Thursday 28/07/22

1. In MACRO, ENERGY & CRYPTO NEWS, the Fed hikes again, Goldman predicts Eurozone recession, Hungary falls into line, Equinor and Iberdrola see profit rises, National Grid puts coal plants on standby and there’s a Bitcoin law change
2. In CONSUMER/CONSUMER GOODS NEWS, energy bills hit poorest hard, late car loan repayments rise, consumer goods companies benefit from price rises and Wizz Air aims to hike fares
3. In CAR NEWS, Ford sees rising profits, Mercedes-Benz raises guidance, UK car production recovers but JLR has chip problems
4. In MISCELLANEOUS NEWS, Meta has its first ever drop in revenues, Spotify adds subscribers, Boeing hits turbulence and Paragon shows that there’s still life in buy-to-let
5. AND FINALLY, I bring you the world’s seed bank and some very dodgy shorts…

So US inflation goes ballistic, UK growth returns, nuclear fusion gets more money (and progress) and solar panel demand rises while Celsius Network files for bankruptcy protection…

📢 It’s Thursday, so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers! *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• Should rich people be taxed more in this cost-of-living crisis? If so, how? If not, why not?
• When will interest rates stop going up and why?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

Fed raises rates by 0.75 points for second month in a row (Financial Times, Colby Smith and Kate Duguid) highlights the US Federal Reserve’s latest attempt to calm inflation as it hiked its interest rates by 0.75% yesterday. This was widely expected, but now this is out of the way, there is speculation as to whether we’ll see another 0.75% hike in next month’s meeting. Federal Reserve piles pressure on Bank of England with another steep rate rise (Daily Telegraph, Tom Rees) shows that the ball is now in the court of the Bank of England to follow with another big rate rise (0.5%?) when its Monetary Policy Committee meets next week. * SO WHAT? * The Fed was late to the interest rate rise party but is clearly now making up for it. I think that the UK has different variables to deal with that will make the Bank of England’s job quite difficult – particularly with what’s going on re our leadership at the moment. If we get a PM in who wants to cut taxes there is a chance that this might stoke more inflation, which would be something else for the Bank of England to contend with.

Meanwhile, in Europe, Goldman predicts eurozone is slipping into a recession (Daily Telegraph, Louis Ashworth and Tom Rees) cites economists at Goldman Sachs who reckon that the Eurozone is heading towards recession with GDP contraction of 0.1% in Q3 and 0.2% now in Q4 in their forecasts. Given the zone’s energy problems and political problems (Macron no majority, Italy’s government shambles, Germany’s weak coalition etc.), this shouldn’t be a surprise. Still, Hungary’s economic woes force Viktor Orbán to bow to EU and investors (Financial Times, Marton Dunai and Jonathan Wheatley) shows that Brussels still has some clout as Hungary’s feisty PM has been forced to abandon parts of his populist agenda and play nice in order to unlock €15bn worth of pandemic recovery funds.

In energy, European energy groups Equinor and Iberdrola report jump in profits (Financial Times, Harry Dempsey) shows that the Norwegian and Spanish energy groups are benefiting from higher prices and National Grid asks UK coal power plants to be on standby this winter (The Guardian, Rob Davies) highlights efforts in the UK to minimise the impact of potential price rises and electricity supply shortages as National Grid puts coal power plants on notice to step up if needed this winter. The UK is much less dependent on Russian gas than many European countries but expected high demand on the Continent is likely to push prices right up.

Then in an interesting development in the world of crypto, Law change to allow award of damages in Bitcoin (Daily Telegraph, Gareth Corfield) shows us that British courts will be able to award damages in Bitcoin thanks to new proposals to cover crypto assets from the Law Commission. Lawyers are pushing for a new type of legal property called “data objects” with judges being able to award damages using these tokens, so plaintiffs could receive damages in Bitcoin or Ethereum for example. * SO WHAT? * At the moment, the law on these things is quite vague and the proposals would mean that judges wouldn’t have to have the additional headache of valuing a notoriously volatile asset class.

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!

Consumers continue to face challenges and Wizz Air gets more confident…

UK energy bills for most vulnerable to hit £500 a month in January (Financial Times, David Sheppard) shows that utility bills for the most vulnerable households will rise by a substantial amount at the beginning of next year, according to consultancy BFY Group. * SO WHAT? * This will clearly put more pressure on the government to help these already-squeezed households, many of whom are on prepayment meters which as on a slightly more expensive tariff. As Truss and Sunak battle it out for the job of PM, proposals put forward by them would cut less than £200 from average annual household energy bill, so clearly more needs to be done as £500 per month is, I am sure you would agree, a lot of money.

As the cost-of-living crisis bites, Late payment of car loans accelerates as inflation bites (Daily Telegraph, Patrick Mulholland and Tim Wallace) cites the latest data from Lloyds Bank which shows that an increasing number of people are falling behind on car payments. Car loan repayments up to 30 days late increased by 15% in the first half of this year. * SO WHAT? * Lloyds Bank is one of the biggest players in the motor finance market in the UK. I think that this is just one more piece of evidence of how hard consumers are being hit at the moment – and we haven’t even hit autumn yet. Tricky times ahead…

In Double-digit price hikes help Heinz and Reckitt deliver sales jump (The Guardian, Sarah Butler) we see that the makers of Baked Beans and Dettol, Nurofen and Strepsils respectively have said that they have made double-digit price rises and better-than-expected sales while Haleon/Reckitt Benckiser: Covid offers cold cure makers a long-lasting boost (Financial Times, Lex) adds that the upcoming cold and ‘flu season will be good news for the newly-floated Haleon, which has a roughly 10% market share of the consumer health market. It is worth noting that Australia recently reported an unusually big rise in ‘flu cases – as its winter is ahead of ours and what happens there is seen as an indicator of what is going to happen in the northern hemisphere.

Then in Wizz ticket prices set for take-off as flight chaos cools (The Times, Tom Howard) we see that the Hungarian budget airline put a spring in investors’ steps yesterday by saying that it was “encouragingly starting to see normalisation of operational disruption levels” after a summer of turbulence characterised by cancellations and delays. It outlined plans to cut the number of flights it was originally going to offer which, it hopes, will make cancellations less likely and help push up prices. Its share price climbed by 10.4% on the news although it still remains 48% below what it was at the beginning of this year.

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!

Ford and Mercedes-Benz do well, UK car production rises but JLR is still suffering…

In the automotive sector, Ford’s profit rises on higher sales, more inventory (Wall Street Journal, Nora Eckert) highlights Ford’s impressive 19% rise in net income for Q2, benefiting from rising sales and pent-up demand as dealerships catch up on their order backlogs while Mercedes raises guidance as luxury demand boosts revenue (Financial Times, Joe Miller and Peter Campbell) shows that demand for its high-end models is expected to continue to increase in the second half. On the other hand, Rivian Automotive lays off 6% of its workforce (Wall Street Journal, Sean McLain) shows that EV start-up Rivian Automotive is now having to cut 6% of its 14,000 employees in order to conserve cash. * SO WHAT? * The company is trying to avoid having to go back to investors to ask for more money (it raised $12bn in a flotation last November), but it isn’t the only start-up with problems. Earlier on this week, Faraday Future Intelligent Electric said that it was

postponing the production of its new FF91 electric SUV and needed another $325m to finance its operations to the end of the year. Good luck with that in the current climate…

Meanwhile, it sounds like there’s a turnaround of sorts going on in Carmakers signal start of recovery (The Times, Arthi Nachiappan) as the latest figures from the SMMT show that car manufacturing in the UK is now on the upward trend after a dismal first half beset by supply chain problems. Car manufacturing rose by 5.6% – the second month in a row of growth – and although Lack of chips hits Jaguar Land Rover (The Times, James Hurley) highlights JLR’s chip problem, its order book is actually very strong, particularly for Range Rover, Range Rover Sport and Defender models. * SO WHAT? * It looks like things are turning up for an embattled sector just as the cost-of-living crisis is starting to bite. I guess the best way out here is for auto manufacturers to keep concentrating on high end models for the demographic who continue to remain relatively unaffected. 

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!

Meta disappoints, Spotify delights, Boeing gets dented and Paragon shows that there’s still life in buy-to-let…

In a quick scoot around other interesting stories today, Facebook parent Meta Platforms reports first ever revenue drop (Wall Street Journal, Salvador Rodriguez) highlights the social media giant’s disappointing results and downbeat outlook for digital advertising as it continues to face intensifying competition from the likes of TikTok. Revenues were down 1% on last year – a tad below market expectations – and it seems that the disappointing advertising trend echoed similar signs of slowdown at Google parent Alphabet earlier this week. Snap and Twitter also reported a slowdown last week. On the plus side, the number of daily active users rose by more than analysts were expecting. * SO WHAT? * Meta is continuing to suffer from privacy changes made by Apple that make targeting ads much more difficult. Clearly it needs to address this problem somehow and/or find alternative revenue sources.

Then in Spotify adds more subscribers than forecast in second quarter (Financial Times, Anna Nicolaou) we see that the music streamer smashed forecasts by adding 6m subscribers in Q2, going against the Netflix trend. * SO WHAT? * Spotify’s share price has suffered particularly since Netflix announced a big loss of subscribers recently, so this news was welcomed by investors

although Spotify/Netflix: music streaming is proving sticky, but not necessarily more profitable (Financial Times, Lex) observes that profitability in music streaming is much harder to come by as pricing is in the hands of three major record labels, which is one of the reasons why it’s trying so hard in podcasts, where it will have more clout on margins. It makes the point that one of the reasons why Netflix is suffering so much is that there are a number of other services that consumers can turn to whereas, with music streaming you are pretty much going to sign up to Apple Music or Spotify for all your music needs.

Elsewhere, Boeing profit falls as executives point to turnaround (Wall Street Journal, Andrew Tangel and Doug Cameron) shows that quarterly profits weakened due to regulatory delays related to its 787 Dreamliner and extra costs at its military and space divisions. It seems to be doing quite well other than that, though.

Then I thought I’d include Paragon makes a virtue of its resilience in buy-to-let (The Times, Ben Martin) as Paragon Banking Group is one of Britain’s major buy-to-let financing specialists and said yesterday that has experienced a chunky rise in new lending volumes and low levels of arrears. * SO WHAT? * This would suggest that buy-to-let is recovering, which may be good news for renters because if more rental properties come to market, rents may start to calm down.

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…

In this current climate of doom and gloom, I found this pretty fascinating: Inside ‘doomsday’ vault near the North Pole designed to prevent human extinction (The Mirror, Susie Beever) gives you a peek into a pretty amazing place! You can’t visit it, but it’s good to know it’s there!

Recent hot weather in the UK has caused a bit of a stir, but I bet wearing these shorts would push those boundaries just a bit more: Shein shoppers fear £16 bottom-baring shorts will leave wearers with ‘burnt buns’ (The Mirror, Julia Banim and Rachel Pugh). Probably best not to wear these to the office…