Thursday 05/05/22

1. In MACRO & SANCTIONS NEWS, the US raises interest rates, the BoE is thinking about it, Hungary holds out on EU’s proposed embargo, a further SWIFT ban is considered and Truss cuts off pro services to Russia
2. In CONSUMER & RETAIL NEWS, US consumers shop like it’s 2019, Eurozone retail sales fall, UK consumers consume more credit and less meat while Boohoo’s profits plunge and Joules’ troubles continue
3. In CAR NEWS, VW sells out of EVs in Europe and the US while Aston Martin gets a refresh
4. In MISCELLANEOUS NEWS, Uber suffers, Flutter wins and “banter” lawsuits increase
5. AND FINALLY, I bring you an unhealthy job vacancy…

So the US hikes rates, we think of doing the same, Hungary holds out and there are more sanctions against Russia…

📢 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, WHICH WILL BE THE NEW REGULAR TIME ***. 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:

• What do you think will be the effects of China’s economy bouncing back strongly when lockdowns lift?
• What needs to be done to save the British farming industry?

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 😜!

In quite possibly the least best kept secret ever, Biggest US rate rise in 22 years – with more to come (Daily Telegraph, Tim Wallace) shows that Fed chief Jay Powell has done what he’s been flagging for ages now – increasing the interest rate by 0.5%, the biggest hike in 22 years, in order to tame inflation. This means that the US rate of inflation has risen from 0.5% to 1%. He went as far as saying that additional 0.5% increases are likely to happen within weeks. Bank expected to raise interest rates despite faltering economy (The Guardian, Richard Partington) shows that many are expecting interest rates to rise again today – to reach their highest level since February 2009 despite cracks appearing in the economy. The market is expecting a rise of at least 0.25% to take our rate to 1%. It is going to be tricky to get the balance right between stifling the

economy too much and curbing inflation in an orderly manner. The fact that it takes a few months for the effects to take hold makes it very difficult, as does the changing geopolitical situation.

Talking of the changing geopolitical situation, Hungary holds up EU plan to ban imports of Russian oil (Financial Times, Eleni Varvisioti, Sam Fleming and Andy Bounds) shows that Hungary is holding out on the EU plant to cut out almost all imports of Russian oil – and for this to go forward all 27 states have to approve. The EU wants the ban on Russian crude within six months and refined products by the end of this year but Hungary wants there to be exceptions for countries that import it via pipelines. Slovakia and the Czech Republic are also wavering for the same reasons. In the meantime, EU plans to evict largest Russian lender from Swift but spare energy bank (Financial Times, Owen Walker) shows that another sanction is being mooted that will kick Russia’s biggest bank, Sberbank, off the SWIFT global payments system, along with Credit Bank of Moscow and Russian Agricultural Bank. This is all very well, but Gazprombank is still on the system and is the biggest facilitator of payments for Russian oil and gas exports. In addition to this, Truss cuts off Russia’s access to UK accountants and consultants (Daily Telegraph, Simon Foy) shows that Foreign Secretary Liz Truss has now banned all service sector exports to Russia with immediate effect, cutting Russian businesses off from all UK professional services firms. The ban covers accounting, consultancy and PR firms but not law firms or banks. * SO WHAT? * All of this just goes to show how hard it really is to extricate businesses and industries from years of entanglement. It is clearly a painful process and will be something that they will be bearing in mind for the future if they ever do business in Russia again.

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!

We look at contrasting consumer fortunes and retailer difficulties…

American consumers are shopping, traveling and working out like it’s 2019 (Wall Street Journal, Rachel Wolfe) shows that Americans are going back to pre-pandemic habits like going to concerts (Live Nation, which owns Ticketmaster, said concert ticket sales increased by 45% in February 2022 versus February 2019), working out at the gym (Planet Fitness said that January memberships now exceed pre-pandemic levels) and flying (not far off 2019 levels). On the flipside, some lockdown darlings like Peloton, Netflix and Instacart are all taking hits, prompting each of them to take drastic action. Peloton has cut production and in the midst of a management shake-up, Netflix is cutting staff numbers and production of a raft of shows whilst also considering adopting an advertising model, and Instacart has cut its own valuation. It’s all sounding pretty good stateside at the moment, which is probably why inflation is continuing its massive rise.

It’s a bit of a different story on the other side of the Atlantic, though, in Sharp fall in retail sales adds to eurozone economic gloom (Financial Times, Martin Arnold) as official Eurostat data shows that Eurozone retail sales fell further than the market expected in March and Squeezed families pile up credit card debt (Daily Telegraph, Tim Wallace) cites the latest Bank of England figures which show that credit card borrowing shot up by over 10% on the year as consumers increasingly finance higher prices by taking on more debt. Britons buy less meat as prices rocket (The Times, Ashley Armstrong) highlights one of the consequences of rising prices as shoppers are now buying less alcohol, meat, fish and poultry, according to the latest figures published by Nielsen. * SO WHAT? * The Bank of England is expected to raise interest rates today which should encourage people to save more and spend less – in theory – but the problem here is that people aren’t spending on gratuitous things, they are spending more on just buying the basics. If the government doesn’t do something soon about helping people with rising utility bills, there could be a very sharp drop-off in consumer spending in prospect IMO.

In retail, Covid retail boom not over, insists Boohoo despite profits plunge (Daily Telegraph, Laura Onita) shows that the Boss of Boohoo still maintains that the market for cheap clobber isn’t dead yet, despite reporting a fall in profits. The slide has been largely down to high shipping costs and supply chain disruption. Interestingly, the company is seeing the amount of returns getting back to pre-pandemic levels. * SO WHAT? * It’d be interesting to see how many Boohoo customers have been lured away by Shein and it is somewhat concerning to see the amount of returns increasing again. This is a huge cost for retailers and Boohoo will no doubt be doing as much as possible to get that down.

At the preppier-end of the apparel spectrum, Joules announces boss’s exit as trading challenges mount (The Times, Ashley Armstrong) shows that things are not well at Joules as it had a disappointing trading update and the announcement that its chief exec, Nick Jones, is set to leave after just three years as CEO. The company’s share price tanked by 25% on the news as it has been hit by supply chain problems both at home and abroad, the increasingly budget-conscious consumer and a lack of interest in its home and garden range. * SO WHAT? * The last three years have been turbulent to say the least, but the company remains intact. I would have thought that there is enough good material here for a new incoming CEO to get their teeth into and get Joules riding high again. I know this is going to sound somewhat harsh, but I think that the pandemic gave it the excuse to cull stores that weren’t performing and the boost it needed to improve its online business (which it had wanted to improve anyway). It seems to me that Joules has emerged from the pandemic in a leaner condition so things could get quite exciting if they get someone decent on board to lead the company.

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!

VW runs out and Aston Martin gets a new breath of life…

VW sells out of electric cars in Europe and US (Financial Times, Joe Miller and Alexander Vladkov) shows that the world’s second biggest EV manufacturer by volume has sold out of EVs in Europe and the US until the end of this year thanks to supply chain problems hitting production. Just to give you an idea of perspective, it sold 99,000 units in Q1 of 2022 while Tesla sold triple that number over the same time period. The order backlog in western Europe, however, currently stands at 300,000 units! The company said that it is approaching “sell out” in China as well! * SO WHAT? * In a way, it must be encouraging for VW to sell out of EVs, but then on the other hand it must be thinking that it’s leaving money on the table as well. Strong demand does not look like abating for now – and maybe this scarcity will continue to have a positive effect on sales for a while longer as, in a way, the scarcity makes the vehicles somehow more desirable. Whoever can supply EVs the longest with the least waiting time is bound to win big IMO…

Meanwhile, Aston Martin appoints third CEO in three years as Tobias Moers steps down (The Guardian, Jasper Jolly) shows that the sports car maker has just appointed yet another CEO who will stay on until the end of July to ensure smooth transition for the new guy, former Ferrari boss Amedeo Felisa. Felisa has actually been on the board of Aston Martin since July last year and will be bringing in another former Ferrari executive, Roberto Fedeli, to be the new chief technical officer. Aston banks on Ferrari veterans to engineer a recovery (Daily Telegraph, Matt Oliver) highlights hopes that the new lot can steer the venerable brand successfully into electrification after a turbulent two years that has seen the company’s share price plummet by a whopping 90% since its flotation in 2018. * SO WHAT? * I think that it would be fair to say that the audience that Aston Martin is targeting will not be fretting about higher utility bills and fuel prices! The fact that the Ferrari lads were partly responsible for seeing Ferrari turboboost its valuation from £5bn in its New York Stock Exchange flotation in 2015 to the current valuation of almost £30bn suggests that they could repeat the trick again at James Bond’s fave car maker. Chairman Lance Stroll will certainly be hoping so!

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!

Uber suffers, Flutter booms and “bants” is getting more people into trouble…

In a quick scoot around other interesting stories today, Price war fears drive Uber shares down (Daily Telegraph, James Titcomb) shows that Uber shares fell to their lowest level since the start of the Covid outbreak as arch-rival Lyft unveiled plans to sign up more drivers. This bad news eclipsed Uber’s better-than-expected financial results where CEO Dara Khosrowshahi said that its rides business in April had returned to pre-pandemic levels. * SO WHAT? * This is clearly not great news from Uber’s point of view, but I guess there’s a limited amount it can do to combat high fuel prices and the competition for drivers. It’s something that clearly needs addressing – and pronto…

Then in American sport is slam dunk in Flutter results (The Times, Dominic Walsh) we see that Flutter Entertainment (which owns Paddy Power and Betfair) is doing really well in the US as its American business

accounted for more than 50% of all stakes for the first time! There may be another serious boost in the offing as it looks like California could soon be the next state to legalise sports betting. It’s altogether more drab in the UK as the company was hit by an additional £30m of costs from the implementation of safer gambling measures.

I thought that I’d include ‘Office banter’ lawsuits soar to record level as jokes wear thin (Daily Telegraph, Lucy Barton) as it is something I’ve experienced a LOT in my career! According to research by law firm GQ Littler, workplace lawsuits including the word “banter” have rocketed up by 45% in a year as what constitutes office humour is put increasingly under the microscope. Those who claim discrimination need to watch out though – if they dish it out as well, are not offended or the comment was not concerning a “protected” characteristic then the employer is unlikely to be liable. It’s interesting to see how office behaviour is changing as a result of more behaviour being deemed unacceptable. Some of the stuff I’ve heard on dealing floors I’ve worked on in the past have been shocking!

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!

…in other news…

Sometimes you come across jobs that you just didn’t even know existed. This is a case in point: Get paid £1,000 to be a food tester for Greggs, McDonald’s and Subway (The Mirror, Paige Holland). You get £1,000 for doing this for a month! Sounds unhealthy, don’t you think? Maybe you have to load up on salads in between testing to even things out a bit. It doesn’t sound too taxing though, does it! Talking of naughty food, I discovered a guy on YouTube the other day who reviews “fast food” in Japan and if you like tempura, you are going to love THIS. Oh my word. Get me on a plane RIGHT NOW!!! On a side note, when I was a broker at a Japanese company back in the day, we used to get Japanese analysts coming over to the UK all the time. I used to fly with them a lot to meet investors in Edinburgh and (at one time) Glasgow and there was a Harry Ramsden’s at Glasgow airport. If I timed the meetings right we could get to the airport in time to have fish and chips there before getting on the flight back to London. There were the odd occasions where the analysts had never been to the UK before and had never had fish and chips, so some of them were not familiar with the concept. When that happened I used to say that the meal was chips with “fish tempura” and then they seemed to understand 🤣! They never quite got the idea of mushy peas, though…