This new report will show you how news developed over?last week?and some key things to look out for?this week.
Written by Peter Watson, ex-stockbroker.
This report includes a Review and a Preview.
The REVIEW?is an amalgamation of the “best bits” of the daily weekday newsletter/blog?Watson's Daily?last week, woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week.
The PREVIEW is a short summary of some of the key developments expected this week, plus a bit of extra comment.
THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of?Watson’s Daily?if you want to know more. You will need to be a subscriber to access the extra information, but it is easy to get a free trial. You can do that?HERE.?Watson's Daily?gives you the essence of daily newsflow, sourced from major broadsheets, in the business and financial markets overlaid with opinion from an experienced ex-stockbroker (me!). I give you a synopsis of the stories and tell you?why?they are important in an easily-digestible way.
"The Review"
IN BIG PICTURE NEWS...
I think we’d all agree that was quite an eventful week!
- IN THE UK – Boris Johnson quit as PM (Friday)?after much pressure and a mass-exodus of ministers. Markets seemed to take it quite well and sterling actually strengthened versus the dollar. As things stand currently, the expectation is that a new PM will be installed by early September straight after the House of Commons’ summer recess. It’s hoped that the first bit (cutting the candidate list down to two from a longlist) can get done quickly, something that requires a bit of a rule change. The second part will be both candidates campaigning for the top job. Expect loads of noise from the media as to runners and riders etc.?The Bank of England warned that the UK’s economic outlook had “deteriorated materially” (Wednesday)?as inflation continues to pile the pressure on household and company finances.
- TALKING ABOUT INFLATION/INTEREST RATES?–?South Korea’s central bank is looking at making its first ever 0.5% interest rate increase (Wednesday)?to take the edge off inflation, which rose at its quickest rate since 1998, but it was?even worse in Turkey as its inflation rate hit 78.6% (Tuesday), its highest for 24 years. The situation has been made worse by Erdogan?cutting?interest rates rather than raising them and the Turkish lira collapsing.?Turkish people are facing really tough times (Friday). Meanwhile,?Hungary put its interest rates up by 2% (Friday)?to 9.75% to prop up its currency and address inflation while?Poland raised its interest rates by 0.5% (Friday)?to an 18-year high of 6.5%.
- IN EUROPE?–?Germany announced a massive €1bn trade deficit (Tuesday)?that’s likely to get worse and?Norway managed to avert strikes in the oil and gas industry (Wednesday), which is good because oil and gas prices would have been even worse had they gone ahead!
Commodities and energy news continued to be prominent this week…
- IN OIL?–?Shell continues to benefit from record fuel prices (Friday)?as its indicative gross profit margin for fuel refining tripled between Q1 and Q2
- IN COAL?–?demand continues to rise in Europe, the US and China (Tuesday), so miners like Glencore are raking it in!
- IN GAS?–?UK gas prices reached their highest level for three months (Tuesday)?due to ongoing concerns about Russian supply and?Japan continues to import gas from Russia (Monday), even though it doesn’t want to, because it’s tied in to long-term contracts. In the meantime,?Qatar is benefiting from the war (Thursday)?as QatarEnergy, the state-owned gas producer, is significantly increasing its gas export capacity as more countries seek alternative sources to their existing suppliers.
- IN COMMODITIES?–?there was news of a possible $60bn merger between Norilsk and Rusal (Wednesday)?to create a Russian national metals champion. If it went ahead, it would be bigger than Glencore.
Crypto’s rocky ride continued this week…
- Celsius Network continued its freeze on asset withdrawals (Monday)?and the broker/”bank” that precipitated the collapse of Three Arrows Capital last week,?Voyager Digital, filed for bankruptcy (Thursday). Against this rather shaky backdrop,?Facebook?owner Meta reiterated that it is sticking with its plans to broaden access to NFTs (Thursday).
THERE WAS SOME INTERESTING LEGAL NEWSFLOW THIS WEEK...
- EU lawmakers geared up to approve two important new pieces of legislation (Wednesday)?– the Digital Markets Act and the Digital Services Act that could, if implemented well, really affect Big Tech companies.
- It seems that?we’re moving closer to having US-style class-actions (Monday)?as cash-rich litigation funders are keen to make money in what could be a major growth market. Many of us are already part of one (without knowing it!) with?Mastercard?regarding “interchange fees” charged between May 1992 and June 2008. If this progresses, it could open the door to further actions (plus, we may all get a few hundred quid in compensation!).
- Facebook?was threatened with an EU ban (Friday)?by Ireland’s Data Protection Commission, which has provisionally ruled that it can no longer send user data to the US. It now has four weeks to protest the recommendations. It certainly seems that momentum is with the lawmakers at the moment and I guess that they are being helped by the fact that the tech sector as a whole has been suffering a general sell-off.
- Shein continues to face dozens of lawsuits (Monday)?for design theft as it seems to have a broad interpretation of copyrights! It, along with its Hong Kong-based parent Zoetop, has been a defendant in at least 50 US federal lawsuits over the last three years. It looks to me like we’re overdue a crackdown! I remember a few years ago that the Chinese government was trying to crackdown on counterfeit goods (Alibaba?was notorious for this, for instance), but it seems that this has gone on the backburner…
IN EMPLOYMENT, CONSUMER & RETAIL NEWS...
- IN US EMPLOYMENT NEWS – Starbucks hit back at workers for unionisation (Tuesday)?by shutting down the outlet in Ithaca that supported it. CEO Howard Schultz is not taking this pressure lying down and is clearly doing his best to nip unionisation in the bud. It also seems that?there is a trend where workers are getting midyear raises (Wednesday)?in order to retain employees.
- IN UK EMPLOYMENT NEWS?–?the labour market remains super-tight (Friday), according to the latest survey by the Recruitment and Employment Confederation and KPMG,?something that was echoed in recruiter Robert Walters’ results (Thursday).
- IN CONSUMER NEWS –?Generation Z is the most confident demographic regarding personal finances (Tuesday), but?consumers generally are getting increasingly concerned about debt (Thursday)?as demand for debt services from?Lloyds Bank?customers shot up by 30% in the first half of this year.?More firms are passing costs onto customers (Monday)?as?suppliers pass on higher costs (Tuesday)?and?dairy farmers warn of price rises (Friday)?because they just can’t get the staff.?Tesco’s continues to push back on supplier demands for price rises (Wednesday), but I think that this is largely symbolic because they need each other and price rises are bound to result eventually.?Consumers are facing rising car insurance premiums (Monday)?because the number of claims and costs per claim are rising because there are more people on the road now than under lockdown and repairs costing more due to supply chain issues,?house prices continue to defy gravity (Friday), according to the latest Halifax figures and?consumers are spending on travel and pubs (Wednesday)?and?luxury watches (Friday), with Watches of Switzerland remaining confident for the rest of the year. On the downside,?consumers are avoiding the high street (Thursday), according to the latest Springboard figures, and?flight prices are shooting up (Tuesday)?as couped-up consumers scramble to go on their holidays. Without meaning to be a doomsayer, it is worth remembering that?a lot of people who took out super-low fixed rate mortgages will be coming off them over the coming months and years (Monday)?and have a nasty shock.
- IN RETAIL NEWS?– there were some contrasting stories on livestreaming retail.?TikTok?has abandoned a livestream rollout in the US and Europe (Wednesday)?to get the offer right in the UK before it has another go, but?Amazon?has decided to put more into this potentially new revenue-generative area (Friday). Talking about?Amazon, it struck a deal with Grubhub in the US (Thursday)?which will give Prime Customers there access to Grubhub’s food delivery app but?it also faces an investigation by the UK’s CMA (Thursday)?over its Marketplace practices. Meanwhile, in electricals retailers,?AO World’s shares hit a two-year low (Tuesday)?as investors got concerned about the company’s finances as the company decided to concentrate on the domestic market.?It then decided to do an equity issue to raise capital (Thursday). Rival?Currys voiced concerns about the future (Friday)?given that it sells big-ticket discretionary items in an inflationary environment, but it did actually put in a decent performance.
IN AUTOMOTIVE NEWS...
- EV sales rose in the UK (Monday),?but EVs still only represent around 1.2% of the cars on British roads currently. Demand for EVs is rising, presumably because of the rising cost of petrol!?“Normal” car sales in the UK continued to be weak, though (Wednesday), according to the latest SMMT figures.
- It was a mixed week for?Tesla.?20% of EVs sold in the UK are made by?Tesla?(Monday), but?it lost its top spot in China to BYD (Wednesday).?Tesla?deliveries fell in China (Monday)?because of Covid shutdowns and supply shortages and?the company also took at?Bitcoin?hit (Monday)?as there was a big valuation write-down.
- IN OTHER NEWS?–?Chinese manufacturer Geely diversified into making phones (Tuesday), in an interesting reversal of what Foxconn is going (going from iPhone assembler to car maker). It was also interesting to see?Evergrande unveiling its first car (Friday), which is an electric SUV coming in at about half the price of a?Tesla?Model Y. It sounds like a move in the right direction, but the parent company is the embattled, indebted real estate developer – so I do wonder whether people are really going to trust the brand all that much.
IN REAL ESTATE NEWS...
- Canadian private equity firm Brookfield is downbeat about UK commercial real estate (Wednesday)?and says that it thinks deals will dry up as the world’s attention is more focused on interest rates and recessions. Banks are being more selective about who they lend to, meaning that there will be fewer buyers and, therefore, lower prices.
- UBS?said it was subletting two floors of its London HQ (Wednesday)?because it is has found that, after all this WFH malarkey that it has too much space on its hands. When other big companies do this, they may find the same thing – which is bad news for office space players like?WeWork?and IWG, because there will be more competition in the market.
- DHL announced a UK expansion (Wednesday)?showing that there’s still scope for growth in warehousing and logistics.
- US developer Greystar has raised more money (Thursday)?to put into residential rental investment in Europe as it sees it as an inflation hedge because property in this category has shorter leases (they are reviewed annually versus offices and retail which are on multiyear deals).
AND IN OTHER NEWS...
- In TECH –?this didn’t make it into Watson’s Daily because it happened later on Friday after publication, but Elon Musk announced he was walking away from his $44bn takeover bid for Twitter. This came shortly after?Twitter announced it was cutting its recruitment team by 30% (Friday), in a sign that recruitment is going to take a back seat for now. In tech hardware,?Samsung Electronics disappointed (Friday)?as inflation took the edge of demand for gadgets and the semiconductors that they contain, something echoed by rivals including Intel, Micron Technology and?AMD.?PC sales and cryto demand (from miners) is also slowing chip demand (Tuesday), although it’s still strong for cars and data centres.
- GSK?got approval for a spin-off of its consumer brands (Thursday)?that will have a separate stock market listing at a hoped-for valuation of up to ￡45bn.
- British banks made more money than their European counterparts (Monday), despite the EU trying to force staff to go to Europe after Brexit. I suspect this won’t be forgotten about and that efforts will be renewed to put more pressure on.
COMING UP?THIS?WEEK ("The Preview")...
Here is a selection of some of the key events for the week ahead:
Monday
- EU - Eurozone finance ministers meet in Brussels. No doubt inflation will be coming up a lot in conversation!
- Italy - publishes May retail sales data.
- UK - Election of the members of the Conservative Party's 1922 committee who will then confirm the terms of the leadership election to decide who's going to be our next PM.
Tuesday
- Japan - June Producer Price Index (PPI) numbers
- India - June Consumer Price Index (CPI) figures and May industrial production figures.
- Germany - the ZEW publishes its economic sentiment survey. It's not likely to be pretty!
- OPEC - publishes its monthly oil market report. Any hints on potential production increases to calm oil prices?
- Results?- PepsiCo. How has the company coped with rising raw ingredients costs?
- Other - Amazon Prime Day starts
Wednesday
- US - CPI figures
- Canada?- Bank of Canada's Monetary Policy Committee meets to discuss interest rates
- China?- June trade figures
- South Korea - interest rate setting meeting (many are expecting a 0.5% rise given last week's inflation figure - see in the Review above)
- France - Bastille Day public holiday
- Results?- UK recruiter PageGroup publishes a trading update (it'll be interesting to see whether it echoes the fortunes of rival Robert Walters), JD Wetherspoon (an interesting bellwether for consumer spending as drinking is, of course, discretionary!), Delta Air Lines. I think that investors will be looking at how things are going at Delta re performance of long-haul vs short-haul and whether business travel is continuing to grow.
- Other - Amazon Prime Day continues. It'll be interesting to see how much of an uptick Amazon gets. It just doesn't seem to get the traction that Alibaba's Singles' Day and JD.Com's 618 sales events get.
Thursday
- US - June PPI numbers
- Japan - May industrial production figures
- Results?- Ericsson, JP Morgan Chase, Morgan Stanley, Rio Tinto. ASOS, Hays and Just Eat Takeaway announce trading updates. I'd be interested to hear how Ericsson is doing re 5G rollout (and how much it's continuing to benefit from Huawei's ban), whether any new patterns are emerging from the US banks in terms of loans and spending, whether ASOS is actually benefiting from Gen-Z's relative financial confidence and whether Hays confirms trends that other recruiters are seeing (on balance, my perception is that Hays is more broadly spread between blue and white-collar recruitment so it'll be interesting to see whether any patterns are emerging).
Friday
- US - retail sales data. Will any new trends emerge or will we just see existing ones (consumers tightening their budgets) continue?
- China - Q2 GDP figures, June retail sales and industrial production data. This will be particularly closely followed for signs of recovery post-lockdowns.
- Italy - June CPI figures
- Results - Bank of New York Mellon, BlackRock, Burberry, Citigroup, Wells Fargo. It'll be interesting to see how banks are faring with loan defaults and lending in general and whether the strength of "luxury" is continuing with Burberry. Also, with Burberry, I'd want to see how sales are recovering post all the China lockdowns.
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