Friday 28/06/24

1. In MACRO NEWS, the IMF warns the US about its debt, von der Leyen closes in on another term, central bankers remain nervous, the Bank warns of a Le Pen win, BP makes cut backs and cocoa prices drop
2. In RETAIL NEWS, Amazon takes on Temu and Shein (but is sued by UK third-party sellers), the sale of Boots is postponed, Gap regains some mojo, Halfords slows and Watches of Switzerland blames the tourist tax
3. In CONSUMER & CONSUMER GOODS NEWS, UK households face a steep rise in mortgage payments and Nike shares fall
4. AND FINALLY, I bring you a somewhat extreme way to limit overtime…

So the IMF warns the US about debt, von der Leyen wins support, central bankers are still nervous, BP cuts commitments and cocoa prices fall…

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IMF warns US must ‘urgently’ address debt burden (Financial Times, Claire Jones) shows that the IMF is getting increasingly concerned about the US piling on the debt after looking at the tax plans of both presidential candidates. According to its own projections, America’s debt-to-GDP ratio will hit 140% by 2032, which is way higher than the current 120.7%. This would be even higher than it was in the aftermath of WWII! The IMF advised Biden and Trump to “carefully consider” tax rises, but there is absolutely no sign of anything like that at the moment. * SO WHAT? * Given that there’s an election coming up, neither candidate wants to suggest the buzzkill of tax rises given that the US economy is progressing strongly at the moment.  The IMF, on the other hand, wants the US to pay down debts while the going is good.

Back in Europe, EU leaders endorse second term for Ursula von der Leyen as bloc’s top official (Financial Times, Henry Foy, Alice Hancock, Laura Dubois, Paola Tamma, Andy Bounds and Daria Mosolova) shows that Ursula von der Leyen got endorsement from European leaders for a second five-year term as European Commission president although she didn’t get the backing of Italy (PM Meloni abstained), the bloc’s third biggest economy. Von der Leyen now has to win a majority in the European Parliament to get her second term in a vote that is currently scheduled for the week of July 15th.

Meanwhile, Football fans and Swifties rattle inflation-wary central bankers (Financial Times, Martin Arnold and Valentina Romei) highlights the cumulative effect of an influx of football fans for the Euros, Swifties following their idol and sports fans flocking to the Paris Olympics on European hotel, restaurants and bars. This mass temporary migration of people is pushing up prices in Europe, which is a headache for central bankers who are trying to get inflation under control. For instance, the cost of hotels in Portugal jumped by almost 20% from April to May when Taylor Swift brought her Eras tour to Lisbon – helping to push annual inflation in the hospitality sector to almost 14%! * SO WHAT? * Although there have been signs of inflation slowing down (which prompted the ECB to cut interest rates for the first time in five years in June), policymakers are now worried that services inflation in the EU is still uncomfortably high after it actually INCREASED in May. That being said, many economists are quite sceptical about the overall impact of these one-off events. Still, services sector inflation is worth keeping an eye on given that it is key for many economies in Europe (especially the UK, where it makes up 70-75% of our GDP!).

Then in BP imposes hiring freeze and halts new offshore wind projects (The Guardian, Julia Kollewe and Jillian Ambrose) we see that BP’s CEO, Murray Auchincloss, has implemented a hiring freeze and suspended new offshore wind projects in an attempt to calm investors who don’t like the company’s green targets. * SO WHAT? * Shareholders have been unhappy about the company’s green targets because some renewable projects have come in over budget while profits from oil and gas have rocketed. With this latest reticence, it looks like the previous CEO’s pledge to “become a net zero company by 2050 or sooner” could be getting somewhat precarious. At the end of the day, I don’t know what everyone expects – BP is an OIL AND GAS company!!! It’s nice that it throws some money at renewables but I don’t know why everyone expects it to become saintly any time soon…

Cocoa prices tumble as African crop fears ease (Financial Times, Susannah Savage) highlights the fact that cocoa futures have fallen for the sixth consecutive day yesterday – the longest “losing” streak since 2022 – as weather in the main growing region in west Africa has been improving with the arrival of the seasonal rains. It’s too early to get the champagne out though – more data on the state of play is due out later this year. Still, this is mildly good news for chocolate lovers!

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!

Amazon takes on Temu and Shein, the sale of Boots is postponed, Gap regains some mojo, Halfords slows down and Watches of Switzerland complains about the tourist tax…

Amazon Takes On Chinese Rivals Temu and Shein With Plans for New Discount Service (Wall Street Journal, Tracy Qu and Sherry Qin) shows that Amazon.com is going to launch a service that will concentrate on unbranded cheap fashionwear, household goods and other products that come directly from China in a bid to take the fight back to upstarts Temu and Shein. Delivery to customers in the US would take between 9 and 11 days of placing the order, coming directly from China. They won’t be routed via US warehouses, which is the case at the moment. * SO WHAT? * I don’t like this idea. It reminds me somewhat of Tesco trying to copy Aldi/Lidl in the UK with their own discount brand, Jack’s (which was eventually shut down after less than four years). Temu and Shein have honed their respective models to get them where they are today and Amazon’s is just different. This is going to sound somewhat uncouth of me, but it seems to me that if you want cheap 💩 and are not worried about quality and when the delivery’s going to come then you go for Temu and/or Shein. If you want something that resembles something that you actually WANT and you would like to get it now/at some point in the near future, you go for Amazon. I think this latest move is going to be a massive waste of time and money. How about it spends the money instead on improving its customer service? I find that Amazon is great when things go right. However, if there are problems, it can be very frustrating to get them to do anything. Why not concentrate on what it does already and make it better rather than go in a new direction where it faces well-developed competition and a potential money pit?!?

Meanwhile, Amazon sued for £2.7bn by UK third-party sellers (The Times, Jonathan Ames) highlights a £2.7bn claim issued yesterday by a professor of competition law at the University of East Anglia that accuses Amazon of “anticompetitive conduct” when it discriminates against third-party sellers by prioritising its own retail offers and its own logistics services. Interestingly, this claim that was issued at the competition appeal tribunal is an “opt-out collective action” which means that third parties are included unless they actually decide to opt out. Good luck to Andreas Stephan, the head of the UEA law school! Talk about practicing what you preach! * SO WHAT? * I think that this is interesting for two reasons – firstly, that it aims to help even the playing field for third-party sellers and, secondly, that this is an opt-out collective action. Will this be another step towards the UK having US-style class actions?? Also, everyone loves a David vs Goliath contest!

In Multibillion-pound sale of Boots is shelved after shares plunge in US parent company (Daily Telegraph, Matthew Field) we see that Boots’ American owner, Walgreens Boots Alliance, has now abandoned plans to sell Boots as it also cut its profit forecast for the year, sending the company’s share price down by a whopping 25%. Concerns are now increasing about potential store closures and a reining in of investment. * SO WHAT? * It looks to me like Walgreen Alliance Boots’ purchase of Boots back in 2014 has been a disaster. The company now has egg on its face after it failed yet again to find a buyer for the mature high street business

(it tried before in 2022). It had also tried to talk up chances of it relisting on the LSE – but they had to abandon that as well! I think that Boots is a bloated, mature business in dire need of a massive shake-up. I think management should take a leaf from WH Smith’s book with its successful travel business and try and do something here because the high street business just looks so stodgy. Until Boots gets someone in charge that actually has the ⚽⚽ to do something a bit radical it’s just going to go sideways at best IMO. Let’s also hope that they don’t try anything stupid like expanding in other countries (which I’ve seen first hand – and it wasn’t pretty 🤣!) because that is likely to be a money pit.

Is Gap getting its ‘Kenergy’ back? (Financial Times, Lex) is an interesting article which highlights changing fortunes for the embattled apparel retailer that also presides over the Old Navy, Banana Republic and Athleta brands. A few celebs have been seen sporting the brand at flashy events recently and it just reported its first quarterly rise in like-for-like sales for six quarters. It even went as far as upgrading its full year sales and operating income forecasts, which suggests confidence. * SO WHAT? * This article argues that there is still plenty of upside to come despite Gap’s share price almost tripling in value since the current CEO took over last August. It says that Richard Dixon, who was the guy credited with turning the Barbie brand around when he was at Mattel, is making positive steps with sorting out the company’s finances and hiring fashion designer Zac Posen as creative director. It will take time to sort out the mess of four very different brands but at least he is making progress.

In ‘Golden age of cycling’ is over as Halfords’ profits slump (Daily Telegraph, Daniel Woolfson) we see that Halfords is having a nightmare as, yesterday, it announced that bicycle sales volumes have dropped by almost a third after a surge under lockdowns. It also announced an 18.3% fall in pre-tax profits, saying that it expects the bike market to continue to weaken into 2025. It’s car business hasn’t been doing well either and freight costs continue to be high. * SO WHAT? * I’ve said it before and I’ll say it again – I think we reached “peak bike” under lockdown. IMO bike shops need to prioritise sports enthusiasts (e.g. cyclists, triathletes) over commuters in order to survive longer term because this category think nothing of having LOADS of bikes whereas commuters tend to buy once and then ride it until it falls apart. Cyclists and triathletes, however, not only buy more expensive bikes but they buy tons of accessories and other bits as well. As for cars, it’s probably a bit quiet now as the cost of living continues to have an impact but I think it’s good that they’ve got this business to balance out the cycling. Ultimately, I think the way forwards for Halfords is maintenance (particularly for cars) as that can mean recurring revenues as people hang on to their cars longer before potentially “upgrading” and/or switching to electric. I think that the tough times will continue for now though…

Sunak’s tourist tax ‘means Rolex shoppers have given up on Britain’ (Daily Telegraph, Daniel Woolfson) looks at disappointing performance from posh watch seller Watches of Switzerland, one of many retailers blaming Sunak’s decision to axe VAT-free shopping for tourists on disappointing sales. Affected retailers have been pushing for its reinstatement as they believe that tourists are instead doing their shopping in Paris and Barcelona which do have VAT-free shopping. Will Labour do anything to satisfy the demands of luxury goods sellers, I wonder?!?

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!

UK households face steep rises in mortgage payments and Nike shares weaken…

In a quick scoot around some of today’s other interesting stories, Three million UK households face steep rise in mortgage repayments (The Times, Jack Barnett) cites estimates published by the Bank of England which show that most of the three million UK households who are currently on relatively low mortgage rates (at or below 3%) will see their monthly repayments jump by over 25% within the next two years as they roll on to new deals. On the flipside, the 1.5 million borrowers on variable rates are likely to see their monthly payments fall by the end of this year. Financials markets expect two interest rate cuts this year, beginning in August.

Then in Nike shares drop as slower demand prompts cut to 2025 outlook (Financial Times, Sara Germano and Jaren Kerr) we see that the sportswear giant saw its share price fall sharply in trading yesterday after it reported underwhelming sales for its latest quarter and cut its forecasts for the year. * SO WHAT? * Nike has already been executing a cost-cutting plan announced in December but now it’s got to concentrate on innovation and doing a proper job! It has been relying somewhat on its retro styling for a while now so I think a new direction is needed! I haven’t seen anything concrete on this though so perhaps the upstarts Hoka and On will continue to eat Nike’s lunch while it comes up with a proper plan.

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…

There’s a lot of comment these days on social media about getting the work-life balance right. Well it seems that the boss in this video is very keen for his employees to go home on time 🤣!