Monday 09/01/23

1. In MACRO, OIL & GAS NEWS, the US and Japan prepare for China/Taiwan, Sweden gives up on Turkey, oil rebounds and cheaper gas could give the government wiggle room
2. In TECH NEWS, OneWeb powers down in Alaska while SpaceX boost launches, quantum takes a leap, liquid air offers an answer, Apple hires in India and US tech layoffs continue
3. In FINANCIALS NEWS, banks face a lot of lawsuits, Vanguard ushers in the customers, Hargreaves Lansdown’s founder calls for massive cuts and EY prepares for an M&A splurge
4. In MISCELLANEOUS NEWS, we look at the next stage of US sports gambling, SK Bioscience offers China insight and UK consumers face a “mortgage lottery”
5. AND FINALLY, I bring you a really simple cooking trick…

So military tensions rise, oil bounces back and cheaper gas gives options…

📢 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:

US military deepens ties with Japan and Philippines to prepare for China threat (Financial Times, Kathrin Hille) shows just how seriously the threat of a Chinese invasion of Taiwan is being taken as US and Japanese armed forces are accelerating the integration of their command structure and ramping up combined operations to prepare for any potential aggression in the area. The Philippines is also extending defence co-operation with the US for the same reasons. On the other side, China has ramped up military manoeuvres near Taiwan in the last few years. More detail on the defence co-operation between countries is expected this Wednesday following security talks between foreign and defence

ministers and a summit between Biden and Japanese PM Fumio Kishida in Washington. Japan is about to massively increase defence spending.

Then in Sweden warns it cannot meet Turkey’s demands for backing Nato bid (Financial Times, Richard Milne and Henry Foy) we see that Sweden has, in theory anyway, reached its limit in terms of how much it is willing to accommodate the demands of President Erdogan in its bid to join NATO. All 30 NATO members need to approve the entry of new members Finland and Sweden and Erdogan is using this as an opportunity to get them to play ball (he says they are harbouring what he deems to be Kurdish terrorists responsible for a failed 2016 coup and wants them deported to Turkey). Sweden has already made some concessions, but it remains to be seen as to whether Erdogan will continue to dig his heels in. The other foot-dragger on the decision to ratify the entry of new members, Hungary, is expected to vote in favour. * SO WHAT? * Erdogan is a wily old operator and I’m sure he will milk this opportunity for all it’s worth. In a recent poll, 79% of Swedes want to stand up for the rule of law, even if this results in a delay to NATO membership, so the Swedish PM does not have a mandate to go any further than he already has. It’ll be interesting to see how long Erdogan drags this out for.

Meanwhile, Oil to bounce back despite recession (The Times, Emma Powell) suggests that the oil price will rebound from its recent slump and recover in the second half of this year thanks to tight supply and China demand recovering as Covid lockdowns ease. Analysts at UBS and Bank of America reckon the oil price will peak at $110 a barrel this year. OPEC+ members cut output back in November in a bid to put a floor under the (then) falling oil price.

Then in Gas price dip signals £13bn ‘windfall’ (The Times, Mehreen Khan) we see that weaker gas prices – which have fallen thanks to slowing demand that has been due to milder-than-usual weather – could actually “save” the government billions of pounds in energy subsidies and debt interest payments giving Chancellor Hunt some useful wiggle room before he announces his Spring Statement. UK wholesale gas prices are now below pre-Ukraine war levels – and it has dropped by more than 50% since the start of December!

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!

Satellite wars heat up, there are new developments in quantum microchips and energy storage while Apple hires in India and tech layoffs continue in the US…

In satellite news, UK’s OneWeb closes Alaska site amid battle with SpaceX (Daily Telegraph, Matthew Field) shows that the plucky British satellite champion (that was rescued by the British Government in 2020) has decided to close down one of its first test sites in Alaska as it struggles to compete with Elon Musk’s SpaceX. Both companies have been vying with each other to connect rural Alaskans to satellite broadband via their respective satellite networks. In the meantime, SpaceX aims to increase launches as rivals prep new rockets (Wall Street Journal, Micah Maidenberg) highlights SpaceX’s intentions as it tries to capitalise on the positive feedback of its networks which are quite literally being battle-tested right now in the Ukraine war. It wants to conduct up to 100 orbital flights in 2023 which would equate to a 64% jump versus the number of launches in 2022. * SO WHAT? * Amazon (via Project Kuiper), a Lockheed Martin/Boeing venture (via United Launch Alliance) and Rocket Lab USA are among those who are all looking at launches this year, so SpaceX needs to make sure it builds on the advantage that their involvement in supporting Ukrainians has given them. It does make me wonder, however, just how viable OneWeb really is in the long term! I think businesses like this need scale and I’m just not sure OneWeb is getting there fast enough…

In other big tech developments, Quantum chip start-up backed by Arm founder (Daily Telegraph, Gareth Corfield) highlights a new injection of £30m in financing for an Oxford University start-up – called Oxford Ionics – that is developing ultra-fast quantum microchips that could transform computing. * SO WHAT? * Quantum computing is way more powerful than what we have at the moment and the current generation of quantum computers needs to be kept extremely cold to work properly. Oxford Ionics’ chips run at room temperature, which makes quantum computing far less expensive.

Then in Liquid air offers answer on days without wind (Daily Telegraph, Howard Mustoe) we see a potential solution to the volatility of renewable power supply. London-based Highview Power’s tech uses cryogenic liquid air to store the electricity generated by renewable sources until it is needed. It works by compressing air into liquid and cooling it to almost -200C and storing it in an insulated tank at low pressure. When power is needed, liquid air is taken from the tank and pumped out at high

pressure. Loss of energy in the entire process is about 50%, but a lot of the wasted heat is recoverable, taking its potential to around 70%. * SO WHAT? * If this is adopted at scale, it could make energy way cheaper for consumers because our domestically produced renewable energy is a lot cheaper than any other form of generation. Highview Power is not trying to raise around £400m to build the world’s first liquid air energy storage plant on a commercial scale near Manchest by the end of 2024. At the moment, there is huge wastage of energy because the grid is unable to handle excess wind power at the moment but Highview Power’s solution could mean that this excess power can be stored to be used at a later date. Exciting, no?

Meanwhile, Apple hires workers in India as it looks to open first flagship stores (Finanical Times, Patrick McGee) shows that the tech giant has started to hire workers for the Apple Stores it’s about to open in India this quarter. It looks like there are hundreds of jobs available as the company makes moves to deepen its involvement in the world’s second biggest smartphone market. * SO WHAT? * Apple has been held back in the past by protectionist rules in India which required foreign companies selling goods directly to customers to source 30% of components locally, but these rules have been relaxed more recently and the Apple Store expansion will no doubt help to boost momentum for production in India. Fun fact: the number of iPhones sold in India over the pandemic has doubled! I think that Apple needs to get India right both in terms of production capacity (to reduce its heavy reliance on China) and price point (their phones have been so much more expensive than cheaper Chinese rivals’ offerings). It sounds like it’s on its way, though!

Then in Tech industry reversal intensifies with new rounds of layoffs (Wall Street Journal, Dana Mattioli and Miles Kruppa) we see that the tech headcount cull of 2022 is continuing as companies move from the emphasis on growth to profitability. Amazon and Salesforce both announced plans for layoffs last week, for instance. Amazon announced cuts that will affect 18,000 workers in the retail, recruitment and devices business while Salesforce announced a cut of 10% of its staff, which it put down to over-hiring during the pandemic. Vimeo last week cut 11% of its staff in the second round of layoffs. * SO WHAT? * This is, of course, tragic for those involved. However, these things always go in cycles and I think that this was bound to happen after a particularly strong run for the industry. If there was any time for regulators to get tough on Big Tech, it’s RIGHT NOW while they are reeling. 

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!

Banks are under pressure, Vanguard pulls in the clients, Hargreaves Lansdown’s founder pushes for cuts and EY gets ready…

Banks face over 100 class action lawsuits (The Times, Jonathan Ames) shows that British banks are facing a massive wave of litigation for various reasons at the moment that lawyers reckon could cost them billions of pounds to resolve. Interestingly, Barclays, HSBC and NatWest make up for most of the claims and are joined by Standard Chartered and Lloyds. 92 of the claims are being brought in the US and 6 in Britain, with the remainder dotted around. * SO WHAT? * What is also pretty amazing about all this is that the value of these class actions increased by over six times in the past year to over £26bn in 2022. Allegations include price fixing and manipulation of interest rates along with violations of US regulations covering terrorist financing. I think that all of this is very interesting because it would suggest to me that the long-established practice of class actions that has been so prevalent in the US, looks like it’s going to be the next export after Halloween and the phrase “reach out” that will be making its way across the Atlantic. Class actions are increasingly been driven by litigation funding companies, who are themselves backed by hedge funds and private equity firms. Things could be getting interesting/more expensive…

In the world of personal finance, No-frills, no choice…but Vanguard snaps up clients (The Times, Patrick Hosking) shows that net inflows for the personal investing platform of Vanguard, one of the biggest asset managers in the world, were bigger last year than Hargreaves Lansdown and AJ Bell combined! Total assets under management at the direct-to-customer platform are now £14bn. * SO WHAT? * A key point to note here is that although Vanguard’s rivals offer more bells and whistles in terms of services, customers are just falling over themselves to get the no-frills service. Tracker funds make up at least 90% of client money! It is also winning younger investors as 74% of clients who signed up to Vanguard last year were under 45 – and 41% were under 30! It would be interesting to see whether investors wet their toes in Vanguard initially only to then subsequently go to other platforms to take advantage of other options.

Still, Hargreaves founder calls for 1,000 redundancies (The Times, Emma Powell) we see that the co-founder of Hargreaves Lansdown, Peter Hargreaves, is calling for the company to ditch plans for a hybrid advice service comprising of “robo-advice” and “human-led” advice and cut half of its headcount to arrest the current slide in the company’s share price. Hargreaves still has a 20% stake in the business, so will be feeling the fall particularly acutely, and is appealing for the company to concentrate on its core platform business which enables investors to take care of their own stocks and funds. He argues that “advice is becoming less important and self-direction is becoming important” and feels that robo-advice products don’t fully consider a client’s individual circumstances. * SO WHAT? * This is a tricky one as there was a real move a few years ago to providing robo-advice to clients as a way of giving them some value add whilst reducing costs. I would say that although having such platforms give people the tools to do what they want, I still think there’s place for advice because I’d argue that most people don’t have a clue (or at least as much of a clue as they think they have). Although many people’s financial situations could be quite simple (own a house, have money in the bank), which could be easily covered by “robots”, others will have more complicated situations where they will need the advice from a living, breathing human with knowledge!

EY earmarks $2.5bn for consulting arm M&A splurge after planned split (Financial Times, Stephen Foley and Michael O’Dwyer) shows that EY is putting aside a $2.5bn warchest for its consulting business following the planned separation of its current audit and consulting businesses. EY is planning on a New York IPO which will give it more currency to win market share from its Big Four rivals. The new brand will not use the EY name after the split and $400m has been put aside to build a new brand. Partners still have to approve the plan, though. * SO WHAT? * This will be major if it goes ahead. Potential acquisition targets could include corporate advisory boutiques and specialist law firms outside the US. If things go well at EY, I don’t think it’ll be long before its Big Four rivals follow suit…

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!

Sports gambling in the US continues to evolve, SK Bio offers an explanation and there’s a UK mortgage time-bomb in the offing…

In a quick scoot around some of today’s other interesting stories, Bookies carve up US market but jury is still out (The Times, Callum Jones) does a really great job of summarising the story so far about how sports betting in the US has become a massive growth driver for UK gambling companies like Entain and Flutter Entertainment but after last year’s defeat in the California courts, gambling fans are hoping that Texas, the second most populous US market, will give them the backing they need  when voting starts this November. * SO WHAT? * Sports betting is taking place across most of the US now and supporters argue it just brings into the light something that goes on anyway, whether it is legalised or not. If it legitimate, it can be taxed after all! Still those opposed cite the devastation of problem gambling as something that is very real and needs to be taken account of.

I thought I’d include SK Bioscience says ‘national pride’ prevents China from accepting foreign Covid jabs (Financial Times, Song Jung-a) because South Korea’s leading vaccine producer – and one

of the world’s biggest contract manufacturers – offered a very blunt assessment of the likelihood of it supplying China with Covid jabs. * SO WHAT? * Beijing is sticking with its relatively ineffective vaccine despite the country being hit by a major outbreak. SK produces Covid vaccines for AstraZeneca and Novavax. I wonder whether China’s stance will change if the current outbreak gets out of control.

Back home, ‘Mortgage lottery’ to test finances of UK’s middle earners (Financial Times, Claer Barrett) highlights a ticking timebomb for mortgage borrowers in the UK as many who bought houses with much cheaper fixed rates in recent years will be facing much higher rates when their existing ones come up for renewal. Younger buyers are likely to be hit most as they will have stretched themselves the most when prices were higher and they are less likely to have savings to cushion the blow. * SO WHAT? * Although some lenders are expected to cut mortgages rates this week to attract more customers, they are still way higher than they were even a year ago. According to Moneyfacts, the average two-year fixed rate loan was 5.8% at the end of 2022, up from 2.4% at the end of 2021. Tough times ahead…

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 I’d start off the year with a useful lifestyle “hack” that is so simple I don’t know why I didn’t think of it before: Woman shares ‘brilliant’ tin foil trick that stops grease clogging up your sink (The Mirror, Zahna Eklund). Brilliant – yet so simple! Keeping it real here at Watson’s Daily…👍