Friday 03/05/24

  1. In MACRO, COMMODITIES & ENERGY NEWS, Turkey stops trade with Israel over Gaza, the OECD sticks the boot into the UK, Shell beats profit forecasts, Gazprom has its worst loss in decades, US cattle prices fall and Ørsted warns of the high price of renewables
  2. In TECH NEWS, Apple’s revenues fall, Chinese AI start-ups chase OpenAI and TikTok’s feistiness continues
  3. In M&A NEWS, Sony and Apollo make Paramount an all-cash offer, Nightcap considers a bid for Revolution Bars, Mayer Brown is to spin off its China business, Special Opportunities REIT looks to list in London and investors look to other ways to access IPOs
  4. In MISCELLANEOUS NEWS, Lloyd’s insurers count the cost of Baltimore, Maersk’s profit falls, Goldman Sachs removes the bonus cap, Peloton’s latest CEO exits and Novo Nordisk gets fat from weight-loss drugs
  5. AND FINALLY, I thought I’d bring you some holiday inspo😁…

1

MACRO, COMMODITIES & ENERGY NEWS

So Turkey supports Gaza, the OECD hits the UK, Shell booms, Gazprom doesn’t, US cattle prices fall and Orsted warns of the high cost of renewables…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

 

In Turkey halts trade with Israel over Gaza conflict (Financial Times, Adam Samson and James Shotter) we see that Turkey has announced that it has suspended trade with Israel in protest at the “humanitarian disaster” in Gaza as tensions between the two nations worsens. Ankara’s trade ministry said that trade will only resume when Israel “allows an uninterrupted and sufficient flow of humanitarian aid to Gaza”. President Erdogan has been increasing his criticism of Israel over the last few months, most recently calling PM Netanyahu the “butcher of Gaza”, as he has faced significant pressure domestically to intensify anti-Israel measures. It’s not clear yet whether other countries will do something similar but I guess the longer this goes on, the more likely this will be.

UK will be worst performer in G7 next year, OECD forecasts (The Guardian, Phillip Inman) highlights the Paris-based thinktank as being the latest big organisation to offer a damning assessment of the UK’s economic prospects (the IMF loves sticking the boot in as well). It justified its forecast downgrades for UK growth this year by pointing to high inflation rates and the ongoing effects of inflation. It says that the UK will be the worst performer in the G7 in 2025 while the US and Canada will be at the top of the leaderboard. It reckons that the Bank of England will delay the first interest rate cut until the autumn. On the flipside, the OECD is getting more optimistic about the prospects for the global economy and the Paris-based organisation expects a recovery in the Eurozone. I guess time will tell!

In the world of oil, Shell $7.7bn profits beat forecasts (The Times, Emma Powell) highlights the oil major’s Q1 profits outperformance versus market expectations thanks to a strong performance in oil trading and a recovery in refining margins. It then cheered investors further by announced a $3.5bn share buyback that will happen over the next three months (something that should support/put a floor under the share price). This is the seventh quarter in a row where the company has announced buybacks in the $3bn-$4bn range. What a contrast with Gazprom plunges to worst loss in decades as sales to Europe collapse (Financial Times, Max Seddon and Anastasia Stognei) which shows how sanctions have hurt the Russian energy giant. Until Russia invaded Ukraine, Europe was its main source of income. It has since had difficulties adapting to the “new normal” as European countries have been more successful than expected at finding alternative sources of gas. According to EU data, Russia accounted for 40% of Europe’s gas imports in 2021 (pre-invasion) but in 2023, this dropped to 8%. Gazprom has managed to offset some of the loss in gas sales by decent sales of oil but it’s still in shortfall.

Then in US cattle prices drop as traders fear bird flu outbreak could knock demand (Financial Times, Susannah Savage) we see that cattle prices have been falling as the US government scrambles to limit the spread of a bird flu outbreak among America’s herd. Bird flu has been found in dairy herds in nine states, with one dairy worked testing positive in Texas. 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. Last week, Colombia banned the import of beef products from some US states in response to current events. Will others follow?

Meanwhile, in energy news, Ørsted boss warns on high prices for renewable energy (Financial Times, Rachel Millard and Malcolm Moore) shows that the boss of Ørsted believes that high interest rates will keep costs of renewable energy high, although things seem to be improving after the wind developer’s nightmare 2023. Energy consultancy Wood Mackenzie said in a recent report that a 2% increase in US interest rates could push up the overall cost of a renewable energy project by a whopping 20%! This perhaps explains why it abandoned two major US projects last year. Renewable energy is great but it quite literally comes at a (high) cost!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

2

TECH NEWS

Apple’s revenues drop, Chinese start-ups race towards AI supremacy and TikTok soldiers on…

In Apple’s revenue falls less than feared despite rocky start to the year (Financial Times, Michael Acton) we see that Apple’s share price went up after its quarterly revenues fell by less than the market had expected and spoke of its positive outlook for the year. Sales of its iPhone were down 10% from the previous year and China sales were particularly weak but its services business – which includes the App Store, Apple TV and Apple Pay – saw a revenue increase of 14% to a new record! Analysts are hoping that new gadgetry with new features (particularly in AI) will boost sales later in the year (a new iPad is due out in May, for instance). The company also announced a massive $110bn share buyback, which was bigger than expected. AI iPhones could liven up Apple sales (Financial Times, Lex) is positive about the effect that an iPhone with generative AI capabilities would have if it came along. * SO WHAT? * I’m not sure what an AI-enabled iPhone would be capable of but I am sure that it will prompt renewed interest in a mature segment. Maybe we’ll see more at the WWDC in June…

Meanwhile, Four start-ups lead China’s race to match OpenAI’s ChatGPT (Financial Times, Eleanor Olcott) shows that Zhipu AI, Moonshot AI, MiniMax and 01.ai are leading the pack of over 260 companies trying to repeat the success of US rivals such as OpenAI and Anthropic. Each of these companies has been valued at between $1.2bn and $2.5bn in the last three months and they are fighting with each other to access the best talent. Zhipu, Moonshot and 01.ai have developed chatbots that focus on office workers and students. * SO WHAT? * As things stand currently, there isn’t yet a clear leader or “killer app” in China and it’s difficult at the moment to differentiate between the providers, but the Chinese are definitely on it!!! If you have access to the FT, you should definitely read the full version as it is a very interesting read on the current Chinese players!

TikTok is having an eventful time at the moment! Universal Music ends boycott of TikTok with new licensing deal (Financial Times, Daniel Thomas) shows that the the two sides have agreed to a new licensing deal, ending the boycott of TikTok which started in January. This means that that music from some of the world’s top artists has been returning to the platform. The new deal includes new promotional and commercial agreements and “industry-leading protections” over the use of generative AI. The financial terms of the deal have not been disclosed. Meanwhile, TikTok ban will accelerate the ‘splinternet’ (Financial Times, Lex) takes a look at the threat facing TikTok as it faces a US ban if owner ByteDance doesn’t sell it by early 2025. It reminds us of China’s Kunlun Tech being forced to sell dating app Grindr to San Vicente Acquisition after the US regulators deemed it to be a security risk – but of course TikTok is on a whole new level in terms of size! The article also makes the interesting observation that the internet is getting increasingly fragmented due to concerns about data privacy and security. In 2016, Russia blocked access to LinkedIn, India banned TikTok in 2020 and this year China banned WhatsApp. Then in TikTok Tells Advertisers It Won’t Back Down as U.S. Ban Looms (Wall Street Journal, Katie Deighton) we see that TikTok remains defiant as it told hundreds of ad execs at a presentation yesterday that it would fight the potential ban of its app in court. * SO WHAT? * The overarching conclusion here is that although it would be a pain for ad buyers not to have TikTok available, the fact of the matter is that they spread their ad spend relatively evenly among digital platforms such as Instagram Reels and YouTube shorts so if TikTok did disappear it wouldn’t be a disaster.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

3

M&A NEWS

Sony and Apollo team up for a Paramount bid, Nightcap considers saving Revolution, Mayer Brown looks to separate its China business, a REIT considers a London listing and investors look at other ways to invest in IPOs…

In M&A news, Sony, Apollo Make $26 Billion All-Cash Offer for Paramount (Wall Street Journal, Jessica Toonkel and Miriam Gottfried) shows that the media/tech giant and PE firm are poised to spoil the party in the pursuit of Paramount Global. The all-cash offer is a starting point and is non-binding and would wrest initiative away from Skydance Media which has been in exclusive talks with Paramount – an arrangement that ends today! Paramount shares closed up by 13% in trading yesterday as investors got excited about a bidding war.

Back home, Nightcap considers deal for struggling rival Revolution Bars (The Times, Jessica Newman) shows that the bar operator that owns the Blame Gloria and Barrio Familia brands is having exploratory talks about a potential takeover of the troubled hospitality group which owns 58 bars and 22 gastro pubs. Nightcap currently has a portfolio of 46 bars in the UK. All options are being considered at the moment including a whole or partial sale. Talks are at the very early stages at the moment though. Danish nightclub operator Rekom has also expressed an interest in Revolution Bars.

Although not a merger or acquisition (more of a “sort of” disposal), City law firm to spin off Chinese arm amid growing tensions with the West (Daily Telegraph, Adam Mawardi) shows that City law firm Mayer Brown is looking to split out its China operations, the latest professional services firm to do so as US-China tensions continue. The firm will hive off its Hong Kong, Shanghai and Beijing offices from its global network and be

rebranded as Johnson, Stokes and Master – the name it had before it merged with Chicago-based Mayer Brown in 2008. Dentons, Latham & Watkins, Winston & Strawn and Linklaters are among the law firms that have either separated out, slimmed down or shut down their operations in China. This just seems to be the cost of doing business there these days!

Back in the UK, Property trust pursues £500m London listing in rare boost for the City (Daily Telegraph, Hannah Boland) shows that newly-established real estate investment trust Special Opportunities REIT is considering a London flotation in June, in a rare bit of good news for the London Stock Exchange. * SO WHAT? * This will be the first property trust to list on the London market since October 2021 and would be the biggest float by a REIT in over a decade! Special Opportunities REIT wants to use the funds to snap up real estate assets such as logistics facilities and data centres.

I thought it was worth mentioning IPOs: more than one way to cook an egg (Financial Times, Lex) because although everyone has been voicing concerns about the lack of flotations in the London market, investors have other ways that they can participate in IPOs generally (although not all IPOs are a roaring success – last year over half of the US IPOs saw their share prices fall on the first day!). The previously well-trodden path of your typical IPO would be company comes to market, it’s priced at a 20% discount to peer valuations, investors get a “bargain” and the advisers on the deal get a fat fee for their troubles. Everyone wins. Nowadays, it’s not quite so easy and performances can vary wildly. In order to spread the risk investors can buy into IPO-focused ETFs like the First Trust IPOX Europe equity opportunities ETF or if they are OK with more risk, then they can go for UK-listed investment trusts like Chrysalis Investments and Augentium Fintech which focus on potential IPO candidates.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

4

MISCELLANEOUS NEWS

Lloyd’s counts the cost of Baltimore, Maersk sees profits dented, Goldman ditches the bonus cap, Peloton’s boss leaves and Novo Nordisk just keeps on going…

In a quick scoot around some of today’s other interesting stories, Lloyd’s insurers acknowledge losses from Baltimore bridge crash (The Times, Ben Martin) shows that two of the biggest participants in the Lloyd’s of London insurance market – Hiscox and Lancashire – have said hat they are going to take hits from the disaster although the latter insurer said that the impact “will be within expectations of this type of event”. The whole industry is continuing to count the costs of the collapse of the Francis Scott Key Bridge. 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.

Staying with the marine theme, Maersk profits sink as Houthi Red Sea attacks take toll (The Times, Robert Lea) shows that profits at AP Moller-Maersk dropped considerably thanks to the disruption of the Houthi attacks in the Red Sea. That being said, the company reckons that losses for the year will actually be better than previously guided as volumes have been trending above expectations. Still, Maersk doesn’t see any imminent end to the disruption.

Elsewhere, Goldman Sachs to scrap cap on bonuses for hundreds of UK staff (The Guardian, Kalyeena Makortoff) highlights Goldman’s scrapping of the bonus cap that will allow its top performers to earn up to 25 times their annual salary! This came months after UK regulators confirmed that they’d be scrapping the cap that had been imposed by EU rules. Unsurprisingly, other banks are planning to go down the same road. Interestingly, this change won’t apply to the company’s EU-based bankers. * SO WHAT? * Although commentators love to jump on this (because people hate bankers 😼 who get paid massive amounts of money!), the fact of the matter is that, from an employers’ point of

view, having a greater proportion of employee remuneration as being variable gives them more flexibility to pay more in the good times and cut costs drastically in the bad. I would have thought that there is going to be an influx of European bankers as a result of this! Everyone’s going to have to follow suit as well as you wouldn’t want to be the only investment bank in town with a salary cap!

In Peloton chief Barry McCarthy steps down (Financial Times, Alexandra White) we see that Peloton chief exec Barry McCarthy is stepping down as the company launches its latest restructuring plan that involves cutting 15% of the workforce. McCarthy was ex-Netflix and Spotify and was brought in in 2022 to take over from former chief and founder John Foley in 2022. * SO WHAT? * Peloton has never reached its pandemic-era highs and I would reiterate that I think 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). This way it could leverage its online classes (and perhaps some of its “hardware”) and take advantage of a “sugar daddy” that will give it access to a better balance sheet. If it doesn’t find a partner I really think that the company will disappear into obscurity. Recurring revenues in the form of subscriptions are great – but you’ve got to hang on to the audience!

Meanwhile, Growing demand for weight-loss drugs fattens Novo Nordisk profits (The Times, Tom Howard) shows that Novo Nordisk reckons that its profits this year will be better than it (and the market) had initially thought as its weight-loss jab Wegovy continues to go from strength to strength. * SO WHAT? * Novo Nordisk has become Europe’s most valuable company thanks to its development of the drug semaglutide. This drug now accounts for 75% of Novo’s annual sales and trades under the name Ozempic for diabetes and Wegovy for weight loss. This remains a massive market! Will others catch up??

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

5

...AND FINALLY...

…in other news…

I know we’re just in spring at the moment but looking a bit further ahead I thought you might like some holiday inspo for if you find any water slides 😁! This guy is pretty phenomenal!

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)