Wednesday 13/04/22

1. In MACRO, SHANGHAI & ENERGY NEWS, the WTO downgrades world growth forecasts, US inflation hits a 40-year high, Shanghai repercussions continue, the knives are out for Scottie, wind turbine energy and hydrogen get boosts while SMRs look expensive
2. In EMPLOYMENT & CONSUMER-RELATED NEWS, unemployment falls, wages fail to keep up with inflation, BA and restaurants offer employee incentives, high petrol prices persist, Deliveroo slows but Pret accelerates
3. In CAR-RELATED NEWS, Honda keeps hybrid going, GM sources cobalt and Renault considers Lotus
4. In MISCELLANEOUS NEWS, digital ad revenues rise, Deutsche Bank gets sold off and and Dubai IPO lifts off
5. AND FINALLY, I bring you an unusually-themed café…

So the world economy gets buffeted, US inflation reaches another high, Shanghai repercussions persist, Scott Morrison takes flak and there are some interesting energy developments…

WTO cuts growth forecast to 3% as Ukraine war disrupts global trade (Financial Times, Andy Bounds and Valentina Romei) sets the tone and warns that developing countries could suffer particularly badly as a result while Inflation climbed to 8.5% in March, highest rate since 1981 (The Guardian, Dominic Rushe) shows America’s inflation levels hitting 40 year highs yet again (we saw a similar headline last month!), with rising gas prices being the main culprit. The rest of the world should watch what is happening in Shanghai (Financial Times, Robin Harding) highlights the need for everyone to take note of Shanghai’s lockdowns as many other countries seem ready to downgrade (or have already downgraded) Covid urgency. This is because they have repercussions for supply chains, China’s economic growth prospects and its path to reform (especially regarding the deleveraging of the debt-laden property market – and Evergrande in particular). There is a risk of more lockdowns as the year progresses.

I mentioned the announcement of the Australian election earlier this week but Scott Morrison’s party turns on prime minister in run-up to Australian election (Financial Times, Nic Fildes) shows that the Aussie prime minister can’t rely on rock-solid support from his own party members as one of his senators called him an “autocrat (and) a bully who has no moral compass”, just another anti-endorsement in a list of comments from colleagues who call him a “complete psycho”, “a fraud” and a “hypocrite and a liar”. I suspect Boris Johnson will be taking notes 🤣 and will hire Morrison’s PR if he wins the election!

In energy news, Energy from wind turbines hits record high (Daily Telegraph, Rachel Millard) cites the latest data from EnAppSys which shows that wind generated almost as much electricity as gas-fired power stations in the first quarter for the first time ever. Renewables overall generated more power than gas and coal for only the second time ever. This will be music to BoJo’s little ears as he announced his new energy plan last week. Meanwhile, Shell signs pact to supply hydrogen (Daily Telegraph, Rachel Millard) shows that the oil supermajor has signed a deal with German energy company Uniper to produce hydrogen in the Humber as part of wider efforts to decarbonise heavy industry in the region. Hydrogen does not produce carbon emissions when burned and there are hopes that hydrogen can replace fossil fuels in industry and heavy transport. As for nuclear, Rolls shares tumble on fears over nuclear plant losses (Daily Telegraph, Giulia Bottaro and Howard Mustoe) shows that Rolls-Royce shares were dented yesterday (only 5.5% though, so no massive drama at the moment) as analysts from JP Morgan said that the company’s plans for SMRs and electric engines were too optimistic. They added that they thought that said SMRs are more likely than not to go well over budget. * SO WHAT? * It’s great to see that wind is making a comeback regarding renewable energy, that Shell is getting more involved in hydrogen but not so great to hear about Rolls-Royce. At the end of the day, though, we’re talking about something that isn’t supposed to make an appearance until 2030 (according to the company themselves). Although the cynic in me says that I’d agree with the analysts who say cost overruns are likely, they are talking about something that is pretty far off into the future. Also, the current CEO announced that he was going to be stepping down, so the future will be in the hands of someone new. At that point, there will be ample opportunity for the new person in the hot seat to “kitchen sink” stuff like this, but if they leave current projections untouched I would have thought this will be a positive sign.

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!

The UK labour market remains tight and we see look at current consumer challenges and trends…

UK unemployment drops to pre-pandemic levels (Financial Times, Delphine Strauss) cites the latest data from the ONS which shows that the unemployment figure of 3.8% in the latest quarter is at a level last seen in 2019 but Jump in UK wages fails to keep pace with cost of living (The Guardian, Phillip Inman) highlights other figures from the ONS which show that the average growth in earnings of 5.4% including bonuses (and 4% excluding bonuses) fell short of a 6.2% rise in inflation in February. Still, BA offers £1,000 golden hello (Daily Telegraph, Oliver Gill) shows how desperate things are now getting in the previously-decimated airline industry as BA is trying to tempt rival cabin crew members with security clearance with a grand joining bonus and Restaurants tempt workers with free prosecco (Daily Telegraph, Hannah Boland and Laura Onita) shows that things are similarly tricky in the restaurant trade and leisure industry. Other perks being bandied around at the moment include gym memberships, high-end takeaways, retention bonuses and gardening leave – all in addition to higher pay. * SO WHAT? * A tight labour market is great for candidates, but a real downer for companies who are basically forced to shell out more for wages and incentives to attract and retain employees. Coupled with higher material costs and tighter customer

budgets, as I’ve said before, something’s got to give – and often that is jobs. We haven’t quite reached that point yet, but I fear that it can’t be too long before we see businesses go under as a result of all this. In the meantime, I feel that unions are tasting success and interest like they haven’t felt for quite some time at the moment and want to use current circumstances to expand their memberships. 

In Drivers fail to see price cuts at petrol pumps (Daily Telegraph, Gurpreet Narwan) we see that drivers are still paying loads for petrol despite the Chancellor recently cutting fuel duty and a 30% fall in oil prices. Consumers continue to face ongoing challenges – and fuel is just one of them. Meanwhile, Deliveroo growth slows down as diners return to eating out (Daily Telegraph, Gareth Corfield) shows that consumers are spending less on take-outs, which left investors disappointed but Pret sales at airports soar as passengers suffer long delays (Daily Telegraph, Hannah Boland) shows that sales at London airports “soared” last week. * SO WHAT? * Given rising prices generally, I don’t think it’s surprising to see people spending less on take-outs and Pret clearly benefited from having captive audiences at British airports – something that would surely be something that the likes of WH Smith will also benefit from given that it has exposure to airports as well. I don’t think the petrol price thing is that surprising either given the volatility of oil prices recently – but it’s frustrating for consumers.

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!

Honda hangs on to hybrid, GM sources cobalt and Renault considers Lotus for Alpine…

In a world that is heading for EVs, Honda defies electric vehicle mania to bet on hybrid cars (Financial Times, Eri  Sugiura) shows that Honda is going to invest $40bn in EVs over the next ten years but will keep developing hydrogen fuel cells as an alternative to fully electric vehicles. The company said that hybrid would lead the way for the next decade and outlined plans to deepen its existing tie-ups with GM and Sony to address the affordable EV market. * SO WHAT? * This is interesting because everyone else and their dog is throwing everything into electrification. The danger here is that even if hydrogen fuel cells are superior technologically, the lack of wider adoption will mean that scaling may be more problematic. This could mean that Honda wastes one hell of a lot of money investing in something that no-one ends up buying.

Then in GM strikes deal to secure cobalt for electric car batteries (Wall Street Journal, Sean McLain and Christina Rogers) we see that General Motors has struck a deal with

mining giant Glencore to supply it with cobalt for a number of years. Cobalt is an essential raw material used in car batteries. * SO WHAT? * This comes shortly after Ford signed an agreement with an extraction operation in Argentina to get lithium, another key raw ingredient in car batteries. Given that EVs are going to be everywhere over the coming years, anything to do with batteries is going to be hot property. The only thing is that you wonder whether this is going to mean that there will be less interest in technological advances for batteries that could render hard-fought supply contracts obsolete. It’s one of the reasons why I wonder whether, say, hydrogen fuel cells may not do so well even if they are better because everyone is so deeply invested in current technology that they are not really incentivised to push anything else.

Then in Renault may move sports car to Lotus (The Times, Russell Hotten) we see that Renault is thinking about moving future production of its Alpine brand sports cars from France to the UK’s Lotus. Confirmation has yet to be made, but there is no doubt that this will please Brexiteers immensely if it ends up like this.

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!

Digital ad revenues rise, Deutsche Bank gets sold off and a Dubai IPO sees decent action…

In a quick scoot around other interesting stories today, Digital ad revenue jumped 35% in the US last year, biggest gain since 2006 (Wall Street Journal, Megan Graham) is just one of those articles which puts a figure on what your gut is saying as research from the Interactive Advertising Bureau and PwC shows that digital advertising continues to grow. Growth in advertising on digital audio – on podcasts, streamed music and radio – shot up faster than any other category. This just goes to show how important digital really is as behaviours reinforced by lockdown continue.

Meanwhile, Deutsche shares slide after Capital Group dumps €1.27bn stake (Financial Times, Stephen Morris and Olaf Storbeck) highlights the sale of Capital Group’s chunky stakes in Deutsche Bank and Commerzbank earlier this week, news of which caused the share prices of both to fall by 10% each. Both German banks had been going through a more positive period of late but rampant inflation

and the Russia/Ukraine war have stunted the growth prospects of European banks, who remain stubbornly less profitable than their US and Asian cousins. Deutsche Bank/Commerzbank: shareholder sale raises questions about German risk (Financial Times, Lex) says that it probably is the right call to sell out of German banks at the moment given economic problems in the country that are being made much worse by the country’s current reliance on Russian gas. This is having a depressive effect on the economy, and if slowdown happens the prospects for doing tons of business for the country’s banks shrink. The question now is whether other investors will also sell.

Then in Shares in Dubai’s biggest utility surge on market debut (Financial Times, Simeon Kerr) we see that shares in Dubai’s state-owned utility, Dubai Electric & Water Authority (aka DEWA), shot up by 23% in the world’s second largest flotation this year and Dubai Electricity & Water Authority: emirate invigorates stock market with privatisations (Financial Times, Lex) shows that there are plenty more privatisations of state businesses to come, including toll road operator Salik and district cooling operator Empower.

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…

Every now and again I come across an unusually-themed café in Japan. Given the number of coffee shops we get over here, I wish more were themed to make things a bit more interesting! Anyway, I think you’d agree that this has got to be up there with the most unusual themes: This Tokyo cafe won’t let you inside unless you’re a writer or translator with a deadline looming (SoraNews24, Casey Baseel) highlights a venue where you might actually get some work done 🤣!