Thursday 12/01/23

  1. In ENERGY, MINING & OIL NEWS, Sweden aims to change the rules, UK wind power generation hits a high, UK coal gets a stay of execution, the Saudis put money into mining and the oil cap hurts Russia
  2. In CONSUMER & RETAIL NEWS, millionaires leave the UK, credit reliance and cash usage rise while mortgage defaults look set to increase, food prices could be higher for longer and we look at striker demands as Uniqlo ups pay, LVMH does nepotism, Sainsbury’s celebrates Christmas, JD Sports gets a boost and Lookers stays in the fast lane
  3. In REAL ESTATE NEWS, Barratt warns, commercial property deals dry up and TV/film studios get a nasty shock
  4. In INDIVIDUAL COMPANY NEWS, Darktrace takes a hit, Direct Line suffers and Britishvolt gets an alternative offer
  5. AND FINALLY, I bring you the Anorak of the Year winner and a bizarre tourism promotion…

1

ENERGY, MINING & OIL NEWS

So Sweden wants to change the rules, UK wind power generation rises, UK coal gets an extension, the Saudis put money into mining and oil sanctions hit Russia…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

Sweden plans new law to enable nuclear plant construction (Financial Times, Richard Milne) shows that Sweden’s new government is looking at ways to build new nuclear power plants to help provide a stable source of power generation. PM Ulf Kristersson said that the new law would be needed to remove the current limit which restricts the number of nuclear reactors to ten in just three areas. The government is also looking into whether two decommissioned reactors could be restarted and is considering the idea of building smaller nuclear plants. UK sets new record for wind generation thanks to blustery conditions (Financial Times, David Sheppard) cites the National Grid Electricity System Operator as saying that the UK broke its record for wind power generation on Tuesday thanks to windy conditions (funnily enough!) and more turbines. Given that electricity prices are still about four times higher now than the average between

📢 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:

  • How would you solve the current rental crisis in the UK?
  • When, where and why will deal making return?

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 😜!

2010 and 2019, this is clearly good news. Wind consistently made up 46-59% of all UK electricity generation over the past week and has only been below 30% once in the last 11 days! Still, Coal plant to remain open in blow to green agenda (Daily Telegraph, Rachel Millard) shows that the government is still keeping all options open for now as one of Britain’s last coal-burning power plants, in Nottinghamshire, is going to be kept going for two extra years (it was originally going to shut down in 2022). National Grid said yesterday that other coal-fired plants could also get an extension of operations, all of which makes Cop26 climate promises look a bit shaky. But I guess needs must…

Elsewhere, Saudi Arabia launches mining fund in effort to reduce oil dependency (Financial Times, Leslie Hook, Harry Dempsey and Samer Al-Atrush) shows that the kingdom has launched a mining fund that aims to pour up to $15bn into overseas mining assets. This is all part of ongoing efforts to use oil money to finance a future that is less dependent on oil. The venture will be 51% owned by Saudi state-owned miner Ma’aden and the remaining 49% by the country’s sovereign wealth fund, the Public Investment Fund (PIF). Ma’aden is 67% owned by PIF. The idea is that this will help it secure resources including iron ore, copper, nickel and lithium.

Then in G7 price cap on Russian oil is costing Putin £140m a day (Daily Telegraph, Chris Price) we see that, according to a report from the Helsinki-based Centre for Research on Energy and Clean Air, the price cap on Russian oil imposed by the G7 has led to Russia’s oil earnings from exports of fossil fuels fall by 17% in December. It is thought that the £140m of lost revenues per day the invasion is costing Putin will rise to around £246m a day when the EU’s ban on refined oil imports kicks in on February 5th. Russia is obviously sceptical about this assessment  and says that it will do whatever it takes to protect its interests.

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 & RETAIL NEWS

We look at consumer behaviour and challenges and some interesting retailer updates…

In a quick snapshot of the state of consumers right now, Tax raids drive the ultra-wealthy out of Britain (Daily Telegraph, Rachel Mortimer) cites research by migration consultancy Henley & Partners, which shows that the UK has seen a net outflow of 12,000 wealthy individuals (classed as those with assets and cash worth over $1m) since 2017, and 1,500 over the last year alone. Britain has been quite successful in the past with attracting the super-rich thanks to decent tax breaks, a simple visa system and strong economy. Stealth taxes and a sharp drop in “non-doms” has made the country less attractive, not to mention the low inheritance tax threshold. * SO WHAT? * Although it is tempting to think that some are getting what they deserve (I remember at one previous employer, a couple of my non-dom bosses used to boast almost daily about how little tax they paid, implying that the rest of us were mugs), the counter-argument is that we are missing out on tax revenues, talent and entrepreneurship.

Meanwhile, at the more realistic end of the scale, More than 12m people rely on credit to pay for food and bills (Daily Telegraph, Lauren Almeida) shows that more than 20% of the population is now relying on credit to shell out on basics, according to findings by the Money and Pensions Service. Purchases on credit peaked before Christmas (unsurprisingly) while the cost of borrowing has also increased (Moneyfacts said that the average credit card rate reached a record high of 30.4% this month!). It was interesting to see Cash use on the increase as households tighten budgets (Daily Telegraph, Genevieve Holl-Allen) because its usage actually increased for the first time in over thirteen years as households turned to cash over cards to stay within their means, according to research by the Nationwide building society. Consumers are still facing challenges – as per More than 750,000 UK households at risk of mortgage default, says regulator (Financial Times, Laura Noonan), which highlights the number of potential defaults in the next two years – based on the assumption that households become “at risk of payment shortfall” when mortgage costs exceed 30% of their income. Also, Energy and food inflation will persist for two years (The Guardian, Richard Partington) cites the World Economic Forum’s annual global risk report which concludes that higher energy and food prices are the biggest risk to the world economy. It’s concerns like this that are leading some to strike to get better pay to afford such higher prices and Are Britain’s striking public sector workers underpaid? (Financial Times, Alan Smith, Delphine Strauss and Keith Fray) dives into the detail of whether they really are being hard done by. The conclusion is yes, they are – although the train drivers much less so than others.

In retailer news, Uniqlo owner to raise wages in Japan by 40% as inflation climbs (Financial Times, Kana Inagaki and Eri Sugiura) is a pretty eye-catching headline, don’t you think?? Fast Retailing, which owns Uniqlo, has pledged to hike pay quite considerably from March to make it globally competitive and based on merit rather than seniority. This is being done at a difficult time for the company that has been facing rising costs because of the weak yen, higher raw material prices and Covid-lockdowns in China. This comes on top of a 20% wage increase the company implemented in September. * SO WHAT? * Although not as sizeable as inflation

in other countries, Japan’s core inflation rate was up by 3.7% in November – its fastest rise for almost 41 years – so this is another reason why the extra pay could come in useful. Interestingly, the Japanese Trade Union Confederation is pushing for a 5% year-on-year increase in wages this year – or 3% in base salary – which would be the highest rise since 1995! Given that corporate profits have hit record levels, it is thought that wage increases are likely at other companies…

Nearer home, Bernard Arnault promotes daughter Delphine in LVMH reshuffle (Financial Times, Leila Abboud) shows that LVMH chief exec Bernard Arnault promoted his eldest daughter Delphine to run Dior as part of a management reshuffle at the world’s biggest luxury company. Rising star Peitro Beccari, who ran Dior (LVMH’s second biggest brand) until 2018, has been announced as the new chief of the company’s flagship brand Louis Vuitton. Louis Vuitton now accounts for almost two-thirds of LVMH’s annual operating profit. LVMH: heirs and spares should not detract from luxury growth prospects (Financial Times, Lex) reckons that 2023 is going to be another good year for the luxury sector – this time with a tailwind in the form of China opening up. * SO WHAT? * Although I am not a fan of nepotism, it seems that Bernard Arnault is supreme at handling the fact that all of his kids work for the business. It could also be argued that he is doing a decent job of succession planning (this can’t be said of all businesses!), which means that when he DOES eventually leave, investor panic will be kept to a minimum.

In the UK, Sainsbury’s has record Christmas as drive to improve value pays off (The Times, Isabella Fish) shows that the supermarket benefited from early Christmas shopping and customers watching the World Cup at home helped it to record sales over the festive quarter in spite of the current cost-of-living crisis. It also forecast full-year profits hitting the upper end of guidance as its strategy of keeping its prices as low as it can seems to be paying off. General merchandise sales – including its Argos and Tu business – also came in “stronger than expected”. Tesco is due to announce its update today, so it’ll be interesting to see the comparison and if any trends are emerging.

Elsewhere, Gen Z shoppers help generate £1bn profit boost for JD Sports (The Times, Isabella Fish) shows that Christmas sales for JD Sports were brisk, boosted by Gen Z customers’ spending power! According to Régis Schultz, the chief exec, the under-25s had more to spend than at any time “over the last five years”, something that has been helped by low unemployment. Would you agree?? Expectations now are that profit for the full year is likely to be near the top end of the range.

Then in Lookers in driving seat on car sales (The Times, Robert Lea) we see that the car dealership, which is particularly strong in the southeast and northwest, said that last year’s profits will come in significantly above previous forecasts as it continued to benefit from a lack of supply of cars which helped them to retain fat margins. Will this continue, though, given the noticeable tail-off in demand for high ticket purchases (which may be financed by higher rates adding to the expense of something that’s already expensive)?

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

REAL ESTATE NEWS

Residential and commercial property face difficulties while TV and film studios face a massive hike in taxes…

With regard to the current state of the UK property market, Barratt in warning over house sales slump (The Times, Tom Howard) shows that Barratt Developments said it may build fewer houses this year if sales don’t pick up soon as it said that is now selling half as many homes per week as it was last summer. * SO WHAT? * All major housebuilders reported a sharp slowdown in the aftermath of last year’s mini-Budget due to prices becoming less affordable and a weakening of would-be buyer confidence. The housing market normally slows down going into the end of the year (people don’t want to move over Christmas and then feel poor in January) and then picks up once more going into the spring, so it could be a bit early to judge at this point. Management has already cancelled 22 sites that had been previously approved for development in anticipation of a slowdown, but plans could yet change if things improve.

Over in commercial property, UK commercial property dealmaking at lowest level in over a decade (Financial Times. George Hammond) highlights findings of real estate analytics company CoStar, which say that commercial property deals have fallen to

their lowest level since at least 2010 as investors battle persistently high interest rates, fears of prolonged recession and the ongoing echoes of the Truss-Kwarteng mini-Budget last year. Investors now have to pay much higher borrowing costs but don’t want to pay 2021 property prices. * SO WHAT? * It seems to me that there was a lot of hope/pent-up demand in the offing just before the Ukraine war started and I do wonder whether there will be a boom when the war comes to an end (although it will depend on HOW it ends and who is in charge in Russia).

Then in TV and film studios threatened with big UK property tax rises (Financial Times, Alistair Gray and George Hammond) we see that various big-name production facilities – like Shepperton Studios and Warner Brothers Studios Leavesden – are facing massive increases in property taxes, putting Britain’s reputation as a global hub of the entertainment industry at risk. They are facing a fivefold increase in annual business rates from April while Pinewood Studios’ taxes will increase fourfold! Film and TV execs say that the Valuation Office Agency’s assessments of rateable value have been miscalculated and if they go ahead as-is, this could be a disaster for the industry. We’ll just have to wait and see how things pan out here…

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

Darktrace and Direct Line suffer while Britishvolt continues to hold out hope…

In a quick scoot around some of today’s other interesting stories, Shares fall in Darktrace as sales slow (The Guardian, Mark Sweney) shows that the share price of the British cybersecurity firm fell by up to 18% in trading yesterday, hitting its lowest level since its IPO two years ago, as it warned of the slowing rate of customer sign-up. The company’s market cap was almost £7bn in the aftermath of its flotation, but it is now worth around £1.8bn. * SO WHAT? * Darktrace said it is focusing on landing bigger clients and upselling existing ones but I guess that it is finding that companies are just reining in expenditure.

Meanwhile, Direct Line scraps dividend as cold snap pushes up claims (Financial Times, Ian Smith) highlights trickier times for the insurer as Q4 performance was badly buffeted by a short spell of severe cold weather in December pushing up the cost of claims

(burst pipes, water tanks and other damage). The company’s share price fell by a whopping 30% initially on the news and Direct Line: dividend cut underscores motor insurer’s navigation error (Financial Times, Lex) calls for the company to increase its premiums to offset higher claims.

The drama continues in Britishvolt shareholders pitch rival bid to thwart Indonesian takeover (Financial Times, Peter Campbell and Harry Dempsey) as a group of three existing shareholders got together to provide an alternative bid to the current one on the table but Daydreams won’t solve UK’s electric car problem (Daily Telegraph, Ben Marlow) pours scorn over the whole thing saying that the main issue here is not that Britishvolt needs more money, but that the company didn’t get enough orders in the first place and tried to stimulate demand by creating supply rather than the other way around. We’ll just have to wait for now…

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…

It’s good to have at least one hobby, isn’t it. It’s great to have your excellence in that hobby recognised every now and again – and this man is a winner: ‘Dull’ man obsessed with rubbish bins wins hotly contested Anorak of the Year award (The Mirror, Sam Elliott-Gibbs). His passion is visiting the UK’s “best rubbish bins”. I’ll just leave it there. On the plus side, I guess it gets him out and about…

I thought I’d end today with one of the most bizarre tourist videos I’ve seen – and it’s to advertise the charms of Kagoshima in Japan: Kagoshima City releases catchy promotional video with weird dancing, bushy eyebrows, no pants (SoraNews24, Dale Roll). And for the squeamish among you, that is the American meaning of the word “pants” 🤣. Watson’s Daily is a legit website after all 👍.

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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