Wednesday 02/02/22

  1. In MACRO & OIL NEWS, the market bets on ECB rate rises, UK inflation is powered by snacks and Exxon rides high
  2. In CONSUMER & RETAIL NEWS, the US job market stays tight while consumer confidence wanes and in the UK, house prices have a strong start to 2022 and get powered by the chase for 10-year mortgages while demand is expected to slow, Amazon employs tons of workers, M&S and Aldi reach a truce, Tesco cuts the night shift and Joules has a shocker
  3. In AUTOMOTIVE NEWS, Tesla has bad news, GM powers through and Aston Martin commits to a more electric future
  4. In INDIVIDUAL COMPANY NEWS, Google booms on advertising and Starbucks sees higher sales
  5. AND FINALLY, I bring you some interesting Facebook news and possibly one of the most beautiful Starbucks you’ll ever see…

1

MACRO & OIL NEWS

So markets bet on the ECB changing its mind, UK inflation gets a snacks boost and Exxon reports bumper profits…

Markets signal expectations of at least two ECB rate rises in 2022 (Financial Times, Tommy Stubbington and Martin Arnold) shows that markets are increasingly minded to think that the ECB will have to take its head out of the sand and pay attention to rising inflation, more evidence of which we saw yesterday in Germany and Spain. Traders now expect at least two 0.1% rate rises, but thus far there has not even been a sniff of the ECB moving its zero-interest rate policy. With the Eurozone’s members experiencing ongoing inflation, the US making clear signals of its intentions about hiking rates to combat rising prices and the UK actually having already raised the interest rate in December with, it is said, another rise on the way, the pressure continues to intensify on Christine Lagarde and chums. If it did raise rates, it would be the first time to do so since 2011!

Meanwhile, Snacks help put inflation on fast track (The Times, Arthi Nachiappan and Ashley Armstrong) shows that the rate at which prices are going up in shops has almost doubled in the space of one month (+1.5% in January versus +0.8% in December) according to the latest figures from the British Retail Consortium and NielsenIQ. This is the highest rate since December 2012 and was powered by massive demand for furniture and flooring along with other non-food items, while food prices also continued to tick upwards. * SO WHAT? * Inflationary pressures continue to build – and we’ll see soon enough (tomorrow!) whether the Bank of England is going to step up and raise interest rates again to take the edge off inflation.

Then in Exxon registers highest profit since 2014 after boost from oil and gas prices (Financial Times, Justin Jacobs) we see that the US oil supermajor posted its highest profits since 2014 on the back of stronger-for-longer oil and natural gas prices. Its Q4 profit was way higher than market expectations. This follows just one week after Exxon’s main US rival, Chevron, also unveiled a strong set of numbers. It has recently committed to reaching net zero emissions by 2050 and said that it is actively seeking out acquisitions of low-carbon businesses to boost its low-carbon division.

2

CONSUMER & RETAIL NEWS

US consumers are in a tight job market, but confidence is having a wobble while UK consumers are facing property price rises and retailers have a bumpy ride…

US still struggling to fill job openings as labour market tightness persists (Financial Times, Peter Wells) cites the latest data from the US labour department which shows that demand for workers and employee turnover continued to ride high at the end of 2021 but then Consumer pessimism grows as inflation accelerates (Wall Street Journal, Danny Dougherty and Andrew Barnett) shows that even confidence in your employment situation and rising wages aren’t enough to keep the doubts at bay regarding household finances. A study from the University of Michigan, for instance, showed that 41% of consumers said that high prices deterred them from making big purchases in December. These sorts of findings will give Fed chief Jerome Powell even more fuel to power an imminent interest rate rise to rein in higher prices.

Meanwhile, back home, UK housing market records strongest January since 2005 (The Guardian, Julia Kollewe) shows what consumers are facing should they want to partake in the property market as the UK’s biggest building society, Nationwide, reported stellar annual house price growth of 11.2%. This could get a further ongoing boost in Home buyers race to secure 10-year fixed-rate mortgages (Daily Telegraph, Melissa Lawford and Rachel Mortimer) as the number of home buyers taking out 10-year fixed rate mortgages has more than tripled since December, according to mortgage data firm Twenty7Tec, as they try to lock in low rates ahead of expected interest rate rises but House price growth to slow as cost-of-living crisis bites (Daily Telegraph, Lauren Almeida) takes the Nationwide figures and highlights the expectation that prices will continue to rise, but at a slower pace. Would-be house buyers face drags on their efforts to scrape together a deposit in the form of higher utility bills, rents and rising prices generally – not to mention affordability being off the charts. * SO WHAT? * It’s a really tough market out there but consumers are still desperate to buy while interest rates are low. It’ll be interesting to see how much effect a few consecutive interest rate rises will have on this red-hot market.

As far as the retailers themselves are concerned, Amazon adds 25,000 workers in UK to handle Covid sales boom (Financial Times, Daniel Thomas) shows just how much Amazon has benefited over the course of the pandemic as it recruited 15,000 more British workers than it expected to in 2021 due to the sky-rocketing demand for home deliveries and digital services. The e-tailing behemoth now employs around 70,000 in the UK across its warehouses and deliveries business along with its corporate and R&D functions. The company will today announce the creation

of 1,500 apprenticeships in the UK this year. * SO WHAT? * Love it or hate it, Amazon is here to stay – and it also seems to be here to employ as well. With business lines and revenue streams deepening and broadening into pretty much every area of our lives, it is not surprising to see that this expansion needs a lot of people! I think that the only way that its wings could be clipped is major intervention by regulators, but I really don’t see that happening any time soon.

Then in M&S and Aldi make peace in Colin and Cuthbert cake war (Financial Times, Ian Johnston) we see that the two retailers have called a truce to their cake war after M&S settled out of court. M&S launched a legal action last year over the design and packaging of its “Cuthbert the Caterpillar” cake, citing major similarities with its own, much loved, “Colin the Caterpillar” cake. Fun fact: “Colin the Caterpillar” has been on sale at M&S since 1990 and has sold over 15m cakes in the interim period! * SO WHAT? * I guess that if you fly close to the sun you’re going to get burned. The fact is that Colin is extremely successful for M&S and Aldi is notorious for its look-a-likey products. Doesn’t it seem that M&S is really on a (caterpillar) roll at the moment??

Meanwhile, things are not so upbeat in Tesco ditches night shifts at 120 sites, putting 1,500 jobs at risk (The Guardian, Sarah Butler) as Britain’s #1 supermarket is cutting costs by axing night shifts in over 80 stores and almost 40 petrol stations. This news comes one day after it said that it would close down its Jack’s discount chain. * SO WHAT? * I used to do the night shift stacking shelves when I was a uni student because it paid extremely well, so I can see why Tesco is axing this! The thing is that, in a bid to reduce costs, supermarkets are cutting out all sorts of things like in-house bakeries and delicatessens which, to me, feels like it could lead to all of the supermarkets just being the same. At least Aldi and Lidl have their middle aisle and, in the latter’s case, excellent bakery to keep shoppers enthused about grocery shopping. What are the likes of Tesco, Sainsbury’s etc. going to do? Might as well just shop online, no?

On the high street, Share price crash at Joules after second profit warning (The Times, Ashley Armstrong) highlights a massive 40%+ fall in the company’s share price as it cited sluggish footfall, supply chain problems and higher-than-expected warehousing costs as the main reasons behind its profit warning. * SO WHAT? * What an absolute nightmare! I really do think that this company needs a major management reshuffle as their performance over the pandemic has been absolutely shocking. All apparel retailers are facing the same problems, but it seems to me that they are just dealing with them in a better way (Next is a case in point). Demand is strong for Joules’ products and the company was a stock market winner not so long ago, but it is in dire straits at the moment. Can it recapture former glories?

3

AUTOMOTIVE NEWS

Tesla has some bad news, GM’s earnings rise and Aston Martin is to phase out combustion engine-only cars…

After a period of pretty positive newsflow for the company, including last week’s triumphant results, Tesla recalls 50,000 cars as software snubs ‘stop’ signs (Daily Telegraph, James Titcomb) shows that the EV specialist is having to fix over 50,000 cars in the US as its self-driving software made some of its vehicles miss stop signs! The National Highway Traffic Safety Administration (NHTSA) announced that Tesla would be doing this via a free software update delivered over the internet. It applies to cars that have the full self-driving software installed – a $10,000 option. * SO WHAT? * Is having your own autonomous car really worth the hassle?? I can see why you might go down this road if you are frail or don’t have a

driving licence, but for all the hassle, surely it’s better just to leave self-driving to public transport or something (for now at least). This will be a bit of a blow to Tesla’s credibility and may make some prospective buyers think twice, but it will probably make them less likely to buy the option rather than less likely to buy the car.

Elsewhere, GM earnings rose sharply in 2021 (Wall Street Journal, Mike Colias) highlights strong earnings in 2021, but won’t start paying a dividend just yet because it wants to prioritise spending on EVs (an area that it wants to accelerate progress in) and other growth areas. Interestingly, it said that its majority-owned driverless car start-up Cruise is now offering free taxi rides to the public in San Francisco!

Then in Aston Martin to phase out combustion engine-only cars by 2026 (Financial Times, Peter Campbell) we see that the luxury carmaker is also jumping on the EV fun bus by outlining intentions to sell only electric or hybrid cars within four years! It said that it wants to launch plug-in hybrid models in two years and fully electric cars by 2026.

4

INDIVIDUAL COMPANY NEWS

Google gets an ad boost and Starbucks sells quite a lot of coffee…

Google defies tech gloom with record profit (Daily Telegraph, James Titcomb and Sam Benstead) highlights Alphabet’s success as sales in Q4 were up by 32% more than they were in the same quarter of 2020 and profits increased by 36% over the same period. The company also announced a 20-for-1 stock split (this is where a stock gets split into 20 pieces but is worth the same. For instance if one share was worth $100, under this particular stock split, you would get 20 $5 shares in the same company. This just makes it easier for retail investors to get involved). Stock splits often give share prices a little boost as retail investors get involved. The strong results were driven by rising ad spend, which is the company’s most important business. * SO WHAT? * This is all good for the tech giant and it was actually the best performing Big Tech stock last year – better than Apple, Meta, Amazon and Microsoft. Is

there more to go here or will its revenues tail off? I am of the mind that Microsoft has more potential, but we’ll see what happens this year regarding regulation and investigation of Big Tech. 

Then in Starbucks sales rise as cost pressures increase at the coffee chain (Wall Street Journal, Heather Haddon) we see that the coffee purveying giant put in a solid performance but the shine was taken off somewhat by rising coffee prices, wage costs and inflation. It’s China business suffered particularly badly from China’s zero-Covid policy at the end of last year hurting footfall. On the one hand, it has raised prices, which have taken some of the squeeze off margins – but the company is not out of the woods yet. On the other hand, it cut its full year forecasts to take into account inflation, wage costs and contingencies for further Covid-related disruptions. * SO WHAT? * I think it’s right that the company is cautious given how much movement restrictions dent the company’s earnings. Covid variants are bound to pop up from time to time so as long as countries impose restrictions there’s always going to be a cloud hanging over Starbucks’ financials.

5

...AND FINALLY...

…in other news…

I thought that Mark Zuckerberg warns against taking screenshots of Facebook Messenger chats (The Mirror, John Bett) was quite interesting as it appears to be Facebook actually trying to protect your privacy rather than invade it (!) and Beautiful Starbucks in Kyoto blends into its traditional landscape in more ways than one (SoraNews24, Oona McGee) highlights a pretty amazing coffee shop! I bet your local one doesn’t look quite like this!

Watson's Daily is a hard-working start-up striving to help people get a better understanding of the business world. I would really appreciate your involvement in spreading the word and recommending it to your friends, colleagues, relatives etc. by clicking and sharing on the links below. Please help me to help you and I will throw in a small thank-you!

Some of today’s market, commodity & currency moves (as at 0754hrs 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 **
7,536 (+0.96%)35,405.24 (+0.78%)4,546.54 (+0.69%)14,346 (+0.75%)15,619 (+0.96%)7,099 (+1.43%)27,534 (+1.68%)HOLIDAY
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$88.23$89.17$1,795.551.35298$1.12750114.6601.1998638,244.71

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