Wednesday 30/11/22

1. In MACRO, ENERGY & CRYPTO NEWS, China shifts blame, Russia builds up problems, the BoE says it wasn’t consulted, Qatar signs an LNG supply contract with Germany, Hinkley Point’s future changes, BlockFi’s collapse hits and crypto tracking is OK’d
2. In TECH NEWS, Apple’s China woes drag, Twitter abandons its misinformation policy and Snapchat workers return to the office
3. In FINANCIALS NEWS, HSBC pulls out of Canada, rules on UK bank ringfencing look like they’ll be relaxed and Wise does well
4. In CONSUMER, RETAIL & REAL ESTATE NEWS, food inflation rises, sandwich sales increase, M&S buys Thread, Wilko could become Wontko, UK mortgage approvals drop and Shaftsbury benefits from the crowds
5. AND FINALLY, I show you a Christmas tree farm and a shopping dilemma…

So we see tricky times in China and Russia, the BoE claims ignorance, Qatar signs another LNG contract, Hinkley hits a bump, BlockFi’s collapse has repercussions and crypto tracking is given the green light…

📢 THE DAY HAS COME!  I’LL BE PRESENTING THE FINAL MONTHLY ROUNDUP OF THE YEAR TODAY! This is the roundup of business and financial markets I do every month with Jake Schogger from the Commercial Law Academy, who gives his legal viewpoint on the news. You need to register for this event and you can do so HERE. My next roundup will be in January and will be my review of 2022 and preview of 2023. Details of that will follow soon!

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:

There are a number of interesting stories today that, when you hear what they are, aren’t that surprising – but they confirm what you were already suspecting! China blames local officials for outbreaks as Beijing sticks to zero-Covid plan (Financial Times, Edward White, Eleanor Olcott, Hudson Lockett and Thomas Hale) shows that Beijing is trying to distance itself from the shambolic state of the nation and its zero-Covid policy by blaming local governments for their handling of the Coronavirus outbreaks and the resulting backlash. The National Health Commission reiterated its commitment to the zero-Covid policies and promised to boost vaccination rates among the elderly while police and security forces quelled demonstrations in at least 18 cities. The government continues to emphasise the benefits of its zero-Covid policy. Then in ‘They grabbed whoever they could’: Putin’s draft puts more strain on Russian businesses (Financial Times, Polina Ivanova, Max Seddon and Daria Mosolova) we see that there could be a longer-term negative effect on growth for Russian businesses as the sudden military draft launched on September 21st has resulted in the biggest labour shortage in Russia since 1993, according to research published this month by the Gaidar Institute. Hundreds of thousands were conscripted and many more fled the country. Labour market economist Vladimir Gimpelson, who is now based in the US, observed that “simply put, this will mean that we will have fewer healthy, educated and strong people, the ones who create a country’s GDP”. As I have said before, I believe that things could change dramatically for Russia depending on how the Ukraine war ends and who is then left in charge. For now, though, the future looks pretty grim. Meanwhile, closer to home, Bank of England ‘blindsided’ by Kwarteng’s mini-budget, says governor (The Guardian, Richard Partington) again says what we probably all suspected anyway (in hindsight – at the time I thought it was pretty ridiculous that the Bank wasn’t consulted) – that the Bank of England had “no formal communication” with Kwarteng before he unveiled the economic measures. The normal procedure is for Treasury officials to go to meetings of the Bank’s MPC and they would generally give guidance to the central bank before major announcements are made on tax and spending. Governor Bailey said that there was a Treasury official present at the meeting that happened a day before the mini-budget, but suggested that they

didn’t seem to have the full picture as to what was going on. What a shocker! Well I guess that the government’s not going to be trying that tactic again in a hurry given the aftermath…

In energy-related news, Qatar to supply Germany with LNG as EU seeks secure energy options (Financial Times, Shotaro Tani and Guy Shazan) highlights Qatar’s latest big signing (and no, it’s not Ronaldo at the World Cup), as state-owned QatarEnergy signed a deal to provide Germany with LNG for at least the next 15 years. * SO WHAT? * Along with another deal signed with US group ConocoPhillips, this will be the first time that the EU will have signed long-term supply agreements for LNG supplies since Russia’s invasion of Ukraine. Qatar is doing pretty well at the moment, what with the even longer-term deal it just signed with China. European countries have been wary of signing such long-term deals as they are keen to wean themselves off fossil fuels, but I do think that they still have to be part of the energy mix because as we have just learned very painfully, it is not a good idea to rely too much on any one source of fuel.

Then in Britain risks 11-year delay to Hinkley Point (Daily Telegraph, Rachel Millard) we see that the country’s flagship Hinkley Point C nuclear power station could be facing a huge delay for completion, although it is still nominally on track for its already-delayed completion date of mid-2027. The terms of its subsidy agreement have been changed so that the government will fund it even if it doesn’t commence operations until 2036. This comes at a time when the government is said to be buying out China’s interest in another project, Sizewell C in Suffolk, for £100m as the government presses on with moves to purge Chinese involvement in key national infrastructure. Britain was insane to trust Beijing on nuclear plants (Daily Telegraph, Ben Marlow) highlights the shortfalls of successive governments in energy infrastructure investment, which has resulted in our dependence on supplies from Europe, in addition to Russia and China. Rolls-Royce’s Small Modular Reactors can’t come quickly enough!

Then in crypto news, BlockFi/FTX: further collapse suggests ecosystem is unsustainable (Financial Times, Lex) highlights the fact that BlockFi was one of the crypto businesses that was most exposed to FTX and shows how intertwined the companies became. The implication here is that there are more failures to come. Meanwhile, Bankrupt crypto lender BlockFi sues Bankman-Fried over shares (Daily Telegraph, Gareth Corfield) shows BlockFi’s desperate moves to drum up some cash by suing its former BFF over control of a 7.6% stake in Robinhood that was used as collateral to secure a loan from BlockFi. * SO WHAT? * What a tangled web! Surely there will be more failures in the crypto space. And yet, bitcoin continues to hold up relatively well…

Then in Crypto exchange given go-ahead to track stolen assets in UK court ruling (Financial Times, Kate Beioley, Siddharth Venkataramakrishnan and Joshua Oliver) we see that the High Court ordered six crypto exchanges – including Binance, Coinbase, Kraken and Luno – to give customer details to a rival UK-based operator (who will remain nameless so as not to tip off the thieves involved) who is trying to help victims of cyber fraud. * SO WHAT? * This could be a step forward for parties attempting to recover assets that have been appropriated by fraudulent means and who have, up until now, been frustrated in their attempts. Given the weakened state of anything involved in crypto at the moment I am sure that such moves will be more likely to stick than they have done in the past.

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!

Apple’s prospects are limited by China, Twitter goes all-out for freedom and Snapchat gets strict…

Apple’s growth streak under threat as China’s zero-Covid backlash bites (Financial Times, Patrick McGee) suggests that Apple’s 14-quarter growth streak in the peak holiday period could come to an end as a result of the problems it has been having with its supplier Foxconn. Foxconn has shifted some of its iPhone production to other plants in China but they have not been able to make up for the shortfall in Zhengzhou. * SO WHAT? * This is a shame for Apple since it has actually got through the pandemic relatively unscathed and has in that time posted three years of record profits. Still, analysts are cutting expectations and there have been no uplifting updates for investors to get excited about. Given the scale of the Zhengzhou plant – aka “iPhone City” – the effect of restricted production is expected to linger. On the plus side, Apple has demand for its product and so far customers haven’t been defecting to other brands – but the longer the situation takes to resolve itself, the more vulnerable Apple’s performance will become.

Then in Twitter under Elon Musk abandons Covid-19 misinformation policy (Wall Street Journal, Joseph De Avila and Sarah E. Needleman) we see that Twitter has now ceased enforcing a policy that had been protecting the public against Covid-19 misinformation spread on its platform. This makes it an outlier versus other platforms and is bound to cause a stir. * SO WHAT? * This is bound to cause controversy, but I suspect it will also boost user numbers at least in the short term. The main danger here, though, is whether Apple and/or Google decide they don’t like it and then pull it from their respective app stores.

Meanwhile, the “good old days” of lockdown appear more than ever to be over in Snapchat staff told to work in the office four days a week (Daily Telegraph, Garether Corfield) as Snap has decided to get its workers to knuckle down in the office and not from home. Chief exec Evan Speigel sent a missive to his minions stipulating that full time staff should spend 80% of the working week at its California HQ. * SO WHAT? * We’ve now seen similar moves from the likes of Apple and Twitter and it looks like WFH could increasingly become a fond memory. The question is how much this will spread in the wider economy.

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!

HSBC narrows its focus, UK bank ringfencing could be relaxed and Wise does well…

In HSBC quits Canada, selling its business to RBC for £8.4bn (The Guardian, Kalyeena Makortoff) we see that HSBC has agreed to sell its Canadian business to the Royal Bank of Canada for a chunky sum as it continues its efforts to focus less on global and more on Asian business. It announced plans last year to exit from retail banking in the US and France, for instance. RBC/HSBC Canada: costly $10bn deal will attract regulatory scrutiny (Financial Times, Lex) says that the price is at a big fat premium to current valuations but RBC is emphasising the cost saving potential and the fact that domestic rivals are stronger in retail banking. The deal will still have to get past the regulators, so it is not a dead cert just yet. * SO WHAT? * HSBC continues to move away from its position as “the world’s international bank” and focus more on Asia. I would have thought $10bn would come in rather handy!

Then in UK ready to relax ringfencing rules on some banks (Financial Times, Owen Walker, George Parker and Stephen Morris) we see that British banks could be about to relax one of

their biggest restrictions as part of the post-Brexit regulation liberalisation “bonanza”, aka “Big Bang 2.0”. * SO WHAT? * From 2019, banks were forced to “ringfence” assets in banks with retail and investment arms in order to reduce the risk of another banking crisis but critics say that the rules were very inefficient as they required banks to squirrel away different pots of money for different parts of the bank. Large investment banks will still have this in place, but smaller banks with limited trading activities (like Santander UK, Virgin Money and TSB Bank) will no longer have to meet the requirements, which means that they will have more freedom to deploy some extra cash.

Rising rates bring Wise profit on client balances (The Times, Patrick Hosking) shows that Wise, the international money transfer platform (and the company that used to be known as Transferwise), has been making big profits on customer balances thanks to the rise in interest rates. Wise: payments group continues to take share in developed world (Financial Times, Lex) reckons that there’s still growth to be had in the business but that it needs to back up this momentum by diversifying.

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!

We look at current consumer, retail and real estate trends…

In a quick scoot around other interesting stories today, Egg shortage drives food inflation to new high as Christmas nears (Daily Telegraph, Eir Nolsoe and Szu Ping Chan) cites the latest figures from the British Retail Consortium which say that food prices jumped by 12.4% from a year earlier, accelerating from the 11.6% in October, making it the highest food inflation rate since records began in 2005 and Sandwich sales rise as more people work longer hours (Daily Telegraph, Daniel Woolfson) shows the effect of more people working in the office, citing the observations of chilled food giant Greencore.

In non-food, M&S picks up Thread’s tech know-how (The Times, Tracey Boles) highlights yet another interesting initiative from M&S which has just bought Thread, the fashion marketplace, that will be integrated into the M&S website and Wilco seeks finance after £30m loss (The Times, Helen Cahill), which shows trouble at the family-owned discounter as it has suffered badly with supply chain problems.

In real estate news, UK mortgage approvals drop more than expected as borrowing costs rise (Financial Times, Valentina Romei) cites the latest Bank of England figures which show that approvals have fallen to their lowest levels since June 2020, when we were all deep in lockdown! Meanwhile, in commercial property, West End crowds light up profits at Shaftesbury (The Times, Tom Howard) reflects a “rapid rebound in the West End economy” as this landlord managed to return to annual profit as footfall and spending across its portfolio now exceeds pre-pandemic levels after a pretty horrendous lockdown. Tourism is returning and there has been a notable increase in footfall around Elizabeth Line stations. * SO WHAT? * I don’t think it’s that surprising to see mortgage approvals fall (especially after that whole Truss/Kwarteng mini-Budget debacle, which put the frighteners on everyone!) but it is good to see that the West End is coming back to life. The only thing is that the rail strikes may well take the edge off profits at a key time of year. But still, it’s good to know that things are improving for Shaftesbury.

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…

Yesterday, I brought you that story about how to dress your Christmas tree, but this is a really interesting look at what goes on where they are grown: Behind the scenes at Xmas tree farm – odd requests, expert tip and best time to buy (The Mirror, Julia Banim). So what would you prefer? Pine, Norwegian spruce or Fraser fir??

On another note, I popped into Lidl yesterday “on the fly” (I know, I do indeed live life in the fast lane – my life is just one adrenaline rush after another 😁) and then realised that I hadn’t brought a shopping bag with me as I hadn’t planned the visit. Given how many bags I’ve now accumulated at home (we just had a bit of a clear-out, actually – turns out a “Bag for Life” has a shorter-than-billed lifespan after all!) and that I’d only bought a few items, I thought I’d just carry the stuff out sans bag. That reminded me of the guy in this video. Just sit back and enjoy this 👍.