Watson’s Weekly 23-02-2020

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.

• Economists continue to be busy cutting GDP forecasts for China. Nomura believes that China’s Q1 GDP growth forecast will be its weakest since the Tianamen Square protests of 1989 (Tuesday). China has decided to try to ease financial pressure on property developers by allowing them to delay payments on land and taxes (Monday) and Chinese banks cut the one-year loan prime rate – a key lending rate used across China’s financial system – in order to ease lending conditions (Friday). I would have thought you will be seeing more of this as time goes on in order to mitigate the financial pain that many companies will be feeling
• Germany continues to struggle as Merkel faces increasing pressure to quit before her term ends in autumn next year (Wednesday) and the number of profit warnings from German companies hits new highs (Wednesday)
• There was a lot going on in the UK as well as it turns out that new Chancellor Rishi Sunak will be delivering the Budget on time on March 11th (Wednesday) and he faced more calls to reform (i.e. cut) stamp duty (Friday). UK inflation hit 1.8%, so it looks like there’ll be no need for the Bank of England to cut interest rates at the next meeting (Thursday).  UK immigration criteria changed to a points-based system (Thursday) so at the moment, it looks like social care, agriculture, retail and hospitality will have a particularly hard time if things stay as they are

• After having gone through a huge pig cull due to an outbreak of African swine fever, it seems that China is now having to face a huge chicken cull (Tuesday) because of two things. Firstly, there’s been a shortage of animal feed due to a lack of corn and soya beans, which means that as many as 30,000 chickens are dying of starvation per day. Secondly, the domestic shipment of live birds has become very restricted due to coronavirus cross-contamination concerns, which has led to older birds trampling chicks to death and burying them alive. The restriction on live chicken imports from the US has been lifted to make up for some of the shortfall, but I suspect that meat prices will continue to stay high for some time to come. Separately, I would have thought that now would be the time for “meatless” companies such as Beyond Meat and Impossible foods to make serious inroads into the Chinese market given the shortage of “real” meat
• Apple became the first US company to say it won’t hit first quarter revenue targets (Tuesday) due to the coronavirus impact (but I don’t think anyone will be very surprised by that). I suspect that there will be many more to follow.
• Airlines are going to take a big revenue hit (Friday) according to IATA while Maersk (Friday) and Jaguar Land Rover (Wednesday) also warned of negative impact. FWIW, I think that there could be an M&A bonanza when the coronavirus passes because there will be a lot of good (and probably smaller) companies who won’t have been able to take such a big financial hit from the coronavirus – meaning that larger companies with deeper pockets could pick up good quality smaller companies on the cheap
• On the other hand, companies that are doing quite well from the coronavirus include Slack, Zoom, Alibaba’s DingTalk and ByteDance’s Lark (Wednesday) who all make software that enables working from home. However, it’s not all work and no play – Smartphone users have downloaded record numbers of games and other apps since the spread of the outbreak (Friday). According to analytics provider AppAnnie, average weekly downloads for the first two weeks of February, shot up by 40% versus the average taken across the whole of 2019! Share prices of listed game-makers have shot up accordingly – Tencent’s share price is now at a 20-month high. Education apps have also done well as schools remain closed and shares in New Oriental Education, which provides online education in China, have shot up by 17% this year

• The European Commission put forward proposals to force big tech companies to make their data available to smaller rivals (Thursday). The document, entitled European Strategy for Data, pushes for more pooling of data. Whether users themselves will be all that keen is another question, however!
• Recent figures showed that the pace of customers abandoning traditional pay-TV packages accelerated by over 70% last year in the US (Thursday) as the number of cheaper streaming services continued to proliferate. Cable TV providers such as Comcast, Charter Communications and Altice lost around 1m pay-TV customers in 2019 while satellite providers did even worse as AT&T’s DirecTV lost 3.4m customers and Rival Dish Network lost 500,000. I would have thought this is going to continue for the next few years while they all offer low prices to attract new subscribers
• The cruise industry continues to suffer the longer the coronavirus continues (Thursday). Carnival Corp, Royal Caribbean and Norwegian Cruise Line are all suffering and will probably continue to do so. It will cost them a lot of money to get customers back onside in terms of PR, advertising and having to offer reduced prices for the short-to-medium term

• In the “Themes for 2020” section, cord-cutting accelerates in the US with figures showing cable and satellite TV companies losing subscribers. In the UK, BT has decided to to scrap its traditional pay-TV packages and let customers pay for prime content (e.g. Premier League football) on a monthly subscription – like the competition. In the “Country-by-country overview for 2020” section, Turkey has cut its interest rate for the sixth time in a row by 0.5% to 10.75% in a bid to stimulate the economy; in Germany, pressure continues to mount for Merkel to step down early as the search for a new CDU party leader begins in earnest

My two favourite stories this week were the hilarious Breastfeeding mum regrets fake-tanning every part of her body (Metro, Richard Hartley-Parkinson https://tinyurl.com/ro9mtdz) and the strangely compelling Cool automated Rubik’s cube found at Maker’s Faire floats, solves itself, blows our minds (SoraNews24, Dale Roll https://tinyurl.com/u8ls4ro).