Watson’s Weekly 24-05-2019

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. You will need a FULL SUBSCRIPTION to be able to click through all the links which take you to the relevant articles.

• Tensions increased in the markets as investors got increasingly concerned about the escalating war of words (and actions!) between China and the US (Friday). Trump ended the week saying that “If we made a deal, I could imagine Huawei being possibly included in some form or some part of it”, so it sounds like he might have to backtrack a bit on his current damning rhetoric on Huawei and its involvement in 5G
• Prime Minister Theresa May announced her resignation on Friday. She will officially resign as Tory leader on Friday 7th June (immediately after Trump’s state visit to the UK) with a leadership contest commencing the following week and the whole process being completed by the end of July. Simples. Frontrunners to be her replacement include Boris Johnson (mixed popularity at home but unpopular in Europe, making a further extension of Article 50 trickier), Michael Gove (leading Brexiteer, still reviled by many teachers after his time as education secretary, has a reputation as a back-stabber, but more likely to be able to unite Conservative factions), Sajid Javid (quite popular, voted Remain but has tried to burnish his Brexiteer credentials of late), Jeremy Hunt (a strong Remainer, although has since become more Brexiteer, leaving some not sure where he actually stands currently), Dominic Raab (leading eurosceptic, BoJo-like candidate in terms of Brexiteer creds but with less baggage and no floppy hair) and Matt Hancock (young – only 40 years old – and could be a leading candidate if the party wants someone with less baggage).  There are more – so if you are interested, have a look at this online article from the BBC that gives you a list of runners (and potential runners) plus a handy infographic on how the leader will be chosen. I predict that we will all be bored senseless by the time a choice is made!

• Chinese telecoms equipment giant Huawei got a hammer blow this week as Google denied it the use of Android (Tuesday) meaning that new Huawei phones won’t be able to access apps such as Google Maps and YouTube while existing phones won’t be able to update. Big problem. This was then followed by British chipmaker ARM and mobile network companies EE and Vodafone severing ties (Thursday) with the company. There was speculation that Chinese CCTV supremo Hikvision could be next in line to get the Huawei treatment (Thursday), which would be disastrous given how ubiquitous their products are
• Qualcomm had a major setback (Thursday) as a federal judge just ruled that the company unlawfully restricted competition in wireless chips – agreeing with findings from the Federal Trade Commission in its antitrust lawsuit against Qualcomm. The company makes most of its money from licencing its chip designs rather than selling the chips themselves, so this could be painful for the company as their royalties will plunge

• It was a good week for Home Depot (Wednesday) – whose growth rate slowed down but then average sale per customer and number of transactions rose in the first quarter – and Sephora (Wednesday) which announced ambitious global expansion plans
• It was a bad week for US DIY retailer (and smaller competitor of Home Depot) Lowe’s (Thursday) on disappointing market share numbers, M&S (Thursday) who announced disappointing numbers and more store closures as part of the ongoing restructuring, French supermarket operator Casino (Friday) whose shares were suspended in Paris on financial concerns, Arcadia (Thursday) – owner of brands including Topman and Miss Selfridge – because its nightmares continue as it announced cuts to stores and staff numbers in order to survive and Halfords (Wednesday) which announced disappointing profits and a more downbeat outlook
• I thought that it was interesting to see Urban Outfitters offering a new clothes rental service (Wednesday) for $88 per month. Apparel rental is gaining in popularity at the moment, so it will be interesting to see whether its momentum continues…

• Jamie Oliver’s restaurants fell into administration (Wednesday) becoming the latest high street eatery to fail. Hindsight is a wonderful thing – but he probably fell foul of expanding too quickly and spreading himself too thinly as competition intensified. It goes to show that getting a CVA does not guarantee long term survival
• It wasn’t all bad on the UK high street, though, as Mitchells & Butlers announced a solid jump in pre-tax profits and positive outlook for its 1,700 pubs and restaurants (Friday). The parent of All Bar One, Harvester and Toby Carvery shows that there’s still money to be made, even in these difficult circumstances. Pret A Manger bought rival Eat (Thursday) for an undisclosed sum and its chief exec outlined plans to convert most of Eat’s 94 outlets to Veggie Prets by the end of next year. Will it successfully surf the wave of veganism/vegetarianism, or will it die a slow death??
• Embattled travel company Thomas Cook got an offer for its northern European business (Friday) from private equity company Triton Partners, which bought the Dutch-Swiss travel company Sunweb Group in December. It’s been fielding offers for various bits of its business given everyone is fully aware of the nightmare it’s having at the moment, so this is just another one in the queue. Nothing’s been finalised yet, so we’ll just have to see how this works out

I thought I’d leave you with my favourite “alternative” story of this week: World’s tiniest McDonald’s opens in Sweden, welcomes bees as customers (Mental Floss, Michele Debczak https://tinyurl.com/y32r2nmq). There was a lot of buzz surrounding this story…

Have a great Bank Holiday weekend, whatever you’re up to!