Monday 06/02/23

1. In MACRO & CRYPTO NEWS, China gets annoyed with the US for shooting down its spy balloon and “Britcoin” progresses
2. In CONSUMER-RELATED NEWS, we look at house prices and mortgage lending while interest rates for savers face scrutiny and return rail fares face extinction
3. In EV NEWS, dealers and buyer fret about high prices, a price war is resisted, Tesla increases Model Y prices, Musk wins another lawsuit, Toyota’s new chief looks set to take the conventional road and Chinese marques hit Europe
4. In MISCELLANEOUS NEWS, Big Tech companies pursue AI alliances and disclose the cost of culls, Amazon looks to sublet UK warehouses, Crew Clothing is bullish and stove-makers transition to induction
5. AND FINALLY, I bring you an optical illusion (that I can’t see)…

So the BoE hikes rates and Shell makes a killing…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

China sharply rebukes US over decision to shoot down ‘spy’ balloon (Financial Times, Demetri Sevastopulo, Aime Williams and Tom Mitchell) highlights the inevitable reaction of China as its spy balloon – that had supposedly veered off course due to bad weather 🤣 – was unsurprisingly shot down by the Americans.

What was surprising, though, was the fact that Biden didn’t give it the order to shoot it down earlier after it had flown over sensitive military sites. Yes, if it had been shot down over land, there would have been a risk to civilians, but America’s pretty big so surely they could have shot it down over a load of fields or something?!? Secretary of State Anthony Blinken had been due to make a trip to China this weekend to meet President Xi Jinping, but it was cancelled because of “balloongate” (my terminology – not theirs!). Ah well, back to square one then for now, re US-China relations…

Meanwhile, ‘Digital pound’ possible by 2030 in bid to combat falling use of cash (Daily Telegraph, Szu Ping Chan) shows that the Bank of England and Treasury are moving forward with plans for a new central bank currency (unofficially dubbed “Britcoin”) to be launched by 2030. It is likely that any state-backed digital currency would be used in parallel to cash but many will worry that digital currency could spell the end for cash. This comes just two years after Rishi Sunak set up a taskforce on central bank digital currencies (CBDC) when he was chancellor. * SO WHAT? * It’s only in the early stages at the moment but it is thought that a CBDC will use blockchain technology and will enable people to hold digital currency on smart devices WITHOUT THE NEED FOR A BANK, in the same way that cash can be held in a wallet. There will be various consultations no doubt before any kind of introduction but the earliest we could see such a CBDC is 2025, according to some officials. Fun fact: cash use accounted for over 50% of transactions ten years ago – but just 15% today. 

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!

Consumers continue to face new challenges…

What’s going on in the residential property market can be a vital component of whether consumers feel “wealthy” or not. So Why Britain’s falling house prices will not bounce back (Daily Telegraph, Melissa Lawford) suggests that they won’t be feeling too buoyant for a while yet as Nationwide’s findings last week that pointed to a trend of falling house prices sounds like it is a trend that will continue. Analysts reckon that this house price slump won’t be as deep as the one that we experienced in the immediate aftermath of the financial crisis but that it will go on for longer. Analysts at Oxford Economics say that, back then, house prices fell for 16 straight months – and that they now expect house prices to fall for 24 months because of changes in the mortgage market which mean that interest rate rises take longer to filter down to the market than they used to. On the plus side, they reckon that peak-to-trough will be 12% rather than the previous crash when it was 18%. * SO WHAT? * It is interesting to note that between 2012 and 2022, the proportion of borrowers on variable mortgages fell from 71% to 15%, according to Capital Economics – which means that interest rate changes were felt quite quickly. However, the move to fixed means that there is a delayed impact on homeowners as they don’t see changes until their mortgages come up for renewal. As a result of this delayed reaction, house prices are unlikely to correct quickly – which is why the conclusion is that a house price fall will be shallower but go on for longer.

Meanwhile, Mortgage lending set to fall to lowest growth since 2011 (The Times, Arthi Nachiappan) cites the EY Item Club as saying that it thinks mortgage lending this year will fall to its lowest level since 2011 and will be made worse by banks tightening up on lending, higher-for-longer interest rates, weakening house prices

and a tricky economic outlook. * SO WHAT? * This isn’t exactly rocket science, given what is happening in the wider market. I guess the key here is timing and when it will recover. I suspect that many forecasters will plump for some time in 2024 because it’s far enough away to be possible but close enough to sound hopeful.

Then in Interest rates for savers under spotlight as bank bosses face MPs (The Times, Ben Martin) we see that MPs are due to question bosses of the UK’s four biggest banks this week. Much like the “rocket and feather” pricing of oil and what we pay for petrol at the pump (pump prices rise within nanoseconds of oil prices rising, but they fall slowly when oil prices get weaker), banks are being accused of absolutely minting it as interest rates have risen (which means they are charging borrowers more) but not passing these higher rates on to savers. * SO WHAT? * The fact that UK banks have been raking it in, according to recent results, won’t help their cause. They have managed to do this because the net interest margin has been rising. At the moment, it seems that banks are passing on between 40% and 50% of rate increases to depositors. Get the popcorn out – the banks are going to be in for a roasting…

Elsewhere, Return train tickets expected to be scrapped in UK rail shake-up (The Guardian, Sarah Butler) heralds what looks like the end of “cheaper” return tickets! They are expected to be replaced by “single-leg pricing” which will mean that the price of two singles will be the same as a return. A speech is expected tomorrow from the transport secretary Mark Harper that will outline plans for “Great British Railways” (GBR), a new body that will oversee the operation of track, trains, timetables and ticketing. * SO WHAT? * I think that this overhaul of an incredibly complex system is well overdue – but then again the success of this will lie in the execution! I think that all of the problems were brought to a head during the pandemic which, I guess, has given everyone time to have a bit of a rethink. 

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!

Fears of a price war look overdone, Elon Musk has some good news and Chinese cars make inroads in Europe…

Dealers and Buyers Are Both Worried Cars Are Too Expensive (Wall Street Journal, Sean McLain) shows that the smugness with which car dealers have been able to charge high prices in the last couple of years is now morphing to concern as affordability is becoming a real problem for consumers. Consumers are now cancelling orders that they’d placed before interest rate rises and there are now anecdotal instances of dealers trying to clear their used-car inventories while they can. * SO WHAT? * Stubbornly higher prices have been driven by supply chain problems and the increasing trend of carmakers focusing on high-end, more profitable models. However, there are some signs that prices might ease up a bit this year as Ford said last week that it reckons average selling prices could fall by about 5% this year while recent price reductions for Tesla cars and Ford’s Mustang Mach-E prompted speculation of a price war. However, Electric vehicles defy price war after Ford and Tesla discounts (Financial Times, Claire Bushey and Aime Williams) says that other makers including GM, VW, Hyundai and Kia have not taken the bait and Tesla Nudges Up Model Y Prices (Wall Street Journal, Mike Colias and Rebecca Elliott) shows that even Tesla has backtracked by raising prices for its Model Y in the US. This happened because Biden and chums changed the goalposts again, INCREASING the eligibility for $7,500 subsidies from $50,500 to $80,000, which gives Tesla more room to raise prices. Maybe the broader catch-all for incentives might act as a catalyst for EV sales and counter the current weakness…

There was good news for Elon Musk in Elon Musk wins investor lawsuit over Tesla ‘funding secured’ tweet (Financial Times, Dave Lee) as a nine-person jury helped him defeat a class action lawsuit that said his “funding secured” tweet that implied he was ready to take Tesla private cost them billions of dollars in losses. The verdict was delivered on Friday. * SO WHAT? * This is great news for Musk, but not so much for investors who may now be subject to losses if

a rambling CEO puts are-they-true-or-are-they-not-true statements on social media for everyone to see that have an impact.  This is the second time he has been found not liable in civil litigation regarding Twitter posts – they first being one where an LA jury cleared him of defamation against a British diver who helped rescue a Thai football team trapped in a cave a few years back. He called the diver “pedo guy”. Musk sails so close to the wind (and in my opinion, crosses the line) that he could well get caught out although maybe he’s a bit more likely to be less impulsive now that he’s the CEO of Twitter. His lawyers certainly earn their money!

In Toyota’s new chief set to steer conventional course towards electric future (Financial Times, Eri Sugiura) we see that Toyota’s new CEO, Koji Sato, is going to have a tough job steering the car manufacture’s future as it continues to fall behind rivals in EV technology. He’ll be taking the reins on April 1st following former chief exec Akio Toyoda’s sudden announcement last month that he would be relinquishing the role to become chairman. * SO WHAT? * The main issue here is whether Toyota can catch up to everyone else as it only currently has one 100% electric vehicle in its lineup – the stupidly-named bZ4X (it sounds a bit like one of those auto-generated passwords, doesn’t it 🤣). There are concerns that Sato’s love of the internal combustion engine could mean slow progress.

Then in Chinese cars pull into the European fast lane (The Times, Robert Lea) we see that Chinese marques have made notable progress in Europe as six brands made the top 50 bestselling motor companies in the Continent for the first time ever! MG, BYD and Hongqi are among the brands that have made an impact and others such as Maxus, NIO, DFSK, Aiways and Ora are also waiting in the wings! * SO WHAT? * This is great for Chinese companies but they will still face a) strong competition and b) trust issues as it takes a long time for people to trust brands they haven’t heard of before – particularly when it comes to something as expensive cars. Still, they seem to be going in the right direction…

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!

Big Tech makes an AI push, Amazon aims to sublet UK warehouses, Crew Clothing is positive on the high street and there’s a transition to induction…

In a quick scoot around some of today’s other interesting stories, Big Tech companies use cloud computing arms to pursue alliances with AI groups (Financial Times, Madhumita Murgia) shows that Big Tech companies are aggressively pursuing AI investments via their powerful cloud computing divisions, which could potentially prompt regulatory concerns in the future re conflict of interest as they could become suppliers and competitors. * SO WHAT? * Microsoft’s investment in OpenAI and Google’s $300m bet on Anthropic are just recent examples of this. Clearly a balance has to be struck between accelerating development and stifling future competition.

Big Tech groups disclose $10bn in charges from job culls and cost cutting (Financial Times, Dave Lee) just emphasises the cost of recently-announced mass-redundancies, real estate disposals and other cost saving initiatives by the biggies as estimates place this at over $10bn currently. Despite incurring such costs, investors seem to be broadly supporting of the dramatic actions being taken. I guess this arguably positions them better when economies recover.

In Amazon to sublet UK warehouses as growth plans go awry (Daily Telegraph, Hannah Boland) we see that Amazon is looking to sublet some of the space it doesn’t think it needs after a long period of rapid expansion. Global demand for e-tailing has suffered in recent months as households rein in costs, prompting Amazon

to review its space requirements. * SO WHAT? * This was bound to happen at some point, so it’ll be interesting to see whether this continues or whether it’ll be claiming back its space in the next year or two when things pick up again.

Then in Crew Clothing says there is lots of life in high street (The Times, Isabella Fish) we see that preppy apparel retailer Crew Clothing is being decidedly chirpy about the UK high street as the company announced plans to open up to 40 new stores. The chief exec brands Crew Clothing as “middle England’s Ralph Lauren” but I’d class it as a cross between Joules and Jack Wills. His confidence is driven by evidence that footfall is picking up and so now is the time to ramp up. * SO WHAT? * The company had a decent Christmas, but I think it needs to find more of a distinct identity to prosper for the long term. Ralph Lauren it ain’t.

Amid Gas-Stove Debate, Some Makers Bet on Induction (Wall Street Journal, John Keilman) is a really interesting article that looks at manufacturers of stove brands such as GE Appliances and Viking who are developing lineups of induction cookers that can cook faster than traditional gas and electric ones. At the moment, they only have a small market share in cookers and are generally more expensive than the traditional alternatives, but this looks like it is going to change. * SO WHAT? * OK, so this article is talking about cookers in the States, but I do wonder whether we’ll be seeing the same thing here. In the same way that gas boilers are to be replaced by heat pumps, you would have thought that induction will be the hob of choice. I’ve noticed in the past few years that TV chefs have been using induction much more but I have to say that I’ve had both (I’ve currently got induction) and I would far rather gas if I could (environmental concerns aside). Still, induction is the way forward and cooker manufacturers will have to change!

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 bring you an optical illusion! Yaay! Although unfortunately, I just can’t see it. Can you? Have a look at this: Mind-melting optical illusion challenges people to find animal hiding in stripes (The Mirror, Sophie Roberts).