Wednesday 18/01/23

  1. In MACRO & OIL NEWS, the IMF gets optimistic (and FMs agree with them!), Europe appeals to the US, Scholz says Germany will avoid recession and Total coughs up
  2. In CONSUMER, RETAIL & REAL ESTATE NEWS, UK wages continue to lag inflation while Ocado, THG and Paperchase have a ‘mare, HSBC cuts mortgage rates and Crest talks its own book
  3. In FINANCIALS NEWS, Goldman Sachs sees its profits drop, Morgan Stanley edges ahead, Citi gets tough and Wise suffers
  4. In MISCELLANEOUS NEWS, social media bosses could face jail, Twitter’s in a pickle, Microsoft plans layoffs whilst getting positive about OpenAI and Britishvolt falls into administration
  5. AND FINALLY, I bring you the most epic breakfast in bed…

1

MACRO & OIL NEWS

So the IMF gets more positive, Europe appeals to the US, Germany reckons it’ll avoid recession and Total pays out…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

In IMF signals upgrade to forecasts as optimism spreads at Davos (Financial Times, Chris Giles, Katie Martin, Stephen Morris and Simon Mundy) we see that the deputy MD of the IMF indicated that the fund would upgrade its economic forecasts due to expectations of a pick-up in H2 this year that will continue into 2024. This view has been gathering momentum after positive data releases from Europe and the US (and this morning we saw that GDP growth slowed down slightly versus the previous month in the UK) – and Germany will not fall into recession, insists Scholz (Daily Telegraph, Eir Nolsøe and Szu Ping Chan) shows that

Germany’s chancellor is getting pretty positive after having stared down the barrel of an energy crisis gun. He has reason to be positive as his swiftly-build LMG terminals will have given him some confidence that Germany won’t actually grind to a halt (that said, the IMF reckons it will fall into recession this year). Fund managers find cheer in outlook (The Times, Ben Martin) cites the latest Bank of America survey which says that a net 50% of fund managers polled this month said they thought the economy would be weaker in the next 12 months (this is actually moving in a positive direction) and that fears about a global recession had dropped to a six-month low thanks to China’s economy waking up from its Covid lockdown-induced slumber. Still, Europe wants slice of US green subsidies (The Times, Mehreen Khan) highlights other things that are going on at the World Economic Forum in Davos at the moment – one of which is that Europe wants some of the money that the Americans are dishing out as part of their Inflation Reduction Act (IRA) because it doesn’t want European companies to up sticks and head stateside. Understandably, the Americans aren’t having any of it (at the moment, anyway) because a) it’s a winning formula for them and b) even if it wanted to, changing the existing bill will entail reopening the legislation and then pushing a vote through a divided Congress and Senate. Too much hassle. At the moment it seems like European Commission chief Von der Leyen has had to resort to begging while the Commission passes its own legislation designed to accelerate the granting of licences and permits for green tech firms and relax state-aid rules. In the meantime, companies will definitely be tempted to head to America!

Then in Total signals $1bn hit from UK windfall tax (Financial Times, Sarah White and Tom Wilson) we see that France’s TotalEnergies said it reckoned it will absorb a $2.1bn hit from windfall taxes in the UK and EU on its earnings for 2022. Half of that will be from Britain, where it is currently the second-biggest oil and gas producer in the North Sea. Mind you, it did say that it would slash its North Sea investments for 2023 by £100m as a direct result of the taxes. It remains to be seen as to whether others in the North Sea will follow suit in cutting direct investments there for the same reason.

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

CONSUMER, RETAIL & REAL ESTATE NEWS

Wages can’t keep up, retailers face challenges and there is growing optimism in residential…

Real-terms pay falling at fastest rate for more than 20 years (The Guardian, Richard Partington) cites the latest ONS data which says that average pay in the UK fell by 2.6% in real terms in the three months to November, among the largest drops in growth since records began in 2001! The only bigger drop happened during the pandemic. The headline number says that annual growth in regular pay excluding bonuses – and not adjusting for inflation – was 6.4% over the quarter for all workers, 7.2% for workers in the private sector and 3.3% in the public sector. No wonder public sector workers are striking!

Some retailers are having a hard time at the moment. Ocado suffers first drop in sales as shoppers turn to Aldi and Lidl (Daily Telegraph, James Warrington and Tom Haynes) shows that the online grocery retailer posted its first ever annual fall in grocery sales as people returned to shops after lockdown and went bargain-hunting in Aldi and Lidl. Aldi’s market share shot up from 7.7% to 9.9% in the run-up to Christmas and Lidl’s from 6.3% to 7.2%, with Ocado’s steady at 1.7%, according to Kantar. Ecommerce group THG cuts profit forecast for fourth time within a year (Financial Times, Jonathan Eley) shows that THG has cut its profit forecasts for the fourth time in 12 months and cut 2,000 jobs as its B2C business of flogging beauty and nutrition products has come under increased pressure from higher raw material costs and contract timings last year. The-company-formerly-known-as-The-Hut-Group has seen its shares drop by a whopping 87% since its much-hyped IPO in September 2020 and this was the company’s fourth profit downgrade in the past 12 months. It sounds like it’s dying a slow death…talking of which, High Street stationary chain Paperchase on brink of collapse (Daily Telegraph, Chris Price) shows that the chain has administrators ready as it tries to find a buyer. Paperchase has over  100 stores and 820 staff and has brought in Begbies Traynor and PwC to advise on options, one of which includes a pre-pack administration. If it fell into administration (you notice there that I resisted the urge to say “if Paperchase folded”. See – I can be grown-up), it would be for the second time in two years. * SO WHAT? * I have to say that I don’t particularly rate THG or Paperchase at the moment as they just face too much competition from online rivals and don’t, to my mind anyway, offer much in the way of uniqueness or attractiveness on price. Ocado is a bit different in that maybe it suffered from its own hype and that investors put too much faith in lockdown behaviours

(shopping online) continuing when “normal” life resumed. I still think that Ocado has a lot to offer re the exporting of its tech and that its partnership with M&S will help pull it through the bad times.

Elsewhere, it was interesting to see HSBC cuts rates on 100 mortgage deals as chaos subsides (Daily Telegraph, Rachel Mortimer) as the bank responded to markets calming down after the mini-Budget shock last year. Santander has also cut some of its fixed mortgage rates to help drum up business, as has Yorkshire Building Society and others. A mortgage price war between lenders has cut the average two-year fixed rate to 5.58%, its lowest since October 2nd and much lower than the end of October 6.65% peak. Although builders like Barratt and Persimmon have been notably downbeat about the market’s prospects recently, Doomsters are wrong, Crest chief says (The Times, Tom Howard) cites the CEO of Crest Nicholson as saying that “the tide is turning” and that the market is now showing signs of life after a tricky end to last year. He reckons that the market will recover from spring and is putting his money where his mouth is by buying more land, something others are stepping back from. * SO WHAT? * I think we’re in a funny old situation at the moment. Many people are suffering deeply in this cost-of-living crisis while those at the other end of the scale are spending with abandon. Then you have wages rising (but not keeping up with inflation) while we’re being told that some younger people are getting paid well but not having to shell out for things like rent because they’re living with parents (and so could potentially save for a deposit if they’re not frittering it all away on trainers at JD Sports or on luxury goods!). Those at the bottom of the housing ladder aren’t getting Help to Buy, affordability is off the charts and there’s a possibility that property prices will go higher as there’s just a lack of supply – although that could change if unemployment increases and owners become forced sellers or if homeowners can’t pay vastly increased mortgage costs when they come off their fixed rates in the coming months, both of which could lead to a sudden increase in properties on the market. If would-be buyers shy away from buying, unless they are staying with parents, they most definitely will face rising rents because of the lack of landlords both now and going forward (the Bank of England recently said it was going to clamp down on buy-to-let mortgages, for instance, which will lead to fewer landlords and rising rent as a result) and so could argue that they might as well buy because even if it’ll be expensive, they will get some equity in their property and the clarity a fixed rate mortgage would bring. Whilst there is a very real risk of negative equity if you buy now, if you just want to put down roots I can see why people would be tempted to do so – however, I would say that this is, to my mind, more laden with risks than when we are under “normal” circumstances.

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

FINANCIALS NEWS

Goldman loses to Morgan Stanley this time around, Citi gets strict and Wise suffers…

Decline in dealmaking knocks two-thirds off Goldman’s profits (The Times, Callum Jones) shows that Goldman Sachs’ results undershot analysts’ earnings forecasts by the widest margin in over a decade as its profits dropped by a massive 66% in the final quarter of last year thanks to the lack of M&A deals. Goldman Sachs: market leader’s cyclicality makes it market laggard (Financial Times, Lex) touches on its disappointing foray into consumer finance that had been masked by its traditional strengths in institutional securities while Morgan Stanley retains edge over Goldman Sachs due to booming wealth unit (Financial Times, Joshua Franklin and Brooke Masters) shows that Morgan Stanley’s expansion into wealth and asset management was more successful at being able to paper over the cracks of the trading and advisory business that suffered, like everyone else, from a lack of deal flow. * SO WHAT? * The fact of the matter is that trading and investment banking revenues can be very volatile. In Goldman’s case, it decided to diversify into commercial banking (with its Marcus business, for instance, which last year it started to “de-emphasise”) to address this – but it turns out that this hasn’t worked out for them. In Morgan Stanley’s case, it decided to go down the route of wealth management to cut the volatility – and it has worked out nicely! It just goes to show that no matter how good you are, you can’t get it right all the time! 

Then in Citi hauls unproductive bankers back to the office (Daily Telegraph, Simon Foy) we see that investment bank Citigroup is clamping down on employees it deems to be getting too

comfortable working from home in their onesies. Chief exec Jane Fraser said that most employees were in the office three days a week but those who are getting a bit workshy are getting called out and back into the office for coaching sessions if they fail to prove they are working hard enough at home! * SO WHAT? * This is quite amusing, don’t you think?? But it does go to show how the narrative has changed as times get tougher. If I was working at Citi now I would make darned sure I was in every day of the week (and maybe just had the odd Friday working from home) because you know that the next move is for the bank to a) ditch the “coaching” and just boot the homeworkers and b) make sure I was very visible to the bosses to ensure that there weren’t any misunderstandings or naughty colleagues tempted to take credit for my work (one ex-boss tried this tactic on me, but I managed to get him fired 😁, which was nice) – or, even worse, blame me for something that I didn’t do while I’m not there (another common tactic for some – it’s survival of the fittest in some places!).

Meanwhile, Wise shares fall as transfer volumes drop in last quarter of 2022 (Financial Times, Siddarth Venkataramakrishnan) highlights the woes of the fintech which sent its share price down by 6% as the average amount personal customers transferred across borders fell over Q4 to the lowest level in two years. The company said that volatility in the currency markets had contributed to higher volumes (which mean that customers either want to take advantage of strong currencies or minimise exposure to weakening ones) in the last few quarters but it is hopeful about the future on the back of rising interest rates, the ability to charge higher prices and their ability to take market share from banks.

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

Social media transgressions could see serious consequences, Twitter has issues, Microsoft has good and bad news and Britishvolt’s woes continue…

In a quick scoot around some of today’s other interesting stories, Social media bosses face jail under amendment to UK online safety bill (Financial Times, Jasmine Cameron-Chileshe and Ian Johnston) highlights an amendment supported by a number of Conservative MPs that will hold senior tech execs accountable for harmful and illegal content, to the extent that they could go to jail for up to two years of jail time if they fail to protect the under-18s sufficiently. This new amendment will be based on the Irish Online Safety and Media Regulation Act to give it “additional teeth”. * SO WHAT? * The legislation passed its third reading yesterday and will now go on to the House of Lords. Sunak had previously been against imposing this, but has decided to acquiesce. FWIW I think this is brilliant. There’s nothing to concentrate the mind and efforts of senior managers than the threat of jail if they flout the rules. The only think is it might make recruiting such people a bit more difficult!

In Looming Twitter interest payment leaves Elon Musk with unpalatable options (Financial Times, Tabby Kinder, Richard Waters and Eric Platt) we see that Elon Musk is going to be facing a big bill in the near future as the first instalment of interest payments related to $13bn of debt he used to finance the takeover of Twitter is due at the end of this month. * SO WHAT? * It looks like he’ll have to find $1.5bn sharpish to cover it which means he’ll either have to hand over some of Twitter’s dwindling cash reserves or sell more equity in the company to finance it – neither of which is going to be nice for Musk. He has repeatedly mentioned that the

company could go bust, but it would seem that this would be unlikely given that he may well then lose control of the company entirely – but he is more likely to negotiate a new deal with lenders – and the fact that $26bn of his own money would effectively be wiped out if it went down this route. Tough times. Twitter to sell bird sign and office furniture as Musk clears out HQ (Daily Telegraph, James Warrington) shows that Musk is doing whatever he can to make a dent in the debt – even to the extent of selling all this stuff via auction!

The tech gloom continues in Microsoft plans to announce layoffs as early as Wednesday morning (Wall Street Journal, Tom Dotan) but then Microsoft plans to build OpenAI, ChatGPT features into all products (Wall Street Journal, Sam Schenchner) follows on from what I said yesterday about Microsoft’s investment in OpenAI. Chief exec Satya Nadella said, at Davos yesterday, that Microsoft would move swiftly to commercialise OpenAI’s tools and that “every product of Microsoft will have some of the same AI capabilities to completely transform the product”. Amazing!

Britishvolt collapses into administration as rescue talks fail (Financial Times, Peter Campbell, Harry Dempsey, Michael O’Dwyer and Jane Croft) heralds the sad downfall of what was once the source of great hope for the UK EV industry as it failed to get enough funding from investors, something that Collapse of Britishvolt deals blow to UK’s electric vehicle dreams (Daily Telegraph, Matthew Field and Howard Mustoe) goes into in more detail, but really the crux of the matter is Britishvolt failed because it didn’t get enough hard orders in the order book before embarking on building its vast gigafactory.

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 have to say I can count the number of times I’ve had breakfast in bed in my life on one hand. If that. However, I would certainly consider doing this if I had the opportunity: Hotel guests enjoy breakfast in bed outside in the snow at lavish ski resort (The Mirror, Milo Boyd). How epic is this??

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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