply. Also BoJo had a cabinet reshuffle (Thursday) probably with an eye to the next election (Friday) as the new cabinet is now younger, more female and more ethnically diverse versus the previous one.
• In Europe – Norway voted the social democrats into power (Wednesday), becoming the latest country in Europe move to the left politically. The result of Monday’s election means that it will be the first time since 2001 that all three countries in the region – including Denmark, Finland and Sweden – will have social democrat PMs. It’s looking increasingly likely that Germany may swing to the left as well because Social Democrat Olaf Scholz is the current front-runner for the forthcoming elections.
• In South Korea – the Financial Services Commission (the FSC), South Korea’s financial regulator, has set a September 24th deadline for foreign and local crypto exchanges to register as legal trading platforms (Monday) in an act that could wipe out two-thirds of the country’s crypto exchanges in the overhaul because 40 out of the main 60 operators are unlikely to be able to meet the conditions!

• I’d say that the biggest news this week is Beijing’s enforced intervention into Ant’s Alipay making it help to create a separate loans app (Tuesday). Beijing is going to unravel Alipay, the superapp owned by Ant Group, to make a separate app for the company’s highly profitable loans business. As part of this, Ant will have to put its user data into a new credit-scoring joint venture that will be partly owned by the state and Tencent is also going give competitors access to its data (Tuesday). Given the strict regulatory climate at the moment, it’s likely that the opening up will happen quickly.
• The Chinese authorities are clamping down on the real estate sector at the moment and so Soho China’s share price almost halved on the news of the collapse of the proposed $3bn takeover by US private equity firm Blackstone (Tuesday). The proposal had hinged on regulatory approval, which they didn’t get. Staying with the property sector, Evergrande hired US restructuring specialists Houlihan Lokey (Wednesday) to give the hugely-indebted Chinese property giant Evergrande some options, prompting its Hong Kong-listed shares to fall by 12% yesterday to their lowest point since 2014. The share prices of other property giants like China Vanke, Sunac and Country Garden also fell as investors worried about what might happen next for the massively debt-laden sector.
• As a result of all this sudden regulatory tightening, investors are having a bit of a wobble (Monday) about whether it is safe to invest in China at the moment. There ARE investable sectors, though, like EV and solar (Friday) which should be relatively sheltered given that they feed into the “common prosperity” objective of the current administration.

• ONS data says that employment in the UK rose in August and that we now have the biggest number of vacancies since records started in 2001 (Wednesday) although it’s likely that the road to lower unemployment is likely to be lumpy (Thursday) because job seekers are not always geographically where all the jobs are – and given house price rises, moving is not likely to be easy. Still, a report by BDO says that wages are rising at their 2^nd fastest rate in 4 years. Interestingly, European workers are showing increased interest in UK jobs (Monday), according to research by Adzuna, but I guess they’re going to have to wait until the government relents on giving out temporary visas.
• Consumers look like they will have to pay higher utility bills as energy prices keep rising (Tuesday), a situation made worse by the outbreak of a fire at a substation in Kent (Thursday). Big users are being asked to restrict usage – and some companies have gone one further and closed their facilities down completely. One major fertiliser company decided to shut down production (Friday), which could pile problems on to an already struggling agricultural sector as this company makes about 40% of the UK’s fertiliser!
• It was also interesting to note that global house prices have been rising at their fastest rate since 2005 (Tuesday) according to Knight Frank, but the latest data from the ONS says AVERAGE house price fell in July (Thursday).
• There was a lot of newsflow this week on apparel retailers. Inditex recovering nicely from a disastrous 2020 (Thursday) while Primark was confident enough to upgrade its full-year profit forecasts (Tuesday). Meanwhile, purveyors of the athleisure trend have done well under lockdown as JD Sports decided to upgrade its full-year forecasts (Wednesday) and Superdry also saw positive momentum (Friday).
• Elsewhere, M&S decided to close its shops in France (Friday) and Amazon announced a number of deals – with Deliveroo to do food and grocery deliveries for Prime members (Wednesday), another one with Co-op to sell all of its products on its website and another one with the Post Office (Monday) where the Post Office will handle deliveries and collections after a no-contest deal with Royal Mail lapsed, allowing it to deal with other companies. What a week for Amazon!

It was another very busy week for M&A and IPO newsflow!

• In M&A news – Canadian Pacific’s $31bn deal for Kansas City Southern went through (Thursday), creating a single railway connecting Canada and Mexico via the US; Intuit agreed to buy Mailchimp for about $12bn in cash and stock (Tuesday) to strengthen its array of customer services; Kape bought ExpressVPN (Tuesday) in one of the biggest ever tech deals for a British firm. Kape says that this will beef up its cybersecurity capability; Bain Capital made an offer to buy posh bakery Gail’s (Wednesday) in the latest example of a private equity firm using up some of its “dry powder”; and Goldman Sachs bought GreenSky (Thursday) in a bid to hasten its development in the consumer banking arena.
• In IPO developments – Peel Hunt is aiming to list on London’s junior AIM market (Wednesday). This should give it currency to finance its European expansion ambitions.

• Apple revealed a new product line-up (Wednesday) – and it is still highly reliant on iPhone sales!
• The Restaurant Group outperformed rivals (Thursday), fuelling confidence to upgrade its full-year earnings guidance! There are some concerns about inflationary pressures but it said that  it wanted to continue with the expansion of the Wagamama and Brunning & Price brands.
• There was a really interesting article this week on data gatekeepers in the growing world of sports betting (Thursday) which identifies companies such as Sportradar Group (Swiss-based) and Genius Sports (London-based) whose data powers betting platforms and media companies.
• After an absolutely disastrous year last year, car rental companies like Avis Budget, Sixt and Europcar are all doing well (Friday) and even Hertz, which went bankrupt before being bought, is actually turning a corner!
• Britishvolt became a “unicorn” in its latest funding round (Thursday). It is aiming to be able to make a huge number of battery packs and provisional deals lined up with a number of major car manufacturers. Given the massive interest in EV batteries at the moment, it’d hardly surprising that Britishvolt is attracting such a high valuation!

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

My favourite “alternative” stories this week were the weird yet intriguing We try Japan’s new drinkable curry in a can (SoraNews24, Oona McGee) and the hilarious Woman shares genius hack for clipping her dog’s nails and it works every time (The Mirror, John Bett). Curry-in -a-can? Suspended dogs?? What’s the world coming to??