Friday 15/11/24

As readers of Watson’s Daily, you will no doubt understand the importance of “commercial awareness”. If you’d like to know more about it and how to improve it, I’m running a commercial awareness bootcamp with Jake Schogger of the Commercial Law Academy TOMORROW. We only do this once a year, so if you’re interested now’s the time! We cover a lot of ground and it’s very reasonably priced for the huge amount you get. If this sounds like something you’d be interested in, click HERE to get registration and even details (for more about the event and the topics we’ll be covering, you’ll need to scroll down that page).

Just to let you know, I will shortly be launching a 10th anniversary competition that is going to have some unique prizes. One of the prizes will be to work with me in person and write Watson’s Daily for one edition (don’t worry – I’ll help you 😁). No-one has ever written Watson’s Daily apart from me – so this will be a first and, I hope, a good experience for the winners! One of the other prizes is pretty spectacular but I’m waiting for it to be made at the moment, so I’ll reveal more nearer the time 👍

Jay Powell says Federal Reserve in no ‘hurry’ to lower interest rates further (Financial Times, Colby Smith and Harriet Clarfelt) cites the Fed chief as saying that he is all for a gradual approach to cutting interest rates as the economy is robust currently. He also acknowledged that there was still a lot of work to do to get inflation back to the central bank’s 2% target, though.

Speculation continues as to the potential impact of another Trump presidency and How vulnerable is the UK to Trumponomics? (Financial Times, Sam Fleming and Valentina Romei) suggests that the UK may be less exposed to Trump’s aggression than countries that currently run a big trade surplus with the US (e.g. China, Germany, Mexico etc.). He is threatening to slap tariffs of 60% on all imports from China and taxes of between 10% and 20% on imports from other countries. If he did impose taxes on our goods, official stats show that we exported a lot of pharmaceuticals, cars and mechanical power generators over the 12 months to the end of June. However, only about 14% of our goods exports go to the US versus over 70% for Canada and Mexico. For us, the EU is way more important because it accounts for over 40% of UK goods and services exports and about 50% of our goods exports. That being said, the UK is the world’s biggest exporter of services after the US, making up about 7% of global services exports – but our services exports accounted for over 50% of our total exports last year. This is way higher than Germany, for example, where they account for about 20%. Also, services exports make up about 18% of our GDP, which is the biggest share of any G7 country. So it would appear that we

are potentially less vulnerable to US import tariffs than many other countries. * SO WHAT? * Although we might not be all that vulnerable to DIRECT tariffs from the US, it is possible that we will be affected INDIRECTLY because of the impact of US tariffs on other countries. Germany would, for instance, be greatly affected – and that could negatively impact investment, which would then potentially have a detrimental knock-on effect to business and consumer confidence in Europe – and that’s not good for us! Speculation continues…

Continuing with the theme of trade, US-China trade war could hit UK exports by  $10.7bn in two years (The Times, Tom Saunders) shows that the trade credit division of the insurance and investment manager Allianz, Alliance Trade, has estimated that UK export gains could drop by up to $10.7bn over the next two years if the US-China trade war deepens further while, on a positive note, Businesses trading with EU could see restrictions eased next year (The Times, Richard Tyler) shows that the Trade and Co-operation Agreement (TCA) between the UK and EU is going to be reviewed ahead of what is expected to be a “reset” of relations between the UK and the bloc. Let’s hope things progress in this regard – it’s been a bumpy road since Brexit so it could do with a bit of smoothing out!

As you know by now, I’m not the governor of the Bank of England’s biggest fan (although TBF I’m not on his Christmas card list either) so IMO Mansion House speech: Andrew Bailey says poor jobs data ‘a substantial problem’ (The Times, Mehreen Khan) shows that he’s lining up the excuses for if he gets the interest rate decisions wrong 😁. He says that unreliable employment stats from the Labour Force Survey are becoming a “substantial problem” for the Bank in terms of judging the timing of interest rate moves and had no problem throwing the ONS under a bus. TBF to Andy, dodgy unemployment stats are going to make things difficult but I guess he’s just got to deal with it. It is incredible to think that, in this day and age, this is such an issue. You also wonder how long this is going to go on for…

Then in European gas prices surge on potential disruption from Russia (Financial Times, Shotaro Tani) we see that European gas prices hit new highs yesterday on news from Austrian group OMV that there would be a “potential halt of gas supply” from Russia, although we won’t be sure for about another week. At the moment, Austria and Slovakia continue to receive Russian gas via Ukraine via an agreement that is set to expire at the end of this year. * SO WHAT? * This is coming at a sensitive time given that we’re heading into winter when gas demand for heating increases.

Burberry boss unveils revival plan after ‘self-inflicted wounds’ (The Times, Isabella Fish) highlights a bit of drama at the embattled Burberry as its new boss announced an urgent plan to “reignite” the business. He acknowledged that the company had make some bad decisions and announced a plan dubbed “Burberry forward” that would concentrate on classics and broaden out its price points rather than push to take it more upmarket, which is what the last guy was trying to do. Burberry’s new strategy is one check on a long list (Financial Times, Lex) contends that this is a positive move, but there may be more pain in the short term as it has to discount a lot of stock to clear the decks. * SO WHAT? * The market took the new boss’s pronouncements positively, sending the share price up by a whopping 18.7% on the day, but the problem is that there may be only limited mileage in getting back to basics. For now, though, that might be just the ticket. No comment was made on the potential bid interest shown by Moncler.

WH Smith aims to have 500 shops in North America by 2028 (The Times, Isabella Fish) shows that the high street stalwart is getting quite racy as it is looking at opening 500 shops in North America as its travel division (the division that includes its outlets at airports, train stations and hospitals etc.) posted a 16% increase in annual profits. * SO WHAT? * North America is the world’s biggest travel market, so prospects are looking pretty enticing. At the moment is has 34

shops over there and a market share of around 14%. In the UK, it continues to shift its focus away from the high street and towards travel hubs. It’s not giving up on the high street though – as it is continuing to roll out Toys R Us concessions nationwide to make its store marginally more interesting. I have to say that I am not a fan of the stodgy high street business but I can understand why WH Smith still wants to keep going with it, particularly as it was this boring part of the business that got the company through Covid! The Travel business continues to be the growth driver…

Then in Big UK pub chains signal price rises as result of budget hit (The Guardian, Julia Kollewe) we see that pub chain Young’s said it’s bracing to take an £11m annual hit from the rise in NICs. The company says that it’s going to try not to increase prices to customers more than it normally does (it increases prices by about 2-3% annually) and will try to make up the shortfall by selling more, investing in its pubs estate and use tech to maximise spend per head and allocate staff more effectively in busy periods. Other than that, the pub chain reported improved half-year profit and revenues. No doubt we’ll hear more of this kind of thing from others in the hospitality industry who are particularly exposed to the recent changes in the Budget.

Meta fined €800m for breach of EU competition law (The Times, Louisa Clarence-Smith) shows that the European Commission has concluded that Meta indulged in “abusive practices” by linking Facebook Marketplace to its social network and slapped it with a hefty fine. The EC said that this gave it an unfair advantage and Meta said it would appeal the decision. In the meantime Meta said that it would work to launch a solution that addressed concerns. * SO WHAT? * This is just the latest development in a series of clampdowns by the EC on Meta and Meta has retaliated by delaying the launch of its latest AI model in the region. Over in the US, Meta is being sued by the FTC for allegedly overpaying Instagram in 2012 and WhatsApp in 2014 to strangle competition and keep its social network monopoly.

US regulators plan to investigate Microsoft’s cloud business (Financial Times, Arash Massoudi, James Fontanelle-Khan, Stephen Morris and Stefania Palma) shows that fellow Big Tech player Microsoft is going to face investigation by the FTC over alleged anti-competitive

practices at its cloud computing business. It will be investigating whether Microsoft has abused its market power by implementing punitive licensing terms to stop Azure customers migrating data to competitors’ platforms. It looks like this could be current FTC chief Lina Khan’s last hurrah as many expect her to be replaced by the incoming regime.

Meanwhile, in media news, Disney hails ‘momentum’ as Deadpool and Inside Out 2 boost box office returns (The Guardian, Callum Jones) shows that the house of mouse had a great day yesterday as its share price boomed by over 9% in pre-market trading after not only beating analysts’ expectations for Q4 but also announcing that it expects “double-digit percentage growth” in adjusted earnings for 2026 and 2027! The two films mentioned in the title were a boon at the box office and Moana 2 is due out later this month. * SO WHAT? * This will certainly give it a bit of breathing space as the company is due to name a new CEO in early 2026.

In a quick scoot around some of today’s other interesting stories, Russian sales of Chinese cars surge after western sanctions hit (Financial Times, Daria Mosolova) shows that Russia has become Chinese carmakers’ biggest export destination since the choice has become pretty stark of late. If you’re Russian and are in the market for a car these days, you can buy a Russian-made Lada, a very expensive European grey import or a reasonably cheap and well-specc’d Chinese one. It sounds like a no-brainer! * SO WHAT? * Given rising tariffs on Chinese car makers from Europe and the US, this sounds like a great story for them. Since Russia invaded, Chinese manufacturers’ market share of the Russian car market have gone from 9% to 57%! Interestingly, though, about 90% of Chinese cars being sold in Russia have internal combustion engines.

Elsewhere, NHTSA Fines Ford With Its Second-Largest Penalty in History for Delaying Recalls (Wall Street Journal, Ryan Felton) shows that the National Highway Traffic Safety Administration has hit Ford with a $165m fine for delaying the recall of over 600,000 vehicles with dodgy rearview cameras. Ouch. Ford has been having quality issues for a while now, so this isn’t good news.

Meanwhile, Why size matters in transatlantic legal mergers (Financial Times, Lex) considers the merger this week of the UK’s Herbert Smith Freehills and smaller US-based firm Kramer Levin. HSF wants it because there’s a lot of money to be made in the US market (and building organically over there has turned out to be very tricky) and Kramer Levin will get a higher profile and cross-selling opportunities whilst also getting more autonomy than it would it if went for a domestic merger. * SO WHAT? * While the opportunities in the US are big, one major hurdle that has to be overcome in such mergers is how to come up with a viable pay structure. If both firms have similar levels of profitability, implementing such a structure is doable. However, if profitability of both parties is very different, they can either keep separate finances (but the problem with this is that there is little incentive for both sides to refer business to each other) or they can have one big profit pool (but the problem of that is that it creates problems if one side is a lot more profitable than another). So far, the UK company being much bigger than the US company can help get around some of these issues but there will still be cultural clashes, conflicts of interest and differences in profitability. Whether or not they will be satisfactory longer-term for both sides is still not a given…

I think that James Blunt is hilarious. A lot of this is due to his not taking himself too seriously and here is a great example of that 🤣!