Friday 19/08/22

1. In MACRO & ENERGY NEWS, Turkey does it again, China ups coal usage and Germany cuts VAT on gas sales
2. In CONSUMER/RETAILER NEWS, UK consumer confidence hits a new low, Britons are expected to keep drinking, full English brekkie prices rise and Halifax targets the wealthy while Made.com and AO World have issues. Estée Lauder and Kohl’s hit problems and a big shareholder sells out of Bed Bath & Beyond
3. In TECH NEWS, Apple Pay motors and Snap gives up on yet another bit of hardware
4. In INDIVIDUAL COMPANY NEWS, Geely experiences the good and bad and Carlsberg loses its fizz while P&O’s owner is laughing
5. AND FINALLY, I bring you rice pizzas and an accessible hangover cure…

So Turkey continues to go it alone, China increases coal usage and Germany cuts VAT on gas…

📢 Just so you know, I’m going to be going on holiday (for the first time in ten years!) from TOMORROW. This means that Watson’s Daily will have a “posting holiday” until Tuesday 30th August. There will be a lot of work going on behind the scenes until then, though – so keep watching this space! In the meantime, I did a special podcast over the weekend with Ralph on our thoughts for the final quarter of this year, so I would recommend you give this a try as we cover politics, economics and energy policy.

*** I WILL BE DOING THE AUGUST ROUND-UP ON WEDNESDAY, AUGUST 31ST WITH JAKE SCHOGGER OF THE COMMERCIAL LAW ACADEMY. You need to sign up HERE to attend. It’d be great to see you there! ***

I would also like to say a sincere and heart-felt thank you to all of YOU, the Watson’s Daily subscribers! It’s because of you that I can actually GO on holiday! I will continue to strive to help you as much as I can in your knowledge growth in as many ways as I can 👍 There’s more good stuff to come!

Turkey cuts interest rate as inflation nears 80% (The Times, Arthi Nachiappan) shows that the central bank of Turkey gave everyone a shock yesterday by announcing that it was going to cut interest rates by a full 1% (from 14% to 13%) despite the latest inflation reading in July of 79.6% and widespread expectations that it will break the 80% barrier. The market had expected the interest rate to remain the same so the Turkish lira fell by 1% to its pandemic lows. It has now fallen by over 25% this year after falling by 60% last year! * SO WHAT? * I have said this many times before, but Turkey is pretty much alone in the world in its approach to tackling inflation. Conventional wisdom says that interest rates need to rise in order to curb inflation (debt becomes more expensive, people and companies borrow less, they spend less and therefore prices cool

down), but President Erdogan fervently believes that RAISING the interest rate is the key. I wonder how long he will keep this up for before giving up on this approach. If inflation keeps going up, however, I have no doubt he’ll blame it on other factors. I think that we are now in quite an interesting position where many countries are facing the same problems at the same time and so you can really compare and contrast how the different approaches work and how long they take for the effects to kick in. TBH, at the moment, it’s hard to see whether ANY of the approaches are working although the US got a bit of a respite recently. I am willing to take back all my derogatory comments on Erdogan if his policy works, but I’m very sceptical at the moment!

Then in China boosts coal usage as extreme heat triggers power shortages (Financial Times, Primrose Riordan and Gloria Li) we see that China is going to help coal plants to keep electricity flowing in the face of current extreme weather conditions and droughts in the south-west of the country. The government said it would “enhance policy support [and] take multiple measures to help coal plants ease actual difficulties”, but didn’t give any details. * SO WHAT? * This just goes to show how desperate things are getting right now. Incredibly, some cities affected by the drought have fired metal cannisters into the air to try and get the clouds to rain!

Germany to slash VAT on gas sales to cushion price shock (Financial Times, Martin Arnold) shows that Olaf Scholz announced a cut in VAT on gas sales from 19% to 7% yesterday, saying that there were more measures to come that are designed to soften the impact of rising energy costs for households. * SO WHAT? * This will come as a great relief no doubt, but some observers will wonder whether this means that individuals and companies will worry less about cutting consumption in the short term. The state has set a target of cutting total gas usage by 20% this year to avoid energy rationing.

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!

We look at more consumer trends and issues facing retailers…

Consumer confidence hits new low (The Times, Mehreen Khan) cites the latest monthly survey from GfK which shows that UK consumer confidence has fallen to a new low as inflation continues to erode household spending power. Britons expected to extend ‘pandemic trend’ of drinking more at home (Financial Times, Nic Fildes) shows that Australia’s biggest listed wine producer, Treasury Wine Estates  – which owns brands like Penfolds, Wolf Blass and Lindeman’s – reckons we will keep drinking the “good” stuff at home despite the cost-of-living crisis as its chief exec observed that “The £6-£8 a bottle price point continues to be pretty strong”. It also seems that Brits have tended to increase their consumption of alcohol at home during big downturns including the pandemic and the financial crisis. * SO WHAT? * This is quite an interesting observation and it does make me wonder whether something like Majestic Wine will be a winner as customers can get not only informed advice on their purchases, they can also save money by buying in bulk – so they know they can get decent wine at a reasonable price. Drinking at home is clearly good for supermarkets and wine retailers like Majestic Wine but could be bad for the hospitality industry.

Out of the frying pan into the higher: full English price soars (The Times, Arthi Nachiappan) shows that the average price of a full English breakfast is thought to have risen by almost 20% over the last year as the prices many of its constituents have gone up. According to Bloomberg, the price of a pint of milk has increase by over 40% in the last year while the cost of a 250g pack of butter and a kilo of tomatoes shot up by 20%. * SO WHAT? * I think we all realise that prices have gone up, but I think when it’s expressed like this it really brings it home!

Meanwhile, Halifax stops lending on mortgages below £100k (Daily Telegraph, Rachel Mortimer) shows that the Halifax increased its minimum mortgage size from £25k to £100k for some of its remortgage deals, a move following NatWest’s relaxation of lending limits for those who earn over £75k a year – which itself followed recent moves made by Nationwide to concentrate on wealthier customers. * SO WHAT? * Although this obviously doesn’t sound very fair, banks and building societies aren’t charities and so, given the economic downturn, you can understand why they are trying to concentrate on the wealthy who are probably better able to withstand the increased financial pressures. If the ongoing strength of the likes of LVMH, Watches of Switzerland, Mercedes-Benz etc. is anything to go by, it’ll take a while (if ever) for this sector of society to feel any financial pain.

Among the retailers themselves, Made.com seeks funds as shoppers shun big purchases (Daily Telegraph, Laura Onita) shows that online furniture retailer Made.com is considering the possibility of an emergency fundraising as millennials are cutting their spending on big ticket items. The company is looking at all potential options to bolster its finances and Electrical retailer AO World swings to loss as costs mount and demand weakens (Financial Times, Madeleine Speed) shows that the group has lost momentum thanks to product shortages, rising costs and slower consumer demand – echoing what Made.com is finding as it too sells big ticket items. Given the current economic uncertainty I don’t think this is at all surprising.

Over in America, Estée Lauder/Tapestry: China exposure goes from gain to pain (Financial Times, Lex) shows that the companies’ exposure to China, which has been a fantastic growth driver, is now becoming a drag. Both Estée Lauder and Tapestry, which owns the Coach and Kate Spade brands, yesterday posted full-year earnings forecasts that fell short of expectations as they were both affected by the constant China lockdowns. * SO WHAT? * It seems likely that companies with particularly large exposure to China will suffer as investors see it less as a driver and more as a limiter.

In Kohl’s earnings and sales drop as company works to clear excess inventory (Wall Street Journal, Suzanne Kapner and Dean Seal) we see that the department store chain’s earnings fell sharply on lower sales over the quarter and it also decided to cut its guidance for the year. This was all blamed on the usual suspects: rising inflation putting the mockers on consumer spending. Then in Meme lord Ryan Cohen unloads Bed Bath & Beyond bet, sending shares spiralling (Wall Street Journal, Caitlin McCabe and Gunjan Banerji) we see that the retailer that’s seen a massive spike despite not really doing anything to deserve it has been sold off by the guy that built up a stake, ostensibly, to push for improvements at the company. Retail investors followed him into the trade and he has now burned them royally by selling his entire shareholding! The share price fell by 20% initially and then another 35% in after-hours trading. * SO WHAT? * This just goes to show how dangerous meme stock trading can be. On the other hand, you’ll see a few stories knocking around in today’s press about an American uni student who managed to make $110m in profit from trading this meme stock, but it’s a non-story because he’s just a rich kid who used his family’s money (he managed to raise $25m from friends and family!) to make even more money. He did incredibly well on the timing though – and I’m sure a story like this will encourage others with rather less money to take risks on the stock market.

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!

Apple Pay gets more popular and Snap fails at hardware yet again…

I thought that Wait, when did everyone start using Apple Pay (Wall Street Journal, Ben Cohen) was interesting because it highlighted how popular Apple Pay has become after many years of being a bit of a niche gimmick post its launch in 2014. * SO WHAT? * Did you know that Apple Pay was activated in 10% of iPhones in 2016, 20% in 2017 and hit 50% in 2020. It has now been activated in 75% of iPhones as it has benefited from wider acceptance and the fact that once people use it they tend to love it! At the moment, around 90% of retailers in the US use Apple Pay versus 3% when it was first introduced! Great news for Apple as it makes its hardware more irreplaceable and more useful and boosts the revenues for its services business.

On the other end of the success scale, Snap scraps development of flying selfie Pixy drone (Wall Street Journal, Meghan Bobrowsky) shows that Snap’s latest attempt at making a hardware hit has stalled as it has ditched further development of its latest gizmo just four months after launching it. The Pixy is basically a small drone that fits in the palm of your hand and follows you around – yours for a starting price of “just” $230. * SO WHAT? * After failing with its camera glasses – the “Spectacles” – it seems that the hunt continues to diversify the company’s revenues. It wants to be a camera company – but it’s still a social media platform IMO! It is still adjusting to those Apple privacy changes and looking to increase revenues any way it can but it just isn’t having any luck…

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!

Geely hits a speed bump, Carlsberg loses its fizz and P&O’s owner is laughing…

In a quick scoot around other interesting stories today, Geely Auto earnings squeezed by Covid lockdowns and chip shortage (Financial Times, Oliver Telling and Peter Campbell) highlights the Chinese carmaker’s woes as its profits have more than halved thanks to a semiconductor shortage and Covid-related problems but then again Geely: worst of times is the best of times to build a global auto network (Financial Times, Lex) makes the point that although its current state isn’t great, it is continuing to build stakes in foreign rivals which will, longer term, help enormously with distribution of its vehicles.

Carlsberg/inflation: beer group’s defensive fizz prone to go flat (Financial Times, Lex) shows that the Carlsberg is suffering – like everyone else – from rising input costs and it is not overjoyed with the prospects for the rest of the year. It has been hard hit by its exposure to central and eastern European operations and is

currently in the middle of selling off its Russian operations. Tough times – and they’re not likely to get better any time soon…

Then in P&O Ferries owner reports record-breaking profits after mass sacking (The Guardian, Rupert Neate) we see that Dubai-based owner of P&O Ferries, DP World, has celebrated massive profits only a few months after it sacked 800 of its UK-based workers without notice via video call. It replaced them all with cheaper agency workers – and revenues were up by 60% and profits by over 50%. * SO WHAT? * This may not be a popular opinion, but I think we are ALL to blame for this. Virtue signalling and social media outrage had absolutely zero effect – and if everyone was REALLY angry about it, they shouldn’t use P&O! Although DP World didn’t separate out the performance of the ferries business, the implication here is that customers were saying one thing (“support the workers!”) and doing another (“ooh – bargain ticket price to France – don’t mind if I do!). This is terrible behaviour by the company, but unfortunately, it seems to have worked…

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…

Well here’s something I didn’t realise the world needed: Rice Pizza?! Pizza Hut creates a new base for customers in Japan (SoraNews24, Oona McGee). What?? Then there’s a very accessible hangover cure touted by an interesting lady in Professional partier who gets paid to neck pints shares unbeatable hangover cure (The Mirror, Lydia Patrick and Saffron Otter). This doesn’t sound like the healthiest line of work – but she certainly enjoys it!