Watson’s Weekly 30-04-2022

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.

IN BIG PICTURE NEWS...

  • It was a turbulent week for markets as they took a dive on China Covid concerns (Tuesday), but then President Xi Jingping announced a huge infrastructure investment (Thursday) that would cover transport, energy, water projects, ports and airports to stimulate the economy. Wall Street was sold off on its biggest one-day decline since September 2020 (Wednesday) on fears that growth was slowing, something that proved to be quite prescient as official figures showed a surprise contraction in the US economy (Friday), which prompted further concerns about an imminent recession (a recession happens when you get two consecutive quarters of economic contraction). Staying on the subject of America for the moment, Biden asked Congress for $33bn more aid for Ukraine (Friday), which implied that he is thinking that this war will drag on.
  • Europe is facing an increasing possibility of recession (Thursday) as the German government cut its full year GDP forecast from 3.6% to 2.2% while consumer confidence is at rock bottom. Germany is Europe’s main economic driver and so if Germany sneezes, Europe catches a cold. The market is pricing in a July interest rate hike from the ECB (Thursday), but that is not the official position. That said, the ECB admitted how rubbish its inflation forecasts have been (Friday), which may be a tiny weeny step towards them softening everyone up for an interest rate rise sometime this year rather than in 2022, which is what president Christine Lagarde has been saying. The other big bit of news from Europe this week was that Macron won a second term as France’s president (Monday), which was a big relief for the EU as it meant that it would be business as usual rather than the massive upheaval that would have happened if Le Pen had been victorious.
  • In ENERGY news, Poland and Bulgaria got cut off from Russian gas (Wednesday), which sent gas prices up by 20% (Thursday) and it turns out that Germany and Austria are trying to get around sanctions (Friday) by opening K accounts with Russian state-controlled Gazprombank, paying in with Euros for gas that they are buying from the Russians which is then turned into Roubles by the bank (!). Maybe guilt prompted Germany to send the Ukrainians tanks this week because paying for Russian gas may well be prolonging the war. Will they become Europe’s pariahs and/or will other struggling countries use Germany’s actions to justify their own circumventing of sanctions?!? I don’t think this can continue for too long. Meanwhile, in the UK, coal-fired plants that were due to be shut down in September have been asked to continue operating (Thursday) by the Business Secretary Kwasi Kwarteng. The potential energy problem prompted chancellor Rishi Sunak to reconsider a windfall tax on the oil and gas industry (Thursday), although the official line that this short term solution would damage longer term investment in renewables is still holding.
  • In SUPPLY CHAINS, the prolonged strict lockdowns in Shanghai have already damaged supply chains (Tuesday), forcing many companies to seek alternative suppliers outside China. Retailers including John Lewis, AO World and Halfords are already seeing shortages and delivery delays. Other consequences include a weaker oil price due to reduced demand from China (Tuesday), patchier availability of toys and electronics, travel delays (especially in Asia) and continued strength in the used car market because new car shortages will continue.

THERE WERE SOME INTERESTING DEVELOPMENTS IN THE TECH SECTOR THIS WEEK...

  • Twitter featured heavily this week! It all started with Twitter accepting a takeover offer from Elon Musk (Tuesday), which was then followed by Tesla shares dropping sharply (Wednesday) as investors feared a sell-off from Musk’s stake to finance the bid. They were right to as filings showed he had indeed offloaded a chunk (Friday) but it also got a bit tricky as Twitter admitted that it had been overstating user numbers for the last three years (Friday). Twitter employees are, understandably, feeling nervous (Thursday) given all the changes that Musk is suggesting and billionaire rival Jeff Bezos had a little dig, saying that Musk’s new platform could favour China (Wednesday) given Tesla’s business interests there, although he added this was unlikely. Still, he couldn’t resist planting the seed!
  • Apple had an eventful week as it announced record profits on the one hand (Friday) but then found itself on the wrong end of yet another EU antitrust lawsuit. It’s still massively reliant on the success of iPhone sales, but the services business also did well.
  • Amazon announced its slowest growth for 20 years (Friday), but its cloud services business, AWS, put in a solid performance and advertising revenues were good. Its performance was hit by the poor share price performance of its big stake in Rivian, the EV pickup-truck maker that recently reported production problems.
  • Spotify took a pasting as it got a nasty infection of Netflix-itis (Thursday) as investors interpreted Netflix’s weakness last week as a sign of a wider malaise of streaming in general. Spotify could actually be in a worse position than Netflix (Friday) because it doesn’t own much of its own content and is competing with powerful and deep-pocketed rivals (Apple, Amazon and Google) with staying power and substantial additional businesses. I reckon it should try to buy more podcasts to give it proprietary content for a much more reasonable fee.
  • In news on the other tech giants, Meta Platforms unveiled its slowest quarterly sales growth for a decade (Thursday) but if it stays the course, it could be a massive beneficiary from the development of the metaverse (Friday). Microsoft continued to benefit from WFM (Wednesday) as revenues and profits were driven by cloud services and software over the last quarter while Google’s shares slid (Wednesday) on disappointing ad revenue growth.

IT WOULDN'T BE A WATSON'S WEEKLY WITHOUT MENTIONING CONSUMERS AND RETAIL, NOW WOULD IT?!?

  • Household food bills look set to rise by £271 (Wednesday) according to the latest figures from Kantar and so people who are able to are withdrawing money from their houses via a surge in equity release (Wednesday) to help them pay for all these bills (and possibly help their kids, I suspect). They are also, increasingly, looking for higher-paying jobs or joining unions (Monday).
  • In GROCERY-RELATED SPENDING TRENDS, consumers are starting to stockpile some essentials like cooking oil (Wednesday) as grocery price inflation reached its highest level in over a decade in April. It’s getting to the point that Tesco, Morrisons and Waitrose are rationing out the bottles! Consumer goods companies like Coca-Cola (Tuesday) and Unilever (Friday) are putting up prices, something that we’ve seen with the likes of P&G, Reckitt Benckiser and Heineken – but I don’t think that can last forever. I wonder whether it’ll last over the next few months and then hit a wall when the weather starts getting colder again and utility bill pain really starts to kick in again. Palm oil prices are set to rise as the world’s biggest producer, Indonesia, stops exports of the stuff (Tuesday). Purveyors of groceries – including Asda (Tuesday) and Morrisons (Monday) – are cutting prices to help consumers, and while Aldi and Morrisons are increasing market share (Wednesday), Sainsbury’s had a profit warning (Friday).
  • In NON-GROCERY RELATED SPENDING TRENDS, consumers spent money on Mattel’s toys (Thursday) and staycations (Monday)a trend that Premier Inn is targeting (Friday) – although Heathrow is getting downbeat (Wednesday), saying that the summer booking frenzy is a “bubble”, although airlines are saying that they’re just doing this as a precursor to increase charges.
  • In RETAIL, WH Smith has already started stocking up for Christmas (Thursday), which would imply that other retailers are doing the same, meaning that demand for warehouse space is going to continue to be strong. Primark is putting up prices (Wednesday) while both Boots (Thursday) and Ted Baker (Thursday) are getting closer to finding new owners.

...AND IN INVESTMENT AND BANKING NEWS...

  • Private equity firms like Blackstone continue to hoover up assets (Monday), although, more broadly, uncertainty in emerging markets is causing investors to rethink (Monday) as data from the Institute of International Finance shows pretty big withdrawals over the last month. Although some commentators think that investors might be more likely to avoid emerging markets in future, I don’t think so – it just means that the risk goes up. As the saying goes, with great risk comes great reward and if returns are high, investors are always going to be tempted to dip their toes in IMO.
  • There was a really interesting development across The Pond as investors are pushing back against SEC proposals to make investors declare stake-building earlier than is currently the case (Tuesday). Corporates are supportive because it means they are less likely to get blindsided by unsolicited takeover approaches but investors don’t like it because it means that they can’t sneak up on their target so easily. No doubt we’ll be hearing more about this as time goes on!
  • In BANKS NEWS, Deutsche Bank unveiled its best quarterly profits in almost ten years (Thursday), Standard Chartered beat market estimates (Friday) and Lloyds Bank did OK but cautioned about an “uncertain” outlook (Thursday) but Barclays’ performance was hit by litigation costs and other charges (Friday).

AND IN OTHER NEWS...

  • In AUTOMOTIVE NEWS, Mercedes Benz saw rising revenues (Thursday) thanks to sales of top-end cars, Ford posted a Q1 loss (Thursday) but announced the launch of its F-150 Lightning (Wednesday) which should prove to be popular as it already has tons of orders and is being launched ahead of its arch-rival, GM’s Silverado, while rival pick-up truck maker Rivian recently announced production problems. Renault is looking to sell its Russian business for one rouble (Thursday), with the option of buying it back within five or six years and Volvo bought a minority stake in Carwow (Wednesday) to help it with its digital sales.
  • Elsewhere, Maersk announced stellar profits (Wednesday) but warned that trading would slow down towards the end of the year due to ongoing supply chain problems. Also, the UK regulators and cannabis start-ups are clashing (Monday) over a new official list of approved “ingestible products” that contain CBD.

AND IN UPDATES FOR WATSON'S YEARLY...

  • 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! 

BANTER

My favourite “alternative” story this week was actually the video of the five stages of Costco shopping – genius 🤣!