Watson’s Weekly 31-07-2021

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...

  • US Q2 GDP growth was slower than expectations (Friday), which probably takes a bit of the pressure off the Fed to increase interest rates to calm inflation. In Europe, business confidence in Germany is weakening (Tuesday) according to the latest Ifo survey but then again its latest rate of inflation is at its highest level since 2008 (Friday). France managed to get a watered-down version of its “health pass” legislation approved (Tuesday) after a lot of push-back and protest to the original version. Meanwhile, the UK is growing at its fastest pace for 80 years (Monday) according to the EY ITEM club. The British financial regulator, the FCA, relaxed rules on SPACs, making this an easier path to listing (Wednesday), but the British are becoming less amenable to China as ministers called for limiting China’s involvement in our nuclear power generation industry (Monday), which kind of follows on from Boris Johnson recently ordering a review of the purchase of Newport Wafer Fab (Thursday) by Nexperia, which is owned by Wingtech, a Chinese company.
  • Bitcoin jumped after a job ad from Amazon (Tuesday) said that the company was looking for some to “develop Amazon’s digital currency, blockchain strategy and product roadmap”. This was interpreted as meaning that Amazon is on the cusp of accepting Bitcoin, hence it’s jump in value! If Amazon does ever accept it, though, it will be a huge moment and will probably catapult the cryptocurrency into the stratosphere 🚀🌚! It was also interesting to see that the Chinese authorities are forcing Ant Group’s Alipay and Tencent’s WeChat to take part in the development of a digital Yuan (Monday). Given the companies’ policies thus far of essentially making their entities walled gardens, this is quite a shocking development as it is a bit like forcing turkeys to vote for Christmas! Also, you would have thought that once they pass the Alipay/WeChat test, China’s digital currency will be ready to roll. Its crackdown over the years on Bitcoin in particular is potentially clearing the way – and I think that if China rolls out a cryptocurrency, other countries will soon follow as they won’t want to be left behind.

THERE WERE SOME BIG DEVELOPMENTS IN TECH...

  • China’s tech crackdown continued as China’s Ministry of Information Technology said that it will make errant tech companies change their behaviours regarding user rights and data utilisation within six months – or they will face the consequences (Tuesday). This is why the share prices of companies like Tencent and Meituan, who are expected to be in the firing line, absolutely tanked. Interestingly, one of China’s most recent targets, Didi, is considering taking itself private (Friday) as a way to appease the authorities as well as shareholders. However, even more shocking than this, Chinese authorities turned around and essentially killed their $100bn edu-tech industry at a stroke (Tuesday) as they decreed that any company teaching the national curriculum would no longer be allowed to make profits, raise capital or list on overseas stock exchanges – nor will they be allowed to accept foreign investment! It looks like this is all part of a general campaign by President Xi Jinping to bring corporate China (and its education system) under control. This is a very dramatic development for overseas investors who have already put money into the sector – and it doesn’t bode well for investment in China generally as everyone will now be second-guessing who is going to be next to come under fire.
  • Meanwhile, Apple, Google and Microsoft reported fat profits (Wednesday), as did Facebook (Thursday), although the latter warned that it might be in for a rough ride from regulators over the coming months. On the hardware side of things, Intel set out its aims to be the biggest chip company in the world (Tuesday) while Samsung reported quarterly profits up by 73% as chip sales were stellar (Thursday), more than compensating for the rather more sedate performance of its smartphone business.
  • Elsewhere, Robinhood had a pretty rubbish market debut this week (Thursday) as it fell below its IPO price that was itself at the bottom end of the stated range. The co-founders don’t care though, as they made an absolute mint 😂!

DAMAGED SUPPLY CHAINS CONTINUE TO HAVE CONSEQUENCES...

  • Supply chain disruption is continuing. Freight costs are sky-rocketing (Thursday), UK builders reckon that current shortages of materials – such as bricks, cement and timber – will continue for the next six to nine months (Monday). In the US, school cafeterias are facing shortages of food for kids’ lunches ahead of them going back-to-school (Monday) and airlines are facing fuel shortages (Wednesday) due to not enough lorry drivers to transport fuel and existing fuel stocks being prioritised for planes involved in fighting current wildfires.

REAL ESTATE IS REACHING A CRUCIAL POINT WHILE BANKS DO WELL...

  • It seems like the UK residential property market is turning a corner. Zoopla said that house prices rose strongly in June – to the extent that they are now about 30% above what they were pre-2008 crisis (Tuesday)! However, Nationwide figures point to a notable slowdown in momentum in July (Thursday), which suggests a repeat of what happened leading up to the original stamp duty holiday deadline (before it was pushed back). House prices suffered their biggest fall in a year – so things could be getting quieter over the summer months…
  • Banks seemed to have a good week this week! Deutsche has such a good quarter that it abandoned cost-cutting plans (Thursday), Santander benefited from people buying houses and cars (Thursday), Barclays had a rebound (Thursday) and even Metro seems to be turning things around (Thursday)! Lloyds Bank upped its full-year forecasts (Friday) and US financial group Raymond James’ announced intentions to purchase Charles Stanley (Friday), the 229-year-old City stalwart, for £279m in the latest deal in the rapidly-consolidating wealth management sector.

RETAIL CONTINUES TO RECOVER..

  • Luxury goods are flying off the shelves according to LVMH (Tuesday) and Gucci owner Kering (Wednesday), while at the other end of the scale, B&M is worried about tightening margins (Tuesday) as input prices continue to rise. Their margins are already pretty skinny so the scope for absorbing higher costs are very limited.
  • In supermarkets, Tesco is offering golden hellos to lorry drivers (Wednesday) in order to attract them (!) and Morrisons gets more flak from whinging investors (Wednesday) who are pushing for a higher price from Fortress/someone else.

...THEN IN OTHER STORIES THIS WEEK...

  • Battery recycling start-up Redwood Materials has just raised a ton of cash (Thursday) to transform the US supply chain for EVs giving the company an implied value of $3.7bn! Given that less than 5% of EV batteries get recycled at the moment, there is going to be a huge need for this. Speaking of batteries/charging, it’s interesting to see that Dutch electric vehicle charging group Allego has just agreed to do a SPAC merger with Apollo Global Management’s Spartan Acquisition Corp III (Thursday).
  • VW announced a disappointing performance in China (Friday) and vowed to try harder in the world’s biggest car market. Asia now accounts for about 50% of total profits, so it needs to sort itself out pronto. It seems that younger Chinese prefer to buy domestic, but older (and probably more affluent) Chinese still like a bit of foreign luxury, which helped Benley’s sales there (Friday).

AND IN UPDATES FOR WATSON'S YEARLY...

  • Watson’s Yearly updates: These will be left until the next edition of Watson’s Yearly that will be published shortly

BANTER

My favourite “alternative” story this week was most definitely Japan’s brain wave-reading cat ears are back, with a brand-new twist! (SoraNews24, Casey Baseel). A great invention that we never knew we needed!

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