Watson’s Weekly 29-10-2022

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.

Sunak in the hot seat, Big Tech’s big week and Musk “wins” Twitter…

IN THE US – Stronger Q3 exports helped US GDP return to growth (Friday), which Biden will love, but I wonder how long it’s going to last given the stubborn strength of the dollar. Underlying consumer spending was weak, so it’ll be interesting to see whether this growth will be sustained. The Fed is expected to implement another 0.75% interest rate hike to dampen inflation next week.

IN CHINA – President Xi Jinping officially got a third term as Communist Party leader (Monday) and did the time-honoured thing of kicking out any critics and filling vacant positions with his mates. The publication of China’s GDP growth figures was delayed (Monday), but presumably the real reason was that the number was way short of expectations and no-one wanted to kill Xi’s positive vibes (in case they got sacked?) in his big conference. Markets wobbled on concerns of more potential Covid lockdowns in China (Tuesday) and ongoing worries about the parlous state of its real estate sector.

IN EUROPE – the ECB doubled interest rates from 0.75% to 1.5% (Friday) in another belated attempt to combat rampant inflation. Inflation in the ‘zone reached 9.9% last month versus 9.1% in August, so it looks like it’s going stronger. IN ITALY – the new PM, Giorgia Meloni, was sworn in over the weekend (Monday) and all eyes will be on her stance towards the EU. She has been known to be very critical of Brussels.

IN THE UK – we got a new PM (Tuesday) as BoJo dropped out and Mordaunt didn’t garner enough support. Cue the time-honoured tradition of the new boss giving supporters plum jobs (Wednesday) as Jeremy Hunt stayed chancellor and other appointments were made. Markets calmed enough to allow the Autumn Statement to be delayed (Thursday) from October 31st to November 17th. This will give the government more time to consider their next move as Sunak is already pondering tax rises (Friday).

In OIL & ENERGY NEWS…

• The IEA reckons that oil and gas producers will make $2tn thanks to high oil prices (Thursday) in the wake of the Ukraine war. Shell seems to be bracing itself for windfall taxes (Friday) as it turns out it has made global profits of £30bn so far this year.
• Gas prices have fallen to their lowest level since June (Tuesday), which should come as welcome news to governments scrambling to pay for energy bailouts. Energy prices have reached such high levels, though, that BASF said it’s going to downsize “permanently” in Europe (Thursday). Given that this is the world’s biggest chemicals company, you wonder whether other producers will follow suit.
• One of the first things that PM Sunak did when he took office this week was to reinstate the fracking ban (Thursday), which will have pleased environmentalists and frustrated companies like Ineos, who were probably looking forward to “get fracking” as per Truss’s directive. Other London-listed frackers IGas Energy and Edgon Resources saw their share prices take a bath on the news.

• Musk bought Twitter (Friday) and then promptly fired the CEO and CFO. He also made conciliatory noises to advertisers having previously indicated that he wanted to wean Twitter off over-reliance on advertising being the main income stream.
• Amazon shocked the market (Friday), saying that its profits could be wiped out over Q4 – usually the strongest quarter – as it battled with inflation and intensifying competition.
• Google had a nightmare (Wednesday) as YouTube saw falling ad revenues and Google overall had a fifth consecutive sector of slowing sales growth.
• Microsoft’s earnings weakened (Wednesday) thanks to slowing PC demand and a stronger dollar.
• Meta’s shares fell to new lows (Friday) as investors reacted to the fall in revenues and increased concerns about how much money Zuckerberg is throwing at the metaverse and AI.
• TikTok said it would be launching a standalone gaming channel (Friday), which shows an interesting direction after it recently said that it was looking at music streaming.
• Shopify’s revenues beat market expectations (Friday), which helped to send its shares up by 17%.
• The FCA sounds like it’s going to be looking into Big Tech’s interest in financial services (Tuesday). Apple, Google and Amazon are all having a bit of a dabble in financial services, but I think it’d be good to get regulators involved as early as possible before things get out of hand.

• IN EUROPE – profits slid at UBS (Wednesday) thanks to wealthy clients doing nothing while Credit Suisse announced major job cuts and a cash injection from the Saudis (Friday) to help turn things around after various scandals and a £3.5bn loss.
• IN THE UK – Barclays beat forecasts (Thursday) as it benefited from higher interest rates while Lloyds saw profits fall sharply (Friday) and it painted a very gloomy picture for next year. Santander announced a fat impairment charge for potential loan losses (Thursday), but it has also done pretty well from the higher interest rate environment. In the Asia-centric British banks, HSBC unveiled big profits (Wednesday) which came in above market expectations while Standard Chartered suffered more due to its exposure to the highly indebted Chinese real estate sector (Thursday). Crudely speaking, banks generally tend to do well when interest rates are higher because there is more scope to make profit if there is a wider gap between what they charge borrowers and what they pay out to depositors. Given the current economic backdrop, it will no doubt be tempting for banks to downplay their success in order to avoid the government’s beady eye, especially as everyone is constantly talking about windfall taxes!

• EV exports from the UK overtook those of petrol and diesel models for the first time last year (Thursday), a historic development in automotive history!
• Mercedez-Benz pulled out of Russia (Thursday), having dragged its heels somewhat. It is thought that it will have an option to buy it back at a future stage.
• Tesla cut prices in China (Tuesday) as competition from domestic makers like BYD and Great Wall intensified.

• 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! 

This week, my favourite “alternative” video was the one about how to cut an onion the Michelin-starred way! It was so good it brought tears to my eyes 🤣