Thursday 08/08/24

1. In MACRO & COMMODITIES NEWS, UK post-pandemic growth turns out to have been higher than expected, wage growth slows down, ESG ratings agencies are going to get regulated and investors want Glencore to stay dirty
2. In TECH NEWS, we look at the effect of Google’s antitrust case on Apple, Google and Meta did a dodgy deal, Disney profits from streaming but Warner Bros writes down its TV channels, Bumble hits an all-time low, there’s reaction to Musk and Telegram usage booms
3. In PHARMACEUTICALS NEWS, Eli Lilly moves into the isotope business and Novo Nordisk disappoints
4. In MISCELLANEOUS NEWS, the slowdown US consumer spending has repercussions, Shopify booms, a Merc EV fire reminds us of risks, the UK moves to restrict overseas hiring and UK estate agents expect property prices to continue to rise
5. AND FINALLY, I bring you a weirdly addictive musical video…

So UK post-pandemic growth was actually better-than-expected, wage growth loses momentum, ESG ratings agencies will get regulated and investors vote for Glencore to stay dirty…

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:

UK post-pandemic growth higher than previously estimated, ONS says (Financial Times, Delphine Strauss) cites the latest ONS data which shows that the UK economy emerged from the pandemic in better shape than had initially been thought, partly due to stronger growth in the transport, professional and business support industries. The agency jacked up its GDP growth figure for 2022 from 4.3% to 4.8%. It is also interesting to note that the ONS identified changes to the structure of our economy – that the health and energy sectors grew while hospitality shrunk. * SO WHAT? * This just goes to show how difficult it is to make estimates, particularly when chaos is all around you! Still, I don’t feel too sorry for the bods at the ONS – it’s what they get paid for, after all! The ONS will, in September, update its 2023 and 2024 GDP estimates using the updated and reweighted data. This all came too late for Sunak and Hunt!

Slower UK salary growth paves way for more interest rate cuts (The Times, Jack Barnett) cites research from KPMG and REC which showed that wage growth lost momentum last month while hiring contracted over July. * SO WHAT? * The implication here is that the Bank of England may be slightly more inclined to further cut interest rates. Of course wage growth is one consideration that it takes into account because the Bank doesn’t want to stoke inflation again but I would suggest that it will be minded to take more notice of services sector inflation as there is still quite a big gap between this and the headline rate of inflation. Given that the services sector makes up the majority of our GDP, I would suggest that this is a factor that can’t be ignored.

Elsewhere, UK to introduce bill to regulate ESG rating agencies (Financial Times, George Parker and Lucy Fisher) shows that the government is going to bring forward a bill to regulate ESG ratings agencies next year in a crackdown on the sustainable ratings industry. * SO WHAT? * Thus far the industry has been operating largely unregulated, a pretty shocking state of affairs when you consider that it has major influence over trillions of pounds worth of investments! Still, better late than never I guess – but you do get the feeling that this is shutting the stable door once the horse has not only bolted – it’s gone way over the horizon, met another horse, fallen in love, had horse babies and now lives in the suburbs to get greater space. ESG was MASSIVE for a number of years (particularly in the years leading up to the pandemic) but it has been seeing outflows as it has become apparent how shaky it has always been (despite the admirable intent). It is high time that ESG criteria are standardised and that the whole ratings process is more transparent. The FCA is expected to set the new rules.

Investors push Glencore to scrap spin-off of heavily polluting coal division (The Guardian, Jillian Ambrose) shows that, in a shareholder vote, 95% of investors voted to keep Glencore’s highly profitable – but heavily polluting – coal business, pouring cold water on the company’s plans to split it off into a separate business that would have been listed in New York. Investors wanted to keep the business “in-house” because it would enhance the company’s “cash-generating capacity”. * SO WHAT? * At the end of the day, much like oil companies, I think it is naïve to think that businesses that make their money from getting stuff out of the ground are going to be anywhere near “green” – EVER. I am not trying to be defeatist here – it’s just that this is their whole being. I think that the best that can be done is damage limitation because the fact of the matter is that we still need fossil fuels to provide us with power until renewables can provide more at a cheaper price and with more stability. You could, of course, tax them to infinity but that would, ironically, make the transition slower. IMO, I think that more effort and resource needs to be put into power storage technology so that we can hang onto more of the power generated by renewables for longer so that we can have a more stable supply and, of course, more renewable power.

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!

Google’s antitrust case will have implications for Apple, Google and Meta did a dodgy deal, Disney is a mixed bag, Warner Bros writes down its TV channels, Bumble hits an all-time low and Telegram use surges in the riots…

Following on from news earlier this week that Google was ruled to have violated US anti-trust law in its dominance of search, What Apple stands to lose in landmark Google antitrust verdict (Financial Times, Michael Acton) highlights the potential impact this would have on the cosy (and highly remunerative) relationship that Apple and Google have had since 2002. Google pays a slice of search advertising revenue to Apple in return for directing its users to Google Search by default. In 2022 alone, Apple was paid $20bn! * SO WHAT? * The judgment has only just been announced and there is no word as yet as to measures that Google will have to take in order to remedy its legal breaches. However, Apple will no doubt be thinking about the alternatives – such as revenue sharing agreements with other search engines like Bing or building its own search engine. Neither of these options is going to be particularly attractive for Apple but it’s possible that AI may come to the rescue as search is now evolving – and AI-powered chatbots might be the key. Apple’s partnership with OpenAI could be pretty useful here but even that may mean that Apple’s nice little earner will be no more. It’ll just have to wait as Google said that it is appealing the decision.

In Google and Meta struck secret ads deal to target teenagers (Financial Times, Stephen Morris, Hannah Murphy and Hannah McCarthy) we see that evidence has come to light which suggests that the companies colluded to circumvent Google’s own rules about targeting minors online. Google did a marketing project for Meta designed to target 13-to-17-year-old YouTube users with ads promoting Instagram. The users were classified as “unknown” in Google’s ad system, which Google knew referred to minors and documents seen by the FT imply that various measures were taken to disguise the true intent of the campaign. As things stand, Google prohibits the personalising and targeting of ads to under-18s and it even has policies to safeguard against the circumvention of its own guidelines. * SO WHAT? * Interestingly, the FT confronted both companies with its findings and the project, that was due to be rolled out more widely, has now been ditched. It’s probably just as well that the US Senate voted last week to pass the Kids Online Safety Act. It just goes to prove that these companies can’t be trusted to do the right thing on their own – they very much need a regulatory “guiding hand”!

In media news, Disney Posts First-Ever Streaming Profit, Warns of Pressure on Theme-Parks Business (Wall Street Journal, Robbie Whelan) highlights a bit of a mixed bag for Disney as, on the one hand, it posted its first ever profit in streaming – but on the other it announced weaker-than-expected theme park results. The streaming business – which includes Disney+, Hulu and ESPN+ – hit profit a quarter earlier than planned. The theme-parks business is expected to face further challenges due to softening demand in the US. Still, the company increased its full-year growth forecasts and said that it expected the profitability of streaming to continue to grow. * SO WHAT? * Overall, things sound OK at the House of Mouse and it seems that the weakness in its theme parks offering is echoed elsewhere – Comcast, which owns Universal Studios, also reported weak results in July, mainly on the back of lower attendance at its US theme parks. Comcast reckons that lower attendances will continue into next year.

Meanwhile, Warner Bros Discovery writes down its television channels by $9bn (Financial Times, Anna Nicolaou) shows that Warner Bros Discovery has had to make a sudden recognition of how quickly streaming is eating into its cable business model. This writedown has impacted the company to the extent that it had to report a quarterly loss of $10bn. * SO WHAT? * This just goes to show that “traditional” TV channels (like CNN, HGTV and the Food Network) are plummeting in value and that the merger between Warner Bros and Discovery back in 2022 that was meant to help both groups survive the streaming onslaught is not really working. The share price fell by over 9% on the news, but it has already fallen by almost 70% since the merger! Straightened customers continue to cancel their pay-TV subscriptions as household budgets remain tight. The company needs a plan – and quick.

In social media news, Bumble Shares Drop to All-Time Low After Cut in FY Outlook (Wall Street Journal, Sabela Ojea) highlights trouble at the online dating company as it had to cut its revenue forecasts for the full year due to slowing user growth. Although Bumble reported higher Q2 revenues than the same time period a year ago, they came in below analyst expectations. The company’s share price got an absolute kicking as it fell by 29% in after-hours trading – its biggest ever percentage drop. Its share price has tanked by a whopping 61% in the year so far. * SO WHAT? * The company recently had a complete redesign of its app and it is looking at ways to increase user engagement. Although it says that there are early signs that these efforts are working, clearly there’s a lot of work still to be done.

Following on from that story yesterday about Elon Musk getting feisty, Elon Musk can’t force advertisers to spend (Financial Times, Lex) suggests that the lawsuit against GARM is more about optics than it is about anti-competitiveness. Musk’s X has lost out on “billions” in advertising revenues as companies have collectively made a decision under the umbrella of GARM to stand up to the small number of dominant social networks. * SO WHAT? * The fact that he’s filed this lawsuit in some obscure federal court in Texas via a lawyer who is a well-known right-wing legal figure and – crucially – not a big national law firm would suggest that he’s doing this more to make a point rather than really taking GARM to task for anti-competitiveness. Surely it must be this because taking your clients to court in a hissy fit isn’t going to endear you to anyone – particularly as he seems to be defending the right of violent racists to communicate and spread their thoughts on his platform (as one very recent example). It seems that he is deliberately torpedoing X’s chances of attracting advertisers. Or is there some masterplan here that we don’t know about?!?

Talking of which, Telegram use surged after UK stabbing as rioters turn to chat apps (Financial Times, Stephanie Stacey, Anna Gross and Hannah Murphy) shows that use of the messaging app in the UK boomed during the recent UK riots as extremist groups embraced the platform’s “hands off” approach to content moderation. * SO WHAT? * I know this sounds perhaps over-the-top but I think that social media platforms that are allowed to spread hatred need to be taken down immediately – it’s the only language that will get through to them. I’m all for free speech but not at the cost of lives that would otherwise be unaffected. Yes, it may be difficult to draw the line but there needs to BE a line – and that line needs to be fiercely enforced IMO.

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!

Eli Lilly moves into isotopes and Novo Nordisk disappoints…

In Eli Lilly enters nuclear isotope business to back cancer treatment (Financial Times, Oliver Barnes) we see that the world’s most valuable pharmaceutical group, is entering into the field of nuclear isotope production. * SO WHAT? * This is just the latest example of cancer drugmakers making the move further up the food chain in order to secure supply of radioactive materials needed in the emerging field of radiopharmaceutical oncology drugs. Eli Lilly has invested $10m via a convertible loan into isotope supplier Ionetix, which makes an isotope that is a key ingredient in many radiopharma drugs.

Then in Novo Nordisk misses target for weight-loss drug Wegovy (The Times, Jessica Sharkey) we see that increased competition and supply chain bottlenecks have led to the company cutting its full year forecasts for the first time since it released Wegovy and Ozempic. * SO WHAT? * This signals a pause in the long winning streak that the Danish drug company has enjoyed since the launch of its anti-obesity drugs. I guess that investors had got used to continuous outperformance of these drugs but you would have thought that the bottlenecks will ease over time – and demand will remain strong! All eyes will be on rival Eli Lilly as everyone will want to compare its performance to Novo Nordisk’s!

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!

The US consumer spending slowdown has repercussions, Shopify booms, a Merc EV fire highlights issues, the UK moves to restrict overseas hiring and UK estate agents get bullish…

In a quick scoot around some of today’s other interesting stories, US consumer spending slowdown weighs on travel and leisure groups (Financial Times, Gregory Meyer, Anna Nicolaou, Christopher Grimes and Eri Sugiura) looks at the broader picture in the travel and leisure sectors – something that Airbnb referred to. It paints a picture of weakening consumer sentiment that has hit spending in Disney’s theme parks, Airbnb rentals, Hilton Hotels and on airline tickets. If you add that to the weaker US jobs data reported on Friday, it doesn’t make for a rosy picture. Weaker consumer sentiment and a cooling economy will no doubt prove to be a challenge for Kamala Harris and a potential boon for Trump as he will obviously use this as evidence that his stewardship of the world’s biggest economy would be more effective.

In Shopify Tops Views in Quarter and Sees Growth Accelerating (Wall Street Journal, Adriano Marchese) we see that the retailer tech infrastructure company was pretty upbeat about prospects as it upgraded expectations of sales growth for the current quarter despite tricky consumer sentiment. This improved outlook helped to boost the company’s share price by 22.3% in recent trading. * SO WHAT? * Although this looks good, I would be concerned that the wheels might fall off here because the company has benefited from attracting more merchants to its platform. The problem is that poor sales coming from an increasingly thrifty consumer base may mean that merchants start to drop off the platform. Still, the company seems confident enough for now…

Huge Fire Sparked by a Mercedes-Benz EV Adds to Safety Concerns Dogging Industry (Wall Street Journal, Jiyoung Sohn) highlights a rather concerning incident in South Korea where a Mercedes-Benz EQE electric vehicle that wasn’t charging set a residential parking lot alight. It set fire to dozens of nearby cars, affected 100 others and resulted in hundreds of residents having to be evacuated. Fortunately, there were no fatalities but the fire took eight hours to put out 😱! * SO WHAT? * Interestingly, traditional internal combustion engines are statistically more likely to catch fire than EVs, according to South Korea’s national fire agency, but the problem is that when electric vehicles DO catch fire, they are a nightmare to extinguish. Some recommendations are being made to EV drivers to park their vehicles outside, but in densely-populated areas this can be challenging. Another slap in the face for EVs. I would have thought this would also be very bad news for insurance premiums for EVs given that if they DO catch fire, they won’t just have to cover the cost of the damage to one car – they might have to cover the cost of all the others!

Back home, UK signals move to curb overseas hiring for tech and engineering jobs (Financial Times, Delphine Strauss) shows that the government is considering the restriction of hiring in tech and engineering as part of a review on their reliance on skilled worker visas. Consistently high levels of recruitment in specific areas would suggest that specific weaknesses and skills shortages need to be addressed. * SO WHAT? * The results of this review will no doubt make for interesting reading, but I’m sure that any measures to boost skills in the domestic market will take years to bear fruit – so in the meantime surely skilled workers will need to keep flowing in otherwise we could all come unstuck.

Then in UK house prices ‘to rise through rest of year’ after jump in July (The Guardian, Jack Simpson) we see the latest from Halifax which says that UK house prices rose by 0.8% in July, marking a notable uptick after three months of sluggishness. It also reckons that lower mortgage rates will boost growth for the rest of the 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!

…in other news…

I don’t know how this video was done but it is weirdly magical! Have a watch – I think you’ll see what I mean!