Friday 31/05/24

1. In MACRO & OIL NEWS, Donny T gets in big doo-doo, Chinese factory activity falls, business confidence hits a new high, Saudi Arabia announces the sale of more Aramco shares and we look at why the European oil majors aren’t mirroring the US oil consolidation frenzy
2. In CONSUMER, RETAIL & LEISURE NEWS, UK living standards since 2010 lag others, shoppers are staying at home, Walmart managers are offered an impressive package, Gap rebounds, Uniqlo remains confident, Dr Martens gets defensive, Subway announces a big bond sale and QR codes are being ditched for paper menus
3. In TECH NEWS, OpenAI admits that its models are being used for nefarious purposes, Nvidia becomes more valuable than the FTSE100 and Salesforce suffers
4. In MISCELLANEOUS NEWS, Auto Trader reckons EV prices have further to fall and Rolls-Royce wins a chunky Japanese order
5. AND FINALLY, I bring you a bit of domestic travel inspo…

So Donny T gets in more trouble, China’s factory activity drops, biz confidence rises, more Aramco shares are made available and we look at why European oil majors aren’t getting involved in the US frenzy…

Hi there! Just to let you know, I’m preparing for a major overhaul on Watson’s Daily that will enhance the existing offering. You may not see the updates instantly, but I shall let you know when the big “switch-over” takes place this summer. 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:

Donald Trump found guilty on all counts in ‘hush money’ trial (Financial Times, Joe Miller) shows that Donny T has been found guilty, by a unanimous verdict, of buying the silence of Stormy Daniels just days before the 2016 election and then covering it up. He is now the first former US president to be convicted of a crime. What next for Donald Trump after his guilty verdict? (Financial Times, Joe Miller) says that he is unlikely to go to jail because the offence of “falsifying of business records”, for which he has been convicted, is low level, he’s a first-time offender and he’s 77 years old (although his sentence hearing is now set for July 11th). He can still, however, run for president – but there could be an interesting situation where he could be handed a jail sentence and beat Biden, in which case it’s likely that the sentence would have to be suspended until he left office. He will also still be able to vote (although if he did get a prison sentence he would be unable to vote) and he still has various avenues of appeal open to him. He will not, however, be able to pardon himself should he become president. Trump’s guilty verdict puts America’s political system on trial (Financial Times, Edward Luce) observes that, in the immediate aftermath, Republicans condemned the trial as being politically motivated and a “travesty of justice” while Democrats rubbed their hands with glee, cheered by justice being served. It also suggests that the US presidential election is now going to put “the system” on trial and I think that it is likely that the fight will now be pitched by Trump’s team as an Us vs Them-type challenge with poor old Trump being the innocent, downtrodden everyman 🤣 fighting valiantly against the might of The Establishment headed up the document hoarding octogenarian Joe Biden. The jury has shown that no man is above the law, but Americans could overturn this verdict in November by voting him into office. What an absolute shambles of epic proportions. America’s enemies will be absolutely lapping this up!

Meanwhile, US economy grew slower than expected at start of year (The Guardian, Mehreen Khan) cites the latest stats from the US Bureau of Economic Analysis which show that the world’s biggest economy grew at a slower rate than expected over Q1 thanks to a widening trade deficit and fall in consumption. The GDP growth rate came in at 1.3%, which was way lower than the 2.4% expected by economists. Stubbornly high inflation (which

means that investors are now expecting only one interest rate cut from the Fed this year) and a slowing GDP growth rate are hardly going to play into Biden’s hands in the run-up to the election.

Chinese factory activity falls in hit to economic momentum (Financial Times, Thomas Hale) cites official stats that highlighted disappointing manufacturing activity in May. This isn’t great for an economy that’s trying to pull itself out of a rut and shows that President Xi’s focus on high-end manufacturing and boosting of in the industrial sector is yet to kick in. That being said, other recent data points have shown that industrial production in April actually beat forecasts while exports returned to growth despite tightening trade sanctions. China’s full year GDP growth target remains at 5% and GDP grew at an annualised rate of 5.3% over Q1 versus the same period last year. There’s still time to turn this around!

Back home, Business confidence highest in nearly a decade (The Times, Jack Barnett) cites Lloyds Bank’s latest business confidence index which shows that business confidence is now at its highest level since November 2015! Companies are getting more positive about their trading outlook and are planning more hires. 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! It would be very interesting to know what business confidence will do in the next month as the news of the election will have been digested by then…

In oil news, Saudi Arabia to sell $12bn worth of Aramco shares (Financial Times, Tom Wilson, Anjli Raval, Shotaro Tani, Malcolm Moore and Ahmed Al Omran) shows that the Saudi government is going to sell roughly $12bn worth of shares in its national oil company Saudi Aramco in order to raise additional capital for its sovereign wealth fund. This equates to 0.64% of the world’s biggest oil company! It’s also got the option to sell an additional number of shares that could net it another $1bn. The sale will begin on June 2nd and end on June 6th. The company’s share price has fallen since the start of the year. * SO WHAT? * Saudi Arabia continues in its efforts to diversify away from oil revenues and its sovereign wealth fund, the Public Investment Fund (aka “PIF”), is one of the main vehicles it is using to achieve that by investing in other growth industries. The PIF had $925bn in assets under management at the end of 2023 and aims to increase this to around $1tn by 2025.

Why the European oil megamerger has not gushed forth (Financial Times, Lex) highlights a stark contrast between the surge we’ve been seeing in oil sector consolidation over in the US verses the notable lack of it in Europe. The article points out that this recent US frenzy has been powered by consolidation in the Permian Basin where companies have scope to cut costs – the driving force behind Exxon/Pioneer, Diamondback/Endeavour and ConocoPhillips/Marathon. European oil majors have already been through a cycle of consolidation and even the UK’s North Sea, which is more fragmented than other areas, has still gone through a lot of consolidation since 2014. * SO WHAT? * It seems that there isn’t really any low-hanging fruit for the Europeans, and even if they wanted to embark on some regional focus, their lowly-related stock won’t be all that useful as currency to acquire other assets. The suggestion here is to double down on their respective low-carbon strategies given that their more traditional operations produce slower growth and lower returns.

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!

UK living standards disappoint, shoppers stay at home, Walmart managers are offered major packages, Gap rebounds, Uniqlo talks a good game, Dr Martens continues to be downbeat, Subway announces a big bond sale and QR codes are losing their lustre…

In consumer-related news, UK living standards have lagged most peer nations since 2010, report finds (Financial Times, Delphine Strauss) cites research by the Institute for Fiscal Studies (IFS) think-tank which shows that UK living standards have lagged those of most wealthy countries since the Conservatives came into power in 2010. Wage growth has been sluggish and the UK’s relative performance doesn’t look like it has improved since 2019 thanks to higher mortgages and taxes taking the edge off. It also pointed out that those on the highest and lowest incomes have come out worse off since 2009-10 than those in the middle due to weaker earnings growth affecting those at the top, more people falling into higher rate tax bands and falling benefits. That’s not going to be a good look for Sunak’s re-election now is it!

Meanwhile, Shoppers staying at home despite a sunnier outlook (The Times) cites the latest BRC figures which show that retail footfall is still way down on last year on both the high street and in shopping centres as consumers went online to avoid the underwhelming weather (although it was up on a monthly basis). * SO WHAT? * I guess that retailers will be hoping for a boost from the European Championships and Olympics, but they will probably be more focused on who gets the keys to number 10 and whether they will churn out any retail-friendly policies, particularly regarding business rates. With the prospect of weakening inflationary pressures, improved spending power and a new government maybe consumers will actually loosen the purse strings!

Over in the US, Walmart store managers can earn half a million dollars a year (The Times, Louisa Clarence-Smith) highlights a new compensation scheme at Walmart which will enable its store managers to earn over $500,000 a year as a package. It’s jacking up its base pay of $128,000 a year  from $117,000 and get various stock grants and bonuses and says that, in doing so, it is “investment in our future”. Well that is going to attract some more candidates, don’t you think?!? I wonder whether we’ll see anything like that over here or whether it’s just a US Walmart thing.

Then in Gap Snaps Slump With Sales Gain (Wall Street Journal, Suzanne Kapner) we see that the ailing apparel retailer actually managed to report higher quarterly sales and raise full-year guidance as as turnaround efforts seem to be taking hold. This was the first quarter in years that all four of its brands – Gap, Old Navy, Banana Republic and Athleta – announced gains. This is particularly impressive given that rivals have had a mixed performance. Walmart, Dick’s Sporting Goods and American Eagle have proven to be robust while Target, Kohl’s and Foot Locker have been disappointing. Such was the delight of investors at the news that Gap’s share price jumped by 21% in after-hours trading! * SO WHAT? * Efforts to refresh the tired brand with a new designer and other partnerships have paid off, but of course with a company this size, keeping (or even accelerating!) the momentum will be key after many years of sluggishness.

In retail news, Uniqlo boss says Chinese rivals Shein and Temu are no threat (The Times, Isabella Fish) shows that the CEO of Uniqlo Europe is talking a good game regarding the threat that the likes of Shein and Temu pose to its business. He said that he can rely on Uniqlo’s store network to fend them off and that the store

network enables real-time communication with customers. Blah Blah. He did say that the company has seen sales growth, however, which is encouraging. Currently, it has 77 shops in 11 markets in Europe, including 19 outlets in the UK, with plans to open more. * SO WHAT? * I think that Uniqlo is very different to Shein and Temu. Uniqlo trades in “the basics” sprinkled in with the odd “must-have” item like that banana bag everyone went crazy about whereas the others are very much fast fashion (Shein in particular). Also, I believe that Uniqlo’s overall quality is superior. At the end of the day, although they all sell apparel, their niches are quite different.

In UK retail news, Dr Martens will cut up to £25m in costs to counter weak US sales (The Guardian, Kalyeena Makortoff and Sarah Butler) reflects the ongoing nightmare of the British footwear brand as it says that it might have to resort to job cuts in order to counter weak US sales. * SO WHAT? * The new cost-cutting plan, which was prompted after a string of profit warnings, should save £20-25m but some of its 3,600 staff in countries including the UK, Japan, Italy, Germany and the US could bear some of the brunt. Interestingly, the company said that it plans to spend more on marketing – which is either a sign that it’s confident of an economic uptick or that it’s an act of desperation (I think it’s probably the latter!). Sales of its boots make up at least two thirds of its takings – and they performed badly in the US, so clearly drastic measures need to be taken!

In restaurant-related news, Subway sandwich chain raises largest bond of its kind (Financial Times, Eric Platt and Harriet Clarfelt) shows that investors were keen to participate in the sandwich chain’s $3.4bn bond offering, the proceeds of which it will use 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. Roark is becoming a major force in the US fast-food industry as it owns Inspire Brands, which itself is the parent company of Dunkin’, Buffalo Wild Wings and Arby’s. * SO WHAT? * It seems to me that we are already seeing private equity firms streamlining their portfolios so that they can concentrate on specific areas. OK so this is a massive generalisation but it seems to me that a lot of PE firms snapped up loads of assets under lockdown when attractive assets became available at achievable prices (because the only thing wrong with them was that they were suffering the effects of the pandemic) at a time when debt was super-cheap and they were the only buyers in town. They had a bit of a rough ride over the last year or so when debt became more expensive (higher interest rates) and no-one wanted to buy their assets. That is now changing as the wheels of M&A are now turning and IPOs are starting to gather momentum, meaning that the previous logjam is easing and deal appetite is returning once more to the market, which means that PE firms can now dispose of assets that are now deemed to be non-core and pick up assets to enhance their chosen area of focus.

I thought that The QR Backlash Has Won. Restaurants Are Ditching Them for Good. (Wall Street Journal, Alina Dizik) was an interesting article because it highlights an emerging trend in US restaurants – that QR codes are increasingly being ditched in favour of a return to paper menus. QR codes rose in popularity under lockdown because of their “contactless” qualities and because they enabled restaurants to run with fewer staff. Now it seems that customers are pushing back on it due to privacy concerns and its cheapening effect on an otherwise upscale experience. Also, it seems that QR code menus led to lower takings by 10% on average because diners often didn’t scroll through the whole thing – and that also lowered tips for staff. Will this trend make it over here, I wonder?!

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!

OpenAI makes an admission, Nvidia gets to be more valuable than the FTSE100 and Salesforce suffers…

In AI-related news, Networks linked to Russia and China use OpenAI tools to spread disinformation (Financial Times, Hannah Murphy) shows that OpenAI has said that operations linked to Russia, China, Iran and Israel have been using its AI tools to generate and disseminate false information. * SO WHAT? * OpenAI’s policies prohibit the use of its models in this way and it seemed that the content focused on issues including Russia/Ukraine, Gaza, the Indian elections, politics in Europe and the US and China-related material. Clearly this is a problem that needs addressing, particularly given the number of sensitive geopolitical events that are going on at the moment. In a way, though, the fact that OpenAI is being used perhaps means that it can also be used to counter such actions…

Meanwhile, Nvidia now worth more than entire FTSE 100 (Daily Telegraph) highlights the fact that Nvidia’s 13% share price rise

over the last five days means that the chip company is now worth more than all of the FTSE100’s constituents put together! * SO WHAT? * Astounding – and it just goes to show how important AI has been (and will continue to be) as a driver! It is now worth $2.8tn while the FTSE100 is worth $2.15tn!

Salesforce shares fall after lowest ever forecast as AI rivals soar (The Times) shows that Salesforce’s share price plummeted by almost 20% yesterday as investors ditched the company after it announced its lowest ever quarterly revenue growth forecast. Concerns are increasing about the effects of high interest rates and AI-powered rival offerings. It has itself been investing a lot of money in AI for months and integrating it into its products to power revenue and margins. However, Salesforce spins itself as an AI revolution winner as Wall Street grows dizzy (Financial Times, Lex) shows that investors are, for the moment at least, sceptical about Salesforce’s immediate future particularly given shiny new AI products elsewhere.

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!

Auto Trader reckons EV prices could fall further and Rolls-Royce wins a big order…

In a quick scoot around some of today’s other interesting stories, Electric car prices to fall further as carmakers scramble for buyers (Daily Telegraph, Matt Oliver) shows that Auto Trader, which published a strong set of full year results yesterday, reckons that EV prices will fall further this year as manufacturers resort to discounts to boost sales. The company’s CEO said that customers are now getting discounts of up to 10% on average as dealers try to shift units.

Then in Rolls-Royce engines to power Japan’s new fleet of naval destroyers (Daily Telegraph, Matt Oliver) we see that Rolls-Royce has just won a contract to supply engines for a new class of Japanese warship, the Aegis system equipped vessels (ASEVs). They will use two of Roll’s MT30 engines. Rolls-Royce says that it wants to be “the dominant engine of choice across the Pacific Rim”.

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!

…in other news…

I thought that a bit of domestic travel inspo might be in order today! The “School of Divinity” looks pretty amazing IMO!