Friday 07/06/24

  1. In MACRO, MARKETS & CRYPTO NEWS, the ECB cuts rates, South Africa turmoil continues, UK growth forecasts are upgraded but issues persist, the LSE wants a screen, Shein’s IPO faces scepticism (as does the Texas stock exchange) and Robinhood buys Bitstamp
  2. In ENERGY NEWS, British energy faces hurdles and the US increases battery usage
  3. In BUSINESS & CONSUMER TRENDS NEWS, private equity warns of lower returns, construction expands, UK rental growth slows while wages and price growth are expected to lose momentum
  4. In MISCELLANEOUS NEWS, Mike Lynch is cleared and Big Tech gets investigated
  5. AND FINALLY, I bring you the most amazing cake I have ever seen…

1

MACRO, MARKETS & CRYPTO NEWS

So the ECB cuts rates, South Africa turmoil persists, UK forecasts get a boost, the LSE wants to shout more, Shein faces doubts, the Texas stock exchange faces scepticism and Robinhood goes deeper on crypto…

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Interest rate cut by ECB for first time in five years (The Times, Mehreen Khan) shows that the ECB cut interest rates yesterday by 0.25%, as expected, in response to falling inflation. They cut it from 4% to 3.75%. It sounds like there are still concerns about wage growth and how it could keep inflation at a higher level for quite a while longer. It expects that inflation will eventually hit the 2% target in 2026.

South Africa’s ANC seeks ‘government of national unity’ (Financial Times, Rob Rose) highlights the actions of the recently-weakened ANC as it said that it would invite other political parties to work together on forming a “government of national unity”. The ANC lost its parliamentary majority in the latest election, hence getting other parties together. Just to make things even more spicy, South Africa opposition group claims Russia is funding Jacob Zuma’s party (Financial Times, David Pilling and Rob Rose) shows that opposition party Democratic Alliance has alleged that former president Jacob Zuma’s uMkhonto weSizwe (MK) party – which was founded six months ago – is being bankrolled by the Russians, although it has no proof. It sounds like an absolute shambles. Let’s hope that things get better.

Back home, ‘There’s life in the UK economy’ as growth forecast upgraded (The Times, Mehreen Khan) cites the latest forecasts from the British Chambers of Commerce (BCC), which upped its year-end GDP forecasts from 0.5% to 0.8% and from 0.7% to 1% in 2025. It made the revisions after the economy had a stronger-than-expected Q1. * SO WHAT? * This growth rate is hardly stellar, but it is at least a step in the right direction. All eyes will be on the next government, though, and what plans they come up with to boost the economy.

Meanwhile, Labour woos homebuyers as the Tories pledge to help families (Financial Times, Jim Pickard, George Parker, Joshua Oliver and Akila Quinio) highlights initial skirmishes between the red team and the blue team in the battle to win the hearts, minds and votes of middle Britain. Labour will today proposed a government mortgage guarantee scheme aimed at getting 80,000 onto the housing ladder (aka “Freedom to Buy”). The Conservatives, on the other hand, will pledge to cut taxes for 700,000 families by around £1,500 a year by doubling to £120,000 the salary threshold at which child benefits can be withdrawn. I’m looking forward to seeing more in the coming manifestos.

English councils face £6.2bn funding ‘chasm’, sector warns (Financial Times, Jennifer Williams) highlights a worsening

problem that the incoming government is going to have to face – the £6.2bn funding gap over the next two years that English local authorities will be saddled with, according to the Local Government Association. Thus far, neither Labour nor the Conservatives have made any promises regarding any increase in council funding…

In markets news, London Stock Exchange plans to put listed stars on the big screen (The Times, Louisa Clarence-Smith) shows that the chief exec of the LSE wants to erect a massive screen outside the front of its HQ in Paternoster Square next to St Paul’s Cathedral. LSE’s CEO, Julia Hoggett, wants to have the screen to boost sentiment around the stock market and “celebrate the successes” of London-listed businesses. The NASDAQ has a seven-storey high billboard in Times Square, the NYSE hangs giant banners on its facade and new listings get to ring the opening bell while new listings in Hong Kong get to bang an opening gong! I think there’s enough space for something like this but I don’t know whether that would be the right place for it given that it’s off the main drag. I would have thought it would be better to do something like this in Canary Wharf…or maybe we could get a Paternoster Square Maypole and have Morris Dancers dancing around it 🤣

In IPO news, Fund managers give cool reception to prospect of Shein London IPO (Financial Times, Emma Dunkley, Mari Novik and Ivan Levingston) shows that fund managers don’t share the same enthusiasm for a blockbuster Shein flotation in London as politicians and the LSE do as there are lingering concerns about Shein’s alleged use of forced labour. That being said, everyone was in uproar with Boohoo and paying staff below minimum wage – and that didn’t deter anyone when retail was hot.

I thought that Activists need a better pitch than ditching London listings (Financial Times, Lex) was really interesting because it highlights a trend among activist investors to urge more UK companies to shift their primary listings from London to New York (or elsewhere). It argues that this move is not a cure-all and that although some measures suggest that equivalent companies stateside attract higher valuations, if you strip out the influence of tech giants like Meta and Amazon on the wider index, a big chunk of the valuation discount disappears. Also, did you know that 20 companies have listed in the US since 2014, excluding those that went for a SPAC-backed listing. Of these, eight have delisted and only three of them have a higher market cap than when they had their flotations. Given that the LSE is finally showing signs of life, is now the right time to venture across The Pond??

Following on from what I said yesterday, Texan stock exchange start-up draws sceptical industry response (Financial Times, Jennifer Hughes) highlights scepticism as to its prospects given that there are already 24 regulated US securities exchanges which all offer trading but only two of them – the NASDAQ and NYSE – dominate listings, despite many previous attempts by other bourses to break the duopoly. Texas is certainly up against it!

Then in crypto news, Robinhood Doubles Down on Crypto With Deal for Bitstamp (Wall Street Journal, Caitlin Ostroff) shows that Robinhood is deepening its crypto activities by buying crypto exchange Bitstamp despite warnings by the SEC that it will sue Robinhood over its digital assets business. * SO WHAT? * This will be Robinhood’s biggest acquisition thus far and would help it to service institutional crypto clients and broaden its crypto offering overseas as Bitstamp holds over 50 licenses and registrations worldwide. The deal is still subject to regulatory approval and is expected to close in the first half of next year.

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

ENERGY NEWS

British energy faces issues and the US increases battery storage…

Britain more reliant than ever on imported power to keep the lights on (Daily Telegraph, Jonathan Leake) shows that we’re going to be more dependent than ever on imported power this winter, according to the National Grid. The biggest supplier of electricity will be France. Adverse weather can dramatically cut output from wind and solar farms, which make up about 37% of our electricity. Despite this, the Electricity System Operator (ESO) says that Britain is highly unlikely to face power shortage thanks to imports of power via subsea cables (fun fact: National Grid has said that these cables prevented 23 potential blackouts in 2023!). Until we get our nuclear power programme sorted, this state of affairs is likely to persist for a few years yet. * SO WHAT? * We need to sort this power problem as a matter of urgency given increasing demands from the potentially broader take-up of EVs that need charging and AI, which needs power-hungry data centres to evolve. As I keep saying, though, I think that putting money into power storage tech is just as important as installing power generation infrastructure because improved storage will mean that we won’t NEED so many power generation plants as existing ones will be more efficient.

Britain ‘needs to triple pace of building offshore wind farms’ (The Times, Emma Powell) cites research by the Institute for Public Policy Research which shows that Britain needs to triple the rate at which it’s currently building offshore wind farms or it could risk missing its target of having 50 gigawatts of offshore wind capacity installed by the end of 2030. Another thing for the in-tray of the next government!

How the US battery boom is shifting the power mix (Financial Times, Amanda Chu) is a really interesting article that could be a sign of how things could develop over here as US developers are accelerating the use of battery storage that extend the limits of renewable power generation. Earlier this week, batteries delivered 2GW worth of power on to the Texas grid to meet the peak in evening demand and keep power levels more stable when solar power generation tails off as the sun goes down. In California, battery storage often supplies about 20% of power in the evening! According to the US Energy Information Administration, battery storage capacity is expected to almost double this year. * SO WHAT? * As I have said earlier, I believe that battery storage is at least AS important as power generation via renewable sources and that it will play an increasingly important role in ensuring that all-important reliability of supply. However, until battery storage systems are adopted more widely, rising demand will have to be met by fossil fuels.

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

BUSINESS & CONSUMER TRENDS NEWS

PE firms manage expectations and construction expands while UK rental growth, wages and price growth lose momentum…

Private equity bosses warn of lower returns (Financial Times, Ivan Levingston) shows that private equity firms are now trying to manage expectations by saying that lower returns are likely for the next few years as they try to sell out of assets they bought in the buying frenzy over the pandemic. In addition to being obliged to sell up in order to return cash to their own investors, they are also sitting on money that needs to be invested in new assets! * SO WHAT? * Hmm. I think that they are just managing expectations because they also bought a load of assets at fire sale prices while interest rates were low in the pandemic. Given the amount of assets that they have, I wonder whether they’ll swap assets with other private equity firms (with extra cash where needed) so they can all focus on different areas?

Back home, Construction expands at fastest pace in two years (The Times, Jack Barnett) cites the latest S&P Global PMI for the construction industry which shows that housebuilding returned to growth in May for the first time since the disastrous Liz Truss-Kwasi Kwarteng mini-budget. This was above expectations and heralded the third month in a row of progress. Developers are

clearly increasingly confident about getting buyers at the end of projects. This is more incremental good news for the UK economy.

There’s some good news for consumers in UK rental growth drops back in spite of strong demand from tenants (Financial Times, James Pickford) as the latest Zoopla stats imply that rental growth is slowing down to its lowest level in 30 months. That being said, there is still intense competition for each home – 15 per property – which is double the pre-pandemic average! Interestingly, Zoopla’s research director observed that rents have outpaced earnings by a meaningful amount for the last two and a half years and it seems that tenants have reached a point beyond which they just can’t pay. Again, more incremental good news for not only renters but the UK economy…

Then in UK wages and price growth expected to slow (The Times, Jack Barnett) we see that companies surveyed by the Bank of England said that they planned to boost pay by 4.1% on average (down from predictions of 4.6% in April) while prices charged are expected to increase by 3.8% in the coming year versus previous expectations of 4.2%. * SO WHAT? * This would suggest that companies are getting increasingly confident that inflationary pressures are losing steam. More pressure on the Bank of England to cut interest rates at some point this summer??

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

Mike Lynch is cleared and Big Tech faces another investigation…

In a quick scoot around some of today’s other interesting stories, Mike Lynch cleared on all charges over Autonomy deal in US fraud trial (The Times, Louisa Clarence-Smith and Katie Prescott) shows that the founder of Autonomy, one of the UK’s most successful tech companies that was bought by Hewlett Packard for $11bn in 2011, has been found not guilty of fraud by a Jury in San Francisco – thus avoiding a potential 20 year jail sentence. He has been accused of defrauding HP when he sold Autonomy

by manipulating accounts. Now all he has to do is concentrate on the implications of the civil trial he lost in the High Court in London which found that he had misled the market, auditors and HP about Autonomy’s state just before the sale.

In Microsoft, OpenAI and Nvidia investigated over monopoly laws (The Guardian, Dan Milmo) we see that the US Department of Justice and the Federal Trade Commission are going to investigate Microsoft, OpenAI and Nvidia for their roles in the AI industry and whether they have been anti-competitive. We’ll just have to wait and see how it goes!

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 have to say that this cake looks absolutely incredible! It’s amazing how creative people can be isn’t it!

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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)