Monday 23/09/24

1. In MACRO NEWS, traders bet on another big Fed cut and the UK government feels the pressure
2. In BUSINESS TRENDS, European steelmakers beg for help and Western nations unite to stand up to China while the future for non-alcoholic beverages looks bright
3. In TECH NEWS, we consider what comes after AI-powered co-pilots and the time AI saves professionals while Eutelsat seeks out partnerships
4. In MISCELLANEOUS NEWS, the UK housing market rebounds, News Corp’s REA raises its offer for Rightmove and HSBC takes a pasting
5. AND FINALLY, I bring you a chart that will really make you think about how you spend your life!

So traders bet on another big Fed cut and the UK government is under pressure…

Have you missed us?? Have you never heard of us?? Well the monthly roundup is back NEXT WEEK and we’re ready to help you save TONS of time as both myself and Jake will be doing the heavy lifting for you as we summarise a month’s worth of news and opinion in just one hour! This one’s going to be a corker – so sign up today to get access👍

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:

Traders bet on another bumper interest rate cut by the Fed (The Times, Mehreen Khan) shows that traders are now thinking that there is a 53% chance that the Fed will cut rates by another 0.50 percentage points in November, just days after the presidential election when it next meets. There is increasing optimism that the US economy will have a “soft landing” and avoid a recession. * SO WHAT? * Such big interest rate moves are rare, so to do two back-to-back would be quite something! Although this is quite interesting, let’s face it, 53% is only slightly different to 50%, which means that the market doesn’t know 🤣 so I wouldn’t get too excited! Still, you never know given how the presidential election might unfold.

Back in the UK, Rachel Reeves to rule out return to austerity after gloomy rhetoric draws criticism (Financial Times, George Parker and Michael O’Dwyer) highlights the likelihood that the new chancellor is going to try and put a positive spin on the economy

this week at the Labour party conference following criticisms that she’s been talking the economy down. Former Bank of England chief economist Andy Haldane criticised the government’s downbeat stance on the economy (particularly what they see as the dire state of public finances and the impending doom of a “painful” Budget next month)  saying that this had resulted in a sense of “fear and foreboding”. * SO WHAT? * Reeves’s assessment of the economy and outlining of various measures (like the winter fuel cut) have already hit consumer sentiment and risk being self-perpetuating if she doesn’t say anything positive IMO! Despite everything, it seems to me that the economy is actually in relatively decent shape after the last few years of Covid, war, rampant inflation, the ongoing effects of Brexit and Truss throwing a massive spanner in the works. Yes, there are plenty of issues to address (public sector wages and financing, housing, social care etc. etc.) but I really think she’s overdoing it with all the doom and gloom. Wages are buoyant, the labour market is tight, business confidence is robust and the housing market is rebounding. Why scupper all that by TALKING down the economy?? We’ll just have to wait and see what stimulatory measures she comes up with… 

Meanwhile, Labour conference to vote on Keir Starmer’s winter fuel cut (Financial Times, Jim Pickard and Lucy Fisher) shows that the PM will come under a lot of pressure for his decision to axe the winter fuel allowance for pensioners that is worth up to £300, from 10m pensioners, in an attempt to save £1.4bn a year. No 10 braced for potential defeat in Labour conference winter fuel vote (The Guardian, Jessica Elgot and Eleni Courea) highlights just how much pressure – and although the vote by the unions won’t be binding, it’ll be embarrassing for Starmer, particularly as you’d normally expect the government to be in a bit of a honeymoon period so soon after an election! * SO WHAT? * I have no doubt that there will be increasing calls to “tax the rich” to make up the shortfall – and maybe they will go down that road for now. However, there’s only so far you can go with that – there’s a lot of newsflow now about how we’re sitting on the verge of an exodus of high net worths. The problem there is that if you can’t get to the super-rich because they’re all fleeing the country, the next ones down will have to take the strain – and they are not going to be nearly as resilient – and that’s going to filter through to everyone.

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!

European steelmakers beg for help and nations unite on critical minerals while the outlook for non-alcoholic beverages looks bright…

In European steelmakers plead with Brussels to tackle flood of Chinese exports (Financial Times, Sylvia Pfeifer, Patricia Nilsson and Andy Bounds) we see that European steelmakers have been getting together to try and get trade officials onside to protect themselves against the onslaught of cheap steel from China, the world’s biggest producer. China is on track to export a whopping 100m tonnes this year, more than any year since 2016 – and this surge has already prompted countries to impose their own import tariffs. Europe’s biggest producer ArcelorMittal said that the volume of exports from China was “huge”, while German steelmaker Salzgitter bemoaned the influx of “subsidised, below-cost Chinese steel exports” and Tata Steel described current conditions as being a “huge issue” particularly at a time of low demand. They are all appealing for the European Commission to get involved and put together new tariffs to tackle the problem as the current system is losing its effectiveness. * SO WHAT? * This is all a bit Groundhog Day IMO as it seems that this systematic dumping seems to occur every few years. The Chinese have made too much, domestic demand has cratered and so the producers are dumping it outside China. The problem is that the Europeans allege that the Chinese are supplying steel below cost, having been subsidised by the state. This upends the playing field and could mean that European steelmakers go out of business as a result – and I think once they’re out of business, that’s it!

Elsewhere, Western nations join forces to break China’s grip on critical minerals (Financial Times, Jamie Smyth, Myles McCormick and Harry Dempsey) highlights the latest push by the Minerals Security Partnership, a coalition comprising of 14

countries and the European Commission, to help private industry support critical minerals’ projects in order to push back against China’s dominance in this area. Ten projects have already been supported by MSP partner governments and 30 are currently being evaluated. * SO WHAT? * China has, over the years, been able to gradually eclipse Western capabilities by “overproduction and predatory pricing”. This has gone on to such an extent that Chinese companies now control 90% of the world’s processing capacity for rare earths and over 50% of the processing capacity for cobalt, nickel and lithium materials crucial for EV batteries among a multitude of other uses in green technology. Clearly, action needs to be taken here – but is this too little, too late? I guess that the MSP is very keen to get private investors involved because governments can’t get TOO involved otherwise they will look like a bunch of hypocrites (they are accusing the Chinese state of getting over-involved after all!).

On a completely different subject, It is all beer and skittles in the no-alcohol drinks space (Financial Times, Lex) is an interesting article which acknowledges the current trend for alcohol-free beverages and predicts a bright future. * SO WHAT? * At the moment, non-alcoholic beverages make up just 1% of global alcohol sales – the majority of which is beer. Alcohol-free wine is still quite iffy and spirits are a bit of a mixed bag in terms of taste. Still, volumes for non-alcoholic beverages are growing thanks to younger people being more moderate in their alcohol intake and brewers are able to hang on to more revenues as people who might switch to an OJ during a drinking sesh now opt for zero-alcohol drinks instead. Although non-alcoholic beverages cost more to make, the margins are still good because they sell at pretty much the same prices as their alcoholic counterparts and they don’t attract excise duty. It looks like the future is good for non-alcoholic beverages – and just think where it could go if they could make decent non-alcoholic wine!

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!

We look at the next step from co-pilots and how much time AI saves while Eutelsat wants more partners…

Move over copilots: meet the next generation of AI-powered assistants (Financial Times, Richard Waters and Stephen Morris) takes a look at what comes next after the current generation of AI assistants. Companies including Microsoft, Salesforce and Workday are all looking at ways to push AI in their products (to justify charging us all more money for the value-add!). Co-pilots look like they’ll be giving way to AI agents which go one step further and take actions on behalf of users such as filling out expenses reports and the automation of customer support systems. * SO WHAT? * It’s well known that tech companies are still working out how to monetise AI – and the longer things go on, the more urgent it all becomes given how much money is being poured into this area. At the moment, companies are still offering AI-capability on a “show me” basis and although there is a school of thought that says they can charge a licence fee based on the number of workers who use their software, this could ultimately be problematic if the use of AI means that fewer staff (and therefore licences) are needed. Given that, some companies are looking at implementing usage-based pricing which links revenues to query volumes. For example, Salesforce says that it will charge $2 for each “conversation” with its AI agents. Another way of monetising is looking at outcome-based pricing which allows the tech companies to share in some of the gains that customers get from using the software. This is all very interesting but I think that companies should go for a licencing model for as long as possible because I think that charging per use is going to scare users off and make them far less likely to experiment with it and sharing in the outcome is highly problematic because no customer is going to want to give anything away – plus the fact that humans are understandably going to defend their own input tooth-and-nail. IMO, in the longer term I think that a hybrid of licence and usage would be fair. In this case, the customer would pay for a number of licences and you could potentially allocate an “average” usage amount per user. If it goes above that threshold, then the provider could charge more.

Staying on the theme of AI, Professionals eye a time bonus from rise of AI (The Times, Sian Bradley) cites research by Thomson Reuters entitled Future Professionals Report which showed that two thirds of 2,205 professionals polled in the fields of global legal, tax, accounting and anti-fraud believe that AI can help them save around 200 hours a year based on average working hours. The report concluded that companies could then reinvest the time saved into strategic work, innovation and professional development. 24% of employees said that they’d use the time saved to improve their work-life balance/wellbeing (this rose to 34% in the tax and accounting sector) and those responding from law firms said they’d use the time saved for business development and management tasks. 77% of respondents said the rise of AI would transform their work over the next five years, up from 67% last year. * SO WHAT? * This is going to sound a bit negative but I doubt people will use the time they save improving their work-life balance or wellbeing because the time will be filled with other work tasks. I don’t think that time saved will come suddenly – it will come in over time and I suspect it will creep up on everyone. Still, if it means that the duller parts of work can be reliably dispensed with it should – in theory – make for more fulfilling work overall.

Elsewhere, Eutelsat explores partnerships to fund Europe’s space-based network (Financial Times, Peggy Hollinger) shows that the French satellite operator will have to look at striking up industrial and commercial partnerships to finance the next generation of satellites for the OneWeb broadband constellation if it doesn’t manage to hammer out an agreement about Europe’s satellite communication network roadmap with the European Commission. * SO WHAT? * OneWeb’s Low Earth Orbit (LEO) network needs upgrading as demand is rising while Elon Musk’s Starlink continues to gain ground (it is already the dominant force by far with a network of over 6,000 satellites). Unfortunately, the plan to provide secure, sovereign communications to the EU (called IRIS²) has hit hurdles as costs have escalated and partners have stepped back as a result. There is an urgent need for this upgrade given Starlink’s dominance, Kuiper launching over 3,000 satellites from next year and China launching its own LEO broadband networks. The drama continues…

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 UK housing market rebounds, News Corp’s REA increases its offer for Rightmove and HSBC takes a beating…

In a quick scoot around some of today’s other interesting stories, Housing market bounces back as first-time buyers return (The Times, Lauren Almeida) cites the latest research from Savills which shows that the housing market is now bigger than its average pre-pandemic size thanks to first-time buyers returning to the market. This could increase further as interest rates ease and people get more confident about trading up. First-time buyer activity made up about 24% of all spending in the market, which is the highest proportion for eight years! It’ll be interesting to see whether the upcoming Budget will help to support this recovery or dent it…

In News Corp’s REA Boosts Offer for U.K. Property Platform Rightmove (Wall Street Journal, Mike Cherney) we see that REA

nudged up its offer for Rightmove (it’s initial one was recently rejected) which it says gives Rightmove’s shareholders a significant premium. The ball is now in Rightmove’s court!

Then in HSBC hit by sixfold surge in Hong Kong property loan defaults (Financial Times, Kaye Wiggins and Chan Ho-him) we see that HSBC has taken a big dent in its financials thanks to its exposure to defaults in commercial property loans in Hong Kong for the first half of this year. Hong Kong is HSBC’s biggest market for commercial real estate lending – it makes up 45% of its exposure versus “just” 18% for the UK. * SO WHAT? * This just underlines the severity of commercial property woes in the Hong Kong market. The question is whether this situation is going to get worse from here. At the moment, it looks like there is not much evidence to suggest that this situation is going to improve in the immediate future…

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…

The chart in this video is pretty sobering! The main takeaway for me is that you need to spend more time in the moment because time is ticking ⏰…