Wednesday 21/10/26

How the Hormuz crisis could trigger a global ‘food shock’ (Financial Times, Jamie Smyth) cites a report from S&P Global Institute which contends that we are on the verge of a food security crisis thanks to a combination of geopolitical conflicts and a “super” El Niño. While the effects of a restricted oil supply are well known and much-commented upon, it’s also worth mentioning that the Strait of Hormuz is also a chokepoint for fertiliser and feedstock that is critical to food production. Almost a third of the global trade in urea, which is the most commonly used fertiliser, is usually shipped via the strait. However, not only is the supply of key ingredients for fertiliser being restricted, high energy prices are affecting its production as fertiliser manufacturing is a highly energy-intensive business. * SO WHAT? * All in all, high energy prices make fertiliser production much more expensive, El Niño is adversely affecting harvests and farmers that are feeling the pinch are having to make do with buying less fertiliser, which then has an adverse effect on how much they buy and the rate at which they apply it to their crops. All of this means that less food is going to be produced. We’ll know more about what we’re going to face once we see the fruits of the results of the autumn fertiliser application season in Brazil and India – but it’s not looking good.

The unlikely winners from Trump’s Iran war (Financial Times, Jamie Smyth and Ciara Nugent) takes a look at who is benefiting from Trump’s Iran war. Oil and gas production in the Americas is going bananas thanks to customers coming to the realisation that war in the Middle East will disrupt supplies for a prolonged period of time. Canada and Brazil have already set production records this year while Venezuela and Suriname are going to ramp up production significantly following big investments from big western oil companies. Argentina is about to benefit from one of the world’s biggest shale deposits called Vaca Muerta. * SO WHAT? * Production in the Americas isn’t going to overtake that of the Middle East for some time but oil importers are definitely going to want to diversify their risk away from the Middle East in case instability strikes once more – and that’s going to mean that production efforts being made now aren’t going to be in vain.

Then in Donald Trump pledges to spend $400mn on Republican Party midterm campaigns (Financial Times, Joe Miller and Peter Wells) we see that the president said that he’s going to spend over $400m on ads and voter outreach by midterm election day, which he dubbed the “Most Important Midterm Elections in our Country’s History”. Right now, according to polls, Republicans are on course to lose the House of Representatives and possibly the Senate but clearly they have the ability to throw huge sums of money at their campaign – so everything’s still to play for…

Sullivan & Cromwell to double London office space as US firms shake up UK legal market (Financial Times, Julie Steinberg and Suzi Ring) is an interesting story for two reasons – one, for the fact that it’s looking at leasing six floors of Deutsche Bank’s old office near Liverpool Street (which would double its current office footprint in London) but secondly, because it reflects the continued trend of US law firms increasing their presence. As they grow, they have poached partners from rivals and pushed up salaries for newly qualified lawyers to almost £190,000 a year. Some of their top lawyers are paid over £10m. A lot of this growth has been powered by private equity because top American firms have pushed to represent their biggest clients in Europe rather than letting the locals do it. An ED at estate agent CBRE said that office demand from law firms was “stronger than ever” despite record high rents.

Then in Law firms and hedge funds restructure to avoid major tax bills after landmark ruling (Financial Times, Jamie John, Laith Al-Khalaf and Ellesheva Kissin) we see that law firms, consultancies and hedge funds are currently restructuring their partnerships and holding talks with HMRC to avoid being clobbered by massive tax bills since BlueCrest Capital’s £200m Supreme Court defeat. This is where the hedge fund lost its appeal against HMRC who wanted to tax dozens of its partners as employees. Most British professional services firms are LLPs whose partners share in their profits and, in this structure, the companies don’t have to pay employer national insurance contributions for those self-employed individuals – so this will be an important issue to solve!

In AI-related news, Anthropic loses $80bn in six months (Daily Telegraph, Joe Sledge) cites contents from a draft prospectus which shows that the AI giant lost over $80bn over the first half of this year as it continues to burn cash ahead of an expected stock market float. This is a major increase on the net loss of €13bn over the same period last year and was due to a major increase in spending on computing capacity and infrastructure.

Meanwhile, Google executive dismisses European fears over US dominance of AI (Financial Times, Barbara Moens) cites a top Google exec who maintains that European concerns about US companies dominating AI are unfounded. He said that AI was a competitive environment with the likes of Nvidia, Meta, SpaceX, OpenAI and Anthropic (who are all American 😂 – did he not realise this??) as well as Mistral and “another half dozen or a dozen Chinese companies” vying for supremacy, meaning that “prices are dropping at an astonishing rate”. He said that he understood European concerns but said that fears could be addressed by partnerships and that “We’re very much in favour of ‘made with Europe’ rather than made just in Europe”. Brussels is currently tyring to nurture home-grown AI companies to increase the bloc’s competitiveness and wean itself off reliance on American tech. Funnily enough, Bank of England investigates Google outage (Daily Telegraph, Tom Saunders) illustrates this very reliance as problems at a data centre in London caused an outage on Google Cloud services in the UK, hitting the likes of Lloyds Bank, HSBC, Bank of Scotland, NatWest, Halifax and Revolut. The problem was not resolved until early evening. * SO WHAT? * We have all sleep-walked into over-reliance on American tech over a period of decades and it’s only taken belligerence by the likes of Trump and Musk to make everyone realise how vulnerable this has made us all! Just ask Ukraine! The irony of a top Google exec saying that we are wrong to fear the American dominance of AI – before then reeling off a list of some of the world’s biggest companies that are all American – is hilarious! TBH I think that it’s probably going to be an impossible task to get anywhere near their capability but there’s no harm in giving the Europeans a leg up IMO.

Then in OpenAI ‘agents’ disabled their own monitoring systems (Financial Times, Rafe Rosner-Uddin) we see yet another example of AI bot going rogue as OpenAI admitted yesterday two incidents that involved its AI agents outwitting their own guardrails. OpenAI has delayed its IPO and it seems to me that every day there are more and more reasons to wonder whether it would be right for Anthropic to keep forging ahead with plans of its own to float.

In data centre news, Australian data centre group falls 44% on profit warning (Financial Times, Nic Fildes) shows that one of Australia’s biggest data centre companies, NextDC, saw its

share price collapse on news that fierce local opposition against a new site in Melbourne prompted a profit warning. The company was forced to slash its earnings forecast bay over a third and lower its revenue projections. * SO WHAT? * Data centres in Australia are going through a bit of a bad patch at the moment as the listing of the “neocloud” Firmus on the Australian stock exchange was recently abandoned while AirTrunk, another Aussie company, paused the Singapore listing of real estate assets and Goodman Group ditched plans to build a data centre in inner-suburban Sydney due to strong opposition from the community. We are seeing increasing opposition to the construction of data centres around the world as those living in close proximity don’t want data centres that suck their utilities dry and don’t provide many jobs after the construction phase. I can only see this trend gathering pace – and that’s going to end up slowing down the rollout of these facilities. I wonder whether the money being allocated to these projects will flow elsewhere or be locked up somehow…

Staying on the subject of data centres, UK energy firm to develop its own data centres (The Times, Chris Dorrell) shows that the UK’s fastest-growing energy company, Fuse Energy, is planning on developing its own data centres in a bid to break through the bottleneck of computing capacity. It wants to use its “deep understanding” and control of energy infrastructure to be able to do this. Good luck with that!

Elsewhere, Apple Pay rivals to be allowed on iPhones under crackdown (Daily Telegraph, James Titcomb) highlights intentions by the Competition and Markets Authority to force it to allow alternative contactless payment systems (e.g. PayPal) on its tech. Contactless is now the most popular way to pay in Britain and accounts for 39% of all transactions while over 60% of adults have a digital wallets. Apple Wallet is the most popular one in the UK. This sounds great from a convenience point of view but Apple has had a massive headstart. I don’t think that people will want to have an array of payment wallets but there is definitely some upside for Apple rivals from here!

Then in Growing advertising sales shore up Netflix in third quarter (The Times, Chris Dorrell) we see that the world’s biggest streaming company had to cut its earnings forecasts for the rest of the year shortly after announcing its biggest round of job cuts since 2022. This disappointed the market as it appears that viewership growth has become more pedestrian than it has been over the last few years in an increasingly competitive market. That being said, Netflix put in a strong performance in Q3 – I guess it’s just the outlook that fell short of expectations!

UK jobs market stabilises before Budget (Financial Times, Delphine Strauss) cites figures from the latest tax records which show that UK employment stopped falling over the summer after two years of decline while separate research based on ONS data showed unemployment coming in at 4.7% in the three months to August, which was better than analysts had been expecting. This should be welcome news for the chancellor ahead of the Budget but Lack of people skills is fuelling youth job crisis, employers say (Daily Telegraph, Louis Goss) reflects the concerning conclusion reached by employers in a government commissioned report which said that “effective communication, teamwork, adaptability and problem-solving abilities” were lacking in law firms, accountancies and consultancies. They said that even if candidates had the technical skills to do the job, they lacked practical skills, which meant the job vacancies were going unfilled. The report said that professional employers are increasingly valuing “higher-level judgment, oversight and interpretation”. * SO WHAT? * I really do believe that, in a world of AI, we all need to lean into being “human”. Some employers now find the shortfall in skills so acute that they’re offering their own training programmes for new starters.

Paddy Power owner blames tax rises for plan to shed up to 1,400 jobs (The Guardian, Rob Davies) shows that the gambling company that owns the Paddy Power and Sky Bet brands has just announced a round of job cuts that will cull over 10% of its UK and Ireland workforce. It blamed tax rises imposed by Rachel Reeves. Then in NatWest forces thousands of remote workers back to the office (Daily Telegraph, Tom Saunders) we see that the bank is just the latest company to make moves to force around 3,500 “remote-first” employees to go from two

days in the office a month to at least two days per week. 17,000 hybrid workers who currently only have to be in the office for three days every two weeks will have to come into the office more regularly. The changes will come into force from February but unions are obviously up in arms about this. It’ll be interesting to see how this tussle develops given new employment laws and the rise in power of unions under this Labour government.

In consumer news, European air fares could rise by as much as 20% in 2027, Ryanair boss predicts (The Guardian, Joanna Partridge) cites the polarising CEO of Ryanair, Michael O’Leary, who says that the Iran war continues to push jet fuel prices higher and that airlines that don’t hedge their fuel costs will get particularly brutally clobbered. He even went as far as saying that he thought this would lead to airline bankruptcies and takeovers. This will clearly be another thing for consumers to consider…

In retail news, Carrefour blames French riots as it cuts profit forecast (Financial Times, Adrienne Klasa) shows that the French supermarket announced a cut in its annual profits forecast, blaming the recent mass protests across French cities this month. Footfall to its stores had reduced as a result and resulting curfews mean that it’s had to cut back opening hours. While we’re on the subject, Insurers face losses as riots in France become ‘like natural catastrophes’ (Financial Times, Lee Harris) highlights the impact on insurers – analysts at Morningstar DBRS say that insurers could be facing up to €1.2bn in losses due to the riots, but it all depends on how long it takes for the riots themselves to calm down as they are still bubbling away.

In a quick scoot around some of today’s other interesting stories, SpaceX and Tesla boards explore potential mergerSpaceX and Tesla boards explore potential merger (Financial Times, Stephen Morris and Ryan McMorrow) shows that the two companies are looking at a deal that could become the biggest merger in history. Both companies had formed special committees to examine a potential tie-up. The resulting company could be worth over €3tn. The ball is rolling…

In Salesforce to Buy Customer-Engagement Platform for Nearly $5.7 Billion (Wall Street Journal, Connor Hart) we see that the software giant has signed a deal to buy Braze at a 58% premium to the pre-deal share price. The deal is expected to close in Salesforce’s fiscal 2028 subject to shareholder and regulatory approval.

CATL’s Quarterly Profit Rose, But Margins Remain Under Pressure (Wall Street Journal, Jiahui Huang and PR Venkat) highlights the current state of the world’s biggest EV battery company –

and that profitability is being put under pressure by increased competition and investors doubting whether its momentum can continue. That being said, How China is breaking down the west’s battery walls (Financial Times, Edward White and Kana Inagaki) takes a look at how Chinese companies have been building up global supply chains for batteries that will allow it to keep supplying markets that are trying to cut them out. CATL, BYD, Gotion, CALB and Sungrow and their respective suppliers have spent billions of dollars on their facilities in China but they have also been adapting to the increasingly protectionist climate in overseas markets by developing local capability. Europe is a key market and Chinese manufacturers want to keep supplying it despite all the moves to keep them out. If you have access to the full FT article, I recommend that you read it! The conclusion is basically that their dominance is going to continue despite new protectionist measures!

I saw this and thought it might be useful heading into the party season at the end of the year 🕺💃! Why not try these dance moves out right now – wherever you are reading Watson’s Daily?? I must admit, I was slightly disappointed not to see “The Joey” or “The Carlton” included in this selection. However, for me, the king of dance is Steve Stiffler from American Pie fame doing the dance-off. Whenever I’m having a bad day, I really do actually play this to cheer me up 😁!