Tuesday 06/09/22

  1. In MACRO, ENERGY & OIL NEWS, Truss becomes PM and has a bulging in-tray, utilities companies get panicky, Russia cuts off the pipeline, JP Morgan moves to London, Brussels pushes for more control over corporates and OPEC+ cuts production
  2. In TECH NEWS, Irish regulators crack down on Instagram and Apple aims to double headcount in its digital ad division
  3. In CAR NEWS, VW aims to list Porsche in a big IPO, UK car sales halt their slide but Aston Martin has a discounted rights issue
  4. In MISCELLANEOUS NEWS, consumer spending slows, Vistry merges with Countryside and Deliveroo goes to court again
  5. AND FINALLY, I bring you a hotel with its own beer tap…

1

MACRO, ENERGY & OIL NEWS

So Truss faces a huge task, utilities companies are in disarray, Russia stirs it up, Brussels pushes for more power and sterling plummets…

*** APOLOGIES FOR THE DELAY IN SENDING THIS! MY INTERNET WENT DOWN 😱😱😱! ***

Liz Truss to be UK prime minister after winning Tory leadership race (Financial Times, George Parker, Chris Giles and Jim Pickard) highlights Truss’s win yesterday after a seven-week campaign and it is believed that one of first things she will be doing is unveiling a two-year package of energy relief for households and businesses that could cost up to an eye-watering £100bn. She will today nip up to Scotland to meet queenie in Balmoral and then back to London to announce the make-up of her cabinet. Promise to tackle soaring energy bills presents Truss with hard choices (Financial Times, Chris Giles, Nathalie Thomas and Jim Pickard) goes a bit more into what’s facing her – and the country – regarding the energy crisis. She said that she will be prioritising nightmarish energy bills for both households and businesses in her acceptance speech yesterday – and needs to act quickly before the imminent 80% increase in the average domestic energy bill from the beginning of October. She could provide loans or loan guarantees to suppliers to freeze energy costs for households and potentially a cap on the price of wholesale gas which would help businesses as well as individuals. ScottishPower estimated that if Truss decided to freeze bills at current levels for two years, it would cost over £100bn but the overall size of this would depend on how much the government decides to help businesses.  Liz Truss will have to be great to be good (Financial Times, Robert Shrimsley) acknowledges that the new PM is going to hit the ground running but could present an opportunity in that if she gets the response to the energy problem right, the country will be receptive. On the other hand, if she gets it wrong, it could be curtains. FWIW, I think that she’s got two years to go until the next election and that she’s got to throw everything at this in order to stand a chance of winning. I think this idea of things being “Conservative” or “un-Conservative” need to go out of the window. Desperate times require desperate measures! None of the ideas to cap energy prices looks good (Financial Times, Helen Thomas) says that halting bills is a blunt instrument that will cost loads and separating out gas-generated power from non-gas generated power could help but will spread today’s high costs over a longer period. UK faces growing risk of 1970s-style payment crisis, warns Deutsche (Daily Telegraph, Szu Ping Chan and Tim Wallace) sounds concern over what saving the energy crisis is going to cost and the increased danger of a “viscious cycle” of higher interest rates and inflation while Liz Truss’s room for manoeuvre on tax cuts is vanishingly small (Daily Telegraph, Ben Wright) emphasises the scale of the new PM’s task as she faces an energy crunch, skyrocketing inflation, strikes all over the place, a troubled NHS facing a tricky autumn/winter, ongoing war in Ukraine and a potential punch-up with the EU over Northern Ireland. Talk about walking a tightrope! Meanwhile, Sterling falls in UK’s slide towards recession (The Times, Ben Martin) highlights sterling reaching its lowest level versus the dollar since 1985 as the latest PMI survey from S&P Global points to all key areas of the economy suffering. * SO WHAT? * Obviously there’s going to be loads of speculation on what’s going to happen, but we really need to see

what the PM is ACTUALLY going to do rather than just what she MIGHT do in terms of policy. Yes, the odds are stacked against Truss – but if she gets this right, she could emerge out of this as a national heroine. Will she do it?!?

Staying with energy, Power producers call for collateral change to avert ‘Lehman’ moment (Financial Times, Nathalie Thomas, Philip Stafford and David Sheppard) highlights rising concerns from European electricity producers about collateral requirements. Basically, producers have had to put up increased sums as collateral to take into account extreme price volatility and this is killing their finances. Eurelectric, a body which represents over 3,500 European utilities companies, is calling for rules to be eased to allow other financial instruments to be included as collateral rather than just cash. Centrica seeks billions in additional financing as collateral demands soar (Financial Times, Stephen Morris, Nathalie Thomas and David Sheppard) reflects a similar story over here as the UK’s biggest supplier of gas and electricity is tying to increase its credit facility to meet rising collateral demands. This all comes in the wake of Pipeline closure turns up heat on gas price (The Times, Emily Gosden) which shows how Russia is turning the screw on Europe by cutting off the gas supply until sanctions on it were eased.

With all this in mind, I thought it was interesting to see JP Morgan plans escape from German energy crisis (Daily Telegraph, Simon Foy and Rachel Millard) as the Wall Street bank is planning to shift work from offices in Germany over to the London in order to avoid any potential power blackouts and resulting interruption in trading. * SO WHAT? * This action is being taken as a precautionary measure, but you do wonder whether other companies and industries will see this and do the same. Given that the onus since Brexit has been for work to flow out of London, this is an interesting development…

In other macroeconomic news, EU seeks sweeping powers over business for use in crises (Financial Times, Andy Rounds and Sam Fleming) highlights what I think is a potentially very concerning development that perhaps the EU is hoping will go unnoticed amid the current kerfuffle on energy. The European Commission is proposing sweeping powers to force businesses to stockpile supplies and break delivery contracts to bolster supply chains in the event of a crisis. * SO WHAT? * This sounds like an absolute nightmare – particularly for businesses – and chips away at the very heart of what a contract actually represents. It could also make companies disclose commercially sensitive information, share their own stockpiled goods and let Brussels dictate what they produce and who they sell it to! Wow. This is at a draft stage at the moment, but I think it sounds pretty shocking…

Amid all of that, Oil producers reverse supply cut to boost prices (The Times, Emily Gosden) shows that the OPEC+ alliance has decided to cut production for the first time in a year to put a floor under oil prices, which have been falling recently. The cartel hinted that further production cuts could be on the cards, depending on market developments.

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

TECH NEWS

Irish regulators hit Instagram and Apple wants to beef up its advertising business…

Irish regulator fines Instagram €405m for failing to protect children’s data (Financial Times, Cristina Criddle) shows that Ireland’s data regulator has doled out a fine for violating the EU’s GDPR and failure to safeguard children’s data after a two-year investigation. This is the third fine that the Irish regulator has slapped on Meta (the first time was for data breaches on Facebook and the other was for violating privacy laws on WhatsApp). All of this prompted the platform to pause the launch of Instagram Kids for the under-13s. * SO WHAT? * It’s interesting to note that changes were made in the UK to children’s privacy on social networks last year in the Children’s Code and they have since been used as a template for similar laws in other countries including Ireland, Australia and Canada. California lawmakers last week approved age-appropriate design code that could come into force in 2024. Tech regulation: change is coming, but it’ll take a while (Financial Times, Lex) asks the very pertinent question – how far

will the US go to restrict its most successful home-grown industry? I would have thought that this is more likely under the current administration – although in reality it may not be strong enough to get more radical because of its wafer-thin majority.

Apple plans to double its digital advertising business workforce (Financial Times, Patrick McGee) is going to be welcome news for those looking for jobs in the tech sector (many tech firms are currently shedding staff) as the tech giant announced plans to almost double the headcount in its rapidly-growing digital advertising business. * SO WHAT? * Apple’s privacy changes have torpedoed the business models of the likes of Facebook, Twitter and Snap while it has itself seen great upside. This is all part of Apple’s efforts to even up revenues from hardware (the iPhone in particular) and services. It is going to be very interesting to see how this goes as it really is a very fast-growing part of the business.

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

CAR NEWS

VW outlines its intentions, UK car sales even out but Aston has problems…

Volkswagen to list Porsche in one of the biggest IPOs in years (Wall Street Journal, William Boston) highlights what everyone knew was going to happen becoming official as VW announced yesterday that it would be floating Porsche. The flotation could value Porsche at up to €85bn, according to analyst estimates, and give VW a nice little cash boost that will come in handy for developing EVs. The idea would be to list it in Frankfurt, but VW will be meeting individual investors to gauge demand before potentially listing at the end of this month. * SO WHAT? * They’ve been talking about this for yonks and you do wonder at the timing, given the energy crisis and recent news that some manufacturers are operating factory shutdowns and/or shorter operating hours to cut their utility bills. The company is going to be looking for a very punchy valuation but I would have thought this would be one for longer term investors because surely the shares are going to get hit by production problems until supply chain issues and energy shortages are resolved. On the plus side, Porsche’s customer base doesn’t seem to be suffering from the cost-of-living crisis, so it’s possible that its could prove to be a nice haven for investors.

Car showrooms halt their reverse in sales (The Times, Robert Lea) cites the latest sales figures from the SMMT which show that the decline in new car sales slowed down slightly last month, although it must be said that August it traditionally the quietest month of the year for car sales overall. The proportion of fully-electric and hybrid-powered vehicle sales has gone sideways. * SO WHAT? * Whilst this is interesting, it’ll be more interesting to see next month’s figures as September will encompass orders from the new number plate, which are traditionally stronger.

Then in Aston Martin’s shares slide as it discounts rights issue in debt battle (The Guardian, Jasper Jolly) we see that the car manufacturer’s share price dropped by almost 16% after it said that it would give a big discount on its £576m rights issue, which was introduced to put a dent in its massive debt pile. It gave investors the chance to buy its shares at a whopping 78% discount to Friday’s closing price! * SO WHAT? * Aston Martin’s share price has cratered by almost 80% in the last 12 months as it has suffered under the weight of mounting debt payments, low sales and supply chain problems. Everyone knew this rights issue was going to happen, so now that it has, maybe the cloud will pass and Aston will be able to proceed with developing the next generation of vehicles. 

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

MISCELLANEOUS NEWS

Swimply targets pool usage and UK banks want to pile into BNPL…

In a quick scoot around other interesting stories today, Prospect of soaring bills on horizon forces Britons to cut back spending (The Times, Constance Kampfner) cites the latest figures from the BRC which show that we’ve cut back on spending as we brace for much-higher utility bills but Pubs are bright spot as card spending falls (The Times, Constance Kampfner) cites Barclaycard figures which show that overall spending on credit and debit cards actually fell by almost 2% between July and August. Spending on essential items rose by 7.2% year-on-year in the highest increase since December 2021, but that was thanks to higher prices at the supermarket. Spending on utilities was up by 45.2% on an annual basis but 90% of people said that they were concerned about rising household bills (which is unsurprising!).

Elsewhere, Vistry Group and Countryside to merge in £1.3bn deal (The Guardian, Jasper Jolly) highlights the proposed merger of two of the UK’s biggest housebuilders in a cash and share deal. The deal is now with shareholders for approval. * SO WHAT? * This would give Vistry (formerly known as Bovis Homes) better scale as well as more exposure to Countryside’s “partnerships” business with institutions like housing associations and local authorities, which could balance out expected weakness in other areas. I would also imagine that scale is good when building material costs are still high as you are more likely to be able to source more cheaply.

Then in Deliveroo faces fresh UK Supreme Court challenge over riders’ rights (Financial Times, Cristina Criddle) we see that Deliveroo is going back to court again to argue about collective bargaining rights of its couriers. Tricky times for the company as its business faces a customer base with shrinking finances.

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…

Ever heard of a hotel with its own in-room beer tap? No – me neither! However such a thing exists in Japanese hotel gives you a beer tap in your room, 10 liters of craft beer to drink for free (SoraNews24, Casey Baseel). That’s 17+ pints of free beer per night. Good Lord! In case you were wondering, it seems that there is also a bar in the hotel…

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 0634hrs 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 **
7,287 (+0.09%)HOLIDAYHOLIDAYHOLIDAY12,761 (-2.22%)6,093 (-1.20%)27,599 (-0.04%)3,243 (+1.36%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$88.604$94.800$1,717.811.157910.99585140.9121.1627219,769

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