Tuesday 05/07/22

1. In MACRO, ENERGY & CRYPTO NEWS, Germany has a deficit, Turkey’s inflation goes ballistic, coal and UK gas prices boom while the crypto bank behind the cryptocrash stops withdrawals
2. In CONSUMER & RETAIL NEWS, suppliers pass on higher costs, flight prices rise and Gen Z’s feel best about their finances while AO World has a bad day
3. In MISCELLANEOUS NEWS, the chip boom loses momentum, Geely diversifies into phones, Starbucks hits back and Pret returns to profit
4. AND FINALLY, I bring you an unusual cake…

So Germany and Turkey have problems, coal and gas prices rise and the cryptocrash bank stops withdrawals…

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Germany has first deficit since 1991 (The Times, Arthi Nachiappan) highlights Germany’s €1bn trade deficit in the year to May as imports rose by 27.8% but exports rose by 11.7%. As well as being the biggest economy in Europe, it is a net importer of energy – so it is likely that this deficit is going to get worse due to rising energy prices. Germany is an export-led economy, so this is a big deal.

Inflation surges to 80pc as Erdogan’s rate cuts backfire (Daily Telegraph, Tom Rees) shows that the inflation rate in Turkey has reached eye-watering levels as President Erdogan’s insistence on cutting interest rates to tame inflation rather than increasing them (which is what everyone else does) isn’t exactly working out well. The rate of 78.6% is Turkey’s highest for 24 years. The rise is due to transport costs more than doubling over the last year and food and non-alcoholic drink prices going up by 94%. This has all been made

worse by the Turkish lira collapsing. Some economists reckon that the real rate of inflation is actually higher than this and the IMF reckons it will have one of the highest interest rates in the world behind the likes of Venezuela, Sudan and Zimbabwe!

In energy news, Coal makes a comeback as the world thirsts for energy (Wall Street Journal, Jenny Strasburg and Phred Dvorak) does a good job of explaining what’s going on in the world of coal right now. As you know already, countries around the world are increasing their short-term purchases of coal to ensure uninterrupted power supplies as they ditch their longer-term anti-coal pledges (at least for the moment). Europe is the biggest net purchaser of coal at the moment as everyone is scrambling to wean themselves off Russian oil, gas and coal. Even the US is seeing a higher demand for coal as strong demand for electricity driven by unusually hot temperatures has stretched power grids to their limits and close to blackouts. China – the world’s biggest consumer of coal – is also increasing production while India is also using more. Coal miners such as Glencore are raking it in currently as a result. It said last month that it now expects $3.2bn in trading profit for the first half of this year versus $3.7bn for the entirety of 2021! Gas isn’t much better either as Gas prices surge amid double blow (The Times, Emma Powell) shows that UK gas prices reached their highest level for three months due to ongoing concerns about supply cuts from Russia and upcoming strikes among Norwegian offshore workers that will cut oil and gas output in the North Sea. Nightmare.

Then in Crypto ‘bank’ behind hedge fund crash halts withdrawals (Daily Telegraph, Gareth Corfield) we see that Voyager Digital, the “bank” that precipitated the collapse of hedge fund Three Arrows Capital last week, has now blocked customers from withdrawing their digital tokens because of difficult market conditions. As if this wasn’t already bad enough, a cryptocurrency lender called Vauld stopped users’ trading. * SO WHAT? * This is really bad and the situation will get worse if more crypto players decide to go the same way and gate their funds. The thing is that it might stem the flow for now but I would have thought that there will be many investors who will have been spooked by these actions and will want to withdraw their deposits as soon as they possibly can when access is resumed.

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!

Pressures on consumers continue to mount…

Weak pound forces food suppliers to push up prices (Daily Telegraph, Hannah Boland and Tom Rees) shows that food suppliers are having to cope with rising ingredient costs, utility bills and now a weak pound, which reduces their buying power. Who pays in the end? The consumer. Flight prices soar as airlines cash in on summer escape (Daily Telegraph, Melissa Lawford and Helen Cahill) highlights the cost of airfares, some of which have risen by 150% due to staffing shortages (= fewer flights) and red-hot demand post-pandemic. This is bound to hit family holidays particularly hard as you are having to pay for more people!

Although consumer confidence is decreasing and concerns about household finances are generally increasing as a result of pressures including those mentioned above, Gen Z live with their parents as costs soar (Daily Telegraph, Hannah Boland) shows that there is at least one demographic that isn’t feeling too bad about things. Generation Z, adults between 18 and 24, seem to have been “sheltered” from the worst of the cost of living crisis by living with their parents, according to research published by PwC. This is the only demographic to feel positive about finances whereas the over-55s are the most pessimistic. Gen Z-ers are also likely to be benefitting most from recently entering the workforce

and earning money. Interestingly, according to official government figures published in March, around 63% of 18-24 year olds still lived with their parents last year vs 2020 when it was 61%. Some think this could increase further thanks to rising house prices and rents. * SO WHAT? * Clearly confidence continues to be buffeted, but as long as the labour market remains tight there will be something to hang on to. The problem will be if hiring stops and wages start to fall…

Then in AO World shares plummet to two-year low (Daily Telegraph, Laura Onita) we see that the online electrical goods retailer spooked investors who became concerned about the company’s finances after a credit insurer cut its cover for the company’s suppliers. Credit insurance protects firms against the risk of customers going bust between delivery and payment and there’s a risk here that this news could cause more suppliers to suddenly demand earlier payment or collateral. AO World tried to reassure investors that it had an £80m credit facility and would be strengthening its balance sheet. * SO WHAT? * After doing a roaring trade especially in the early days of lockdown, the company has been hit by shoppers cancelling repair warranties on appliances, which have been decent profit drivers, and postponing big ticket purchases. It has had three profit warnings and its valuation has fallen by almost 75% of its value since last year. It doesn’t look like things will be improving anytime soon…

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!

The chip boom slows, Geely diversifies, Starbucks pushes back and Pret returns to profit…

In a quick scoot around other interesting stories today, Chip boom loses steam on slowing PC sales, crypto rout (Wall Street Journal, Asa Fitch) shows that the semiconductor boom that we’ve been hearing so much about in the couple of years is showing signs of slowing down as falling PC sales (people are putting off upgrades) and the cryptocrash have hit demand (less demand for chips used in cryptocurrency mining). Although it’s still strong for cars and data centres, the likes of Intel and Nvidia have become more downbeat about sales prospects – and they are both slowing down (or freezing) their hiring plans. Last week Micron Technologies echoed this sentiment, saying that “the industry demand environment has weakened”. * SO WHAT? * This will all come as welcome news to customers who’ve had to endure the last few years of tricky supplies. All that remains now is for chip supplies to cars to get back on track – but I wonder whether it’ll be too little too late as cars will finally become available as consumer finances reach new lows.

Talking about cars, Geely: premium smartphones could offer answer to falling profits (Financial Times, Lex) shows that Chinese car giant Geely has just bought a majority stake in local smartphone maker Meizu. * SO WHAT? * The article says that this is going to be great as a boost to sales and market for its cars, but I really disagree. The mobile phone segment is already incredibly competitive and I think this is going to be a major distraction to

Geely’s core business of making cars. After all, doesn’t it say something when Foxconn, famed for being an Apple assembler, is trying to go the other way and make moves into automotive??

Then in Abrupt closure of New York store is revenge, say staff (The Guardian, Michael Sainato) just goes to show how much the company wants to nip unionisation in the bud as the company shut down the store in Ithaca that voted to unionise just weeks after the vote. * SO WHAT? * More of this is expected as, over the last few months company execs have been looking closely at individual stores, taking down pro-union fliers and stopped customers from changing their name in the Starbucks app to something union-related to show their sympathy. Chief exec Howard Schultz has a serious fight on his hands as more stores look to unionise…

Back home, there’s good news in Chain returns to profitable operations with strongest sales outside London (The Guardian, Jasper Jolly) as the sandwich chain has returned to profitability thanks to growth being particularly strong regional and suburban sales. The company has been expanding abroad and pushing digital sales, including a coffee subscription. * SO WHAT? * This is great news, but I’m a bit sceptical about the success of international expansion – a British coffee shop selling coffee overseas? There are already tons of them and I just think this is going to be a distraction. Sorry, I know that’s a bit negative, but it sounds like they will be chucking a lot of money at very competitive markets in Canada, Ireland, Spain and Portugal. I just can’t see Spanish, for instance, buying a British coffee – can you??

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…

A lot of thought seems to have gone into this: Vet nurse bakes cheeky cake as leaving gift – but it looks so real pals refuse to eat it (The Mirror, Amber O’Connor and Helen Le Caplan). Fortunately, it seems she was a “good leaver” otherwise things could have turned unpleasant 🤣.