Wednesday 31/08/22

1. In MACRO, ENERGY & CRYPTO/CURRENCY NEWS, US job vacancies rise, German inflation hits new highs, Goldman says UK inflation could hit 22%, wholesale gas prices fall, Gazprom gets shirty, oil prices weaken, sterling crumbles and NFT demand evaporates
2. In COST-OF-LIVING NEWS, bars and clubs suffer, banks pull landlord mortgages, TfL warns of fare rises and credit card spending rises
3. In SOCIAL MEDIA NEWS, rules are thrashed out in the US and we look at the latest Twitter drama
4. In MISCELLANEOUS NEWS, Ryanair says it’ll benefit from recessions and Lurpak’s owner spreads joy
5. AND FINALLY, I bring you the definitive explanation for your washing machine drawer…

So US job vacancies rise, German inflation reaches a new record while the UK faces dizzying heights, gas and oil prices weaken while the pound hits a new low and NFT demand evaporates…

I’m back from holiday! Having not had one for ten years, I can now see why they are so popular 😁. Podcasts and all that other good stuff will return next Monday 👍. Also, don’t forget:

*** I WILL BE DOING THE AUGUST ROUND-UP TODAY AT 5PM WITH JAKE SCHOGGER OF THE COMMERCIAL LAW ACADEMY. You need to sign up HERE to attend. It’d be great to see you there! ***

US job openings jump as labour market remains tight (Financial Times, Alexandra White) shows that demand for US workers surprised the market by being stronger-than-expected. The Job Openings and Labor Turnover Survey released yesterday by the US Labor Department confirmed the ongoing tightness of the jobs market. * SO WHAT? * Employers will keep having to make more effort to attract and retain workers but this is going to get harder and harder as input costs continue to rise.

Meanwhile, in inflation chat, German inflation reaches half-century peak of 7.9pc (Daily Telegraph, James Warrington) shows that inflation in Europe’s biggest economy in August has reached its highest level since the winter of 1973-74 amid the oil crisis. This  is clearly not great but then Get ready for 22% inflation, Goldman says (The Times, Mehreen Khan) highlights a report by Goldman Sachs which says that inflation in the UK could more than double from the current level of 10.1% early next year if the Ofgem price cap rises by 80% in January. * SO WHAT? * Given that natural gas prices have risen by 90% this month alone, this is not necessarily as outrageous a prediction as it may first appear. Having said that, I would say that you shouldn’t take predictions like this too seriously because investment banks like to stand out from the crowd (it’s a competitive environment and so making outlying predictions gets you talked about among clients whose curiosity will be piqued). Everyone knows that predictions from most economists are notoriously inaccurate (because, TBF, there are so many moving

parts) and subject to endless tinkering. Sometimes, though, if enough economists make similar predictions, it can seep into the general consciousness and become self-perpetuating, i.e. if enough of them say the same thing enough times, everyone will start believing it and acting accordingly. 

On the subject of gas, Wholesale gas prices tumble as Europe prepares to intervene in energy markets (The Guardian, Alex Lawson) follows on from what I was saying yesterday about Europe’s energy plans and highlights the market reaction, with the day-ahead UK wholesale gas price falling by over 20% and the month-ahead price falling by 25%. Despite this latest fall, gas prices are still 12x higher than they were at the start of 2021! However, Gazprom calls complete stop on gas deliveries to France’s Engie (Financial Times, Sarah White and David Sheppard) shows that the Russian state-owned gas group intends to stop all gas deliveries to French utility company Engie from tomorrow, blaming a dispute on payments, putting a right spanner in the works. Still, gas prices remain high and Energy giant Woodside triples dividend as gas prices soar (Daily Telegraph, Rachel Millard) highlights the universal truth that there are always winners and losers from whatever situation and the Australian oil and gas giant is no exception – it tripled its dividend payout to shareholders on the back of profits rising sixfold, courtesy of rising gas prices.

Meanwhile, Demand fears send oil price lower (The Times, Emily Gosden) reflects the recent oil price weakness fuelled by fears of the detrimental effect of global inflation. * SO WHAT? * The oil price has been really volatile since Russia invaded Ukraine but you would have thought that this recent weakness will give OPEC, which meets next week in Vienna, an excuse NOT to increase production. They might actually CUT production, which will be great for oil producers but not for consumers…

Elsewhere, Pound hits two-year low as recession threat grows (Daily Telegraph, Laura Onita, Szu Ping Chan and Tom Rees) highlights the plight of sterling at the moment as investors fear recession and NFTs demand falls 99pc in crypto crash (Daily Telegraph, Matthew Field) shows that prices and trading volumes for NFTs on one of the leading digital auction houses, Opensea, have all but shrunk to nothing compared to where they were at at their height. Trading in crypto assets continues to be very risky…

Want to engage with myself and the team at Watson’s Dail about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

The rising cost-of-living continues to hit businesses and individuals alike…

In Energy costs overtake rent for struggling bars and clubs (Daily Telegraph, James Warrington) we see that clubs and bars are now spending more on their energy bills than they are on rent, with many thought to be on the brink of collapse if the government doesn’t step in to ease the situation. * SO WHAT? * Although the government has pledged support to households, businesses have yet to see much in the way of commitment and suggestions about cutting opening hours, turning off the heating and asking customers to wear coats have been met with frustration. Pressure is increasing on the incoming PM to cut VAT and extend business rates relief as the leisure industry fights for its life.

Meanwhile, Banks pull landlord mortgages after rush for cheaper deals (Daily Telegraph, Rachel Mortimer) shows that banks have stopped offering buy-to-let mortgages as there was a surge in demand from landlords who wanted to act quickly to lock in “lower” mortgage rates. Habito, Al Rayan Bank, Dudley Building Society, the State Bank of India, Harpenden Building Society, Bath Building Society and Cambridge Building Society (not I haven’t heard of most of these either!) have all withdrawn/stopped selling buy-to-let deals to mortgage brokers as some of them just couldn’t cope with

demand. * SO WHAT? * It sounds like the suspension is largely temporary as lenders adjust their offerings, but if landlords can’t buy properties on a longer term basis, there’s a risk that rents will rise even further.

London commuters could be faced with even more pressure on their wallets if what London mayor warns of fare rises as TfL signs government support deal (Financial Times, Jim Pickard) comes to pass! TfL is currently covered by a government rescue deal supporting it until March 2024, where it gets about £1.2bn to fund its network and subsidise fare losses if passenger numbers fail to hit targets. However, beyond that, it looks like there will be service cuts and fare rises.

It was also interesting to see Credit card borrowing highest for 17 years (Daily Telegraph, Szu Ping Chan) as households are using debt to pay for essentials. The latest Bank of England figures showed that debts rose by 13% compared to a year ago – its biggest annual jump since 2005 and the fifth consecutive month of double-digit growth rates for credit card borrowing. * SO WHAT? * This isn’t surprising given current circumstances but it is concerning given that household expenses look likely to rise even further as we head towards the end of the year and a bleak winter…

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!

New rules get discussed across the Pond and the Twitter drama continues…

Social media firms would have to consider children’s health under bill passed by California legislature (Wall Street Journal, Christine Mai-Duc and Meghan Bobrowsky) highlights a bill passed yesterday that would require makers of social media apps including Facebook, Instagram and TikTok to take into account the physical and mental health of minors when they design their products. It has now passed in the Senate and Assembly but social media companies oppose the bill saying that it would become a compliance nightmare if different criteria were adopted in different states. * SO WHAT? * This came shortly after another measure – that would have allowed government lawyers to sue social media companies if their apps cause harm or addiction in children – failed thanks to aggressive lobbying by the social media giants. The bill that passed yesterday would force these companies to consider the effects of new products and features on the mental health of minors prior to public release. It would also make them disclose privacy policies in language that minors can understand while banning the profiling of minors and the use of tools designed to encourage children to share personal information. Geolocation tracking would also be prohibited unless the child was notified and companies would be banned from using their personal information in ways that would harm their health. Fines would be imposed

PER AFFECTED CHILD. At the moment, California governor Gavin Newsom needs to sign the bill for it to move forward – and if he did, the provisions would come into effect in July 2024. It’ll be VERY interesting to see how this works out.

Meanwhile, the Twitter drama trundles on in The hacking guru who could save Musk $44bn (Daily Telegraph, Gareth Corfield and Matthew Field) shows that ethical hacker Peiter Zatko claims that Twitter has been infiltrated by foreign government agents and that it has become reliant on Chinese money to boost revenues. This is particularly damaging because Zatko was, until January, Twitter’s head of security! What will also help Musk in his desire to walk away from the proposed acquisition is that Zatko says that  Twitter fudged the issue of fake bot accounts (which is a central plank in Musk’s desire to ditch the deal) by inventing a new way to count users. He said in his testimony that Twitter had been “lying about bots to Elon Musk” but Twitter is countering with the argument that Zatko is just a disgruntled employee who was sacked for poor performance. * SO WHAT? * Whatever that outcome, Twitter: whether Elon Musk wins his case or not, metrics should be reconsidered (Financial Times, Lex) says that metrics that measure performance and reach need to be much clearer after years of social media companies just being allowed to do what they want. The Zatko revelations will be a major boost for Musk’s campaign…

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!

Ryanair is on the front foot and Lurpak’s owner’s doing just fine…

In a quick scoot around other interesting stories today, Ryanair will benefit from recessions, says Michael O’Leary (The Guardian, Gwyn Topham) shows Ryanair’s chief in characteristic bombastic form as he contends that Ryanair will actually benefit from imminent economic shocks whilst launching its biggest UK winter schedule and saying that short-haul won’t fully recover to pre-pandemic levels until 2025. Michael O’Leary said that air fares would continue to increase by between 3% and 5% over the next few years and that the cheap and cheerful £9.99 fares won’t be back for some time to come. He maintains that people will continue to fly for both work and leisure and that, after two years of being couped up, people are starting to spread their wings – something that Ryanair is in prime position to enable. * SO WHAT? * I always take what he says with a pinch of salt, entertaining and impressive though he is. I think that the reality is that household

budgets will be squeezed and that holidays involving flights will be seen increasingly as a luxury until inflation and the cost-of-living generally gets more under control. As for business travel – we’ve just seen how work is possible remotely and although face-to-face is still king for some, it’s possible to cut this expense out all together. I don’t see M&A bankers “trading down” to Ryanair and everyone else is just going to have to cope with Teams/Zoom etc. IMO.

Then in Higher prices prop up sales for Lurpak dairy firm (The Times, Constance Kampfner) we see that Arla Foods, owner of Lurpak, reckons that dairy prices will continue to increase due to global milk shortages and rising inflation. Revenues were up by 17% in the first half versus the same period in 2021 thanks to “significant” price increases for daily commodities. Fun facts: Arla is the world’s 5th biggest dairy company and the UK’s #1 supplier of fresh milk and cream. Higher prices look set to rise even further!

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…

Following DJ Roman Kemp’s recent Twitter admission, I thought some of you might find this useful: People are only just learning what the 3 trays in washing machine drawer are actually for (The Mirror, Saffron Otter). So now you know – if you didn’t already!