Tuesday 12/10/21

  1. In MACRO & SUPPLY CHAIN NEWS, everyone’s talking about an interest rate rise, the oil price goes stronger and Felixstowe gets overwhelmed
  2. In CONSUMER NEWS, confidence takes a beating, Christmas dinner will be more expensive, companies indulge in shrinkflation and home renovations are set to get pricier
  3. In EV NEWS, Gogoro chances it in China, Tesla continues with Autopilot and Pod Point aims to list in London
  4. In MISCELLANEOUS NEWS, lockdown winners – including Asos – have a losing streak and Evergrande misses another payment
  5. AND FINALLY, I bring you a great commute…

1

MACRO & SUPPLY CHAIN NEWS

So there’s more talk about an early interest rate rise, oil prices keep going and Felixstowe piles up…

At the risk of it sounding a bit like Groundhog Day in this first section of Watson’s Daily (because it’s the same topics – just a different day!), Markets pencil in rise in days before Christmas (The Guardian, Phillip Inman) shows that financial markets are now betting that the Bank of England will put through an interest rate increase before Christmas of 0.15% and that there will be two more increases of 0.25% in February and August that will take it back to the pre-pandemic level of 0.75%. * SO WHAT? * OK so this is all because of rampant inflation that central banks have been dismissing thus far as being “temporary”, but I wonder whether there is an element here of the Bank of England testing the waters and seeing if they can “talk” inflation down by airing the possibility that they will increase the interest rate. I guess that interviews over the weekend with Andrew Bailey, the governor of the Bank of England, and MPC member Michael Saunders for different respective publications talking about inflation concerns will have sealed the deal for most investors. It would be interesting to see whether the Bank of England has the ⚽⚽ to increase it even earlier! Although that might be a shock, it may mean that it can get back to the pre-pandemic level more gradually. 

Meanwhile, US oil benchmark hits another seven-year high amid supply fears (Financial Times, Naomi Rovnik, Nicholas Megaw, Tommy Stubbington and Justin Jacobs) highlights the price for the US crude benchmark, West Texas Intermediate, hitting its highest level since 2014 at over $82 a barrel as oil prices have shot up by over 16% since the start of last month. This is going to put a further squeeze on the finances of consumers at the pump and raise manufacturers’ costs, which will ultimately be lumped onto the consumer as well.

Then in Containers pile up at Felixstowe (The Times, Emma Powell) we see physical evidence of the effect of supply chain snarl-ups as Britain’s biggest container port is struggling to cope with the sheer volume of cargo because the average container is spending over nine days at the port before it’s collected, which is due in part to the lack of HGV drivers. This is double the usual time it takes for a container to be collected. * SO WHAT? * It seems that this is a pretty common phenomenon at the moment, not just in the UK – but in the US and elsewhere as well. Maybe higher fuel prices and manufacturing input costs will dent trade volumes at some stage – but I don’t think that’s going to happen at least until next year as many will be concentrating on having a decent end to THIS year.

2

CONSUMER NEWS

Consumers continue to get squeezed…

So Higher food and energy prices dent confidence (The Times, Hamzah Khalique-Loonat) cites research by the British Retail Consortium and accountancy firm KPMG which shows that supply chain shortages and rising food and energy costs have been gnawing away at consumer confidence. The latest spending data from Barclaycard shows that September spending was 13.3% higher than it was in the same period in 2019 but it was being spent on essential items, like fuel and grocery shopping – and this implies that consumers are getting more cautious. Barclaycard’s research also showed that 90% of British households were concerned about the effects of rising prices denting their spending power. * SO WHAT? * As I have said previously, I believe that we are going to see strong consumer spending in Q4 as people crave a decent Christmas and that they will be more willing to go into debt to be able to do this (either via loans or via credit cards). On the flip-side to this, I think that Q1 could see a real New Year’s hangover as consumers really start to rein things in and we see more of the real after-effects of furlough. If furlough’s impact proves to be less serious than initial expectations, however, I think that spending could bounce back really quickly.

Talking of rising prices, Christmas dinner to cost more amid CO2 crisis, warns meat industry (Daily Telegraph, Oliver Gill) shows that meat producers are warning of higher prices because suppliers of CO2 are going to be allowed to hike their prices in the coming months. Some are suggesting that CO2 prices will jump from £200 to up to £1,000 a tonne! But it’s not necessarily the CO2 producers who are the bad guys here – they are also having to pay skyrocketing gas prices, like everyone else! The problem is made worse by the fact that meat producers require a purity of 99.9% for the CO2 they use,

which means they can’t stockpile the gas and it only has six weeks of shelf life. It’s beginning 🎶 to sound a 🎶 lot like…an expensive Christmas.

One way of increasing prices to the consumer without increasing prices is touched upon in Consumers brace for wave of ‘shrinkflation’ as products get smaller (Daily Telegraph, Hannah Boland) as it talks about the example of Walkers Crisps cutting down the number of bags in its multipacks from 24 to 22. “Shrinkflation” (reducing the size of products but charging the same price) is an ingenious tactic to avoid customers “trading down” to get better value and there’s bad news for KitKat and Smarties lovers – the boss of Nestlé is saying that the size of these products is something that is going to “be on the table” 😱. KP has now cut the weight of a £2.50 bag of peanuts from 250g to 225g. * SO WHAT? * It seems to me that we all saw the incumbent UK supermarkets give the German discounters a right kicking last year, but with tighter budgets a distinct prospect, I think that there’s a good chance that they’ll make a strong comeback – with the caveat that Tesco has already said it will be cutting prices. Bad news for supermarkets, but good news for consumers. Kevin the Carrot could really come into his own this year in winning customers…

Home renovation costs to soar as glassmakers threaten to move overseas (Daily Telegraph, Hannah Boland) highlights further potential pressures on household budgets as glassmakers will be coming to a decision in the next few days about moving overseas due to massive gas price rises. Some glassmakers have reported gas prices being up to ten times higher than normal and the industry body, British Glass, says that decisions will be made to shut down UK operations and import more. Clearly, gas prices are particularly problematic in industries that involve the consumption of a lot of energy. I guess you will want to buy those new windows that you’ve always wanted now – something to add to that lengthening Christmas list!

3

EV NEWS

Gogoro goes to China, Tesla continues with Autopilot and Pod Point wants to list in London…

In a few EV-related snippets today, Gogoro bets on China’s electric scooter market ahead of Spac deal (Financial Times, Edward White) shows that the Taiwanese electric scooter and battery-swapping tech group is aiming to float on the NASDAQ via a SPAC listing whilst also launching its services in China. Gogoro is offering its battery-swapping tech in China in partnership with Yaeda – the biggest maker of two-wheeled EVs – and Dachangjiang, China’s #1 seller of petrol-powered two-wheeled vehicles. Fun fact – China is the world’s biggest two-wheeled vehicle market! Gogoro’s battery swapping network is going to start with 80 stations in Hangzhou. * SO WHAT? * Operating in China carries with it the potential threats of IP theft, over-capacity and tons of competition, but the size of the market is too big to ignore, so Gogoro is grabbing this opportunity with both hands.

Tesla: ‘full self-driving’ is self-defeating hype (Financial Times, Lex) is an interesting article that suggests that fully-autonomous driving, although technically possible for some cars, is still some time away from wide adoption despite the fact that it should, in theory, save a lot of lives given that many accidents are down to human error.

Although Tesla is keen to get first-mover advantage in vehicle autonomy, it recently said it was delaying the release of its latest version of its “Full Self-Driving” software. It’ll be a while yet before it becomes ubiquitous IMO.

Then in Pod Point prepares to plug in with the public stock market (The Times, Robert Lea) we see that Britain’s biggest EV home-charging kit provider is preparing to float on the London Stock Market. Sentiment is a bit shaky at the moment among investors and although the company said that it was in line to rake in over £70m of revenues this year, its latest half-year numbers showed a loss of £6m on revenues of £26m. Hmmm. Pod Point claims that it has a 60% market share of the home-charging market and its home kit is generally sold as part of a sales package with an EV. It also has commercial installations for some supermarkets and arrangements with housebuilders and makes money by selling its kit and taking a slice of the fee for electricity as well as for the service and maintenance contracts. * SO WHAT? * Clearly the company is in a great position at the moment, but that doesn’t mean it can just sit back. Rival charger provider Chargemaster – which is now called BP Pulse after BP took it over – is one company breathing down its neck and I suspect that there will be many others chomping at the bit at the prospect of a very hot market for the coming years as people go electric. Will utilities companies get involved as well, I wonder?

4

MISCELLANEOUS NEWS

Lockdown winners turn to losers and Evergrande misses another payment…

Britain’s pandemic winners losing their lustre (The Guardian, Mark Sweney) is a really interesting article that highlights a list of lockdown winners who have been knocked off their perch as time has gone on. Despite their previous winning streak, they have not been impervious to rising shipping costs, supply chain issues, staff shortages and customers returning more products. Boohoo (sales growth has slowed right down and its share price has halved since its peak last year), AO World (missed its sales targets and its shares are now worth a third less than what they were at the peak last year), Ocado (which reported its first ever sales decline in August and recently announced big hikes in staff costs) and The Hut Group (which has fallen 30% from its peak on concerns of a general slowdown in online shopping) have all experienced difficulties but Primark-owner ABF has seen a real turnaround in Primark’s business (which had a nightmare last year because it was shut under lockdown), to the extent that it said it would raise full-year guidance.

Curse of Asos strikes again as profit forecast and share price tumble (The Guardian, Nils Pratley) shows Asos as being another winner-turn-loser as its chief exec headed for the door and makes the interesting point that whenever the Asos share price hits £60, it drops by 50% within twelve months! This is the third time it has happened, with previous occasions being in 2014 when there were worries about profit margin and in 2018 when it had warehouse problems in Atlanta and Berlin. The share price is now less than 50% of what it was at the beginning of this year. Asos: trouble shooter needed to handle fast fashion slowdown (Financial Times, Lex) says that Asos is now vulnerable to takeover and there will be uncertainty as to its international ambitions until a new CEO is appointed. Are we at a tipping point now for fast fashion?

Then in China’s Evergrande fails to pay debt (The Times, Hamzah Khalique-Loonat) we see that Evergrande has now missed its third overseas bond payment in less than a month, which will make international investors particularly twitchy. Others in the sector – like Modern Land, Sinic and Fantasia – are all having problems and Evergrande’s shares have remained suspended since October 4th. It’s looking very much like overseas investors are going to bear the brunt of Evergrande’s problems while the Chinese government protects domestic investors. If that is the case, you would have thought that investing in China will become increasingly difficult to justify as a result of how foreign investors seem to be being pushed down the food chain.

5

...AND FINALLY...

…in other news…

I thought I’d leave you today with the rather enviable commute in Surfer with UK’s ‘coolest commute’ pictured riding wave back to his house (The Mirror, John Bett). Nice 🏄‍♂️!

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Some of today’s market, commodity & currency moves (as at 0759hrs 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 **
7,147 (+0.72%)34,496.06 (-0.72%)4,631.19 (-0.69%)14,486.2 (-0.64%)15,199 (-0.05%)6,571 (+0.16%)28,231 (-0.94%)3,547 (-1.25%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$80.33$83.59$1,761.101.360561.15689113.041.1761157,241.38

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