Wednesday 06/07/22

1. In MACRO, GAS & COMMODITIES NEWS, we look at the Sunak/Javid aftermath, the gloomy Bank of England, South Korean inflation, Norway relenting in the face of oil and gas strikes and a proposed merger between Norilsk and Rusal
2. In CONSUMER TRENDS & RETAIL NEWS, US workers are getting midyear raises while in the UK, consumers are spending on travel and pubs, Tesco’s takes on Mars and Sainsbury’s disappoints
3. In TECH NEWS, EU lawmakers approve new laws while TikTok ditches the idea of ecommerce in Europe and the US
4. In MISCELLANEOUS NEWS, BYD>Tesla in China while UK car sales remain weak, Brookfield is downbeat about UK commercial real estate, UBS sublets its London HQ and DHL announces a UK expansion
5. AND FINALLY, I bring you a very black car and some banana ideas…

So BoJo faces major challenges, the Bank of England brings the gloom, South Korean inflation hits new highs, Norway calms down and two massive Russian commodities firms consider forming a behemoth…

📢 If you are interested in helping Watson’s Daily, we are going to be opening applications again for Watson’s Daily TODAY. Details will be on our Instagram from 5pm today! Watson’s Daily continues to evolve at a rapid pace and if you would like to be part of this, we would like to hear from you!

While we’re on the subject of Instagram, we’re holding a giveaway at the moment – so if you would like to be the proud owner of a Watson’s Daily mug and a £20 Amazon voucher then just follow the (very easy!) instructions! YOU’VE ONLY GOT UNTIL THE END OF PLAY TODAY to enter. It’s dead easy – what’s not to like?!?

How dramatic was all that last night?? Boris Johnson on the brink after Rishi Sunak and Sajid Javid quit UK cabinet (Financial Times, George Parker, Sebastian Payne and Jim Pickard) highlights the resignations of the chancellor and health secretary (this is the second time Sajid Javid has resigned under Boris Johnson – the last time, it was as chancellor when BoJo wanted him to ditch his team). Various junior government ministers also resigned and it is looking like it could be terminal for the PM, particularly if more ministers and MPs abandon ship. The main reasons for the exodus are exasperation with BoJo’s conduct and constant 🐂💩ing. * SO WHAT? * It’s very difficult to say what will actually happen here at the moment, but I am sure that there will be a lot of jockeying for position going on in the background as everyone squares up for a leadership battle. Much as though Johnson seems to love power, it looks like this whole sordid Pincher thing proved to be the final straw. Everyone and their dog will now be betting on who will be the next PM – my money’s on Sajid Javid (but obviously, I could be WAY off here!). I’m thinking non-Etonian, humble-background-done-good, twice resigned under BoJo (which should play well with the electorate) and the first non-male-stale-pale PM with a track record of senior government posts. For now, though, I wonder whether BoJo will try to divert attention by throwing out freebies like tax cuts and a reverse in the planned increase in corporation tax.

Given the dramatic events at No 10, Markets hit as Bank warns of gathering gloom (The Guardian, Phillip Inman and Graeme Wearden) might get a bit lost, but the Bank of England warned

yesterday that the economic outlook for the UK and global economy had “deteriorated materially” thanks to inflation putting increasing strains on household and corporate finances. However, markets fell not only on recession fears for the UK – but also for Europe, as the Euro hit its lowest point since late 2002.

Elsewhere, inflation continues to bite in South Korean consumer prices rise at quickest rate since 1998 (Financial Times, Song Jung-a and Christian Davies) as the Central Bank considers making its first ever 0.5% interest rate increase. Its CPI rose by 6% in June versus June 2021, up from 5.4% in May. * SO WHAT? * It is worth mentioning here that South Korea was the first major Asian economy to hike interest rates since the pandemic hit (it raised them in August last year) – so it’s not a case that they buried their heads in the sand like Jay Powell, Andrew Bailey and Christine Lagarde. Still, we’re here now, after the Bank of Korea’s five 0.25% rate rises and other countries in the region will be monitoring South Korea’s moves with interest. Separately, Australia’s central bank raised its interest rates for the third month in a row yesterday. It hiked them by 0.5% to take the benchmark to 1.35%.

Meanwhile, Norway’s government halts oil and gas strike (Financial Times, David Sheppard and Harry Dempsey) shows that the Norwegian government managed to convince oil companies and their workers not to go on strike, which had threatened oil and gas production at a time when Europe needs it most. It is just as well, considering UK gas prices hit three-month high as Norway workers strike (The Guardian, Alex Lawson) highlighted the effect the threat of striking had on gas prices. The prospect sent UK gas prices to three-month highs yesterday.

Then in Norilsk and Rusal in talks to forge $60bn Russian metals champion (Financial Times, Nastassia Astrasheuskaya and Neil Hume) we see that two big Russian nickel (Norilsk) and aluminium (Rusal) producers are thinking of combining to become a national powerhouse in metals that will be better able to withstand sanctions against Russia. If they went ahead, the resulting giant would be $5bn bigger than Glencore. Mind you, Norilsk/Rusal: odd pairing hints at peak for industrial metal prices (Financial Times, Lex) reckons that this is a merger from a position of weakness at both companies and that they have fundamentally different cultures. We’ll just have to see what happens here.

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!

US employers offer wage rises, we look at what UK consumers are spending money on and UK supermarket shenanigans…

In Bosses offer midyear raises to retain employees as inflation takes toll (Wall Street Journal, Chip Cutter) we see that some employers – including Exxon Mobil, PwC and Microsoft – are raising base salaries to keep employees and help them cope with rising inflation. * SO WHAT? * I don’t think this is a good idea. I think that companies’ wages bills will have to rise hugely in order to give them below-inflation percentage increases so I actually think that it would be a better idea to give employees a one-off bonus to help them because once you raise base salaries, it’s much more difficult to lower them. If the economy takes a dive, I think this makes companies more likely to just cut jobs. You could argue that jobs would have to be cut anyway, but then I’d say that more of them would need to be cut to meet any cost-cutting targets.

Interesting spending patterns continue to emerge in the UK as Travel and leisure spending fuels rebound in services sector (The Times, Mehreen Khan) shows that the S&P PMI for services – a sector that accounts for 80% of the UK’s GDP – rebounded more strongly than had been expected last month thanks to spending on travel and leisure, something borne out by Saga heads back to profitability after surviving choppy waters (The Times, Russell Hotten), which shows how cruises are recovering from Covid-lows and Young’s is no longer crying into its beer (The Times, Constance Kampfner) shows that we’re still spending on booze and eating out as Young & Co’s share price got a 10% boost yesterday by unveiling an “excellent start” to the financial year.

The supermarket vs suppliers battles are continuing in Tesco squares up to Mars Petcare over price of Whiskas (Financial Times, Jonathan Eley), which highlights Tesco’s ongoing fight against suppliers – this time with Mars Petcare, as it continues the bean fight with Kraft Heinz over proposed price rises. Mars Petcare is holding pets hostage as it withholds supplies of Whiskas, Dreamies, Pedigree and Cesar until agreement can be reached on price. * SO WHAT? * It’s quite interesting to see this sort of thing going on – but ultimately I think it’s just noise. Price rises are inevitable in the current climate and both sides need each other. Having said that, I do wonder whether it will prompt these consumer staples companies to look at ways to sell directly to customers, e.g. by a pet food subscription plan. Companies like Tails.com seem to be increasing in prevalence – so maybe it’s time for the big players in pet food to go down the same road. This would get them direct contact with their client base and cut out the middleman (supermarkets) in the process. If they are not already doing this, I think it would be worth getting behind this…

Then in Sainsbury’s sales fall as customers cut back spending (Financial Times, Jonathan Eley) we see that sales at Sainsbury’s disappointed over the latest quarter due to the squeeze on household incomes. Grocery shopping spend suffered, as did the appetite for big-ticket items at Argos. Tough times…

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!

EU lawmakers make progress and TikTok decides against e-commerce expansion…

EU lawmakers approve sweeping digital regulations (Wall Street Journal, Sam Schrechner and Kim Mackrael) is a really interesting article which talk about how the European Parliament approved two new pieces of legislation – the Digital Markets Act (which outlines new obligations regarding online messaging, digital advertising and apps) and the Digital Services Act (which covers obligations regarding illegal and harmful content as well as content moderation – that could potentially hit Big Tech hard. * SO WHAT? * I thought it was interesting to see this in an American newspaper rather than a European one (although it’s always possible that I missed it!) but the key is whether any of it will stick as Big Tech companies – who are really the targets of all this – have very deep pockets and access to top quality lawyers. Let the fun begin…

Then in TikTok abandons ecommerce expansion in Europe and US (Financial Times, Cristina Criddle) we see that TikTok has decided against expending its livestream commerce rollout (which has been hugely successful in China) in Europe and the US after the UK launch failed to ignite much consumer interest. “TikTok Shop” was launched here last year in its first market outside Asia and it was hoped that influencers flogging products whilst livestreaming would go down a storm in the same way it has done in its domestic market. It had originally planned a rollout in Germany, France, Italy and Spain in the first half of this year and then hit US shores later on. Interestingly, it said it would concentrate on sorting out the UK business (presumably to get it right and then roll it out if any progress has been made). * SO WHAT? * I still think that there is merit to this idea, which has been touted by some as the future of retail – and remember even old fuddy-duddy M&S said it had plans in this area! Maybe the latest TikTok news will be a boon to M&S, who will now potentially face a weaker competitor.

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!

BYD overtakes Tesla, UK car sales continue weakness and we look at developments in commercial property…

In a quick scoot around other interesting stories today, Tesla loses spot as biggest electric car seller (Daily Telegraph, Gareth Corfield and Howard Mustoe) shows that Chinese car firm BYD managed to triple production in just one year, delivering 641,000 cars in the first six months of 2022, almost 100,000 more than Tesla managed in the same time period. Tesla was toppled off its #1 EV maker in the world perch due to having to shut down for Covid lockdown reasons in Shanghai. Separately, BYD has also overtaken LG as the world’s biggest maker of batteries for EVs. BYD/Tesla: China’s carmakers gain ground as profitability is stretched (Financial Times, Lex) points out that BYD has benefited from keeping selling prices relatively low versus competitors meaning that its profit margins are pretty slim (their operating margin was 2% last year, versus Tesla on 12%, for instance). Still, ongoing success will very much depend on how BYD’s vehicles sell overseas. Meanwhile, back in the UK, Booming electric car market can’t disguise new car sales slump (The Times, Robert Lea) shows that although sales of EVs continue to be strong, they can’t disguise the fact that overall new cars sales are weak, according to the latest SMMT data.

In commercial property news, Property set to cool as investors face ‘new paradigm’, Brookfield warns (Financial Times, George Hammond) shows that Canadian private equity firm Brookfield, a real estate specialist, reckons that deals are likely to dry up, hitting valuations as the world economy frets about interest rates and recession. It said that banks are being more selective about who they lend to, meaning that transactions volumes are also likely to decrease. Another downer will come when landlords come to refinance mortgages, which are getting more expensive as interest rates rise. Meanwhile, UBS sub-lets part of London HQ as staff work from home (Daily Telegraph, Patrick Mulholland) shows that UBS is going to be subletting two floors of its London HQ because, after all this WFH malarkey, it has found that it doesn’t need all the space! Maybe this is something that others in the same position will follow…

Finally, DHL to add new depots and create over 4,000 jobs in UK expansion (The Guardian, Julia Kollewe) shows that warehousing and logistics are alive and well as the company said it would invest £482m in the UK, with £190m of that being allocated to 10 new collection and delivery depots and the expansion of 20 more existing sites.

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…

A lot of people like to stand out from the crowd – and I think that having your car painted like this would certainly turn a few heads: World’s blackest Porsche painted with Japan’s Musou Black (SoraNews24, Master Blaster). This looks very weird! And in an homage to the new Minions movie (which I saw on the weekend – entertaining, but not quite as good as my fave in the franchise, Despicable Me 2), I thought I’d include Japanese banana importer teaches us how to enjoy bananas and fight heatstroke at the same time (SoraNews24, Shannon) as there are some actually quite good ideas in there!