Watson’s Weekly 28-05-2022

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.

• It was an interesting week for the US – President Biden made yet another embarrassing gaffe. He said that the US would respond militarily if China invaded Taiwan (Tuesday), a statement that had to be hurriedly walked-back by his staff given its overtly aggressive tone. The minutes of the latest Fed meeting were released this week and it looks like US interest rates have further to go in the upward direction (Thursday). Mind you, there is a fine line to be trodden because hiking interest rates too much may cause recession, a danger that the Fed would have been reminded of given the unexpected contraction in Q1 GDP (Friday) that was unveiled this week.
• In CHINA – Premier Li Keqiang said that the world’s second biggest economy will struggle to grow in the current quarter (Thursday), which would suggest that the prospects for year-end GDP growth of 5.5% look pretty shaky. Ongoing lockdowns are really taking their toll on China’s economy.
• In RUSSIA – Putin made double-digit increases to the national minimum wage and pensions (Thursday) against the backdrop of skyrocketing inflation, more Western sanctions and efforts to tame the rouble, which entailed an interest rate cut of 3% (Friday).
• In the UK – chancellor Sunak came under increasing pressure to bring in concrete measures to help households with rising energy bills and not only did he cave, he came up with a package that was way more comprehensive than expected (Friday). On the subject of energy bills, the CEO of E.ON UK said that he thought energy bills would remain higher for longer (Monday) and it turns out that National Grid is considering making wholesale electricity prices region-dependent (Wednesday), rather than being flat across the board. Controversial, no?
• In ENERGY NEWS – Siemens Energy said that it would be buying the 33% of Siemens Gamesa that it doesn’t already own (Tuesday) to give it more control over this part of the business and there have been warnings of impending energy problems in the US (Tuesday) as drought in the south west has hit water levels, impacting hydroelectricity generation.
• In CRYPTO NEWS – the ECB criticised crypto again (Wednesday), reiterating the danger it poses to mainstream banking and, reflecting on recent crypto asset weakness, it looks like the only big winners will be crypto exchanges (Thursday) because they make money on whether you buy or sell. Still American VC group Andressen Horowitz has just launched a new crypto-focused $4.5bn fund (Thursday).

Meanwhile, in other developments this week,

• Australia got a new Prime Minister (Monday) as the previous guy, Scott Morrison, saw his gamble at calling an election failing miserably.
• Italy’s economy is losing momentum (Tuesday) due to its reliance on Russian energy.
• The global minimum corporation tax deal agreed by the OECD last year had a wobble as it turns out that it won’t be coming into force until 2024 (Wednesday) instead of the original plan for 2023.
• The UK’s FCA is looking at easing/simplifying the UK listing rules (Friday) to get a bit more IPO action going.
• There were some interesting business exits this week. Starbucks decided to exit Russia (Tuesday) after 15 years in the country and Airbnb quit China (Tuesday) as it just couldn’t cope with the ongoing uncertainty of lockdowns, giving local domestic operators more business opportunities (Wednesday).

• In INVESTMENT NEWS – ESG funds are taking a pasting at the moment (Monday) as they are generally tech-heavy given their relatively benign environmental credentials but it was interesting to see that the US SEC fined BNY Mellon a token amount of a fine (Tuesday) for making misleading claims about being ESG-friendly, something that I’d expect to see more of as time goes on. Meanwhile, the US Department of Justice wants to crackdown on acquisitions by private equity firms (Tuesday) as there have been a lot of instances where they have “rolled up” or “hollowed out” industries before cashing out. Closer to home, Qatar pledged to invest £10bn in the UK over the next five years (Wednesday) in tech, fintech, healthcare, infrastructure and clean energy sectors after talks with our party-loving PM BoJo.
• In FINANCIALS NEWS – JP Morgan cautioned that overseas digital bank losses could exceed $1bn (Wednesday) and Klarna cut 10% of its employees (Tuesday) while it said that it is changing tack and transitioning from the current growth phase to a profitability (Friday).

• Apple announced that it was considering production outside China (Monday), significant because, currently, almost 90% of Apple products are made in China.
• Microsoft announced that it will be slowing its hiring plans (Friday), becoming the latest Big Tech company to do so after Meta Platforms, Twitter and Uber have made similar announcements recently.
• Snap announced a profit warning (Tuesday) as it continued to struggle with the change in Apple’s privacy policy, prompting debate on the broader subject of potential problems in the advertising market (Wednesday).
• Twitter continued to make the headlines this week as investors kicked an Elon Musk ally off the board (Thursday) while founder Jack Dorsey’s term expired, meaning that he wouldn’t be on the board for the first time since 2006. Twitter was also fined $150m for privacy violations (Friday) in a federal privacy suit, something I think could set an interesting precedent for other harvesters of user data.
• Nvidia unveiled strong quarterly sales (Thursday) but had a cautious outlook given ongoing supply chain problems.
• Zoom put in a decent performance (Tuesday) and was even confident enough to raise its earnings forecasts for the year. The share price got a nice 15% bump up on the news but it has still suffered from investor rotation out of tech as it has pretty much halved this year.
• There was also news of a massive acquisition as chipmaker Broadcom made a formal offer to buy software company VMware for a whopping $69bn (Friday) in a move that would transform it into a diversified tech company.

• Consumers continue to struggle with higher grocery prices (Wednesday) but, according to HomeServe, we are spending money on insulation (Wednesday) while food-to-do companies like SSP (Wednesday) report that they are seeing business return to pre-Covid levels.
• In RETAIL NEWS – big cheeses departed from JD Sports (Thursday), M&S (Thursday) and Pets At Home (Thursday), with varying degrees of success over their respective tenures. Retailers are seeing some interesting trends as Chanel continues to benefit from consumer thirst for luxury (Wednesday) and Ted Baker is benefiting from people returning to offices and going to weddings (Friday). B&Q’s owner, Kingfisher, is sticking with full year forecasts (Tuesday) despite a trickier quarter and Asda shoppers are spending less (Friday) and switching to own brands while Britain’s egg farmers voice concern about a rise in egg imports (Monday), warning that many may leave the industry all together if supermarkets continue to squeeze them on prices. Over in the US, we saw that Macy’s and Dollar Tree posted decent sales performances over the latest quarter (Friday), which contrasts with recent weakness from Walmart and Target. Meanwhile, Abercrombie and Fitch got very downbeat (Wednesday) thanks to rising costs and an expected drop in consumer demand.
• In EMPLOYMENT NEWS – there was some insight on wage trends as research from the High Pay Centre thinktank showed that the boss/worker pay gap is widening (Monday) and ONS data showed that those on higher incomes are getting paid more and at a faster rate (Wednesday) than those on lower incomes. Wages for those in finance, professional services and IT were particularly impressive.

• In the UK – car production fell by 11% in April (Thursday) as the impact of China lockdowns continued to impact supply chains, VW announced a payout to UK drivers (Thursday) to settle a five-year legal battle Auto Trader continues to be bullish about the prospects for the used car market (Friday) as many new vehicles continue to face long lead times.
• In BATTERIES NEWS – Stellantis and Samsung announced a new $2.5bn battery factory in Indiana (Thursday) as part of Stellantis’ efforts to accelerate its EV capabilities. The International Energy Agency is predicting that the cost of EV batteries will rise by 15% (Tuesday) if metals continue their current trend but despite the “hotness” of the battery market (or maybe because of it?) and Johnson Matthey sold its high-performance EV battery business to EV Metals for £50m.

• In REAL ESTATE NEWS – a two-tier commercial real estate sector in the UK continues to emerge (Monday) as “primary” eco-friendly offices are seeing strong demand whereas “secondary” offices that need expensive upgrading are lagging. Warehouse demand is continuing to rise (Friday), despite Amazon taking a breather, as LondonMetric reckons the onshoring of supply chains and continued growth in e-commerce will still drive demand. Meanwhile, holiday rental companies are trying to source more accommodation (Monday) as tourist numbers continue to climb.
• In TRANSPORT NEWS – Airbus said it was trying to build a financial buffer (Monday) to withstand any future turbulence and it turns out that P&O, DFDS and Irish Ferries are aiming to operate only electric ferries on short sea-Channel crossings (Monday).
• Gorillas laid off 300 staff (Wednesday) as it said that it is transitioning from growth to profitability. I suspect that we will soon be seeing more consolidation in this industry as scale is key here in order to push down costs.

• 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! 

My fave “alternative” story this week by far is Confusing optical illusion of a man’s jumper changing colour leaves people baffled (The Mirror, Julia Banim). Amazing editing!