Thursday 23/06/22

  1. In MACRO, ENERGY & CRYPTO NEWS, Italy’s Five Star party splits, Europe is warned about a Russian switch-off, Rolls-Royce pushes for SMR approval and Binance’s boss has a gloomy crypto outlook
  2. In CAR & BATTERY NEWS, Ford warns of major job cuts, Britishvolt tries to woo Tesla and charging rule changes cause confusion
  3. In CONSUMER/RETAIL NEWS, we look at the current state of Chinese and UK consumers, Alibaba, Shopify and DoorDash push into new areas, Frasers buys more Hugo Boss and Harrods has problems dahhlings
  4. In INDIVIDUAL COMPANY NEWS, Juul faces carnage, Netflix cooks up its new offering and Mars unveils decent revenues
  5. AND FINALLY, I bring you a different version of Running Up That Hill…

1

MACRO, ENERGY & CRYPTO NEWS

So everyone gets gloomy about the UK’s economic prospects and Sunak is pressed to help…

📢 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 ***. 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:

  • Is it a good thing for conglomerates to break up? Why?
  • How would you stop the Hugo Boss brand dying under Frasers Group ownership?

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 😜!

Five Star party splits as Ukraine war shakes Italian politics (Financial Times, Amy Kazmin) shows that the largest party in Mario Draghi’s national unity government, Five Star Movement, is splitting up as its leaders can’t agree on a stance regarding Ukraine. Five Star benefited from the rise in popularism in the 2018 elections but now Luigi Di Maio (current foreign minister) is at odds with Giuseppe Conte (former PM) as Di Maio supports the government standing with Ukraine whereas Conte is against arming it because he believes it is just prolonging the war. Di Maio announced last night that he was walking out of Five Star and taking 60 of its 227 lawmakers with him to form a new pro-government policy group that will still be part of the coalition. * SO WHAT? * Italy has long been a basket case politically and it took the hyper-experienced “super” Mario Draghi to steady the ship. Still, it’s just amazing to see an already fragmented coalition breaking up even more! At least Draghi is still there – if he wasn’t I think that many would panic that Italy would be thrown into chaos again. Five Star was not the force it once was, so things could be worse.

Meanwhile, Europe told to get ready now for Russia to turn off all gas exports to region (The Guardian, Joanna Partridge and Alex Lawson) shows that the head of the International Energy Agency is

urging governments to make preparations for Russia to turn off all gas exports to Europe this winter. Exports have been cut recently, ostensibly for “maintenance”, but it is likely that they are going to deepen to stop Europe from stocking up ahead of winter. Germany, for instance, is aiming to reach 90% of capacity by November from its current levels of around 50%. What happens if Russia turns off Europe’s gas supply this winter (The Guardian, Alex Lawson) is a really interesting article which gives you the practical side of what might happen if Russia does the dirty. Last week Gazprom cut supplies via Nord Stream 1 by 60%, which prompted supply cuts in Italy, Austria, the Czech Republic and Slovakia while supplies have also been shut off to Poland, Bulgaria, France and the Netherlands. * SO WHAT? * The main belief is that Europe will not be able to replace Russian gas by winter given that Russia had, until the war, supplied Europe with 40% of its needs and that its underground storage caverns are now just 57% full. As things stand, some of this shortfall is being made with LNG imports from the US, but this is expensive. If Europe can’t replace what it loses from Russia, it is most likely that countries will restrict energy use in the first instance. None of this will directly affect the UK that much because we only imported 4% of gas from Russia last year but it is possible that there could be repercussions, which is why we’re looking at other options. Unless something drastic happens, though, it is likely that gas prices will keep rising.

Elsewhere, Rolls presses for go-ahead on nuclear (The Times, Emily Gosden) shows that Rolls-Royce is pressing the UK government for swift approval of the technology for its Small Modular Reactors so that it can roll its first one out to the 2029 schedule it has set itself. There is some resistance in government because the tech involved has only just started the process to get safety approval, but obviously Rolls-Royce just wants to get on with it.

Then in Cryptocurrency could stay below $69,000 peak for two years, says Binance boss (The Guardian, Dan Milmo) we see that the founder and chief exec of Binance, Changpeng Zhao, reckons it’ll take a while to get back to those dizzy heights. Given that it’s the grand fromage of the world’s biggest currency exchange saying this, I wouldn’t have thought that this will go down well with crypto punters. What an absolute tool. He just hasn’t got a clue. Pretty much like the rest of the commentators on this…

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

CAR & BATTERY NEWS

Ford warns, Britishvolt cajoles and car charging hits a bump…

Ford warns of ‘significant’ job cuts as it picks Valencia for electric car plant (Financial Times, Peter Campbell) highlights drama at the blue oval as it has decided that it will make EVs at its Valencia plant in Spain and shut down vehicle production in its Saarlouis plant in Germany. Ford announced “significant” staff cuts even in Valencia because EVs don’t need as many people. Europe is currently trying to phase out sales of petrol or diesel models by 2035 although Norway is aiming to do this earlier and Germany is not committing. Ford has already announced it will manufacture electric cars at Cologne in Germany using VW tech. * SO  WHAT? * Ford has been cutting down on its European operations for ages, so this shouldn’t really be too much of a surprise. It can’t cut down forever, though (unless it shuts down operations completely).

Then in Britishvolt seeks to woo Tesla with batteries (Daily Telegraph, Howard Mustoe) we see that the plucky Brit that’s currently building a battery gigafactory in Northumberland is trying to get Tesla on board as a client by designing power cells

specifically for the marque. It is aiming to provide batteries for high performance vehicles, as evidenced with existing customers Aston Martin and Lotus. * SO WHAT? * Although Britishvolt is a mere minnow in the battery world ocean populated by the whales of Japan’s Panasonic, Korea’s LG Chem and China’s CATL, I would have thought that it would be in the interest of a company like Tesla to ensure a diversity of suppliers. Also, Tesla more than many other companies knows what it’s like to be a plucky upstart!

Then in Car charger revolution risks going flat (The Times, Dominic O’Connell) we see that the supply of home electric car chargers could be disrupted as some manufacturers have indicated that they will pull their products in objection to new rules that will come into effect at the end of this month. The Electric Vehicles (Smart Charge Points) Regulation require that “smart” home devices help to balance demands on the grid by staggering charging, but manufacturers say that they haven’t had time to adapt products to get certification. * SO WHAT? * I wouldn’t have thought this will make a huge amount of difference in the longer term, but the risk is that it causes confusion in the short term and gives potential buyers an excuse not to go electric just yet.

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

CONSUMER/RETAIL NEWS

Chinese and British consumers continue to face challenges, Alibaba, Shopify and DoorDash try new things, Frasers buys more Hugo Boss and Harrods has issues…

China food inflation: pork is the make or break factor in controlling prices (Financial Times, Lex) emphasises how key pork prices are as a driver of inflation. China is a major consumer (it consumes 50% of the world’s pork!) and hog prices have risen by 40% since March, pushing wholesale pork prices up by about 20%. * SO WHAT? * It’s likely that demand for pork will continue to outweigh supply as lockdowns lift but grain prices (and therefore prices of pig feed) rise, putting more pressure on margins for the likes of Muyuan Foods and Zhengbang Technology. Producers probably won’t be able to pass all of the price rises on to consumers because it is likely that the government won’t be keen as pork prices have a proper influence on inflation. However, upward pressure isn’t going away and such companies won’t be able to take this margin squeeze forever.

I thought I’d include How investors can cash in on the great inflation squeeze (Daily Telegraph, Tom Stevenson) because it referred to an interesting way to categorise consumers and the emerging trend of “trading down” as a way for these consumers to keep a lid on costs. The four segments were thought up by John Quelch and Katherine Jocz of the Harvard Business School and comprise of the “slam on the brakes” group (I’ll call them the “SOBs” 🤣), the “pained but patient” (PBP), the “comfortably well-off” (CWO) and “live for today” (LFT) groups. * SO WHAT? * In order to better break down what’s going on in the consumer mindset the SOBs are lower income consumers who are financially hardest hit and will reduce all spending. The PBPs realise that this could be a short-term pain that will pass and therefore cut expenditure a bit in the short term but not too much as they are relaxed about keeping their jobs. CWOs are OK and will continue as before and the LFTs, who are generally younger, will largely stay as they are until they lose their jobs. The danger, when inflation digs in for the long term, is that PBPs and LFTs have a wobble and become SOBs.

Meanwhile, A third of UK users say they can’t handle payments (The Guardian, Rupert Jones) shows that BNPL may be coming home to roost as the UK teeters on the verge of recession, according to research by Barclays Bank and debt charity StepChange. The average BNPL user has an outstanding balance of £254 on  4.8 purchases and the research concluded that there were causes for concern because 30% of Brits have used BNPL to buy goods and 31% of them say that it had got them into problem debt. Another worrying sign is that retailer who offer BNPL reckon that this form of lending will account for almost 25% of their sales. * SO WHAT? * This feels to me like a bubble that’s about to burst. If that figure of 31% rises appreciably, consumers will suffer and take the retailers down with them. The FCA needs to get its 🍑 in gear to sort this sector out – pronto.

In retailer news, there seem to be a number of players looking to broaden their horizons. From nappies to cricket: China’s Alibaba targets South Asia (Financial Times, Benjamin Parkin, Farhan Bokhari and Ryan McMorrow) shows that Chinese e-tailing

behemoth Alibaba is looking outside of its domestic market for growth opportunities by using subsidiaries like Daraz to crack the markets of Pakistan, Bangladesh, Sri Lanka, Nepal and Myanmar after effectively being frozen out of India (remember all those border tensions in the Himalayas a little while back?). Alibaba is using companies like Daraz, Lazada, Trendyol and AliExpress to seek out growth when domestic opportunities have proved to be limited. * SO WHAT? * This sounds pretty reasonable given the limited domestic opportunities at the moment. Still, it will have to tread carefully given its Chinese connections and resultant vulnerability to sanctions from both its international and domestic markets.

Elsewhere, Shopify makes B2B push in attempt to regain momentum (Financial Times, Dave Lee) shows that the business that’s been made famous (particularly under lockdown) for B2C is now looking at the B2B market for growth as it tries to combat the likes of Amazon. It says that the opportunities in B2B are vast and that it can provide new tools for companies to sell in bulk and integrate with enterprise resource planning software for procurement. * SO WHAT? * Shopify has seen a massive 75% sell-off of its shares this year and so it is imperative for the company to find new ways to grow. This does sound like a good idea – but then I would say if the opportunities are so big, won’t Amazon try and kill this category as well??

Then in DoorDash teams up with grocer Loblaw as ultrafast delivery rivalry heats up (Financial Times, Dave Lee) we see that US food delivery company has signed a deal with Canada’s largest grocery chain to build warehouses, putting it in direct competition with rival Instacart. These warehouses will be able to handle 30-minute delivery for around 5,000-8,000 products and is the first deal of its type for DoorDash, which is the US market leader for restaurant delivery. It wants to sign other deals with other grocery chains. Instacart had previously been an exclusive partner to Loblaw. * SO WHAT? * I know I sound like an old man but I just can’t see how this under-30 minute thing can last for the long term. It’s expensive to set up and is there really THAT much of a need for this? The only places it is realistically viable is in urban areas where there are shops that are open, whereas the places that could REALLY do with this kind of thing are in the middle of nowhere (but they won’t be viable for companies because the volume of orders just won’t be there). I suspect there will be more deals signed, though and, ultimately, there will be consolidation in a sector that really needs scale.

Elsewhere, Frasers takes a bigger piece of Hugo Boss (The Times, Dominic Walsh) highlights the company increasing its stake in Hugo Boss to over 30%, although it maintains it has no plans to take it over. Will it lose the cool factor with an owner like Mike Ashley (although, admittedly, his son-in-law is now CEO)?!?

Then in Harrods sale delayed after supply woes (The Times, Dominic Walsh) we see that the luxury London department store has had to delay its famous summer “sale” for at least two weeks due to supply chain problems leaving it short of stock. Disaster.

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

Juul looks terminal, Netflix evolves and Mars sticks it to Coke…

In a quick scoot around other interesting stories today, FDA to order Juul e-cigarettes off US market (Wall Street Journal, Jennifer Maloney) shows that the FDA could, this week, order Juul to withdraw its e-cigarettes from sale in the US. This has been four years in coming as the number of flavours it sells has been cut over time, but this is serious. It will probably appeal, but things aren’t looking good for the once-mighty vaping supremo.

NBCUniversal, Google compete to help Netflix develop ad-backed tier (Wall Street Journal, Sarah Krouse, Patience Haggin and Lillian Rizzo) shows that Netflix is getting closer to addressing its

subscriber-exodus problem as the two behemoths vie with each other to partner up with Netflix. It sounds like things are progressing quickly – but they need to, given the streamer’s shocking recent performance.

Then in Mars reveals bigger revenues than Coca-Cola as it appoints new chief executive (Financial Times, Andrew Edgecliffe-Johnson and Judith Evans) we see that the outgoing CEO is leaving on a high by sticking it to his main rival and Mars: family business will weather downturn in better shape (Financial Times, Lex) observes that its success can be partially down to having less debt than rivals and the phenomenon that family-owned businesses tend to do better in a downturn.

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…

Kate Bush is seeing a bit of a resurgence at the moment with her song “Running Up That Hill” featuring in the current series of Stranger Things. At the risk of verging on the blasphemous (shocking, I know), I actually prefer Placebo’s cover HERE. It’s a great song to listen to when you’re running – especially if it’s on a hill 🤣!

Watson's Daily is a hard-working start-up striving to help people get a better understanding of the business world. I would really appreciate your involvement in spreading the word and recommending it to your friends, colleagues, relatives etc. by clicking and sharing on the links below. Please help me to help you and I will throw in a small thank-you!

Some of today’s market, commodity & currency moves (as at 0753hrs 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 **
7,089 (-0.88%)30,483.13 (-0.15%)3,759.89 (-0.13%)11,053.08 (-0.15%)13,144 (-1.11%)5,917 (-0.81%)26,171 (+0.08%)3,320 (+1.62%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$103.29$110.61$1,833.921.223701.05698135.4251.1595020,543.4

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

 

Thank you for sharing Watson's Daily.