This 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.
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"The Review"
IN BIG PICTURE NEWS...
This was the week of FTX’s collapse, a Twitter tornado and the Autumn Statement…
- IN GENERAL – Central banks are moving away from big interest rate rises (Wednesday). There will be more rises to combat inflation, but they will probably be smaller than the 0.75% increments we have been becoming accustomed to! President Biden and President Xi had a long meeting at the G20 (Tuesday), but nothing really got done. Improving US-China relations will clearly take time given what’s happened since the Trump administration.
- IN CHINA – retail sales fell for the first time since May (Wednesday) as Covid lockdowns continued to take their toll. Industrial output is also down and property investment saw its steepest drop since early 2020. Investors initially got excited about President Xi wandering around the G20 without his facemask on and speculation increased that it could be a sign that China would ease its strict Covid policies (Thursday), but we then got a dose of reality when officials in the city of Guangzhou weren’t quite sure to relax or enforce restrictions (Friday) when they faced a new outbreak this week.
- IN RUSSIA – the country fell into recession (Thursday) as Western sanctions took effect.
- IN JAPAN – the economy contracted in the three months to September (Wednesday) thanks to the killer combo of a weak yen, an uncertain economic outlook and rising import costs.
- IN EUROPE – the ECB warned of financial instability in the bloc (Thursday) in its latest twice-yearly report, but TBH some bloke standing at the bus stop could have told you that for free .
- IN THE UK – new chancellor Jeremy Hunt unveiled the Autumn Statement (Friday), a collection of policies designed to get the country’s finances back on track. It was made up of £30bn in spending cuts and £25bn in tax rises. Other policies included a freeze on national insurance thresholds for business, a windfall tax on energy companies and cutting the threshold of the 45% tax rate but kept the pension triple lock in place and allocated more money to public health and schools. Markets had a muted reaction to the announcement (Friday), which is a good thing given the extremely negative reaction Kwarteng’s mini-Budget got!
- Germany managed to complete its first LNG import terminal (Wednesday) in an impressive 200 days! Usually this takes years, but I think that desperation in the face of blackouts has been a great aligning force. This means that Germany is way less likely to face gas rationing this winter!
- France faces potential power shortages even in a “normal” winter (Tuesday) because almost 50% of its nuclear power stations are offline for maintenance.
- In the UK, SSE announced that its profits had more than tripled (Thursday) thanks to rising energy prices.
- FTX’s collapse and subsequent repercussions were big news this week. FTX’s auditors faced scrutiny for obvious reasons (Monday), other crypto exchanges raced to distance themselves from FTX-type problems (Monday) and global regulators are now trying to gauge how many people are going to be affected (Wednesday). There was immediate impact on Nigeria’s Nestcoin (Wednesday), which held about $4m on FTX and crypto lender Genesis Global Capital suspended withdrawals (Thursday). The new interim CEO tasked with mopping up the mess uncovered a hideous mess (Friday) and described the collapse as the worst he’d seen for 40 years!
- Binance appealed for more regulation (Tuesday) to bolster investor trust, but it was interesting to note that bitcoin hasn’t fallen nearly as far as you’d think (Tuesday), which could be the result of “wash” trades hiding the true extent of bitcoin trading. I suspect that, like VW and dieselgate, FTX is not the only crypto player to have “pushed the limits”. This story is going to be one that just keeps giving IMO!
IN BUSINESS, EMPLOYMENT AND CONSUMER TRENDS...
- IN BUSINESS TRENDS – UK business confidence has fallen to its lowest level since 2009 (Monday), according to the latest Accenture/S&P Global report. Hardly surprising given what’s going on!
- IN EMPLOYMENT TRENDS – bosses are regaining the upper hand as recession looms large (Monday) and the rising cost of living is driving early retirees back into the workforce (Monday), according to Reed, Britain’s biggest recruitment firm.
- IN CONSUMER TRENDS – real wages continue to fall (Wednesday), according to the latest figures from the ONS, and we face a shortage of champagne and turkeys (Wednesday) while Fuller’s takes a hit from the recent train and tube strikes (Friday). Having said that, used car prices are weakening in the UK (Thursday) and the US (Friday), which could point to a slowdown in inflation growth.
THERE WERE SOME INTERESTING RETAIL DEVELOPMENTS THIS WEEK...
- IN THE US – Black Friday came early this year (Tuesday) as US retailers are starting to discount early to catch the eye of thrifty shoppers. Retailers had mixed performance. On the one hand, Macy’s and Kohl’s saw weaker sales (Friday) as the US department store chains felt the effect of customers holding back on holiday purchases and Target fell short of sales forecasts (Thursday). On the other hand, Walmart and Home Depot put in solid performances (Wednesday).
- IN THE UK – Joules appointed the administrators (Tuesday) as no one – not even its founder – wanted to touch it. What a fall from grace! The introduction of Primark’s click-and-collect was so popular that it crashed the website (Tuesday). In grocery retail, Lidl quadrupled its profits (Friday).
- IN E-TAILING – Amazon’s gloomy mood continued (Wednesday) as it is about to cut 10,000 staff (Tuesday), Alibaba announced a shock loss (Friday) thanks to the effects of repeated Covid-lockdowns but then Ocado is talking a good game about expansion in south-east Asia (Friday), fresh from its recent announcement of the deal in South Korea with Lotte Shopping.
- IN LUXURY RETAIL TRENDS – research from Bain & Co and Altgamma reckons that the luxury goods sector will continue to grow next year despite likely recession (Wednesday) and it seems that the luxury trend is strong at the moment as Burberry put in a decent performance (Friday) although it was notable that American tourists were spending their strong dollars in Europe and not the UK.
THE TECH SECTOR WAS PRETTY ENTERTAINING THIS WEEK...
- The UK’s going to get a new internet watchdog, called the Digital Markets Unit, which will have proper powers (Friday). Tech companies will have to sign up to a code of conduct and if they break the rules the new unit, which will be part of the CMA, will be able to impose massive fines. It was interesting to see that Nexperia’s proposed acquisition of Newport Wafer Fab was blocked (Thursday) using the National Security and Investment Act, leaving the future of the former look somewhat unclear.
- Twitter garnered a lot of headlines this week! Advertising giant Omnicom advised clients that they should avoid Twitter (Monday) given potential reputational damage that association with the troubled platform could inflict. Elon Musk continued to cut costs at Twitter (Tuesday) and he also gave workers an ultimatum – prepare to do big hours or leave with three months’ worth of severance (Thursday).
- In the world of semiconductors, Micron announced it would cut production of memory chips (Thursday) as demand continues to weaken and it seems that US export controls are really making life difficult for China’s chip equipment makers (Tuesday) as they’ve now only got domestic business open to them.
- Activision Blizzard’s long-time licensing agreement with NetEast was not renewed (Friday), meaning that games including World of Warcraft and Overwatch will disappear in the next few months. Even if it finds a new partner, new licence approval from the government isn’t a given and could take months or even years.
THE REAL ESTATE SPACE CONTINUES TO EVOLVE...
- IN THE US – Big Tech firms are dumping office space (Wednesday) as they continue to cut headcount. The national vacancy rate is rising and is now at its highest level since 2011, according to stats from the CoStar Group.
- IN THE UK – retail landlord Landsec swung to a loss (Wednesday) as property valuations fell. In residential property news, Rightmove observed that there’s been a marked drop-off in demand from first-time buyers (Monday) and housebuilder Crest Nicholson has postponed expansion plans (Friday) due to worsening market conditions.
IN OTHER NEWS...
- Oat milk maker Oatly cut annual revenue forecasts and announced headcount reductions (Tuesday) as it suffered badly from Covid restrictions in Asia and production challenges in the US, which allowed rivals like Planet Oat and Chobani room to enter the market. The vegan wave appears to be receding somewhat…
- Deliveroo quit Australia (Thursday) as competition from Uber Eats, Menulog and DoorDash proved to be too strong. After years of concentrating on (expensive) growth, it’s reining things in and going for profitability.
- Jaguar Land Rover lost its chief exec after only two years in the job (Thursday), who will stay in the role until December 31st. The Tata Motors-owned car company needs an injection of management talent quickly in order to have any chance of keeping up with its ambitious electrification timetable (or maybe this is why Thierry Bolloré has left “for personal reasons” so they can have an excuse to push the timetable back?).
COMING UP THIS WEEK ("The Preview")...
Here's what's on the menu for this coming week (NB this is not exhaustive):
- China - publishes its monthly interest rate decision.
- Hong Kong - publishes October Consumer Price Index (CPI) inflation rate data.
- Germany - announces October Producer Price Index (PPI) inflation numbers.
- Results - Compass Group (are they seeing much uptick from workers returning to offices - and their canteens? Or are they seeing the number of work canteens being cut as offices get smaller?),Urban Outfitters (are they seeing any uptick? Can they still pass on price increases to customers?), Zoom (how's all the "non-Zoom" stuff going? Is Microsoft still chipping away at sales?).
- Canada - monthly retail sales numbers.
- EU - eurozone November consumer confidence survey.
- OECD - publishes its latest Economic Outlook report, which will contain forecasts for the world economy. Bound to be a depressing read...
- Results - Abercrombie & Fitch (how's trading going? Are photogenic guys and gals still buying? Are they reining in any more expenses from their global footprint?), AO World (are they expecting to see higher sales of electrical items or a mass cut in spending on big ticket items? Surely it'll be the latter after an initial boom under lockdown), Best Buy (are Americans cutting down on their purchases of electrical goods?), Dollar Tree (seeing much uptick as shoppers get thriftier?), Homeserve (are they seeing more of an uptick than normal as we head into winter and people get increasingly nervous about being hit with big maintenance bills?), Nordstrom (I'm expecting a tough narrative here given the plight of other department stores)..
- US, EU, UK, France, UK - S&P Global manufacturing and services PMI numbers are published. Surely this isn't going to be very pretty?
- US - FOMC meeting minutes are published from the November meeting. All eyes will be on this for signs of 0.5% interest rate increases rather than 0.75% increases in future...
- Results - De La Rue (which has been under fire for a while now what with two profit warnings and a sluggish share price. It'll be interesting to see if there's any kind of turnaround plan), Deere & Co (what's demand like for agricultural machinery? Is it going higher because of the Ukraine war? Are they able to pass on higher materials costs to customers?), Halfords (how are bikes doing versus cars? Presumably bikes should be doing well going into Christmas and it'll be interesting to see how car maintenance is going as I expect this to continue to be a money-spinner), Naspers (which owns a massive chunk of Tencent. Is this killing Naspers' performance?), Pets At Home (are revenues stabilising from the pandemic pet boom?)
- THANKSGIVING - US markets closed.
- Japan - November manufacturing and services PMI numbers
- Germany - Ifo business sentiment survey
- France - November business confidence numbers
- Turkey - interest rate decision. Will Turkey cut interest rates again despite the fact that its inflation rate has reached even more ridiculous levels? Or will Erdogan abandon his mad experiment and raise interest rates like everyone else? I don't think anyone will expect Erdogan to change his mind!
- UK - CBI industrial trends survey
- Results - Dr Martens (will demand for their famous boots continue? If so, will this mean forecasts will remain unchanged for the full year?), Ingka Group (which owns most of the Ikea stores worldwide - how are sales going? Last time we heard, sales of items to keep us warm were brisk, but has this now slowed to a trickle?), Jet2 (what's demand looking like going into next year? Is visibility good on holidays? Are people waiting to book or are they booking while they can now?), Kingfisher (the DIY boom seems to be petering out. Any plans for cost reductions?).
- Japan - November CPI and PPI inflation rate numbers
- Germany - Q3 GDP numbers, GfK consumer confidence survey (yet another survey that is likely to predict gloom although it'll be interesting to see whether this is truly bad given recent news that the country has built its first LNG import terminal, meaning blackouts will be less likely).
- France - November consumer confidence numbers
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