Watson’s Weekly 27-03-2021

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.

• In the US, the latest stats from the Department of Labor showed that the number of Americans claiming unemployment benefits fell to its lowest level since the start of the pandemic (Friday). It looks like the combination of a vaccine rollout and stimulus payments are working their magic and economists are raising their GDP estimates as a result.
• China’s recovery is continuing (Monday) according to the latest data from economists at French bank Société Générale (aka SocGen) who believe that China has benefited the most from Western economies being sidelined by the pandemic in terms of trade.
• In the UK, things seem to be looking up. UK inflation fell unexpectedly (Thursday), service sector activity overtook manufacturing for the first time in a year (Thursday) and then Abu Dhabi agreed a multibillion-pound investment into British health, tech, infrastructure and clean energy industries (Wednesday).
• The Suez Canal got blocked this week by a massive tanker and some say it could take weeks to dislodge (Friday). However, it doesn’t sound like there’s anything too sinister about it, so I would see this as a short term blip where freight rates will climb, delivery times will be longer and oil prices might rise.

• Chinese car manufacturer Geely announced a new luxury electric car brand, Zeekr (Wednesday) which will make its first deliveries in Q3. This could certainly increase competition for Tesla, which is currently trying to smooth relations with China as military personnel and employees of some state-owned enterprises were banned from driving Tesla cars due to security fears (Wednesday). Tesla needs China as it represents about 20% of its global revenues.
• In other EV news, Audi said that margins of EV and ICE vehicles would reach parity within the next two years (Tuesday), Arrival floated on the New York Stock Exchange (Friday), Ford ditched the Mondeo to focus on EVs (Friday) and research from the SMMT showed that the UK needs to install WAY more chargers (Friday) if we are to hit government deadlines for EV sales.
• The chip shortage continues (Monday)! It was made much worse for car manufacturers as a fire at Renesas wiped out a load of production (Monday), the majority of which was destined for automotive manufacturers – making an already bad situation worse. GM was the latest car manufacturer to cut production because of a shortage of chips (Thursday). On the plus side, Intel has earmarked $20bn to increase production (Wednesday) but that’s not going to be anything like an overnight fix.

• Consumer confidence appears to be returning as Zoopla reported rising demand for residential property (Tuesday) and unemployment fell unexpectedly in the latest quarter (Wednesday), which really goes to show you just how important furlough has been in avoiding an even worse situation.
• So what are the expectations then? Well the government advising us not to go on overseas holidays hit share prices of affected areas hard (Tuesday) although opinion seems to be split on this. On the one hand you have Ryanair increasing its flight schedule (Thursday) but then Tui is reining in its offering (Friday). On the plus side, cinemas are opening up. The world’s #1 cinema chain, AMC Entertainment, announced openings (Monday), as did world #2 Cineworld (Wednesday). They sound like they are playing things down, but surely they will have a bumper year what with moviegoers looking forward to a year of postponed back-to-back blockbusters and the prospect of seeing something on the big screen!
• There are hopes that some lockdown pursuits will persist. Adidas is moving into walking, hiking and skiing and ditching other areas (Wednesday) as it bets that people will continue a new-found love of the outdoors. Kingfisher has benefited from a strong performance from B&Q (Tuesday) and Travis Perkins has seen its DIY chain Wickes do so well that it’s thinking of splitting it off and giving it a separate listing (Thursday).
• When lockdown lifts, working from home will become more prevalent – especially for employees of Nationwide (Thursday), but when we get there conditions may not necessarily be great, as per the “leaked” report and subsequent response at Goldman Sachs (Wednesday).

• In IPOs, Trustpilot had a decent market debut on the London Stock Exchange (Wednesday), but despite all the hype some big investors say that they won’t participate in Deliveroo’s IPO next week (Friday) ostensibly because they don’t like the dual-share structure and because they don’t agree with the way that Deliveroo treats its employees/contractors. We’ll see soon enough whether there’s any tweaking to be done…
• Other than that, in M&A news, Canadian Pacific Railway put in a takeover bid for Kansas City Southern worth $29bn (Tuesday), effectively as a bet on the trade pact between Canada, US and Mexico. Investment funds Ardian and GIP made a €11.9bn offer to buy the majorty of French water company Suez (Tuesday), which could torpedo a hostile takeover bid from rival Veolia. Microsoft was considering the purchase of messaging platform Discord for at least $10bn as it tries to broaden its offering (Friday). Private equity firm Blackstone made a $6.2bn bid for Australia’s biggest gaming and entertainment operator Crown Resorts (Tuesday), which makes some strategic sense given that it bought the Bellagio in Las Vegas from MGM Resorts in October 2019. Staying on the subject of gambling, US gaming company Bally’s offered $2bn to buy London-listed Gamesys (Thursday) as the theme of US and UK companies coming together to make the most of the potential growth opportunity of increased levels sports betting in the US continues. At the “smaller” end of the scale, Mondelez bought Grenade (Tuesday), which makes the UK’s #1 protein bar Carb Killa. The deal was rumoured to be worth about £200m – not bad for a company started by a husband-and-wife team in 2010!

• Watson’s Yearly updates: These will be left until the next edition of Watson’s Yearly that will be published shortly

My favourite “alternative” story this week was These beautiful pieces of sushi aren’t actually sushi (SoraNews24, Casey Baseel). How amazing is this?!?