Watson’s Weekly 31-10-2020

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.

THE US ECONOMY BOUNCED BACK WHILE MARKETS WOBBLED AND INDIA RAISED TENSIONS WITH CHINA...

  • The US economy bounced back with very strong GDP growth for the latest quarter (Friday), according to official figures. This is a gift for Trump as he needs to change the conversation from covid in order to stand any chance of re-election. Weirdly, fears of civil unrest surrounding the election prompted Walmart to take guns and ammo off displays (Friday) 😱
  • Markets were weaker as France and Germany were among the countries to impose tighter lockdown restrictions (Thursday) in order to contain the spread of a potential second wave. It is looking increasingly likely that there will be a much tighter lockdown in England coming up
  • Tensions increased between India and China this week (Thursday) as India plonked one of its warships in the disputed waters of the South China Sea. India seems to have swung from China-appeaser to being more China-wary since Chinese soldiers killed 20 Indian soldiers on the Himalayan border a few months ago. This could potentially have repercussions on the way business is conducted between the two neighbours

IT WAS A WEEK OF NOTABLE DEVELOPMENTS IN IPOs AND M&A...

  • Ant Group announced plans to raise $34bn in an IPO (Tuesday) that will give the company an implied valuation of about $313bn – roughly the same as the more venerable JP Morgan Chase. I would have thought the listing in Hong Kong and Shanghai will be very popular and could give the whole IPO market (especially in Asia) a boost. Elsewhere, there was also speculation that Airbnb would list by the end of the year on the Nasdaq (Wednesday). It is expected to raise $3bn giving the company a valuation of over $30bn
  • In M&A action, AMD announced plans to buy rival Xilinx for $35bn (Wednesday) as consolidation among chipmakers continues. Then LVMH and Tiffany resolved their differences (Thursday) and agreed to get together at a cheaper price than they’d planned back in November last year. At least they saved themselves for more legal bills! In the end, they agreed on $131.50 per Tiffany share versus the original price of $135. For every $1 reduction on the original price, LVMH would have saved $120m!

IT WAS ALSO A BIG WEEK FOR TECH...

  • Apple is, understandably, upping efforts to develop its own proprietary search engine (Thursday) given that its current agreement with Google could be vulnerable. The company even went as far as saying, later on in the week when it published its annual report, that it faces “material” financial risk for various reasons, including from lawsuits related to the excessive fees in its AppStore and its agreement with Google on search
  • Facebook Gaming was announced as a new game streaming service (Tuesday) this week. It’s a bit late to the game streaming party and its offering is both limited in breadth and geography – but it is a step forward into what could prove to be a very interesting area. Elsewhere, Facebook’s ad revenues continued to be very strong (Friday). It just goes to show that the boycott didn’t really achieve anything (apart from boost revenues to rivals such as Snap and Pinterest, for instance)
  • Sony announced sales targets for the forthcoming PS5 (Thursday) and raised its annual profits guidance. I am expecting massive demand for the PS5. With more lockdown in prospect and households looking to entertain themselves, I think it’s the right product at the perfect time!
  • Microsoft had some impressive results (Wednesday) and it looks like the catalysts that have driven it so far are going to continue: PC demand from working from home, use of its 365 software and then there’s the new console coming up as well!
  • TikTok announced an alliance with Shopify (Wednesday) to give it e-commerce capability. There is huge growth potential here when you consider that sales in social e-commerce in China (where it’s been for some time already) last year accounted for $253bn versus only $20bn over the same period in the US!
  • Pinterest saw increased ad revenues (Thursday) as well as growing numbers of monthly users, especially outside the US

THE AUTOMOTIVE SECTOR SAW MORE PARTNERSHIPS PLUS GOOD NEWS FOR JLR...

  • Waymo announced a partnership with Daimler Trucks (Wednesday) on driverless lorries, but I have to say I think it’ll be quite some time before we see those on the roads in any meaningful numbers
  • Mercedes-Benz took a 20% stake in the troubled Aston Martin (Wednesday). Just to give you a bit of perspective here, when Aston Martin had its IPO in October 2018, it was valued at £4bn. It’s now worth £1bn – so you can see why it needs help!
  • There was some rare good news for Jaguar Land Rover as it returned to profit (Wednesday) due to better sales in China and decent sales of its new Defender model

THE CONSUMER PSYCHE REMAINS MIXED...

  • It looks like consumers are sticking with brands they know well in these troubled times as Kraft Heinz, Kellogg (Friday) and Hornby (Friday) have found. This confirms similar conclusions drawn at Unilever, Reckitt Benckiser and Procter & Gamble recently. There were mixed signals coming from the US as Visa and Mastercard figures showed flat spending since July (Thursday) but then US car sales were actually going stronger (Thursday) – particularly in luxury vehicles and high end pick-up trucks. In the UK, we are still spending on real estate – and agents are pushing for an extension to the stamp duty holiday (Thursday)
  • On the retail side of things, Next unveiled strong figures but warned about a risk to momentum going into the end of the year (Thursday) while John Lewis announced that 45% of its flagship Oxford Street store would be changed into offices (Thursday) showing that it is trying to change

AND IN UPDATES FOR WATSON'S YEARLY...

  • Watson’s Yearly updates: watch this space!