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 summary of some of the key developments expected this week, plus a bit of extra comment from me. Scroll DOWN to see the preview.
Reading this report should only take about 10 minutes and it will set you up for the week ??
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.
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"The Review"
IN BIG PICTURE NEWS...
Another incredible week! I think we all need a holiday to get over so many dramatic events!
- IN THE US – inflation rose to epic levels as it hit 9.1% (Thursday), a new 40-year high. This will make it more likely for the Fed to hike rates at the next meeting by a full percentage point.
- IN JAPAN?–?Japan’s LDP won the upper house election by a landslide (Monday)?following the assassination of former PM and LDP leader Shinzo Abe. This will make it easier for Japan to change its Constitution – specifically the bit about defence and the military. It pacifist Constitution was imposed on them by the Americans after WW2. Subsequent attempts have been made to amend it but they have failed. However, when you consider the increasing threat of China (and possibly North Korea) in the region, you can see why there is more of a sense of urgency about changing it to enable Japan to take a more front-seat role in the defence of itself and others.
- IN EUROPE?–?Italy’s PM Mario Draghi caused a bit of a kerfuffle (Friday)?as he offered his resignation after he lost an important parliamentary vote on a proposed €26bn package designed to protect Italians from inflation. President Sergio Mattarella did not accept it (well he did invite Draghi to be president in the first place), but the mere possibility of Italy losing a strong stabilising influence spooked investors.
- IN THE UK?– the bun-fight began as?candidates jostled for position in the Conservative Party leadership contest (Monday)?and there was a lot of noise during the week (and this will continue). As usual with these things, everyone stabs each other in the back only for them to pull the knives back out when the winner is announced and then they all become BFFs again?.
- The Euro hit parity with the Dollar (Wednesday), which hasn’t happened since 2002!
- IN CRYPTO – European regulators, did their usual “I-told-you-so” schtick about crypto (Monday)?that they always do when?Bitcoin?hits the skids, but it looks like this time there might be some substance as?the Financial Stability Board said it was going to put forward a new rules framework for crypto assets in October (Tuesday). Don’t get too excited, though – what they do isn’t binding, but its members (who include regulators, central banks and officials from G20 countries) generally adhere to its principles. So at least this might be a (very long overdue) step in the right direction!?Celsius Network, the crypto lender, filed for bankruptcy protection this week (Thursday)?just one month after freezing withdrawals as the market collapsed around it. Who’s going to be the next crypto bank/broker to crash and burn??
- Russia turned the gas off to Germany (Tuesday), ostensibly “for repairs” as part of “scheduled maintenance”. This in itself spooked investors as concerns increased about it not getting turned back on again on July 21st, as per the original schedule. No gas to Europe would be a huge blow to the region’s economy and could tip the ‘zone into recession.
- Nuclear fusion continues to attract investment (Thursday), meaning that it could start feeding power grids by the 2030s. Interestingly, $2.8bn has been invested in the sector globally in the last 12 months versus around $2bn over the last 10 years! Tokamak Energy and First Light Fusion, who are both based in Oxford, are at the forefront of developments in this space!
- Solar panel demand is on the rise (Thursday), not only for residential properties but also for offices – and farms! At the moment, solar only makes up 4.2% of the UK’s electricity generation, so there’s huge room for upside here!
- It was also interesting to hear that?Britain has actually powered mainland Europe for every month since the start of April (Friday)?via subsea cables. It’s the first time this has happened since November 2017 as we are usually net importers…
I thought it was also worth highlighting that?the oil price fell below $100 a barrel (Wednesday)?as fears increased of a drop in demand as China started Covid lockdowns again.
THERE WAS A LOT OF NEWSFLOW ON CONSUMERS, EMPLOYMENT AND REAL ESTATE THIS WEEK...
- UK consumers continue to cut spending (Monday), according to research from Abrdn and Bristol University and?UK retail sales got weaker (Tuesday), according to the latest BRC-KPMG retail sales report – which isn’t surprising, considering that?UK consumer confidence hit a 22-month low (Wednesday).
- Consumers are still having to spend, though.?Credit card borrowing is on the rise (Friday)?and?fuel costs continue to be nightmarish (Thursday)?while?motor insurance looks likely to go up (Friday)?because second hand car prices are rising – as are labour and raw material costs.?PepsiCo is talking about putting its prices up yet again (Wednesday),?Wetherspoons was moaning about fewer people in pubs (Thursday)?as it announced a ￡30m loss but it seems that?people are trying to cheer themselves up with clothes shopping (Friday)?as Kantar reckons customers are spending 20% more on clothing than they did last year. It was also great to see?restaurant/bar chain Loungers doing well (Thursday)?and is continuing to expand.
- IN EMPLOYMENT NEWS?–?PageGroup unveiled strong numbers (Thursday),?as did Hays (Friday), which isn’t too surprising given that wages are rising. In the legal profession,?salaries of Baker McKenzie’s newly qualified solicitors were hiked up by ￡5,000 to ￡110,000 (Wednesday)?which followed similar rises in Herbert Smith Freehills, Freshfields Bruckhaus Deringer and Clifford Chance (among others) in the war for talent. It wasn’t just the juniors who are raking it in either –?equity partners at A&O awarded themselves a 3% pay rise (Friday).
- IN REAL ESTATE NEWS – Mortgage rates are rising (Tuesday)?as lenders try to keep up with interest rate increases but?mortgage lending seems to be slowing down (Friday)?as?interest in the residential property market seems to be cooling (Thursday)?and?rents go higher (Thursday)?as?the number of landlords falls (Friday).
THE DRAMA IN TECH CONTINUED...
- IN TECH HARDWARE NEWS – ST Micro and GlobalFoundries are going to build a chip factory in France (Tuesday)?and?the biggest chipmaker in the world lifted its revenue forecasts (Friday)?after reporting a 76.4% increase in net profit for Q2. In what sounds like a pretty exciting (albeit long-term) development,?Ericsson, Qualcomm and Thales are looking to develop a satellite network (Tuesday), using LEO satellites, that will give SpaceX a run for its money.?Ericsson announced disappointing results (Friday)?later in the week and blamed it on inflation and supply chain problems.
- IN TECH TRENDS?–?hiring in the tech industry is slowing (Monday), a trend confirmed when?Google announced that it was slowing down its pace of hiring (Thursday). The Twitter vs Musk thing continues to unfold as?Musk attempted to extricate himself from taking over Twitter (Thursday).?Snap announced that it is looking at ways to work with NFTs (Thursday), but I have to say that if it goes well Meta will probably copy it and put it on Instagram – and if it goes badly, they’ll just let Snap get on with it.
- IN OTHER TECH NEWS?–?Panasonic?announced plans to open a $4bn battery gigafactory (Friday)?in Kansas and?virtual meeting specialist Hopin is cutting a third of its staff (Thursday)?after having already laid off 12%. Also, it looks like?it was a false dawn for Chinese tech companies (Tuesday)?as regulatory fines were dished out by Chinese authorities for?retrospective?infractions, which freaked out investors because this could happen to any company.
IN AVIATION NEWS...
- Airbus is getting bullish about global jet demand (Tuesday), mainly because there will be a push for more fuel-efficient planes,?Wizz Air thinks it’ll see a “material” rise in operating profit in the July-September period (Tuesday) and hydrogen-powered planes are set to be made in the UK (Tuesday)?by a start-up called ZeroAvia.
- On the other hand,?Heathrow is telling airlines to stop selling tickets for flights this summer (Wednesday)?in a bid to reduce delays and cancellations – but you can imagine how badly this is going down with the airlines who have had a torrid couple of years.
AND IN OTHER NEWS...
- Klarna had a bad week.?It launched a fundraising (Monday)?which ended up giving it?a much lower implied valuation (Tuesday).
- Peloton?decided it won’t make its own bikes anymore (Wednesday). It says that this is a conscious decision to morph into a subscription company and away from a fitness equipment company. I say this was a situation foisted on them because of bad luck/poor performance/a badly executed idea. Will they exist in a year?
- Electric van/bus start-up?Arrival?announced it would shed up to 800 jobs (Thursday)?as it tries to cut costs amid supply chain problems and everything else that’s going on at the moment.
- Gap’s CEO stepped down (Tuesday), but this company seems to be dying the death of a thousand cuts at the moment. Its previous strategy of splitting itself into two was ditched and the “new” CEO just didn’t seem to click.
- JP Morgan and?Morgan Stanley?announced disappointing results (Friday), which doesn’t bode well for their rivals in banking results season.
- The world’s biggest?SPAC?is closing down and handing back $4bn to investors (Wednesday)?because the leader of the fund couldn’t find anything worth buying (!). It’s amazing to think that about 90% of the companies that went public via the?SPAC?route are currently trading below their listing price…
- Aston Martin is doing a financing to raise ￡500m (Friday), ￡200m of which with be from the Saudi Arabian sovereign wealth fund and ￡300m from a rights issue. This should hold the wolf from the door for now, but it really needs to sell more cars sooner rather than later.
COMING UP THIS WEEK ("The Preview")...
Here is a selection of some of the very interesting events happening this coming week:
Monday
- US - housing market index. Are we seeing any signs of a slowdown?
- Italy?- May trade balance numbers. This will be food for thought given what's going on with the Italian government at the moment.
- Spain?- May trade balance numbers.
- UK - Rightmove publishes its house price index. Any signs of a slowdown?
- Results - Bank of America, Charles Schwab, Goldman Sachs, IMB, Nordea. Lots of results from the financial sector this week. Last week started with disappointing performances from JP Morgan and Morgan Stanley, so it'll be interesting to see if this trend is going to continue through this week.
- Other - the Farnborough Airshow will go ahead for the first time in four years today. This is important because all the industry big cheeses will be there and it's usually an occasion where big deals/developments get announced. The trial of Trevor Milton, ????er-in-chief of Nikola (that electric truck company), commences. He's accused of defrauding investors. Get the popcorn ready ??!
Tuesday
- EU - final June inflation figures, ECB publishes its Q2 eurozone bank lending survey.
- UK - June labour market data (expectations are that unemployment levels will continue to brush historic lows)
- Results/trading updates - BHP Billiton (how much are they benefiting from commodity prices at the moment? Are they embarking on many new projects?), Halliburton (how much is the oilfield services company benefiting from strong oil prices? This will depend on how many new projects that oil companies are embarking on...), Hasbro (are consumers still buying toys - or, as discretionary items, are they reining in spending that has been strong over lockdowns), Johnson & Johnson, Lockheed Martin (much of an uptick in defence spending yet or was that all talk from governments?), Netflix (update on how their ad-supported subscription is progressing would be nice), Novartis, Swedbank, Telenor and Volvo Cars.
Wednesday
- China - central bank's policy rate decision.
- Canada - June CPI figures.
- EU - flash consumer confidence numbers.
- Germany - June producer price index.
- UK - June CPI and PPI numbers. Inflation is expected to remain at its highest level since 1982.
- Results/trading updates?- Akzo Nobel, Alcoa, ASML (are they seeing a slowdown in chip demand like the chip manufacturers? How's the backlog going?), Tesla (are the China slowdowns temporary? Is underlying demand still strong? What's the order book looking like?), United Airlines (what's the balance of business: leisure travel?), Premier Foods (are higher input costs being passed on successfully? If so, what's the impact?), Royal Mail (is e-commerce slowing down? How is RM faring against tightening competition?)
Thursday
- Japan - monetary policy committee to make decision on interest rates and trade balance.
- EU - ECB to make interest rate decision (it's widely expected to rise, given recent noises).
- Results/trading updates?- ABB, American Airlines, Anglo American, AT&T, Capital One (is credit card spending continuing to increase? If so, do they have a plan on how to deal with debts that go bad?), Close Brothers, Electrolux, Mattel (how are they doing versus arch-rivals Hasbro?), Nokia (remember them?!?), Ocado (how robust is their business currently as people react to the cost-of-living crisis), Philip Morris (how is their non-tobacco business doing? Are cigarette sales rising?), Publicis (are advertising revenues slowing down? If so, which areas are best/worst performing?), SAP (what's corporate spend like? Are they still putting money into software or are they taking a breather?), Skanska, Snap (does it have any more tricks up its sleeve to make up for advertising losses suffered since Apple made its changes?), AJ Bell (how are rich people doing? Are they putting more money in or are they taking it out?), Brewin Dolphin (ditto), Dunelm (are earnings suffering from the early signs of the housing market slowing down?), Frasers (what's the latest with its department store business?).
Friday
- Japan - June CPI numbers.
- Russia - Bank of Russia will review interest rates.
- Eurozone, France, Germany, Japan, UK, US - global PMI data from IHS Markit/S&P Global. This is only a survey, so it's a measure of sentiment (that can sometimes be a lead-indicator of what is actually going to happen - but it doesn't always work out like that).
- UK - retail sales figures for June (they are expected to confirm the ongoing trend of belt-tightening), another consumer confidence survey, this time from GfK.
- Results/trading updates?- American Express (is credit card spending increasing? If so, what plans do they have to minimise users who default?), Danske Bank, Moneysupermarket, Schlumberger (getting involved in more projects with oil companies?), Twitter (what's the latest on user numbers? Any word on bot numbers?), Verizon
- Other - Meme stock GameStop recently announced a 4 for 1 stock split and this will be effective from today.
BANTER
My favourite “alternative” story of the week was obviously the one about the drumming granny, Dorothea Taylor!?HERE‘s my favourite video of her doing her stuff!
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