Friday 15/12/23

  1. In MACRO & OIL NEWS, the Bank of England and ECB take the edge of market excitement, the EU fails to agree Ukraine funding, OPEC+ hits a new low in market share and the OECD says hitting net zero will cost trillions
  2. In CONSUMER & RETAIL NEWS, UK consumer confidence reaches a 3-month high, Christmas dinner’s going to cost more, Currys recovers and Shein is accused of using mafia-style tactics
  3. In CARS & TRANSPORT-RELATED NEWS, GM’s Cruise sees big layoffs, Tesla seeks a Nordic expert and Trainline can rest easy
  4. In MISCELLANEOUS NEWS, Vivendi looks to split, Spotify succeeds and we ponder further on Axel Springer’s AI experiment
  5. AND FINALLY, I bring you some important Christmas beverage information…

1

MACRO & OIL NEWS

So the Bank of England and ECB leaves rates unchanged, the EU continues to dither over Ukraine, OPEC+ loses its power and the OECD says net zero will cost loads (amazing insight 🤣)…

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BoE and ECB spoil market rally triggered by Fed rate cut forecast (Financial Times, Sam Fleming, Mary McDougall, George Steer, Martin Arnold and Jennifer Hughes) shows that the feelgood that investors got from Jay Powell at the Fed saying that rate cuts were going to start next year has had cold water poured on it by the ECB and Bank of England who said that the battle on inflation wasn’t over yet. The ECB held steady at 4% and the Bank of England kept the interest rate unchanged at 5.25% while the Fed

kept rates in the 5.25%-5.5% range. Having increased rates too late, will the central banks make the classic mistake of cutting them too late as well??

Meanwhile, EU fails to agree €50bn Ukraine funding package (Financial Times, Henry Foy, Paola Tamma, Andy Bounds and Alice Hancock) shows that the EU has failed to agree on Ukraine as Hungary’s PM Orbán vetoed the proposal. * SO WHAT? * European wobbles have been reflected across the Atlantic where funding proposals are having trouble passing through Congress. I suspect this is more about “aggrieved parties” using the Ukraine funding as leverage to get money (or in America’s case, to damage Biden’s reputation ahead of the presidential election next year) rather than genuine wobbles about Ukraine (although there may be a bit of that as well). Hungary’s Orbán is the Kremlin’s closest ally in Europe and he has used his power to stop the funding that all the other 26 members of the EU agreed upon!

Then in oil, Opec+ now controls barely half of oil market, says IEA (Financial Times, Ian Johnston and David Sheppard) cites research from the International Energy Agency (IEA) which shows that OPEC+’s market share in oil is now 51% as demand growth has slowed down and US output has increased. This 51% figure is the lowest since the expanded cartel was formed in 2016! * SO WHAT? * This potentially means that output cuts or increases will have less and less effect on the oil price – at the moment, oil prices have hovered below $75 a barrel despite OPEC+ production cuts – AND THERE ARE WARS GOING ON! If you combine more production from non-OPEC+ countries (e.g. the US, Guyana and Brazil) and slowing demand from Europe, the Middle East and Russia it doesn’t look like there will be a big spike in oil prices any time soon.

Then in Net zero threatens to cost global economy trillions, OECD says (Daily Telegraph, Tim Wallace and Jonathan Leake) we see that the geniuses at the OECD have said that net zero will leave Britain’s economy £60bn smaller and cost the world collectively up to $3.6tn due to the cost of eliminating coal and drastically reducing the use of oil and gas. Net zero will limit economic growth due to countries having to spend a great deal of money converting to cleaner tech and new infrastructure. Countries with the greatest reliance on fossil fuels or the largest oil and gas industries – e.g. China, India, Brazil Russia and other emerging markets – will obviously suffer the biggest economic hit. One thing to remember during all this is that although coal is the dirtiest of fossil fuels (it produces the highest CO2 and air pollutants) it is also the cheapest way to satisfy energy demand.

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

CONSUMER & RETAIL NEWS

UK consumer confidence rises, Christmas dinner will cost more, Currys recovers and Shein uses controversial tactics…

UK consumer confidence rises to 3-month high (Financial Times, Valentina Romei) cites GfK’s latest consumer confidence survey which showed a mini-boost in confidence, which would suggest that households may be more inclined to spend this Christmas! Generally speaking, higher prices and borrowing costs have restricted household spending power but as wage rises have accelerated and mortgage rates have calmed down, it seems that there are signs that confidence may be making a tentative return. That said, Christmas dinner could cost UK families 13% more this year (The Guardian, Sarah Butler) shows that Christmas dinner could be more expensive than it was last year thanks to higher energy bills and less-than optimal conditions for growing veg, according to the Good Housekeeping magazine’s Cost of Christmas Dinner survey. This rise is almost triple the rate of inflation which currently stands at 4.7%! Maybe the increased consumer confidence will win out and people will splash out on food at least.

Then in retailer news, Currys back in recovery mode after seeing off Nordic troubles (The Times, Isabella Fish) shows that Britain’s biggest electrical retailer cheered investors yesterday when it said that its Nordics business, which accounts for about 40% of overall revenues, is now in recovery mode and reiterated full year guidance. It said that profitability in the region had returned despite pressures on consumer budgets and heavy competition as it is executing measures that will result in over £25m of permanent cost savings. It sounds like things are going in the right direction!

Meanwhile, Shein fashion accused of ‘mafia-style’ tactics (Daily Telegraph, Matthew Field) shows that the Chinese fast fashion giant has been accused of using strong-arm tactics to intimidate suppliers including locking them in offices and taking their phones, according to a US lawsuit. Temu has accused Shein of using such tactics to gain an advantage. * SO WHAT? * For all the impressive expansion and bewilderingly efficient business models, the fact of the matter is that Shein always seems to sail close to the wind when it concerns morals, business methods and intellectual property. It will no doubt have a stellar IPO valuation but I think there are major litigation risks to take into account here…

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

CARS & TRANSPORT-RELATED NEWS

GM sacks more Cruise-rs, Tesla seeks expertise and Trainline can rest easy…

The bad news continues for American car makers. GM’s Cruise Unit Is Laying Off 24% of Workforce (Wall Street Journal, Meghan Bobrowsky and Alyssa Lukpat) shows that GM’s autonomous car division Cruise announced yesterday that it was cutting almost a quarter of its employees as the effects of its recent high profile failure continue to make themselves felt. * SO WHAT? * What an absolute mess this is turning out to be. It is now concentrating on getting the product right in just one city (as opposed to three with a view for a dozen more until that incident in October) but surely this is the last hurrah. As I keep saying I think GM should get rid. Shutting down now would no doubt be very expensive, so if it manages to get the product right in one city and they streamline operations they may still be able to salvage some value (if they can afford to throw more cash into the driverless money pit for a while longer).

Then in Wanted: Nordic expert to help Elon Musk defuse Tesla union row (Financial Times, Peter Campbell and Richard Milne) we see that Tesla is looking to hire a government affairs specialist in Sweden to untangle the unholy mess that it is finding itself in as the strike in Sweden continues to spread across the Nordic region!

* SO WHAT? * Surely this is too little too late. As I’ve said before, I think Tesla’s going to either have to pull out of Sweden (it’s only Tesla’s fifth largest market in Europe but the Nordic region accounts for more cars than any single European country) or give in to union demands (which will no doubt mobilise Tesla workers in other regions). A very sticky situation indeed.

And in transportation-related news, Harper cancels ‘Great British Railway’ ticket app (Daily Telegraph, Luke Barr) shows that Mark Harper, the transport secretary, announced that plans to make a government-backed ticketing app have now been abandoned. The original idea, backed by previous transport secretary Grant Shapps just two years ago, was that there would be a centralised website and smartphone app that would, among other things, make it easier to claim refunds etc. The priority now is for the government to liaise more effectively with the private sector on this. * SO WHAT? * Well I’m sure that Trainline will be relieved as a national app would have been a proper threat to its UK business (if it worked!). When the launch was originally announced, it prompted a 34% share price drop but I think scepticism about the effectiveness of such an app increased over time to the extent that when the news about this latest development broke yesterday, Trainline only saw a 2.9% rise in its share price!

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

Vivendi looks at a break-up, Spotify moves forward and we reflect further on Axel Springer’s AI experiment…

In a quick scoot around some of today’s other interesting stories, Billionaire plots break-up of Canal+ media empire (Daily Telegraph, James Warrington) shows that Vincent Bolloré is looking at breaking up Vivendi in order to shake off its “conglomerate discount” (where investors don’t buy into it because it’s too big and unwieldy) and unlock value in its constituent parts. He is thinking about splitting it into three divisions – film and TV division Canal+, ad and PR company Havas and an investment division based on publisher Lagardère – and listing each one separately on the stock exchange. Investors applauded the idea, sending the share price up by up to 10% and Vivendi: break-up would reward Bollore family with rule of three (Financial Times, Lex) was also largely supportive on a sum-of-the-parts basis, whilst also mentioning that there may be some operational niggles such as how to divvy up its considerable €1.9bn cash pile. * SO WHAT? * Doing a break up like this can often unlock considerable value as the “investment story” is clearer and more identifiable. Although the idea of a conglomerate is often said to be that earnings can be more stable as different businesses contribute at different stages of the economic cycle, from an investment point of view a simpler structure with a clearer story is much easier to get behind.

How Spotify won its streaming war but lost a quarter of its staff (Financial Times, Anna Nicolaou) is a really good article that charts the progress of Spotify over the years, taking us to the present time just after it made its latest headcount reduction (it’s fired about 25% of its staff this year). It looks like the company, after brief flirtation with podcast glory, is going to revert to more mundane activities including cutting costs, raising prices and withdrawing from unprofitable regions. Some say that the recent cost cuts could equate to as much as €300m next year – not a sum to be sniffed at!

Then in a follow-up to one of yesterday’s stories, Media/tech: AI experiments will not rebalance one-sided relationship (Financial Times, Lex) makes some interesting points – that the deal with OpenAI is a temporary fix to a long-term problem (something I mentioned yesterday) and that experiments with AI have not been very successful thus far. AI generated content has been criticised for being boring and sometimes incorrect. Meanwhile, the deal may make OpenAI look more responsible – but this may not be a deal that runs into perpetuity. Something similar happened fairly recently when social media companies like Meta and Google were accused of spreading false information. They reacted by signing deals with news publishers that subsequently lapsed. At the end of the day, AI-generated content can be compelling for many reasons but it could spell the end of quality journalism in the long term if allowed to develop unchecked…

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…

‘Tis the season for gingerbread lattes etc. so I thought that this might be of interest: True amount of caffeine in popular festive drinks – with one equating to the same as six cups of coffee (The Mirror, Niamh Kirk). Merry Christmas and a happy New Year to you all! Thank you for supporting Watson’s Daily in 2023 🙏. I hope that it helped you! There’s some cool stuff to come in 2024 👍

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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)