Watson’s Weekly 25-09-2021

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.

• US – the Fed made noises about edging towards raising rates (Thursday), but seems it’ll be next year. Half of the Fed’s policymakers reckon it’ll happen in the first half of next year
• Europe – Germany’s economic recovery is being held back by supply chain problems (Thursday) and as car production accounts for about 5% of Germany’s GDP, this is not a surprise. Also, there’s uncertainty in and about Germany given the election this Sunday. The polls indicate that the result could be very close with 40% undecided according to one! Meanwhile in the UK, Bank of England leaves interest rates unchecked (Friday) and the UK’s economic recovery slowed down in Q3 according to the latest IHSMarkit/CIPS PMI as prices rise due to producers passing higher input costs onto the end consumer. The services sector is growing but manufacturing is suffering because of supply chain problems.

In ENERGY NEWS…

• Gas shortages are hitting the UK and will be hitting the US as well (Monday) as gas supplies in America have been depleted by the cumulative effects of a number of weather events including a freeze in Texas, June/July saw drought which hit hydropower very hard and last month saw Hurricane Ida effectively shutting down the Gulf of Mexico’s entire gas production capabilities. The IEA urged Russia to boost supply to Europe (Wednesday) and the US waded in to the gas drama (Thursday) voicing objections to Europe becoming more dependent on Russia but Putin holds the upper hand on Nord Stream 2 (Thursday). It would appear that he is using Europe’s gas shortage as a useful lever to compel them to approve the opening of the pipeline, which is ready to go. In the meantime, two more UK energy suppliers went bust (Thursday) – Avro Energy and Green – due to higher prices. More failures are expected and the industry is appealing for a bailout. Mind you, not everyone is going to suffer here as winners emerge on gas price increases (Friday). “Winners” include Serica Energy (quoted on AIM), Harbour Energy (which is in the FTSE 250) and Equinor (the Norwegian stated-backed oil and gas group) who will benefit because the first two are more exposed to spot prices (i.e. get more upside when prices go up as they are doing now) and the third one is a big gas supplier to Britain. Higher gas prices have had a directly detrimental affect to CO2 production in the UK (Tuesday) as CF Industries’ decision to shut down its plants last week caused panic before the government stepped in (Wednesday). Mind you, it seems that Europe is going to be next on the CO2 shortage front (Friday) according to Nippon Gases, one of the world’s biggest CO2 distributors. The UK government has intervened in order to keep CF Industries’ plants open, but recently Norwegian fertiliser producer Yara closed down about 40% of ammonia fertiliser production capacity in Europe because of skyrocketing gas prices. It sounds like the drama is only just beginning…
• In RENEWABLES DEVELOPMENTS, BP’s is to double its solar capacity (Monday) as Lightsource BP, the oil major’s joint solar venture, will more than double this business’ global expansion by 2025 after agreeing a finance deal worth $1.8bn to develop a ton of solar farms by 2023. BP has among the punchiest renewable energy targets for a major oil company. Shell said it will sell Permian assets to ConocoPhillips for $9.5billion (Tuesday) highlights the sale of all of Royal Dutch Shell’s assets in the Permian Basin – America’s most active oilfield – as the European oil super-major advances its efforts to cut carbon emissions and put money into renewable energy.

In SUPPLY CHAIN NEWS,

• BP closed service stations (Friday) because a shortage of delivery capacity (not due a lack of fuel) was leading to service stations running out of fuel. This caused mass-panic buying of fuel, which made the situation way worse. BoJo then relented to pressure at the end of the week and authorised a temporary visa scheme for up to 10,000 foreign workers in certain professions – including lorry driving – after continued calls from industry to act.
• DFS suffered delays (Friday) as lead times are now fifteen weeks versus the previous eight weeks because of – you’ve guessed it – the lack of lorry drivers, meaning that goods are just sitting around at ports waiting to be picked up. Other furniture manufacturers (including Ikea) have suffered the same problems recently.
• Microchip shortage to last until 2023 (Tuesday) according to analysts at IDC due to increased production coming online from Intel, TSMC and Samsung. It reckons that we’ll be back in a state of oversupply in 2023 and that there are already signs that things are getting better.

In CRYPTO NEWS…

• Coinbase abandoned plans to launch new digital asset lending product Lend (Tuesday) as America’s biggest cryptocurrency exchange bowed to pressure from the Securities and Exchange Commission, who had threatened legal action had it gone ahead. Meanwhile, the US Treasury imposed sanctions on a crypto exchange called SUEX (Wednesday) as the US Treasury, who had been working with the FBI, said that it had deliberately “facilitated illicit activities for [its] own illicit gains”. The sanctions mean that US citizens and companies will be blocked from making transactions with it.

• Evergrande is the main story this week! Investors got increasingly nervy about whether Evergrande was going to be able to make an interest payment this week (Tuesday) but it managed to calm markets (Thursday) although the Chinese government is telling local governments to get ready for if Evergrande DOES fail (Friday), which doesn’t inspire much confidence!
• Elsewhere, in China clampdowns, the owner of TikTok (and its Chinese version Douyin), ByteDance, has announced that it is going to restrict access to users under 14 years old (Monday) to 40 minutes per day with a new “youth mode”. Content for younger users on Douyin will be made up of science experiments, museum exhibitions and history lessons!

• British Airways got a boost as US skies look like opening to Britain and Europe (Tuesday) and the share price of British Airways owner IAG got a nice 10% bump as President Biden announced that fully vaccinated travellers from Britain and Europe would be allowed to travel to the US from November, after an 18-month ban.
• Plane makers are also getting more confident as Aircraft sales are showing signs of recovery (Monday). The recent spat between Boeing and Ryanair shows that the aircraft makers are getting their mojo back following the lows they experienced last year. They are currently arguing about the supply of new Max 10 jets, but this will probably give rival Airbus confidence as well. In addition to that, Boeing’s predicted that demand for new premium priced cabins and travel overall will pick up in 2023 (Tuesday) and that demand for new planes will increase because existing fleets are too thirsty, too polluting and cost too much to operate

• UK consumer confidence had a wobble (Monday) according to the latest findings from the Centre for Economics and Business Research (CEBR) which found that consumer confidence had fallen in August. Having said that, UK consumers are still optimistic overall. The main areas of concern were house prices, job security and the potential deterioration of personal finances. Food bills are expected to rise as skyrocketing input costs are passed on to the consumer (Thursday).
• On the high street, we appear to be eating more than drinking (Friday). Mitchells & Butlers, Fuller, Smith & Turner and The City Pub Group published trading updates yesterday and while recovery was strong in the provinces, it has been less so in city-centres due to the lack of tourists and commuters. Spending in restaurants and food-led pubs has been increasing and it is interesting to note that Wagamama owner The Restaurant Group has found that although customer numbers are still lower than pre-2019 levels, the average spend per customer has increased.

• In IPO NEWS…Toast made a strong debut (Thursday), as did Universal Music (Wednesday)
• In M&A NEWS…Netflix bought Roald Dahl’s body of work (Thursday), DraftKings made an offer for Entain (Wednesday) but MGM Resorts is in prime position to block this approach (Thursday), EA bought Playdemic (Tuesday) in the latest American purchase of a UK developer, Pimlico Plumbers was bought by Neighbourly, a US home services company (Tuesday), UK law firm Mishcon de Reya squeezed in the acquisition of law firm Taylor Vinters ahead of its flotation (Tuesday) and National Express announced an interest in pursuing rival Stagecoach (Wednesday)
• There was a potential battery breakthrough (Thursday) as Northampton-based Mahle Powertrain and Woking-based Allotrope Energy have come up with a new lithium carbon battery that can be charged in 90 seconds (albeit the charge won’t be massive). It’s working on a smaller battery to power delivery mopeds that normally take 30 minutes to fully recharge, but the aim is to scale it up! Other advantages of their battery include the fact that it uses common materials as opposed to rare earths and that it can perform consistently in all temperatures 👍.

• 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 this week were the rather tasty-sounding Tabasco Japan says you should add hot sauce to your beer, but are they right? (SoraNews24) and the talent on display in ‘I will always woof you’: German Shepherd howls along to Whitney Houston classic (The Mirror, Edward Kay). Superb!