Watson’s Weekly 30-07-2022

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.

This week, the Fed got feistier and the energy convo gets increasingly heated…

• The IMF said that the world is on the cusp of recession (Wednesday) as it updated its World Economic Report that it published in April. Unsurprisingly, it cut its growth forecasts and made for gloomy reading!
• IN THE US – the Federal Reserve raised interest rates by 0.75% for the second consecutive month (Thursday). This was widely expected and there is speculation as to whether another big hike will happen next month, although Fed chief Jay Powell said that he would give the market less guidance as to what he is thinking (Friday), which means that everyone will be guessing again. US GDP contracted again (Friday), meaning that it is technically in recession but because it’s America, it has extra criteria so that it can pretend that it isn’t (but it is). For pretty much everyone else, the definition of recession is two consecutive quarters of GDP contraction.
• IN EUROPE – Goldman Sachs economists reckon that the Eurozone will go into recession this year (Thursday), which is hardly surprising given the macroeconomic situation and energy nightmare the bloc is having currently. It was also interesting to see that controversial populist Hungarian PM Viktor Orbán is changing his tune (Thursday) so that he can get his hands on €15bn of pandemic funds that Brussels has control of.

Energy continued to be a hot topic this week as we edge closer to the autumn.

• EU countries were lining up to appeal for exemptions for cutting gas usage (Monday) just as Russia squeezed gas deliveries (Tuesday). In the meantime, Putin, Drax (Wednesday), Equinor, Iberdrola (Thursday), Shell and Centrica (Friday) are all benefiting from higher energy prices. Germany is having to rethink its exit from nuclear power (Wednesday), National Grid is asking for UK coal plants to go on standby (Thursday) and it turns out that it begged Belgium for electricity last week (Monday) to ensure supplies kept flowing.

There was an interesting development for cryptocurrency this week…

• The Law Commission put forward new proposals to give British courts the power to award damages in Bitcoin and other crypto assets (Thursday). The rules could help with guidance on how to treat these new assets and may act as precedent for other jurisdictions, but nothing is finalised about this as yet.

• Alphabet saw its growth slow down (Wednesday) as it announced its worst sales growth for two years due to falling advertising sales. Weaker advertising revenues continues to be a recurring theme as Meta announced its first ever drop in revenues (Thursday) while Twitter’s ad revenue woes were worsened by its Musk lawsuit (Friday) as corporate clients used it as an excuse to give them less business.
• IN STREAMING – Spotify managed to add subscribers over Q2 (Thursday), showing that it was wrong for investors to tar all streamers with the same brush as Netflix. Disney+ started to show more grown-up content (Monday), which is interesting because it may mean that subscribers keep subscribing because they may want to see what else it has up its sleeve!
• Lockdown winner Shopify is having a shocker (Wednesday) as it revealed that it was going to cut staff numbers by 10% in response to a slowdown in growth.

• Ford (Thursday), and Stellantis (Friday) announced strong numbers from the volume producers although GM saw profits fall (Wednesday) thanks to China weakness and ongoing supply chain problems. Mind you, at the more luxury end of things, Bentley (Friday) and Mercedes-Benz (Thursday) put in strong performances as more affluent consumers continue to spend.
• It was interesting to hear that Tesla is thinking about opening up its charging network in the US (Monday) in order to get its hands on government funds designed to encourage the expansion of the charging network more generally. I suspect similar schemes around the world as everyone tries to boost charging network capabilities. Closer to home, we heard that a service station on the M6 could be one of the first HGV hydrogen refuelling stops in the world (Monday). Hydrogen is being looked at as a suitable power source for HGVs, but it’s not commercially viable at the moment – hence the testing.
• More generally, car manufacturing in the UK is picking up (Thursday), according to the latest figures from the SMMT. This is the second consecutive month of growth, so it looks like things are picking up nicely just as the cost-of-living crisis is kicking in!

• US consumers are (like their British counterparts) continuing the trend of trading down (Monday) in order to save costs but when you’ve got the likes of Unilever, Coca-Cola, McDonald’s (Wednesday), Kraft Heinz, Reckitt Benckiser (Thursday) and Nestle (Friday) increasing prices, consumers are being forced to rethink their spending habits, although it seems that they are doing so whilst drinking premium spirits, according to Diageo (Friday). All of this is being echoed by the latest BRC report which says that shop prices are rising at their fastest rate since at least 2005 (Wednesday) as Asda’s latest monthly income tracker shows that household spending power continues to fall (Tuesday). Given that UK consumers (Thursday) and German consumers (Friday) are facing massive utility bill hikes, it’s not surprising that Sky subscriptions are falling (Friday) and corporates are spending less on advertising (Friday). The rising incidence of late repayment of car loans is further evidence of the pressure that consumers are under (Thursday) although, at the other end of the scale, LVMH booming sales shows that the affluent are immune to the cost-of-living crisis (Wednesday).
• IN RETAIL NEWS – Walmart announced a profit warning (Tuesday) as US consumers continue to rein in spending and it was interesting to see that Alibaba is pulling back from international expansion (Wednesday) as the ongoing crackdowns it has suffered take their toll. In the UK, WH Smith is staging a bit of a comeback thanks to its US business (Tuesday), particularly as its airports business gathers more momentum due to more leisure and business travel and Aldi has increased its hourly rate of pay (Tuesday) as it bids to continue its fast pace of growth and become the UK’s fourth biggest supermarket.
• IN REAL ESTATE NEWS – the share prices of Chinese real estate stocks rose on hopes of a government bailout fund (Tuesday) that could help a troubled sector. In UK residential property news, UK mortgage brokers are working hard to stay ahead of interest rate rises (Tuesday) while rental prices and first-time buyer mortgages hit record highs (Monday). Things are getting so ridiculous in the UK property market at the moment that the average asking price for a beach hut is now £50k (Monday)! Elsewhere in the sector, it seems that buy-to-let is turning a corner (Thursday) while sales of £10m+ London properties have reached their highest level for ten years (Monday)! This is due in great part, though, to the currently weaker pound.

• IN FINANCE NEWS – Swiss wealth manager Julius Baer saw a massive collapse in first half profit (Tuesday), which is notable as the company is often seen as a bellwether for the Swiss banking industry. This weakness was echoed at UBS, which saw its Q2 earnings fall short of market expectations (Wednesday) as client activity lost momentum.  Elsewhere, it was interesting to see Jack Ma relinquishing control of Ant Group (Friday). Mind you, given the pressure that he and the company were under since its IPO was pulled at the end of 2020, it was probably inevitable. Still, I would have thought that it makes a “new” IPO more likely…
• IN M&A NEWS – JetBlue bought Spirit Airlines for $7.6bn (Friday) as two American budget airlines got together to take on the big players while the announcement of Paris-listed Eutelsat and British OneWeb combining to take on the likes of SpaceX’s Starlink and Amazon’s Project Kuiper (Monday) caused a bit of a kerfuffle. Eutelsat shares fell sharply on the news (Tuesday) and there was scepticism as to whether it the combined group will be able to take on the Americans (Wednesday). Very crudely speaking, it sounds like OneWeb has the ideas (but a lot of debt) and Eutelsat has the money (but lacks creativity).

• 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 favourite “alternative” story of the week was Terrified mum sees Spider-Man eerily flying towards her home – but it’s hilarious mishap (The Mirror, Amber O’Connor and Josie O’Brien) as this is just a superb video!