Thursday 01/09/22

  1. In BIG PICTURE NEWS, Eurozone inflation hits a record high, Japan increases its defence spend, wheat prices get cheaper and oil prices weaken
  2. In COST IMPACT NEWS, rising energy costs hit German production, prompt British factory workers to wear jumpers and cause BrewDog to get downbeat while real earnings continue to fall as John Lewis offers staff free meals
  3. In SOCIAL/MEDIA NEWS, Disney considers a Prime-style option, Netflix wants top dollar for ads and Snap cuts 20% of its staff
  4. In INDIVIDUAL COMPANY NEWS, Klarna’s losses quadruple, Toyota invests a ton in batteries, Bed Bath & Beyond tastes reality and Fulham Shore navigates the restaurant minefield
  5. AND FINALLY, I bring you questionable fish & chips and spreadable coffee…

1

BIG PICTURE NEWS

So Pelosi causes a stir, the Saudis don’t play ball, the Bank of England is due to make a decision, UK services sector growth slows, Turkey has a ‘mare, high energy costs cause havoc and crypto wallets get raided…

📢 It’s Thursday, so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers! *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

  • If you became PM, what would your plan be to boost the UK economy?
  • Why is Disney beating Amazon and if you were Amazon’s chief, how would you reverse these fortunes?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

Eurozone inflation rises to record 9.1% (Financial Times, Martin Arnold) highlights the ongoing pain of rising prices, putting more pressure on the European Central Bank to keep hiking interest rates. The 9.1% figure published by Eurostat was above analyst expectations and came after July’s figure of 8.9%, which was itself the highest level ever since the Eurozone began in 1999. Inflation is hitting businesses and individuals alike in a very real way.

Elsewhere, Japan plans big defence spending boost to counter rising China threat (Financial Times, Kana Inagaki) highlights the country’s decision to make a big increase in defence spending as it aims to stock up on cruise missiles and research hypersonic weapons. The official figure announced yesterday was a record

¥5.6tn, but those in the know reckon the real figure could potentially exceed ¥6tn, which would make it one of the biggest increases in defence spending since WW2. * SO WHAT? * Japan has tended to shy away from military spending and involvement, hiding behind the pacifist constitution imposed on them by the Americans after WW2. However, Russia’s invasion of Ukraine has significantly increased concerns about China throwing its weight around in the Asian region and made Japan rethink its stance. There have been previous attempts to change the Constitution but I think if it has any chance of changing, now is the time.

Then in Food: thanksgiving required as strong harvests scythe wheat price (Financial Times, Lex) we see that there’s some rare good news in that the wheat price is coming down thanks to a bumper Russian harvest and a limited resumption of Ukrainian exports. The price has fallen by 40% as a result and is now where it was in January. * SO WHAT? * This will be particularly welcomed by countries that rely heavily on Russian and Ukrainian food imports – like Egypt – and provide some relief for some companies, such as Associated British Foods, who had to hike the price of its Kingsmill bread considerably to account for the previous wheat price rises. It does sound to me, though, like this is just a bit of a temporary respite as prices for fertiliser etc. (which uses a lot of energy to produce – not good in an environment where electricity prices are sky-high) continue to rise – or at least remain at elevated levels.

It is also interesting to see Demand fears drag oil down further (The Times, Emily Gosden), which highlights further weakness in oil prices to the extent that it is the first time that they have remained below $100 a barrel at month-end since January. Fears of a shortage supply from Russia pushed prices up, but they are now falling on concerns that China demand is falling away as its economy weakens as well as the prospect of global recession. It looks increasingly likely that next week’s OPEC+ meeting in Vienna could see a cut in production to support the current price.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

2

COST IMPACT NEWS

Companies and individuals feel the pinch…

German companies halt production to cope with rising energy prices (Financial Times, Guy Chazan) highlights drastic behaviour by German manufacturers in response to big energy price rises. Germany’s economy minister, Robert Habeck, observed that “It’s not good news, because it can mean that the industries in question aren’t just being restructured but are experiencing a rupture – a structural rupture, one that is happening under enormous pressure”. * SO WHAT? * This is particularly worrying considering that Germany’s economy depends hugely on manufacturing. I would have thought that there’s still room for things to get worse from here as we head into winter…

Talking about drama in factories, Factory staff urged to wrap up warm for winter shifts (Daily Telegraph, Howard Mustoe) says that Stockfield Metal Spinners in Birmingham has asked its workers to wear more clothes in winter and to work at night as it was presented with an energy quote of £734,000 for the coming year versus its usual bill of £135,000. I expect more of this kind of advice as we head into autumn and winter. In brewing/hospitality,

BrewDog forced to shut pubs and warns of industry job cuts (Daily Telegraph, Simon Foy) shows that the brewer announced the closure of six bars in London and Scotland, blaming inflation (and, of course, part of that is rising utility bills).

It’s bad news for employees in Earnings to fall to 2003 levels as inflation batters living standards (Daily Telegraph, Tom Rees and Howard Mustoe), which cites economists at the Resolution Foundation think-tank who reckon that real disposable incomes will fall by 10% over the next two years while John Lewis offers staff free meals to help with Christmas costs (Daily Telegraph, Laura Onita) at least shows willing from one employer to do what it can to make things a bit better for its staff. * SO WHAT? * Let’s face it, Resolution Foundation is never going to say everything’s OK – even when it is – but real incomes are definitely taking a massive hit. John Lewis’s offer to employees of English breakfasts and Sunday roasts between Oct 3rd and Jan 6th sounds quite noble and I’m sure other companies will try to do what they can to ease the strain on staff finances (especially if it involves them not having to increase staff salaries).

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

3

SOCIAL/MEDIA NEWS

Disney comes up with an interesting idea, Netflix wants to charge handsomely for ads and Snap’s nightmare continues…

In Disney explores membership program like Amazon Prime to offer discounts and perks (Wall Street Journal, Jessica Toonkel and Sarah Krouse) we see that, fresh from its success in subscriber growth, the entertainment company is looking at offering a membership programme that could link together its streaming services, theme parks, resorts and merch in something akin to Amazon Prime. * SO WHAT? * Talks are in the early stages at the moment, but I think that the opportunities for cross-selling here are huge. You could almost argue that such a membership could be a more effective offering than Amazon Prime because I’d argue that its products and services are more closely aligned to its target customer versus Prime’s services that can be a bit random. This will be very interesting to follow!

Meanwhile, Netflix seeking top dollar for brands to advertise on its service (Wall Street Journal, Suzanne Vranica) shows that the perennial streamer is aiming to charge premium prices to brands wanting to advertise on their soon-to-be-launched ad-supported service.

Netflix is looking to charge advertisers around $65 for reaching 1,000 viewers (known in the industry as CPM – or cost per thousand), which is considerably higher than other platforms. * SO WHAT? * This sounds pretty punchy for an untested service against a weakening macroeconomic backdrop that generally means companies spend less on advertising. I think that it is probably wise to give it a go right now, but I think when others offer this service (what about if Disney+ does this, for instance?) prices are going to have to come down. If I was an advertiser, I’d just wait until Netflix’s prices fall. If I was wrong, I’d just advertise elsewhere – no biggie.

Snap hits reverse after expansion drive, cutting 20% of staff (Wall Street Journal, Meghan Bobrowsky) shows that Snap is drastically reining in its ambitions. Back in Spring, it launched a new camera drone (which it’s now giving up on), poured more resource into content and added staff. Fast forward to now, and it has decided to cut a fifth of its workforce. * SO WHAT? * I’ve said it before and I’ll say it again. Snap is a one-trick pony. If it doesn’t find another success fast I just can’t see it lasting for that long.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

4

INDIVIDUAL COMPANY NEWS

Klarna crumbles, Toyota puts more into batteries, BB&B tastes reality and Fulham Shore navigates stormy waters…

In a quick scoot around other interesting stories today, Klarna losses more than triple as consumer spending slows (The Guardian, Kalyeena Makortoff) highlights the fact that losses almost quadrupled in the last six months thanks to rapid international expansion, higher credit losses and rising staff costs. It valuation has tanked from a $46bn high last year to a mere $7bn in its latest funding round in June as its customer base is hit hard and the prospect of tightening financial regulation looms large. Klarna: buy-now-default-later borrowers will test BNPL mettle (Financial Times, Lex) reckons that it will find it tough to make profits in current economic circumstances for the reasons cited above as well as rising interest rates making debt more expensive.

Elsewhere, Toyota to invest up to $5.3bn in battery production (Financial Times, Eri Sugiura and Kana Inagaki) shows that Japanese carmaker is the latest to announce increased investment in battery development. The company said yesterday that it would pour up to $5.3bn into new battery-manufacturing initiatives in both Japan and the US over the next few years. This is interesting

because it is going to do this alone rather than getting into bed with another company, as per the Honda/LG development announced a couple of days ago.

Bed Bath & Beyond to close 150 stores, cut staff, sell shares to raise cash (Wall Street Journal, Inti Pacheco and Jodi Xu Klein) highlights tough times for the home-goods seller after a brief period of meme-madness as it announced it would cut the number of stores by around 20%, rightsize the business and bring in new cash to bolster its finances. Its share price fell by 21% in trading yesterday and it has now fallen by about 50% in the last two weeks. A cautionary tale for all those meme stock traders out there…

Back home, Storms fail to disturb Fulham Shore (The Times, Dominic Walsh) shows that the restaurant group behind the Franco Manca and Real Greek brands has actually put in a solid performance despite difficult economic circumstances. Trading has been in line with expectations and new openings have gone well. Isn’t it nice to hear about a restaurant chain doing well! However, energy bill rises will surely hit even Fulham Shore unless the government does something to help.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

5

...AND FINALLY...

…in other news…

I went to Disneyland Paris with my family last week and, weirdly, ended up one lunchtime having fish & chips at one of its restaurants (in my defence, queues for other places were much longer!). It was actually not too bad, unlike some of the examples in People are only just finding out the difference between fish and chips in US and UK (The Mirror, Amber O’Connor) 🤣. However, I think today’s prize for “weirdest foodstuff of the day” goes to Spreadable coffee to put on your toast going on sale in Japan (SoraNews24, Casey Baseel). WHAAAAAAAAAAAAAA- ? Who ever sat there and thought “If only there was some way to make this perfectly good beverage spreadable…” 🤷‍♂️?!?!

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Some of today’s market, commodity & currency moves (as at 0633hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
7,284 (-1.05%)31,510.43 (-0.88%)3,955 (-0.78%)11,816.2 (-0.56%)12,835 (-0.97%)6,125 (-1.37%)27,614 (-1.59%)3,185 (-0.54%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$88.933$94.967$1,706.461.158091.00153139.4451.1563420,095

(markets with an * are at yesterday’s close, ** are at today’s close)