Watson’s Weekly 22-05-2021

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 China, the National Bureau of Statistics published data showing that manufacturing growth is slowing down (Tuesday). Retail sales figures were also underwhelming, which is not great because consumer spending is an important economic driver. This is all a tad concerning given that China was the first to go into lockdown and the first to start recovering, so it is seen by many as a leading indicator that precedes similar moves elsewhere.
• In Japan, economic output fell in Q1 (Tuesday) as the coronavirus state of emergency hit consumer spending. Up until relatively recently, Japan has been seen to be handling the pandemic pretty well, so this is indeed a blow in the lead-up to the increasingly unpopular (among locals) Olympics.
• The debate about inflation and the potential need to increase interest rates to calm it down raged on this week as the former US Treasury Secretary Larry Summers described the Fed’s loose monetary policy as “complacent” (Wednesday). The official stance of the Fed, the Bank of England and the ECB is that the inflation we’re seeing now is a blip, not a trend and will calm down without needing to resort to increasing interest rates. The thing is that US jobless claims figures fell to lower levels than expected late on this week and there’s anecdotal evidence of shortages of staff in certain areas like hospitality (Wednesday), which would indicate an economy that is gaining momentum! Some flash indicators show that the European economy is bouncing back from a double-dip recession (Wednesday) as people are taking more trips to the shops and generally spending more and the latest data from the CIPD shows that recruitment is rising across the board in the UK (Monday). That was then topped off by the UK’s official inflation figure doubling from the previous month (Thursday). Although BoE governor Andrew Bailey says he’s monitoring the situation (Wednesday), the pressure for him to increase interest rates earlier than expected is clearly building!
• The coronavirus situation in India is, sadly, not getting any better. The Serum Institute of India has extended the ban on vaccine exports until the end of the year (Wednesday), but then on the other hand, things have improved so much in Denmark that pretty much all restrictions were lifted (Wednesday). There’s good news on the vaccine front with GlaxoSmithKline making progress with the vaccine they are working on with Sanofi (Tuesday). If all goes well, it could get approval at the end of this year 👍.
• Bitcoin had a very eventful week this week! It got clobbered after the weekend due to an Elon Musk tweet being interpreted as him going lukewarm on the cryptocurrency (Monday) to the extent that he had to send out a tweet saying that Tesla would not be selling any more of the stash of Bitcoin it bought earlier this year (Wednesday). This was made even worse by the People’s Bank of China reiterating that it did not recognise crypto tokens as a valid method of payment (Wednesday) and then Biden made things even worse by announcing that any transfers of Bitcoin worth over $10,000 would have to be declared to the IRS (Friday). It also turns out that investment manager Ruffer sold out of the Bitcoin it bought last year in April (Friday). I think that the biggest risk to Bitcoin is going to be from regulators and governments. I also think that there are so many cryptocurrencies out there these days that if there is a proper crackdown a lot of them will absolutely tank (or even disappear). If Bitcoin gets it bad, they will get it much worse IMO.

• There were some interesting developments for the travel industry again this week. The EU is considering accepting vaccinated travellers (Thursday) but air travel is already booming in America (Thursday)! Ryanair had a mixed week as it announced massive losses for last year (Tuesday) but then won a court case arguing that state help given to national airlines is tantamount to suppression of competition (Thursday).
• Eurostar got rescued by shareholders and banks this week (Wednesday) as the British resisted pressure from the French to cough up some money for the cause. The British government sold their stake in Eurostar in 2015, so I guess they just didn’t want anything to do with it. Staying on the subject of trains, a major overhaul of the UK railways was announced this week (Thursday) and Trainline shares were sold off (Friday) because investors think that the new structure will take a lot of their business, but FWIW, I think that the government’s track record of making and running complex apps isn’t exactly stellar and Trainline could make up a lot of ground in the intervening years.

• In the UK, although sales to buy-to-let landlords have fallen over recent years (Monday) UK house prices continued to grow at their fastest pace since August 2007 (Thursday)! The Bank of England’s deputy governor, Sir Jon Cunliffe, is warning that house prices could continue to stay high even after the stamp duty holiday ends (Friday) due to the continued demand for home-working but then you could argue that it may be saved from having to increase interest rates to take some heat out of the market by indirectly restricting lending. For instance, it seems that an increasing number of home buyers are having their mortgage applications rejected (Friday) due to lending limits that were imposed back in 2014. These limits are currently under review, but I guess if they were left unchanged in an environment of rising house prices this could just choke off the current frenzy.
• In commercial property, WeWork announced a massive Q1 loss for 2021 (Friday) and said that it had lost 25% of its members last year. It’s still eyeing an IPO-via-SPAC, though! I personally think that this is not the time to do an IPO for WeWork, which makes me wonder whether the early investors are trying to push this in order to get their money out.

• AT&T is creating a streaming giant (Monday) with Discovery. This is a big deal and it’ll be interesting to see what the plans are for it.
• Amazon is thinking of buying MGM (Wednesday), in another deal related to improving/consolidating content! This is likely to be very expensive for Amazon, but it’s got deep enough pockets and I think that the deal makes strategic sense.
• There was also a very interesting bit of M&A in Asia as two of Indonesia’s biggest tech start-ups, Gojek and Tokopedia, announced that they were teaming up (Tuesday) amid increasingly fierce competition in south-east Asia. The combo will mean that they will be closer in size to key regional competitors such as Grab and Sea and plays into the Asian trend of “super-apps”.

• Clubhouse has lost momentum (Monday), but it may well get it back as it has gone from being iOS-only to now being on Android! About time! Has it missed the boat and offended Android users in the meantime?!?
• American retailers Home Depot, Lowe’s, Target and TJX were among those to report strong momentum (Thursday) as consumers continue to spend! Is this really a blip??

• 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 of the week included the optical illusions in Mum’s optical illusion of daughter sinking into concrete is ‘melting people’s brains’ (The Mirror, John Bett) and Incredible optical illusion appears to show man leaping up into the sky (The Mirror, John Bett) as well as the crazily good A dad turned his whole house into a climbing frame for an epic ‘floor is lava’ game (The Mirror, John Bett)! John Bett from The Mirror – I salute you! A clean sweep of brilliant “alternative” stories this week!