Tuesday 18/10/22

1. In MACRO & ENERGY NEWS, China delays economic data, Trussonomics gets cancelled, Germany extends the life of nukes, BP pushes further into alternatives and Europe is warned of blackouts
2. In CONSUMER-GOODS & RETAIL NEWS, Eve Sleep jumps into Bensons Beds, Made looks for buyers, P&G spruces up its ads and Asos takes a beating
3. In TECH NEWS, we look at whether the tech slowdown is temporary or not, Apple holds back in China and Kanye West buys Parler
4. In MISCELLANEOUS NEWS, Disney threatens France and 25% of younger people are getting priced out of London
5. AND FINALLY, I bring you a superb Halloween taxi…

So China delays data release, Truss does the “walk of shame”, Germany extends the life of nuclear power stations, BP makes further moves into alternatives and Europe faces blackouts…

China delays key economic data as Xi tightens his grip on power (Daily Telegraph, Eir Nolsøe) shows that China is not letting potentially disappointing economic news get in the way of President Xi Jinping engineering his way to another five years in power. Q3 economic data was due to be published today, but its publication was delayed suddenly and without explanation. The Communist Party’s 20th congress is being held this week and the leader is expected to be confirmed for a third term in Paris. Earlier this year, China’s official GDP growth rate forecast was 5.5% for 2022 but the World Bank thinks that it’ll grow by just 2.8% due to massive debt problems in the country’s real estate market and the economic impact of ongoing strict measures for tackling Covid. The official line is that the economy had rebounded “significantly” in Q3, but it is well-known that China’s official statistics gets massaged more than a Premier League football player 🤣 (which is why so many investors treat them as a vague guide and have their own ways of measuring what’s going on).

Liz Truss apologises for chaos caused to Britain by mini-Budget (Financial Times, George Parker, Jim Pickard, Sebastian Payne and Chris Giles) heralds yesterday’s House of Commons equivalent of Cersei Lannister’s “Walk of Shame” in Game of Thrones as Liz Truss was forced to watch the policies that she had only just introduced disappear before her eyes. In one stroke, the new Chancellor became the new anti-Santa Claus as he repealed policy after policy, “saving” £32bn – but there will be more to come in what is probably going to be Austerity 2.0. Trussonomics abandoned as UK re-embraces financial orthodoxy (Financial Times, Chris Giles and Delphine Strauss) shows that it’s back to the drawing board but, on the plus side, it now looks increasingly likely that the Bank of England won’t have to increase interest rates by quite as much as it would have done had the mini-Budget stuck. This means that the cost of government borrowing will fall, which means that it will have to make fewer tax increases and spending cuts. In terms of what this all means for you, I think that THIS is a really good summary by the BBC. In the meantime, Nervous markets back Chancellor as hopes of a low-tax UK are abandoned (Daily Telegraph) shows that Hunt’s dramatic statements had the required effect on calming the markets and bought him some time, although I would have thought markets will continue to be volatile due to ongoing uncertainty re what the government’s going to do next. Means-testing the energy bailout is the one silver lining (Daily Telegraph, Matthew Lynn) is an interesting article which contends that one of the few good things about the mass-repeal was that the government is now looking much more closely at the cost and implementation of an energy bailout that would have

taken a needlessly huge amount of money to execute. The original idea was to give everyone at least some part of the bailout regardless of their monetary status, so Hunt’s intention to means-test any help should come as a welcome move that will (in theory) channel money to those who need it the most. * SO WHAT? * OK, so it’s early days yet, but my impression now is that the next election will be Labour’s to lose. The debacle of the last few weeks will have highlighted in people’s minds that the Conservatives have been in power for a rather long time and that it may be time to “give someone else a go”. Some say that a general election needs to be called now but if that even happened, I do wonder what policies any other party would have right now. It seems to me that Truss was pretty much going to adopt policies that had been touted both by the LibDems and Labour – but given that they’ve just seen how violent the effect of those policies are, I would argue that they are going to have to come up with something rather different. Like I’ve said before, I really hope we don’t see another general election or leadership vote because they will just put us all in limbo precisely at a time when we can’t deal with it – but I DO hope that Hunt/Truss/whoever just puts together a robust cabinet that can do the job properly and then let Truss leave out of the back door.

Meanwhile, in energy news, Germany extends life of nuclear power plants until next April (Financial Times, Guy Chazan) shows that Germany is going to extend the life of all three of its remaining nuclear power plants until mid-April 2023 in order to combat the energy crisis. Chancellor Scholz, who is a Social Democrat, has had to get members of his coalition in the Greens (who have been vehemently against it) and Liberal Free Democrats to agree to this in order to avert (or at least minimise) the threat of blackouts and energy rationing. The three plants were due to be shut down on December 31st. * SO WHAT? * Desperate times call for desperate measures. Given the warning in Cut gas use by 10pc or risk blackouts, Europe warned (Daily Telegraph, Matt Oliver) where the International Energy Agency said in its latest report that the UK and Europe should aim to volunarily reduce gas demand by 13% to remain “safe and secure” if Russia cuts off supplies completely, it seems that Germany didn’t have any real choice!

Then in BP aims to speed up alternative fuels push with $4.1bn deal for Archaea (Financial Times, Tom Wilson and Justin Jacobs) we see that BP has announced its biggest acquisition in alternatives as it announced plans to buy US biogas producer Archaea Energy. * SO WHAT? * OK, so the offer price was a whopping 38% above Archaea’s 30-day average share price but this would increase BP’s biogas supply volumes by 50% straight away and really boost its development pipeline for the future. BP is committed to cut its oil and gas production by 40% by 2030 whilst in the meantime investing in less polluting forms of energy. It does seem to be making moves in this direction!

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!

Furniture sees consolidation, P&G ups the ante on ads and Asos suffers…

Bensons for Beds buys Eve Sleep hours after administrators called in (The Guardian, Mark Sweney and Sarah Butler) shows that Bensons, which has 166 stores and is owned by Private Equity firm Alteri Investors, bought Eve Sleep (presumably for a super-cheap price given that it had already called in the administrators!) to appeal to younger customers. Eve’s share price has dropped by over 90% this year and it blamed its demise on lacking scale to get it through the bad times. What a sorry picture now versus the heady days of 2017 when it floated to great fanfare! This comes at a time when Made invites offers from potential buyers (The Times, Tom Saunders) shows that Made.com, the online-only furniture retailer, is searching for a new owner to help fund it for the next 18 months. Made.com had its London IPO in summer last year, but its market cap is now less than 5% of what it floated at 😱 following three profit warnings! * SO WHAT? * I think that selling a furniture company when the housing market is losing momentum and when a cost-of-living crisis is gaining momentum is going to be a tough call – which means that I’d expect it to go very cheaply! Still, I would have thought it will be difficult to sustain a business through such conditions. Will it go to yet another private equity firm??

Then in Procter & Gamble ups marketing to persuade customers on pricier products (Wall Street Journal, Sharon Terlep) we see that P&G, the company that owns brands like Pampers and Gillette, is rolling out celeb-heavy ads and new product features to stem the outflow of customers looking for cheaper alternatives. * SO WHAT? * Many supermarkets have seen a trend of own-brand sales rising and so I think it’s only natural for the world’s biggest maker of consumer products to try and stem the tide. However, I think the days of the company gleefully hiking their prices with little effect on demand are over. I actually think that this ad spend is a bit of a last hurrah given that many countries are expected to fall into recession and that it won’t matter how much companies spend on ads – consumers are just going to be focused on price.

Following on from what I said yesterday, Asos shares plunge as it confirms talks with lenders over borrowing (The Guardian, Joe Middleton) shows that online fast-fashion retailer Asos saw its share price plunge by almost 12% in early trading yesterday after it confirmed that it was in talks with lenders over changing the terms in its £350m borrowing facility. * SO WHAT? * Clearly, worries are increasing here about the financial health of the company. I suspect it’ll need all the help it can get as its younger customers face all sorts of financial pressures.

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!

We look at whether the tech slowdown is a blip or not, Apple has China problems and Kanye West buys Parler…

Is tech slowdown a post-pandemic reset or a sign of real trouble (The Guardian, Kari Paul) highlights the currently depressed nature of the tech sector after a huge pandemic boom. Big Tech companies are announcing job cuts and cost reductions while regulators continue to pile the pressure on an industry that has manage to shimmy its way around calls to take more moral responsibility with the help of expensive lawyers and very deep pockets. The earnings season for the likes of Meta, Twitter, Tesla, Google and others is just around the corner and it is widely expected that momentum will slow further. * SO WHAT? * I am of the opinion that we are in a lull after the frenzied activity under lockdown where everyone turned to technology to make WFH a reality. This lull may last for quite some time yet as the world’s economy absorbs the impact of higher inflation, energy issues and supply chain changes and I think that regulators need to take advantage of tech’s rare period of weakness in order to make it more robust and morally defensible ahead of what I think will be the next big catalysts: Web 3.0 and the metaverse. Unless things like ownership and usage of data and responsibility for content are addressed, there is a risk that new virtual environments will compound existing weaknesses because I think that the scale of usability will increase exponentially.

Apple/China: suspending plan to use Yangtze chips means more local tech problems (Financial Times, Lex) shows that Apple has now suspended plans to use chips from Yangtze Memory Technologies in its products, including the iPhone, due to the recent imposition of US export controls. * SO WHAT? * Yangtze has spent years trying to break the US market so this is going to be a major blow to the company. It’ll also be a bit frustrating for Apple as it will have lost what would have been its main supplier for Nand flash memory for iPhones, meaning that it’ll have to continue to rely on Samsung and Micron. This is probably a sign of things to come as the new restrictions also ban US companies from sharing any design, tech or specs to any unapproved Chinese companies. Other Apple suppliers from China, like BOE (which makes displays) and Luxshare (assembler) are likely to go the same way.

I wasn’t going to share this story as it’s just about some rapper with way too much money indulging himself, but Kanye West to buy rightwing social network Parler (The Guardian, Alex Hern) shows what someone with more money than sense and the ego the size of an entire galaxy does when they get banned from posting on Instagram and Twitter. The purchase was for an undisclosed sum and is expected to close in Q4 this year. Parler had been removed from the Apple and Google app stores in the aftermath of the attack on the US Capitol and went offline completely in January after Amazon Web Services pulled its account. It has since returned to Apple and Android.

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!

Disney gets shirty and young people look to exit London…

In a quick scoot around other interesting stories today, Disney threatens to bypass French cinemas unless release rules are relaxed (The Guardian, Mark Sweney) highlights Disney’s threat that future blockbusters may go straight-to-streaming unless France relaxes its film distribution rules. France’s current system is designed to protect its film and TV industry and dictates strict time limitations between cinema releases and distribution to streaming (15 months!), which Disney believes is outdated. * SO WHAT? * French cinema owners desperately need an inflow of blockbusters, so Disney’s threat to go straight to Disney+ will be taken seriously. I suspect that Disney’s success in streaming will give it huge clout in negotiations of this type.

Elsewhere, One in four young to leave London over higher rents (The Times, Tom Howard) shows that 25% of younger London

renters are considering moving out of London because they are being priced out, according to research conducted by Foxtons. The average weekly rent in London now has reached £553 as prices are being driven up by a combination of strong demand and a shortage of rental property. In a shocking revelation, Foxtons reckoned that there were 29 renters competing for 23,000 rental properties that came on the market last month 😱! * SO WHAT? * What an absolute nightmare! If the situation is left as it is, there will be an exodus again. I think employers will need to come up with some kind of living allowance and/or the government will have to incentivise landlords (either to stay and/or attract new ones) because if they don’t I imagine that debt for young people will just keep rising as they fight to stay in the capital. I think that this could also have a negative effect on the productivity of London-based companies if all their staff have to vast distances away. Having said that, the whole WFH thing will make this more viable a proposition than it would have been in the past.

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…

OK, so this is quite far away for most of us, but this is such a great idea: Tokyo taxis offer to let you take a ride with The Ring’s ghost girl, just in time for Halloween (SoraNews24, Casey Baseel). If you’ve never seen any of The Ring films, you really should! They have had the Hollywood treatment, but I would really advise you to watch the original Japanese versions if you can. They are creepy! IMHO, Japanese are BRILLIANT at horror (I think they rely more on the psychology rather than just gore – but obviously there are gory films as well), anime (obviously!) and TV dramas (K-dramas get a lot of love, but J-dramas are also brilliant! If you can access it, try Doctor X – it’s brilliant!).