Watson’s Weekly 30-05-2020

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.

• Beijing really stirred things up in Hong Kong by threatening to impose a new national security law (Tuesday). This caused an international outcry – the US said it would revoke special trading privileges for Hong Kong (Thursday) because it is not sufficiently independent from China and then the UK pledged to accelerate the path to citizenship for 300,000 HK citizens  (Friday) in a rather less dramatic response to the development. There’s no detail yet, but it seems that businesses in the territory are willing to submit to China in order to avoid the chaos of rioting that we saw last year
• The EU announced a coronavirus bailout response package (Thursday) comprising of a $750bn recovery plan and a €1.1tn budget over the next seven years. The idea here is to give a financial boost to countries that need it (particularly Italy, Spain and Greece) without adding too much to their existing debt burden. The Eurozone’s “frugal four” – Austria, Denmark, the Netherlands and Sweden – have already made objections so it’s going to be a tough few weeks of negotiation to get everyone to agree. I believe this could be make-or-break for Europe…

• French president Macron announced an €8bn bailout plan for the French car industry (Wednesday) in return for PSA and Renault bringing production to France. There were also grants for people to upgrade to environmentally-friendly vehicles. Funnily enough, research from the Brussels-based Transport & Environment campaign group said that investment by European car manufacturers into electric vehicles was actually greater than China’s – which itself is greater than that of the US! The new sense of urgency is all due to the new legislation that kicked in this year saying that manufacturers had to cut their fleet-wide carbon emissions to an average of 95g/km by 2021 or face massive fines
• IN EUROPE – VW lost a court case in Germany’s highest civil court (Tuesday), meaning that it will have to compensate the plaintiff for his purchase of a minivan which had been fitted with the emissions-cheating software. Whilst only having to pay €28,257.74 in compensation this time, it is expected that this will open the floodgates for other claimants. VW’s already paid out over €30bn in fines and compensation since the “dieselgate” scandal erupted in 2015 – and it looks like this is going to get bigger. Renault, Nissan and Mitsubishi said that they weren’t going to merge (Thursday) but they are going to divide up geographies and model expertise and try to be more efficient that way. This sounds like a recipe for disaster IMO (surely there will be a lot of squabbling going forward) and it certainly kills any ambitions to merge the three that the disgraced ex-head Carlos Ghosn previously had. Separately, Nissan announced that it was going to keep its Sunderland plant open and close the one in Barcelona (Friday). This now means that Nissan will have zero production capability in the EU 😱
• IN THE UK – McLaren announced that it would be cutting 1,200 of its 4,000 staff (Wednesday) due to the cancellation of sporting events and poor vehicle sales. Aston Martin announced the departure of its CEO Andy Palmer (Wednesday), which isn’t surprising given the company share price’s horrendous performance since its IPO. Although he did a good job of turning it around when he got the job in the first place the writing must have been on the wall when Lawrence Stroll and his investors rolled in recently

• Boeing axed 12,000 workers (Thursday) and then came more bad news from the airlines. Latam Airways, the biggest airline in Latin America, filed for bankruptcy protection (Wednesday), American Airlines cut 30% of its admin and managment staff (Thursday), Ryanair is going to be cutting up to 3,000 staff (Thursday) after earlier in the week announcing that it would be offering 1,000 flights a day from July 1st (Wednesday). Germany’s Lufhansa got a government bailout (Tuesday) but the EU got concerned that this would give them unfair advantages (Wednesday) and wanted to make them sell off lucrative slots in Frankfurt and Munich. Despite being weeks away from running out of cash, Lufthansa’s board refused to approve the bailout package. The drama continues…

• Under lockdown, I think everyone knows that online shopping activity has increased! Official figures showed that web grocery sales have doubled (Thursday), which probably explains why sales at Tesco and Sainsbury’s were greater than Aldi for the first time in ten years (Thursday)
• There was quite a kerfuffle about online apparel retailer Boohoo as a hedge fund published a damning report on the company (Wednesday) which was then rebutted by the company (Thursday). Boohoo then blew the hedge fund out of the water by buying the subject of the report (Friday) which will mean that the hedge fund concerned will have lost out as it has a short position on the stock. Hedge funds don’t like this and I think it’s unlikely that it will let this go. It’ll be interesting to see whether anything else comes out of this
• Monsoon Accessorize looks like it’ll be the next retailer to face bankruptcy on the UK high street (Friday) as it is on the verge of bringing in the administrators
• Cineworld calmed investors by telling them it had enough cash to last until the end of the year (Friday), adding that it would be opening all of its theatres (with appropriate social distancing measures in place) from July. Whether its proposed takeover of Canada’s Cineplex will go ahead on the current terms is another question, however (although no official comment on that has been made as yet)…

• Watson’s Yearly updates: Interest rates for South Korea and Nigeria fell and I’ve updated the relevant sections on the US (Trump delaying the G7 summit and calling for more countries to be invited), Hong Kong/China (re the national security law and threats on both sides) and Japan lifting its nationwide state of emergency

My favourite “AND FINALLY…” story this week was A McDonald’s in New Zealand lets diners eat inside a decommissioned airplane (Insider, Sophie-Claire Hoeller https://tinyurl.com/y8n4fxgu). This place looks great!