Watson’s Weekly 24-09-2022

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.

Putin takes things up a notch, Turkey does crazy (again) and Truss outlines her battle plans…

• IN RUSSIA – Putin decided to mobilise army reserves (Thursday) for the Ukraine war effort, whilst also threatening nukes if lines are crossed re what he deems is Russia’s territory.
• REGARDING INFLATION – central banks are rushing to tame inflation (Monday) by raising interest rates by larger amounts and in a shorter time frame.

Bearing that in mind…

• IN THE US – the Fed raised interest rates by 0.75% (Thursday) for its third month in a row, bringing it into the 3-3.25% range. It hinted that there would be more rises to come, that interest rates could reach 4.4% by year end and that there would probably be a correction in the housing market as a result.
• IN EUROPE – Sweden made its biggest interest rate increase since 1993 (Wednesday), but it has dragged its feet in the fight against inflation and therefore had some catching up to do! On the other hand, president Erdogan continues to ignore conventional wisdom and Turkey’s central bank cut interest rates (Friday) – which is what he believes kills inflation. His plan’s not going so well given that Turkey’s rate of inflation breached 80% recently…elsewhere, recession fears increased in Germany (Tuesday) as the latest Ifo report made big cuts to the country’s growth estimates.
• IN THE UK – we got a mini-budget from Truss & Co. Details came out after the publication of Friday’s edition of Watson’s Daily, but some of the highlights include £45bn-worth of tax cuts with the higher rate of tax being axed, the basic rate being cut from 20% to 19%, cancellation of the planned hike in corporation tax and leaving it at 19% and a permanent cut in stamp duty. The bankers’ bonus cap will also be lifted, which I suspect will mean a flood of interest in working in investment banking in the UK…

As always, at the moment, there was a lot of ENERGY chat flying around…

• The UK’s biggest electricity generators are now saying that they’d welcome a windfall tax (Monday) in preference to what Truss has suggested (signing cut-price power contracts this winter), but there are also allegations that they are turning away new customers (Monday) which, if true, means that they are breaching their licence conditions. In the meantime, Truss has committed to cutting business energy prices by more than half (Thursday), but it’ll be funded by the taxpayer (Wednesday).
• Elsewhere, Germany’s Uniper got nationalised (Thursday), which will bring some stability to the troubled utility company (which also happens to own a number of our own power stations!) but German companies are reeling from massive increases to their electricity bills (Wednesday). Still, if you think we’ve got it bad, South Africa is suffering its worst electricity blackouts ever (Thursday) thanks to the nightmare that is Eskom. Most South Africans are now without electricity for at least six hours per day!

It is also worth mentioning that Japan had to intervene in the forex market for the first time since 1998 (Friday) to prop up the yen that was collapsing rapidly against the dollar as the Bank of Japan left interest rates unchanged and in negative territory.

In RETAIL news…

• IN THE US – Gap announced cuts in office jobs (Wednesday), reflecting what rivals at Abercrombie & Fitch and Stich Fix are doing. Gap is in a lot of trouble and just hasn’t been able to get itself out of the rut it has found itself in over the last few years. Walmart said it was slowing down hiring (Thursday), but that could be because it hired so many seasonal workers last year (rival Target hired in smaller numbers last year and aims to be hiring a similar number this year). It was also interesting to see figures from the US Commerce Department showing a marked slowdown in sales for home goods retailers (Monday), which is probably being prompted by a weakening housing market.
• IN THE UK – Mike Ashley stepped down as a director at Frasers Group (Wednesday), but don’t be too worried – he still owns about 70% of the company and has installed his son-in-law as CEO, so he will still be pulling all the strings. Ashley is a controversial character but he is actually good at what he does. Having a fresher face for the business might also be quite useful. It was also interesting to hear that Boden is setting its sights on America (Tuesday) and boosting sales over there.

In LEISURE news…

• UK retailers and pubs were holding out hopes for a mini-budget (Wednesday) to help out with energy bills, VAT and business rates. Butlin’s got sold back to the family that sold it off last year (Wednesday) as part of Bourne Leisure to US private equity firm Blackstone. I think this could be quite interesting as a staycation play if the pound continues to be weak and airfares are still expensive…still, Tui retained its full-year forecasts (Wednesday), which I thought was quite punchy, given the economic backdrop.

• Porsche’s IPO price range was announced (Tuesday) giving the company a potential valuation of €70-€75bn. The flotation of 12.5% of the company is scheduled to go ahead on September 29th and looks like it will be one of Europe’s biggest ever IPOs. Honda cut production (Friday) due to computer chip shortages and supply chain disruptions while Ford also warned that inflation and supply chain problems are having a greater-than-expected effect on production (Wednesday).
• IN ELECTRIC VEHICLE NEWS – Tesla announced a recall (Friday), although it’s no biggie as it will be one of those software updates and Hertz ordered up to 175,000 EVs from GM over a five-year period (Wednesday).

• China continues to push robotics (Monday) as its workforce is shrinking. Shipments of industrial robots to China have increased sharply over the last year. It does make me wonder whether this is a sign of things to come elsewhere as the Coronavirus showed us that labour-intensive industries were particularly vulnerable to the pandemic, giving companies more reasons to see how they could automate their processes.
• US tech has had its longest tech IPO drought in over 20 years (Monday), which is leading to investment banks cutting back on staff.
• UK watchdog Ofcom said it would investigate Big Tech’s dominance of cloud computing (Friday), which shows yet more potential pressure on an industry that is suffering at the moment.
• IN INDIVIDUAL TECH COMPANY NEWS – Meta is looking at cutting headcount (Thursday) as it’s looking to do more with less and Apple said it has entered a deal with satellite communication company Globalstar (Tuesday) to provide phone-to-satellite service to customers in the US and Canada before the end of this year. Elsewhere, Schneider Electric has agreed to buy out the rest of UK software developer Aveva (Thursday) it doesn’t already own, SoftBank looks like it’s about to sound out Samsung on a “strategic alliance” (Friday) and Tencent got its first game approval in China in over a year (Thursday).

• It looks like the end of SPACs for now (Wednesday) as SPAC cheerleader-in-chief Chamath Palihapitiya had to close down his fund and return $1.5bn to investors because even he can’t find any suitable targets! Mind you, his record isn’t great as almost 50% of the companies he’s invested in so far are at least 40% below their listing price! FWIW, I think SPACs are largely a bull-market phenomenon as investors tend to take leave of their senses in a frenzy of FOMO but then get hit badly by reality on the way down.
• IN FINANCIALS – Credit Suisse is thinking about splitting itself up three ways (Friday) as part of a management shake-up, Jupiter is considering selling its stake in Starling (Friday) and EY’s revenues have boomed (Thursday) thanks to the consulting division raking it in, which will make the upcoming vote on a possible split quite interesting.

• 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! 

It was a bit of a tricky week this week for a truly good “alternative” story, so I’ll leave you with a LUNCH IDEA instead 👍