Tuesday 26/07/22

1. In REAL ESTATE NEWS, Chinese property companies rally on bailout hopes as UK mortgage brokers chase deals
2. In RETAIL NEWS, Walmart has a profit warning, WH Smith bounces back and Aldi pays more
3. In COST-OF-LIVING NEWS, household spending power keeps falling, Amazon Prime prices rise and chippies have to diversify
4. In MISCELLANEOUS NEWS, Russia squeezes gas deliveries, the Eutelsat/OneWeb drama evolves and Julius Baer profits dive
5. AND FINALLY, I bring you a cat game and a weird musical instrument…

So Chinese real estate companies rise on hope while UK mortgage brokers chase rates…

Chinese property stocks rally on $44bn bailout hopes (Financial Times, William Langley and Sun Yu) shows that the share prices of Chinese property developers, including Country Garden and Longfor Group, saw a bump up in trading yesterday. This was because financial news outlet REDD said yesterday that China’s State Council passed a plan last week to put together a real estate fund worth up to $44.4bn to bolster at least a dozen property groups. Shares in some giants, including China Evergrande Group, Shimao and Sunac have seen trading in their shares suspended in recent months due to their respective liquidity problems. * SO WHAT? * This fund is designed to support distressed real estate companies’ suspended development projects and could also be used to buy developers’ bonds and/or issue bonds etc. to help with the finances. This is a big move and shows at once the power of mortgage strikes and how seriously the administration is taking problems in the real estate sector. The new fund is being led by

China Construction Bank and the People’s Bank of China. FWIW, I think this is a bit like sticking your finger in the hole of a dam because it’s not helping all developers across the board. Pressure is bound to increase as others push to get a slice of the funds. On the plus side, at least it’s a decent slug of money – but I think that this isn’t going to be the final solution.

Back home, UK mortgage brokers chase deals as interest rates soar (The Guardian, Kalyeena Makortoff) shows that mortgage brokers are spending more time these days weeding out the dwindling number of favourable mortgages as lenders have increased rates to keep ahead of the Bank of England. The average two-year fixed mortgage worth 75% of the purchase price of a home has shot up from 1.2% to 2.63% in the eight months to May while inflation now stands at 9.4%. Markets are now pricing in another interest rate rise in August that will push mortgage rates up even further. Some advisers are now saying to clients that they should consider longer-term fixed rates over 10, 15 or even 30 years to insulate themselves from future interest rate rises. Tough dilemmas abound for buyers….

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!

Walmart warns, WH Smith rebounds and Aldi ups the pay…

In Walmart cuts profit outlook as it lowers prices to move goods (Wall Street Journal, Sarah Nassauer) we see that America’s biggest retailer warned that rising food and fuel prices were prompting customers to rein in spending, just months after it said in May that is was left with too many unsold goods. It said yesterday that it had to cut prices to shift said goods both at the flagship chain and its Sam’s Club warehouse chain. This will dent Q2 and full-year profits. Walmart’s share price fell by almost 10% on the news. It’ll be interesting to see how online rival Amazon does when it announces results this Thursday, particularly as consumer sentiment last month fell to its lowest ever point.

The American dream is flying again for WH Smith (The Times, Callum Jones) shows that WH Smith is flying high once more thanks to its business in the US where passengers have returned to flying in ever-greater numbers. It spent £467m on two takeovers (InMotion and Marshall Retail) to boost its business there, but the second one was closely followed by the Covid outbreak. WH Smith now has almost 10% of the news, gift and speciality market inside the top 70 US airports and wants to double this to 20% within the next four years. Unlike its previous (and ultimately, unsuccessful) foray into the US, WH Smith is not planning on putting its WH Smith façade onto its US outlets and has made a conscious effort to blend in. * SO WHAT? * If it manages to grow to expectations in the US, this means it’ll be making more money over there than it will

be over here! The airport business appears to be good at the moment as passenger numbers are increasing AND they are spending longer at airports thanks to flight delays and cancellations. I think that this all sounds great – but it really needs to knuckle down on its UK high street business as well (or sell it?).

Then in Aldi gives second pay rise in year amid high demand for UK workers (The Guardian, Sarah Butler) we see that Aldi has increased the hourly rate it pays its workers by 40p to a minimum of £10.50 outside the M25 and £11.95 within it. This also covers breaktimes, unlike rivals, which is worth about £830 a year for the average shop worker. * SO WHAT? * It’s still a hot job market out there, so it is clearly trying to do what it can to make itself attractive in its bid to become the UK’s fastest growing grocery chain. Aldi is now close to becoming the UK’s fourth biggest supermarket, overtaking Morrisons in the process. I have to say that although I think it’s great that employers are increasing pay to help workers in the current cost of living crisis. However, I maintain my belief that employers are generally better off doling out one-off bonuses in lump sums (with claw-backs if the staff then leave) rather than offering (in most cases) below-inflation pay rises. I think that one-off payments generally feel better than smaller payments being dripped out over a longer period of time and the claw-back option can hopefully aid staff retention. If you raise salaries across the board, this can be extremely costly (even if it is a small increase) and more difficult to cut later on, which might ultimately lead to more redundancies if cost-cutting goes deeper.

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 household budget squeeze continues, Amazon Prime costs are to rise and chippies are forced to broaden their horizons…

Record fall in spending power for households (The Times, Arthi Nachiappan) cites Asda’s latest monthly income tracker, which is produced by the Centre for Economics and Business Research, as showing that household disposable income dropped by a record £44 per week in June. This was the eighth consecutive month of weakening as the average household is now left with just £200 to spend after taxes and essential bills are paid.

This could be getting even worse as Amazon to increase Prime subscription by £1 a month (Daily Telegraph, Giulia Bottaro) highlights the fact that Amazon is going to raise the price of its Prime service for the first time since 2014 as operating costs increase. * SO WHAT? * The increase will apply from September 15th. Annual membership will rise from £79 to £95 but I think most people will just take this on the chin given the number of services that are included. If anything, I wonder whether this will make people use it more in order to get value for money…

Fish and chip shops ‘forced to diversify’ (Daily Telegraph, Hannah Boland) highlights the plight of the humble chippy as more of them are having to become “general takeaways”, diversifying away from fish as UK tariffs on Russian white fish imposed last week push prices up even further. * SO WHAT? * Cooking oil shortages, rising energy bills and ingredient prices are all prompting fears of widespread business failures. Prices for cod have already risen by 75% between October last year and February this year – so the new 35% tariff is bound to make this even worse. Russia controls about 45% of global white fish supply and approximately 30% of white fish we import into Britain comes from its waters. More chippies will be forced to diversify into kebabs and burgers as they may well have trouble selling fish at higher prices. It will be interesting to see what sort of effect this has on kebab shops and the likes of McDonald’s etc. I would have thought that the global fast food places won’t have too much to worry about but if you’ve got a chippy and a kebab shop in close proximity there could be problems…

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!

Russia restricts supplies, satellite drama continues and Julius Baer has a ‘mare…

In a quick scoot around other interesting stories today, Russia cuts gas deliveries to Europe via Nord Stream 1 (Financial Times, David Sheppard, Polina Ivanova and Harry Dempsey) shows that Russia is going to cut existing flows on this pipeline in half to just 20% of capacity from tomorrow that will make it way harder for countries like Germany to stock up on supplies ahead of winter. This comes at a time where German business confidence fell to its lowest level in over two years. The official reason given for the cuts is that there are problems with turbines, but everyone else says this is just an excuse. Russia continues to put its foot very firmly on the throat of Europe in its latest actions…

Eutelsat shares tumble after confirming OneWeb deal talks (Financial Times, Leila Abboud, Peggy Hollinger, Arash Massoudi and Harriet Agnew) shows that the share price of Eutelsat fell by over 17% as it confirmed that it was in discussions to buy smaller British rival OneWeb, after rumours emerged over the weekend. Eutelsat/OneWeb: rumoured terms bring satellite deal down to earth (Financial Times, Lex) reckons that the deal stacks up at a

strategic level, but investors are balking at the terms of the deal which are pitching it as a merger of equals and Britain and France can’t compete with Musk in space (Daily Telegraph, Ben Marlow) pours scorn over the group’s chances of success because of the shambles that has occurred to this point but also because it can’t launch its own satellites, making it more vulnerable than rivals.

Julius Baer profit plunges in ‘worst’ market in decades (Financial Times, Stephen Morris) highlights a major collapse in first half profit, which came about due to “one of the worst six-month periods for capital markets in decades”. The Swiss wealth manager unveiled a 26% drop in net income, which fell short of estimates while its assets under management also decreased. Julius Baer: tough markets matter more than rate rises (Financial Times, Lex) observes that new money is starting to come in and a new staff hiring freeze should help to keep costs under control. * SO WHAT? * Julius Baer is seen as a bellwether for the Swiss banking industry, which is why its fortunes are closely followed. The chief exec reckons the company is through the worst, but that remains to be seen…

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…

I have to say that I am more of a dog person but I also am OK with cats (I’ve just never owned one). However, I thought this might tickle all you cat lovers out there: Japanese game fans, and our play tester, can’t get enough of sci-fi cat adventure Stray (SoraNews24, Krista Rodgers). This actually looks quite relaxing!

Then if you’ve ever done that thing with a wine glass where you try and make a sound by wetting your finger and rubbing the rim, how about scaling that up to get this musical instrument. If you haven’t got much time, go to 9:21. You may find yourself seeking out glass fruit bowls afterwards…