Thursday 18/05/23

1. In MACROECONOMIC NEWS, Japan exits recession, Europe softens towards the UK, the Bank of England acknowledges the wage-price spiral and South Africa could be heading for the naughty step
2. In RETAIL NEWS, Shein raises $2bn, Target earnings are squeezed, JD Sports heads for £1bn in profits and Watches of Switzerland does well on watch sales but not elsewhere
3. In TECH NEWS, Tencent revenues rise, TikTok faces a ban in Montana, Apple’s headset gets ever closes and Inmarsat has its strongest ever results
4. In INDIVIDUAL COMPANY NEWS, UBS/Credit Suisse has a reality check, British Land suffers and Purplebricks gets sold for £1
5. AND FINALLY, I bring you the different running styles of Hollywood actors…

So Japan escapes, Europe softens, the Bank of England gets sheepish and South Africa faces sanctions…

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:

Japan exits recession despite export slump (Financial Times, Kana Inagaki and Leo Lewis) shows that Japan has managed to extricate itself from a technical recession thanks to a rebound in household spending and tourism. However, although its stock markets got excited, exports and manufacturing are still weak. Q1 GDP grew at an annualised rate of 1.6% in the January to March quarter versus market expectations of 0.7% growth.

Meanwhile, Brussels agrees to sign regulatory co-operation deal with the UK (Financial Times, Andy Bounds and Sam Fleming) shows that there’s some positive movement regarding the thorny issue of the regulation of financial services coming not long after the settlement of trading disputes over Northern Ireland. The new memorandum of understanding will create a framework for voluntary regulatory co-operation, that will include the launch of a joint EU-UK Financial Regulatory Forum. It will now need to get sign-off from other EU member states. Although this isn’t a final solution, at least it opens up proper channels for dialogue in an industry that is very important to the UK.

Bank of England governor admits UK economy suffering from wage-price spiral (Financial Times, Chris Giles, Michael O’Dwyer and Jim Pickard) shows that Andrew Bailey has, for the first time, admitted at a speech to the British Chambers of Commerce that the BoE has fallen into a wage-price spiral of its own making and has committed to raise interest rates by as much “as necessary” to hit the inflation target of 2%. * SO WHAT? * Bailey needs wage growth to slow down (and there are some signs that this is starting to happen) otherwise he’ll just have to keep jacking up rates. And although BoE economist Huw Pill got roundly (and rightly) criticised for saying that people should just get used to higher prices and stop demanding higher wages – he is actually kind of right (although that doesn’t translate very well into how consumers feel day-to-day).

Then in South Africa’s flirtation with Moscow risks billions of dollars in US exports (Financial Times, Joseph Cotterill) we see that the country is putting in danger over $15bn worth of exports as the US has accused it of covertly supplying arms to Russia. President Ramaphosa denied this earlier in the week and has promised an inquiry. * SO WHAT? * This could have serious repercussions on an economy that is already looking pretty shaky to say the least. This accusation will put South Africa’s participation in the African Growth and Opportunity Act (a US law that gives duty-free terms to a list of nations) at risk. They are not expected to be kicked out immediately, but participation is up for renewal in 2025 and this was already looking a bit precarious. This could have particularly painful implications for the country’s automotive industry as over 80% of vehicles made in South Africa go to Europe or the US.

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!

Shein raises a ton of money, Targets doesn’t hit the spot, JD Sports booms on hoodies and trainers while Watches of Switzerland has a mixed performance…

In the wonderful world of retail, Fast-fashion firm Shein raises $2bn (The Times, Isabella Fish) shows that although the company just raised $2bn in its latest funding round, it did so at a valuation that was the equivalent of a third less than its peak valuation of $100bn. This was put down to the relative weakness of the tech sector (although I have to say that sounds a bit wishy-washy to me). * SO WHAT? * The company continues to grow at a rapid pace in the US and has been threatening established retailers including Inditex (owner of Zara etc.), H&M, Boohoo and Asos. However, I think that there is something a bit amiss here – particularly regarding their seeming ambivalence of the lawsuits that they are continually swamped with for infringing copyrights. You do also wonder how they keep prices so low (any labour issues here??). Yes it’s successful but I do wonder whether there are any skeletons in the cupboard here…a case for Hindenburg Research’s next report, perhaps??

Then in Target Earnings Squeezed as Shoppers Stick to Basics (Wall Street Journal, Sarah Nassauer) we see that Target suffered a hit to sales in the latest quarter because shoppers decided to spend less on trendy clothes, home goods and sundry goods (like toys and electronics) and more on food, beauty and home essentials. * SO WHAT? * Discretionary categories make up about

54% of Target’s annual sales so this reining in of spending is painful. It didn’t really say much about what the plan was, so I guess that the company is just hunkering down for now and hoping for the economic storm to pass!

In the UK, JD Sports heads for £1bn profits as it says trainers are ‘affordable luxury’ (The Guardian, Sarah Butler) shows that the company is on track to hit its profit targets for the year thanks to expansion in the US and Europe and the continuation of the athleisure trend. It was interesting to note that about half of the 12% rise in sales in the UK was due to inflation and half because of additional sales. * SO WHAT? * It certainly looks like prospects are pretty good as it aims to continue its overseas expansion in Europe and Latin America whilst also getting into areas such as gaming and music via partnerships. OK, so it’s had to write down the value of some of its acquisitions but it seems that the overall strategy is right as long as athleisure continues!

Then in Time is on our side, says luxury watch chain (The Times, Isabella Fish) we see that Watches of Switzerland has faced a difficult six months as luxury watches continued to sell well but jewellery didn’t. In its trading update yesterday, it said that sales growth in the UK and Europe was losing momentum while sales rose rapidly in the US. The company said that it was on track to hit financial targets for the year but cautioned that “the more challenging trading environment” would continue into the first half of next year. It seems that the luxury trend is continuing here, but perhaps not quite at the break-neck pace as it has been in the recent past!

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!

Tencent sees higher revenues, TikTok faces a US ban, Apple gets closer to releasing its headset and Inmarsat has record results…

Tencent revenues accelerate as China emerges from Covid lockdowns (Financial Times, Ryan McMorrow) shows that the Chinese tech giant saw its revenues pick up the pace in Q1 thanks to a pick-up in China’s economy. It saw an 11% rise in revenues and a 10% increase in net profits over the quarter versus the same period a year ago. ByteDance’s Douyin had been eating into advertising at the expense of Tencent’s WeChat but it looks like that is now bouncing back after the lifting of strict Covid restrictions. It all seems to be going in the right direction at the moment…

TikTok Ban Signed in Montana, Paving Way for First Amendment Legal Battle (Wall Street Journal, Stu Woo and Megham Bobrowsky) highlights a tricky development for the short-form video sharing app as Montana is banning TikTok, in a move that could potentially set a precedent for other states to do the same. * SO WHAT? * The ban is set to take effect from January 1st, but if there are any legal challenges to this (which I’m sure there will be!) this date could get pushed back. The new law would prohibit TikTok from operating in the state and ban app stores from making TikTok available to download within Montana, the breach of which would incur a fine of $10,000 a day for violating the law. Individual users, however, would not be liable. There weren’t any obvious details about how a ban would be enforced and how the obvious use of VPNs would be tackled, so this thing has a LOT of loopholes in as it stands!

An Apple Headset Is Coming. Can It Be More Than a Nerd Helmet? (Wall Street Journal, Joanna Stern) is an interesting article which alerts us again to the possibility of Apple unveiling a headset to rival the likes of the Meta Quest Pro and others. Apple’s annual developer conference is set for June 5th and it is rumoured to have developed a potential “killer app” that gives you a FaceTime-like live chat but for the hefty sum of around $3,000. * SO WHAT? * Apple has built up a reputation of NOT being a first mover in a new category – but coming in with a better-designed version of what already exists that is generally more user-friendly and then expanding the whole market. It already happened with the iPod and Apple Watch – so can it happen with “iGlasses”?

Inmarsat trading lifts off to new heights (The Times, Alex Ralph) shows that Britain’s biggest satellite group reported its strongest ever quarterly results just before it gets gobbled up by US competitor Viasat. The company said that it traded well across all of its business units, with particularly strong performances in its aviation (increased demand and usage for in-flight internet was a big driver here) and maritime divisions. * SO WHAT? * There’s been a lot of consolidation going on in a very fragmented satellite sector (including OneWeb and Eutelsat). Viasat’s takeover of Inmarsat just got clearance from the CMA last week but needs to get the go-ahead from the Europe’s EC and America’s FTC. I would have thought that there will be plenty more consolidation to come in a fragmented sector that needs to consolidate in order to get scale and take on the might of companies such as SpaceX.

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!

UBS reflects on Credit Suisse and we look at UK property trends…

In a quick scoot around some of today’s other interesting stories, UBS to suffer hit to value from takeover of Credit Suisse (Daily Telegraph, Simon Foy) shows that UBS said that it will have to take a chunky $17bn hit from the forced takeover of its failed rival, Credit Suisse. This comprises of $13bn covering the value of the combined group’s assets and liabilities and $4bn to cover legal and regulatory costs. On the flipside, it also reckons it’ll book a one-off $34.8bn gain because of “negative goodwill” where it snapped up the bank for much less than its true value. UBS/Credit Suisse: ‘badwill’ bonanza is prelude to a tough integration (Financial Times, Lex) emphasises that although UBS picked up its rival on the cheap, investors will need to see evidence that UBS chief exec Servio Ermotti can build a bigger, better and more profitable bank.

In the UK, British Land slumps to £1bn loss after online shopping boom ends (Daily Telegraph, Riya Makwana) highlights a hefty loss for the property developer as it was affected by weaker demand for its warehouses. The value of its portfolio took a 24% hit in the year to the end of March but the chief exec hoped that things would turn around now given the lack of new available office space. On the

plus side, retail parks seem to be doing OK as the company said that it has tenants in 99% of its big shops. British Land/Landsec: price drops raise risk of cash calls (Financial Times, Lex) shows that although valuations have been hit badly, occupancy rates for quality workspace in London is still very strong (both British Land and Landsec say that their respective occupancy rates are over 90%). * SO WHAT? * I would say that although these property valuations are painful, I think that it had been widely expected. Now that this has been aired, I guess that the companies will just have to hang on until we reach peak interest rates that will then start to fall. As debt gets less expensive, I’d expect demand for commercial property to go up and valuations will get back on track again. It’ll be tough for the meantime, though.

Then in Purplebricks sells itself for £1 as plan to upend estate agents falls flat (Financial Times, Joshua Oliver) we see that the ailing online estate agent managed to find a buyer – rival online estate agency Strike – for just £1, bringing to a close a long period of uncertainty for the company whose original ambitions were to disrupt the UK’s real estate sector. It seems that this was the best offer it could get after putting itself up for sale in February. Good luck to Strike – will they succeed where Purplebricks failed miserably?

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…

Here is a summary of something you never thought you needed – how different Hollywood actors run…clever!