Watson’s Weekly 27-11-2021

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 MACRO NEWS…

• US – incumbent Jerome Powell got the nod for another four year term (Tuesday), but the pressure is going to be on because inflation continues to go wild!
• EUROPE – it all started off badly with anti-lockdown protests in Rotterdam, Brussels, Vienna about new movement restrictions. There are worries that a fourth wave could send the fragile European economic recovery into reverse (Tuesday) and the Euro fell to new lows. This was all exacerbated by the Bundesbank warning that inflation could go higher, tricky for the Eurozone because Germany accounts for 29.6% of the EU’s GDP. Talking about GERMANY, Olaf Scholz is one step closer to succeeding Angela Merkel as Chancellor as he announced a three-way coalition comprising of the Social Democrats, Greens and Liberals (Thursday) against the backdrop of ongoing subdued business confidence (Thursday) and consumer confidence (Friday). In the UK, UK factories are struggling (Thursday) and although they are scraping by with existing inventory, that won’t last forever. The majority of companies are likely to be raising prices in the next few months, which is likely to impact on inflation. In the meantime, Spain managed to pass its biggest ever budget (Friday), no mean feat considering the perilous state of the government.

…which brings me on to the subject of INFLATION. Yes, I know it’s kind of boring but it IS very important at the moment!

• New Zealand raised its interest rate for the second time in two months (Wednesday) in order to tame inflation – so it’s now 0.75%. On the other hand, Turkey’s president Erdogan remains defiant and maintains his stance of cutting interest rates to curb inflation (Wednesday), which goes against all collective conventional wisdom, which is why investors sold off the lira in horror, which could lead to citizens taking a number of dramatic courses of action (Thursday). Meanwhile, Bank of England governor Andrew Bailey threatened not to give the market any policy guidance (Wednesday) given the flak he took recently for not doing anything to curb market expectations of a rate rise. He just needs to put his big boy pants on and do his job IMO rather than just going off in a sulk 🤣.

Things got quite dramatic THIS WEEK IN OIL because…

…the US, China, India, Japan, South Korea and the UK got together this week to release 70m barrels of oil onto the market to try to push oil prices down (Wednesday). However, this is tiny in the scheme of things. Americans consume 50m barrels in 2.5 days, OPEC+ countries produce 40m barrels of oil per day – so this does seem like a token effort! The IEA appealed for Russia in particular to pump out more oil (Thursday), but it seems that Russia and Saudi Arabia were annoyed by other countries ganging up, so they might punish this uprising by not opening up the taps as they were due to do next month. This sounds terrible to say, but markets plunged and oil prices fell on news of a new Covid variant on Friday, so oil prices may get/stay weaker anyway…

• KKR made a massive €33bn buyout offer for Telecom Italia (Monday), which could prove to be one of the biggest ever private equity buyouts of a European company.
• The private equity bods are at it again as Hellman & Friedman and Bain Capital clubbed together to buy health-tech company Athenahealth for $17bn (Tuesday). Private equity funds have a lot of money sloshing around right now so I think there is going to be plenty more of this kind of activity going on!
• Ericsson bought Vonage (Tuesday) to broaden its service offering.
• Netflix bought Scanline (Tuesday) in a deal that will enhance its content going forward given Scanline’s experience with visual effects on productions including Game of Thrones, Zack Snyder’s Justice League and Stranger Things.
• Commodities trading house Vitol agreed to buy petrol stations operator Vivo for $2.3bn (Friday).

• HP is benefiting from workers returning to the office (Wednesday), as is Pret (Wednesday) although Compass is trying to evolve by developing “dark kitchens” (Wednesday) to service companies who can’t justify a full canteen service.
• Companies are trying to evolve with customer behaviour that changed under lockdown. Twitter is teaming up with Walmart to experiment with online selling (Tuesday) and Macy’s is selling NFTs (Tuesday)!
• It’s also interesting to see that advertising agency M&C Saatchi is bouncing back strongly (Wednesday) from a disastrous time under lockdown. All the advertisers seem to be saying the same thing, so it’s clearly not a one-off.

• US consumers are very downbeat on their own finances, but jobless claims are at their lowest since 1969 (Thursday) and crowds are expected to return in force at malls and stores over Thanksgiving weekend (Friday). UK consumers are facing increasingly unaffordable house prices (Thursday) and the prospect of more expensive coffee (Monday) but they continue to spend (Tuesday). British shoppers are buying early this year (Friday), according to the latest figures from the CBI. This stands in stark contrast to how German consumers are feeling right now (Friday).
• US retailers are having mixed fortunes as Best Buy and Dick’s Sporting Goods report slowing online sales (Wednesday), Gap faces supply chain issues (Wednesday) and Dollar Tree has to raise prices (Wednesday) because of higher costs and inflation generally. In the UK, M&S continues to revamp its clothing offering by buying into Nobody’s Child (Wednesday) and supermarket Lidl is pretty confident going into Christmas (Thursday) although online-only electrical goods retailer AO World announced another profit warning (Wednesday) citing supply chain problems, higher costs etc.
• In LEISURE, Nando’s drew a line under a disastrous year (Thursday) and reckons that it’ll return to pre-Covid profitability levels in February 2022. The choice of fast-food joints in the UK is about to get broader as Wendy’s announced a European expansion (Thursday).

• British luxury accessories brand Mulberry announced plans to expand production in the UK (Thursday), a trend I expect to see more of as Brexit and supply chain problems mean that it makes increasing sense to keep production closer to home.
• In REAL ESTATE, prospects for the office market are mixed as prime property is seeing strong demand (Monday) but landlords are facing increased costs (in terms of upgrading properties to meet tightening climate regulations) and competition for tenants given the amount of space flooding the market currently. It was really interesting to see Britain’s first 40-year mortgage this week (Monday), something that sounds sensible given longer life expectancy and higher housing prices. I also wonder whether this will mean that it will be easier for older people to get mortgages. It may well encourage other providers to offer alternatives products.
• London attracted its first SPAC this week (Wednesday), so the clock will start on it finding a suitable asset to get excited about.
• Energy provider Bulb went into administration this week (Tuesday), but it’s so big that rivals can’t take it on, hence it is being kept alive by the taxpayer until something can be done about it. Its demise was followed by Entice Energy and Orbit Energy (Friday) later in the week.
• The travel industry is bracing itself for more turbulence (Friday) as concerns about another Covid wave threaten bookings for flights and holidays.
• Autonomous taxis got approval to operate fare-charging services in Beijing (Friday) and it will be the first capital city in the world to do so.
• Tencent was dealt another blow this week (Friday) as a number of Chinese state-run companies were told to stop using (or limit their usage of) Weixin/WeChat messaging app, citing security concerns. The Great Clampdown of China continues…

• 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 Optical illusion has internet baffled – even after woman explains the trick (The Mirror, Paige Holland) as it is just so darn clever!