Thursday 22/06/23

  1. In MACRO NEWS, we look at the UK’s high inflation, the consequences and rather shocking debt
  2. In REAL ESTATE NEWS, house prices rise, Berkeley says interest rate fears are hitting home, mortgage repossessions look unlikely and there’s more evidence of rising UK rents
  3. In RETAIL NEWS, Amazon faces an FTC lawsuit and Halfords loses momentum
  4. In INDIVIDUAL COMPANY NEWS, we consider TikTok’s power and its new project while Sky launches a TV smart camera and BlackRock could give Bitcoin a big boost
  5. AND FINALLY, I bring you “Manhattanhenge”…

1

MACRO NEWS

So inflation fears increase, as do consequences and UK debt…

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Stubborn UK inflation piles pressure on Bank of England to raise rates (Financial Times, Chris Giles and Mary McDougall) highlights inflation remaining unchanged at 8.7% for May, which is worse than the 8.4% that the market had been expecting, putting even more pressure on the Bank of England to raise interest rates. It’s the fourth consecutive month that inflation has come in above forecasts and Markets are split on size of rate rise (The Times, Mehreen Khan) says that money markets are pointing to a 45% probability that the Bank will raise interest rates by 0.5% as opposed to the 0.25% that many are expecting in today’s decision. How high will UK interest rates go? (Financial Times, Chris Giles) highlights that while inflation not only exceeded Bank of England expectations, wages and prices are rising in line with each other, meaning that inflation is just likely to get worse. There is talk that the interest rate could rise from 4.5% now to 5% or even 5.25% by midsummer. It is worth noting that one of the members of the MPC, Catherine Mann, said that the Bank needs to make life so hard that consumers would stop companies raising prices by reaching a point where they just refuse to buy. Why UK’s inflation shock is worse than anyone expected (Daily Telegraph, Tim Wallace) says that inflation has remained stubbornly strong thanks to the cumulative effect of Covid, the Ukraine war and a tight labour market. However, right now, it seems that the tight labour market is

putting sustained upward pressure on wages. If more people get paid more, they will spend more – and inflation will continue in an upward spiral. Unfortunately, as a consequence of this, Theft of meat, sweets and alcohol in UK hits highest in a decade (Financial Times, Laura Onita) shows that things are getting increasingly desperate as a report by the Association of Convenience Stores highlighted a 13% rise in the number of cases of theft since last year, reaching their highest levels in ten years. Around 80% of retailers in the survey said that the cost of living crisis was driving it. * SO WHAT? * I think that any interest rate rise is going to need to be accompanied by a big statement of intent by the Bank of England into scaring people into spending less. However, what I really think SHOULD be done is that this governor needs to get publicly sacked and someone new and competent takes over. Getting something so important so spectacularly wrong for so long would get punished in any other arena. While they’re at it, they should have a look at kicking out at least some of the MPC, but maybe that would be too much. We’re a year away from a general election and booting Bailey out now would give the new person a decent run-up. Bailey failed in the FCA and he has failed badly at the Bank of England. 

And as if things weren’t bad enough already, Britain’s debt pile eclipses GDP ahead of surge in rates (Daily Telegraph, Szu Ping Chan) cites the latest figures from the ONS which show that the UK’s debt is now bigger than our entire economy for the first time since March 1961! Rising benefits and NHS pay have played a part in driving up public borrowing. On the “plus” side, it is very slightly below the prediction that the OBR made in March. Sunak’s hopes of implementing a load of tax cuts going into the next general election are getting more remote by the day…

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

REAL ESTATE NEWS

House prices increase, Berkeley gets nervous, repossessions look unlikely and there’s more evidence of UK rents rising…

Then in Price rise is ‘blip’ in housing market’s decline (The Times, Tom Howard) we see that, according to the latest ONS data, house prices actually went 0.4% higher from March to April, which surprised many economists. The majority view is that this is a “blip” and the prices will still fall further from now on. Recent trends reported by Nationwide and Rightmove back this assumption. UK housebuilder Berkeley says interest rate fears are hitting sales (Financial Times, Joshua Oliver) painted a very downbeat picture of its prospects, saying that sales would fall by another 20% over the next year if inflation and mortgage rates kept rising. Berkeley is one of the UK’s biggest housebuilders and said that sales of new properties weakened by 15% like-for-like in the year to the end of April versus the previous year. When you consider 1.4m UK mortgage holders face 20% hit to disposable income from rate hikes (The Guardian, Richard Partington), one of the findings of the Institute for Fiscal Studies latest report, you can see that confidence is going to be an issue. It also found that the category that is likely to be hardest hit is those under the age of 40 with bigger mortgages, particularly in London and the south-east where

property prices are generally higher than the national average. That said, the conclusion drawn in Mass UK house repossessions unlikely despite soaring mortgage rates (Financial Times, James Pickford, Jane Croft and Siddharth Venkataramakrishnan) suggests that repossessions are less likely than they have been in the past because of higher levels of housing equity and lending conditions that are tighter than they have been previously, meaning that (in theory, at least) it is more likely that borrowers won’t have over-stretched themselves. * SO WHAT? * Although repossessions haven’t risen too much up till now, mortgage rates don’t seem to have peaked out yet, so there may be a shock to come because repossessing a property is a lengthy process. A lender has to exhaust all alternative avenues with a borrower before then going to court, which takes ages – and this means that a tide of repossessions could yet be on the cards. Let’s hope it doesn’t come to this, though.

Meanwhile, UK rents increase at fastest pace for 7 years (Financial Times, Valentina Romei) cites the latest figures from the ONS which show that annual rent prices rose by 5% in May, reinforcing the conclusion that Zoopla came to in yesterday’s Watson’s Daily. The situation was worst in London where they increased by 5.1%. The tough times continue…

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

RETAIL NEWS

Amazon faces FTC pressure and Halfords sees profits halve…

FTC Sues Amazon Over ‘Manipulative’ Tactics Used to Enroll Millions in Prime (Wall Street Journal, Jan Wolfe and Dave Michaels) shows that the FTC is suing Amazon, alleging that it has enrolled consumers without their consent onto Amazon Prime for years – and made it difficult to cancel their subscriptions. * SO WHAT? * The $139 per year subscription service with over 200m members across the globe has become a must-have for many – but the problem here is that not all of them realised what they were getting into! This marks the culmination of an investigation that was launched in March 2021. When you consider that a whopping 72% of all US households have a paid Prime membership, according to estimates by market research firm Insider Intelligence, this could be a pretty big deal.

Back in the UK, Halfords’ profits halve as customers put the brakes on spending (The Times, Isabella Fish) shows that

although annual profits fell by 55% it is confident of a return to earnings growth in the coming year as efforts to cut prices, improving its loyalty club and offering customers interest-free financing for car tyre replacement over a longer period are coming through. Tyres and cycling are being hit particularly hard at the moment but the CEO remains chirpy about the prospect for bikes – especially about electric ones!). * SO WHAT? * It’s nice to hear the Halford’s CEO on the front foot – he says that the company will benefit from falling freight costs and deflation in cycling and rubber-based products – but I do wonder whether he is right in this. Not all people will think that electric bikes are a necessity – and they are expensive. Also, I would argue that a lot of people who would have bought a bike would already have done so during lockdown (or shortly after when supply chains had improved). Also, with more people getting back onto public transport post-lockdown, car maintenance may be less lucrative than it has been. Still, we’ll have to wait to see!

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

TikTok wields the power and has a new thing, Sky releases a smart camera for its TV and BlackRock could be giving Bitcoin a big boost…

In a quick scoot around some of today’s other interesting stories, American Companies Held Hostage by the Whims of TikTok (Wall Street Journal, Chavie Lieber and Suzanne Vranica) highlights just how powerful TikTok has become as its influence is so strong that consumer-facing companies are increasingly having to adapt to it to survive! Its all-seeing algo has disrupted conventional R&D and changed traditional product cycles. Companies have to move quickly to mass-produce new products or come up with new ones based on its feedback but it’s become a necessity to take what it says seriously, especially if the companies want to win over younger shoppers and stay in the game. Although there are concerns that it could be banned, companies continue to develop products and services with TikTok in mind and, in the meantime, TikTok prepares ‘Project S’ plan to break into online shopping (Financial Times, Cristina Criddle and Qianer Liu) shows that TikTok is pushing forward with development of a new shopping feature called “Trendy Beat”, which offers up items that have proved to be popular on videos. Everything is shipped from China. This is quite different to TikTok’s existing shopping marketplace where it allows third parties to sell items via the TikTok Shop, taking a small commission for its troubles. With “Trendy Beat”, ByteDance will be able to take all the proceeds. ByteDance continues to look for ways to make more money to justify its $300bn valuation! This is all part of efforts, codenamed “Project S”

internally, to sell its own products. * SO WHAT? * TikTok HAS to continue with efforts to monetise rather than just wait for what may or may not happen in the US. It has so far tried and failed to replicate the business models of Shein and Temu and I think it’s right for the company to keep plugging away at finding ways of generating new resources despite the noise surrounding it at the moment.

Elsewhere, Sky launches TV smart camera for joint viewing and motion-controlled games (The Guardian, Samuel Gibbs) shows that Sky has now launched a smart camera that sits on top of its Sky Glass TV, sticking to it magnetically. You have to pay extra for the Sky Live camera but it means you can watch live and on-demand TV with friends, conduct Zoom calls and play motion-controlled games. * SO WHAT? * This sounds like a lot of fun, but it definitely one of those things that falls into the category of “nice to have” rather than necessity in this cost-of-living crisis. I’d say here that this is the right product at the wrong time…

Then in Bitcoin Bonanza on Tap if BlackRock ETF Is Approved (The Guardian, Telis Demos) we see that the world’s biggest asset manager has filed for approval from the FTC for an exchange-traded bitcoin fund. Regulators aren’t exactly crypto-friendly with anything crypto at the moment but if this does get passed, it will be a giant step forward for Bitcoin to legitimacy IMO and boost its value.

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…

Until I saw this, I’d never heard of “Manhattanhenge” before! The efforts to take this photo were definitely worth it!

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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 **
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