Friday 17/05/24

  1. In MACRO, MARKETS, COMMODITIES & CRYPTO NEWS, we look at the implications of the Putin/Xi meeting, Japan’s GDP contracts faster than expected, Dutch government looks set to cause ructions with Brussels, Sunak hopes for a miracle, the Dow hits a new high, there’s more oil consolidation, Chevron pulls out of the North Sea, Copper looks vulnerable and the CME considers bitcoin trading
  2. In RETAIL, CONSUMER GOODS & LEISURE NEWS, Walmart sees sales growth, JD.com beats estimates, Shein turns to London, Watches of Switzerland bets on US growth, Under Armour wobbles, Premier Foods booms and EasyJet is positive
  3. In TMT NEWS, Microsoft offers relocation, Meta’s under EU pressure, Sony warns global tech, TikTok takes an interesting turn, Reddit surges and BT wrong-foots the naysayers
  4. In MISCELLANEOUS NEWS, fixed-rate mortgages costs fall and Love Islanders are charged
  5. AND FINALLY, I bring you an amazing table tennis rally and a song that I just can’t get out of my head…

1

MACRO, MARKETS, COMMODITIES & CRYPTO NEWS

So we look at the implications of the Putin/Xi meeting, Japan disappointment, trickiness in the Netherlands, the Sunak miracle, the Dow hitting new highs, consolidation and exit in oil, a copper wobble and bitcoin developments…

Hello everyone! I just wanted to say that I will NOT be publishing Watson’s Daily next week because I am currently in the midst of what will be the biggest overhaul of Watson’s Daily for many years. This has been coming for a while but was slowed down recently by my office getting burgled. Anyway, I am going to be building a library of extra materials and need the time to write and film it whilst also formulating new social media content. I will be publishing Watson’s Weekly as normal this weekend and Watson’s Daily will return on Tuesday 28th May. You may not see the changes instantly, but I shall let you know when the big “switch-over” takes place. I think you will love what’s to come!

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 Vladimir Putin and Xi Jinping vow to co-operate against ‘destructive and hostile’ US (Financial Times, Joe Leahy, Max Seddon and Demetri Sevastopulo) we see that the two leaders vowed to work together against “destructive and hostile” US pressure and to bolster their existing ties. There will be two days of meetings between the two and China clearly ignored US Secretary of State Antony Blinken’s waring last month to ditch its support for Russia’s war in Ukraine. The era of globalisation is about to come screeching to a halt (Daily Telegraph, Ben Marlow) observes that such developments highlight the widening chasm between the two Communist countries and the West, potentially bringing an end to an era where China became the workshop of the world. It could lead to the hastening of a corporate exodus from China and the writer suggests that employees of tech companies will leave first, followed by bankers, accountants and then, probably reluctantly, manufacturers. If they don’t leave willingly, it’s possible that the US government could force them out. * SO WHAT? * I have talked about this in the past and it seems to me that although it will be impossible to cut China out completely, that is the way that things are going. The fact that Trump and Biden continue to try to outdo each other in how hardline they can be on China does not bode well for the next few years either. In the meantime, everyone is trying to pivot towards the Middle East and I believe that this region is going to be a growth engine for quite some time to come. However, given the cultural differences, I can quite easily imagine that Saudi Arabia, for instance, could become the next China in that at some point in the future, after everyone has been making money there, the country could start to impose itself on the world and companies will be forced to withdraw from there as well…

On the flipside, Xi Jinping urged to respond with caution to Joe Biden’s trade tariffs (Financial Times, Edward White and Ryan McMorrow) shows that China trade experts want Xi Jinping to temper his response to Biden’s recently-announced $18bn-worth of tariffs on Chinese imports and not escalate the trade war. * SO WHAT? * Xi could really call Biden’s bluff if he wanted to as he could limit or stop access to all manner of resources, materials and technologies that are key to the US economy. However, it may well be that Xi leans into domestic expectations for him to retaliate. It’s possible that he could reduce/curtail the supply of materials like tungsten (used in the defence, car and aerospace industries), rare earths (used in magnets, semiconductors, batteries and lasers) and vanadium (used in military, industrial and nuclear energy applications). He could also look at currency devaluation, disrupt M&A and/or cut corporate access to Chinese markets.

Elsewhere, Japanese economy contracts faster than expected (The Times, Jack Barnett) shows that the GDP of the world’s third

biggest economy contracted much quicker than market expectations in Q1 as people reined in spending while companies reined in investment. Japan’s GDP contracted by 0.5% in Q1 versus the previous quarter which, on an annualised basis, means that the economy contracted further as output fell by 2%. Hopes that Japan had at last been able to pull itself out of decades of deflation appear to have been over-ambitious for the moment at least…

In Europe, Dutch far right-led government set for clashes with Brussels (Financial Times, Andy Bounds) shows that the new coalition government in the Netherlands looks set to clash with Brussels on migration, energy and climate policies. Populist Freedom party (PVV) of Geert Wilders has spent the last six months trying to cobble together a coalition but managed to get close enough to unity to announce a programme of policies yesterday that will include things like curtailing its compliance with the EU Green Deal, limiting the access of international students and workers from outside the EU, opting out of European asylum and migration policies (although this is practically impossible) and cutting projected contributions to the EU budget. This is going to get interesting!

Then in A sudden British boom could hand Sunak the election (Daily Telegraph, Julian Jessop) we see what appears to be some kind of misty-eyed love letter to the government contending how last week’s news of 0.6% growth in GDP over Q1 could be its saviour. While I find it difficult to believe that Sunak can survive another term, the article does line up some reasons to be positive about the UK – that businesses are getting more positive, inflation is heading towards the 2% target, personal finances are improving, consumer confidence is recovering, poorer households are benefiting from an upgrade in state benefits and from falling household bills and food price inflation is calming down.

Meanwhile, in Dow Jones passes 40,000 points for first time amid strong quarterly results (The Guardian, Dominic Rushe) we see that the US index broke the 40,000 barrier during trading yesterday following strong quarterly results performance from US companies and speculation on rate cut timings for the Fed following Wednesday’s announcement of a further slowdown in inflation. * SO WHAT? * The Dow has more than doubled since the spring of 2020 and yesterday’s performance just reflects the strength of the US economy. Despite this, consumer confidence remains stubbornly downbeat – something that Biden will try to address and Trump will try to play on in the run-up to the elections later in the year.

In commodities news, Crescent Energy to Acquire SilverBow in $2.1B Deal (Wall Street Journal, Dean Seal) highlights the latest bit of consolidation in the industry that will create the second biggest operator in the Eagle Ford Shale, subject to shareholder and regulatory approval while US oil giant quits North Sea as Hunt refuses to scrap tax (Daily Telegraph, Jonathan Leake) shows that US oil giant Chevron announced that it would quit the North Sea following a review of global operations. * SO WHAT? * Global oil companies have been objecting to the government’s windfall tax on the oil industry and although Chevron said that the government’s refusal to give in to these demands didn’t influence its opinion, it surely must have been a factor! No doubt those who are left will use Chevron’s departure as an example of what could happen if the government continues to dig its heels in.

Then in Copper’s machine-led rally looks set to falter (Financial Times, Lex) we see that copper prices, which have risen by over 26% on the LME so far this year, could be vulnerable as global demand for copper is exceeding supply. It argues that strength in copper prices could be powered more by hype than by fundamentals (copper is the red metal most associated with green policies) and that speculative buying could fade unless there is a collapse in supply.

Meanwhile, in crypto, Futures exchange CME plans to launch bitcoin trading (Financial Times, Philip Stafford) shows that the world’s biggest futures exchange is planning to launch bitcoin trading and jump on the crypto bandwagon. Plans have yet to be finalised but I suspect that it wants to capture some of the crypto stardust that has revitalised the ETF sector! Watch this space!

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

RETAIL, CONSUMER GOODS & LEISURE NEWS

Walmart puts in a solid performance, JD.com beat estimates, Shein turns to London, Watches of Switzerland bets on the US, Under Armour cuts jobs, Premier Foods’ profits jump and EasyJet has high hopes …

Walmart Posts Sales Growth, Raises Earnings Outlook for the Year (Wall Street Journal, Sarah Nassauer) highlights Walmart’s strong quarterly sales performance but although footfall was higher, the spend per customer was flat versus the same period last year. It was also heartening to note that the retailer is increasing market share among higher income households (> $100,000 a year), particularly in groceries, and it raised its sales and profit expectations for the full year. A solid performance!

Among Chinese online retailers, JD.com Beat Estimates With Higher Profit, Sales (Wall Street Journal, Tracy Qu) shows that the e-tailer announced quarterly profits coming in above market expectations thanks to its core business performing well despite tight competition from rivals such as Alibaba. It said that its focus on user experience helped to drive “strong growth” in active users and engagement over the period. Meanwhile, Shein switches focus to London after New York IPO stalls (Financial Times, James Fontanella-Khan, Eleanor Olcott, Mercedes Ruehl, Arash Massoudi and Ivan Levingston) shows that Shein could potentially go against the trend and ditch the idea of a New York listing in favour of a London listing in the next few months as US-China trade tensions continue to mount. Shein has yet to come to a final decision as to listing destination but London-based investment bankers will no doubt be salivating at the prospect while the LSE will probably be praying, crossing all its fingers and toes and harvesting four-leaf clovers that the behemoth will list over here.

Then in Watches of Switzerland banks on US growth (The Times, Jessica Newman) we see that the posh watch seller is doing well

from its foray in the US market as Britain’s “tourist tax” continues to hold back fortunes in the UK market. It opened its first US store in New York seven years ago and now revenues earned over there have caught up with those generated in Britain and Europe! * SO WHAT? * This is impressive and comes very welcome after the profit warning it had in January caused its share price to crater by a third. Decent performance and a positive outlook helped to boost the share price by 19.9% in trading yesterday and, longer term, it is looking to more than double its sales and profits in under five years!

In consumer goods news, Under Armour to Slash Jobs, Warns of Revenue Drop (Wall Street Journal, Inti Pacheco and Sabela Ojea) shows that the return of co-founder Kevin Plank as CEO in March hasn’t been enough to drag the company out of its current slump. He said that sales would fall by over 10% this fiscal year and that there would be more layoffs to come as he tried to streamline the company. * SO WHAT? * Under Armour stock traded at $52 back in 2015 but was down at $6.74 yesterday, showing just how far it has fallen. Plank says that his turnaround plan will take around 18 months, so it looks like there’s more pain to come.

Then in Premier Foods’ annual profits jump after price cuts (The Times) we see that the group that owns Mr Kipling and Batchelors reported a double-digit rise in annual profits thanks to promotional price cuts and the suspension of pension deficit contributions. The latter has been a major drag on the company’s financials and the £33m of freed-up cash flow will be used to automate more factories, finance takeovers and increase shareholder pay outs.

In leisure-related news, EasyJet Expects Summer Demand to Boost Earnings After Net Loss Narrowed (Wall Street Journal, Pierre Bertrand) shows that the budget airline reckons it’ll get a nice earnings boost from summer demand but the feelgood was tempered somewhat by its soft Q4 forecasts and perhaps on the news that its CEO Johan Lundgren would be stepping down early 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!

3

TMT NEWS

Microsoft offer relocation, Meta get probed, Sony warns global tech, TikTok has a twist, Reddit rockets and BT proves the doubters wrong…

Microsoft offers staff to relocate from China (Financial Times, Eleanor Olcott, Ryan McMorrow and Camilla Hodgson) shows that the tech giant has taken the unusual step of offering some of its China-based staff the option of relocating outside the country as tensions between the US and China continue to be fraught. Microsoft did, however, reiterate its commitment to doing business in the country but you can see that moves like this could become more prevalent, not only in the tech industry – but in others as well (something that I mentioned in the first section above!). Microsoft currently has about 9,000 employees in China.

EU launches probe into Meta over social media addiction in children (Financial Times, Javier Espinoza) shows that the European Commission has now launched an in-depth probe into Meta on concerns that it is failing to do enough to protect kids from getting addicted to social media platforms. It will also find out whether Meta is providing robust age-verification tools that will stop kids from accessing inappropriate content. * SO WHAT? * This will be the second investigation into Meta under the EU’s Digital Services Act. This all sounds great but it will only mean anything if the EC actually comes back with something that will work and then be implemented.

Elsewhere, Sony Music warns global tech and streamers over AI use of its artists (Financial Times, Daniel Thomas) shows that Sony Music is now sending out warning letters to over 700 AI developers and music streaming services around the world expressly forbidding them from using its music and other content for training AI models. * SO WHAT? * This is the latest move by a creative industry in the protection of its intellectual property. I suspect that the lawsuits will come next unless Sony hammers out some kind of deal.

There is a new twist in the TikTok tale (Financial Times, Gillian Tett) is an interesting article which brings us up to speed in the latest twist of the ongoing TikTok sell-it-or-ban-it saga. Real estate mogul Frank McCourt, who is – somewhat ironically – a major critic of Big Tech, this week launched a “people’s bid” to buy TikTok although he doesn’t have funding. Even more weirdly, McCourt doesn’t want to buy TikTok’s algorithm, which goes to the heart of its success. * SO WHAT? * This is quite interesting because the writer suggests that younger people are increasingly shifting from “vertical” trust relations (trusting advice from institutions and authority figures) to “lateral” ones (a networked group of peers). This explains some of the reason behind the success of platforms such as TikTok and highlights the true danger of these platforms as they can have a major influence on a whole demographic. Big Tech is not going to want to give up easily, but you can see why this is a battle worth fighting.

Reddit shares surge as it strikes content deal with OpenAI (Financial Times, George Hammond and Hannah Murphy) shows that OpenAI has now announced a deal with Reddit to use content on its platform to train its model. Investors loved this as they sent Reddit’s share price up by up to 15% in after-hours trading. The agreement will also allow Reddit to embed more AI tools. OpenAI co-founder Sam Altman owns about 10% of Reddit’s stock, so he is likely to benefit substantially from this deal! Hmmm. Fishy?? The huger for content continues…

In telecoms news, BT’s CEO says she ‘loves to squeeze’ short sellers while unveiling £3bn of cost cuts (Financial Times, Yasemin Craggs Mersinoglu) shows that BT’s new CEO Allison Kirkby outlined plans to revitalise the ailing telecoms group. Investors must have liked it as the share price boomed by over 17%! Part of the plan was cutting an additional £3bn in costs (it is aiming to cut its headcount by up to 42% by the end of this decade!) and increasing the dividend. It will focus on the UK whilst looking at ways to optimise its global business (code for it’s going to exit some of its 180 markets worldwide).

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

Fixed rate mortgage prices fall and Love Islanders are charged…

In a quick scoot around some of today’s other interesting stories, Three UK banks announce cuts to cost of fixed-rate mortgages (The Guardian, Hilary Osborne) shows that Barclays, HSBC and TSB have made cuts to some fixed rate mortgages, reversing some of the recent price rises. I would have thought that other lenders will follow suit as confidence grows about a summer Bank of England interest rate cut.

Then in Love Island and Towie stars charged with promoting trading scheme on Instagram (The Guardian, Dan Milmo) we see that the FCA has charged seven reality TV starts with promoting an unauthorised forex trading scheme on Instagram. * SO WHAT? * I know this is going to sound a bit harsh but I hope that the FCA throws the book at them. That being said, the maximum offence under the Financial Services and Markets Act 2000 is a fine and up to two years in jail. This is not a victimless crime and their greed will have caused misery and financial hardship to many. A crackdown on finfluencers is long overdue IMO! This does actually quite neatly demonstrate the point Gillian Tett made above about “lateral” influencing though, don’t you think?

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 do like a bit of table tennis! This rally is amazing!!!

However, I can’t just leave it there. You will recall that I posted a dance earlier this week. The thing is, I just can’t get that song out of my head so here’s the full version! I don’t speak German and I have never listened to a German rap song in my life but I just find this mesmerising 🤣

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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)