Thursday 08/12/22

  1. In MACROECONOMIC NEWS, we look at the change in China as economists predict rising unemployment in the US
  2. In CONSUMER TRENDS & LEISURE NEWS, UK job vacancies slow, house prices drop, Mitchells & Butlers is cautious about the future and pubs get hammered by the rail strikes
  3. In TECH NEWS, Microsoft does a deal with Nintendo, Google and Waze cosy up and LG hopes for an iCar future
  4. In MISCELLANEOUS NEWS, GSK gets a booster, Moonpig cuts its forecasts and Brussels continues its assault on the City
  5. AND FINALLY, I bring you an Elf on the Shelf story…

1

MACROECONOMIC NEWS

So the OECD is damning on the UK, European gas prices rise and the FTX repercussions keep on coming…

📢 It’s Thursday, so it’s time for the one hour weekly Zoom call for SILVER and GOLD subscribers! Click HERE to access the joining details. *** 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:

  • What will be the effect of current public sector strikes in the UK? Which sectors will suffer most and which will benefit most?
  • Will Chinese battery makers be to cars what gas has been for Russia?

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 😜!

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

China retreats from sweeping zero-Covid policies as economic toll mounts (Financial Times, Thomas Hale and Tom Mitchell) follows on from the story that broke as I published in Watson’s Daily yesterday and provides more detail. The State Council outlined

the measures yesterday as the Chinese Communist party’s politburo emphasised the prioritisation of the economy over the battle against Covid. * SO WHAT? * This was a major step as it gave local government centralised guidance at a time when all the recent data is highlighting the drag that the zero-Covid policy is having on the economy. What China’s Covid-19 reopening means for markets (Wall Street Journal, James Mackintosh) is a really interesting article which suggests that the resulting bounce back won’t be without its issues given that Chinese citizens have not received cash stimulus that US and European citizens received (which means that they are unlikely to suddenly start spending) and that China will be reopening more cautiously that other countries (because vaccine rates are comparatively low, as is general immunity). It also has more slack in the economy to respond to sudden shifts in demand due to high youth unemployment and fallout on small businesses while the existing workforce is unlikely to shrink overall because more people need the money given the lack of state support. Ultimately, though, the reopening is happening just as other countries are trying to cool economies, which could mean that prices will remain higher for longer as China gets back on track.

Then in US unemployment rate set to surpass 5.5% economists predict (Financial Times, Colby Smith and Caitlin Gilbert) we see that, in a poll conducted by the FT, the majority of leading academic economists reckon that the Fed’s rate hikes will result in an increase in unemployment in the US to at least 5.5% (versus the current rate of 3.7%) as the country tips into recession (something that the National Bureau of Economic Research is expected to confirm by the end of this year). Fed officials, including Jay Powell, believe that the economy will have a “soft or softish landing” but those polled don’t think that the US can avoid at least some pain. The Fed is expected to raise interest rates by 0.5% in next week’s meeting rather than the 0.75% we have become accustomed to.

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

CONSUMER TRENDS & LEISURE NEWS

Job vacancies slow, UK house prices fall and pubs have a mixed time…

Job vacancies slow amid fears of prolonged slump (The Times, Arthi Nachiappan) cites the latest recruiter survey by KPMG and REC which shows that the number of permanent hires was down for a second consecutive month in November as economic uncertainty continued to chip away at sentiment both from candidates (more likely to stay put) and employers (why hire if you might have to fire in a downturn?). That said, it seems that there are still labour shortages and so a sudden cratering in jobs looks unlikely at the moment.

Property prices fall at fastest rate in 14 years, says Halifax (The Guardian, Joe Middleton) shows that house prices fell at their fastest monthly rate last month since the financial crash of 2008. It is the third consecutive fall and the annual rate of house price growth fell to 4.7% from 8.2% in October. * SO WHAT? * It just seems to me that reality is kicking in for many although I am sure that there is at least a bit of the after-effect of Kwarteng’s mini-budget still lingering. I would have thought that the slowdown will continue as interest rates (and therefore mortgage rates) continue to rise and consumers take a beating from higher utility bills.

It’s a mixed bag for pubs, though, in Harvester owner warns of inflation cost ‘headwinds’ (The Guardian, Joe Middleton) as owner Mitchells & Butlers – which also owns brands including Toby Carvery, All Bar One and Browns – announced decent performance

thanks to office workers returning in greater numbers but added that the trading environment remained “very challenging”. The company said that profits would not have been far off from pre-Covid levels if it hadn’t been for the massive increases in electricity bills. Although the timing of the RMT strikes has not been great, the company said that it had not seen the big exodus of Christmas bookings that they had been fearing although Cancelled Christmas parties bring ruin for pubs (Daily Telegraph, Matt Oliver and Daniel Woolfson) shows that not everyone has been so fortunate. For some (especially independents), this will be the third disrupted Christmas in a row and the RMT’s strikes could be the final nail in the coffin. UKHospitality reckons that the sector will take a £1.5bn hit in sales this month because of the strikes that will hit half of the trading days between December 13th and 27th. * SO WHAT? * I think that public sector workers will perhaps enjoy underlying support in their plight for the moment, but it could well be replaced by anger from students who are denied access to learning despite paying a lot of money for their education, people who can’t get to work (and perhaps don’t get paid as a result) because of rail strikes and families of those who die because of NHS strikes. Of course the government will have to step in at some point (to avert civil unrest) but ultimately it is the taxpayer who will have to foot the bill for any public sector wage increases. This will mean even higher taxes and pressure on private employers who will start to cut staff because they can’t afford to keep up with the rising wage bills. Obviously, I’m not against people getting paid more money but unfortunately, it will not come without consequence.

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

TECH NEWS

Microsoft talks to Nintendo, Google cosies up with Waze and LG could benefit from its Apple relationship…

In news that could well excite gamers everywhere, Microsoft signs 10-year ‘Call of Duty’ deal with Nintendo (Financial Times, Kana Inagaki and Tim Bradshaw) shows that a software giant has signed a deal with a gaming giant to bring the COD franchise to Nintendo’s consoles. * SO WHAT? * This is interesting as part of the wider issue of Microsoft’s proposed takeover of ActivisionBlizzard (the owner of the COD franchise) which is attracting criticism from the likes of Sony and others, who are concerned that ActivisionBlizzard’s games could be made exclusive to XBox, thereby cutting off rivals’ access to an extremely popular franchise. If Microsoft can do a deal with Sony though, it could increase the chance of regulator approval…

Then in Google combines Maps and Waze teams amid pressure to cut costs (Wall Street Journal, Miles Kruppa) we see that Google is planning to further integrate its Geo division with Waze as part of efforts to streamline operations and slash costs. That said, Google

maintains that it plans to keep Waze as a standalone product. Google bought Waze in 2013 for $1.1bn and the app now has 151m monthly active users. This sounds like a reasonable move by Google to cut costs whilst stopping short of fully integrating Waze itself.

LG/Apple: Korean group should benefit from much-anticipated iCar (Financial Times, Lex) is an interesting article that touts the longer term benefits of LG’s relationship with Apple, despite the shares being sold off as Apple indicated yesterday that it is reining in plans for a fully-autonomous car and delaying a launch to 2026. * SO WHAT? * It is thought that LG could have benefited from parts sales to Apple, which would have been particularly welcome as its core home appliance division is not doing particularly well at the moment. However, if we look at the longer term, LG could still very well be in the mix with Apple, but in the meantime LG and its subsidiaries will have to rely on customers including Mercedes, BMW and Audi – which should still provide a nice floor under LG’s falling share 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!

4

MISCELLANEOUS NEWS

GSK gets a booster shot, Moonpig suffers and Brussels continues to battle the City…

In a quick scoot around other interesting stories today, GSK and Sanofi shares surge after Zantac ruling victory (Financial Times, Jamie Smyth and Hannah Kuchler) shows that shares in GSK, Sanofi and Haleon shot up yesterday as a US court ruled that popular heartburn treatment Zantac does not cause cancer and that allegations had been based on flawed science. The cloud of litigation has been hanging over GSK, Pfizer, Sanofi and Boehringer Ingelheim (all of whom have sold it over the last 35 years) since a report by UBS in August flagged litigation risk, but the decision means that it won’t have to pay out billions in personal injury awards (Morgan Stanley analysts reckoned that damages could have been up to $45bn). The claimants will now try to pursue litigation in state courts. * SO WHAT? * This will be a huge source of relief for the companies affected and GSK/Zantac: heartburn treatment avoids legal remedies (Financial Times, Lex) reckons that GSK’s share price deserves to rebound more than it has done so far given the lifting of this litigation risk and the fact that it has put in a strong performance this year.

Elsewhere, Moonpig cuts annual sales forecast as Royal Mail strikes derail deliveries (Financial Times, Arjun Neil Alim) shows that the company’s share price fell by a whopping 15% following its

lowering of annual revenue guidance. It blamed the disruption of the Royal Mail strikes and consumers spending less on gifts. The company’s share price has fallen by almost two-thirds since its peak post-IPO price of 488p as the lockdown online spending frenzy gave way to customers going to shops as Covid restrictions were lifted. * SO WHAT? * This isn’t great, but I guess there’s still Valentine’s Day to come up and it has also been relatively successful in building up a customer data base that reminds them of significant dates including birthdays and anniversaries. This could help get them through difficult economic conditions and could be further integrated with Red Letter Days and Buyagift, the acquisitions of which it has just completed.

Then in Brussels bid to lure City business (Daily Telegraph, James Crisp and Simon Foy) we see that Brussels is having another crack at attacking the City’s lucrative clearing house business by attempting to force banks to move business to the EU. The European Commission unveiled legislation to give the EU some of London’s derivatives trading, saying that it was intended to protect Europe from the risk of having too much derivatives exposure in London (and that it absolutely, positively was not a power grab 🤣). This comes just as Rishi Sunak is preparing to announce City regulatory reforms, which will be much less forthright than the previously proposed Big Bang 2.0.

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…

Cuteness alert – this story will take you on a mini-emotional rollercoaster: Mum creates elaborate Elf on the Shelf cover story after toy mysteriously loses a limb (The Mirror, Freddie Bennett and Rebecca Cooley). If you want to balance this out, why not check out the latest on the Watson’s Daily Avent Calendar HERE where I try to make Jake Schogger of the Commercial Law Academy laugh with some outrageously corny dad jokes 🤦‍♂️ And yes, there will be a round two where he tries to make me laugh. There’s more content to come!

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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 **
7,489 (-0.43%)33,597.92 (unch)3,933.92 (-0.19%)10,958.55 (-0.51%)14,261 (-0.57%)6,661 (-0.41%)27,564 (-0.45%)3,197 (-0.07%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$72.899$77.670$1,785.031.219611.05106136.8491.1603816,801

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