Wednesday 17/08/22

  1. In COMMODITIES & ENERGY NEWS, BHP benefits from rising coal prices, gas prices jump, the EU digs for lithium and Germany does a U-turn on nuclear
  2. In EMPLOYMENT & CONSUMER TRENDS NEWS, wages crater, job figures calm down, hospitality loses 200k overseas workers and what consumers watch evolves
  3. In RETAIL NEWS, Bed Bath & Beyond’s shares triple, Walmart and Home Depot reassure, Ted Baker closes in on a sale and Aldi is set to overtake Morrisons
  4. In MISCELLANEOUS NEWS, Apple wants more office “facetime” and WeWork’s founder rises again
  5. AND FINALLY, I bring you some rather unusual baby names…

1

COMMODITIES & ENERGY NEWS

So China cuts, we look at what might happen with Taiwan, the Rhine’s level falls further, Kosovo faces blackouts while oil and metal prices weaken…

📢 Just so you know, I’m going to be going on holiday (for the first time in ten years!) from the end of this week. I will be writing Watson’s Daily as normal until this Friday but will be having a social media (and podcast) “posting holiday” until returning on Tuesday 30th August. There will be a lot of work going on behind the scenes until then, though – so keep watching this space! That said, I did do a special podcast edition this weekend with Ralph on our thoughts for the final quarter of this year, so I would recommend you give this a try as we cover politics, economics and energy policy. Please note that there is a small chance that I will have to publish tomorrow’s Watson’s Daily later on in the day.

Soaring coal prices help miner BHP pay record dividend (Daily Telegraph, Rachel Millard) shows that a 26% rise in annual profits for the world’s largest miner gave it the confidence to announce a record annual dividend for shareholders of $3.25 per share. Most of BHP’s coal is used for steelmaking, but it also produces coal that is used in power stations. Interestingly, it was planning on selling the mines that produce this coal in order to cut carbon emissions but it will now keep them as it can’t find a buyer. Other miners including Glencore and Thungela Resources have, rather unsurprisingly, also benefited from rising coal prices as everyone scrambles to do what they can to generate energy.

Supply fears push gas to record high (The Times, Emily Gosden) shows that wholesale energy prices increased across the Continent and in the US due to increasing concerns about the impact of weaning ourselves off Russian energy. This is happening just as French nuclear reactors shut down for much-needed maintenance and droughts threaten other sources of energy, particular hydroelectricity. Electricity for the coming winter in Britain is trading a a record £600 per megawatt-hour after rising by almost 50% in the last month. Just to give you an idea of scale, winter power prices are going to be about 12 times higher than average power prices over the last decade! Tough times ahead for all of us…

EU digs for more lithium, cobalt and graphite in green energy push (Financial Times, Sam Fleming, Alice Hancock and Peter Wise) shows that the European Commission is looking at lowering regulatory barriers to mining and production of key materials including lithium, cobalt and graphite used in wind farms, solar panels and electric vehicles. This is all part of a wider effort to wean the bloc off raw material imports and, given that the EU’s Joint Research Centre reckons that lithium demand is likely to be almost 60 times current levels by 2050, you can understand the sense of urgency! * SO WHAT? * This is a fascinating area as there are clearly difficulties in developing mines in a densely populated European continent and mines concentrated in Portugal, the Balkans and Scandinavia currently face a lot of environmental hurdles. I suspect it is going to be fiendishly difficult (if not impossible) to strike a balance between environmental concerns and the urgent need to find raw materials closer to home (and from more stable countries). Isn’t it ironic that in order to be kinder to the planet we are having to damage it more?!?

Meanwhile, Germany backtracks on nuclear to keep plants open and lights on (Daily Telegraph, Tim Wallace and Rachel Millard) shows that the country is now trying to keep its three remaining nuclear plants open for longer in a bid to keep electricity flow going. They had been due to close down at the end of this year and permission for an extension to operate is yet to be agreed. * SO WHAT? * Germany had promised to phase out nuclear energy in the wake of the Fukushima disaster of 2011, but things have changed rather a lot since then. It imported about 50% of its gas from Russia pre-Ukraine war and is now racing to fill gas storage sites ahead of winter. It’s aiming to get them 95% full by November 1st and they are currently at 75%. German business leaders are getting increasingly panicky, according to the latest monthly ZEW survey, which shows that sentiment is currently at its lowest ebb since the financial crisis!

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!

2

EMPLOYMENT & CONSUMER TRENDS NEWS

Wages fall sharply, job figures calm down, hospitality suffers an exodus and telly-watching habits evolve…

Biggest wage fall on record as inflation crushes pay (Daily Telegraph, Tim Wallace) cites the latest depressing figures from the Office for National Statistics which show that, after inflation is taken into account, real wages have fallen by 4% to send pay back to levels last seen in 2006. The situation is likely to get worse when energy bills rise in October and January and it is worth noting that the higher cost-of-living has prompted record numbers of the over-65s to return to the workplace over the quarter. Wages crash despite record job vacancies as fears mount (Daily Telegraph, Lucy Burton and Szu Ping Chan) observes that a tight labour market and rising wages aren’t really helping workers that much due to the even stronger trend of rising inflation. * SO WHAT? * I think that various phenomena will come into play as we head into the end of the year that will calm things down – increasing worries of workers about the macroeconomic situation, rising resistance of companies to new joiners on fat salaries that will p!ss off the existing workforce and weakening demands for WFH as employees try to put in more face-time with the company to lessen their chances of being made redundant when the cuts inevitably come. Maybe we are already seeing a sign of the situation calming down as Job figures ease fears over wage-price spiral (The Times, Mehreen Khan) highlights the bit of the Office for National Statistics’ report which says that although the 3.8% unemployment rate has remained unchanged the number of open vacancies has slowed down – the first time this has happened for two years.

UK hospitality industry loses nearly 200,000 overseas workers (Financial Times, Oliver Barnes) shows what an uphill climb the hospitality industry has facing it as stats from Caterer.com show that the number of EU citizens employed by the hospitality sector

has fallen by around 41% versus the pre-pandemic total. When you consider that foreign staff have, in the past, made up over 40% of the workforce in the hospitality sector, it’s easy to see how dire the situation has become. * SO WHAT? * Large tracts of the hospitality industry have been decimated over the course of the pandemic and the combined pressure of rising wages, utility bills, raw ingredient costs and an increasingly thrifty customer base will undoubtedly push many over the edge. Brexit has clearly made a difference and the government is obviously sticking to its line of saying that it wants employers to make long-term investments in the UK’s domestic workforce.

Meanwhile, UK’s young adults spending more time on TikTok than watching TV (Financial Times, Alex Barker) shows that the 16-24 age group is spending more time on TikTok than watching broadcast TV (and unsurprisingly, the over-65s are spending longer on the latter), according to the latest Ofcom reports conducted by Ipsos and BARB. It is interesting to note that the younger age group still holds public service broadcasters in high regard but they are just consuming less while streaming services are increasing their reach. Interestingly, given the current squeeze on household incomes, 600,000 UK families ditch Amazon Prime (Daily Telegraph, Ben Woods) highlights Ofcom’s Media Nations report which shows a 5% fall in the number of Amazon Prime subscribers over Q2 this year, versus the 1% who cancelled subscriptions to Netflix. * SO WHAT? * While I find the young people/TikTok thing unsurprising, I do find the drop in Amazon Prime a bit of a turn up for the books. I have always been of the opinion that Amazon Prime would be “stickier” as it doesn’t JUST provide TV and Movies – it provides many other benefits. It will be interesting to see whether Amazon puts more effort into making deliveries noticeably different to the shorter deliveries enjoyed by Amazon Prime members as a way of getting people back…that’s one of the things I’d do if I was in charge 😜.

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!

3

RETAIL NEWS

We take a look at some US and UK retail trends…

In America, Bed Bath & Beyond shares surge despite liquidity concerns (Wall Street Journal, Jodi Xu Klein, Soma Biswas and Andrew Scurria) shows that the home-goods company saw its share price rocket by 70% in trading yesterday before settling at 29% up on the day despite recent analyst warnings of the company being in some kind of valuation fantasy. The retailer has been trying to maintain supplier and investor confidence in the face of the tricky macro conditions that everyone is facing. * SO WHAT? * This all sounds rather tenuous to me and potentially ripe for a correction given the amount of scepticism in the market. I think that even if it gets the loan it’s after, once the euphoria has died down investors will be focused on the fundamentals again. The current economic backdrop does not scream the need to buy a home goods retailer IMO!

That said, Walmart and Home Depot ease fears of recession even as inflation persists (Financial Times, Andrew Edgecliffe-Johnson and Alexandra White) highlights decent performances from two of America’s biggest retailers as they reported solid consumer spending in the face of food and fuel price inflation. Walmart even said that it had seen signs of improvement in recent weeks and Home Depot said that spending on home improvements had been “incredibly high”! * SO WHAT? * This is pretty amazing as Home Depot reported its highest ever quarterly sales and earnings while Walmart put in this performance after having issued two recent profit warnings! Walmart: bargain bragging rights will help store chain as inflation rips (Financial Times, Lex) is of the opinion that the world’s biggest retailer is now better placed to sell the groceries and essential goods customers want through a recession after addressing previous inventory issues (they had too much). 

Back in the UK, Ted Baker agrees takeover by US Reebok owner (The Guardian, Mark Sweney) shows that the troubled apparel retailer has agreed to a reduced £211m takeover by Authentic Brands Group (ABG), which owns Reebok, among other brands. * SO WHAT? * The offer is way below the original one ABG made in May (current offer 110p per share vs the original one at 160p per share) and it is now up to the shareholders as to what they want to do. Despite this “discount”, the offer price is still 18% higher than the share price was at on Monday. Founder Ray Kelvin will no longer be involved in the privatised company, but it sounds like he’s leaving the door open to a fashion comeback in the future…

Then in Aldi on track to overtake Morrisons as fourth largest supermarket (Daily Telegraph, Laura Onita) we see that the German discounter managed to increase its market share to 9.1% over the latest quarter versus the same period a year ago as Morrisons lost ground, going from 10% to 9.3%, according to the latest figures from Kantar. * SO WHAT? * It’s interesting to note that, since their entry into the UK market in the 1990s, the combined market share of Aldi and Lidl has grown to 16.1%. Morrisons has definitely lost its mojo, particularly since it was bought for a very hefty price tag last year by US private equity firm Clayton, Dubilier & Rice. Will it come back or have to bow to the inevitable and lose its place in “The Big Four”?? FWIW, I think Morrisons is toast. CD&R spent a huge amount of money on buying it, reducing the potential upside and I haven’t really seen any kind of growth plan thus far. I am thinking that it will sell off the real estate (as per the original plan?) and then wield the axe on cost cutting, whilst using current economic circumstances as an excuse.

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!

4

MISCELLANEOUS NEWS

Apple gets serious and WeWork’s “guru” comes up with another plan…

In a quick scoot around other interesting stories today, Apple tells staff to be at desk 3 days a week (Daily Telegraph, Simon Foy) shows that Apple has ordered staff to get to their offices after a year of hybrid working. They will have to come in on Tuesdays and Thursdays plus another, starting on September 5th. * SO WHAT? * I’m going to be blunt here, but I think that there are many people who would sell their own body parts to work at a place like Apple, so whingers who don’t realise how lucky they are will be easily replaced by those who are very eager to be there. This is going to become more acute as cost-of-living hits and unemployment rises. Three days in the office is still a pretty good deal IMO, so we’ll see how employees react soon enough. I’d say good luck at getting a job elsewhere in tech as all the big places seem to be cutting staff already. I don’t think Apple will be the only one taking this action – and if other companies follow suit there will be fewer opportunities for leavers to go to.

Then in Andreessen Horowitz backs WeWork co-founder Adam Neumann’s real-estate startup Flow (Wall Street Journal, Berber Jin) we see that VC firm Andreessen Horowitz is investing $350m in Flow, giving the start-up an implied valuation of over $1bn – not bad for a company that was started at the beginning of this year! Flow is designed to address problems in the rental housing market where renters can’t own equity in their homes and the absence of “community” between neighbours. * SO WHAT? * All I have to say here is that I hope Neumann is not full of 💩 like he was with WeWork which saw its valuation drop from the dizzy heights of the touted $47bn to $4bn burning many investors in the process. Will he re-employ all his family members and mates and keep wearing those ridiculous slogan t-shirts again 🤣? Who knows, maybe this idea will prove to be style over substance and that he won’t burn everyone again while he did pretty well out of it himself. Flow is expected to launch its services in 2023. Let’s hope that Andreessen Horowitz is wearing a flame-retardant suit…

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!

5

...AND FINALLY...

…in other news…

I remember it was quite a few years ago now that we had to name our first child. I had put it off for ages but in the end my wife thrust a baby-names book into my hand before I got on the Eurostar and told me I had to choose some names on my business trip or else! I went through it and came up with a list of my “top ten” preferred names and then cross-referenced them with hers – and fortunately our top choice coincided! Job done! However, not everyone does it like that: Top baby names parents Google to check if they’re socially acceptable (The Mirror, Saffron Otter) goes to show that some parents really like to push the envelope when it comes to naming their kids. If you feel have to Google search “Can I name my baby Batman?” then I think you may have serious issues…

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Some of today’s market, commodity & currency moves (as at 0633hrs 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 (+0.36%)34,152.01 (+0.71%)4,305.2 (+0.19%)13,102.55 (-0.19%)13,910 (+0.68%)6,593 (+0.34%)29,224 (+1.23%)3,293 (+0.45%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$87.269$92.766$1,779.971.211681.01780134.1321.1904924,129

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