Category: Protected – Watson’s Weekly

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week of immigration riots, a major markets sell-off and a big setback for Google (and ultimately, Apple)…

• IN THE US – it seems that the Democrats have closed the gap with the Republicans in the presidential race as Harris’s emergence has given their campaign new pep. Talking of which Kamala Harris announced her new running mate, Minnesota governor Tim Walz. It’s all smiles and rainbows now but signs of a wobble in the US economy could make things harder for Harris to get elected because it could cause the Democrats’ stewardship of the economy into question and last week’s worse-than-expected jobs data prompted Goldman Sachs to raise its estimates on the chances of the US slipping into recession.
• IN CHINA – we saw that Chinese inflation rose faster than expected in July, according to the latest official data. It looks like this is probably because of higher prices as consumers remain pretty cautious about spending at the moment. Also, China’s export growth lost momentum while imports rose, according to the latest official figures from Chinese customs authorities.
• IN EUROPE – the EU has inched ever-closer to a trade deal with South America – something that has been in the works for the last two decades! Will this be a case of better-late-than-never??
• IN THE UK – Chancellor Reeves went on a three day visit to New York to drum up business/investment and Canada to get ideas about consolidating UK local government pension funds (Canada has done this for quite some time), which she thinks will give them a bigger pool of money that will enable bigger and more sustained investment in UK assets and infrastructure (although, ironically, the big Canadian funds are often criticised for investing more in non-Canadian assets!). The good economic news keeps on coming – and although it came too late to benefit Sunak and chums, the ONS said that the UK economy emerged from the pandemic in better shape than had initially been thought and it upgraded its GDP growth figure for 2022. Updates for 2023 and 2024 estimates will be incoming in September. The flipside of this is that there is a risk that a strengthening UK economy might mean higher interest rates for longer to calm services sector inflation in particular. On the subject of employment, the government is looking to ditch anti-strike laws (which I think will store up problems for the future) while, at the moment, wage growth is slowing down according to the latest report by KPMG and REC. The government is also looking at potentially restricting overseas hiring in some high-skilled areas, in a departure from the policy we’ve seen until now. There were anti-immigration riots this week as tensions flared between right-wing extremists, who mobilised using platforms including X and Telegram, and supporters of migrants. It has all been powered by ignorance because immigrants, contrary to popular belief, do not take up much in the way of resources, the majority of them are here on proper visas, their effect on crime is miniscule and they actually contribute more to the NHS than they take out. In other developments, the UK is going to introduce a bill to regulate ESG agencies in a crackdown on the whole sustainable ratings industry. It’s about blimmin’ time!!!
• IN BANGLADESH – we see that the long time PM of Bangladesh, Sheikh Hasina resigned ran away to India following weeks of anti-government demonstrations. Unrest continues…

IN MARKETS NEWS…

• Markets tumbled this week as investors got spooked by last week’s disappointing US jobs data and the surprise interest rate rise implemented by the Bank of Japan. There was talk about the sell-off being due to the “unwinding of the carry trade” but I think that was a load of old ⚽🔒🔒, particularly as Japanese interest rates are still very low compared to pretty much everywhere else. Markets bounced back, but I’m sure that this has shaken many investors from their summer stupor (at least for the moment).

IN COMMODITIES NEWS…

• IN LITHIUM – mining giant Rio Tinto is backing Aussie start-up, ElectraLith, that is developing a lithium extraction technology that could enable access to new reserves of the key EV battery ingredient that would reduce the world’s reliance on China. Meanwhile, the world’s biggest lithium producer, Albermarle, is now pushing for governments for more help to break the dominance of China in the supply and refining of lithium, a key ingredient in EV batteries. This action has been prompted by the recent collapse in the price of lithium, meaning that non-Chinese producers (whose production costs are higher than China’s) are suffering particularly badly.
• IN COAL NEWS – investors voted overwhelmingly for Glencore to keep its coal business and not spin if off to list in New York. It seems that being in the black is valued more highly than being green…
• IN OIL – Saudi Aramco opted to pay out record dividends despite shrinking profits. However, don’t read too much into this as Saudi Aramco is an unusual company in that the government owns 81% of it and its sovereign wealth fund owns 16%, which makes it a bit of a piggy bank for the state 🤣. Normal drivers don’t really apply here!

IN BATTERY NEWS…

• China’s battery industry faces consolidation as demand for EVs both domestically and abroad continue to weaken. There’s probably a lot of scope for it given that there are currently about 50 Chinese EV battery groups producing in China’s domestic market alone.
• A Mercedes-Benz EV – that wasn’t charging at the time – caught fire in a South Korean underground car park causing massive amounts of damage as the fire took eight hours to extinguish. I would have thought this will be bad for EV insurance premiums (surely they’ll go up after this?) and South Korean EV makers like Hyundai (which is a pain because Hyundai is at the forefront of this category) and it will give everyone another reason not to buy an EV.

IN VEHICLE NEWS…

• Lucid got an additional $1.5bn from Saudi Arabia’s sovereign wealth fund, the PIF (which already owns about 60% of the company). This will come in very handy as we all know that EV start-ups burn cash like crazy. It’s good that it has such a deep-pocketed sugar daddy to rely on – particularly given weak demand for EVs at the moment.
• In China, sales of EVs have now surpassed those of traditional cars for the first time, according to the latest figures from the China Passenger Car Association. At least some of this was down to a government programme pushing more aggressive incentives to encourage the replacement of cars.
• In the UK, the SMMT showed that carmakers have cut their forecasts for EV sales this year thanks to ongoing sluggish demand. Although the number of EV registrations trended higher in July, sales to private customers continued to fall. On the plus side, the latest data from the SMMT shows that sales of used EVs in the UK have been rising thanks to weaker prices.

IN TECH NEWS…

• Google hired the founders of chatbot start-up Character.AI but you do wonder whether this is going to attract the attention of the regulators down the road as it does look very much like a takeover in all but name!!!
• OpenAI lost another co-founder, this time John Schulman, to Anthropic – the latest OpenAI employee to jump ship. Staying on the subject of OpenAI, Elon Musk has decided to sue OpenAI again, alleging that the company manipulated him (Musk) into co-founding the AI company. He only recently withdrew a similar lawsuit without explanation. There is something very weird going on with Musk at the moment IMO.
• Meanwhile, the CMA launched an investigation into the Amazon/Anthropic deal to decide whether it was anti-competitive. It will decide whether or not to progress to a “Phase 2” investigation by October 4th.
• IN CHIPS NEWS – Intel looks unlikely to turnaround any time soon despite the drastic cuts announced last week because it’s still suffering from a combination of Intel’s spending, poor demand for PC chips and customers opting to buy Nvidia’s chips instead of theirs. Meanwhile, next-gen chips from Nvidia
• IN APPLE-RELATED NEWS – Apple has made additional App Store changes in a bid to avoid EU fines, changing its EU business terms for the fourth time in four months to comply with the DMA. Basically, Apple is going to open up the iPhone to competitors’ app stores and payment methods, allowing developers to direct users outside its App Store. There was also bad news for Apple as it turns out that investor Warren Buffett sold pretty much half of his stake in the company over Q2 and Google lost a lawsuit (more of this below), meaning that Apple may lose some very handy income which may actually open opportunities for Google’s rivals.
• IN GOOGLE-RELATED NEWS – Google lost its landmark US antitrust case (this was about having too much power in search) and was judged to be “a monopolist, and it has acted as one to maintain its monopoly” by the DoJ. We await the “punishment” while Google says that it will appeal the decision. Repercussions could be wide-ranging and may potentially encourage competition. Also, an investigation by the FT showed that Google and Meta did a dodgy marketing project that circumvented 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. 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. Will this be swept under the carpet?? It sounds pretty darn serious to me!

IN MEDIA NEWS…

• Disney’s results were mixed. On the one hand, Disney made its first ever streaming profit (and we saw that it plans to jack up the price of its most of its streaming plans later this year) but then its parks business suffered because US consumers are reining in spending.
• Warner Bros Discovery made a big write-down of its cable TV business. It was so big, in fact, that it pushed the company into loss. Paramount also made a big write-down of its channels and it also announced a 15% in its US workforce as a consequence of its recently-announced merger with Skydance.

IN SOCIAL MEDIA NEWS…

• X announced that it was going to sue the Global Alliance for Responsible Media for the “illegal boycott” of its platform. It also shut down its San Francisco HQ and pushed back against accusations that it stoked the UK riots. I think that Musk is either a) going mad, b) becoming so outrageously arrogant that he thinks he is above everyone, c) is stirring because he’s got some new car/initiative to push and/or there’s something bad going on in the background and he wants to distract attention because IMO why would you SUE your customers for making a decision they are entitled to make?? Also, he must be in denial if he thinks that X didn’t have any role to play in the riots. How would he feel if he lived here and was targeted because of this? Would he be such a defender of free speech if he or his family were targeted, enabled by his own social media platform?? I think he’ll eventually drop the GARM lawsuit as it seems to me he’s just trying to make a point. I also think that if he keeps behaving like this, he’s going to alienate people – and that’s not good for business. Sales of Tesla’s cars are already looking pretty ropey…
• Telegram (as in the social media platform, not the old fashioned method of communication 🤣) saw usage boom during the riots as extremist groups took advantage of the platform’s “hands off” approach to content moderation. Telegram seems to be the extremists’ communication platform of choice when things get rough. It gained a lot of notoriety in the Capitol Hill riots of 2021. This is going to sound mega-cynical but given all the tensions around the world right now, I wonder whether Telegram is going to see a surge in usage. The only thing, though, is how you would monetise a platform like that. As an advertiser, would you want to be associated with such a platform?? Maybe if you sell weapons, ammo etc…

IN CONSUMER NEWS…

• The US consumer spending slowdown is hitting travel and leisure groups – theme parks (e.g. Disney and Comcast-owned Universal Studios), Airbnb rentals, hotels and airlines are feeling the slowdown particularly keenly.
• Consumers in the US and China continue to rein in spending because of the cost-of-living crisis and real estate problems/increasing economic concerns respectively.
• Consumers in Muslim countries are boycotting major global brands because of their stance on Gaza – and the likes of Coca-Cola, KFC, Starbucks, Mondelez and Pizza Hut are getting hammered.
• Consumers tripled spending in pubs thanks to the Euros but overall spending fell in July. It was also interesting to note that 100% dry bars (i.e. no alcohol) are having a tough time surviving at the moment, mainly because customers don’t buy as many drinks per visit. Although they may be great for certain groups, I think this is ultimately a fad and that conventional venues will just provide more non-alcoholic options.

IN RETAIL NEWS…

• Prada continues to win in the luxury slump and its Miu Miu brand is doing really well at the moment.
• Cornish fashion brand Seasalt is doing really well at the moment and benefited from an expansion of its shop portfolio in its annual results.

IN LEISURE NEWS…

• I’ve already touched on this above but although Airbnb had a strong Q2, it announced disappointing Q3 revenue forecasts thanks to a slowdown in its domestic market.
• The UK Domino’s decided to pull back its full-year forecasts as the cost-of-living hit customers’ pockets. Domino’s had a disappointing start to the year but things have actually been picking up since the middle of May.

• IN CONSTRUCTION & REAL ESTATE NEWS – the latest construction sector PMI showed that the sector grew at its fastest pace since May 2022 in its fifth consecutive month of growth, which sounds encouraging! UK estate agents expect residential property prices to continue to rise and housebuilder Persimmon is also getting more confident about the market’s prospects. In commercial property, the strong demand for high-spec office property continues.
• IN FINANCIALS NEWS – French bank SocGen said that it wants to sell its UK and Swiss private bank businesses in an effort to streamline operations, Barclays has become the latest bank to ditch the bonus cap and insurer Beazley managed to double its first half profits despite concerns about the effect of the Crowdstrike outage and investment manager Abrdn announced early signs of recovery thanks to a slowdown in client money outflows and improving profitablity.
• IN PHARMA NEWS – Eli Lilly announced a strong set of results thanks to the success of its diabetes and weight loss drugs and it also announced an investment into isotope supplier Ionetix, which makes an isotope that is a key ingredient in many radiopharma drugs. In contrast, its weight-loss drug rival Novo Nordisk is suffering at the moment thanks to supply chain bottlenecks, so it had to cut its full year forecasts.
• IN PRO SERVICES NEWS – there was some debate as to whether AI could transform the traditional billable hour given that the use of AI can save a lot of time (and resource!). Will it result in more firms employing a flat fee structure?? In accountancy, 30 Chinese companies ditched PwC as an auditor and then Evergrande’s liquidators launched a legal action against the Big Four accountant for its role in the real estate giant’s downfall.
• Uber managed to return to profitability as its Q2 results beat market expectations thanks to decent performances from its core ride share and food delivery businesses. The company is also pretty confident about the outlook.

My favourite “AND FINALLY” video this week was this weirdly addictive music video!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when everyone reacted to Trump getting shot, when chip stocks took a beating and when Netflix hit record revenues…

• IN THE US – everyone was reeling from the assassination attempt on Trump! Basically, most people (including Biden disciples) reckon Trump is nailed on for the win, so bitcoin jumped (Trump is bitcoin-friendly, apparently) and TSMC shares fell (because Trump is not particularly supportive about continuing to defend Taiwan). Donations for Trump’s campaign flooded in and he picked his running mate, Ohio senator JD Vance. A Trump/Vance maganomics agenda could result in trade wars, tax cuts for American businesses and individuals, a rolling back of climate commitments and the promotion of fossil fuel production. Meanwhile, the pressure continued to build on Biden to give up by increasingly high-profile individuals while the Fed made noises about an interest rate cut. The market is expecting a September cut.
• IN CHINA – official figures showed that the country’s GDP growth rate lost momentum in Q2 but there’s still time for it to make up ground to hit its “around 5%” full year GDP growth target.
• IN EUROPE – Ursula von der Leyen got a second terms as EC president, the ECB left interest rates unchanged but German manufacturing output was disappointing, according to the latest figures from Eurostat. It dragged down the performance of the rest of the bloc as a result.
• IN THE UK – the IMF upgraded growth forecasts for the UK but cautioned that interest rates will stay high unless service sector inflation falls. Economists at various investment banks upgraded their UK growth forecasts following the conclusion of the Euros football tournament and the government’s agenda was set out in the King’s speech. There were some areas that weren’t covered – there were no bills covering the regulation of AI, none giving 16-year-olds the right to vote and nothing on social care. Still, I guess it’s early days. Among other things, Labour is getting started with the process of nationalising railways and Starmer is looking to improve relationships with Europe. For now, it looks like hopes of an imminent rate cut from the Bank of England are receding because although the headline inflation figure of 2% is pretty good, service sector inflation remains stubbornly high.
• IN SOUTH AFRICA – President Ramaphosa did his first state of the nation address as head of a coalition government. He made largely pro-business noises about committing to the country’s economic revival and investing heavily in infrastructure. We’ll have to wait to see whether he executes this successfully!

IN ENERGY NEWS…

• Italian PM Meloni is planning on reintroducing nuclear energy 35 years after the country shut down its last nuclear power plant via investments in small modular reactors that could be operational within 10 years and help the country to cut its reliance on imported fossil fuels.
• The Labour government has committed to accelerate investment in green energy by streamlining the planning process (among other things!) and setting up Great British Energy. It will take quite some time to see the fruits of these efforts but at least they are going the right way!

IN COMMODITIES NEWS…

• Anglo American has decided to make additional production cutbacks at its De Beers diamond business. Prices have fallen because of high inventory levels but they have also weakened because of slower demand from Chinese customers and, I would suggest, the rise of synthetic diamonds.
• The prices of cotton futures have dropped to their lowest level since October 2020, which is less than half of the decade-high peak they reached in May 2022 thanks to a major rise in production in Brazil. Meanwhile, global demand has decreased thanks to higher take-up of man-made petroleum-based fabrics like polyester, which cost less and are cheaper to produce than cotton.

IN BUSINESS TRENDS NEWS…

• Fears of a trade war with China have increased as the WTO criticised China’s lack of transparency in how it subsidises industry in its latest report. It voiced particular concerns about the EV, semiconductor and steel industries.
• Shipping continues to be disrupted thanks to ongoing attacks on merchant vessels by Yemeni Houthi rebels in the Red Sea and resulting impact on traffic in the Suez Canal. Maersk, the world’s second-biggest container shipping line, reckons that the situation will continue to stretch capacity.
• The world’s biggest industrial property company, Prologis, highlighted an interesting trend as it raised its annual forecasts – that the slack in warehouse demand is being taken up by warehouses being converted into highly lucrative AI data centres!

IN EMPLOYMENT TRENDS…

• The UK job market is cooling down, according to the latest figures from the ONS. Annual pay growth is slowing down while unemployment is going sideways. That being said, wages are rising faster than inflation at the moment (that hasn’t always been the case over the last few years!) so there is still a danger that inflation could remain stubbornly high.
• The WFH trend is continuing as research from CBRE shows that just 43% of white-collar workers are commuting to work at least three times a week (mind you, that’s up on 37% this time last year!) while 71% make the commute two days or more. This should be good news for companies that supply office workers (e.g. Compass Group, which runs a lot of work canteens).
• Employers are getting a bit nervous about Labour’s promises to overhaul workers’ rights because they think it’ll make recruitment more expensive and potentially less flexible. Mind you, if reforms had been made maybe Amazon workers would now be unionised – but they aren’t now because the GMB union didn’t get enough votes in the ballot held this week.
• Microsoft cut its Diversity & Inclusion team because of “changing business needs” and no longer sees the function as being “business critical”. I guess that companies fell over themselves to have this in the wake of the #BlackLivesMatter and #MeToo movements and I suspect that leaders think they can get the same guidance from outside contractors rather than having a dedicated function in house.

IN EV NEWS…

• IN SALES – dealerships are hopeful that the transition to EVs will get more people buying new cars more often as they have faster replacement cycles. Meanwhile, in the UK, sales of used EVs are going up as prices are coming down as early adopters are flooding the market.
• The UK’s charging network is growing at a rate of a new one every 25 minutes, according to a report by ChargeUK. The vast majority of the UK’s 1m chargers are home chargers and at businesses whereas just 65,000 of that number were public chargers, so there is still a long way to go!
• Serbia has promised to prioritise the supply of lithium to European car manufacturers over Chinese ones when it develops one of the world’s biggest deposits of lithium in the north-west of the country. This could be a major boon to Europe’s EV industry as it could produce 17% of EU demand.
• As things stand, the UK has no plans to impose tariffs on EV imports from China, which puts us on a different path to the EU. Cue a massive influx of Chinese EVs on UK roads!

IN CONSUMER NEWS…

• UK retail spending is rising, according to the latest figures from Kantar. It was interesting to see that sales at supermarkets boomed with the Euros football frenzy but grocery price inflation fell to its lowest level since September 2021.

IN RETAIL NEWS…

• A lot of luxury brands are having problems at the moment. Some aspirational brands including Versace, Burberry, Marc Jacobs and Bottega Veneta are offering discounts of up to 50% as China’s middle-classes continue to rein in the spending. Burberry has brought in a new CEO to sort things out – but they are not alone in experiencing difficulties. Hugo Boss had to cut its full-year forecasts and Richemont also cited China weakness as a factor in its poor performance. UK retailer Frasers Group also said it had experienced weakness in luxury sales but seemed to be pretty blasé about it, saying that they were confident things would bounce back.
• Ocado announced upgraded cashflow and earnings forecasts, but then again it has built a reputation over the years of over-promising and under-delivering.
• Hotel Chocolat announced plans to open 25 new stores with the backing of its relatively new owner Mars, the confectionary company that bought it last year for £531m.

• Given all the hype, it is worth considering why AI might not succeed as much or as quickly as everyone thinks it will. It’s in the early stages of development, there isn’t any obvious “killer app” at the moment, it’s not a given that the returns will justify the enormous capex it’s sucking in at the moment, the impact of AI is still unclear and we don’t really know yet whether it really will be as transformative as the hype would suggest.
• China is making progress towards the creation of a socialist AI as the Cyberspace Administration of China (CAC) is batch-testing LLMs from the likes of ByteDance, Alibaba, Moonshot and 01.AI to see whether their LLMs “embody core socialist values”. I have to say that I think this is great news for the Americans in particular because I think that AI is only as good/useful as the information it feeds on. If that is restricted in any way then I think this will limit its long-term usefulness (or at least it won’t be as good as AI that is developed more freely using more information sources).
• Bitcoin miners are trying to benefit from AI by converting their data centres into more AI-friendly ones. Rewards for bitcoin mining recently halved and AI is now the hot ticket with demand for facilities outstripping demand. This is great for both sides – the miners get access to higher and more stable revenues and the AI lot get faster access to the computing power they need!
• Chip stocks took a pasting this week thanks to the market’s perception of Trump’s increased chances of winning the presidency because he is noticeably lukewarm on committing to the defence of Taiwan. There are concerns about whether exports of advance chips/chip-making equipment to China will get tighter as well.
• IN CHIP NEWS – TSMC raised its full-year forecasts as it bet on a prolonged AI boom. TSMC accounts for over 90% of the world’s most advanced chip production but the fragile geopolitical situation can’t be ignored. Meanwhile, OpenAI and Broadcom entered talks about developing a new AI chip (but don’t get too excited – that’s likely to be miles away if it ever happens!) as OpenAI understandably wants to broaden its supply chain (it’s very Nvidia-heavy at the moment!).
• Meta has decided not to release its AI model in the EU as it says  that regulators in the bloc are too “unpredictable”. This just highlights growing tensions between regulators who want to protect users and competition while Big Tech wants to innovate and break things. The EU’s AI Act will come into force next month while the DMA and GDPR also look to protect user privacy.
• Microsoft is now facing investigation by the CMA regarding its deal with AI start-up Inflection. Microsoft hired the founder of Inflection and a number of his colleagues to run its new AI division whilst it also signed deals with Inflection to access its AI models, something that was seen by many as an acquisition in all but name. Regulators want to discourage Big Tech buying up promising smaller tech companies because of its detrimental effect on competition.
• That being said, Alphabet is in talks to buy cyber-security start-up Wiz for $23bn in what would be its biggest ever acquisition. This will be the latest push by Alphabet into cyber security after it bought Mandiant two years ago for $5.4bn.
• The SEC is being urged to investigate NDAs at OpenAI as whistleblowers are saying that they are too restrictive. This could get quite interesting given the sensitivity surrounding the development of AI…
• IN HARDWARE NEWS – both Apple and Samsung saw phone shipments rise in Q2 although their overall share of the market fell thanks to growing competition from Chinese rivals. Meanwhile, labour troubles at Samsung could take the edge off its Q2 performance and potentially benefit rivals like SK Hynix if employees decide to jump ship.

IN MEDIA NEWS…

• Netflix announced record revenues thanks to a combo of hit shows and the success of the ongoing crackdown on password-sharers. New subscriber numbers came in above Wall Street expectations and Netflix lifted its revenue forecasts for the full year.
• French ad giant Publicis announced better-than-expected Q2 results which prompted it to raise its full-year earnings guidance as well. The fortunes of ad agencies can act as a useful lead economic indicator, so a recovery in ad spending overall is quite a positive sign for the global economy.

• IN FINANCIALS NEWS – Goldman Sachs reported a big rise in profits thanks to the rebound in dealmaking activity. Morgan Stanley also benefited from this as well as higher revenues from trading. Mainstream banks with less exposure to investment banking and trading have been suffering because savers have been moving their money elsewhere to get better returns.
• IN IPO NEWS – European IPO market activity has risen over the first half of this year and although London’s IPO market has been quite muted so far, the pipeline is said to be strong. Meanwhile, Shein’s expected IPO on the LSE will put the FCA to the test given that it’ll have to tread a fine line between “getting the business” and maintaining standards. Klarna continues to gear up for a New York listing, probably in the first half of next year. It’s not clear what valuation that it will be seeking, but details of all that sort of thing will be hammered out nearer the time.
• IN M&A NEWS – sunglasses giant EssilorLuxottica bought US streetwear brand Supreme from VF Brands for $1.5bn. It sounds like EssilorLuxottica plans to expand Supreme’s eyewear line by launching Supreme-Meta smart glasses following the success of its Ray-Ban Meta glasses. Even more intriguingly, Meta is thought to be considering a multi-billion euro investment in EssilorLuxottica. It’s been trying to “break into” wearables for years what with that big acquisition of Oculus a while back. If you could mix EssilorLuxottica’s style, brands and licences with Meta’s connectivity and Supreme’s coolness, I think that could be a killer combo…elsewhere, Pernod Ricard sold most of its international wine brands to Australian Wine Holdco to focus on its premium spirits and champagne business. Pernod Ricard will maintain its US and French wine brands.
• IN REAL ESTATE – Property developers are bracing for a “green belt gold rush” as the new government is keen to cut red tape and relax planning restrictions. This is great but developers will still have to contend with high mortgage rates and environmental regulations. Consumers themselves will also have to deal with high interest rates, although they are expected to start to fall this year. Meanwhile, Rightmove research suggests that the UK housing market is poised for a boom thanks to expectations of interest rate cuts, which will result in mortgage rate cuts. I guess this was reflected in the latest ONS data which showed that house prices in London and the South East have jumped for the first time since May and April 2023 respectively, implying that the housing market slump has ended. In commercial property news, there were some interesting plans submitted for a remodelling of HSBC’s famous Canary Wharf skyscraper for when the bank departs in 2027. This is all part of Canary Wharf Group’s plans to make the whole area less finance-heavy.

My favourite “AND FINALLY” video this week was the “tricky challenge” one! Have you tried it yet??

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week of disappointment for France’s far-right, of Apple having to conform and of the biggest overhaul of listing rules in the UK in a generation…

• IN THE US – the pressure continued to mount on Biden to step aside for an alternative presidential candidate, he launched a new offensive for his campaign, and promised to “complete the job” despite stumbling with his words – this time at a press conference – as Europeans sidled up to Trump’s foreign policy team at the fringes of the NATO summit in Washington, hedging their bets regarding the next White House occupant. In the meantime, experienced party members and donors are getting increasingly anxious about Biden staying in place as Trump opens up a lead in the polls.
• IN CHINA – speculation is building ahead of the Communist Party’s third plenum next week (there are usually seven plenums over the five-year term of the central committee) but it doesn’t look a a grand masterplan about how to jolt domestic demand and arrest the economy’s slide into a deflationary spiral is going to be forthcoming. Meanwhile Taiwan’s government announced plans to prepare public services and infrastructure to function in wartime “just in case”.
• IN EUROPE – it’s all about France as the far-right didn’t get the majority they wanted in the elections after all. The far-left did particularly well in the elections but no sooner had they united to fight off the far-right, they splintered back into their usual factions. Macron called for a “governing pact” to break the current impasse before swanning off to Washington for the NATO summit. At the end of the day, he’s the one that’s actually responsible for the mess because he called the election in the first place!
• IN THE UK – the new Labour government is facing major challenges but it has promised to address areas including health spending, construction, education and public sector investment among many other things. New chancellor Rachel Reeves has already started with the kitchen-sinking of all the bad stuff under the Conservatives, saying that the UK’s public finances are in their worst state since WWII. Meanwhile, GDP rose unexpectedly strongly in May, potentially signifying the start of an economic boom that Starmer might be inheriting as a recent survey by S&P Global showed that Britain was at the “top of the league” for business optimism with buoyant expectations for the second half of the year. From a consumer perspective, inflation is slowing down and wages are rising faster than prices – which means that the pressure on household finances is easing off (although this is obviously relative). I would also add that it seems to me like M&A activity has been picking up and now that we’ve got more relaxed listing rules and potentially the most stable government in the G7 for the next few years, the UK might not be a bad place for investors to park their money!

IN ENERGY NEWS…

• At least six renewables firms are planning new onshore windfarms following Labour’s reversal of the restrictions that the Conservatives put in place on turbines.

IN COMMODITIES NEWS…

• OPEC maintained its bullish outlook for oil demand growth and was even confident enough to boost its full year forecasts, powered by ongoing demand from major companies.
• On the other hand, BP is predicting that global demand for oil will peak next year while it also warned of lower-than-expected profits due to lower refining margins and a fall in the performance of its oil trading division.
• BHP has decided to suspend nickel mining operations thanks to oversupply from Indonesia. Nickel is used in making stainless steel – but it’s also a key material for EV batteries. Unfortunately, poor demand for EVs has led to falling demand for batteries which means that nickel prices have been hit by the double whammy of too much supply and too little demand.
• The chairman of coffee company Lavazza reckons that coffee prices will remain “very high” until at least the middle of next year thanks to pressures on the supply chain and worsening harvest conditions in Brazil, Vietnam and Colombia.
• Tea prices have risen considerably thanks to heatwaves and floods in India’s main tea-producing region. However, it’s unlikely to affect Brits that much because European tea bags contain just 30% of higher quality Indian tea so perhaps all this will do is mean that producers will just use lower quality leaves from places like Kenya and Uganda.

IN BUSINESS TRENDS NEWS…

• Vistry looks like it’ll be a key player in Labour’s housing drive, particularly as it switched focus last year to building homes for housing associations and local authorities. On the flipside, Barratt Developments said that it will be building fewer homes in the coming year as it will be limited by its relatively small landbank – an issue that it has tried to address with its recent deal to buy rival Redrow.
• Begbies Traynor reckons that high levels of corporate insolvencies will persist into next year as stubbornly high interest rates continue to put pressure on companies.
• Increased dealmaking activity is expected to boost investment banks, who are just kicking of results season. The benefits are already being felt by the likes of Linklaters and A&O Shearman who have paid senior partners around £2m each thanks to the fees generated.
• The profile of non-alcoholic beverages continues to rise as Carlsberg bought Britvic for £3.3bn and the biggest non-alcoholic beer brand in the US, Athletic Brewing, just closed its latest round of financing that has effectively doubled its valuation. Cheers!

IN EMPLOYMENT TRENDS…

• The number of management consultants fell by 3% last year, according to stats from the Management Consultancies Association, after work dried up following the industry’s hiring frenzy in 2022.
• UK recruitment agencies are having a hard time right now. Page Group issued a profit warning, as did Hays, due to employers taking longer to hire and because companies may have been waiting to see how the elections went in France and the UK.
• Samsung Electronics unionised workers have voted for an indefinite strike to get better wages and working conditions. The National Samsung Electronics Union has 30,000 members, making up almost 25% of the company’s workforce, and around 6,500 of its workers have been on strike since Monday.

IN DRIVERLESS NEWS…

• Shanghai got the go-ahead for the use of driverless taxis without supervisors. This newly-granted permission means that residents can now book free rides in robotaxis of four companies – Baidu, Saike Technology, Pony.ai and Auto X. The testing area covers about 127 miles of roads in Shanghai’s Pudong district. However, this isn’t going to go down all that well with humans, particularly as the unemployment rate for 16-24 year olds stood at 14.2% in May. Giving driverless taxis too free a rein at the moment will no doubt cause uproar because this will effectively kill off taxi-driving as a job option.

ELSEWHERE…

• South Korean battery maker SK On is really suffering because the demand for EVs in Europe is weak. This means that its net debt has quintupled as western EV sales have fallen way shorter than expectations. However, it’s not just SK On that’s suffering from this – Northvolt, PowerCo and Svolt have either cancelled or delayed plans to increase EV battery manufacturing capacity. Until EV sales start to improve I doubt this situation is going to get any better.
• It seems that Tesla has seen its market share in the US fall below 50% for the first time as competition from other makers (though not Chinese ones!) has increased. Meanwhile, foreign carmakers are losing market share in China as local rivals continue to sell well (comparatively).
• BYD announced a $1bn deal to build an EV plant in Turkey as part of its overall effort to boost European production.

IN RETAIL NEWS…

• Amazon could potentially be facing an investigation by the Groceries Code Adjudicator in the UK if it doesn’t improve its treatment of grocery suppliers. A recent survey said that fewer than 50% of Amazon’s suppliers thought that the etailing giant complied with its code of practice which meant that it was placed dead last among 14 retailers from 3,000 responses.
• The fashion industry in the UK continues to push for the restoration of the tourist tax break (where they don’t have to pay VAT) while Burberry announced that it was cutting its headcount, which it partially blamed on Sunak’s decision to ditch duty free shopping in the UK for tourists.
• Shein announced the launch of a €200m fund to tackle fashion waste but this is a paltry amount for a company that earned $2bn in profits last year and does have a whiff of sucking up to the British authorities ahead of a potential IPO on the LSE.
• Ocado announced that it was going to build a third robotic warehouse in Japan with its partner Aeon, Japan’s biggest grocer. It is scheduled to open in 2027 and represents a welcome bit of news for the company that has had a run of bad news recently.
• Superdrug managed to post a decent profit as it continued to benefit from the ongoing expansion of its cheaper own-label products.

IN CONSUMER GOODS NEWS…

• Consumer goods companies General Mills, Mondelez and PepsiCo are finding that they are losing their pricing power as consumers continue to rein in spending where they can. Relying on their well-known brands just isn’t sustainable for a lot of people who are still feeling the pinch.
• Nike’s still in a rut as it continues to rely on rehashes of old glories while the likes of Hoka, On and New Balance take market share. A new approach is definitely needed.

IN LEISURE NEWS…

• Cafe-bar chain Loungers announced record revenues, a slew of new openings and a strong start to trading for the current year. It’s great to hear good news from a restaurant chain for once, no??

• Microsoft and Apple ditched their seats on OpenAI’s board as regulatory scrutiny of their relationship intensifies. Instead, the companies will have regular meetings to communicate. This smacks of tokenism given that everyone knows just how close Microsoft and OpenAI are in particular!
• Apple has decide to give in to the EC in order to avoid a fine for anticompetitive behaviour and it has now opened up Apple Pay to rivals so that they can use their own virtual wallets instead of always having to go via Apple.
• User growth at X has stalled since Elon Musk’s takeover and Meta’s Threads takes advantage. It seems to me like a proper roadmap is needed for X. CEO Yaccarino has surely had long enough in the hot seat to know what needs to be done – so some execution is surely in order!
• China’s Xiaohongshu social media platform just got the backing of VC firm DST Global in its latest financing round, which is notable because non-Chinese investors are swerving Chinese tech companies right now due to crackdowns by Beijing. Xiaohongshu is China’s fastest-growing social media platform.
• Paramount Global agreed to merge with Skydance Media after all following the tabling of a new offer that involves more legal protections than the initial one.

• The UK announced its biggest overhaul of listing rules in a generation. The new rules will give company bosses more power to make decisions without shareholder votes by being more flexible on share-structures and will come into force on July 29th. Although the FCA has warned that there will be a higher risk of investors losing money, it believes that the potential rewards of more companies listing will outweigh this.
• Europe’s newest rocket had a successful launch this week. This is good news because it means that the Europeans are still in the game to provide their own satellites without just giving Tesla’s SpaceX a virtual monopoly.
• Dyson announced that it was going to cut almost a third of its workforce after a global review. It seems to me that the company needs to find a new hit product asap otherwise things could continue to slide. Its Zone Absolute+ Headphones just ain’t it as far as I’m concerned!

My favourite “AND FINALLY” video this week was the one where the cook used cheap ingredients to make something quite special! Very clever 👏

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Labour won its first election in 19 years, when Biden felt the heat and when Europe brought in the tariffs for Chinese EV imports…

• IN THE US – things are getting heated for Joe Biden following his disastrous performance at the TV debate last week. Democrats have lined up to defend him, he admits that he “screwed up” but he continues to be under pressure to bow out of the race although both presidential candidates clearly have their individual issues!
• IN EUROPE – central bankers are getting increasingly nervous about the effect that Rassemblement National might have on Europe after Le Pen’s party won the first round of the vote which saw an unusually high turnout and a shift in the way different age demographics voted. Macron looks like he’s having to make compromises with the far-left in order to prevent RN from getting a majority. In all the kerfuffle, no one really noticed that the eurozone’s headline inflation rate fell to 2.5% (although services price inflation was still high at 4.1%).
• IN THE UK – Labour won the general election with a massive majority, sterling strengthened, Nigel Farage became an MP for the first time and we now await the new PM getting to work on his new policies! The UK services sector lost momentum as companies put activity on hold ahead of the election but at least the new lot will be able to benefit from falling inflation and fuel prices. City analysts are hopeful that this big Labour victory will increase confidence in the UK and attract investment as a result.
• IN SOUTH AFRICA – Re-elected president Cyril Ramaphosa managed to announce a new cabinet, a month after his ANC party lost its majority for the first time since the end of apartheid 30 years ago. So far so good, but it’s going to be a tough old road ahead…

IN ENERGY NEWS…

• Shell has halted the construction at one of Europe’s biggest biofuel plants, putting a spanner in the works of airlines’ ambitions to offer passengers lower-carbon flights. This is the latest example of an oil and gas company reneguing on its environmental promises.

IN BUSINESS TRENDS NEWS…

• Management consultancy Bain & Co are pulling back from working in certain sectors in China as it adapts its working practices in the country following its highly-publicised raids last year by Chinese authorities on its Shanghai offices.
• Air freight rates have been pushed higher because Shein and Temu send so much 💩 everywhere! It’s made worse by ongoing issues in the Red Sea making sea freight expensive as well, so there’s not much in the way of alternative! Mind you, the EU is considering slapping customs duties on the two e-tailers who split deliveries up into smaller packages to avoid paying duties (which is the thing that’s clogging up air freight).
• Air France-KLM has said it’ll take a dent in its finances because would-be visitors are avoiding Paris during the Olympic Games.
• UK manufacturing growth has slowed down thanks to shipping delays I mentioned above in the Red Sea and resultant higher freight costs.
• Law firm Hogan Lovells launched a new “microaggressions” hotline where staff can report transgressions anonymously. I think this is less about welfare (I really don’t think people are going to use this that much) and more about the firm covering itself from any future lawsuits because they can say that they provided a way that inappropriate behaviour can be reported.

IN EMPLOYMENT TRENDS…

• Morgan Stanley became the latest investment bank to ditch the bonus cap after Goldman Sachs and JP Morgan ditched it before them.
• British uni grads are finding it particularly hard to find an internship in what is the toughest market for at least seven years. It seems that the number of internships relative to job openings has trended lower than any year since at least 2018 as the wider jobs market experiences a slowdown.

IN CONSUMER TRENDS…

• UK house prices ticked up for the second consecutive month in June, according to the latest Nationwide figures, while Rightmove data shows that rents are also on the rise and Zoopla says that the proportion of gross earnings spent on rent are at a record high. In London that equates to an eye-watering 41% of earnings 😱! Although we tend to hear a lot about younger people having problems with renting and getting on the housing ladder, data from Paragon Bank shows that there is an increasing number of older people who have not been able to get on it either! Estate agent Savills reckons that new demand from the over-35s for private rental tenancies will shoot up by 8x by 2030.
• Rich people have started to sell up assets including shares and property in anticipation of a tax raid from a Labour government.

IN RETAIL NEWS…

• Amazon’s international business has rebounded after a period of streamlining and founder Jeff Bezos announced plans to sell $5bn of Amazon stock shortly after the company’s valuation breached the $2tn valuation threshold. The company also announced that it won a $1.3bn contract to build an Australian defence cloud which will enhance the secure sharing of information with allies.
• We heard that Dior and Armani were named as high end luxury houses using exploited labour in Italy, attracting criticism from a Milan court of failing to oversee their supply chains properly. Surely they won’t be the only ones doing this – and it also goes to show that it’s not just retailers at the cheap-and-cheerful end of things (like Boohoo and Shein) that indulge in a bit of labour naughtiness.
• M&S has launched a new clothing repair and alterations service as part of efforts to improve its sustainability credentials and it was also interesting to note that it was increasing stocks of smaller womenswear sizes, which implies that it customer base may be getting younger!

IN LEISURE NEWS…

• Embattled cinema chain Cineworld is looking at closing 25% of its cinemas in a bid to cut costs. It’s also renegotiating the rents for around half of its UK sites. Cinemas had a rough pandemic and just when things were starting to improve, they were hit by the Hollywood writers’ and actors’ strikes.

IN BATTERY & CHARGING NEWS…

• Hyundai and LG Energy have opened a $1.1bn battery cell plant in Indonesia as part of the country’s efforts to move further up the global EV supply chain. It’s the first of its type in Indonesia and is projected to have an annual production capacity of 10 gigawatt hours. About 90% of its products will be exported to South Korea and India.
• Europe’s biggest EV battery “hope” Northvolt continues to suffer mysterious deaths of people connected to its gigafactory. It is powered by renewable energy from a hydroelectric plant and will churn out lithium ion batteries that will have a 90% smaller carbon footprint than leading rivals. There are rumours of a potential $20bn stock market listing in 2025.
• A Cambridge-based start-up called Nybolt claims to have made a breakthrough by developing an EV that can be charged in just five minutes – the same length of time it takes to fill a car with petrol! It introduced the prototype vehicle, which has a range of 155 miles, last week. Clearly now this needs to be built at scale!
• The UK’s Road Haulage Association is now calling for the new government to invest in the virtually non-existent UK charging structure for Britain’s fleet of 300 electric HGVs. At the moment, there is just one public charging point for HGVs in the entirety of the UK!

IN CAR NEWS…

• EV sales in China rose in China in June thanks to government subsidies, tax breaks and steep discounts. BYD will have to watch its back, though, as domestic rivals are snapping at its heels!
• The EU decided to go ahead with imposing import tariffs on EV imports from China as negotiations between the EU and China failed to yield any results. BMW is belly-aching about the imposition talking about it being bad for competition, but this is clearly all about the company not wanting to suffer retaliatory measures from the Chinese for their China business. Mercedes-Benz and VW are saying the same for the same reasons.
• Tesla deliveries fell for the second straight quarter, but by less than the market was expecting and it got a bit of good news at the end of the week that it made it onto a Chinese local government’s list of EVs that can be bought by public, party and government groups for the first time. It is the only foreign-owned car maker on eastern province Jiangsu’s list.
• In the UK, new car registrations have reached a level not seen since 2019 and EV sales have reached their highest ever market share of 16.6%! On the flipside, though, there has been a general slowdown in sales over June and plug-in hybrid and hybrid sales have performed better than those of fully-electric cars.

IN AI NEWS…

• Google emissions have jumped by 48% in the last five years thanks to the expansion of data centres that power AI systems. This could put its “net zero by 2030” targets in jeopardy.
• Apple joined OpenAI’s board as an observer as part of the deal announced last month to integrate ChatGPT into Apple devices.
• There were a couple of interesting and controversial developments we heard about this week – firstly there was the all-AI generated ad from Toys ‘R’ Us which was made solely using Sora, OpenAI’s video making tool. Then there was the announcement by ElevenLabs which now has permission to clone the voices of Judy Garland, Sir Laurence Olivier, James Dean and Burt Reynolds so that users of its “Iconic Voices” tool can select them to read their favourite novels!
• Research from chip consultancy SemiAnalysis estimates that Nvidia is on track to sell $12bn worth of AI chips to China despite US sanctions! This wasn’t confirmed by the company itself but it does show that there are ways around these things if there is enough will and money involved…

ELSEWHERE…

• Meta was accused of breaking the EU’s new digital laws by using an advertising model that charged users for ad-free versions of Facebook and Instagram. If users don’t pay, their personal data is effectively deemed fair game for ad purposes. The EC says that Meta must launch “equivalent” versions of Facebook and Instagram that don’t use as much personal data.
• Samsung reckons it’ll see booming profits in Q2, carrying on the momentum it saw in Q1 when it returned to profit after four consecutive quarters of losses. It’s benefited from higher prices and strong demand for its powerful chips. Its full quarterly results will be released later this month.

• BlackRock bought Preqin, a UK private markets data group, for £2.55bn after fighting off competition from Bloomberg and S&P Global to buy it. There have been grumblings since that BlackRock had paid through the nose for the privilege.
• TDR Capital is looking to offload BPP and has appointed bankers to lead the sales process. This looks like another sign of growing confidence in the market as M&A activity continues to increase!
• Boeing agreed to buy Spirit AeroSystems in a $4.7bn deal after spinning it off back in 2005. This is all part of efforts to improve quality control after all the problems with the Boeing 737 Max jet. This has created problems, though, for its facility in Belfast where 2,400 jobs hang in the balance.
• The owner of Saks Fifth Avenue, holding company HBC, has agreed a deal to buy rival Neiman Marcus in a $2.65bn deal. Supporter say this will create a luxury retailing powerhouse while Amazon, which will take a minority stake in the company (which is to be called Saks Global) will provide it with tech and logistical expertise.

My favourite “AND FINALLY” video this week was the one with the absolutely amazing busker! A nice bit of music to end the week with 👍

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Biden failed that TV debate, when VW announced a JV with Rivian and when Frasers did BNPL with THG…

• IN THE AMERICAS – a report by Moody’s Analytics contended that if Trump got the presidency, there would be a recession by mid-2025 while unemployment and inflation would rocket with the less affluent taking most of the brunt (which is ironic because they are the ones looking to vote for Trump). Biden’s plans look less extreme in comparison but he had a disastrous TV debate with The Orange One, prompting commentators to say that this would be disastrous for his bid for a second consecutive term in office. Will Michelle Obama come to the rescue?? The IMF voiced concern about the potential for the US to pile on the debt whoever gets into office and urged whoever gets in to pay down debts while the economy is still strong (but that would be a real buzzkill for voters, so is unlikely to happen!). In Argentina, President Milei’s tough economic policies designed to get the country’s finances back on track have pushed the country into recession. Unemployment has risen while consumer spending and investment have fallen. No pain, no gain??
• IN ASIA – the Yen fell to its weakest level versus the dollar since 1986 but the Finance Ministry may be reticent about wading in to shore up the currency because they chucked loads of money at it in April and the impact didn’t last for as long as it had hoped! Meanwhile, the situation regarding the Philippines, China, the Second Thomas Shoal and the US got increasingly fraught, prompting the Philippine ambassador to Washington to warn that this could escalate to nuclear war if things remain unchecked.
• IN EUROPE – Ursula von der Leyen got closer to winning a second term as the EC president by gaining endorsement from most of the European leaders (although Italy’s PM Meloni abstained). She’s now got to win a vote scheduled for the week of July 15th. Meanwhile, in France, an FT poll suggested that the French electorate trusts Le Pen more than President Macron on the economy. Both the extreme right and extreme left parties are comfortably more popular than Macron’s centrists and it looks likely that they will spend, putting France further into debt (and they’re already quite substantially in debt).
• IN THE UK – there was a suggestion that France’s political predicament could present an opportunity for the City of London to claw back some of the business it had lost to Paris during Macron’s ongoing efforts to make his own finance hub since Brexit. However, the IFS think tank believes that Britain’s finances are in a right old state and it looks like pledges of NHS spending are quite spurious whoever gets in.

IN CLIMATE-RELATED NEWS…

• A coalition of businesses, mayors, governors and investors – dubbed “Mission 2025” – has come together to oppose the increasingly prevailing view that tackling climate change was “too difficult, too unpopular or too expensive”. Mission 25 wants governments to solidify environmental commitments for the next decade. As if to illustrate further why this is necessary, BP’s CEO implemented a hiring freeze and suspended new offshore wind projects in an attempt to calm investors who don’t like the company’s green targets. It is the latest example of an oil company walking back its climate commitments.

IN COMMODITIES NEWS…

• There’s potentially good news for chocolate lovers as cocoa futures prices have continued to fall in the longest “losing” streak since 2022 as weather in the key growing region of West Africa has been improving with the arrival of seasonal rains. Will this signal the “ceiling” for chocolate prices?

IN CONSUMER-RELATED NEWS…

• REGARDING MORTGAGES – Rightmove stats show that first-time buyers are facing monthly mortgage repayments that are 61% higher than they were in 2019 but then at the other end of the scale, the Bank of England says that most of the 3 million households who are currently on relatively low mortgage rates (at or below 3%) will see their monthly repayments jump by over 25% within the next two years as they roll on to new deals.

IN EMPLOYMENT-RELATED NEWS…

• Data from Adzuna showed that the UK jobs market remained largely unchanged last month despite early signs of improvement in the economy. Meanwhile, the Resolution Foundation think tank says that average weekly wages in Britain have reason by just £16 a week in real terms since 2010 thanks to anaemic GDP and productivity growth that followed on from the financial crisis of 2008. This compares badly with equivalent average wage rises of almost £70 a week in Germany and the US.

• China has agreed to talk with EU on EV tariffs. Proposed tariffs could be up to 48% for some makers and Germany has the most to lose if the Chinese were to retaliate with tariffs of their own. Talks are certainly needed if a trade war is to be avoided!
• Ferrari is looking at offering a €7,000 annual subscription fee that will entitle the owner to a replacement battery for its hybrid and electric vehicles after eight years and then 16 years. I think this is a canny way to squeeze more money out of Ferrari owners but this is a service that I think “normal” car companies should offer (for much less than €7,000 per year, obviously) in future in order to help address the problem of battery degradation and massive depreciation.
• Stellantis is threatening to shut down production at two UK plants unless the next government puts up some cash and provides some tax incentives to encourage demand for EVs.
• VW announced that it would invest up to $5bn in a 50/50 JV with Rivian. This is great for both sides because VW will get better software (its in-house effort, Cariad, was 💩) and Rivian will get a sugar daddy to finance it. There will obviously be other benefits (e.g. VW getting a better foothold in the US and Rivian getting access to Europe etc.) but this seemed to go down well with the investment community. Given that the rollout of Chinese-made EVs might be slowed down by the incoming tariffs, it may give VW time to make up some ground…
• Tesla recalled its Cybertrucks again, this time for issues with the trunk and windscreen wiper. Tesla isn’t having a great time at the moment as it’s had to announce a lot of recalls and comes at a time when the company is facing increasing competition in China and waning demand for EVs generally elsewhere.

IN CONSUMER TRENDS NEWS…

• Amazon announced plans to launch a service that will offer cheap fashionwear, household goods and other products that come directly from China in a bid to take the fight back to upstarts Temu and Shein. Delivery to customers in the US would take between 9 and 11 days of placing the order, coming directly from China. Meanwhile, Amazon is being sued by a University of East Anglia professor on behalf of UK third-party sellers on Amazon’s website for £2.7bn.
• Shein submitted paperwork with the FCA ahead of its anticipated IPO on the LSE. It still needs to get approval from Beijing authorities to list in London. In order to work, though, it would be advisable for it to give more detail about why it wants to list, address ongoing supply chain concerns and give more assurance about its corporate structure.
• Frasers Group signed a multi-year partnership with THG where Frasers will buy some of its luxury goods websites and sell some of its protein products at Sports Direct while THG will use Frasers’ BNPL product and integrate its customer service and loyalty programme.
• Boots’ American owner, Walgreens Boots Alliance, has decided to postpone the sale of the high street retailer (presumably because no-one wanted to buy it at a price they were comfortable with). This is the second time it’s failed at this and it only fairly recently ditched efforts for a flotation. Clearly, a new strategy is needed – pronto!
• Halfords announced disastrous profits and said that the “Golden age of cycling” is over. The car business has been pretty rubbish as well and it has also been hammered by high freight costs.
• On a more positive note, AO World announced a tripling of its profits! Tumble dryers have been flying off the shelves thanks to wet weather and the Euros have helped boost TV sales.
• Gap seems to be getting some of its mojo back after a long period of decline. It had its its first quarterly rise in like-for-like sales for six quarters and was confident enough about the outlook to upgrade its full year sales and operating income forecasts.
• Watches of Switzerland reported a disappointing performance and blamed it mainly on Sunak sticking with his decision to axe tax-free shopping, which it says drives tourists away.

• Apple announced that it would delay the rollout of its AI-powered features in Europe, blaming EU rules. It plans to roll them out in 2025 to give the company time to comply with the EU’s Digital Markets Act. Meanwhile, Apple and Meta are talking about a potential AI tie-up where Apple could integrate Meta’s Llama 3 model into Apple Intelligence, but it is also holding similar talks with other firms, including Anthropic. In regulatory developments, the European Commission has accused Apple of restricting competition on its App Store and will be using the new Digital Markets Act One of the purposes of the DMA is to force “online gatekeepers” like Apple to open up their businesses to competition.
• The European Commission accused Microsoft of abusing its market power by including Teams with its Office 365 productivity software suite following the announcement of its preliminary antitrust findings this week. The drama instigated by Slack back in 2020 rolls on…
• The US is pushing for more China tech restrictions, this time in investment. There is draft legislation that could put total bans on certain investments and force American individuals and organisations to notify the government of related transactions. Meanwhile, TikTok advertisers are bracing themselves for a ban in the US as the January deadline approaches. They are now putting things like “kill clauses” in contracts that will enable them to cut off financial commitments if a ban comes into force.
• X had a senior management shake-up as the CEO, Linda Yaccarino, had to fire her head of business ops and communication as she is feeling the pressure to boost sales and cut costs. Although 60% of the advertisers that abandoned the platform have returned in the last few months, I really do think that the company could do with outlining a proper strategy…

• Airbus lost a big chunk of its market value after it lowered its commercial aircraft delivery and financial targets for the year thanks to supply chain problems and impairment costs relating to its space activities.
• Fast delivery specialist Getir is set for a break-up and a $250m cash injection by Abu Dhabi’s wealth fund Mubadala Investment Company, which will give it majority control of the Getir’s Turkish operations. The company will be split into its food delivery business in Turkey, which Mubadala will control, and a separate business that will be made up of its other assets.
• Nike’s share price took a major tumble after it reported slower demand and cut its outlook for the year. It’s already deep into executing a cost-cutting plan that it announced in December – it’s not got to concentrate on innovation and address the slide of its core business.
• YouTube is currently holding talks with record labels over how to licence their songs to train AI models for use by creators on its platform. A final agreement has not yet been reached but I guess that this is all going to be about price!
• Nestlé is about to launch a range of products that address the problem of “Ozempic face”, where takers of weight-loss drug Ozempic find that their face looks gaunt and skin loses elasticity. I guess if you are going to lose out on revenue from confectionary and ice cream, you might as well lean into the phenomenon that’s causing it!

My favourite “AND FINALLY” video this week was the one with the singing “horse”! Amazing!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when the UK’s inflation rate hit its 2% target, when Nvidia became the most valuable company in the world and when Fisker became the latest EV start-up to fail…

• IN THE US – one of the top Fed officials said that recent data showing discounting at big retailers and sluggish sales shows that a consumer spending slowdown is “finally” taking place, increasing the likelihood of an interest rate cut this year.
• IN CHINA – the latest data from the National Bureau of Statistics showed that industrial output grew by less than expected in May although exports (particularly those of steel and aluminium) were pretty good, as were retail sales.
• IN EUROPE – there was a lot of chat about the repercussions of Macron’s decision last week to call a snap election. Some said that the EU should be hoping for a Le Pen win as it might be able to get more out of a Rassemblement National government. Parties on the extreme right and the extreme left currently look like they will get France into even more debt if they stick to their current spending plans. In the meantime, French businesses are trying to build bridges with Le Pen (I guess because they think she’s going to win!) but it has spooked investors to the extent that London overtook Paris in terms of market size (more because French stocks were sold off rather than British stocks doing particularly well) and trendy Italian sneaker brand Golden Goose decided to postpone its IPO due to concerns about the uncertain macro environment in France.
• IN THE UK – inflation hit its 2% target but the Bank of England left interest rates unchanged for the seventh time in a row. Labour said that it would improve UK-EU trade terms if it wins the election and forge closer ties with the EU on carbon tax. Somewhat ironically, recent developments in the European parliament and French politics may make the UK an “island of stability” and given that the bloc seems to be having a rough time of it, maybe the new government (especially if it’s Labour) will be in a better position to get better terms with Europe.

IN OIL & GAS NEWS…

• The oil industry is getting a bit nervous about Labour’s North Sea tax pledge and says that increasing the tax will make investment much less appealing.
• Russia is continuing to supply Europe with gas and actually overtook the US as a supplier for the first time in almost two years in May (but that was probably due to a number of one-off factors).

IN ENERGY NEWS…

• Rolls-Royce is continuing to pressure the UK government into making a decision on SMRs, understandable given that it’s in the mix with a number of other companies to win a lucrative UK contract.
• Research from Offshore Energies UK shows that wind actually outperformed gas over Q1, becoming the UK’s main electricity source for the first time. It looks like this will continue for the rest of the year…
• Roof space on warehouses is increasingly been seen as an opportunity to spread the use of solar energy. OK, so this depends on the cost of installing panels on the vast roof space (not just the panels but the structural reinforcement needed) and the prevailing price of electricity in that location, but this sounds like something that could be pretty useful.

IN OTHER COMMODITIES NEWS…

• Chinese warehouses have built up the biggest surplus of copper in four years thanks to the combination of a price spike and anaemic consumer demand. One of the major reasons for this is tepid activity in the real estate sector which can power demand for copper due to the metal’s use in electrical wiring, plumbing and household appliances.

IN BUSINESS TRENDS NEWS…

• Australia’s trade with China hit record highs over 2023 despite a tricky relationship over defence tensions in the region. Chinese premier Li Qiang went on a four-day visit in Australia this week, taking in the mining and winemaking regions in the first visit by a Chinese leader since 2017.
• Research by think tank IPPR says that investment in the UK has lagged other G7 members for 24 out of the last 30 years. Public sector investment has also trended below the G7 average, so it looks like the next government has got its work cut out!
• UK manufacturers expect orders and output to increase significantly in the second half, saying that order books have doubled in the last three months thanks to exports – with demand from the US being particularly strong. Business confidence is now at its highest level for ten years!
• Investment banks are raking it in currently, according to Dealogic, as revenues from trading and deals have risen by 25% over the first six months of the year. JP Morgan, Goldman Sachs and Bank of America were the top performers over the period. This increase in activity would also suggest that business confidence is also on the rise…
• KPMG said that it will be cutting an additional 200 jobs following a review of its cost base. It said that sluggish demand for its services and a slowdown in natural attrition has forced its hand. It’s not the only one to have had to do this – PwC just made a “significant” number of “silent lay-offs” in recent weeks. YouGov’s share price almost halved on its profit warning announcement – this was thanks to a slowdown in its consultancy business where it advises corporates on the collection of data and how to interpret it. It is well-known for its polling (particularly in elections!) but this is only a small part of the business. It just seems that corporates aren’t prioritising consultancy work at the moment.
• Investment in defence tech start-ups is gathering pace in Europe, according to the head of NATO’s €1bn venture capital fund. This isn’t surprising given the sudden boom in defence spending since Russia invaded Ukraine.

IN EMPLOYMENT TRENDS…

• The rise in defence spending is resulting in global defence groups hiring at their fastest rate since the end of the Cold War as they race to fill orders.
• JP Morgan lifted the bonus cap, meaning that UK workers can now earn up to 10 times their basic pay. Goldman Sachs was the first to respond to the lifting of the bonus cap in October last year by lowering basic salaries but allowing workers to earn up to 25 times their salary.
• There’s been a lot of comment on junior lawyers earning upwards of £150,000 among “magic circle” firms, while some American firms pay even more. This could have some unintended consequences but clearly British firms want to keep up with the Kennedys. This reminds me of what happened in the UK with investment banking in the 90s when the Americans came waving their chequebooks – and look at what happened since then!
• There was a paper published in Science this week which concluded that higher earners are more exposed to the impact of AI than lower paid employees. The report covered over 900 occupations and highlighted uncertainty over AI’s impact on employment. Jobs most affected included blockchain engineers, clinical data managers, PR specialists and financial quant analysts.

• Silicon Valley firms are getting increasingly paranoid about corporate espionage, particularly from China, and are tightening their security vetting of employees. Companies including Google, OpenAI and Sequoia are increasingly concerned about the potential leakage of intellectual property and company information.
• Nvidia became the world’s most valuable company, overtaking both Microsoft and Apple for the number one spot. It’s a great achievement to get to this position but I suspect it will be hard to stay there!
• OpenAI co-founder Ilya Sutskever launched his own AI start-up called Safe Superintelligence just one month after quitting OpenAI. He said that it won’t be commercially motivated but I have to say that I doubt this can last forever as investors are bound to want to see some kind of return further down the line.
• Apple was charged under EU’s new Digital Markets Act for restricting competition in its mobile app store. The European Commission said that Apple is not doing enough to point users to offers outside its App Store without slapping them with fees. Meanwhile, Apple ditched Apple Pay Later, its BNPL service that launched in the US last year. The agreements and partnerships it started out with have mostly run their course and it seems that Apple is now looking to provide the same or similar services – just with less risk!
• TDK said that it had made a technical breakthrough with small solid-state batteries. It has developed a new all-ceramic material for batteries that can hold more charge, charge more quickly and be more stable than what’s available currently. At the moment, this will only be for small devices – not EVs.

IN CONSUMER TRENDS NEWS…

• Although inflation has come down to 2%, ONS figures showed that services price inflation is still high while a report from KPMG showed that consumers are reining in spending on eating at restaurants, takeaways and clothing as they continue to concentrate on spending on the basics. That being said, the latest GfK survey said that consumer confidence has bounced back to its highest level since November 2021! This is the third consecutive month of rising confidence and came in above market forecasts and has been driven almost entirely by optimism over the health of the economy.

IN RETAIL NEWS…

• Asda saw another drop in sales as it continues to lag the performance of its rivals. Britain’s third-biggest supermarket chain was the worst-performing supermarket over the quarter and continues to lose market share.
• Games Workshop announced a strong year of sales and profits and topped it off by distributing £18m in cash to each of its employees.
• Ocado saw its share price slide on news that its Canadian supermarkets partner, Sobeys, decided to suspend the launch of its new automated warehouse blaming a weaker online grocery market. This follows hiccups with other retailers in the US (Kroger) and Australia (Coles), not to mention the niggles it has been having with M&S in the UK. Tricky times…
• Chinese e-tailers without international exposure are likely to suffer as the “618” annual online shopping event proved to be disappointing. At least those with international exposure, like Alibaba and JD.com, still have growth to go for (although this is costing them a lot).
• Talking of Chinese e-tailing behemoths, Shein is looking to diversify into other areas such as furniture, electronics and petcare via third party vendors selling on the marketplace it set up last year. Recent market research shows that use of the app has reached a plateau globally so it makes sense to diversify.

• IN REAL ESTATE NEWS – Chinese house prices fell at their fastest pace since October 2014, according to the latest data from the National Bureau of statistics. This was the eleventh consecutive month of falling property prices in China despite various stimulus efforts from the government. In the UK, housebuilder Berkeley was confident enough to lift its outlook for the year ahead, adding that it would be diversifying into the London rental market by launching its own build-to-rent business. The latest research from Rightmove showed that UK house prices have remained near record high levels. It seems that owners of high-end properties are holding off to see what the next government’s going to do while pent-up demand in the “mass market” has powered ongoing activity despite higher mortgage rates.
• IN CAR NEWS – BYD continues to aim to “break” Europe – it’s the only carmaker to sponsor Euro 2024 – despite poor EV sales across the region. Performance was particularly poor in Germany and the Netherlands. Meanwhile, Fisker filed for bankruptcy protection late on Monday. Another EV start-up bites the dust…
• IN M&A NEWS – NatWest took on most of Sainsbury’s banking business – but this was notable because Sainsbury’s paid NatWest to take it on as it would be taking on more liabilities than assets in the deal. Tate & Lyle struck a $1.8bn deal to buy food ingredients supplier CP Kelco which will help the former’s efforts to develop and sell healthier products. Elsewhere, Honeywell International just announced an all-cash deal to buy aerospace and defence tech company CAES Systems from PR firm Advent International. This should enhance its offering but it is actually quite a small deal in the scheme of things as Honeywell itself is worth almost $140bn!

My favourite “AND FINALLY” video this week was the sweary mum-dancing in the kitchen! This lady is talented!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week where Macron suddenly announced an election, when Raspberry Pi had a decent market debut and when Europe decided to slap big tariffs on Chinese EV imports…

• IN THE US – the Fed decided kept interest rates unchanged and signalled that there will only be one interest rate cut before the year is out. Inflation has proven to be stickier than hoped but then official figures showed that inflation fell to 3.3% in May, which still keeps hopes of an interest rate cut alive. Meanwhile, the US announced 25% tariffs on natural or synthetic graphite from China that will come into force this month (they are trying to force development of an EV supply chain that doesn’t rely on China) as well as further sanctions on Russia where it will treat any foreign financial institution that transacts with a sanctioned Russian as if it was working directly with Russia’s military-industrial base.
• IN EUROPE – the far-right made major gains in the European parliamentary elections, so much so that President Macron ordered a sudden French election, which means that he could be a centrist president presiding over a populist government if he loses. At the moment, it looks like Macron’s party will suffer a wipeout. Things were also pretty bad in the EU’s biggest economy as the German coalition has so far failed to approve a budget for next year as they are all pulling in different directions. Italy’s PM Meloni, in contrast, saw her position strengthened in the elections, putting her in a position to be able to bend Europe towards her more conservative policies.
• IN THE UK – the UK’s GDP flatlined in April thanks to poor weather and sluggish performance in retail and construction. Things just aren’t going Sunak’s way at the moment! In the meantime, we saw more policy announcements after the publication of LibDem and Conservative manifestos earlier in the week while Labour made us wait until Thursday to unveil theirs. Nigel Farage added further spice to the mix as his party, Reform UK, edged ahead of the Conservatives in the polls.

IN ENERGY NEWS…

• Italian energy start-up Nucleo is planning a fleet of 20 mini-nuclear reactors for Britain, which would be housed in up to six sites.
• Italian PM Meloni has decided to slow down the rollout of solar panels on farmland and critics are saying that this will slow down Italy’s ability to he solar capacity targets by 2030.

IN OIL & GAS NEWS…

• The IEA warned of a “staggering” excess of oil supply versus demand by 2030 as China’s growth slows while global production increases. It also argued that OPEC+’s power, as a result, would wane. Will this make owning an EV even less compelling if oil prices fall to much lower levels over time?
• State-owned oil giant Saudi Aramco just signed its first deal to buy LNG in a non-binding deal with US LNG developer NextDecade to supply them over the next 20 years (a binding agreement is expected to follow).  This is just the latest deal where a Middle Eastern oil producer has signed an LNG supply deal in order to tap into the expected rise in demand.

IN MARKETS NEWS…

• The UK is on the verge of announcing the biggest overhaul in its listing rules for 40 years, which means that the IPO process will be more streamlined whilst still maintaining standards. This coincides with an uptick in market sentiment – something that the successful flotation this week of Raspberry Pi evidenced – although we did hear of another FTSE company looking to switch its listing from London to New York (the company in question is Ashtead which now gets over 90% of its annual turnover from the US!). Meanwhile, Walgreen Boots Alliance decided against floating Boots, preferring instead to find a buyer (just remember it did this before and couldn’t find anyone).
• IN M&A NEWS, takeover talks between Paramount and Skydance have now ended, so we’ll just have to see what comes next and Voodoo acquired BeReal for €500m with a view to launching paid advertising on the latter’s photo-sharing platform. It’s Voodoo’s biggest ever acquisition.

IN BUSINESS TRENDS NEWS…

• GroupM, a division of advertising giant WPP, has predicted that global ad revenues will grow by 7.8% in 2024 (excluding spend on US political ads). This is a major upgrade from its previous forecast and suggests that the global economy may be turning a corner.
• Private credit is starting to get increasingly competitive, particularly at the high end of the market, as more competitors turn their attention to this hot area. It will clearly become more difficult to make margins in a more crowded market but you could argue that if global economies improve, there will be more business to go around for everyone. Will this mean consolidation among existing players?

IN EMPLOYMENT TRENDS…

• The latest TUC figures show that UK unemployment is rising at the fastest rate of all OECD countries over Q1 (but a) obviously the TUC’s going to say that as it’s a union and b) rates are still at very low historic levels) while another report by KPMG and REC shows that permanent job appointments are continuing to fall. I’d suggest that there is probably an element of employers slowing things down until they know who’s going to be in government next.
• Meanwhile, wage growth rose thanks to the 10% living wage increase that came in on April 1st, which means that the Bank of England may be less inclined to cut interest rates just yet.
• There was an interesting article in the FT saying that English language and literature grads may actually benefit from the rise of AI as their articulate nature equips them well to be prompt engineers…

IN TARIFF NEWS…

• The EU decided to slap big import taxes on Chinese EV imports of up to 38% after a long investigation. Chinese manufacturers are likely to be mostly unfazed as this will not have come as a shock but you would have thought that China will retaliate with tit-for-tat taxes on imports of luxury European cars from Europe, for example.

IN INDIVIDUAL COMPANY NEWS…

• Tesla shareholders gave Musk what he wanted by approving his record pay deal and Tesla’s incorporation in Texas but it looks like the price of the Model 3 will rise in Europe thanks to the new China imports tariff.
• Troubled EV-maker Fisker announced voluntary recalls of its Ocean SUVs in North America for software-related problems. This is just one of those update things but it’s grief that Fisker could do without.
• Ford has expanded sales of its EVs across all of its US dealerships now, which means that the majority of Americans will be able to get their hands on their EVs.
• VW is going to start selling solar panels with its electric car chargers thanks to an agreement with solar panel installer Otovo. EV customers will get a roof-mounted solar panel/wall charger combo as part of the deal which should help drivers cut costs.

IN CHINA…

• Data from the National Bureau of Statistics highlighted a massive glut of empty properties as of April despite attempts by local authorities to sweeten the deal. Buyer reluctance is making life worse for developers as they need to sell properties to develop more (or at least get themselves out of the debt hole they’ve dug themselves into).

IN UK RESIDENTIAL PROPERTY NEWS…

• The UK rental market is proving tricky for tenants, according to the latest RICS numbers which show that increasing demand and limited supply of rental properties means that rents are likely to remain higher for longer.
• RICS numbers also show that interest from would-be buyers is waning as mortgage rates have risen – but I’d also suggest that they are waiting to see what happens in the aftermath of the election.
• UK housebuilder Crest Nicholson issued a profit warning and cut its dividend. Initial expectations of a sooner-rather-than-later interest rate cut from the Bank of England are now receding, hence the cooling off in sentiment. Ouch.

IN COMMERCIAL PROPERTY NEWS…

• Revolut has decided to move its HQ to a more central location in Canary Wharf despite its ongoing lack of a full banking licence. This is good news for Canary Wharf Group, which appears to be seeing a bit of an exodus of tenants.

• Apple announced a partnership with OpenAI that will enable it to roll out a new AI system (called “Apple Intelligence”) that is device-based and not cloud-based (although there will be that option). Elon Musk didn’t like this and threatened to ban Apple devices from his companies for being an “unacceptable security violation” but this didn’t dampen sentiment as Apple overtook Nvidia again as its valuation rose on the back of the AI update.
• OpenAI announced plans to beef-up its lobbying team in order to head off more challenges from politicians and regulators. Meanwhile, Elon Musk announced that he’d drop his lawsuit against the company for allegedly breaching the company’s original mission to benefit humanity.
• French AI start-up MistralAI got another €600m of funding barely a year on from its launch as it gets more financial firepower to help it become a European AI champion.

• IN RETAIL NEWS – the British Beer & Pubs Association is expecting a boom in beer sales in the four weeks of the men’s Euro 2024 tournament (although that will very much depend on how England and Scotland actually progress!) while research from GlobalData Retail reckons that the wider hospitality sector could also get a major boost as well as retailers who may benefit from increased sales of goods like TVs and sportswear. Meanwhile, DFS cut profit forecasts due to weak demand and supply delays. Furniture retailers generally tend to do well in a booming property market (consumers tend not to buy tons of sofas in their lifetime – and if they do it, it tends to be when they move house) so I guess that there’s a lag between the housing market turnaround and when it filters through to retailers in the furniture and DIY space. Over in the US, GameStop shares dropped sharply as the company took advantage of the Roaring Kitty boom and sold 75m of its own shares. The madness continues…
• IN MUSK-RELATED NEWS – the Wall Street Journal published a damning in-depth piece about Musk’s questionable relationships with employees/ex-employees. If the allegations are proved to be correct, this could be disastrous for all of his companies as he is the face of those companies and they don’t appear to have realistic succession plans. I do, however, believe that Musk is too important to too many companies, industries and, indeed, America so I wouldn’t be very surprised if this story just faded away. Elsewhere, Bharti Airtel and JioSpaceFiber will soon take on the might of Starlink in India, a market that Musk has been trying to crack for the last three years. May the satellite wars begin!
• IN FINANCIALS NEWS – Invesco has shut down its standalone UK equities team as the US asset manager merges it with the European team, Wise saw its share price drop by 15% as the CEO announced slower growth rates and Legal & General is planning to streamline its business and focus on core areas by expanding its pensions business and selling housebuilder Cala.

My favourite “AND FINALLY” video this week was the one where Gordon Ramsey got pranked! So satisfying!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week of shock election results, when Nvidia became bigger than Apple and when Shein caused even more of a kerfuffle…

• IN ELECTIONS NEWS – it was all looking good for a third term for the current PM, but then Modi’s party lost its majority and had to get backing from other parties to form a new government. His lack of majority may take the edge off some of his more controversial policies. Claudia Sheinbaum became Mexico’s first female president but faces tough challenges when she takes over from incumbent AMLO on October 1st. In South Africa, the ruling ANC party just about stayed in power but has had to resort to appealing to rival parties to form a “government of national unity”. Former president Jacob Zuma’s recently-formed party was accused of being bankrolled by the Russians but no proof was provided and it was obviously denied.
• IN THE US – Biden has been trying to capitalise on Trump’s conviction while Trump himself returned to TikTok, the app he tried to ban towards of the end of his term in office, as both candidates vie for voters’ attention.
• IN CHINA – the latest Caixin services sector PMI came in at the top end of analyst estimates, showing that China’s economy is gathering pace.
• IN CANADA – the Bank of Canada cut its main interest rate from 5% to 4.75%, becoming the first G7 central bank to cut interest rates this cycle. This had been widely expected in the market.
• IN EUROPE – the ECB cut interest rates from 4% to 3.75% in its first cut for five years. It had also been widely expected. Germany had an unexpected rise in unemployment and Turkey’s constitutional court struck down President Erdoğan’s decree allowing him to sack central bank governors (he’s been through five already in the last five years!). Inflation is still 75% though!
• IN THE UK – the Conservatives and Labour outlined policies on immigration and tax among other policies designed to appeal to middle Britain while Nigel Farage ruffled Conservative feathers by returning to politics as leader of the Reform party, something that might split the Conservative vote. In the meantime, councils are selling off assets as they face massive budget shortfalls, something that the next government is going to have to deal with.

IN MARKETS NEWS…

• The LSE wants to have a higher profile as part of efforts to make the exchange more attractive for flotations. Although the current narrative seems to be that New York is more attractive than London, the valuations aren’t all necessarily that different.
• The NYSE had a technical glitch this week, but it got sorted fairly quickly, while Texas put forward plans to launch a rival exchange – something that got a lukewarm reception.
• Investors continue to pull money out of ESG funds to the extent that, according to stats from Barclays, this is now the first year that fund flows for ESG have been net negative!

IN CLIMATE/ENERGY-RELATED NEWS…

• La Niña is going to be hitting the world later this year, following the El Niño warming phase. This is going to mess further with weather patterns around the world – so expect more volatility in commodity prices as harvests are affected.
• IN ENERGY – Britain will be relying more than ever on imported power for the next few years until we get our nuclear power and renewables plans sorted – but in the meantime we’ll be relying on our aging existing fleet of power stations. We could perhaps learn from the Americans who are rolling out and using more battery storage facilities that help to even out the provision of electricity.

IN COMMODITIES NEWS…

• IN OIL – the consolidation in US shale companies is having a major impact on the whole oil and gas industry – for instance, oil prices actually fell despite OPEC+ members committing to keep current production quotas intact. Meanwhile, uncertainty continues in the North Sea as companies are unwilling to commit to new projects until they know who’s going to be in Number 10 and what policies they are going to be implementing (particularly regarding windfall taxes).
• IN GAS – European gas prices jumped suddenly after an outage at a gas processing plant in Norway. China is playing hardball in negotiations with Russia on a new gas pipeline deal as it demands much less gas and at a much lower price than the Russians had been hoping for. Russia really is the junior partner in this relationship and China is taking full advantage.

IN CRYPTO NEWS…

• Robinhood has pushed on with an acquisition in the crypto space, Bitstamp, despite warnings from the SEC on its digital assets business. This will be Robinhood’s biggest acquisition to date and will really broaden its business in crypto.

IN BUSINESS TRENDS NEWS…

• Container shipping giant Maersk’s optimism continues to increase as it raised its full year guidance for the second time in just over a month thanks to higher global freight rates powered by ongoing disruption in the Red Sea. This could be seen as a positive because Maersk is often seen as a bellwether for global trade – but I’d temper this with the fact that the Red Sea is holding things up and there will be a lot more shipping capacity coming online in the near future, which should mean that freight rates will go weaker.
• Things are looking up for British manufacturing, according to the latest S&P Global/CIPS manufacturing PMI as output has been growing at its fastest pace since July 2022.
• Private healthcare demand has hit a record high in the UK, according to the Private Healthcare Information Network (PHIN) – but I don’t think this is surprising given NHS waiting lists!
• Beverage companies including Diageo, Campari, Pernod Ricard and Rémy Cointreau are all seeing their share prices trade at record lows because of various difficulties of stocking in Latin America and tariffs in China but I’d also imagine that changing drinking trends among young people is also a factor in this.

IN CONSUMER TRENDS…

• Pay growth in Japan jumped to its highest level since 1994! This is great news, but we’ll have to just wait and see whether consumption will now pick up…
• In the UK, a survey by the Bank of England showed that wages and price growth are going to slow down – which should make it easier for the Bank of England to justify cutting interest rates this summer as it would imply that inflationary pressures are receding.

IN AI NEWS…

• Nvidia became more valuable than Apple this week to become the world’s second most valuable company behind Microsoft! This just goes to show how important Nvidia is in the AI boom. Nvidia also announced its latest generation of chips not long after the last one! Nvidia’s success is boosting the fortunes of CoreWeave, which rents out servers for specialist use.
• IN THE MIDDLE EAST – Saudi Aramco’s venture capital arm put some money into the latest $400m investment round in Chinese AI start-up Zhipu AI, showing that it is willing to spread its bets as far as AI is concerned and not just back American companies. On the other hand, the UAE is keen to deepen the relationship with the Americans on AI, implying that the recent deal with Microsoft was only the beginning.
• IN THE AI vs JOBS DEBATE – JP Morgan is expanding the use of a generative AI tool designed to highlight controversial investment decisions for review by fund managers. Meanwhile, on the “sell-side”, there has been a recent draft paper which shows that AI outperformed financial analysts on predicting the direction of future earnings quite comfortably while wealth manager St James’s Place has started to use AI to help identify and assist customers by identifying “any kind of intonation or any kind of language…that may trigger that someone is a vulnerable customer”. Meanwhile, the rising use of chatbots giving full answers to questions is cutting into search engine volumes, which puts companies that generate ad revenue from search engines in a vulnerable position. Later in the week, we saw that the US Department of Justice and the Federal Trade Commission are to launch an inquiry the roles of Microsoft, OpenAI and Nvidia in the AI industry and whether they have been anti-competitive.

IN MEDIA NEWS…

• Spotify saw its share price jump as it doubled down on profitability rather than growth, something that chimed with investors.
• Universal is planning to build one of the biggest theme parks in the world – in the UK! It has bought a 500 acre site just south of Bedford, but a final decision as to whether it will go ahead is due by the end of the year.

IN IPO NEWS…

• The LSE’s pipeline of IPOs is looking increasingly healthy although it’s already making quite a lot of money from “follow-on” transactions. Shein is getting closer to a London IPO although there are detractors given its patchy record.
• It was interesting to see some stats on how London stock market floats that happened in 2021 are doing now – generally not well! The best performer was Darktrace (+135%) and the worst was Dr Martens (-76%).

IN M&A NEWS…

• Medical tech company Becton Dickinson added another acquisition to their string of acquisitions by buying Edwards Lifesciences, a company that specialises in advanced patient monitoring using AI algos, for $4.2bn in cash.
• The president of Paramount Global, Shari Redstone, is keeping the door open for other potential buyers as she is unhappy with the offer from Skydance.

IN DRIVERLESS NEWS…

• British driverless car company Wayve is planning to unleash its cars on the streets of San Francisco, challenging the likes of Tesla and Waymo. This might help driverless get back on track after a series of missteps by the local incumbents.

IN EV-RELATED NEWS…

• Stellantis and Mercedes-Benz have decided to postpone plans to make EV battery gigafactories in Germany and Italy. This isn’t surprising given anaemic demand for EVs in Europe at the moment.
• EV charging in apartment blocks got a £35m boost from the government’s Charging Infrastructure Investment Fund as it put the money into Hertfordshire-based start-up Energy Park, which specialises in this area.
• There’s mixed news for EV sales depending where you go but China saw strong sales in May while manufacturers are warning that current discounts on EV prices are unsustainable. That being said, overall car sales continue to rise – and they are being powered by the ongoing popularity of hybrids!

IN “TRAD” CAR NEWS…

• A Japanese government investigation has unearthed dodgy testing data at five of Japan’s leading carmakers, including Toyota and Honda. Some vehicle shipments have been suspended as a result. This may well clip the wings of Toyota’s hybrid-led renaissance.

• IN REAL ESTATE NEWS – although commercial property values have had a tough time of it in the last few years LondonMetric’s focus on warehouses has paid off as a warehouse tenant that took out a lease in 2019 and renewed it last year now has to pay 40% more! Meanwhile, in residential, the latest S&P Global PMI for the construction industry reflected growth in May for the first time since the whole mini-budget debacle! US PE firm Blackstone is looking at pushing into the UK rental property market as it just agreed a deal with Vistry to buy around 1,750 new homes for rental purposes. Meanwhile, Zoopla stats say that rental growth is slowing down to its lowest level in 30 months!
• IN RETAIL NEWS – Zara owner Inditex unveiled a strong trading update for Q2 despite poor weather across Europe. It is on track for double-digit growth for the period. BRC figures showed that retail sales in the UK stayed pretty downbeat in the year-to-May thanks to poor weather and ongoing consumer caution in terms of spending. Over in the US, discount retailer Dollar Tree is thinking of selling the Family Dollar chain almost ten years after it bought it! It is trying to streamline operations but you do wonder how the whole discount sector will do when economies start firing up again…
• IN FINANCIALS NEWS – billionaire investor Bill Ackman just sold a 10% stake in his hedge fund Pershing Square. It’s thought the fund will IPO next year. Meanwhile, hedge fund short sellers are getting burned by the recent flurry of UK takeover bids as their bets are blowing up in their faces because takeover target share prices suddenly boom on bids and/or bid rumours (their short positions in these companies mean that they are betting that their share prices will go down – not up!). Private equity funds are warning that there may be lower returns for the next few years as they try to sell out of assets they’ve bought over the pandemic.
• The Monsanto payout for the ongoing legal battle surrounding its weedkiller Roundup has been slashed to $400m from $2.25bn, something that its parent company Bayer will no doubt be very pleased with. Monsanto said it will be pushing for further reductions in the Superior Court.

My favourite “AND FINALLY” video this week was Uncle Roger’s latest roast of a Jamie Oliver recipe! Honestly, Jamie – what is going on??!?!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when NATO discovered massive defensive weaknesses, when Donny T got into more big doo-doo and when Nvidia became more valuable than the FTSE100…

• IN DEFENCE NEWS – NATO found that Europe’s eastern flank is 95% deficient in air defences that would be needed to fend off a full attack from Russia. Given that the Americans are less and less keen these days on helping Europe, leaders are going to need to up their defence game. Interestingly, in a sign that defence is becoming less of a dirty word these days, football club Borussia Dortmund has just signed a multi-year sponsorship deal with Rheinmettall, the German weapons manufacturer. Will we see an increasing amount of “sportswashing” to give defence companies a more acceptable image??
• IN CHINA – factory activity came in below expectations in May, in a bit of a blow to President Xi’s efforts to boost manufacturing as a way of pulling China out of its current economic rut. Xi also called for more efforts to provide China’s youth with “high-quality full employment” almost a year on from when the administration banned the release of youth unemployment stats because they made them look bad (they have since started to publish them again).
• IN THE US – the economy grew at a slower rate than expected in Q1. This, along with stubbornly high inflation, is going to make it more difficult for Biden to boast about his economic credentials in the run-up to the presidential election. The other bit of big news in the US this week was Donald Trump being found guilty on all counts in the “hush money” trial. He is now the first former US president to be convicted of a crime.
• IN EUROPE – Ursula von der Leyen’s path to a second term has hit some turbulence as some major groups in the European parliament are threatening to block her nomination if she does a deal with Italy. Meanwhile Germany’s far-right AfD did worse than expected in local elections after a string of recent scandals. That being said, it’s still ahead of where it was in the polls versus where it was five years ago.
• IN THE UK – Sunak caused a bit of a ruckus after he announced a £2.4bn pensioner tax cut although he caused panic at the other end of the age scale with the weekend announcement of the reintroduction of national service. Labour boasted about a letter of endorsement from 120 business execs that it said reflected confidence in its policies but this was later ridiculed as none of the FTSE100’s CEOs signed it. Meanwhile, Labour promised that there would be no budget until September if it won the election but it was called on to clarify the timing of its pledge to slap VAT on private school fees.

IN COMMODITIES NEWS…

• IN OIL – Saudi Arabia announced the sale of $12bn worth of Aramco shares to raise additional capital for its sovereign wealth fund. Closer to home, there was an interesting comment in the FT about why European oil majors aren’t taking part in the US oil consolidation frenzy at the moment – mainly because they’ve already been through this consolidation phase. Meanwhile, Shell and Exxon are close to offloading assets in the North Sea in their withdrawal from the UK’s oil basin.
• IN MINING – BHP abandoned its bid to buy smaller rival Anglo American, so now the pressure is on for the latter to deliver on its restructuring promises!
• IN OTHER COMMODITIES – wholesale prices of orange juice hit new highs due to poor harvests, which themselves are due to consecutive hurricanes and spread of the greening disease. The disease is spread by insects and turns the fruit bitter before killing the tree itself. There is no quick “orange” solution, so alternative actions will be required. Elsewhere, there have been some bird flu outbreaks among US poultry flocks. It sounds like the problem is relatively contained but that situation could change…

IN CURRENCY NEWS…

• Sterling hit its highest level in two years against the euro as the market is now assuming that the Bank of England will cut interest rates less sharply than the ECB will.

IN BUSINESS TRENDS NEWS…

• Consumer goods conglomerates may break up – as we’ve already seen that Unilever is trying to sell off its ice cream business and Reckitt Benckiser is looking to offload its baby formula business. It seems that “focused and profitable” is deemed to be “good” while “broad-based and growing” isn’t.
• Goldman Sachs is putting another $20bn into private credit – as this unregulated area of lending continues to grow.
• Food delivery companies are finding it difficult to deliver – as leading delivery apps in Europe and the US have been struggling since their respective IPOs as shares in Deliveroo, Just Eat Takeaway, Delivery Hero and DoorDash are all now trading way short of the pandemic peaks as investors shift their focus from growth to profitability.
• Business confidence in the UK has hit a new high – according to Lloyds Bank’s latest business confidence index it is at its highest level since November 2015. Given that we exited recession in Q1, GDP growth is looking good and inflation is within touching distance of the Bank of England’s 2% target it’s understandable!

IN CONSUMER TRENDS NEWS…

• A report by the IFS says that UK living standards have lagged most peer nations since 2010, which is no doubt something that Labour will be latching onto! Given that one of Sunak’s biggest hopes to hang on to power is the turnaround of the economy, this won’t be a welcome bit of research.
• Shoppers seem to be staying at home, according to the last data from the BRC. Footfall is down on the high street and in shopping centres while the weather didn’t help either. Retailers will be praying for a strong summer! It is interesting to note, however, that online shoppers are increasingly ditching their baskets mid-order, according to a different report, because of higher delivery costs, fewer delivery options and higher returns fees.
• Meanwhile, shop price inflation dropped to its lowest level since November 2021, thanks to falling food prices and the latest stats from the CBI showed that retail sales expanded at their highest pace in a year-and-a-half in May while the latest GfK consumer confidence index shows that optimism is now at its highest point for over two years!
• The performance of fast-food chains owned by the likes of Yum Brands and Darden Restaurants has been mixed while “fast-casual” chains such as Sweetgreen, Chipotle and Shake Shack have done quite well over the last quarter and this could be a reflection of the latter being frequented by more affluent customers. Will this continue when fast-food restaurants inevitably cut their prices again??
• QR codes are increasingly being ditched for paper menus in the US. The codes rose in popularity under lockdown but now customers are pushing back because of privacy concerns and the fact that their use seems to lead to lower takings. Will this trend come over here?

IN EV NEWS…

• BYD unveiled new hybrid models this week that have a 1,300 mile range! Range anxiety? Pfft. What-evs.
• Tesla is now telling suppliers who provide parts to cars for sale outside China to build components outside China and Taiwan by early next year due to the ongoing trade tensions and likelihood of more sanctions.
• In the UK, the car industry body – the SMMT – is calling from more help from the government to get people to buy EVs but it’s difficult to get away from the fact that EV costs are rising generally as governments around the world look at ways to claw back revenue that they used to get from petrol car users. Auto Trader reckons that EV prices will continue to fall as manufacturers resort to discounts in order to boost flagging sales.
• Faraday Future is the latest EV start-up to have problems as it announced that it was withdrawing its production target guidance for the year. Will this be the next EV maker to go down the toilet??
• It was interesting to see some research from the Energy and Climate Intelligence Unit which found that plug-in hybrids cost double to fuel versus the manufacturers’ promises! If this proves to be true, could this be another “dieselgate” waiting to happen??

IN OTHER CAR NEWS…

• Research from the IEA showed that global sales of SUVs hit a new high in 2023. Emissions from such vehicles accounted for 20% of the global increase of CO2. If SUVs were a country, they’d be the world’s fifth biggest emitter of CO2 ahead of Germany and Japan!

• OpenAI is pushing forward with training its next-gen AI model after its recent clash with Scarlett Johansson, which could yet have repercussions for privacy. It also admitted this week that its models are being used for nefarious purposes by operations linked to Russia, China, Iran and Israel – but then you do wonder that if this tool is being used to do this that it could also be used to counter such actions.
• Elon Musk’s xAI hit its $6bn funding target, so we’ll just have to wait and see how this goes now!
• Nvidia became more valuable that all the constituents in the FTSE100 put together this week, but it’s not the only way to play the AI theme – Japanese suppliers such as Tokyo Electron, Towa, Advantest and Screen are all part of the AI supply chain.
• A specialist Chinese fund has raised $47bn to boost its chip industry while Chinese chipmakers – such as SMIC and ChangXin Memory – are making a real push to replace foreign suppliers with local ones to limit the effect of US sanctions.
• Tencent-owned Supercell has launched its first new title in over five years – Squad Busters – as the Finnish company tries to turn its fortunes around.
• Samsung workers are going to embark on their first ever strike on 7th June for one day as wage negotiations with the union have not gone well.

IN RETAIL NEWS…

• Walmart store managers could benefit from a new scheme that will enable them to earn up to $500,000 a year! Cue a deluge of applications!
• Gap reported higher quarterly sales and raised full-year guidance as turnaround efforts seem to be taking hold. This was the first quarter in years that all of its brands – Gap, Old Navy, Banana Republic and Athleta – announced gains. Let’s hope it can keep/build on this momentum!
• UK politicians are calling for more scrutiny about a potential Shein IPO in the UK, given their less-than-angelic track record. It’s going to be a tug-of-war between the LSE (which desperately needs a high-profile and big IPO) and the politicians (who want to look like they’re doing the right thing in the run-up to the election).
• Profits at Boots boomed thanks to beauty sales. I would have thought this would be at least partly due to the downfall of department stores…
• Pets at Home announced a subdued trading performance but let’s be honest – all eyes are on the review that will be conducted by the CMA into the company’s veterinary business. Any upside will be limited until Pets at Home is cleared (if it is cleared).

IN LEISURE NEWS…

• Subway announced a $3.4bn bond offering, the largest bond of its kind, as it looks to pay down some of the debt that was incurred by PE firm Roark Capital Group when it bought Subway for $9bn earlier this year.
• American Airlines announced a disappointing Q1 performance thanks to it falling behind rivals in its provisions for business travel. The CEO has admitted his strategy is wrong and is now working to turn things around.

• IN M&A NEWS – Chevron’s takeover of Hess was backed by the latter’s shareholders, ConocoPhillips is to buy Marathon Oil, T-Mobile is to buy most of US Cellular and Asahi Kasei made a bid for Calliditas Therapeutics while EP Group bought Royal Mail. Some are saying that Royal Mail could be broken up as a consequence…
• IN REAL ESTATE NEWS – Zoopla reckons that house prices won’t go crazy this year because more houses on the market will cater for rising demand (they’ve been strong prior to this because the number of properties on the market has been low). Also, WeWork founder Adam Neumann decided to drop his bid to acquire the bankrupt company.
• Salesforce saw its share price plummet after it announced its lowest-ever quarterly revenue growth forecast as investors fretted about the threat of AI-powered rival offerings. Salesforce reckons it’ll be an AI winner but investors weren’t convinced…

My favourite “AND FINALLY” video this week was the one about the cottonwood fire. I thought it was fascinating!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Argentinians got a new 10,000 peso note, when TikTok fought back and when Apple unveiled a new chip…

• IN GLOBAL NEWS – the OECD, IMF and WTO are all forecasting a doubling of global trade growth this year following a disappointing 2023 but then the Institute of International Finance said that global debt is at a new high thanks to major borrowing from China and India in particular.
• IN THE UK – the UK pulled out of recession with better-than-expected Q1 growth and the Bank of England left interest rates unchanged whilst indicating that summer cuts were on the cards. Sunak looks set to limp on after disastrous local election results last week as Tory rebels can’t be bothered to replace him and some are saying that a Labour government could boost prospects for the London market as investors may see it as new start after a tumultuous few years. Still, it turns out that HS2 is about to get the go-ahead to dig a 4.5mile tunnel under London within weeks – but it’s going to be at least partly funded by taxpayers! Sunak had originally promised that this would be funded by the private sector.
• IN SWEDEN – the country’s central bank, the Riksbank, cut interest rates for the first time in eight years – potentially putting pressure on the ECB to cut rates as well!
• IN ARGENTINA – the country’s central bank has released the country’s first 10,000 peso notes into circulation as rampant inflation has meant that everyone has to wander around with wads of cash! The previous largest note was 2,000 pesos (which was introduced last year) but the most common note is 1,000 pesos. Currently 10,000 pesos is worth about $11. The peso has fallen by 95% over the last five years and new president Milei is battling to bring inflation and the country’s currency under control.

IN COMMODITIES NEWS…

• IN OIL – Trump allegedly offered to shred Biden’s pro-EV agenda and un-freeze LNG export permits in exchange for oil and gas industry execs contributing $1bn to his re-election campaign! Meanwhile, Calpers the biggest public pension plan in the US, is looking at whether to vote against Exxon chief Darren Woods’ re-election to the company board in protest at the lawsuit the company filed against two climate-focused investors. There was an interesting article in the FT on why switching from a UK/European listing isn’t a cure for Europe’s oil majors because their cheaper rating reflects a discount due to their being further along on their climate commitments which means that their US cousins have more cash available to distribute to shareholders in the form of dividends and share buybacks (which makes them more attractive, hence the higher rating).
• IN MINING – it looks like Anglo American’s South African investors are potentially open to a higher offer from BHP, but BHP now has until May 22nd to make a formal bid under UK takeover rules. The drama continues…

IN CRYPTO NEWS…

• FTX looks like it’ll be able to repay creditors the full $11bn they lost once it sells off all remaining assets. This is an impressive outcome given the state of the company when John Ray III took over but this state of affairs has been helped enormously by the value of bitcoin more than tripling since it hit those lows!
• Retail brokerage Robinhood has warned of an imminent lawsuit from the SEC over its crypto business in the ongoing US regulatory clampdown on digital assets. This is a pain for the company rather than a disaster but it’s going to be interesting to see how this unfolds.

IN BUSINESS TRENDS NEWS…

• IN CHINA-RELATED TRENDS – The EU and France have been pressing President Xi for more balanced trade ties on the latter’s tour of Europe. The Europeans are potentially going to be slapping imports from China with tariffs which China says are just protectionist. Trade in China is on the rise thanks to a surge in imports of key equipment for the development of AI while Chinese tech companies are migrating towards the Middle East as part of their overall global expansion plans. Alibaba, Tencent and Shein are all among those increasing activity in the region.
• The US tech industry is on the verge of getting a major funding boost from the US Federal government as part of an overall effort to stay at the cutting edge of technology. This is likely to unlock more investment from the private sector.
• The UK’s IPO pipeline is “building up”, according to the LSE. It seems that companies are waiting for new (less strict) listing rules to come into force. The changes will represent the biggest overhaul of the primary market rules in 40 years!

IN EMPLOYMENT NEWS…

• The CEO of Reed said that employers are currently cutting back on hours and reining in hiring plans in reaction to the recent 9.8% increase in the National Living Wage.
• The latest research from KPMG and REC shows that the number of workers available to take up new jobs increased sharply over the last month as businesses reined in their hiring activity. This suggests that the labour market is cooling off which implies that there will be less upward pressure on inflation – something that the Bank of England will need to take into account when deciding the direction of interest rates.

IN CHIPS NEWS…

• The US tightened the ban on supplying chips to Huawei by revoking export licences allowing Intel and Qualcomm to supply the Chinese telecoms equipment company.
• Apple unveiled a new “outrageously powerful chip for AI” in its latest iPads, the M4 chip. This could be a sign of things to come re chips for AI-powered phones – something that is also likely to benefit Qualcomm.
• Arm underwhelmed the market with its full-year revenue forecasts, but then again it had a storming Q4 last year so it had a lot to live up to! That being said, I would have thought that it will be well-placed to benefit from on-mobile AI given its massive market share in smartphones.
• Intel cut its sales outlook following the revocation of its licences to sell to Huawei (see above!) but it kept its full year guidance unchanged.

IN AI-RELATED NEWS…

• It turns out that Microsoft has created a new “top secret” LLM that will be used by US spies. It is completely independent from the internet, which is why it’s suitable for spies!
• UK publishing and exhibitions company Informa has just struck a deal with Microsoft worth over $10m in its first year to allow access to its data to train Microsoft’s AI models. It’s the latest deal to be struck between an AI developer and a media group – and these deals are proving to be nice little earners if media groups can get them.

IN OTHER TECH NEWS…

• Japan, South Korea and Australia are all tightening rules that are designed to restrict the market power of Big Tech. This follows similar regulatory crackdowns in the EU and US. It seems increasingly that there’s nowhere to hide for Big Tech!

IN EV NEWS…

• Chinese car dealers are ditching non-Chinese brands because domestic brands are just selling better! Dealerships that are more EV-focused are doing well while those that are more weighted towards “traditional” cars are not.
• VW has called for Brussels not to increase tariffs on Chinese EV imports because it would risk “retaliation” against other international brands. I think that this is more about about covering its 🍑rse because it wants to protect its own business in China (something that Mercedes-Benz is also doing).
• Governments are starting to slap taxes on EVs to make up for the shortfall in revenues that they normally get for fuel duties on petrol-powered cars. EV fans will say this will slow down wider electrification while governments will be keen to make at least some money from EV owners rather than nothing!
• UK carmakers are calling for help to boost EV sales, which are sliding. If you take out fleet buyers who are taking advantage of tax breaks, demand looks particularly weak.
• IN TESLA NEWS – Musk has sent his chief fixer to China to revive its business there. Meanwhile, the Department of Justice is now investigating whether Tesla has committed wire and securities fraud by overstating the capabilities of its self-driving systems. The company really does seem to be having a tough time at the moment!
• Meanwhile, BYD said that it wants to leapfrog the likes of VW, Tesla and Stellantis to become the region’s biggest EV seller by the end of this decade! No wonder the European carmakers are keen to slow down their progress by slapping taxes on them!
• Demand for EVs is getting so poor at the moment that Ford has said that it is willing to limit the sales of petrol models in order to hit EV sales targets and avoid massive fines. Ford also said that its goal of only selling electric vehicles in Europe by 2030 will have to be pushed back.

IN OTHER AUTOMOTIVE NEWS…

• Used car dealer Cazoo is on the verge of insolvency after failing to attract emergency funding. What a sorry end for a company that was valued at $8bn on its New York flotation in 2021.
• British driverless car start-up Wayve just raised $1bn from SoftBank, Microsoft and Nvidia. Its approach to driverless differs from rivals in that it aims to “teach” vehicles how to drive from real-life videos rather than input a stack of “rules” that cover every eventuality.

OVERALL…

• The UK construction industry grew at its fastest pace in over a year in April thanks to a rebound in commercial real estate and civil engineering output which managed to offset the ongoing weakness in housebuilding.

IN COMMERCIAL REAL ESTATE NEWS…

• There’s some doubt as to whether new lab space in Canary Wharf will be the answer to the recent “exodus” of financial companies. Yes, you can charge higher rents but building costs are higher and there’s only so much demand. I’d also argue that by the time these facilities are built, M&A activity will have improved and demand from “traditional” financials services companies could well bounce back.
• Meanwhile, Heineken said that it was going to reopen 62 pubs and upgrade them to attract customers who are working from home. It already owns 2,400 pubs via its Star pub and bars division, so this is kind of a drop in the ocean – but it’s still a positive move!

IN RESIDENTIAL PROPERTY-RELATED NEWS…

• UK house prices held steady in April, according to the latest data from Halifax and the latest RICS survey showed that the housing market recovery is “stuttering slightly”. Still, estate agent Savills said that it reckons house prices will rise this year, reversing the forecast it made in November last year when it said that it expected the average price of a home to drop by 3% in 2024.
• It seems that the exodus from London to the ‘burbs that we saw under lockdown has slowed down considerably to the pre-Covid norm, presumably because of the return-to-office trend.
• Purpose Built Student Accommodation (PBSA) is turning out to be a big cash cow as big funds like Legal & General Investment Management have been hoovering up property while other buy-to-let landlords have been moving out of the market. LGIM and others are attracted to reliable returns and the mismatch between supply and demand.

IN CONSUMER TRENDS…

• The edge was taken off UK sales in spring by wet weather and an early Easter, according to the latest figures from the BRC. Concerns still remain over the economy but the expectation is that the economy will rebound as wages are now outpacing inflation after a long period where they were lagging.
• Research from Global Blue showed that tourists who would have come to the UK avoided it because of the lack of tax-free shopping. France, Italy and Spain have all benefited since the VAT scheme was scrapped in January 2021. Surely it’d be an easy win for Sunak to reintroduce it as it’d be a popular move for retailers and he can just leave the next government to deal with any consequences!
• Jeweller Pandora is benefitting from the sales boom in synthetic diamonds, particularly from young customers. Given that they are essentially the same as mined ones and sell at a third of the price, you would have thought that there is plenty of upside to go from here!

IN RETAIL NEWS…

• Shopify decided to cut its sales and margin forecasts for the current quarter as it expects weakness in Europe, negative impact from a stronger dollar and higher marketing costs. Investors didn’t take this well!

IN LEISURE NEWS…

• Airbnb’s profits more than doubled in Q1 but the company is more cautious about Q2. That being said it is confident about its prospects thereafter.
• Gordon Ramsay is going to open the UK’s highest restaurant and bar at 22 Bishopsgate in London in a building that is being described as a “vertical village”. Who said that the City was dead?!?

IN ONLINE MEDIA NEWS…

• Ofcom is putting more pressure on the tech industry to protect children online by outlining a proposed code consisting of over 40 measures that will form part of the UK’s Online Safety Act, which was passed in October. The Act is wide-ranging and gives Ofcom major powers to enforce big fines and criminal liability for non-compliance.
• TikTok and parent company ByteDance are suing to block the forced sale of the app in the US, saying that the law is unconstitutional and violates free speech. Separately, TikTok said that it will automatically label AI-generated user content, the first social media platform to do so. This is clearly a hot topic as everyone is fretting about the spread of online disinformation and deepfakes.
• Reddit beat market expectations and jacked up its forecasts in its first earnings announcement since its flotation thanks to solid user growth and the success of the company’s nascent advertising business.

IN “TRADITIONAL” MEDIA NEWS…

• Disney published its first profit in its core streaming business but investors seemed to be more concerned about a potential slowdown in its theme parks after the initial post-pandemic frenzy. Meanwhile, Disney and Warner announced plans to join forces to offer a bundle of their streaming services in a bid to simplify choices in an ever-more fragmented streaming market. The new package will offer Disney+, Hulu and Warner’s Max service in both ad-free and ad-supported formats.
• Warner Brothers Discovery posted a bigger-than-expected drop in revenues thanks to a sharp dip in ad sales at its cable TV division and the impact of last year’s Hollywood strikes by actors and writers.

• IN FINANCIALS NEWS – HSBC is appealing to the government to rein in new national security rules that aim to restrict China’s influence in the UK. If these pleas are ignored, companies will have to publish details about their commercial dealings with China, which they are clearly not a fan of! UBS managed to beat its own and market expectations in its latest quarterly results and it looks like the positive momentum will continue! In insurance, Direct Line’s performance has been hit by worse-than-expected weather and a fall in the number of motor customers. The company’s just had a top management shake-up and the CEO says that there have been some positive signs at the beginning of 2024.
• Boeing’s nightmare newsflow continues as it had to call off its Starliner spacecraft launch due to an issue with a component! When will Boeing’s nightmare end??
• Ferragamo posted disappointing Q1 revenues as weakness in China hit its performance. Luxury brands have had a mixed performance of late – and Ferragamo is definitely in the “losers” category along with Kering and others. Winners, on the other hand include the likes of Prada, Hermès and Puig.
• Uber underwhelmed versus expectations in Q1 thanks to legal costs incurred over its decade-long battle with regulators – including a $178m charge to settle a class-action lawsuit brought by taxi drivers in Australia. This is a bit of a downer considering that it was only a few months ago that it trumpeted its first ever annual profit!
• AstraZeneca announced the end of an era as it said that it would be withdrawing its Covid-19 vaccine worldwide due to a “surplus of available updated vaccines”.

My favourite “AND FINALLY” video this week was the one with Big Brother watching commuters on the London Underground 🤣!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when TikTok’s spat with Universal ended, when Peloton’s boss stepped down and when McDonald’s said it would double down on China…

• IN THE US – the Fed left interest rates unchanged and it looks like they’ll be higher for longer as Fed chief Jay Powell said that he couldn’t cut them at the moment due to “a lack of further progress” in getting inflation down to its 2% target. Biden’s administration is looking at loosening rules on marijuana as he tries to appeal to the youth vote ahead of the election. This has still got to survive a public comment period, but if the proposed changes go through, they will represent the biggest change in US drug policy in a generation!
• IN CHINA – factory activity expanded for the second consecutive month, according to the latest PMI, thanks to rising high-tech manufacturing output. President Xi is due over in Europe next week. This should be interesting as the EU is currently conducting a number of investigations into whether Chinese state subsidies have given companies and industries an unfair advantage versus European counterparts in a number of areas.
• IN EUROPE – the EU exited recession thanks to a better-than-expected performance by the economies of Germany, France, Italy and Spain over Q1. However, German inflation turned out to be stubbornly high in April thanks to strong food and energy prices. This will make it a bit more difficult for the ECB justify interest rate cuts. Meanwhile, Spain’s PM Pedro Sánchez announced that he would be staying in office after all following threats to resign after his wife got caught up in corruption charges. Elsewhere, Turkey suspended trade with Israel in protest at the “humanitarian disaster” in Gaza as tensions between the two nations worsened.
• IN UK NEWS – the OECD reckons that the UK will be the worst performing economy in the G7 next year thanks to high interest rates and the ongoing effects of inflation. It also believes that the US and Canada will be the best performers in the group. Meanwhile, Sunak’s fate could be decided in the local elections this week while council problems persist as their debt keeps rising. The UK manufacturing sector fell back into contraction, although at a slower rate than the market had been expecting. Red sea problems, uncertainty about the prospects for the UK economy and the running down of inventories all played their part in the weakness. Meanwhile, Scotland’s First Minister, Humza Yousaf, resigned. The SNP subsequently scrambled to find a suitable “safe pair of hands”.

IN COMMODITIES NEWS…

• IN OIL – Gazprom had its worst loss in decades as sanctions have pretty much taken Europe out of the equation as gas customers. On the other hand, Shell posted better-than-expected Q1 results and delighted investors even more by announcing a $3.5bn share buyback to be executed over the next three months.
• IN COCOA – the price of cocoa futures dropped by 16% since last week after almost tripling in value this year alone – but there was no particular explanation, so this might just be a temporary thing.
• IN LITHIUM – Weardale Lithium has announced plans to mine 10,000 tonnes of lithium a year from rocks underneath a County Durham beauty spot. If this turns out to be viable, it means that the UK could cut its complete reliance on imports which mainly come from Australia and South America.
• IN LIVESTOCK – US cattle prices have been weakening thanks to an outbreak of bird flu. The USDA remains confident in the country’s meat and dairy supplies but traders are being more circumspect, believing that the news could hit demand.

IN ENERGY NEWS…

• Cheap solar power is boosting the prospects for desalination plants. The process of desalination is very energy-intensive so cheaper solar power for countries like Egypt, Algeria and Morocco will be very welcome.
• The boss of wind developer Ørsted believes that high interest rates will keep the costs of renewable energy high, although he also believes prospects are looking up after what was a pretty disastrous 2023.

IN CRYPTO NEWS…

• Binance’s founder, Changpeng Zhao, just got sentenced to four months in jail after pleading guilty of money laundering and breaking sanctions laws. Maybe this will give fellow crypto-king Sam Bankman-Fried hope as he was sentenced to 25 years in the slammer for his deeds.

IN BUSINESS TRENDS NEWS…

• City law firm Mayer Brown is the latest law firm to split out its China operations to avoid potential entanglement in the ongoing US-China trade tensions. Dentons, Latham & Watkins, Winston & Strawn and Linklaters are among the other law firms that have either separated out, slimmed down or shut down their operations in China.
• A record backlog of new aircraft built up over Q1 as the industry was hit by delivery delays and capacity problems.
• Shipping giant Maersk saw its profits sink thanks largely to Red Sea problems. On the plus side, the company said that it thought that losses for this year would actually be better than expected as volumes are trending up.
• Rapid delivery firm Getir is quitting its business in the UK, Germany, the Netherlands and US to retreat to its domestic market in Turkey. Competition has been fierce and I’d suggest that there’s only limited longevity for this kind of business as it strikes me as being one of those things that works when the economy is on fire (everyone’s cash-rich and time-poor) and goes down the toilet when things aren’t going so well (everyone’s focused on costs).

IN EMPLOYMENT TRENDS…

• Job vacancies fell again last month – by 17% – in further evidence of a cooling market. The report also said that jobs in advertising, marketing and PR fell by 11% in March versus the previous month as corporates slashed marketing budgets. Does this mean that it’ll be easier to justify interest rates cuts sooner-rather-than-later??
• UK universities face more course closures and job cuts after struggling with the freeze in tuition fees for domestic students, which still has at least two years to run. They want help from the government but their pleas seem to be falling on deaf ears as the government says that they are offering too many courses that don’t offer a decent return and that they’ve become too reliant on fees from overseas students.
• Business travel has been returning back towards pre-pandemic levels in the US according to reported flight and hotel bookings. One wonders whether this implies that the prospects for the likes of Zoom and others are going to be limited.

IN AUTOMOTIVE TRENDS NEWS…

• Wallenius Wilhelmsen, the world’s biggest car-carrier, says that an expected surge in the number of car-carrying ships will flood ports with vehicles, leading to congestion at terminals getting even worse. The recent influx of vehicle exports from China has caused bottlenecks at many European car import terminals.
• Researchers at Rhodium Group published a report which says that although the EC is expected to impose import duties on Chinese EVs of 15-30% following an investigation that expected to conclude in the next few weeks, it actually needs to impose taxes of around 50% to stop the influx of cheap Chinese EVs!
• While all this anti-China stuff is going on more carmakers are announcing tie-ups with Chinese rivals in China’s domestic market to take advantage of superior Chinese technology. Toyota’s teamed up with Tencent, Nissan with Baidu and Hyundai with CATL.
• Chinese EV makers BYD, NIO, XPeng, Geely’s Zeekr and newcomer Xiaomi reported strong EV sales in April but hybrid vehicle specialist Li Auto lagged behind – the opposite to the trend that we are seeing in the West.

IN INDIVIDUAL COMPANY NEWS…

• Tesla had an eventful week? It started off with Musk popping over to China for a surprise visit to meet Premier Li Qiang to talk about deploying fully driverless technology. The China Association of Automobile Manufacturers said that Tesla’s Model 3 and Model Y cars passed the requirements of China’s data security rules and Tesla also announced an agreement with Baidu, for its mapping licence for data collection on China’s public roads. Later in the week, Musk fired the entire supercharger team which caused somewhat of a kerfuffle as it caught the entire industry by surprise.
• Meanwhile, Aston Martin’s losses almost doubled as SUV sales plunged. It’s got new models coming out by the end of this year which should hopefully revive demand.

IN CONSUMER TRENDS NEWS…

• Food importers in the UK are being hit by new post-Brexit checks that came in this week on animal and plant products entering from the EU. They say that this could increase costs by up to 60%, which will probably be passed on to the end customers and put smaller importers out of business.
• Non-food shop prices dropped in April, according to the latest stats from the BRC. This should be good news for household budgets.
• A survey by Deloitte showed that the cost-of-living has led to Britons spending less money in pubs and bars than at any time since the end of lockdown as higher costs have continued to weigh on households. On the plus side, a separate survey by Deloitte showed that consumer confidence hit a two-year high in Q1 of 2024.

IN CONSUMER GOODS NEWS…

• Puig Brands – which owns brands including Jean Paul Gaultier, Carolina Herrera, Paco Rabane and Nina Ricci – priced its IPO at the high end of the range. The offering was many times oversubscribed, highlighting its popularity.
• Mulberry sales fell, according to its latest trading update. The company painted a downbeat picture of the outlook, saying that the UK and China markets will continue to be challenging. I think it’s suffering from being at the “low” end of luxury brands which means that its core customers are more likely to be feeling the pinch from the current cost-of-living crisis.
• At the more realistic end of the market, Adidas posted better-than-expected profits for Q1 thanks to improved inventory levels, lower sourcing costs and a better business mix.

IN RETAIL NEWS…

• IN APPAREL – Frasers hoovered up the brand and IP of MatchesFashion out of administration, for an undisclosed sum, which excluded its stock and employees. Online luxury has had a particularly rough ride, presumably as part of the attraction of shopping at these kinds of places is more influenced by experiences, which you only really get in a shop. Next managed to post better-than-expected sales growth over Q1 and Spanish fashion retailer Mango announced plans for more UK stores as part of its global expansion plans. Meanwhile, secondhand fashion seller Vinted managed to reach profitability for the first time. This is great but rivals Depop and RealReal reported losses last year. How Vinted will fare when economies recover is, as yet, unclear…
• Amazon.com posted record Q1 sales thanks to its cloud computing business benefitting from the AI boom. It continues to spend big in AWS infrastructure and generative AI investment.

IN LEISURE/RESTAURANTS NEWS…

• McDonald’s announced plans to double down on expansion in China, but I have to say that I hope it has a Plan B given what’s happened to Starbucks in that market and what might happen if China invades Taiwan (will it be like what happened to its Russia business all over again?).
• Fast-food giants such as McDonald’s, Coca-Cola, Nestlé and PepsiCo have all observed that many low-income consumers are increasingly unable to absorb price rises and are switching to cheaper options and/or cutting their consumption. They clearly have to adapt accordingly.
• Starbucks reported a major slowdown in visits and underwhelming sales and profits over Q1. The company is planning to address this by speeding up morning service and launching some new food and beverage options.

IN COMMERCIAL REAL ESTATE NEWS…

• WeWork agreed a restructuring deal that managed to shut out controversial founder Adam Neumann. The question is whether the only way is up from here or whether the company will slide further into the abyss from here!

IN RESIDENTIAL PROPERTY NEWS…

• The latest Bank of England figures showed that mortgage approvals rose in March to their highest level since the whole Truss-Kwarteng disaster in 2022. This tallies quite well with Zoopla data which showed that UK house sales rose 12% in April. That being said, Nationwide figures showed that interest rate wobbles and rising mortgage costs led to UK house prices falling unexpectedly for the second month in a  row.
• Average rents in the UK hit a record high, according to figures from Rightmove, due to the demand for rental properties exceeding supply.

IN TECH NEWS…

• IN AI – Chinese AI start-ups are racing to catch up with the likes of OpenAI and Anthropic. Zhipu AI, Moonshot AI, MiniMax and 01.ai are leading the pack at the moment. Meanwhile, eight newspapers including The New York Daily News, Chicago Tribune, Denver Post and other newspapers are suing OpenAI and Microsoft, accusing them of scraping their copyrighted content without permission or payment. That being said, the FT signed a deal with OpenAI so that the latter is allowed to train AI models on the FT’s archived content.
• Apple saw its revenues fall, but the drop was less than the market expected and it was pretty positive about the outlook for the year. It also announced a whopping great share buyback! It also seems like Apple has been building up its AI capabilities by poaching staff from Google. Hype is building about an iPhone with on-board AI capabilities. On the downside, Huawei’s profits have boomed more than six-fold, taking some of Apple’s market share in the process – all in spite of US sanctions!
• Meta is now facing an investigation over the spread of Russian propaganda as we head towards European parliamentary elections, the UK general election and the US presidential election. The EC reckons Meta hasn’t done enough to stop the spread of disinformation.

IN MEDIA NEWS…

• TikTok had an eventful week this week! It settled its months-long spat with Universal Music for an undisclosed sum but remains defiant about a potential US ban.
• OnlyFans is now being investigated by Ofcom due to concerns that it has not done enough to shield kids from pornography. Ofcom is due to give an update of its progress in August.

IN IPO NEWS…

• Flutter shareholders voted overwhelmingly to switch the company’s primary listing from London to New York. It’s been well-flagged, makes sense (because it’s where their growth lies!) and is expected to become effective by the end of this month.
• Cruise line Viking had a successful IPO in what was the second-largest US flotation this year.
• It’s not all doom and gloom for the London Stock Exchange as a newly-established real estate investment trust (REIT) is aiming to float in London in June. Also, even if there’s a dearth of home-grown IPOs, investors can still invest in them via ETFs.
• European PE firm CVC Capital Partners started trading at over €17 per share, which was above the €14 offer price. It was a popular IPO and the proceeds will help CVC’s growth and give it currency to attract investor cash and talent.

IN M&A NEWS…

• Sony and Apollo put in a $26bn all-cash offer to snatch the initiative away from Skydance Media to buy Paramount. Skydance and Paramount have been engaged in exclusive negotiations. Paramount’s shares got a 13% bump as investors got excited about a bidding war.
• The UK’s only quote cybersecurity name, Darktrace, was taken private by US PE firm Thoma Bravo as the former accepted the latter’s £4.3bn offer.
• UK bar operator Nightcap is having exploratory talks about a potential takeover of the troubled hospitality group Revolution Bars. Talks are at the very early stages.

• IN FINANCIALS NEWS – Lloyd’s insurers Hiscox and Lancashire are counting the cost of the Baltimore bridge disaster but said that the impact “will be within expectations of this type of event”. The loss is likely to eclipse the $1.5bn of losses absorbed by the industry in the wake of the Costa Concordia shipwreck off Italy 12 years ago. The average cost of UK car insurance has risen by a third in a year, according to the latest figures from the ABI. Maybe some of that is due to the increased use of cheap Chinese phone signal jammers which have been fuelling the theft of luxury cars! Meanwhile, Goldman Sachs announced the scrapping of the bonus cap that will allow their top performers to earn up to 25 times their annual salary! No doubt all the other investment banks in the UK will follow suit (or they will see a mass-exodus of their staff!).
• IN PHARMACEUTICALS NEWS – Novo Nordisk is upbeat about the prospects for its profits this year thanks to its massively successful weight-loss drugs. Meanwhile, Johnson & Johnson proposed an improved $6.5bn deal to draw a line under its long-running talc litigation. If accepted, it would be made over the next 25 years and settle all current and future claims.
• Peloton’s latest CEO, Barry McCarthy, is stepping down given that he has failed miserably in his tenure to drag the company out of the ditch it found itself in. I think that it should swallow its pride and do its best to sell itself to a tech company (like Apple, where it could link up to its wearables) or to a premium gym chain (where it could offer a better all-round experience to gym users).
• The EC is investigating allegations of “greenwashing” at 20 airlines, including things like allegedly exaggerating their eco-credentials. The airlines in focus come from Belgium, the Netherlands, Norway and Spain.

My favourite “AND FINALLY” video this week was the one with the guy that just burst into life when the spotlight was on!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when the Senate finally passed the aid bill, when BHP suggested a mega-merger and when Congress approved a ban on TikTok…

• IN THE US – investors are starting to price in an interest rate increase as inflation came in stronger than expected and GDP growth numbers underwhelmed. The US Senate eventually passed a $95bn bill for aid to Ukraine, Israel and the Indo-Pacific region, in a boost for Biden as it got cross-party support.
• IN ASIA – the Bank of Japan kept interest rates unchanged, sending the Yen to its lowest level in 34 years while Indonesia raised interest rates to bolster its currency, which had hit four-year lows against the dollar.
• IN THE UK – the Bank of England’s chief economist, Huw Pill, warned against cutting interest rates too early while the latest ONS data showed that government borrowing came in above expectations. The FTSE100 hit a record high this week and although there may be potential wobbles near-term due to continued UK fund outflows, there are some pretty interesting catalysts further out that could really power the index forward from here. Meanwhile, debate continues as to the timing of the next UK general election. The general consensus would suggest that Sunak will leave it as late as possible in order to take advantage of potential good news on the economy but his hand might be forced by a poor performance in the May 2nd local elections.
• IN SPAIN – PM Pedro Sánchez threatened to resign as his wife has been caught up in accusations of corruption. He is due to make a decision on his future on April 29th.

IN COMMODITIES NEWS…

• IN MINING – BHP proposed a takeover of rival miner Anglo American in a transaction that could be the industry’s biggest for years! BHP is keen to get more copper exposure through the deal because it thinks that copper will be a key driver of the green revolution. However, BHP is going to have to put in a higher offer to stand a realistic possibility of getting the deal over the line.
• IN DIAMONDS – we see that output from Anglo American’s diamond business, De Beers, fell by a whopping 23% in Q1 thanks to a combination of a reining in of luxury spending and the rising popularity of synthetic diamonds. Although De Beers said that there were some signs of recovery over the quarter it does seem that the current oversupply of gems will limit upside for some time yet.
• IN LITHIUM – we see that Tianqi Lithium shares dropped by a whopping 19% in early trade on Wednesday in Hong Kong and by 10% in Shenzhen, the daily limit, after the Chinese lithium producer warned about widening losses caused by weak product prices and a tax dispute in Chile.
• IN OIL – Ithaca Energy agreed to buy almost all of Eni’s UK oil and gas fields for £750m, transforming it into one of the North Sea’s biggest producers. Eni will retain a 38% stake in the enlarged group.
• IN COCOA – Latin American farmers are now rushing to plant cocoa given the massive price rises over the last year. There is obviously a danger that, by the time the new plants bear fruit, prices will have normalised.

IN ENERGY…

• Data from National Grid’s electricity system operator (ESO) shows that the proportion of electricity generated in GB by burning fossil fuels fell to a record low of just 2.4% earlier this month. This is pretty amazing considering that 15 years ago, gas and coal power plants made up 75% of the electricity mix, with renewables accounting for just 2%.
• Schneider Electric is working on the development of the world’s first offshore charging station for cruise ships that would be sited off Orkney. Sounds great but a bit niche IMO!

IN BUSINESS TRENDS NEWS…

• Suez trade has dropped by 59% over the year to April thanks to conflict in the Middle East. Delivery times have obviously increased but they haven’t increased by all that much and are starting to fall.

IN EMPLOYMENT TRENDS…

• Tata Consultancy Services’ CEO said that AI could kill call centres – potentially within one year. We’ve already seen this starting to happen at Klarna.
• Some of the world’s biggest commodity traders, such as Vitol and Trafigura, are investing huge sums in AI that they use to process data and make faster decisions. Citadel is currently at the forefront, but others are throwing money at it to catch up.
• Chinese tech workers are getting hit by the “curse of 35” where employers are tending to favour younger over older workers, leaving the latter out in the cold. The problem is that this trend is across other industries, meaning that those affected by this find it very hard to find other work.

IN AI NEWS…

• The US is looking for an alliance with Abu Dhabi on AI as the US doubles down its efforts to get the UAE onside. After a big announcement from Microsoft last week, it’ll be interesting to see what other deals come of this push.
• China is continuing with efforts to come up with its own “ChatGPT”. SenseTime is the company that seems to be furthest ahead and just released the newest version of its chatbot, SenseNova 5.0, this week.
• The US is pushing for a tightening of existing tech exports to China (particularly of advanced chips and chip-making equipment) as it is getting concerned about the strides China’s Huawei is making.
• Microsoft’s efforts in AI are paying off as Q3 revenues came in way above Wall Street’s estimates thanks to gains from its exposure to AI via its cloud services and business software products.
• VC firm Sequoia committed to investing in Elon Musk’s start-up xAI. It is an investor noted for investing at the early stages of development for companies like Google, YouTube and Apple. Musk is trying to raise up to $6bn to catch up with rivals including OpenAI – a tall order, but if anyone can do it he can (let’s hope he manages to negotiate a water-tight bonus this time though eh 🤣).
• Meta’s share price fell on concerns about how much money it is going to have to spend on turning Meta into “the leading AI company in the world”. Slowing revenues and rising costs are turning sentiment on the company and trying investor patience.
• Meanwhile, Google owner Alphabet saw its valuation breach the $2tn mark after announcing that it would be paying its first dividend. It’s in the mix for AI supremacy but seems to me to be generally one step behind OpenAI.

IN TECH HARDWARE NEWS…

• The European regulators conducted a surprise raid on the Warsaw and Rotterdam offices of Chinese security equipment supplier Nuctech under the new anti-state subsidy rules. This didn’t go down well with China’s commerce ministry, who said that the raid was motivated by protectionism. No doubt there will be retaliation from the Chinese side.
• Intel disappointed investors with underwhelming Q2 forecasts. Basically, it’s seeing weaker demand for what it’s strong in – CPUs – while the demand for GPUs used in AI is booming.
• IBM put in an offer to buy cloud software company HashiCorp for $35 per share in cash, giving them access to the company’s 4,400 clients. The deal will be subject to regulatory approval but should close by the end of the year. Another M&A deal in the bag for the investment banks!
• LG Electronics’ profits rebounded thanks to steady revenue growth in home appliances and vehicle components. It now expects a gradual recovery in global demand for consumer electronics.

IN MEDIA NEWS…

• US Congress approved a bill banning TikTok from US app stores unless its owner, ByteDance, sells it. On the other side of The Pond, the EU threatened a ban on TikTok’s new TikTok Lite service under the new Digital Service Act for not offering enough protection to kids.
• Spotify reported record quarterly profits thanks to an increase in the number of premium subscribers and a clampdown on costs.

IN BATTERY NEWS…

• Global battery production is rising – but not fast enough, according to a report by the IEA. It also warned that huge amounts of energy storage would be needed globally by the end of the decade to ensure smooth clean energy transition.
• South Korea warned that China’s control (and virtual monopoly) over key types of graphite used in battery anodes means that Inflation Reduction Act restrictions will make it virtually impossible to cut China out of the supply chain. It’s also worried about whether subsequent administrations could just change the rules, so is seeking some kind of guarantee…
• Toyota announced a $1.4bn EV investment in its Indiana facility, meaning that it has now poured $18.6bn into its US manufacturing operations to advance its electrification efforts. The carmaker continues to play catch-up with everyone else in the sphere of EVs.

IN EV NEWS…

• Research from New Automotive suggests that the combination of huge overproduction of EVs and weakening consumer demand will mean that there will be an overhang of zero-emission vehicles over the next two years, which in turn means that the likelihood of price wars is high! Stellantis’ CEO says that the UK’s existing EV sales targets are unrealistic because they are “double the natural demand of the market”, which means that carmakers are going to be forced to sell vehicles at a loss to avoid hefty fines.
• Tesla’s having a tough time at the moment! It announced another round of price cuts, falling sales and the recall of 3,878 Cybertrucks to replace faulty accelerator pedals. It did, however, say that it would accelerate the rollout of its new “affordable” models but caused some nervousness by announcing ambitions to operate its own fleet of robotaxis (that some are referring to as “Cybercabs”).

IN OTHER CAR NEWS…

• Car production dropped by 27% last month, ending the six month run of growing output as production facilities continued to adjust to the manufacture of new electric models.
• GM raised its profit outlook for the full year after benefitting from demand for petrol-powered pickup trucks and SUVs and cutting investment in things like robotaxis. It unveiled a 24% increase in Q1 profit as a result.
• Nissan cut full year profit estimates as car sales numbers came in weaker than market expectations. Maybe its JV with Honda on EVs could help boost their fortunes…

IN CONSUMER NEWS…

• IN CONSUMER TRENDS NEWS – consumer confidence is recovering, according to the latest GfK survey, as falling inflation and tax cuts have helped to boost consumer confidence this month. Analysis by the Daily Telegraph showed that UK households have cut household spending the most in the 38-member OECD – apart from people in the Czech Republic. Hopefully there will be some relief, though, as UK grocery price inflation slowed down to its lowest level since November 2021. This is the 14th drop in a row and came in way lower than it did last month.
• IN CONSUMER GOODS NEWS – Mattel underperformed versus expectations in Q1 as the Barbie effect that boosted it last year faded. Reckitt Benckiser shares rose as sales and volumes came in above market expectations but there’s still litigation risk in the US over its Enfamil premature baby formula.

IN RETAIL NEWS…

• IN LUXURY – the sector has had mixed fortunes as Hermes, Moncler and Prada put in decent performances while Burberry and Kering showed weakness.
• ON THE HIGH STREET – Asda became the only one of the Big Four to see a drop in grocery sales over the last quarter, according to the latest stats from Kantar, as it sinks further into oblivion (like Morrisons IMO). Meanwhile, WH Smith said that it expected a busy summer, ABF got upbeat about its prospects for the full year and its apparel retailer, Primark, put in a particularly strong performance. Then we saw JD Sports striking a $1.1bn deal to expand in the US via an acquisition of Alabama-based chain Hibbetts. This is particularly notable given that it’s a Brit company taking over an American one (it’s usually the other way around!) and will double the number of its US stores at a stroke!

• The FTC is attempting to scupper an $8.5bn deal for US luxury goods company Tapestry buying Capri Holdings, saying that this could damage competition.
• City advisers, including Goldman Sachs and JP Morgan, are raking in £80m in advisory fees from the planned Nationwide takeover of Virgin Money. M&A is coming back!
• Consulting firms are continuing to streamline their operations after the boom of 2020-2022 led to over-hiring. I suspect that this will turn around relatively soon given that the M&A market is showing signs of returning!
• The CMA is looking into Big Tech’s AI deals, initially fielding views on whether partnerships between Big Tech companies and smaller start-ups are anti-competitive. It has already launched an investigation into whether Microsoft’s partnership with OpenAI could be considered a merger by stealth!

• IN FINANCIALS NEWS – the Bank of England is getting increasingly cautious about the rise of shadow banks given that they are unregulated, which means that there are no protections in place if things go wrong. Meanwhile, Revolut is looking at other ways of monetising its user base as it waits to get its banking licence and Lloyds Bank took a hit to profits as homeowners rushed to refinance their mortgages to take advantage of falling rates. This resulted in higher turnover in its mortgage business, which hit its profitability.
• IN REAL ESTATE NEWS – we saw that the value of Canary Wharf Group offices fell by almost £1bn over the last year thanks to the ongoing impact of the WFH trend and increased efforts of the City of London to attract companies. In residential property news, stats from Rightmove shows that asking prices for properties coming to the market in the four weeks to mid-April hit near record levels.
• The US FTC voted to ban non-compete agreements to avoid wage suppression and promote innovation. The US Chamber of Commerce announced it would fight back by suing the regulator. This will have major implications across many industries (like those in Wall Street, for instance!) and I wonder whether other jurisdictions will review their own policies in light of this development.
• Boeing hit major turbulence in Q1 as the company burned through a huge amount of cash ($3.9bn) over the quarter as it tried to address quality issues whilst it also saw a drop in deliveries, which is hurting income.
• Thames Water wants household bills to rise by a chunky 45% in order to finance investment in its ageing infrastructure. It’s just a proposal at the moment but the company is trying to avoid nationalisation…
• It was interesting to see that the Treasury and Investment Association declared in a joint statement that investment in defence companies will not preclude them from classifying themselves as “ethical” or “sustainable”. This statement was designed to support the UK defence industry that has suffered years of being excluded because of the ESG trend.

My favourite “AND FINALLY” video this week was the one about “The old man test”! I’ve still not tried it yet but I don’t fancy my chances 🤣

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Iran struck back, when investment banks came back and when LVMH was held back…

• IN GEOPOLITICAL DEVELOPMENTS – Biden and others urged restraint from the Israelis after Iran launched a drone attack on Israel over the weekend. The Iranians said that this was in retaliation for a suspected Israeli strike on its consular building in Damascus earlier this month that killed a number of Iranian commanders in the Revolutionary Guards. Later in the week, Iran fired air defences as the Israelis responded to the Iranian response…the troubles have forced countries in the region to take sides but the Israeli public was divided as to how to respond. Markets got nervous about the potential escalation and clearly, the situation is fluid.
• IN THE US – US stocks had a wobble as investors fretted about escalation in the Middle East while US inflation remained stubbornly high, meaning that interest rates will probably remain higher for longer!
• IN CHINA – GDP growth increased by 5.3% in Q1, which was above expectations and it seems that its manufacturing sector it leading the charge thanks to the state pouring money in.
• IN THE UK – the IMF downgraded its GDP forecasts for the UK for the second time in a matter of months. On the plus side, chancellor Hunt is hopeful that he can implement some tax cuts ahead of the general election and Bank of England governor Andrew Bailey reckons that the UK is on track to see interest rates come down – he even said that he thought that inflation would fall strongly next month. In the meantime, Rishi Sunak continues to face pressure ahead of the imminent all-important local elections that could divide or unify his party in the run-up to this year’s general election (date TBC).

IN COMMODITIES NEWS…

• Oil prices didn’t move all that much in the wake of the Iranian drone attack because markets presumably assumed that there wouldn’t be much risk of an escalation but this could all change pretty quickly…
• Metals prices increased after Washington and London exchanges imposed a ban on the CME and LME (the world’s two biggest metal exchanges) accepting new aluminium, copper and nickel produced by Russia in addition to prohibiting their import into the US and UK.
• Cocoa prices have hit new highs, having already tripled over the last year! Unfortunately, cocoa prices have been rising at the same time as sugar and milk products to it looks very much like the chocolate we see on our shelves is going to see price increases.

IN BUSINESS TRENDS NEWS…

• Asahi is moving towards providing a higher proportion of zero and low-alcohol drinks as part of its beverage line-up. The company joins rival brewers including Heineken, Budweiser and Guinness who are all looking to hop onto the low-or-no alcohol trend that is prevalent particularly among increasingly health-conscious younger customers.
• Legal changes could threaten future David vs Goliath actions as the Justice Minister is under pressure to ditch reforms to the litigation funding industry that could end hopes of clawing back compensation from litigation funders. A decision by the Supreme Court last year effectively imposed a cap on how much profit litigation funders could make, something that’s a hot topic at the moment given what’s happening with the postmasters.
• China’s capital markets activity has fallen to its lowest level since 2003 in Hong Kong and 2005 in mainland China as political uncertainties, wobbly confidence in the economy and ongoing troubles in the massively indebted real estate sector are making for an unappetising mix.
• IN IPO NEWS – CVC is planning an IPO on Amsterdam’s stock exchange to raise at least €1.25bn. This will hopefully be third time lucky for the European PE firm as it has had to cancel IPO plans twice in the last two years! Meanwhile, UK digital bank Zopa is eyeing an IPO as it just announced a profit. It seems that the appetite for IPOs is building…

IN CONSUMER TRENDS NEWS…

• Drivers are facing petrol price rises as the Middle East crisis continues but, on the other hand, UK car insurance prices fell at the start of 2024 for the first quarter-on-quarter drop in over two years.
• Research from Hamptons showed that rent rises for British tenants have almost halved since the summer but then ONS data showed that rental costs rose by 9.2% last month versus a year ago – the biggest year-on-year change since at least 2015 when the ONS started collecting this data.

IN EMPLOYMENT TRENDS…

• Recruitment firm Page Group announced a weak Q1, following a weak Q4 at the end of last year. It said that both candidate and client sentiment remains subdued. Meanwhile, the latest ONS data showed that wage growth slowed down (although not by as much as economists had been expecting) while the unemployment rate rose sharply. You would have thought if you take all of this into account, it is more likely that the Bank of England will cut interest rates sooner rather than later.

IN ELECTRIC VEHICLE NEWS…

• EV sales in the US slowed down further in Q1 while sales of hybrids continued to outperform them. The trend that started last year is continuing…
• EV sales in Germany fell by 29% year-on-year in March, according to the latest statistics from the European Automobile Manufacturers’ Association. This is way higher than the EU average – and it’s dropped so much that the UK is now Europe’s biggest market for EV sales!
• Tesla had an interesting week this week! It asked shareholders to back the $56bn pay deal for Elon Musk that a Delaware judge recently rejected just as he announced that he would cut 10% of the workforce and the company announced more delays for Cybertruck deliveries without elaborating on why.
• VW said that it would lower EV costs by launching a cheaper EV production platform co-developed by local partner Xpeng. It will be used on vehicles produced in China and will be the basis of four VW-branded EV models made there from 2026.
• Jaguar became the latest carmaker to rein in EV ambitions, abandoning its promise to have a 100% electric product line-up by 2025.
• Britishvolt’s former “gigafactory” site is to be sold for £110m to US PE firm Blackstone Group with a view to building one of Europe’s biggest data centres on it. It certainly looks like EVs are on the wane while AI’s star is still rising!
• Automotive vehicle distribution group Inchcape is selling its UK car dealerships to US car dealership 1 Automotive for £346m in cash. This is the latest deal where an American dealership has taken over a British one as we saw the acquisition last year of Pendragon by Lithia Group and Lookers was bought by Global Auto Holdings.

IN AI NEWS…

• The UK continues to consider AI legislation, but it’s important for the US and Europe to have a joined-up strategy otherwise expertise and resources could gravitate towards countries that allow more “freedom” and provide more money. Meanwhile, AI investment continues with Microsoft putting $1.5bn into Abu Dhabi AI group G42 and VC firm Andressen Horowitz raising $7.2bn to invest in tech start-ups. That being said, Big Tech is going to want to see some profitability following the massive investment it’s making in AI and we might see some of that when they start reporting results next week. Meanwhile, OpenAI’s latest model, GPT-4 has now almost equalled expert doctors in analysing eye conditions, according to the latest research. This is an impressive development!
• IN INDIVIDUAL COMPANY NEWS, Google announced a top management restructure in an effort to accelerate its development and launch of AI products in its ongoing race with rivals (particularly Microsoft). All of the teams working on AI models, including its Gemini chatbot, will now come under the DeepMind division run by Demis Hassibis. We also saw Meta unveiling the latest version of its AI model, Llama 3, that it describes as being “less sanctimonious”. This brings it a step closer towards human-level intelligence.
• IN CHIP NEWS, chip-making equipment manufacturer ASML said that it thought that semiconductor industry would recover in the second half of this year despite its own Q1 results falling short of expectations. Elsewhere, Samsung announced that it’s going to start producing the latest generation of semiconductors in the US two years earlier than rival TSMC at a new fabrication plant (aka “fab”) in Texas and TSMC said that it’s considering charging more for chips made outside Taiwan given the higher related costs.
• Apple ceded its position as the world’s biggest mobile phone seller to Samsung as handset sales fell. Apple’s weakness has been blamed on difficulties in China as local makers such as Xiaomi and Huawei have intensified competition in their domestic market.

IN MEDIA NEWS…

• Netflix posted its best start to the year since 2020 thanks to its password sharing crackdown helping to boost subscriber numbers and the success of a number of popular shows.
• The pressure is continuing to build on TikTok as efforts by US Congress to force TikTok owner ByteDance to sell the app are gathering momentum while it is being questioned by the EU to provide a risk assessment over its new service aimed at kids, TikTok Lite, over fears that it could get kids addicted to videos on the platform.
• Trump Media shares continued their losing streak this week after the company announced that it could sell millions of additional shares in the next few months, which would dilute existing shareholders’ holdings.

• IN BANKS NEWS – loan growth at the largest US banks is slowing down, possibly because corporate borrowers are paying down debt while interest rates stay high. Meanwhile, Goldman Sachs saw strong performances from its investment banking and trading businesses as rival Morgan Stanley also benefited from more investment banking and IPO activity.
• IN INSURANCE NEWS – figures from the Association of British Insurers showed that last year was the worst one on record for weather damage insurance claims as climate change rages on…
• IN HEDGE FUND NEWS – Brevan Howard announced a 10% headcount reduction after a period of poor performance while Citadel decided to double the size of its operation in London by signing up for a bigger office in a rare bit of good news for the London office market.

IN RETAIL NEWS…

• Asos is continuing to fend off interest from other retailers (including Shein) for Topshop, the brand it bought from Arcadia Group for £330m in 2021 along with Topman and Miss Selfridge. It said last year that it was considering selling it off to reduce its debt pile and losses.
• B&M continues to go from strength to strength as sales rose strongly. It said that its store expansion plans remain on track.
• Dr Martens’ CEO left the shoe/boot seller after it announced its latest profit warning in a whole succession of them.
• Superdry outlined a three-year restructuring plan in a bid to raise up to £10m to avoid going insolvent but I have to say that it ain’t looking good at the moment!
• In the luxury segment, we saw that LVMH is still a strong exporter although its growth is currently being held back by weakening Chinese demand and falling champagne sales.

IN LEISURE NEWS…

• Saga is looking for investors to help in its debt reduction plans. It needs help given that it has debts of £637.2m! Its insurance business is doing badly but its travel business is doing well at the moment.
• TGI Fridays’ US operations are going to get a listing on the London Stock Exchange as the UK franchise owner of TGI Fridays, Hostmore, has agreed to a £177m reverse takeover. In the US, TGIF is controlled by US-based PE firm TriArtisan Capital Advisors, who will remain a major shareholder in the combined group. A good piece of news, for a change, for the London Stock Exchange!

My favourite “AND FINALLY” moment from this week was the video with the astronauts drinking coffee! I thought that this was strangely fascinating!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that saw the US and UK sign an agreement on AI safety and Disney’s Iger face down an assault from Nelson Peltz while Julian Dunkerton decided not to buy Superdry after all…

• IN THE US – inflation continues to be stubbornly high, making it more likely that interest rate cuts will be pushed back as Fed chief Jerome Powell wants to see more data points that show inflation going down. Meanwhile, an ex-chief global political analyst at Citigroup reckons that a Trump/Biden race to the White House will not yield a clear result and after the last election debacle, whatever the result turns out to be it may be contested – which creates more uncertainty.
• IN EUROPE – Eurozone inflation fell to a two-year low of 2.4%, which was weaker than the market was expecting. This was probably largely due to the fall in inflation in Germany, the Eurozone’s biggest economy. This will certainly be food for thought at the ECB’s next interest rate meeting! Meanwhile, Turkey’s president Erdogan’s AKP party took a big hit in the country’s local elections as citizens expressed their anger with the inflation crisis.
• IN THE UK – I thought that there were a few interesting observations made in the FT this week about the timing of UK interest rate cuts. Quite often the Fed, ECB and Bank of England move in synch but most recently when they started increasing interest rates to combat inflation, the Bank of England moved first, followed by the Fed and eventually the ECB (remember ALL of these “experts” clung on to the belief that inflation was “fleeting” back then) so it’ll be interesting to see if there is a united front or not. On balance, I think that the Fed could be the last one to move in this latest cycle. Then there was an interesting article which suggested that if there are big defeats in the local elections on May 2nd this year, Sunak may have to call an early general election in June if it results in a load of in-fighting. As things stand, the government will probably want to delay an election for as long as it can on the off chance that an improving economy will give them a boost in support.

IN ENERGY-RELATED NEWS…

• Solar panels continue to get cheaper – BloombergNEF says that the price of solar panels has halved over the last year and the EU announced that it had now launched two probes into Chinese solar manufacturers, looking at whether state subsidies have given them too much of a competitive advantage.
• EU gas storage levels are now at 58.7%, which means that the level could hit its 90% target in early August – three months earlier than its original target of November. This is good news for next autumn/winter.

IN COMMODITIES NEWS…

• Coffee bean prices are reaching record highs as we have a second consecutive year of poor harvests in Asia. It doesn’t like this will improve any time soon either, particularly as coffee consumption is rising strongly across Asia.

IN BUSINESS TRENDS NEWS…

• BALTIMORE BRIDGE – the repercussions continue and business analytics group Dun & Bradstreet reckons that the impact of the port closure is costing about $1.7bn per week in the trade of consumer goods, automobiles, coal and other shipments.
• CHINESE ROBOTS – China’s biggest industrial automation company, Shenzhen Inovance, remains defiant in the face of increasing protectionism in the West and vows to continue in its efforts to be among the top three companies in this space within five years. Given current levels of China paranoia, I would not be at all surprised if their wings were clipped by policymakers wanting to protect European companies.
• BEAUTY – there are signs of an emerging slowdown in the beauty industry and a number of companies such as Ulta Beauty, e.l.f. Beauty, Coty and Estée Lauder are having a tough time. Given the boom post-pandemic it’s possible that we’re seeing more of a “normalisation” in demand but I would have thought that the mojo will return once consumer confidence recovers as interest rates start to fall.
• WEIGHT-LOSS DRUGS – given the massive success of weight-loss drugs by Novo Nordisk (Wegovy) and Eli Lilly (Zepbound), it’s unsurprising to hear that according to health data company Affinity, there are currently 232 anti-obesity medications at varying stages of development! Improved treatments are likely to have better efficacy, be available in pill form, reduce common side effects or require less frequent injections – or perhaps all of the above! This area is absolutely massive and highly lucrative.
• UK MANUFACTURING – the latest S&P PMI showed that a jump in domestic orders has propelled UK factories out of a slump and prompted output to hit a 20-month high! This is a real boon given how tough it’s been for manufacturers for the last couple of years.

OVERALL…

• EV demand  continues to wane, according to the latest figures from the SMMT. Sales of petrol and hybrid vehicles are proving to be particularly strong. Any March gains in EV sales were mostly down to fleet buyers – not individual ones.
• Figures from the AA show that the value of second hand EVs has crashed since the beginning of this year. I would have thought that this will be because of a) the influx of cheap new Chinese EVs coming onto the market, b) early adopters putting their used EVs on the market and c) the rubbish charging network. Is this weakness in EV sales just a blip or is it going to become a trend? I think it could become a trend and that there won’t be a big spike in sales because a) there’s no FOMO, b) until the charging network gets appreciably better it’s just inconvenient (especially for those who do not have off-street charging access) and c) we don’t know yet whether our electricity infrastructure can actually cope with loads of EV owners charging their vehicles!

IN CAR MANUFACTURER NEWS…

• AMONG CHINESE MANUFACTURERS – BYD saw stronger sales in March (although sales were actually weaker overall in Q1) while Xiaomi’s share price spiked up on the feelgood from last week’s SUV launch. There’s more potential upside for Xiaomi given it’s got the cash to put into its new business line and has great brand recognition.
• AMONG AMERICAN MANUFACTURERS – Tesla saw its first quarterly fall in sales for four years but it also looks like it’s seeking out sites for a gigafactory in India, which would no doubt be a useful springboard in a market with great potential! Fisker announced that it has decided to withdraw all financial and operational guidance for 2024 due to its ongoing search for funding as it fights for survival. Meanwhile, although we saw that Ford sold enough EVs over Q1 to make it America’s second biggest selling EV brand after Tesla, it has decided to delay the launch of a couple of its much-hyped new EVs by up to two years! Presumably they want to wait until tech, charging networks and the market improves. Sounds pretty sensible to me!

IN CONSUMER TRENDS NEWS…

• UK wage growth is slowing down (which could mean that the Bank of England are more likely to cut interest rates sooner rather than later) and data from the latest BRC/Nielsen IQ report shows that shop price inflation is losing momentum (meaning that disposable incomes should go further) although another report by BDO shows that retail sales fell in March, continuing a six month losing streak as consumers continue to be careful about their spending.

IN RETAIL TRENDS…

• ON THE HIGH STREET – What I said above is presumably a major factor in the ongoing collapse of various high street retailers including Muji, Ted Baker and The Body Shop (and potentially Superdry??) although Oxford Street seems to be emerging from a very tricky last few years with the promise of new flagship stores. Co-founder of Superdry, Julian Dunkerton, decided that he wasn’t going to save his own company by buying it after all, so I presume that he’ll wait until it goes under so he can buy it back on the cheap as part of some kind of consortium or something.
• IN ONLINE RETAILING – Shein announced that it had more than doubled its profits (very useful ahead of a much-anticipated IPO!) while Amazon is having to deal with the rising incidence of returns fraud. Returns really are a major headache for retailers (especially online ones) who have to strike a tricky balance of providing a smooth customer experience and looking after their third party sellers.
• Waitrose has decided to cut its pricing again – for the second time in two months as it tries to tempt M&S shoppers back through its portals! M&S is currently the UK’s fastest growing grocer, according to the latest NIQ figures for the quarter – so Waitrose had to do something!

IN LEISURE NEWS…

• Revolution Bars is in a lot of trouble as its shares were suspended on AIM following its failure to publish financial results. The company claims to be “actively exploring all the strategic options”. This sounds terminal…

• Paramount announced that it has entered into exclusive talks with Skydance and rejected a $26bn offer from Apollo. The deal comes at a time where Paramount has been struggling to make its streaming service profitable.
• BC Partners sold IT business Presidio to US investment firm Clayton, Dubilier & Rice. Could this be the beginning of a spate of PE firms reshuffling their portfolios after a shopping bonanza over the last few years??
• Liberty Media agreed to buy MotoGP owner Dorna Sports in a €4.2bn deal. Cue “Ride to survive” on Netflix 😄! The deal will still have to pass regulators though.
• Home Depot, America’s biggest DIY retailer, bought speciality building products supplier SRS Distribution in a deal worth $18bn that will help it to expand its reach among contractors and builders. Getting more exposure to pros may be a good move as they visit stores more often and tend to spend more than traditional home DIY-ers.

IN AI NEWS…

• The US and UK signed a landmark agreement to co-operate on the testing and risk assessment of emerging AI models. The two governments will pool tech knowledge, information and talent on AI safety.
• The music industry is pushing back against AI via the International Confederation of Music Publishers (ICMP), a music industry body that covers about 90% of the world’s commercially released music. The body has launched a website that will enable labels to protect their copyright.
• Google is thinking about charging for AI-powered search, something that could help smaller rivals because it would mean they could start to charge as well.

IN TECH HARDWARE NEWS…

• Amazon has decided to pull back on the use of its “just walk out” tech that it introduced a few years ago. Instead, Amazon Fresh stores in the US will be introducing “Dash Carts” that scan items as you shop, which still means that cashiers aren’t needed. The “just walk out” tech will, however, still be used in Amazon Go locations and some Amazon Fresh stores in the UK.
• The Taiwan earthquake earlier this week acted as a reminder about how reliant the world is on this region for its semiconductors. When you consider the risk of an invasion by China and the seismic risk of this region, it is even more imperative that chip manufacture is spread more widely around the world!
• Samsung gave an upbeat assessment of its Q1 performance (probably thanks to the AI boom) while LG was rather downbeat thanks to the sluggish recovery in demand for home appliances.

IN TECH SOFTWARE NEWS…

• Microsoft will now sell Teams separately following pressure from the competition regulators. This comes “just” four years after Slack and other rivals complained about it being bundled in with their other productivity software. This is just the latest example of regulator crackdown on Big Tech.

IN MEDIA NEWS…

• Disney faced a battle at its AGM this week over the proposed composition of its board – and it won after CEO Bob Iger announced a raft of measures to boost its fortunes. It then announced that it was going to do a crackdown on password sharing for its streaming services, which the market liked given how positive a similar move has been for Netflix.
• Reddit warned that strict application of the Online Safety Act might make some of the smaller social media companies quit the UK because the rules are too onerous for companies with less financial firepower than their larger counterparts.
• Spotify is looking to raise prices for the second time in a year later this month. The rises will be up to $2 per month in five markets, including the UK, to be followed by the US later in the year. A cheaper basic tier will also be launched.
• X decided to award blue ticks to users with over 2,500 “verified subscriber follows”, reversing its previous stance where the ticks were only given to those who paid. This caused a bit of a kerfuffle as non-paying celebs scrambled to say they hadn’t paid for their ticks but I think this is just a load of noise and CEO Linda Yaccarino needs to come out with a proper plan for X’s future.
• Truth Social’s share price dropped by 21% after it unveiled big losses. I think there is something inherently dodgy with this company, particularly in terms of disclosure. That being said, it’ll be interesting to see if/how Trump mobilises his fans to pump up the share price!

IN TELECOMS NEWS…

• Perhaps unsurprisingly, the Vodafone and Three merger is going to be investigated by the CMA over worries that it could potentially lead to higher costs and less choice for customers. The CMA has now got until September 18th to complete its in-depth review.

IN COMMERCIAL PROPERTY NEWS…

• IN OFFICES NEWS – Deloitte is now reversing the post-Covid trend and is expanding its office space in London just two years after it made cutbacks! Everyone will be wondering whether this signals the bottoming out of the office market and whether others will start to do the same. Meanwhile, Morgan Stanley announced that it was extending its existing tenancy for another 10 years – so it’ll now be Canary Wharf-based until at least 2038. As part of the deal, Canary Wharf Group is going to fund an extensive refurbishment of the building that was completed in 2003.
• IN RETAIL PROPERTY NEWS – Kering announced that it would be buying a retail block in Milan that houses its Saint Laurent store for €1.3bn! It seems to be de rigeur for fashion houses to buy their properties these days but the problem here is that Kering’s not firing on all cylinders at the moment and this purchase will significantly reduce its cash buffer if things don’t go so well.

IN RESIDENTIAL PROPERTY NEWS…

• European house prices fell for the first time in a decade, according to the latest data from Eurostat. Interestingly, weaker house prices in many northern EU states (including Germany and France) were more than balanced out by strength in the property markets of Croatia, Bulgaria, Lithuania, Poland and Portugal.
• In the UK, house prices increased for the second consecutive month and mortgage approvals rose while Rightmove observed that market activity appears to be picking up ahead of the all-important spring-selling season!

• JP Morgan has pivoted into advertising (don’t worry, though – it’s still going to be a bank!) by using its customer data to target the right people. The new division, Chase Media Solutions, will clearly be taking on the might of Google and Meta with this initiative. Will other banks follow a similar course??
• Alaska Air received a $160m payment from Boeing to make up for lost profits tied to the mid-air door plug blowout in January. Alaska Air said it expects more payments. No doubt Boeing will be paying a lot of compensation in the months and years to come for its quality issues…

My favourite video this week was the one with the fancy potatoes! They look great don’t you think?!?

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week of the Baltimore Bridge collapse, when Trump’s Truth Social floated and when Merlin Entertainment warned everyone they’d be introducing surge pricing…

• IN THE US – the Francis Scott Key Bridge just south of the Port of Baltimore collapsed as a Maersk container vessel crashed into it. There were a number of fatalities and it has caused major disruption. Lloyd’s of London has warned that this catastrophe will trigger one of the biggest insurance losses in history.
• IN EUROPE – a report from the Kiel Institute from the World Economy cut its GDP growth forecasts for Germany although it did say that it expected a recovery to start in the spring. Higher energy costs since Russia’s invasion of Ukraine continue to be a major drag on Germany’s economy. Then we heard that the French budget deficit came in higher-than-expected, dealing a further blow to Macron’s handling of the country’s finances. Meanwhile, leaders of Balkan countries are urging NATO members to bring back conscription because of the rising threat from Russia.
• IN THE UK – a report from KPMG has forecast UK interest rates coming down to 3% by the end of this year, saying that the Bank will risk harming the economy unnecessarily if rates aren’t cut soon. Governor Bailey said last week that rate cuts are “on the way”.

IN COMMODITIES NEWS…

• Cocoa prices have overtaken those of copper now! They’ve risen by 50% this month alone – but if you look at the price performance last year, it’s almost jumped by as much as Nvidia has! This has all been thanks to poor weather and crop disease hitting growers in West Africa where the majority of beans are grown. Price rises tend to take 6-12 months to filter through to end product prices.
• Worries are increasing about China cornering the copper market as there are signs that China has been stockpiling the metal that is used in so many things! Copper plays an important part in the transition to a greener economy so this could be EVs all over again!

IN ENERGY NEWS…

• British energy imports hit a new high, according to the latest report from Offshore Energies UK, which shows that Britain is generating its smallest amount of energy ever! Around 40% of oil and gas used in the UK is now imported! Those SMRs can’t come quickly enough…

IN CURRENCY NEWS…

• The Yen fell to its lowest level versus the dollar since 1990 as Japanese policymakers poured cold water on the idea of further imminent interest rate rises.
• Bitcoin’s recent strong performance has woken VCs from their slumber and they are now investing in crypto start-ups once more, according to analytics provider Cryptorank. On the other hand, inflows into 11 new bitcoin ETFs that got approval by US regulators in January saw outflows last week. It’s too early yet to tell whether this is just a blip or a trend as fund inflows have helped to push crypto prices to record levels!

IN BUSINESS TRENDS NEWS…

• IN DEFENCE – the US and Japan are about to announce a major upgrade in their mutual defence treaty in order to counter the perceived growing threat from China. Japan has dramatically increased its defence capabilities over the last few years but the way it slots in with the Americans has a lot of room for improvement. Meanwhile, the US and UK have accused China of cyber attacks on politicians and companies, but obviously China denies the allegations. This will be particularly sensitive as the US and UK have elections at the end of this year.
• US BUSINESSES IN CHINA – it’s not really surprising to hear that American businesses are finding that their momentum in China is slowing down. This is partly to do with the current sluggishness of China’s broader economy but it also a result of understandable backlash from the Chinese to ongoing sanctions. Nvidia, Qualcomm and Micron Technology have been among those to be hit particularly hard.
• THE TECH CRACKDOWN – the EU has now launched investigations into Apple, Meta and Alphabet over whether Apple and Alphabet-owned Google are unfairly prioritising their own app stores to the detriment of rivals and whether Meta is getting an unfair advantage in advertising by using personal data. This will be the first test of the robustness of the Digital Markets Act, which is supposed to take on the dominance of “digital gatekeepers”. I think we’re going to see a lot more of this now.
• A RETIREMENT CRISIS – BlackRock’s boss, Larry Fink, warned everyone in an open letter about an imminent retirement crisis as he observed that while a lot of effort goes into prolonging our lives, not enough effort is going into how to finance retirement. Japan has long been cited as THE example of ageing society but China is arguably going to have an even worse problem down the road thanks to its previous “one-child” policy.
• IN INVESTMENT TRENDS – we see that US investment funds pulled $13.3bn from BlackRock’s climate change funds over the last few years as the backlash against the ESG trend continues to gather pace and we also see that green investment trusts losing ground as well. This could have repercussions on the whole green sector as such investment trusts are often buyers of assets from companies such as Ørsted who use the money raised to invest in other projects. Meanwhile, it’s become apparent that some major founders of Big Tech companies have been selling off millions of dollars worth of their shares this quarter, according to Verity LLC. This sell-off often occurs in Q1 (for tax reasons?) but it’s a lot higher than usual. This tends to make other investors feel a bit uneasy as there’s a sense of “do they know something we don’t know??”. Back home, the Bank of England is getting increasingly concerned about the next move of PE firms who loaded up on debt when it was cheap a few years ago and then went on a massive shopping spree for assets. They are not only concerned about a potential asset sell-off – they are worried that more money will have been lent against the assets in their portfolios that could potentially amplify any losses and result in an avalanche of selling.
• REGARDING THE TRAVEL BOOM – the aviation industry is doing extremely well thanks to the current travel boom! Aircraft deliveries have hit their highest levels since 2019 but Boeing is having a rough time of it due to that door incident in January. The CEO is carrying the can for this and will be staying on till the end of the year to presumably ensure a smooth handover while a load of other senior bods got the boot.

IN BATTERY NEWS…

• CATL is going to press on with its efforts to expand its US presence despite push-back but it also dismissed any talk of imminent commercialisation of solid state batteries, saying that Toyota is talking out of its 🍑 about alleged technical advances in that regard. CATL is instead working on alternative tech with sodium-ion batteries and condensed-matter batteries. Meanwhile, Chinese EV battery manufacturer EVE Energy is looking at potentially building a new gigafactory on the outskirts of Coventry that could be a major part of the planned UK Centre for Electrification, an investment zone in the West Midlands.

IN EV NEWS…

• Policy group Transport & Environment say that Chinese-made EVs are set to take a 25% share of the European market this year and although BYD missed profit forecasts, it’s still got plenty of room to cut prices further in order to help increase that market share.
• Tesla tried to get a bit of the limelight this week by saying that it is increasing the promotion of its driver-assistance tech it calls “Full Self-Driving Capability” but I have to say that I think this is just a publicity stunt.
• Nissan unveiled a plan to cut EV production costs that will help it launch 16 new EVs by 2026. Will this prove to be too little too late given the expected onslaught from Chinese EV manufacturers?
• Fisker’s nightmare continued as talks about a tie-up with a major manufacturer have been abandoned and it looks like it will be delisted by the NYSE due to “abnormally low” price levels. Fisker announced price cuts for its vehicles to drum up more sales but you do wonder why anyone would buy any of its cars given how dodgy things are looking right now.

IN GENERAL…

• The latest figures from the SMMT show that British carmakers announced a sixth consecutive month of rising production but there could be problems with exports to Canada due to an ongoing trade dispute between the two countries.
• Ferrari announced that it had doubled sales in Taiwan thanks to the rising wealth of chip entrepreneurs. Ferrari’s CEO observed that Taiwan demand has grown faster than in China or Hong Kong!

IN CONSUMER TRENDS NEWS…

• US consumers are continuing to spend despite some unease about the economy but then they might find it harder to find affordable Easter eggs due to rising cocoa prices (which I mentioned above!).
• There was good news for UK consumers as food inflation slowed down to its slowest pace since February 2022, implying that the headline rate of inflation is likely to fall, which could in turn put more pressure on the Bank of England to cut interest rates sooner rather than later.
• IN THE RESIDENTIAL PROPERTY MARKET – Zoopla said that confidence is returning to the UK property market as discounts on asking prices are narrowing and housebuilder Bellway said that it was pleasantly surprised by the quicker-than-expected rebound of the housing market as it is now selling over one-and-a-half times as many homes per week as it was in the autumn.

IN LEISURE NEWS…

• IN GAMBLING – 888 said that it was going to change its name to Evoke and pull out of the US sports betting market after a tumultuous year while, in contrast, rival Flutter Entertainment is looking to triple US profits before it shifts its listing from London to New York.
• Merlin Entertainment – which owns attractions including Legoland, Sea Life and Madame Tussauds, among others – said that it is planning to introduce “surge pricing” which means visitors will have to pay more at peak periods. I suspect this will be great news for operators of attractions that don’t adopt this dynamic pricing model as I would have thought this will be received very badly, particularly by families.
• London-listed leisure company Revolution Bars is looking at closing 25% of its venues as a condition of getting some financing. The nightmare in hospitality continues…

IN RETAIL NEWS…

• UK retail sales stabilised, according to the latest figures from the CBI and there was good news as stats from the monthly Asda Income Tracker showed that disposable incomes in the lowest-earning households in the UK have actually increased for the first time in over two years! Meanwhile, Kingfisher (owner of B&Q and Screwfix etc) announced another profit warning, saying that DIY demand had slowed down.
• IN ONLINE RETAILER NEWS – Amazon’s online pharmacy is getting a major boost from distributing anti-obesity drugs while Asos saw its sales plunge in H1 while it tries to focus more on profitability. Meanwhile, Chinese e-commerce players including AliExpress, Temu and Shein are making great progress in South Korea although there’s still quite a gap to bridge with the local e-tailing giant Coupang. Still, they are making ground fast…
• It was nice to see some positive news for a change from Morrisons, which announced its strongest quarterly sales growth since it was taken over in 2021.

• Analysis by the London Stock Exchange showed that the number of blockbuster deals shot up in Q1, highlighting a recovery in the M&A market after a long drought. It seems that deal activity has increased with the expectation of interest rates coming down and general confidence in the global economy turning a corner.
• F1 owner Liberty Media is currently in exclusive talks to buy Dorna Sports, owner of MotoGP. Dorna Sports is owned by Bridgepoint, the private equity firm.
• Boutique hotel group CitizenM is looking at a potential sale of the business as it looks to take advantage of the current travel boom.
• Design software group Canva just bought UK-based design platform Affinity from privately-owned developer Serif for cash and shares in Canva’s biggest ever deal.
• DS Smith appears to be in the middle of a bidding war because although it has an “agreement in principle” with FTSE100 rival Mondi, American company International Paper is showing serious interest in DS Smith as well!
• Danish pharma giant Novo Nordisk, of Ozempic and Wegovy fame, has just bought German biotech company Cardior Pharmaceuticals, which is developing heart disease treatments. The deal is worth €1bn.
• Amazon said this week that it would invest an additional $2.75bn into AI start-up Anthropic, bringing its total investment so far in the start-up to $4bn. No doubt it’s hoping that Anthropic will be to Amazon what OpenAI is to Microsoft!

IN SOCIAL MEDIA NEWS…

• Trump’s social media business, Trump Media & Technology Group (aka “TMTG”) had a very successful IPO on the NASDAQ this week meaning that the ex-president’s 58% stake is now worth $4.6bn! That should come in useful when paying his lawyers 🤣although he’s not allowed to sell for six months.
• Usage of X in the US has dropped by 23% since Elon Musk bought it, according to research by app-monitoring company Sensor Tower. Although every other major social media platform has experienced a fall in usage over the same time period, X’s drop has been particularly bad. Surely it’s about time that CEO Linda Yaccarino announced some kind of strategy to get things going again…
• The FCA brought out new guidance for “finfluencers” this week. This will punish social influencers who promote financial products or services without proper approval or authorisation. If they flout the rules, they could be committing a criminal offence that could be punishable by up to two years in prison, an unlimited fine, or both.

IN CHIP NEWS…

• China has banned the use of Intel and AMD chips in government computers and servers as the country makes efforts to reduce its reliance on foreign tech. Companies including Huawei and Phytium stand to benefit from this.

My favourite video this week was the one with the misheard song lyrics! Brilliant!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that Japan raised interest rates out of negative territory, Vietnam was engulfed in scandal and Nvidia announced an even more advanced chip!…

• IN THE US – the Fed kept interest rates unchanged in the 5.25-5.5% range at its latest meeting but indicated that there would still be three cuts this year. Confidence is building about the economy moving towards the 2% target and markets and the dollar strengthened as a result.
• IN CHINA – official figures from the National Bureau of Statistics showed a jump in industrial production, which is great news for the country and suggests that the 5% GDP growth target for the year is achievable.
• IN JAPAN – the Bank of Japan pulled interest rates out of negative territory to a range of 0-0.1%. This is the first time Japan hasn’t had negative interest rates since 2016 and is the first raising of Japanese interest rates for 17 years! The BoJ originally cut interest rates to -0.1% in 2016 to encourage banks to lend more and stimulate spending.
• IN VIETNAM – the country’s president resigned after just a year in office, becoming the second Vietnamese president to do so in 14 months amid a crackdown on corruption. Talking of which, Vietnamese property tycoon Truong My Lan has been accused of embezzling $12bn from the country’s Saigon Joint Stock Commercial Bank (SCB) and bribing central bank officials. The scale of the fraud is astounding and Truong My Lan faces the death sentence if found guilty. Corruption in Vietnam is nothing new, but to give an idea of scale, this is almost triple the amount involved in Malaysia’s sovereign wealth fund 1MDB, which US officials have previously described as the world’s biggest example of kleptocracy!
• IN RUSSIA – Vladimir Putin, somewhat unsurprisingly, managed to win the Russian election by a massive margin, cementing another six years in power.
• IN ARGENTINA – new president Javier Milei continues to try to come good on his election promises to take a chainsaw to Argentina’s state companies. However, as he only holds less than 15% of the seats in Congress, he has had to water down his proposals in order to get anything done. The efforts will no doubt continue!
• IN EUROPE – the Eurozone’s trade surplus hit its highest level since data started in 2002 mainly thanks to a strong performance by Germany. This is good news if Germany’s performance is sustainable! Meanwhile, Dutch far-right leader Geert Wilders is finding it impossible to form a government as no-one wants to work with him. His Freedom Party may have to concede the premiership as a result, but you do wonder what will happen given that it was the electorate that voted for them in the first place! Then we saw Turkey jacking up its interest rates from 45% to 50% just ten days before local elections in a move that’s been interpreted as showing that the central bank is indeed independent from the government. It’s all part of efforts to bring giddily high inflation rates down in a conventional way after years of President Erdogan urging the exact opposite course of action to tackle inflation.
• IN THE UK – inflation fell to 3.4% in February, something that the Bank of England will have to take into account regarding the future direction of interest rates. Talking of which, the Bank of England left interest rates unchanged in its meeting this week although it hinted that there could be three cuts coming later this year. Government borrowing came in higher than expected in February, which will make it difficult for the chancellor to finance any additional tax cuts. On the plus side, the latest Lloyds Bank monthly economic tracker shows that economic growth has broadened, implying that recession may be short-lived!

IN MINING NEWS…

• Brazilian mining giant Vale is facing a £3bn lawsuit in the Netherlands over the 2015 Mariana dam collapse in Brazil, which was one of the country’s biggest environmental disasters and resulted in 19 fatalities and the pollution of hundreds of kilometres of waterways. This is in addition to the class action launched in England in 2018.

IN ENERGY NEWS…

• The world’s biggest solar panel manufacturer, Longi, announced that it would be cutting up to 30% of its workforce in an effort to accelerate cost-cutting efforts that it put in motion last year. I suspect this will make US solar panels even more paranoid about getting flooded by cheap Chinese product as Longi will presumably just want to get rid of its inventory and have no qualms about undercutting American rivals.

IN BUSINESS TRENDS NEWS…

• According to the latest Bank of America survey, fund managers around the world are feeling at their most optimistic for two years about the prospects for the global economy.
• Hong Kong’s security laws are about to get a lot tougher as the its Legislative Council has just passed a new law that will come out on Saturday. This law builds on the security law brought in by Beijing in 2020 and really clamps down on activities related to national security. I think this has been in the offing for a while and is going to be the final nail in the coffin of Hong Kong being a major financial and business hub for Asia.
• Novo Nordisk is potentially going to get the most almighty boost soon as Wegovy, its blockbuster obesity drug, is due to get approval in China this year. The latest stats say that obesity rates in China now stand at 50.7% of the population so the market it huge. Other domestic makers are working on their own obesity drugs but this Danish pharma company stands to make a ton of money at least until its patent in China expires in 2026.
• IN PROFESSIONAL SERVICES NEWS – PE firms are increasingly investing in professional services companies like consultancies, talent agencies and accounting firms as presumably they like to mix their high risk/reward investments with ones that are more stable. On the other side of the fence partnerships get access to cash quickly that helps them to expand. Accountancy firm Deloitte launched its biggest reorganisation since 2014 in an effort to cut costs and right size itself after a prolonged period where there has been a lack of deals while consultancy firm Accenture cut annual revenue forecasts in response to a slowing market and an “uncertain macro environment”. They said that business flow projections this year aren’t good.
• IN THE UK – the latest S&P Global/CIPS flash UK PMI reported growth in March for the private sector but momentum for the services sector saw a slowdown. It was also good to see that manufacturing appears to be bottoming out as well, meaning that a recovery is more broad-based. That being said, the manufacturing sector is having a hard time as Make UK says that factories are experiencing massive lead times as a result of what’s going on in the Red Sea at the moment.

IN EMPLOYMENT TRENDS…

• It seems that there is a rising trend of Gen-Z workers participating in the “QuitTok” trend where they film themselves being made redundant and then upload it to social media apps like TikTok. They are also posting content about losing their jobs that highlight not only what they are going through but also which employers are making the cuts! This could be highly damaging for QuitTokkers’ future careers but at the moment the job market is still buoyant. Once things get worse, they will get a dose of harsh reality.

IN CONSUMER TRENDS…

• UK consumer confidence has gone sideways, according to the latest GfK survey. Although confidence levels overall remain unchanged, consumers are more positive about their personal finances over the coming 12 months.

IN TECH NEWS…

• Intel is to receive $8.5bn in US government funding as part of efforts to expand domestic production capacity for high-end semiconductors. Intel wants to become a “national champion” and compete with Asian giants such as TSMC and Samsung. The funds will be used to build new facilities in Arizona, Ohio, New Mexico and Oregon.
• Google was fined about $270m in France by the country’s competition authority for breaching commitments it made to negotiate licence deals with an array of news publishers in the country. In 2022, it promised to give publishers estimates of indirect revenue generated when including news content in its search results but the authority deemed that it did not follow through on its promises. Interestingly, Google agreed to just pay the fine and not contest it. Elsewhere, Google is in talks with Apple about putting chatbots on every iPhone via its Gemini bot.
• The US Department of Justice – with a whole host of other state and district attorneys – is suing Apple for potentially abusing its power in smartphones to snuff out competition from rivals and restrict customer choice. Apple is being accused of staying ahead of rivals not by being better but by virtue of its “unlawful exclusionary behaviour”.
• IN AI NEWS – Nvidia unveiled an even more powerful chip to extend its dominance in the AU market – the Blackwell GPU (aka GB200). This will obviously benefit Nvidia – but it will also boost other related companies and suppliers. Microsoft just hired the co-founder of DeepMind and 70 staff from his start-up to run Microsoft’s customer-facing AI business. We also saw that “deepfake” music start-up Voicify is being taken to court by the UK industry body BPI who is saying that it is breaching copyright by allegedly using copyrighted works to create the tech that replicates artists’ voices.
• Xiaomi’s quarterly results came in above market expectations but fell short of annual sales projections thanks to weaker smartphone sales.

IN MEDIA NEWS…

• PE firm Apollo Global Management offered $11bn for Paramount Global’s film and TV studio. This could scupper a deal that is already under discussion with Skydance Media. It looks to me like M&A activity is certainly hotting up!
• Reddit launched its IPO this week and saw its share price boom by 48% on its first day! This is pretty amazing considering it hasn’t turned a profit since its launch in 2005, but it sounds like it played the AI card by saying that its content is used to train AI models.
• Warner Bros Discovery planned to launch its Max streaming service in Europe to challenge market leaders Netflix and Disney. At the moment, it makes about 80% of its sales in the US market, so there is plenty of room for diversification!
• ITV announced more job cuts, this time at its in-house advertising agency, ITV Creative, in response to the biggest advertising downturn since the financial crisis. All eyes will be on when ITV’s ad revenues turn a corner…

IN TELECOMS…

• Three UK swung into its first loss since 2010 after posting a big loss for 2023 immediately after posting a big profit in the previous year. It says that it really needs its merger with Vodafone to go ahead in order to get the requisite scale to prosper.

IN BATTERY NEWS…

• Chinese EV battery giant CATL posted solid earnings for 2023 and announced a surprise special dividend as it benefited from falling raw material costs last year. It remains China’s biggest EV battery maker by far – with a market share of 53%!

IN EV NEWS…

• Troubled EV maker Fisker has decided to pause production for six weeks while it has talks with a big automaker that could result in an investment that could save the company.
• Honda and Nissan announced an EV tie-up which will involve joint procurement and development of components, but there is scepticism as to whether this will work or not given the two companies’ fierce rivalry.
• Renault is calling for a European war chest to be built up and used to clip the wings of incoming Chinese competition in EVs.
• XPeng managed to cut losses and report record high revenues, bringing it closer to profitability.

IN CAR NEWS…

• Bentley reported its second-highest annual profit in its history whilst also walking back its commitment to go 100% electric by 2030. The massive average spend of customers on options for their cars (70% of buyers last year spent an average of €40,000 on options in their vehicles!) helped to offset a fall in demand from China in the first half of the year.
• In the US, the National Highway Traffic Safety Administration opened an investigation into a recent fatal crash involving a Ford SUV whose driver-assisted tech is suspected to be at least partly at fault for the incident.

• Close Brothers decided to launch a £400m capital plan just in case it has to start paying out compensation after an FCA investigation into dodgy car financing. Close Brothers has the most exposure to car financing so this seems to be a sensible course of action.
• Prudential announced a rise in profits as sales in insurance policies rose when the border was lifted with China. Hong Kong was the main growth driver last year and the company is on track to meet 2027 targets that it set itself in 2022.
• Direct Line launched a £100m cost savings plan after returning to profitability. The company is due to announce the conclusions of a “comprehensive strategy review” in July.
• Nationwide agreed to take over Virgin Money, with the enlarged group on track to become the UK’s second-biggest mortgage lender. It pledged to extend its “branch promise” for both brands and keep all existing branches open to at least 2028 (it was originally going to be 2026).
• Investment banking bonuses have been slashed at European investment banks thanks to the lack of deals. Will this be the year that turns around??
• M&G unveiled better-than-expected profits as it saw a sharp increase in fund inflows from retail investors offsetting outflows from its institutional asset management business.

IN COMMERCIAL PROPERY NEWS…

• Evergrande has been accused by the China Securities Regulatory Commission of inflating its revenues by $80bn over the course of 2019 and 2020. This Evergrande thing just isn’t going away…
• British Land sold half of its stake in Meta’s abandoned office block to Royal London Asset Management for £192.5m. It’s now being transformed into a lab space that will attract higher rents. You wonder whether we’ll see more deals like this as this deal limits the risk to the landlord.
• L&G has decided to exit the property market thanks to high costs and the admin involved. It’s going to sell British housebuilder Cala as the new CEO is keen on streamlining the business.

IN RESIDENTIAL PROPERTY NEWS…

• UK house prices rose by their biggest margin in 10 months, according to Rightmove. This certainly adds to the argument that the UK residential property market is picking up after a tricky 2023.
• UK rents saw their biggest ever annual increases over last year, according to the latest ONS figures, and the biggest rise was in London where average rents were £2,035 per month!

IN RETAIL NEWS…

• Kering, the owner of Gucci, issued a profit warning as Gucci sales were particularly weak in the Asia Pacific region. Gucci accounted for two-thirds of the group’s operating income last year, but to be fair to it there’s been new management and a new creative director so I guess this has not yet had time to properly kick in. The problem is that rivals LVMH and Hermès are doing pretty well at the moment, so that makes Kering look particularly poor in comparison…
• Temu’s owner PDD Holdings managed to more than double its quarterly revenues, dubbing 2023 as a “pivotal” year thanks to Temu’s progress.
• It was really interesting to hear that the rising incidences of shoplifting is prompting supermarkets in particular to rein in their conversion to self-checkouts as they are losing more from stealing than they would be saving from having human cashiers! Go Team Humans!!!
• DFS and Wickes reported weak demand for big ticket goods as consumers continue to rein in spending. Separately, Wickes just bought a 51% stake in Solar Fast, a solar power installation company, for £5m with an option to buy the remainder in 2025.
• Tesco lost its logo battle with Lidl and is going to have to drop the logo for its Clubcard loyalty scheme after losing its appeal. It won’t appeal the decision.
• IN APPAREL RETAIL – Next announced strong profits and talked about an improving consumer backdrop while, on the other hand, Ted Baker brought in the administrators. The company just hasn’t been the same since the abrupt departure of its founder, Ray Kelvin, in 2019.
• Curry’s is going to go it alone after all as its two potential suitors are out of the picture. It rejected two offers from Elliott Advisors and didn’t get the offer it was hoping for from JD.com in the end. Still, it managed to raise its profit forecasts for the year as it said that it is getting its Nordic business back on track!

IN CONSUMER GOODS NEWS…

• Unilever has decided to spin off its ice-cream business in an effort to streamline the business after a turbulent few years. Unless a buyer is found, it’ll just become a stand-alone listed company by the end of the year. Reckitt is going to continue to sell Enfamil in the US despite last week’s judgment by an Illinois state court where a mother who said her premature baby died after consuming Reckitt’s product was awarded $60m in damages. This could become a serious problem for the company but we’ll just have to see where this goes…

IN LEISURE NEWS…

• IN TRAVEL – Gatwick profits are up but passenger numbers are still below where they were pre-pandemic. Samsonite is looking at a potential secondary listing on the New York Stock Exchange in order to broaden its investor base (it’s been listed on the Hong Kong Stock Exchange since 2011) and take advantage of the current travel boom.
• IN RESTAURANTS/HOSPITALITY – Nespresso said it would open its first “Nespresso Bar” in Old Broad Street, near Liverpool Street Station in London. If it works, it will be rolled out across Europe. Hot choc brand Knoops is looking to expand fast both domestically and abroad in the Middle East, US and China. This sounds interesting because I think it has no real competition at the moment – but surely others will see how successful it is and copy it. Surely Hotel Chocolat, for instance, has the means to do this?!? Meanwhile, the latest stats from the Insolvency Service show that some areas of the hospitality sector have been suffering badly as the number of closures has been climbing. Until the cost-of-living crisis subsides I suspect that more businesses in this sector will go bust.

• Boeing’s nightmare continues as it said that cash outflow would be higher in Q1 than previous expectations thanks to the ongoing repercussions of the door plug blowout crisis. The company’s share price has fallen by 25% since the start of the year and quality concerns remain.
• Trustpilot announced a return to profitability last year as the number of unique users on its website jumped by 30% as the company showed “resilient retention and strong growth across all regions”.

My favourite video this week was the one of the really cool clock! I’d love to see this IRL!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that US inflation surprised, TikTok suffered a major setback and Xiaomi launched its first EV…

• IN THE US – inflation rose by 3.2% in February. This was above market expectations and shows just how hard it is to get inflation from 3% down to 2%, with 2% being the target rate! Meanwhile Biden’s approval rating continues to underwhelm despite US GDP growth last year being the best of any large advanced economy, inflation falling faster, unemployment flirting with record lows and the S&P hitting record highs this year. Separately, the Energy Department is about to grant a $2.26bn loan to Lithium Americas and it will be used to build a refining plant in Nevada as part of the broader effort to build a domestic supply chain of lithium and other battery materials.
• IN JAPAN – officially revised figures show that Japan didn’t, in fact, fall into recession for the second half of last year because output actually expanded for the final quarter of last year, meaning that the country avoided two consecutive quarters of contraction (which is what you need to have a recession). Initial figures had suggested that output had actually contracted in Q4.
• IN THE UK – it looks like the UK may already have pulled out of recession as the latest ONS data showed that GDP actually rose between December 2023 and January 2024 thanks to 0.2% growth in the services sector.

IN COMMODITIES NEWS…

• IN OIL – Saudi Aramco unveiled its second-highest annual profit ever despite lower oil prices and state-led production cuts. This helped it to increase its dividend by 30% year-on-year. OPEC left its oil demand forecasts unchanged for 2024 while the IEA increased its demand forecasts.
• IN GAS – US natural gas producer EQT just announced that it would buy back Equitrans Midstream, a pipeline business that it had previously owned, to create a $35bn integrated gas group. It believes that this move will position it to take advantage of an expected AI-powered uplift in power usage in North Virginia as demand for data centres increases (this area has the world’s biggest concentration of internet servers).

IN ENERGY NEWS…

• The British government is going to start offering cheaper power to energy-intensive manufacturers (e.g. metal refiners and EV gigafactories) in order to help boost production of key minerals used in things like wind turbines, EVs and defence technologies.
• Meanwhile, Great British Nuclear has decided to delay the decision on where the first SMRs will be sited until June, which means that the official awarding of contracts is now unlikely to happen until after the next general election.
• The prospect of a nuclear fusion-powered grid is getting ever-closer as there have been some major breakthroughs made by Britain’s First Light Fusion and Commonwealth Fusion Systems in terms of energy production. There is increasing belief that it will be commercially viable by the 2030s!

IN CRYPTO NEWS…

• The FCA has now dropped its ban on crypto-backed securities and said that it “confirms it will accept applications for the admission of bitcoin and ethereum crypto exchange-traded notes in the second quarter of 2024”. Bitcoin’s price jumped by 5% on the news as this is clearly another sign of crypto inching ever-further towards the mainstream.

IN BUSINESS TRENDS NEWS…

• China is definitely going lukewarm on Apple and Tesla these days and both companies are experiencing weakening market share and sales as a result. They have both also had to resort to discounting in order to drum up business. This is concerning for both Apple and Tesla because China is their biggest single market, accounting for 19% and 22% of total revenues respectively in the last few fiscal years.
• US solar panel manufacturers are in a “dire situation” thanks to soaring cheap imports from China. Cheap Chinese solar panels have been a real boon for US renewable energy developers but it has had devastating consequences for domestic makers. Local makers like First Solar and Heliene want stricter enforcement of tariffs and a swift return to the imposition of duties against south-east Asian imports. It sounds like EV makers could suffer the same fate as solar panel makers if they are not careful…
• German container shipping company Hapag-Lloyd expects an earnings hit this year thanks to weakening demand, an increase in shipping capacity (loads of ships were bought when the industry was caught short during the pandemic) and the impact of the Red Sea crisis. Speaking of which, Russia is benefiting from the Red Sea disruption as it’s seeing higher demand for rail freight between Asia and Europe.

IN EMPLOYMENT TRENDS…

• Japanese workers got their biggest pay rise since 1992 in the annual wage negotiations between companies and unions. This may put further pressure on the Bank of Japan to raise its interest rates out of negative territory!
• The pace of UK wage growth is slowing down, according to a recent report by REC-KPMG. In particular, the rate of growth for starting salaries has fallen to its slowest pace in almost three years. More food for thought for the Bank of England as it considers what it’s next move will be regarding interest rates…

• The US House of Representatives has approved a bill to ban TikTok from app stores unless it’s sold by its Chinese parent company, ByteDance. The Chinese aren’t best pleased, ex-US Treasury Secretary Steven Mnuchin is putting a consortium together to buy it but China is unlikely to approve the sale as it would breach its export control rules! If the US ends up banning it, it’s likely that other countries – including the UK – will think about doing the same thing.
• Reddit is seeking out a $6.5bn valuation from a flotation that could kick off at the end of this month. I think this thing’s a turkey as the whole area is having a nightmare at the moment, what with all the troubles at Vice Media and Buzzfeed. The cynic in me says that Reddit’s trying to get this IPO off the ground before its valuation falls. Obviously all those in the deal will pump this up to get the feelgood, but I just don’t think the fundamentals are there…
• Messaging app Telegram is now up to 900m monthly active users and nearing profitability. It’s still got a way to go to rival WhatsApp’s 1.8 BILLION monthly active users, but it’s going in the right direction.
• Reliance Industries said that it would buy out Paramount Global’s stake in Viacom18, a JV between the two companies, for over $500m. This looks like the latest “elegant exit” for Hollywood studios as Paramount, Disney, Warner Bros and Sony have all decided to scale back their ambitions in the country due to the massive gap between content production costs and low Indian user revenues.

IN BATTERY NEWS…

• CATL’s share price jumped by 14% on news that it would collaborate with Xiaomi and BAIC Motor on a new factory that will build advanced battery cells. It is thought that CATL will benefit from a new generation of massive production lines that would improve cost efficiencies and return on equity.

IN EV NEWS…

• The CEO of Mercedes-Benz appealed for Brussels to lower tariffs on Chinese EVs because he thinks that increased competition will be good for innovation. I would take this with a MASSIVE pinch of salt because over a third of Merc’s cars are sold in China, so it would seem to me that he is highly motivated to push the case for Chinese EV manufacturers! Also, Chinese carmakers Geely and SAIC own a roughly 20% stake in Mercedes-Benz…
• Porsche warned that its transition to electrification will take a toll on profits but the company said it was “laying the groundwork in 2024 for a flying start in 2025”. This could be achievable given the prospects of the new electric Macan, a Taycan facelift and a hybrid 911.
• Meanwhile, mobile phone maker Xiaomi did what Apple couldn’t – and produced its first EV just three years after it said it would enter the car-making business. It is said to have better acceleration than Tesla and Porsche EVs while one version of the vehicle has a range of up to 800km! Has Xiaomi found a niche for cars that are tech-led??
• BYD is experiencing headwinds in its overseas expansion thanks to the general cooling in demand for EVs, but it is also having quality issues. Its issues could of course get worse if governments start to slap extra tariffs on their cars to protect local manufacturers!
• Fisker is looking very dodgy at the moment and is preparing for a potential bankruptcy filing. It recently said that it might run out of cash this year and it issued a “going concern warning” only last month where there was “substantial doubt” about its ability to stay in business. Nasty. Investors are clearly assuming the worst as Fisker’s share price collapsed by 46% on this news!

• Metro Bank announced plans to cut 1,000 jobs and scale back its seven-days-a-week operating model in order to cut costs. Tough times…
• Asset manager Abrdn is trying to cut costs and drum up new revenue streams to mitigate the outflow of assets to rivals and low-margin passive funds. CEO Stephen Bird’s original aim was to cut costs and raise income by growing the wealth management business and selling more investments directly to customers. He is clearly failing miserably. I think his days are numbered…
• Hedge funds are threatening to pull investments from India due to new rules from the regulator that will force them to “out” their underlying investors. The new rules were probably designed to prevent further Hindenburg-like shorting attacks on Indian companies although the official line is that the Indian regulator just wants to “better understand the ultimate investors buying Indian stocks”.
• Bain & Co released a report which concluded that PE firms are sitting on a record €3tn pile of assets after making tons of acquisitions over the last few years. PE firms loaded up on assets for knock-down prices during the Covid years when money was cheap and they are now left wearing hefty portfolios that they can’t easily sell. The problem is that they’ve not been able to offload assets, which means that investors can’t get their money out. And because investors can’t get their money out, they are reluctant to put more money in.

IN COMMERCIAL PROPERY NEWS…

• There’s now more empty office space in New York than in London, according to data from CoStar, as working patterns continue to evolve. At the moment, 9.2% of London office space is now vacant (versus just over 5% pre-pandemic) whereas New York is now experiencing a rate of 14% (this was below 9% pre-pandemic) – and the gap is expected to get wider.
• That being said, credit rating agency Moody’s said that it will be leaving Canary Wharf and heading to the City after it did a review last summer. This just adds to the talk of the ongoing Canary Wharf “exodus” (HSBC and Clifford Chance are also high profile tenants who are heading that way as well). The office vacancy rate in Canary Wharf now stands at 16% – its highest level for years.

IN RESIDENTIAL PROPERTY NEWS…

• UK mortgage arrears rose 9.2% in 2023 over the last quarter, according to the latest Bank of England stats. Although the absolute level of arrears is pretty low, the rate at which they are rising is potentially a cause for concern.
• The latest RICS survey showed that UK estate agents are feeling at their most optimistic regarding the near-term growth in house prices since June 2022.
• Vistry has managed to weather the housebuilding storm by building homes for housing associations and big build-to-rent landlords. I do wonder, though, whether whether rivals will bounce back more strongly when the housing market improves, as it is expected to do.

• IN CHIP NEWS – a Singapore-based chipmaking start-up, called Silicon Box, is looking to invest €3.2bn in a chipmaking plant in Italy. It plans to produce chips for AI, EVs and high-performance computing. This is great news for Italy, but also for the EU as the bloc set a punchy target of doubling its semiconductor production capacity by 2030 to 20% of the global total versus the 10% in 2021. Elsewhere, Arm unveiled its first chip design to power self-driving cars in a move to reduce its reliance on smartphone processors. The company believes that there is a lot of room for growth in automotive.
• Apple has decided to bow to Brussels and allow iPhone apps to be downloaded directly from their developers’ websites for the first time from this spring. This is all about complying with the Digital Markets Act which will come into effect later this month. Meanwhile, Apple announced plans to open its eighth store in Shanghai in a central business district this month. Will this help to arrest the current slide of iPhone sales??
• Nintendo and Universal Pictures announced plans to release a sequel to last year’s successful Super Mario Bros’ movie. It is scheduled to be released in April 2026!
• The National Audit Office reckons that the government’s recently announced plans to use AI to cut costs in the Civil Service may be tricky due to the existing “ageing IT infrastructure”. It was never going to be a smooth ride now was it!?!

IN RETAIL…

• IN THE US – US retail sales bounced back, albeit by less than the market was expecting. This was good news after a slow beginning to the year. Food for thought in the Fed’s next meeting re what to do with interest rates. Meanwhile, Dollar Tree, owner of the Family Dollar chain, said that it would be shutting down almost 1,000 of its 16,700 outlets over the next few years as it recalibrates its offering. I wonder whether the company’s positioning itself for an upturn in the economy and its customers being able to buy more.
• IN APPAREL – Superdry is now in talks with Hilco about a new loan to help with its turnaround efforts. Its nightmare continues. Zara owner Inditex announced plans to spend €1.8bn to boost its logistics “muscle” and power sales growth. It reported a strong start to the current quarter and continues to outperform arch-rival H&M.
• John Lewis managed to drag itself back to profitability, but isn’t going to share the love with its workers as it’s not going to pay a bonus (again). The company decided to ditch targets in non-core areas and focus (at last!) on retail!
• Morrisons announced a £1bn loss for last year as debt payments related to its private equity takeover increased. It continues to lose ground to the German discounters and I think it is in dire need of a new and distinct identity otherwise its decline will be terminal.
• US activist hedge fund Elliott Advisers decided to give up on buying Currys after having two offers rejected. Currys is holding out for an offer from Chinese giant JD.com.

IN LEISURE…

• Cathay Pacific manage to post its first annual profit since the pandemic thanks to a rebound in travel demand. This is just the latest example of an airline benefitting from a rebound in international travel!

• IN PHARMACEUTICAL NEWS – AstraZeneca boosted its drugs pipeline with the $1bn acquisition of French rare diseases company Amolyt Pharma while Eli Lilly announced a deal with Amazon to deliver medicines in America. It was also interesting to see just how important Wegovy has been not just to Novo Nordisk – but to the entire Danish economy!
• Adidas announced its first loss in 30 years as the end of the Yeezy collab hit hard. The company does, however, expect things to get better this year.
• Lego reported its slowest growth for seven years but managed to outperform its rivals in what the CEO said was the worst toy market for 15 years.
• The CMA announced that it would launch an investigation into the veterinary market over concerns that consolidation over the last few years has led to pet-owners being fleeced by overpaying for medicines and prescriptions.
• Deliveroo announced better-than-expected results for 2023 and was quite upbeat about its prospects for this year. There is still, however, a cloud hanging over the company in the form of the never-ending debate over whether workers should be classed as employees or contractors!

My favourite video this week was the one with the amazingly athletic basketball referee! Incredible skills!!!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week where Trump wrapped things up, Hunt announced potentially his last Budget and Nationwide bought Virgin Money…

• IN THE US – Trump continued to gain momentum this week on the campaign trail to the White House and we took a look at the six US swing states that he’ll be fighting over with Biden to be re-elected as president. The long, dull and needlessly-drawn out election process continues…
• IN CHINA – an official GDP growth target of 5% for the year was announced but there are doubts as to whether China will be able to hit it because last year’s 5.2% GDP growth was powered by consumption and weak comparatives with the previous year. Weakening consumer confidence and the prospect of more sanctions could make 2024 more difficult. Officials announced a radical plan to stimulate demand in China’s sluggish economy whereby old vehicles, fridges and washing machines could be exchanged for new ones, but the announcement was light on detail. Official figures showed that last year’s trade was boosted significantly by by exports to Russia, which became China’s fifth biggest single-country trading partner last year. Meanwhile, we saw that China’s defence spending is going to increase by 7.2% this year although some experts reckon this could be up to 30-35% light because it doesn’t include a number of things that others include when posting such a number.
• IN EUROPE – the ECB talked about June as being the earliest one could expect an interest rate cut, after it lowered official forecasts for inflation. Meanwhile, eurosceptic far-right Rassemblement National (RN) leader Marine Le Pen kicked off her European election campaign. The party is currently doing very well and it is on the way to becoming the biggest French party in the European parliament!
• IN THE UK – chancellor Jeremy Hunt announced what could potentially be last ever Budget. Most of the stuff had been trailed in the lead-up by the overall impression was that it was unexciting. Meanwhile, Hunt decided not to extend the policy of allowing councils to keep 100% of the proceeds of council house sales that was due to come to an end this April. This was particularly painful for English councils who are already facing extreme difficulties with finances. On the plus side. the latest S&P Global/CIPS composite PMI showed that overall business activity had been on the rise for four months in a row, leading some observers to conclude that the UK has already dragged itself out of recession.

IN COMMODITIES NEWS…

• OPEC+ members decided to extend existing production cuts until the end of June (they had originally been due to expire in March) in order to bolster the oil price. This had been widely expected in the market. Meanwhile, iron ore prices continued to fall, as did pork prices – which have a major effect on China’s inflation, given that China is both the world’s biggest producer and consumer of pork.

IN ENERGY NEWS…

• The UK’s renewables sector got an unexpected boost this week as the government announced a £1bn annual subsidy for the next UK renewable energy auction. This is four times as much money as had been made available before. The government also announced that it had agreed to buy two sites intended for nuclear power plants from Hitachi in ongoing efforts to kick-start plans for a new generation of reactors.
• There was an interesting report published by the Climate Action against Disinformation group which says that AI is going to cause a spike in energy use and that companies need to be more transparent about Big Tech’s AI-related energy use. It also warned that AI could help spread disinformation about climate science.

IN CRYPTO TRENDS…

• Bticoin smashed through its previous $69k-ish high but Sam Altman’s Worldcoin ran into more resistance – this time in Spain. Worldcoin’s collection of biometric information in return for some obscure digital token is not sitting right with a number of governments and authorities around the world!

IN BUSINESS TRENDS NEWS…

• Washington is now pushing for more tech export restrictions to China among its allies. The Netherlands and Japan are already on board but South Korea is proving to be reticent on this. It seems that the US is getting increasingly paranoid about China’s progress in tech, but particularly in semiconductors.
• The share price performance of US defence companies is lagging that of their European counterparts but this may be due to a logjam at the moment in Congress as the 2024 defence budget has yet to be approved. This is worrying investors about the future government’s commitments. Lawmakers have until March 22nd to pass the 2024 defence budget.
• M&A is showing signs of a turnaround. Morgan Stanley, Goldman Sachs and Lazard are all talking about a potential rebound in activity and there seem to be plenty of decent companies knocking around in the UK with attractive valuations.
• The Red Sea situation continues to pose difficulties as underseas cables that take internet traffic between Europe and East Asia are proving to be very difficult to maintain and repair given the current Houthi attacks. Shipping services provider Clarkson is having no such problems at the moment, though – and it has even seen an increase in demand for its advisory services.
• Meanwhile, serviced office provider IWG continues to benefit from the hybrid work trend as demand for offices in locations outside big city centres continues to get stronger.

IN EMPLOYMENT TRENDS…

• UK wage expectations are losing momentum as a survey of 3,000 CFOs shows that there’s an expectation of a wage growth slowdown. Wage growth is a major worry for the Bank of England as it could potentially stoke inflation just as it’s now coming down.

REGARDING CHINESE EVs…

• Chinese EVs sell well because they’re cheap and good, according to the chief exec of battery materials maker Umicore. While US makers are reining in production, China continues to plough ahead to the extent that sales of EVs made up over a third of new vehicles sold in China in 2023 versus 28% in 2022 and BYD has overtaken Tesla as the world’s biggest EV manufacturer! Chinese manufacturers are able to churn vehicles out because they don’t have any production “baggage” and they have really been able to streamline the process of going from design to production. If legacy manufacturers don’t learn from their Chinese counterparts and the way that they get their vehicles to market so quickly, they will fall further and further behind. Chinese EVs are coming to Europe, according to shipbroking giant Clarksons, as manufacturers have even gone as far as buying their own carrier fleets! At the moment, Chinese makers have about a 10% market share of the UK EV market but they want to expand that aggressively.

REGARDING EVs IN GENERAL…

• Both Tesla and BYD cut prices this week as the price war continues.
• Tesla had to stop production at its German gigafactory following a suspected arson attack on the power grid. Tesla’s German woes continue…
• Rivian unveiled two new lower-priced EVs in an effort to stimulate sales.

REGARDING CAR SALES…

• UK car sales hit their highest February level in 20 years but the proportion of cars sold to individual buyers actually fell (fleets were the big buyers) as range anxiety and hefty sticker prices continue to put people off making the jump to electrification. It was also interesting to hear that prices for used cars are now stabilising and margins are returning to normal, according to the boss of car dealership Vertu Motors. That being said, he observed that the retail demand for battery EVs (BEVs) remained lacklustre, despite a high level of discounting.

IN BANKS NEWS…

• The IMF warned that there would be bank failures in the US as high interest rates and weakening commercial real estate prices are endangering the whole sector.
• Banks want a crackdown on Apple as it continues to pursue its interest in the financial sector. Banks say that Apple’s access to users’ spending data will give it unfair advantage.
• Monzo got its $5bn valuation as it attracted another $430m investment in its latest funding round.
• Nationwide put in an offer to buy Virgin Money in a deal worth £2.9bn. This is the UK’s biggest banking deal since the 2008 crisis and the enlarged company would be the UK’s second biggest bank in terms of mortgages and savings.

IN INSURANCE NEWS…

• The new boss of Legal & General decided to take action in response to falling profits at its investment management business. Bonuses were slashed and hiring is restricted for the moment until the CEO conducts a “thorough review of the business”.
• Aviva’s profits rose thanks to a boom in demand in the UK for private health insurance as NHS waiting lists get longer.

IN RETAIL…

• US retailer Target announced its first sales decline since 2016 but it will now be embarking on a refresh to turn things around. Investors liked what they heard in the plan and sent the share price up by 12% in response.
• JD.com unveiled Q4 results that came in above expectations and investors liked plans announced by the company to plough excess profit back into the company as well as the setting aside of a chunky amount for a share buyback programme.
• IN THE UK – data from a BDO report showed that retailers had been hit by the longest sales downturn since lockdown as shoppers cut spending for the fifth month in a row. Another report from BRC and KPMG also showed that retail sales were hit last month thanks to the rain and cost-of-living crisis. Some of Britain’s biggest retailers lobbied ministers about Shein’s alleged used of tax loopholes to dodge customs bills, pushing back on Hunt’s recent efforts to tempt Shein to list on the LSE. Meanwhile, M&S saw its grocery sales outpace those of Aldi and Lidl as the M&S recovery continues to gather pace. Data from research company NIQ showed that M&S was the fastest-growing traditional grocer over the last 12 weeks!

IN LEISRE/RESTAURANTS NEWS…

• Greggs put in a great performance as it announced record annual profits whilst overtaking McDonald’s as the UK’s most popular breakfast takeaway. It also dished up a tasty bonus as a thank you to its workers. I think it’s doing a great job, but I think that there’s even better growth to be had in railway stations and airports – something that SSP and WH Smith are already benefitting from!
• Starbucks has suffered from boycotts in its Middle Eastern franchises because of its stance on the Gaza war. The group that owns franchises in the region, Alshaya Group, said it would cut 4% of its workforce due to “difficult trading conditions”.

IN TECH NEWS…

• Apple was slapped with a €1.8bn fine for breaking EU law over streaming five years after Spotify made the original complaint, accusing Apple of anti-competitive behaviour. Apple is going to appeal the decision but it’s likely that there will more of this sort of thing to come from regulators who are keen to maintain some kind of control of Big Tech. Apple is also facing a probe from the EC over its decision to ban Epic Games from its App Store.
• 17 city governments in China are trying to help smaller AI start-ups by giving them “computing vouchers” that will help them with data centre costs. Giants like Alibaba, Tencent and ByteDance are hogging all the expensive GPUs and Chinese authorities want to ensure that the minnows in AI don’t get stifled by the big fish in the pond before they can mature!

IN MEDIA NEWS…

• Meta and Google are doing very well from Temu’s massive ad spend in its bid to crack America! Temu is Meta’s #1 advertiser and it’s also in Google’s top five! The question is whether this will work long term or whether it’ll go the same way as Wish did a few years ago and wither away…
• ITV announced plans for additional cost cuts as it completed a £150m cost savings plan a year ahead of schedule and still needs to cut costs further because ad spend is still poor.
• Hipgnosis slashed the value of its music portfolio by 26.3%. Investors continue to question the value of its song catalogue as Hipgnosis has seen its share price halve over the last two years.

• IN M&A NEWS – Mondi has, appropriately for a packaging company perhaps, made an all-paper offer for smaller rival DS Smith that would create a £10bn giant in the industry. This combo has long been debated and if it went ahead it would create Europe’s biggest manufacturer of corrugated cardboard for packaging and boxes. Meanwhile, Warner Music Group is thinking of spoiling the party by potentially tabling an offer to buy French digital music company Believe that would be higher than the one made by a couple of private equity firms. Warner is just going to do some due diligence before launching a proper offer but the PE bid is at €15 a share versus Warner’s offer which could be €17 a share.
• IN REAL ESTATE – Foxtons reckons that the rent boom (especially in London) is losing momentum due to a greater supply of properties and a cooling off of demand and the latest S&P Global/CIPS construction PMI shows that activity stabilised in February thanks to improved demand prompted by falling inflation and rising expectations of interest rate cuts. It’s not yet back to growth, but it is knocking on the door.
• Eli Lilly is racing to boost production capacity for its obesity drug Zepbound that will compete with Novo Nordisk’s blockbuster appetite suppressant Wegovy. This is a huge market and the company clearly wants to surf this wave!

My favourite video this week was the one about how to make your own house! I thought this was pretty amazing!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that bitcoin breached $60,000, China paranoia increased and Ocado and M&S got feisty…

• IN GLOBAL NEWS – the global tax deal put together by the OECD back in 2021 is looking precarious. Over 135 countries signed up to paying a minimum 15% corporate tax rate in this deal and the US is getting particularly wobbly about it. If the US doesn’t sign I would have thought that the whole thing will fall apart (or at least be rendered pretty useless).
• IN THE US – the core inflation number rose between December and January, which means that it is more likely that the first interest rate cut is likely to be delayed until the summer.
• IN EUROPE – inflation in the Eurozone’s two biggest economies (Germany and France) fell to its lowest level since the middle of 2021 but services prices remained strong, making it more difficult to discern when the ECB should start to cut rates. Also, Hungary backed down, allowing Sweden to join NATO.
• IN THE UK – a member of the MPC blamed stubbornly high inflation on rich people spending “disproportionately” on travel, eating out and entertainment. She’s got a point but asking these people to spend less money isn’t going to go well – so the only way to curb their enthusiasm would be to tax them, which isn’t going to go well either, especially when there’s an election coming this year. Meanwhile, chancellor Hunt is considering the ditching of “non-dom” tax status as part of efforts to fund pre-election tax cuts while English councils face tough times ahead in terms of funding – as an annual survey of English councils showed that 10% of them believe that they’ll go bust in the next 12 months if things continue as they are.

IN OIL NEWS…

• We see that, despite Joe Biden’s best efforts, oil and gas industry profits have tripled during his term in office! Despite this, the industry still wants the Republicans to win the next election as the oil and gas companies feel that they will be more supportive. It seems that the industry may not get affected by who is in office by as much as had previously been thought.
• Research by European energy consultancy Rystad shows that western Europe has mostly switched away from reliance on Russian oil and into oil from the US and Canada. Meanwhile, Russia has been increasing its supply to China and India who have been getting it at a discount.

IN ENERGY NEWS…

• It looks like asset managers are continuing to move away form green investments and it’s possible that this could slow down the energy transition as the companies won’t have as much access to cheap money as they had in the past.
• We saw that there’s a project going on at the moment where Britain is going to be linked to the Sahara via cables laid on the seabed with solar panels on the Morocco end and a substation on the UK end! It sounds like it should be inefficient (because of the distance the electricity has to travel!) but it will still be able to provide a sizeable amount of electricity.

IN CRYPTO NEWS…

• Bitcoin breached $60,000 for the first time in two years! Where will it stop? Not far to go now before it hits the $69,000-ish that it hit in 2021!

IN BUSINESS TRENDS NEWS…

• The Red Sea is still disrupting shipping. A report by the BCC said that over 37% of Britain’s exporters have been impacted by the ongoing disruption in the Red Sea via increased costs and delays.
• Joe Biden has now declared that Chinese EVs pose a security threat and has ordered an investigation into whether they can be used for spying (remember that the Chinese said this about Tesla cars not long ago and banned state employees from owning them). The EC is already looking into whether Chinese car manufacturers have been unfairly helped by the state and although tariffs could be imposed to level the playing field, European car manufacturers think that this may not be enough. Officials from the UK’s Department for Business and Trade are also thought to be on the verge of launching a similar investigation. As if to underline the danger, the municipal government of Shenzhen announced a raft of measures designed to facilitate car exports for Chinese manufacturers.
• UK SMEs are very concerned about high inflation and high energy bills, according to BDO’s “Economic Engine” survey. There are also concerns about funding options for business expansion.

IN CONSUMER TRENDS NEWS…