Watson’s Weekly 25-06-2022

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.

Governments around the world are scrabbling around to fight inflation and get energy independence as quickly as possible!

• Wall Street has had the worst first half performance since the Depression (Wednesday). Although previous plunges have turned into surges, it’s not necessarily the case that this will be repeated on this occasion because macro pressures continue to build.
• IN THE US – Goldman Sachs analysts reckon that the chances of recession in the next 12 months have doubled (Wednesday) because they think that the Fed will prioritise inflation over growth, a hypothesis that seemed to be borne out by louder rumblings that the Fed could go for another 0.75% rate rise in July (Friday).
• IN CHINA – President Xi has committed to hit the previously-stated full-year 5.5% GDP growth target (Friday), although consensus believes it will be more like 4.1%. This is despite the prospect of strict Covid lockdowns, although worries are now increasing about the potential effects of a new flu epidemic (Friday) due to pretty much all resources being funnelled into Covid and little else.
• IN SOUTH EAST ASIA – we are seeing a rebound of the economies of Vietnam, Malaysia, Indonesia and the Philippines in particular (Wednesday) as they recover from strict lockdowns and benefit from companies wanting to diversify their presence away from China but stay in the region.
• IN THE UK – City bosses reckon that the UK will fall into recession (Monday) and one of the MPC members is pushing for more interest rate hikes (Tuesday), in part to get the additional benefit of bumping up sterling.
• IN EUROPE – Italy’s Five Star party splintered due to disagreement over whether they should arm Ukraine (Thursday), but at least “super” Mario Draghi is in charge to stop this from turning into carnage. He seems to be particularly gifted at herding cats 🤣. France’s President Macron lost control of the French National Assembly (Monday), so he’ll have to learn some humility to stand any kind of chance of getting anything done now, and Norway put in a cheeky 0.5% interest rate rise to combat inflation (Friday), which surprised everyone!
• IN ENERGY NEWS – Germany decided to fire up coal power stations (Monday) by bringing them out of retirement as a “quick fix” but the International Energy Agency reckons that spending on coal projects will rise by 10% this year (Wednesday). It also warned European countries to prepare for Russia switching off power suddenly (Thursday) and Germany is now bracing itself for potential gas rationing (Friday). In the UK, Rolls-Royce is pushing for approval of the tech powering its Small Modular Reactors (Thursday) so that it can launch in 2029, on schedule, but there could also be competition from a plucky British start-up called Newcleo (Wednesday) which makes clean energy from waste plutonium.
• IN CRYPTOCURRENCY NEWS, after the Bitcoin carnage over the weekend (Monday), the cryptocrash looks real (Friday) because of the magnitude of the fall, contagion to other assets and the breadth of lossmaking investors. Hedge funds who shorted will be sitting pretty (as will early buyers) but when you’ve got the head of Binance painting a bearish picture (Thursday) and Celsius continuing to keep Bitcoin assets frozen (Tuesday), you know it’s bad. The icing on the cake is Ronaldo starting to sell NFTs (Friday) because you know that when celebs/footy players get involved it’s all over 🤣.

• IN CONSUMER NEWS – Consumer confidence in the UK is at a record low (Friday), which is not surprising considering that we’re all facing higher bills (Wednesday). We’re not buying bikes (Friday) or booze from Naked Wines (Friday) and a third of UK users of BNPL say they can’t make their payments (Thursday), so it’s a good job that the UK is now fleshing out new rules to cover the industry (Monday).
• IN RETAIL NEWS – inventories are piling up as lead times continue to grow (Monday) and retailers are noticing that there’s a lot of “trading down” going on (Wednesday) as households try to cut costs. There were some interesting new directions for US food delivery company DoorDash (Thursday) – which signed a deal with Canada’s biggest grocery chain Loblaw to provide ultrafast delivery services – along with Shopify diversifying into B2B services (Thursday) and China’s Alibaba looking at growth opportunities in South Asia (Thursday) in order to stir things up. Talking of Chinese e-tailing behemoths, JD.com put in a lacklustre performance (Tuesday), perhaps reflecting the impact of Covid lockdowns on business. IN THE UK, Primark launched a limited roll-out of click-and-collect (Tuesday), Frasers Group upped its stake in Hugo Boss to 30% (Thursday) and Harrods had to delay its summer “sale” because of supply chain problems (Thursday). Matalan is looking a bit dicey (Friday) not because of trading (it’s doing quite well), but because it has big debts that it needs to refinance.
• IN EMPLOYMENT NEWS, it seems that about 20% of people are planning to quit their jobs within the next year (Monday), mainly because they want to get better pay and benefits, something that they feel they can get given that profit margins continue to outpace inflation (Monday). The CIPD identified a trend among employers who are planning to cut pay and/or benefits from those who choose to work from home (Friday), although employers who do this may have to be careful how they do this.

• IN CAR NEWS – Germany objected to a 2035 cut-off date for selling combustion engines in the EU (Wednesday), Ford warned that there would be major job losses in Europe (Thursday) as it re-jigged its EV production and then Toyota announced a recall of an EV it released only a couple of months ago (Friday) because “the wheels might fall off” 🤣!
• IN BATTERY NEWS – Britishvolt is trying to get Tesla on board as a customer for its batteries (Thursday) and there was a bit of a kerfuffle about car charger rules changing (Thursday), resulting in manufacturers threatening to pull their charging products.

• IN COMMERCIAL REAL ESTATE NEWS – it looks like the number of UK property companies going bust is set to rise (Monday) but warehouse demand remains rock solid (Friday) thanks to the ongoing rise of e-commerce and the need for companies to build up inventory to combat supply chain problems.
• IN RESIDENTIAL PROPERTY NEWS – buy-to-let landlords are having a nightmare as rising interest rates squeeze profitability (Friday), modular housing developer TopHat announced plans for a new factory in Corby (Tuesday) – which could eventually help with the housing supply shortage – and mortgage lenders were told they could scrap affordability tests for buyers (Tuesday), which will ease the process slightly although loan-to-income rules will still apply.

• Talk of EY splitting its business into audit and consultancy is continuing (Tuesday) and partners could be in for massive payouts if it goes ahead. No doubt other members of the Big Four will be looking on with interest.
• Visa and Mastercard are being investigated by the Payment Systems Regulator (Wednesday) due to the quintupling of cross-border transaction fees since Brexit. They say they are looking forward to working with PSR but let’s face it, the market is pretty much a duopoly and surely they just saw a chance to rip everyone’s faces off while they could.
• Juul got banned from selling its products in the US by the FDA (Friday). This is a nightmare particularly because the US accounts for 90% of its sales globally – and I wonder whether this will spell the beginning of the end of vaping globally.
• Netflix is cooking up an ad-backed tier of membership (Thursday) but, in the meantime, it announced more job cuts (Friday) as damage limitation for the outflow of subscribers.
• Kellogg has decided to split itself into three listed companies (Wednesday) covering snacks, cereals and plant-based food. It is just the latest conglomerate wanting to focus more on core areas after similar moves last year by General Electric and Johnson & Johnson. I suspect we’ll see more of this kind of thing going forward as there seems to be a trend developing here.

• 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! 

I thought it was a bit tame this week in the “alternative” news section of Watson’s Daily, so I’ll leave you with what I think is (controversially) the superior version of Running Up That Hill – the song that’s seen a massive revival thanks to the popularity of Stranger Things.