Tuesday 29/03/22

  1. In BIG PICTURE NEWS, China’s having Covid problems, the US gets an early warning of recession, the UK faces energy choices and LNG supply may face delays
  2. In CONSUMER & RETAIL NEWS, the Bank of England warns of hits to income, staycationers power Brighton Pier and bike sales fall while Asda takes on Waitrose and Walmart stops selling cigarettes
  3. In SANCTION CONSEQUENCES, Egypt is having a nightmare and Carlsberg/Heineken are facing difficulties
  4. In INDIVIDUAL COMPANY NEWS, Huwawei sees weaker sales but higher profits, the P&O drama continues and the government sells down in NatWest
  5. AND FINALLY, I bring you a major change to HP sauce and grandads using Alexa for the first time…

1

BIG PICTURE NEWS

So China’s Covid problems persist, the US could be edging towards recession, the UK faces choices on energy and LNG supply may face hurdles…

I AM GOING TO BE HOLDING THE MONTHLY ROUNDUP *** THIS WEEK *** WITH JAKE SCHOGGER OF THE COMMERCIAL LAW ACADEMY. Please register HERE to attend (it’s free). This will really help you as I will navigate the major events and developments that have happened over the course of March in the business news and financial markets and Jake Schogger will be overlaying this with legal insights. We always have a lot of fun with this despite the subject matter (!), so it’d be great to see you! This will save you time and give you better understanding of how things are currently developing in the world.

The crisis in Ukraine is beyond words. Many stories that we see now of tragedy, sacrifice and loss make everything else pale into insignificance. However, I will continue to bring you news on this and everything else in the business and financial markets news because it may well have repercussions that have major consequences for us all and that we still need to understand better.

China’s patchy vaccine campaign leaves elderly at risk (Financial Times, Eleanor Olcott, Andy Lin and Primrose Riordan) highlights shortfalls which have left half of China’s elderly population with an increased risk of contracting severe Covid-19 while Shanghai split by lockdown as officials struggle to contain Covid outbreak (Financial Times, Thomas Hale, Hudson Lockett and Tom Mitchell) shows that Shanghai imposed extreme lockdown measures yesterday in response to the spread of generally asymptomatic cases of Covid. The measures go way further than previous ones and mark the first time that authorities have forced residents to stay in their homes, prompting a rush of panic buying at shops. Anyone wanting to leave has to produce a negative Covid test taken within 48 hours. China stocks: Shanghai lockdown creates more uncertainty for global supply chains (Financial Times, Lex) looks at the consequences of this sudden shutdown of China’s financial hub, which is home to 26m residents and the country’s second wealthiest city after Beijing. The lockdown is going to last for eight days and it is likely that this will hit China’s economic growth as it is not just the financial hub – it has China’s biggest port, which also happens to be the busiest port in the world! * SO WHAT? * Supply chains are definitely going to be hit by this (as if they weren’t being tested to the limits already!) and this makes it increasingly likely that China won’t be able to hit its new lowered GDP growth forecast of 5.5% for 2022. Shanghai accounts for 4% of the country’s GDP and any extension of the lockdown period in this city – and any others – could negatively impact employment, consumer confidence and spending.

Meanwhile, Recession headache for Biden as bellwether flashes red for the first time in 16 years (Daily Telegraph, Tom Rees) shows that yields on short-dated government

bonds shot up, causing an “inverted yield curve“, which has in the past been a reliable indicator of impending recession. The US, along with many other countries, is battling to control rampant inflation after a long time of world’s biggest importer of wheat is in for a rough ride. I guess all it can do now is hope for an end to the war and doing nothing about it saying that it was all short term. This will be yet another problem for Biden to deal with along with his foreign policies.

Back home, UK minister aims to triple solar power capacity by 2030 (Financial Times, Jim Pickard, Gill Plimmer and George Parker) shows that the UK’s business secretary Kwasi Kwarteng has suggested tripling the number of solar panels and doubling the amount of onshore wind power by 2030 – but is being met with resistance – and Gas imports to soar if North Sea is neglected (Daily Telegraph, Rachel Millard) highlights pressure from another area as the industry body Offshore Energies UK is now warning that if no investment is made in developing the North Sea, Britain may have to import 80% of its gas by 2030. In 2021, the North Sea produced about 38% of our gas and 82% of our oil. Calculations suggest that even though the North Sea is a mature basin, it has enough still there to supply us for the next 13 years. * SO WHAT? * After many years of taking increasing amounts of flak from the environmental lobby that probably reached a crescendo at last year’s COP26, it seems to me that the oil and gas industry is fighting back using the fear of Russian oil to push its own agenda. This is going to sound incredibly mercenary but I think that those in the oil and gas industry need to get as many agreements signed as possible while the war is on and the fear of relying on Russian energy sources in the future is at its height. It may not get another opportunity like this again. On the other hand, environmental campaigners will have to alter their attack because I don’t think this war is going to be forgotten in a hurry.

It was only last week that we saw Germany sorting out increased LNG imports from Qatar and the US, but Floating LNG: lack of vessels could stymie a good option for Europe (Financial Times, Lex) alerts us to the fact that even though agreements may have been signed, the lack of floating terminals that turn LNG back into gas may make the actual supply problematic. Germany currently has no regasification terminals and has been hoping to rely on floating terminals (known as Floating Storage and Regasification Units) to receive LNG offshore until it builds them – and apparently they take about four years to build. Unfortunately, only 33 of these vessels are currently in existence and, with no news ones currently on the order books, supply of these terminals is extremely limited. * SO WHAT? * Norway’s BW Gas, Hoegh LNG and New Fortress Energy account for over half of the current fleet of FSRUs, most of which are already chartered. These companies will clearly benefit from new demand but South Korea’s Hyundai, Samsung and Daewoo dominate their construction, so may benefit in the longer term as they cost about $350m and take over two years to build. 

2

CONSUMER & RETAIL NEWS

We look at consumer trends and retail developments…

Britons face ‘historic shock’ to their incomes, BoE governor warns (Financial Times, Valentina Romei and George Parker) shows that the Bank’s chief is expecting a major hit to UK economic growth and consumer demand and is warning of stagflation, where economic growth slows down while inflation rises.

Meanwhile, in terms of consumer trends, Staycationers reckon that Brighton rocks (The Times, Dominic Walsh) shows that the owner of Brighton Palace Pier and Lightwater Valley Adventure Park, Brighton Pier Group, was confident enough to increase its profit guidance for the second time in less than six months thanks to better-than-expected performance in the first half. I really think that staycation plays are going to continue to be strong this year as people opt for “affordable” domestic weekends and days out instead of expensive overseas holidays in the face of rising inflation.

Another lockdown trend appears to be losing momentum according to Wheels come off Tandem as cycle stocks mount in stores (The Times, Robert Lea) as the Birmingham-based company that owns the Dawes and Falcon brands of bicycles says that shops have a lot of

unsold stock and that it is having problems sourcing from overseas. The disappointing announcement yesterday sent the shares down by a chunky 19% in trading, almost wiping out the gains it has made under lockdown. * SO WHAT? * I find it surprising that this company is being so downbeat at this point in the year. I would have thought that Christmas is a busy time for bike makers/sellers, but then surely with the weather warming up into spring and summer all those people who put off buying a bike before (because of lack of supply) will potentially return to the stores, don’t you think?

There were some interesting developments in the world of grocery shopping as per Asda faces legal wrangle with Waitrose after investing £45m in budget range (The Guardian, Sarah Butler) which shows that Waitrose is objecting to Asda’s new branding of its budget range that it has decided to call “Just Essentials” because it is too similar to Waitrose’s “Essential Waitrose”. Lawyers are going to love this battle I’m sure. I think Asda should call its budget range “I-Can’t-Believe-It’s-Not-Waitrose” or perhaps if it was feeling really feisty and litigious “Aldi Essentials because Every Lidl Helps”. I think that has a ring to it, no?!? Meanwhile, across The Pond, Walmart stops selling cigarettes in some stores (Wall Street Journal, Sarah Nassauer and Jennifer Maloney) is great news for anti-smoking campaigners, but I did wonder “does Walmart still sell guns”? If so, maybe that needs addressing more urgently…

3

SANCTION CONSEQUENCES

Sanctions on Russia continue to have serious consequences…

Egypt’s economy reels from Ukraine war (Financial Times, Heba Saleh) highlights serious problems in Egypt as cooking oil and flour prices have shot up since the start of the Russia-Ukraine war with no respite in sight. Add to this the slowing trickle of tourists and financing difficulties the world’s biggest importer of wheat is in for a rough ride. I guess all it can do now is hope for an end to the war and

that the IMF can give it enough financing to tide it over until things improve.

In terms of individual companies, Carlsberg and Heineken braced for ‘substantial’ hits from Russian exit plans (Financial Times, Ian Johnston) shows that the two brewers are going to take major hits to their respective businesses as they announced plans to ditch their Russian operations as companies continue to exit the country. Both companies have decent operations in Russia but both will exit whilst continuing to pay staff. The corporate exodus continues…

4

INDIVIDUAL COMPANY NEWS

Huawei profits, the P&O circus continues and the government sells some of its NatWest stake…

China’s Huawei reports sales fall amid US sanctions but profits hit record (The Guardian, Vincent Ni) shows that embattled Chinese telecoms giant Huawei saw a decrease in sales but record profits over the course of 2021, despite US sanctions. The company conceded that US sanctions have adversely affected sales of smartphones and PCs and the company saw an eye-watering 50% drop in consumer business sales compared to 2020. * SO WHAT? * US sanctions really hit Huawei hard, particularly in its 5G telecoms equipment business as countries around the world cut them out prompted by pressure from the US. Whether the sanctions will actually make Huawei stronger in the longer term is a moot point due to it becoming more self-sufficient, but it will be years before we really know.

Then P&O signals willingness to pay minimum wage if rivals do (Financial Times, Jim Pickard and Ian Johnston) highlights the latest development in the P&O saga as the company shows that it might move to appease its detractors in response to the government changing the laws on how such companies pay workers, while The unlikely ally on board with seafarers’ union (Daily Telegraph, Oliver Gill) does a brilliant job of summarising

what’s gone on so far and how the whole debacle has shone a light on something that’s been going on for years – seafarers getting paid below the minimum wage. Irish Ferries and Condor Ferries are examples of operators who have been accused precisely of this and there are plenty of smaller operators who have been taking advantage of the legal loophole who will be getting very nervous now that this practice has been brought out into the open. P&O needs to sack its chief executive to salvage its reputation (Financial Times, Cat Rutter Pooley) suggests a way out for the shipping company in terms of its reputation but in the meantime Maritime inspectors detain second P&O ferry within days amid safety concerns (Daily Telegraph, Hannah Boland and Oliver Gill) shows that the company may have a more worrying issue to work out that could arguably affect its reputation more – safety! The drama continues…

Then in NatWest returns to majority private control as it buys back £1.2bn in shares (The Guardian, Jasper Jolly) we see that the bank has just bought back £1.2bn of shares from the UK government “just” 13 years after the government had to bail it out during the financial crisis. The government will still have a 48.1% stake but the sale price was 220.5p versus the price the government bailed it out at – 500p. Great for the bank, rubbish for us taxpayers!

5

...AND FINALLY...

…in other news…

As regular readers of Watson’s Daily will know, I’m all about bringing you the most important stories of the day. HP Sauce changes its iconic label for only second time in 123 year history (The Mirror, Zahra Khaliq) is clearly a case in point, as the design has had an important update. You heard it here (well, more accurately, in The Mirror 😁)! Then there’s a really cute reaction story in Grandad uses Alexa for the first time – and asks all the ‘real questions’ (The Mirror, Paige Holland). The expressions on the faces of the guys in this video are priceless!

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Some of today’s market, commodity & currency moves (as at 0756hrs 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 **
7,473 (-0.14%)34,955.89 (+0.27%)4,575.52 (+0.71%)14,354.9 (+1.31%)14,417 (+0.78%)6,589 (+0.54%)28,252 (+1.10%)3,204 (-0.33%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$105.31$111.85$1,924.421.310561.0053123.4631.1909547,566.8

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