Tuesday 15/08/23

1. In MACRO NEWS, Russia has rouble problems and America feels the effects of China’s slowing economy
2. In TECH NEWS, Saudi Arabia and UAE make a chip grab, AI jobs earn top dollar and Foxconn stays China-centric
3. In REAL ESTATE NEWS, Country Garden looks like it could be the next Evergrande and UK landlords keep selling
4. In CONSUMER & RETAIL NEWS, high food prices now force tricky decisions – but they could get worse in future – while Wilko continues its search for a buyer
5. AND FINALLY, I bring you my favourite drummer (again!)…

So the rouble’s fall causes a kerfuffle and the US gets blowback from China’s slowdown…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

Russia’s central bank to hold extraordinary meeting after rouble falls to 16-month low (The Guardian, Pjotr Sauer) shows that things are getting a bit tricky as the central bank called for a meeting to discuss interest rates after the rouble fell below 100 to the dollar yesterday morning. * SO WHAT? * So far this year it’s dropped by 26% as export revenues have fallen and military spending has risen and now senior Kremlin bods are saying that they want interest rates to rise to help the currency and strengthen its buying power, although in the short term a weaker rouble helps Russia because it sells oil in foreign currency. Incidentally, the country now spends over $100bn on defence – which equates to a third of all public spending!!! It is also worth noting that Russia’s statistics agency, Rosstat, recently said that the economy expanded by 4.9% in Q2, but observers say that this figure has been artificially inflated by government spending on the war. If this is the case, it would imply that there will be a major economic slowdown when the conflict ends. History tells us that the rouble’s collapse could bring down Putin (Daily Telegraph, Matthew Lynn) makes some very interesting observations about the potential ramifications of the weaker rouble – namely that it could hasten

political and military implosion (there’s already in-fighting between government and monetary authorities) and that the rouble has also weakened against the renminbi (China is Russia’s most important trading partner, meaning that imports from China are getting more expensive). There’s a chance that China, with its weakening economy, will sideline help to Russia because it’s got a lot on its plate domestically with deflation, sluggish consumer spending, a real estate sector in crisis (see the story below!) and massive youth unemployment. It seems that the sanctions are working and the weakening rouble is going to make things much harder.

Then in China’s Worsening Economy Is Hurting Corporate America (Wall Street Journal, Dan Strumpf) we see that China’s current economic slowdown is hurting big US companies who are involved in manufacturing, construction and exports there. Chemical giants such as DuPont and Dow as well as construction equipment suppliers Caterpillar are among those cutting their sales forecasts for China although there were some areas of strength – particularly in businesses connected with recovering sectors like domestic tourism and leisure (e.g. Marriott, which saw demand for rooms rise and Starbucks, which saw revenues grow by 51% in the most recent quarter). * SO WHAT? * Basically, the Great China Rebound in the aftermath of the lifting of Covid restrictions has not taken hold as initial hopes melted away. Record high youth unemployment and the prospect of a potential deflationary spiral are not good for business confidence, hence the reining in of forecasts at least for the time being. There are rumours about an imminent raft of stimulus measures, including a ton of spending on new infrastructure and measures to address the weak real estate market – but this is going to have to materialise quickly in order to stop the rot! In the meantime, corporates will have to hope for the best but plan for the worst!

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!

Saudi Arabia and UAE race for chips, $900,000 AI jobs are out there and Foxconn sticks with China…

Saudi Arabia and UAE race to buy Nvidia chips to power AI ambitions (Financial Times, Madhumita Murgia, Andrew England, Qianer Liu, Eleanor Olcott and Samer Al-Atrush) shows that the two countries are splashing the cash on high performance Nvidia H100 chips in a bid to juice their efforts in AI. Apparently, Saudi Arabia has bought at least 3,000 of these chips which cost $40,000 a pop, via its public research institution King Abdullah University of Science and Technology (aka “Kaust”) while the UAE has bought thousands of chips to help develop its own open-source LLM, called Falcon, via the state-owned Technology Innovation Institute in Abu Dhabi. * SO WHAT? * Both Gulf states want to be at the cutting edge of AI as they push to develop their own capabilities independent of the Chinese and Americans. Critics say that software developed in the two countries may not have the ethical guardrails that big tech companies are trying to integrate and that this could have nasty consequences for critics of the establishment (although I would say here that western Big Tech companies are far from perfect here! The West does not have the monopoly on ethics after all!). That said, the countries will both most definitely be part of the global conversation on AI! Mind you, given that we saw last week that Chinese tech giants – including Baidu, ByteDance, Tencent and Alibaba – have been racking up the orders of Nvidia’s chips to get their hands on them before Biden slaps on any more restrictions, you do wonder whether there will be enough to go around for western companies as well!

Then in The $900,000 AI Job Is Here (Wall Street Journal, Chip Cutter) we see that there is a massive recruiting frenzy going on in America right now for those with AI skills! Entertainment and manufacturing companies are trying to attract data scientists, machine learning specialists and others and/or buying small AI start-ups to accelerate their progress. Roles mentioned in the article range from $260,000 to $437,000 as a basic salary but then

a product manager position for machine-learning at Netflix is advertising a $900,000 annual package! The demand is particularly keen for mid level and high level jobs. Pay can of course vary with the company and the role – a prompt engineer, for example, will “only” get a package worth $130,000 per annum while a machine-learning product engineer can get $143, 589, according to research from Willis Towers Watson. * SO WHAT? * TBH, everyone and their dog is trying to do something in AI and so the demand for AI skills is huge across pretty much all industries. I would have thought that it will be nigh on impossible to hire all the people you need who already have skills, so the next best thing is to train them within the company. The problem with that is that you may train them only for them to leave – so I guess some kind of tie-in should be part of the deal!

Meanwhile, iPhone maker Foxconn’s cautious pivot to India shows limits of ‘China plus one’ (Financial Times, Kathrin Hille and John Reed) shows that although Foxconn’s presence in India is still low (it only has 50,000 of its 1m global workforce there!) and that the impetus to diversify away from China because of geopolitical tensions is still high, it is still very much China-centric. Many still think that although India’s share of overall revenues is rising, China still accounts for 75% of the company’s global operations and it seems that it will continue to supply the US and other markets while the operations in India look more likely to serve the domestic market and perhaps those of immediately surrounding regions. * SO WHAT? * The main difficulty here lies on how to make India operations profitable in a business that has wafer-thin margins (one of the ways that they do this is by having, say, 100,000 workers on a single campus – which doesn’t happen in India). The projection that India could be a hub to rival China as US-China tensions continue, appears to be a thing of fantasy at the moment. I suspect that if India gave more in subsidies, this could change the game but for the moment, at least, it looks like India will be a bit of an also-ran in the scheme of things.

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!

Country Garden looks like it could be the next Evergrande and UK landlords continue to sell…

China’s woes are growing in Country Garden (The Times, Tom Howard) shows that there could be another Evergrande on the horizon as another Chinese property developer, Country Garden, failed last week to pay the $22.5m coupon owed to its international bondholders. Country Garden then followed this up yesterday with it suspending trading of its 11 onshore bonds. Its share price plummeted yesterday on the news by 18% to a historic low. * SO WHAT? * Oh dear. The real estate sector in China has taken a massive pummelling, particularly since Evergrande, and something like this is going to dent an already-sensitive Chinese public. I think

that the Chinese government is going to have to come out with something big, in order to make a statement, in order to address this and other lingering fears about the sector. The problem is that this is likely to be incredibly expensive to do – and that might detract from other areas of investment. The drama continues…

Meanwhile, nearer home, Number of landlords selling up in UK grows as mortgage rates surge (The Guardian, Kalyeena Makortoff) confirms the ongoing trend we’ve been seeing already – that more landlords are selling up as mortgage rates get too expensive, according to figures from estate agent Savills and HMRC. The bad news continues for renters as the supply of rental accommodation dwindles…

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!

High food prices force tough choices and Wilko hangs on…

In a quick scoot around some of today’s other interesting stories, Sharp rise in cost of food basics forces UK families ‘to make desperate choices’ (The Guardian, Jess Clark) cites the latest stats from Kantar which show that the cost of some basic food items has risen by over 30% in the last two years, forcing poorer households make the choice between paying bills or eating. Although food price inflation has been slowing recently, it is still disproportionately affecting poorer households who spend a higher proportion of their income on basics. Mediterranean heatwave to add billions to cost of Britain’s food (The Times, Jack Barnett) shows that this could get even worse in the longer term as a new report by the Energy and Climate Intelligence Unit says that it could get harder for Mediterranean countries to maintain food supplies. Over 80% of our olive oil comes from Mediterranean countries, 50% of our lemons and sweet peppers and 40% of our grapes. * SO WHAT? * This is clearly not a good state of affairs. And then there’s the prospect of El Niño disrupting harvests as well! I think that this is something that the government is going to have to address as a matter of urgency as poorer households continue to suffer disproportionately.

Staying with the consumer, UK wages growth fuels inflation concerns (Financial Times, Valentina Romei) cites the latest figures from the ONS which say that UK wages grew by much more than expected in the last quarter! Between April and June, the growth in annual pay – ex-bonuses – was 7.8%, which is the biggest annual growth rate since records began in 2001! * SO WHAT? * I guess we saw echoes of this in yesterday’s Watson’s Daily. Given that the government and Bank of England recently got together to appeal for wage restraint because they believe that this is one of the biggest drivers of inflation, this stat is likely to keep the pressure on the Bank to put interest rates up further.

Meanwhile, in Wilko bidders given two days to submit offers with 12,000 jobs at stake (The Guardian, Joanna Partridge) we see that the deadline for potential bidders for the stricken bargain retailer is closing in. It has been brought forward by administrators PwC because it thought there was a risk the company would run out of money during the sales process! Billionaire brothers poised to cash in on Wilko collapse (Daily Telegraph, Daniel Woolfson) suggests that the Arora brothers behind B&M could swoop, but there are others who could get involved (these things often go right down to the wire when the best/cheapest deals are made!). We’ll just have to wait and see. You’ve got to feel for the employees here.

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…

I think I’ve included the unbelievably incredible drummer El Estepario Siberiano (aka Jorge Garrido) in this section before, but just marvel at this example of his talent as another drummer reacts to it! Loving the cowbell in his cover of this classic 👍