Tuesday 02/08/22

1. In MACRO, ENERGY & OIL NEWS, Nancy Pelosi goes to Taiwan, Hong Kong falls into recession again, UK manufacturing slumps, wind turbines get bigger and Saudi Aramco goes shopping
2. In REAL ESTATE NEWS, we see headwinds for office property and developments for residential
3. In CONSUMER/RETAIL-RELATED NEWS, US consumers go to dollar stores, German retail sales fall, Heineken passes on prices, Alibaba hopes to keep in contact with New York and JD Sports gets slapped
4. In MISCELLANEOUS NEWS, Pearson looks to the future, trad ad agencies do better than expected and HSBC has issues
5. AND FINALLY, I bring you a very intriguing map…

So Pelosi goes on a trip, Hong Kong hits recession again, UK manufacturing suffers, wind turbines get bigger and Saudi Aramco makes an acquisition…

📢 HEADS UP! I’m going to be doing my monthly roundup of JULY tomorrow with Jake Schogger. July has been an incredibly eventful month, so if you want to get the only monthly overview in town, please register HERE to see the Ant and Dec of commercial awareness 😁

Nancy Pelosi to meet Taiwan’s president on Wednesday (Financial Times, Demetri Sevastopulo and Kathrin Hille) shows that the Speaker of the US House of Representatives is scheduled to meet Taiwan’s president Tsai Ing-wen tomorrow in a visit that will ruffle feathers in China. This is ostensibly part of a wider agenda of a tour of Asia (she’ll be popping in to Japan, South Korea and Malaysia) but will be the first time a speaker has visited Taiwan in 25 years. China has already threatened a robust response to the visit and continues to oppose any visit by US lawmakers to Taiwan. It is particularly irksome for them because she is third in line to the presidency and is in the same party as Biden. China’s military has increased its movements around Taiwan in the weeks leading up to the visit. * SO WHAT? * I really do wonder whether this ridiculous posturing is all about taking the focus away from China’s faltering economy and the questionable effectiveness of its Covid vaccine policy and response. The fact that things aren’t going brilliantly on the domestic front makes things more dangerous IMO because governments sometimes do go to war when things aren’t great because they galvanise the population and give an excuse to quieten any dissent. Let’s hope that things don’t get out of hand!

Meanwhile, Zero Covid rules hammer economy in Hong Kong (Daily Telegraph, Szu Ping Chan) shows that Hong Kong has, like mainland China, suffered from the “Zero-Covid” response as its economy has contracted again, meaning that it has now fallen into

recession twice in three years. Trade was particularly poor as exports dropped by 7.7% in Q2 but tourism is also having a nightmare what with its border to the mainland remaining indefinitely closed. It is also worth noting that, according to the European Chamber of Commerce in Hong Kong, almost 50% of European companies are planning to fully or partially move out of the city. Tough times.

Back home, Declining demand sends growth in manufacturing to two-year low (The Times, Arthi Nachiappan) cites the latest PMI from S&P and the Chartered Institute of Procurement & Supply’s monthly survey of 650 British manufacturers, which shows that growth in UK manufacturing has dropped to its lowest level since May 2020.

In energy news, Hundreds of onshore wind turbines to be made taller (Daily Telegraph, Rachel Millard) shows that energy companies are looking at getting past planning restrictions by making existing turbines taller with bigger blades. Octopus energy is planning on upgrading 1,000 existing turbines in conjunction with wind turbine maker EWT by 2030. Nearby homeowners will have to approve. As things stand currently, wind power accounts for about 10% of Britain’s annual electricity.

Then in Saudi Aramco to buy Valvoline’s products arm for $2.65bn (Financial Times, Tom Wilson) we see that the world’s biggest oil producer has agreed to buy the global products division of motor oil and lubricants group Valvoline for a chunk of change. Valvoline said towards the end of last year that it would be splitting itself into its global products division (which sells lubricants and engine maintenance products) and its engine retail service business (vehicle maintenance). The deal will still need to get regulatory approval but will stand alongside Saudi Aramco’s existing line of branded lubricants should it get the go-ahead.

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!

Office property could be heading for a ropey future while the UK residential property market keeps on going…

The triple whammy for office real estate (Financial Times, Patrick Jenkins) is a really interesting article which suggests that the combination of working from home, the evaporation of cheap financing as interest rates rise and push for more environmentally-friendly working environments (and the cost of getting existing properties up to these standards) is leading to the inevitable slowdown/demise of the office property sector. * SO WHAT? * It seems that generally accepted wisdom suggests that it’s not a question of whether the current bubble will burst – more a question of how deep will the ramifications be felt and how long they will last. Offices in city centres may fare slightly better than out-of-town counterparts as office workers tend to value the buzz and amenities of a centrally-located workspace.

Meanwhile, on the residential property side of things, The red hot market that just refuses to cool down (The Times, James Hurley) cites the latest research from Zoopla which says that although

demand in the home-buying market has slowed down over 2022, it’s still 25% above the five-year average – although it thinks that the market will calm down to this level by the end of the year. It did say, though, that forecasts of a crash are “unwarranted” as demand is still there while supply is very tight. Activity could, however, be stoked further as Mortgage rules boost for first-time buyers (Daily Telegraph, Melissa Lawford) shows that first-time buyers will now be able to borrow almost £50,000 more than they were able to previously because the Bank of England has now removed the stipulation on lenders to only grant mortgages to those who can afford payments at 3% above the standard variable rate. The rule was originally brought in after the financial crisis to protect consumers and now it’s been removed (potential buyers will be tested at 1% above the standard variable rate), it will enable buyers to take out bigger mortgages (potentially 15% bigger). * SO WHAT? * In theory, this should lead to more lending, but the reality may be more muted as banks are likely to test at 1.5% or more above the standard variable rate to take into account likely interest rate rises.

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!

Consumers around the world tighten their collective belts, Heineken passes on higher costs, Alibaba wants to stay in touch and JD Sports gets a slap…

Consumers are facing challenges everywhere at the moment. Dollar-store diners and vats of shampoo help families cope with inflation (Wall Street Journal, Rachel Wolfe) shows that American consumers are looking to cut costs for essentials as well as all the extraneous stuff. This is proving to be good news for dollar and discount stores as average spending on groceries at discount chains has gone up by an impressive 71% from October 2021 to June 2022, according to stats from InMarket. German retail sales fall by largest rate on record (Financial Times, Valentina Romei) shows that German consumers are reining in their spending as well as data from Destatis, Germany’s ONS equivalent, shows that retail sales dropped by the biggest annual rate since records began in 1994. If we want to console ourselves with an alcoholic beverage, then we need to get it in quick as Heineken puts prices up by 8.9% and warns of more rises to come (The Guardian, Joe Middleton) shows that Heineken posted better-than-expected profits thanks to putting its prices up – and said that may not be the end of it! * SO WHAT? * Hold that celebration, though – Heineken: drinkers’ willingness to swallow higher prices will be tested (Financial Times, Lex) points out that the company won’t be able to do this forever and that rising energy prices will no doubt eat away at current margins. Interestingly, 40% of its brand portfolio is made up of premium brands – which is quite high versus rivals. This means

that worsening economic conditions could make the company more vulnerable in a downturn if the current trend of “premiumisation” reverses.

Elsewhere, Alibaba to ‘strive’ to keep New York listing despite addition to SEC watchlist (Financial Times, Oliver Telling) shows that the troubled Chinese e-tailing behemoth is keen on maintaining its place on the New York Stock Exchange in the face of plans by the SEC to delist it in 2024. Basically, companies that don’t provide access to audit files, they will be kicked off the exchange. * SO WHAT? * China has banned its companies and accountants from providing foreign regulators with access to audit files and so the only foreseeable way for Alibaba to maintain its listing is if it is granted some kind of extension by China.

Then in JD Sports agrees £38m sale of Footasylum after UK watchdog ruling (The Guardian, Jasper Jolly) we see that the sporting retailer has agreed to sell Footasylum to German asset management firm Aurelius Group for less than 50% of the price it originally paid after it was forced to dump it by the UK’s competition watchdog. * SO WHAT? * The whole debacle has been dragging on JD Sports and cost it a lot in lawyers’ fees as the Competition and Markets Authority (CMA) had major misgivings about JD Sports buying Footasylum on the grounds that it would weaken competition. Maybe the company can put the whole thing behind it now (especially as long-time CEO Peter Cowgill is no longer there either) and get back to benefiting from the ongoing athleisure trend. 

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!

Pearson looks to the future, trad advertising is doing better than expected and HSBC is having issues…

In a quick scoot around other interesting stories today, Pearson expects education demand to insulate against economic headwinds (Financial Times, Mark Wembridge) shows that the publisher is relying on demand for its courses and textbooks to protect it against a global economic slowdown whilst also showing that its digital business is turning a corner. It said yesterday that it expected its profit margin to grow to the mid-teens next year – two years ahead of its original plans – thanks to cost cuts and solid demand for its courses. The company is trying to make the transition from traditional textbook publisher to a digital brand catering not just to the traditional school and college market – but also to adult education and training programmes. Digital tokens feature in next chapter at Pearson (The Times, Katie Prescott) picks up on an interesting aspect of what Pearson said yesterday – that it is looking at applying NFTs to its online textbooks in order to capture revenues from the resale market. Normally, Pearson textbooks are resold up to seven times – but the company only gets money from the initial sale, so getting multiple bites at the cherry is clearly something worth pursuing! * SO WHAT? * It sounds like Pearson is undergoing a really interesting transition to the digital world. Its Pearson+ subscription service, which gives users access to online textbooks and other digital content,

attracted a 64% rise in users over the first half of this year and I would have thought that a shift into new areas outside its traditional comfort zone – especially in the “upskilling” of employees – will continue to boost the company’s fortunes.

Advertising: digital slowdown creates opportunity for trad ad agencies (Financial Times, Lex) shows that, amid the general downturn in digital advertising being felt acutely by the likes of Meta, Google, Snap and Twitter, traditional advertising agencies are actually doing OK relatively speaking. * SO WHAT? * Interpublic, Omnicom and Publicis actually raised their year end revenue forecasts recently as digital advertising has lost some of its “targeting” power with the introduction of new privacy features. Traditional ad agencies are able to use their own pool of data to target and reach new customers, so they aren’t doing as badly as you might expect!

Then in HSBC pledges to restore dividend to pre-pandemic levels (Financial Times, Tabby Kinder and Stephen Morris) we see that the bank has promised to get its dividend back on track while it faces all sorts of other issues including pressure from its biggest shareholder, Ping An, to split its Asian and western operations. That said, it posted better-than-expected quarterly results. The drama continues…

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…

Beware – the map in this article is seriously addictive! See the article here: Interactive map reveals the most notable person from your hometown (The Mirror, Milica Cosic) and the map itself HERE. It is quite mesmerising!