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.
*** NB I'M DOING A ROUNDUP OF THE MONTH OF JULY THIS WEDNESDAY!
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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...
This week, the Fed got feistier and the energy convo gets increasingly heated…
- The IMF said that the world is on the cusp of recession (Wednesday)?as it updated its World Economic Report that it published in April. Unsurprisingly, it cut its growth forecasts and made for gloomy reading!
- IN THE US?–?the Federal Reserve raised interest rates by 0.75% for the second consecutive month (Thursday). This was widely expected and there is speculation as to whether another big hike will happen next month, although?Fed chief Jay Powell said that he would give the market less guidance as to what he is thinking (Friday), which means that everyone will be guessing again.?US GDP contracted again (Friday), meaning that it is technically in recession but because it’s America, it has extra criteria so that it can pretend that it isn’t (but it is). For pretty much everyone else, the definition of recession is two consecutive quarters of GDP contraction.
- IN EUROPE?–?Goldman Sachs economists reckon that the Eurozone will go into recession this year (Thursday), which is hardly surprising given the macroeconomic situation and energy nightmare the bloc is having currently. It was also interesting to see that controversial populist?Hungarian PM Viktor Orbán is changing his tune (Thursday)?so that he can get his hands on €15bn of pandemic funds that Brussels has control of.
Energy continued to be a hot topic this week as we edge closer to the autumn.
- EU countries were lining up to appeal for exemptions for cutting gas usage (Monday)?just as?Russia squeezed gas deliveries (Tuesday). In the meantime,?Putin, Drax (Wednesday),?Equinor, Iberdrola (Thursday), Shell and Centrica (Friday)?are all benefiting from higher energy prices.?Germany is having to rethink its exit from nuclear power (Wednesday),?National Grid is asking for UK coal plants to go on standby (Thursday)?and it turns out that?it begged Belgium for electricity last week (Monday)?to ensure supplies kept flowing.
There was an interesting development for cryptocurrency this week…
- The Law Commission put forward?new proposals to give British courts the power to award damages in?Bitcoin?and other crypto assets (Thursday). The rules could help with guidance on how to treat these new assets and may act as precedent for other jurisdictions, but nothing is finalised about this as yet.
IT WAS A BIG WEEK FOR TECH AS THE BIGGIES REPORTED RESULTS...
- Alphabet saw its growth slow down (Wednesday)?as it announced its worst sales growth for two years due to falling advertising sales. Weaker advertising revenues continues to be a recurring theme as?Meta announced its first ever drop in revenues (Thursday)?while?Twitter’s ad revenue woes were worsened by its Musk lawsuit (Friday)?as corporate clients used it as an excuse to give them less business.
- IN STREAMING?–?Spotify?managed to?add?subscribers over Q2 (Thursday), showing that it was wrong for investors to tar all streamers with the same brush as Netflix.?Disney+ started to show more grown-up content (Monday), which is interesting because it may mean that subscribers keep subscribing because they may want to see what else it has up its sleeve!
- Lockdown winner Shopify is having a shocker (Wednesday)?as it revealed that it was going to cut staff numbers by 10% in response to a slowdown in growth.
THERE WERE SOME INTERESTING DEVELOPMENTS IN THE AUTOMOTIVE SECTOR AND CHARGING...
- Ford?(Thursday), and?Stellantis (Friday) announced strong numbers?from the volume producers although?GM?saw profits fall (Wednesday)?thanks to China weakness and ongoing supply chain problems. Mind you, at the more luxury end of things,?Bentley (Friday) and Mercedes-Benz (Thursday) put in strong performances?as more affluent consumers continue to spend.
- It was interesting to hear that?Tesla?is thinking about opening up its charging network in the US (Monday)?in order to get its hands on government funds designed to encourage the expansion of the charging network more generally. I suspect similar schemes around the world as everyone tries to boost charging network capabilities. Closer to home, we heard that?a service station on the M6 could be one of the first HGV hydrogen refuelling stops in the world (Monday). Hydrogen is being looked at as a suitable power source for HGVs, but it’s not commercially viable at the moment – hence the testing.
- More generally,?car manufacturing in the UK is picking up (Thursday), according to the latest figures from the SMMT. This is the second consecutive month of growth, so it looks like things are picking up nicely just as the cost-of-living crisis is kicking in!
IN CONSUMER, RETAIL & REAL ESTATE NEWS...
- US consumers are (like their British counterparts) continuing the trend of trading down (Monday)?in order to save costs but when you’ve got the likes of?Unilever, Coca-Cola, McDonald’s (Wednesday),?Kraft Heinz,?Reckitt Benckiser?(Thursday) and Nestle (Friday) increasing prices,?consumers are being forced to rethink their spending habits, although?it seems that they are doing so whilst drinking premium spirits, according to Diageo (Friday). All of this is being echoed by?the latest BRC report which says that shop prices are rising at their fastest rate since at least 2005 (Wednesday)?as?Asda’s latest monthly income tracker shows that household spending power continues to fall (Tuesday). Given that?UK consumers (Thursday) and German consumers (Friday) are facing massive utility bill hikes, it’s not surprising that?Sky subscriptions are falling (Friday)?and?corporates are spending less on advertising (Friday). The?rising incidence of late repayment of car loans is further evidence of the pressure that consumers are under (Thursday)?although, at the other end of the scale,?LVMH?booming sales shows that the affluent are immune to the cost-of-living crisis (Wednesday).
- IN RETAIL NEWS?–?Walmart?announced a profit warning (Tuesday)?as US consumers continue to rein in spending and it was interesting to see that?Alibaba?is pulling back from international expansion (Wednesday)?as the ongoing crackdowns it has suffered take their toll. In the UK,?WH Smith?is staging a bit of a comeback thanks to its US business (Tuesday), particularly as its airports business gathers more momentum due to more leisure and business travel and?Aldi has increased its hourly rate of pay (Tuesday)?as it bids to continue its fast pace of growth and become the UK’s fourth biggest supermarket.
- IN REAL ESTATE NEWS?– the?share prices of Chinese real estate stocks rose on hopes of a government bailout fund (Tuesday)?that could help a troubled sector. In UK residential property news,?UK mortgage brokers are working hard to stay ahead of interest rate rises (Tuesday)?while?rental prices and first-time buyer mortgages hit record highs (Monday). Things are getting so ridiculous in the UK property market at the moment that?the average asking price for a beach hut is now ￡50k (Monday)! Elsewhere in the sector, it seems that?buy-to-let is turning a corner (Thursday)?while?sales of ￡10m+ London properties have reached their highest level for ten years (Monday)! This is due in great part, though, to the currently weaker pound.
AND IN OTHER NEWS...
- IN FINANCE NEWS – Swiss wealth manager Julius Baer saw a massive collapse in first half profit (Tuesday), which is notable as the company is often seen as a bellwether for the Swiss banking industry. This weakness was echoed at?UBS, which saw its Q2 earnings fall short of market expectations (Wednesday)?as client activity lost momentum.?Elsewhere, it was interesting to see?Jack Ma relinquishing control of?Ant Group?(Friday). Mind you, given the pressure that he and the company were under since its IPO was pulled at the end of 2020, it was probably inevitable. Still, I would have thought that it makes a “new” IPO more likely…
- IN M&A NEWS – JetBlue bought Spirit Airlines for $7.6bn (Friday)?as two American budget airlines got together to take on the big players while?the announcement of Paris-listed Eutelsat and British?OneWeb?combining to take on the likes of SpaceX’s?Starlink?and?Amazon’s Project Kuiper (Monday)?caused a bit of a kerfuffle.?Eutelsat shares fell sharply on the news (Tuesday)?and?there was scepticism as to whether it the combined group will be able to take on the Americans (Wednesday). Very crudely speaking, it sounds like?OneWeb?has the ideas (but a lot of debt) and Eutelsat has the money (but lacks creativity).
COMING UP THIS WEEK ("The Preview")...
There's another deluge of company results coming this week (NB this is not exhaustive):
Monday
- US?- construction spending data.
- Europe - EU monthly unemployment numbers and the S&P Global manufacturing PMI for US, Japan, Eurozone, Germany, UK and France. Germany will also publish retail trade figures.
- Results?- HSBC, Pearson, Heineken (are consumers still drinking beer, or are they cutting back? Are price rises still being passed on successfully?), Avis Budget (how are things going now air travel is recovering? It used to be a major part of the business pre-pandemic), Pinterest (how is this going in the general social media gloom?).
Tuesday
- Australia - the country's central bank holds its monthly interest rate-setting meeting.
- UK - publication of the Nationwide monthly house price index (always followed closely for signs of trends - is the housing market slowing down?) and quarterly insolvency figures (is it getting better or worse? I'm thinking worse, but it'll be interesting to see if there are any new trends here in specific industries).
- Results - BP, Direct Line (I imagine this won't be good given recent newsflow on the negative effects of higher repair costs and the strength of the used car market), Travis Perkins (are people still doing DIY? Also, how much is it being affected by small contractors going out of business?), Greggs (passing on ingredients costs OK? Is it difficult given the squeezed demographic of its target audience?), Cazoo, Uniper (what's the current status of finance talks with the German government?), Paypal (an interesting reflection of how consumers are behaving plus possibly an insight into online spending trends), Starbucks (how are its anti-unionisation moves working?), Uber (are people taking fewer rides as part of cutting costs or is this being balanced by, say, more corporate work?), Caterpillar (is construction demand still strong? What about mining?), Airbnb (I imagine this is probably doing quite well at the moment, but what's the outlook like? Any insight into geographical trends?).
Wednesday
- US - monthly employment data.
- EU - July retail numbers, publication of S&P's services PMI for US, Germany, France, Italy and UK. This will be particularly closely watched in the UK given that the services sector accounts for around 80% of our GDP.
- Italy - monthly retail sales numbers.
- India - the Reserve Bank of India holds its monthly rate-setting meeting.
- Results - Just Eat Takeaway.com (is it doing any better than Deliveroo? Which markets are still strong?), Commerzbank, Bank of Ireland, Nintendo (is it still continuing with its usual behaviour of under-promising and over-delivering on results?), Yum Brands (are consumers avoiding its cheap-and-cheerful outlets as part of belt-tightening in the cost-of-living crisis?), Hugo Boss (any word on Mike Ashley's ongoing interest?), Societe Generale, BMW (will the luxury trend continue as per Mercedes-Benz last week?), Axa, Robinhood Markets (are retail investors trading or have they lost interest? What are the plans for crypto trading?), eBay, Moderna, Under Armour
Thursday
- US - June trade figures
- Europe - ECB publishes monthly economic bulletin. Surely this is going to be uncomfortable reading...
- UK - Bank of England Monetary Policy Meeting decides what to do with the interest rate. Markets seem to be expecting a 0.5% increase at the moment.
- Results - Glencore (what's the outlook like given China's manufacturing slowdown?), Bayer, Adidas, Merck, Beyond Meat, AIG, WeWork, Kellogg (will they be passing even more price rises onto consumers?), ConocoPhillips, Alibaba (now that Jack Ma is set to take a step back, any indication of a potential IPO?), Lyft (are consumers cutting back? It'll be interesting to see whether there's a contrast in fortunes with Uber given Lyft's business is concentrated in the US and Canada), Next (how's trading looking? What are inventories like?), SoftBank, Toyota.
Friday
- US - July unemployment numbers and US Federal Reserve consumer credit figures.
- Canada - July unemployment numbers.
- UK - Halifax monthly house price index (it'll be interesting to see whether this confirms any trends identified in Nationwide's report earlier this week).
- Results - Capita, WPP (is advertising spend going down the toilet or are there any signs of life? How's analogue advertising behaving versus digital?), Allianz.
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