Thursday 02/09/21

  1. In MACRO, MARKETS & CRYPTO NEWS, China manufacturing activity slows, hog stocks fall as China recovers from swine fever, the Dax grows and the SEC boss turns focus onto crypto
  2. In SUPPLY CHAIN NEWS, Walmart adds 20,000 workers to improve its capabilities but Korean strikes and European supply bottlenecks cause problems while building materials prices climb higher in the UK and Wetherspoons runs low on beer
  3. In TRAVEL NEWS, business travel by air is still tricky while flying overall appears to be picking up and WH Smith lives in hope
  4. In MISCELLANEOUS NEWS, Amazon wants to hire 55,000 more workers, Tencent invests overseas and UK house prices shoot up in August
  5. AND FINALLY, I bring you an amazing Harry Potter cottage…

1

MACRO, MARKETS & CRYPTO NEWS

So China’s manufacturing slows, hog stocks lose ground, the Dax gets a makeover and crypto exchanges come into focus…

📢 It’s Thursday – so it’s time for my 30-minute Instagram Live At Five where I will run through the week’s key stories AND the one hour weekly ZOOM call for paying subscribers where I will do the same but in more detail and with much more interaction 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

China manufacturing activity slows for first time since April 2020 (Financial Times, William Langley and Thomas Hale) cites the Caixin manufacturing purchasing managers’ index which shows its first fall since the early stages of the pandemic. * SO WHAT? * This index is an important bellwether of Chinese manufacturing activity, which is a major driver of the global economy. It is particularly valued because it is an independent measure but it came out just a day after the official PMI, which showed its weakest reading since February last year, was published. Things seem to be slowing down in China at the moment what with falling export demand, rising raw materials costs and a fragile property sector that is suffering from another crackdown designed to reduce debt. If this is a blip, then I would have thought that supply chain bottlenecks may well power demand for a few months yet and could potentially paper over these cracks. However, if this proves to be a trend, then the effects are likely to trickle down to the rest of us over the last quarter of 2021 unless China decides to bring in stimulus measures.

Staying on the subject of China for a minute, China hog stocks shed $75bn after swine fever recovery and ‘peak pork’ (Financial Times, Hudson Lockett) highlights the recovery of pork supplies in China following a long period where the world’s biggest consumer of pork had to replenish the number of pigs that it slaughtered in 2019 (about half of its pigs were killed) after an outbreak of swine fever in August 2018. Wholesale prices for pork have fallen by around 54% per kilo, which is around pre-pandemic levels although some reports suggest that demand is still short, implying that Chinese consumers are getting their protein from other sources. Pork producers

such as Muyuan and feed businesses like New Hope Liuhe have suffered as a result. * SO WHAT? * It seems that the most recent outbreak of swine fever effectively swept out small operators and it looks like this will leave the field clear for the larger operators to do what they like. Alt-protein got a bit of a boost when swine fever broke out, but it would be really interesting to see whether Chinese have opted for these sources (remember Omnipork??) or whether they just opted for more chicken, beef or fish instead.

In markets, Forty is the new 30 as Germany’s Dax undergoes a makeover (Financial Times, Joe Miller) highlights the fact that Germany’s Dax index is going to expand from the current 30 constituents to 40 after consultation with a big number of companies and financial institutions. The new index will commence from the middle of this month. Interestingly, in order to be eligible for this new expanded index, a business will have to have posted two years of positive EBITDA (earnings before interest, taxes, depreciation and amortisation) which means that lossmaking companies such as Delivery Hero will find it harder to enter this group, although the new rules will only apply to new members. This is the first overhaul of an index that has been around for 32 years. The other major change here is that constituents will be reviewed twice a year rather than the current once* SO WHAT? * I think that this expansion will, in theory, help to diversify the current Dax’s weighting towards banks and chemicals companies although 14 potential constituents are just offshoots of six companies. As things stand at the moment, potential contenders for entry include online clothing retailer Zalando and meal-kit provider Hello Fresh. New constituents should get a boost from inclusion due to the prestige, more coverage and – most importantly – the boost from index funds that have to buy them.

Crypto platforms need regulation to survive, says SEC boss (Financial Times, Gary Silverman and Kiran Stacey) shows that the chair of the US SEC, Gary Gensler, reckons that crypto trading platforms need to be regulated in order to keep going long term. He argues that regulation provides investor protection and maintains financial stability while decentralised finance (“DeFi”) platforms can be vulnerable because they exist without brokers, to whom laws can be applied. Crypto remains firmly in focus and I maintain my view that the biggest threat to crypto and trading platforms is regulation.

2

SUPPLY CHAIN NEWS

Walmart wants to bolster, Korea strikes, Europe has a ‘mare and the UK sees higher building materials prices and a shortage of beer…

Supply chains continue to be challenging. While Walmart will add 20,000 workers to supply-chain operations this year (Wall Street Journal, Jennifer Smith) shows that the US retailer is taking positive steps to improve its current situation by taking on more order pickers, freight handlers, forklift truck drivers, technicians and managers, Strikes at Korea’s global shipping giant threaten supply chain ‘turmoil’ (Financial Times, Song Jung-a) shows that global supply chains could be dealt another blow by potential strikes at South Korea’s HMM as its workers demand big wage increases. HMM is one of Asia’s biggest shipping companies and a strike could cause even more disruption than there is already in the tech and automotive sectors. This comes at a particularly difficult time as Supply bottlenecks create record backlogs at eurozone manufacturers (Financial Times, Martin Arnold) highlights the widening gap between eurozone manufacturing output (going down due to various shortages) and the orders that they receive (going up as economies recover), according to the latest IHS Markit’s monthly purchasing managers’ index.

Meanwhile, closer to home, Building materials costs rocket to record high (Daily Telegraph, Tom Rees and Alan Tovey) shows that prices for construction materials rose by 4.5% in July versus the previous month and they are up to 20% higher versus the previous year. They have now risen so much that the construction materials price index is at its highest level since records began in 1996! Government infrastructure projects could well be delayed (due to shortages) and cost more (because of these raw materials price hikes). This is being made even worse by the fact that 44% of subcontractors are having trouble getting the workers they need.

As if that’s not bad enough, there’s some disappointing news for ‘spoons-lovers in Wetherspoons latest group to battle shortages as some beers run dry (Financial Times, Jonathan Eley) where it turns out that the cheap-and-cheerful-purveyor-of-alcohol-fuelled-sessions is reporting shortages of some beer brands thanks to the lack of lorry drivers. Supplies of Carling and Coors are being hit particularly badly. * SO WHAT? * This is just the latest hit stemming from the lack of delivery drivers as Nando’s and McDonald’s have also reported other shortages of things like chicken (!) and milkshakes. The pressure to allow temporary lorry driver permits to EU workers continues…

3

TRAVEL NEWS

Biz travel looks tricky while air travel overall is improving – something that WH Smith is praying for…

Tough times are likely to continue in certain parts of the travel industry as per Business travel: Europe joins the infrequent flyer club (Financial Times, Lex) which contends that business travel will take time to recover as hotel group IHG says that room rates are at 87% of 2019 rates in Q2 but the problem is that occupancy is actually down by about 50%. The article also points out that there are fewer last-minute (read: jacked up prices!) flight bookings and some business travellers continue to be deterred by sparser schedules and the overall faff of coronavirus restrictions.

On the other hand, UK air services group Menzies says travel recovery is gaining pace (Financial Times, Sylvia Pfeifer) shows that international travel is showing signs of

gaining pace on the one hand but that it didn’t expect volumes for ground services and fuelling businesses to recover to pre-pandemic levels for another two years on the other. Although demand for ground and fuelling services were lower, air cargo services were more robust as volumes are currently 9% above 2019 levels.

Another company that will be crossing its fingers, praying to whatever god will listen, buying lucky heather and seeking out four-leafed clovers regarding the recover of travel is WH Smith, as per Profits won’t take off until global travel recovers, warns WH Smith (The Times, Ashley Armstrong) which highlights the company’s rather gloomy outlook for 2022. It is massively exposed to outlets at airports and train stations so needs travellers and commuters to start moving again asap. * SO WHAT? * I think that recovery in commuting will be quicker than a recovery in air travel and although I’m sure business trips will return in the not-too-distant future I really think that there will be less of them due to the normalisation of conferencing. And while that all happens, WH Smith will just have to wait…

4

MISCELLANEOUS NEWS

Amazon wants to employ more people, Tencent invests outside China and UK house prices rise in August…

Amazon seeks to hire 55,000 for corporate, tech roles (Wall Street Journal, Dave Sebastian) shows that the e-tailing giant is about to begin another hiring spree as it expands its cloud computing unit Amazon Web Services, Amazon Studios, advertising and its broadband satellite business Project Kuiper. Over 40,000 roles will be available across 220 locations in the US alone! This really is just incredible, don’t you think?

Then in Tencent boosts global investments as Beijing cracks down on gaming (Financial Times, Mercedes Ruehl and Primrose Riordan) we see that the Chinese tech giant has increased its investments in overseas startups by seven times so far this year as it tries to seek growth outside its increasingly tricky domestic market. Data from Refinitiv points to 34 investments for the first half of 2021. Most of its European deals have been in the gaming sector but have had to be made by subsidiaries in order to stay

under the radar for fear of scrutiny by governments keen to keep the Chinese out. * SO WHAT? * Tencent continues to be a target for the Chinese authorities so it is understandable that they might want to seek out growth opportunities elsewhere. I suspect that even this will get harder as governments scrutinise Chinese investments more closely now that the coronavirus seems to be out of the most critical stage in many developed economies.

Then in UK house prices jump by almost £5,000 in August (The Guardian, Larry Elliott and Jillian Ambrose) we see that the latest figures from the Nationwide building society are showing the second biggest monthly increase in the cost of the average home  in 15 years! It said that this was probably due to a shortage of homes for sale and buyers of homes worth less than £250,000 continuing in their efforts to complete their purchases before the end of the stamp duty holiday. * SO WHAT? * Pretty much everyone has been expecting a slowdown in property sales and prices as we approach the stamp duty holiday deadline at the end of this month – and this seemed to be confirmed by evidence of price weakness last month. However, it remains to be seem whether this will be the last hurrah or whether the housing market as a whole won’t actually be as weak as everyone was expecting…

5

...AND FINALLY...

…in other news…

I thought I’d leave you today with a great option for all those Potterheads out there in You can book a Harry Potter cottage with secret rooms and a Hogwarts dormitory (The Mirror, Julie Delahaye). What an amazing Airbnb!

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Some of today’s market, commodity & currency moves (as at 0754hrs 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 **
7,150 (+0.42%)35,312.53 (-0.14%)4,524.09 (+0.03%)15,309.38 (+0.33%)15,824 (-0.07%)6,759 (+1.18%)28,525 (+0.26%)3,597 (+0.85%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$68.33$71.39$1,814.551.377941.18429110.031.1635349,757.64

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