Tuesday 07/11/23

  1. In MACRO NEWS, China faces deflation, the Eurozone economy deteriorates and the King’s speech looms
  2. In PROPERTY & REAL ESTATE NEWS, WeWork shares are suspended and UK construction contracts
  3. In FINANCIALS/SERVICES NEWS, Bain buys Guidehouse, PwC is to cut up to 600 UK jobs and Klarna reports a profit
  4. In MISCELLANEOUS NEWS, Ryanair soars, UK retail spending falls, Shein considers Topshop, EV sales slow and ChatGPT launches a new service
  5. AND FINALLY, I bring you an amazing rice ball and the right way to eat peas…



So China faces deflation, the Eurozone slides further and the King’s speech awaits…

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Falling pork prices threaten to push China back into deflation (Financial Times, Hudson Lockett) shows that pork prices are continuing to fall (live hog futures have fallen by around 15% since the start of October and wholesale pork prices have dropped by over 40% over the last year!) as the biggest listed hog farmers flood the domestic market. Pork has a heavy weighting in China’s official consumer price index and could potentially tip China back into deflation when the official figures are published this Thursday. * SO WHAT? * A weaker CPI figure would potentially take the shine off recent government efforts to boost confidence in China’s economy,

which is currently suffering from shaky consumer confidence and problems in its massively indebted real estate sector. China is the world’s biggest consumer and producer of pork and Muyuan and New Hope are examples of the biggest listed hog farmers (Muyuan is actually the world’s biggest!).

Then in Eurozone economy deteriorating at fastest rate since pandemic (Daily Telegraph, Eir Nolsøe) we see that the bloc’s business activity is falling at its fastest pace since November 2020, according to the latest S&P Global PMI survey, suggesting that it is experiencing a period of stagflation (sluggish growth + high inflation) as interest rates remain high. European companies are taking on employees at a slower rate after a protracted period of job creation and new business from abroad (including tourism) also fell sharply to levels not seen since 2014. Tricky. This just adds to that whole mood of gloom surrounding the Eurozone which could potentially fall into recession soon.

Then in King’s speech to set out political battle lines ahead of UK election (Financial Times, George Parker, Lucy Fisher, Anna Gross and Jim Pickard) we see that King Charles III will lay out a political package of legislation today that will outline a roadmap towards the next election. It will cover things like tougher sentencing, drilling for oil in the North Sea and tech. In addition to this, Sunak will also outline regulations that will specify minimum service levels for critical sectors like transport (e.g. railways) on strike days. The speech marks the commencement of the final session of parliament before the next election and will be used to make the differences between the Conservatives and Labour more distinct.

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!



WeWork’s shares get suspended and UK house building falls…

WeWork shares suspended as investors brace for bankruptcy (The Times, Tom Howard) highlights the latest development in the downfall of the serviced-office provider. Filing for Chapter 11 bankruptcy protection will enable the company to vacate loads of buildings across America where it’s signed up to long and expensive leases whilst also being able to cut its debt pile considerably. When WeWork last traded on Friday, its shares were changing hands for just $0.84, valuing the company at less than $50m. Business is likely to continue as normal, so tenants are unlikely to see any changes and the British business is not included as part of the filing. How the roof fell in on WeWork’s office empire (The Times, Tom Howard) gives an interesting background on how this company went from a valuation of $47bn at its peak to less than $50m now. It was all basically down to overexpansion, the failure of its proposed IPO, scepticism in the business model and

the devastation caused by lockdown as customers failed to renew their leases. Subsequent to that, high interest rates can’t have helped given the company’s massive debt pile! WeWork: boxed-in flexible space group seeks new lease of life (Financial Times, Lex) suggests that a turnaround may be possible if it can hike membership prices and sort out its lease portfolio. What a spectacular downfall!

Nearer home, Steep falls in housebuilding drive contraction in UK construction (Financial Times, Valentina Romei) cites the S&P Global/CIPS UK construction PMI which shows that UK construction activity contracted in October thanks to the 11th month in a row of weakening housebuilding activity. The latter has been a result of the high interest rate environment pushing up borrowing costs. This doesn’t bode well for Q4. That said, commercial building is showing signs of stabilisation and supply side issues appear to be easing with better subcontractor availability and improved suppliers’ delivery times.

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!



Bain goes shopping, PwC looks to cut and Klarna reports a profit…

Bain to Buy Guidehouse in $5 Billion Deal (Wall Street Journal, Mark Maurer and Laura Cooper) has nothing to do with the Batman baddie 😁, but more to do with Bain Capital buying consultancy Guidehouse in a deal worth $5.3bn including debt. Guidehouse specialises in advising government organisations and businesses and this is the latest deal where a private equity firm has bought a professional service provider.

Elsewhere, PwC to cut up to 600 UK jobs as attrition rate plunges (Financial Times, Michael O’Dwyer and Simon Foy) shows that PwC is about to embark on a voluntary redundancy programme, but if not enough people take up the option, compulsory redundancies will be made instead. * SO WHAT? * Consultancies went through a period sometimes referred to in the “great resignation” in 2021 and 2022 when demand for their services shot up but now demand has fallen, leaving a glut of consultants who don’t now want to resign. The redundancies, representing up to 2.4% of PwC’s employees, will predominantly affect its advisory business and will be across all levels of seniority below partner.

Rivals at Deloitte, EY and KPMG have already launched their own redundancy programmes.

Then in Buy now, pay later firm Klarna reports first quarterly profit in four years (The Guardian, Kalyeena Makortoff) we see that we see that the Swedish payments company managed to post its first quarterly profit in four years, bringing it ever closer to a potential $15bn IPO. This was all thanks to a 30% rise in revenues and an increase in customers meeting their payment deadlines as Klarna did a better job of screening customers. * SO WHAT? * Klarna has been through a tough time as it has seen its market valuation drop by 85% over the last year and it has had to cut 10% of its global workforce. I still feel that this company is a one-trick pony that could have its business decimated by existing credit card companies should the latter wish to get a bit more feisty. There’s more competition in the market and, from what I can see, the only differences now between Klarna and more established credit companies is that they have a younger user base and perhaps funkier marketing. There is still very much a risk that it will become more tightly regulated, which will make it even more similar to existing offerings. I think that it would be better off being bought by a bank…

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!



Ryanair flies high, UK retail spending weakens, Shein considers Topshop, EV sales slow and ChatGPT offers a new service…

In a quick scoot around some of today’s other interesting stories, Payouts rain down from soaring Ryanair (The Times, Robert Lea) shows that rising fares and add-on charges (for things like baggage, allocated seating and priority boarding) have powered Ryanair to a record high for profits over the spring and summer. It’s now on track to decimate previous full-year profits records although it did say that it expected to be lossmaking in the first months of 2024, which is usually the slowest of the year. European airlines: mature Ryanair is the boldest winger in town (Financial Times, Lex) highlights the new commitment to scheduled dividend payouts as a sign that the company is maturing and that its strong balance sheet and tight cost base should continue to stand it in good stead. In the meantime, EU pressures airlines over soaring fares (Financial Times, Alice Hancock and Philip Georgiadis) shows that Brussels is investigating the recent rise in air fares (they increased by as much as 30% over the course of the summer!) although it doesn’t actually have the power to regulate them. However, the fact is that demand has risen sharply for flights this year while there has also been a shortage of aircraft.

Elsewhere, Squeezed shoppers rein in their spending (The Times, Jack Barnett) cites the latest figures from the BRC which show that retail sales slowed down last month as consumers held back on spending due to ongoing pressure on household budgets. Sales grew by 2.5% in October versus October last year but this is the second slowest increase so far this year and is way below the rate

of inflation. This isn’t great, but I guess that the bigger worry is whether this reluctance to spend will continue into Christmas – if it does, that won’t be good.

Meanwhile, Shein considering an offer for Topshop (The Times, Isabella Fish) shows that the Chinese fast-fashion giant has formally registered an interest in buying Asos, which bought Topshop for £330m in 2021. * SO WHAT? * If it went ahead it’d be Shein’s second acquisition of a British fashion brand after it bought Missguided from Frasers Group last week! This could be pretty interesting but there are other potentially interested parties.

Then in Car sales accelerate, with electric vehicles in slow lane (The Times, Robert Lea) we see that the latest figures from the SMMT show that demand for new cars has now breached pre-pandemic levels but sales of EVs seems to have been dented by Sunak’s decision to delay the “electrification” deadline from 2030 to 2035 (in line with Europe). Interestingly, sales of plug-in hybrids have risen as a proportion of the market, so maybe consumers are hedging their bets and going “slowly” electric given the poor charging network that we have at the moment.

In tech news, ChatGPT launches personalised service (Daily Telegraph, James Titcomb) shows that ChatGPT is rolling out a service whereby you can create personalised versions of the chatbot with speech style, knowledge and behaviours. This will be part of the $20 a month ChatGPT Plus service. * SO WHAT? * It sounds like this is what others are already offering (Meta with its “persona” bots and X’s Grok, for instance) and it means that users could potentially create their own bots and then sell them!

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…

As you know, I’m half-Japanese (on my mother’s side). When I was a kid and we were going on a road trip, instead of sandwiches we used to take “onigiri” (translated as “rice ball”). These consist of a “ball” (although usually more triangular shape, but hey that’s the official translation!) of rice usually with a small amount of filling (e.g. salmon, tuna mayo, kombu etc.etc.) and then you get a piece of dried seaweed, wrap it around the rice and eat it. You may also know that there are loads of earthquakes in Japan and so everyone has emergency stuff stashed away for if a really big one comes (smaller ones happen every day). This “emergency” rice ball thing is absolute genius and is something for the “go-bag”!

Then I thought I’d make you aware of Etiquette expert says we’ve been eating peas wrong our entire lives (The Mirror, Ayaan Ali) as it might come in useful for you one day! I’ve always said that if you are trying to create a positive impression on the people that you are eating with there are certain foods I’d advise you to avoid with

steak sandwiches (can get chewy and you might get one of those ones that you can’t quite bite through entirely and end up with the whole steak in your mouth 🤣), BLTs (too much filling – can get messy), salads with dressing (the dressing can spray), spaghetti (some people get really funny about how you eat it – just a fork? A fork and a spoon?) and peas (again, if you don’t eat them “correctly” they can go everywhere). Of course, during your normal day-to-day you will be perfectly fine with all of the above, but when you add nerves and stress into the mix at a lunch interview or business meeting, things can go wrong – so best to avoid! Yes, it shouldn’t matter and yes, you should be judged on what you say etc than your table manners, but you will be surprised at how some people value such things (and they won’t say it to your face). Bon appetit!

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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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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