Monday 03/04/23

1. In MACRO & OIL NEWS, China retaliates, Finland’s PM loses election and oil prices surge
2. In FINANCIALS NEWS, the Credit Suisse takeover gets investigated, financial regulators ponder the future, UK vetting rules in finance get relaxed and thousands of City jobs are at risk
3. In AUTOMOTIVE NEWS, Tesla deliveries boom, a lux Chinese car brand aims for Britain, lithium shortages cause concern and JCB’s chief wants a rethink on net zero
4. In MISCELLANEOUS NEWS, WWE nears a body slam, Allied Universal shelves its IPO, Italy rejects lab-grown meat, consumers rein in spending, Parisians vote overwhelmingly to ban rental e-scooters and Sainsbury’s pursue Blumenthal lovers
5. AND FINALLY, I bring you a review of April Fool’s Day pranks…

So China fights back, Finland’s PM loses and oil prices rise…

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 China presses Japan to change course on chip export curbs (Financial Times, Thomas Hale and Leo Lewis) we see that China used the opportunity of a visit by Japan’s foreign minister Yoshimasa Hayashi to press Japan not to impose big curbs on exports of semiconductor manufacturing equipment. China’s foreign minister Qin Gang said that further retaliation would only strengthen its resolve to become more self-sufficient. This came after Japan unveiled restrictions on Friday on the export of 23 types of tech as part of a deal struck with the US and the Netherlands. China escalates tech battle with review of US chipmaker Micron (Financial Times, Thomas Hale) highlights another example of China fighting back against US sanctions as its Cyberspace Administration of China (coincidentally “CAC” for short 🤣. Reminds me of another memorable acronym to remember the companies that made up Japan Display – Sony HItachi and Toshiba. Oh how we laughed when we came up with that one afternoon on the trading floor) launched a review into imports from Micron Technology citing “national security” grounds. Micron is America’s biggest maker of memory chips. And just to keep the tension going, Taiwan clings to its rare diplomatic friends as China looms large (Financial Times, Kathrin Hille) shows Taiwan getting a brief respite from a rare ally (only 13 countries officially recognise Taiwan as an independent country because Beijing insists that any government that has official relations with China must not recognise Taiwan – although many do unofficially) as China continues to rattle its cage. * SO WHAT? * Given an almost constant barrage of sanctions and restrictions that have been emanating from the US, particularly since the Trump era, it’s unsurprising that China is fighting back (it’s obviously fought back

in the past but it seems to be intensifying now with semiconductors in particular). I am sure that there will be a lot more to come. FWIW, I think that sanctions only work for a relatively short period of time (a few years) but they can then backfire as countries and industries adapt to become more self-sufficient. Although it isn’t great to say this, I think that the trend of the last few years to “de-globalise” makes wars more likely as individual countries have less to lose if they take up arms.

Finland’s Sanna Marin concedes election defeat (Financial Times, Ben Hall) shows that PM Sanna Marin lost the parliamentary election held yesterday to the centre-right National Coalition party led by Petteri Orpo. Negotiations to form a coalition government will start in earnest.

Oil prices surge as Saudis slash production (Daily Telegraph, Rachel Millard) shows that oil prices jumped by almost 8% in Asia this morning on surprise news that OPEC decided to cut production. * SO WHAT? * This puts them on a collision course with the US as President Biden threatened the Saudis with “consequences” back in October for cutting production. This will be particularly welcome for Russia, which is suffering the impact of lower prices particularly acutely. It looks like the US is increasingly being ditched by the Saudis in favour of Russia (although it never really says that overtly).

Talking of oil, Russian sanctions heighten threat of oil spill disaster, shipping insurer warns (Financial Times, Ian Smith, Tom Wilson and Chris Cook) highlights concerns that potential oil spills from dodgily-insured Russian tankers have been made more likely and more consequential by the ongoing sanctions. The chief exec of one of the world’s biggest shipping insurers, Gard, observes that there are now more smaller, more inexperienced traders moving crude around the world on older vessels with varying levels of insurance. Sanctions have denied access to the International Group of 12 Protection and Indemnity Clubs, which generally cover around 90% of the world’s shipping. The major problem here is that if there is an incident, there will be no-one to pay for the clean-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!

The banking shake-up has more repercussions…

Swiss prosecutor opens probe into Credit Suisse takeover (Financial Times, Sam Jones) shows that Switzerland’s Federal Prosecutor has started to investigate the state-backed recent takeover of Credit Suisse by UBS to ascertain if there were any potential breaches of Swiss criminal law by any of the parties involved. Interestingly, polls show that over 75% of Swiss citizens are opposed to the merger with the preference being to split up the enlarged entity and claw back bonuses from senior staff. * SO WHAT? * I think that this needs to be done – and done as swiftly as possible. Given that the enforced merger of the the two banks helped to calm the markets I would have thought that public sentiment will be ignored and that the investigation HAS to come back clean, otherwise there might be another bank run in the offing. Also, satisfying though clawing back bonuses would undoubtedly be, this would be a drop in the ocean of the potential losses incurred.

Recent bank rescues a ‘game changer’ for financial regulators, City bosses say (Financial Times, Laura Noonan) contends that the repercussions from the UBS/CS deal will be wide-ranging, according to the FT’s City Network, a group of 50 senior bods in finance and policymaking. It was suggested that the whole structure of banking will have to change as deposits can no longer be the bedrock on which banking is based (recent events were, to a large extent, caused by mass and sudden deposit withdrawals).

Also, the US’s recent decision to act as guarantor for depositors at SVB and Signature Bank may mean that other countries will have to offer the same kind of facility. It was suggested that financial regulation could also potentially be better executed on a global basis rather than on a per-country basis as the recent failures in Switzerland and the US have flouted previously-agreed rules on banking. There are clearly a lot of thoughts on this but I still think it’s too early to come up with a plan as the situation is still ongoing. In the short term, 3,000 City jobs at risk as UBS prepares cuts after Credit Suisse rescue (Daily Telegraph, James Titcomb) shows that UBS is expected to cut between 20% and 30% of its 125,000 employees globally once the takeover gets the green light. This is going to be a real bloodbath.

Talking about regulation changes, Revised UK vetting rules to exempt tens of thousands of finance staff (Financial Times, Laura Noonan) shows that, as part of the Edinburgh reforms, the government is due to review the Senior Managers & Certification Regime which hold certain staff personally accountable (i.e. they can go to prison) for failings that they are responsible for. Basically, as a result of the impending review, it is likely that fewer finance staff will have to face potential jail time if they muck up which, on the one hand, could help recruit senior staff – but on the other, it comes at a time where arguably more accountability is needed rather than less given what recently happened in the banking sector.

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!

Tesla gets good news, another Chinese brand aims for the UK, lithium shortages cause concern and JCB chief pushes for a rethink…

Tesla Reports Uptick in Vehicle Deliveries After Price Cuts (Wall Street Journal, Rebecca Elliott) highlights some welcome good news for Tesla as it announced that it had delivered a record number of vehicles in the first quarter of the year! It was clearly helped by the price cuts it made during this time period but numbers did fall short of market expectations. * SO WHAT? * Tesla has more wiggle room with prices than many other car manufacturers as it has a fairly high operating margin of 16.8% (well that’s what it was last year). There is debate as to whether it will have to cut prices even more to maintain growth targets, particularly as its model pipeline is pretty thin and that it last launched a new passenger model about three years ago!

Then in Luxury Chinese electric car brand poised to enter Britain (Daily Telegraph, Howard Mustoe) we see that HiPhi, which was co-founded by a former Jaguar Land Rover exec, is planning to enter the UK market and is expected to announce something along these lines at next month’s Shanghai International Automobile Industry Exhibition. At the moment it has two vehicles – the £80,000 HiPhiX SUV and the marginally cheaper HiPhiZ sedan. * SO WHAT? * For all the funky tech the cars contain, I think that if you’ve got £80k burning a hole in your pocket there are far more attractive options that are more trusted. Chinese manufacturers BYD and Ora have already planned expansion in the UK and rivals Chery, Dongfeng and Haval are also looking at coming here, particularly as we’re currently supposed to be heading towards automobile electrification by 2030! I’ve got nothing against Chinese cars – it’s just that I think consumers can take a very long time to

be convinced to buy a marque that they’ve never heard of from a country they don’t really associate with car manufacturing. It has been a long old slog for Skoda, for example, which used to be the butt of many jokes – but now it’s often the target of great praise!

Lithium shortages threaten Europe’s electric car transition (Patricia Nilsson and Harry Dempsey) highlights something that I’ve been banging on about for ages – that carmakers’ obsession with EVs and lithium ion batteries is going to lead to huge pressures on lithium supplies (and massive reliance on China, which controls 44% of the existing supply of battery-grade lithium and 60% of global lithium processing). China will understandably prioritise its own industry so unless the Europeans can find their own supply, things are going to get very bleak! I think that the industry (and governments, for that matter) really needs to put money into alternative power sources and stop backing a losing horse.

JCB chief demands rethink of net zero ban on cars (Daily Telegraph, Oliver Gill and Howard Mustoe) shows that JCB’s chief exec says that the e-fuel exemption must be considered now that the Europeans are having to do so following pressure from Germany. Energy Secretary Grant Shapps reiterated the government’s commitment last week to go electric by 2030 despite Europe committing to 2035. He argues that fossil fuels are the problem – not the engines themselves, and so e-fuels make a lot of sense. * SO WHAT? * I think that we have to look at many different technologies primarily because limited supplies of things like lithium and cobalt are already looking scarce – and EV adoption is still extremely low. When they become mainstream prices will be sky-high.

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!

The WWE nears a big deal, Allied Universal postpones, Italy rejects lab-grown meat, consumers get thrifty, Parisians kick scooters out and Sainsbury’s gets fancy…

In a quick scoot around some of today’s other interesting stories, WWE Nears Sale to UFC’s Endeavor Group (Wall Street Journal, Lauren Thomas and Joe Flint) shows that WWE is close to being sold to Endeavour Group, which owns UFC. The deal is expected to be announced today! Wow! What a combination!

World’s biggest private security group puts multibillion-dollar IPO on hold (Financial Times, Leke Oso Alabi) highlights the postponement of the planned IPO of Allied Universal, the world’s biggest private security group. Given recent market turmoil and its ongoing problems with being able to recruit enough staff, this is an understandable move. Allied bought G4S in 2021 as it indulged in a bit of a spending spree.

Lab-grown meat: Italy’s disapproval hard to swallow (Financial Times, Lex) shows that Italy has said no to lab-grown meat and animal feed, but the article also makes the point that although it is very expensive now, costs will come down and it will be worth in investing in as a sustainable source of meat in the future.

Fewer people eating out as they cut back on unnecessary spending (The Times, Arthi Nachiappan) cites the latest research from KPMG which shows that fewer people are going to restaurants and more people are cutting their spending as the cost-of-living crisis continues. Hopefully, as we head into spring and summer our electricity bills will come down, relieving the pressure a bit.

Parisians vote to ban rental e-scooters from French capital by huge margin (The Guardian, Angela Giuffrida) is quite an interesting development as 90% of votes cast by Parisians supported a ban of the hiring of e-scooters. * SO WHAT? * The eco-friendly mode of transport had been introduced back in 2018 as a sustainable way of travelling around the city. Increased adoption brought more accidents over the years and antagonism of locals. This is clearly bad news for suppliers Lime, Dott and Tier. Will it prompt reviews in other cities that have e-scooters??

Then in Sainsbury’s targets Waitrose shoppers mourning end of Heston range (Daily Telegraph, Hannah Boland) we see that Sainsbury’s has been hiring more members for its food innovation team in order to make more unusual and attractive products – of the sort that Heston Blumenthal used to come up with when he worked with Waitrose. I guess this is one way to differentiate itself in an increasingly competitive market…

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…

The nervous among you are probably breathing a sigh of relief as April Food’s Day was on a Saturday – so there were limited opportunities to get pranked at work! However, there were some great examples in April Fool’s Day 2023: Biggest pranks including silent flights and cement perfume (The Mirror, Julia Banim). Square Babybel, anyone??