Daily Brief: If Shoppers Insist On Heading Back To Reality, Amazon Plans To Bring Ecommerce To Them

Daily Brief: If Shoppers Insist On Heading Back To Reality, Amazon Plans To Bring Ecommerce To Them

about 2 years ago3 mins

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Amazon posted a mixed set of quarterly earnings late on Thursday, but you’re going to just adore the virtually assisted makeover the tech giant’s about to get.

What does this mean?

The pandemic-driven surge in online shopping continued to wear off last quarter, with revenue from Amazon’s ecommerce business growing just 6% compared to the same time in 2020. But at least the working-from-home trend doesn’t look like it’s going anywhere fast: Amazon Web Services – the company’s much more profitable cloud computing segment – saw revenue climb by a better-than-expected 40%.

Things could be looking up going forward too: Amazon announced it’d be upping the price for its Prime membership in the US soon – its first price rise since 2018. And since that rollout doesn’t cost Amazon a penny, it’s an extra pile of cash that’ll go straight to its bottom line. Investors, for their part, wanted some of it straight in their pockets: they sent Amazon’s stock up 18% after the news.

Amazon stock
Source: Google Finance

Why should I care?

Zooming in: Amazon’s got style.

Amazon’s well aware that customers’ preference for “real” stores could stick around, which might be why the company announced last month that it’s planning to launch its own clothing stores. “Amazon Style” will give fashionistas AI-based recommendations in real time, and could help the company claim an even bigger chunk of the lucrative clothing market. It hardly needs it: Amazon overtook Walmart to become the top US clothing retailer last year, according to banking giant Wells Fargo.

Zooming out: Amazon vs inflation.

Amazon’s customers might not just be ditching online shopping, but shopping altogether: data out last week showed Americans spent an inflation-adjusted 1% less on goods and services in December than the month before. That might not sound like much, but it shows they’re feeling the pinch from the country’s 40-year high inflation. And if that continues, Amazon’s earnings next time around might not be so pretty.

US consumer spending

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The Bank Of England Raised Interest Rates Again

BoE image

The Bank of England (BoE) raised interest rates again on Thursday, but some of its friskier committee members might’ve been disappointed with the size of the package.

What does this mean?

The BoE already hiked the key interest rate in December, but you’d be hard-pressed to find an economist that didn’t expect the central bank to do it again – not after inflation in the country hit a 30-year high the same month. They were right: the central bank raised the key interest rate from 0.25% to 0.5% in the first back-to-back hike in 18 years, and would’ve upped it to 0.75% if just one more committee member had been on board. The BoE also said it’s planning to offload some of the $1.2 trillion worth of bonds it’s accumulated in the last decade, in view of reducing the total by more than $250 billion by 2025.

Rapid hikes

Why should I care?

The bigger picture: It’s a vicious circle.

There’s a good reason for the BoE’s urgency: the UK government announced on Thursday that it’ll be raising its energy price cap – which limits how much suppliers can charge customers – by more than 50%. That will light a serious fire under inflation, so much so that the central bank is now expecting inflation to peak at 7.25% in April. And while it said it’s planning more rate hikes to slow things down, that’s an imperfect solution: higher rates will make it more expensive to pay back debt, which will squeeze households' finances even more.

Energy price cap

Zooming out: Europe plays coy.

This continues to be more than just a British problem, with data out this week showing that European inflation hit another record high last month. The European Central Bank has ruled out any rate hikes of its own this year, but traders are less and less convinced that it’ll be able to stick to those guns: they’re now pricing in a hike as soon as July.

EU inflation
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