Monday 15/05/23

1. In MACRO NEWS, the G7 and EU rule on Russian gas pipelines while Argentina faces tough choices
2. In FINANCIALS NEWS, the Bank of England aims to dilute rules for lenders, the EY Item Club reckons lending will increase and ‘sustainable’ funds are warned about greenwashing
3. In RETAIL NEWS, Amazon overhauls its delivery network and Morrisons cuts prices
4. In MISCELLANEOUS NEWS, public sector pay rises, grad salaries fall in real terms, AI voice synthesising poses dilemmas and fake meat continues to slide
5. AND FINALLY, I bring you the best bits of Darth Vader…

So the G7 and EU rule on Russian gas pipelines while Argentina is in a tricky situation…

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:

G7 and EU to ban restart of Russian gas pipelines (Financial Times, Henry Foy, David Sheppard and Alice Hancock) shows that the blocs will ban Russian gas imports on routes where Moscow has curtailed supplies. This would be the first time that pipeline gas trading will have been stopped by Western powers since the Russians first invaded Ukraine. * SO WHAT? * This will mean that Russian gas pipeline exports to countries such as Poland and Germany will be blocked in an effort to cut off energy revenues that finance the Russian war machine, ratcheting up pressure on Moscow. This move may also encourage investors to put money into LNG infrastructure projects in Europe and North America by

removing the threat of an immediate resumption of cheap gas flows from Russia once the war is over. Moscow’s share of European gas imports has dropped from over 40% to less than 10% while mild weather has helped to bolster energy reserves.

Then in Argentina plans emergency economic measures to avoid big devaluation (Financial Times, Michael Stott) we see that the troubled country is due today to announce a new raft of emergency government measures – one of which could include boosting the interest rate to 97% – in an attempt to avoid its worst economic crisis for twenty years. Its inflation rate hit a whopping 109% a year in April, its highest rate since 1991. Its economy minister is trying to get the IMF to bring forward its payout of agreed loans, but although it has been very generous towards the country, it is thought to be unlikely that it will release funds earlier than agreed in order to keep the current government in power (there is an election in October, which it is likely to lose). * SO WHAT? * Critics have said that there are no reserves left, that the country is massively indebted to the IMF, has no access to capital markets and massive interventions by the state aimed at bringing down inflation and boosting the economy have so far failed miserably. To make things even worse, agricultural exports have been hit badly by a severe drought. Very tough times…

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 Bank of England loosens rules for lenders, lending looks likely to increase and “sustainable” funds that greenwash are put on watch…

Bank of England to water down rules for lenders in boost for trade (Daily Telegraph, Szu Ping Chan) shows that our central bank is thinking about reining in the scope of upcoming rule changes in order to ease the burden on lenders. The UK is planning to take on new international capital rules from 2025 which would effectively force British lenders to keep billions of pounds more than they currently do in reserve as cash buffers. The problem is that the plan was for us to adhere more strictly to the regulations but that would have meant that our lenders would have been put at a significant disadvantage versus their European counterparts because it would mean that they will have less in the pot to lend out. It is thought that this would, in turn, disadvantage SMEs who would be seen as riskier to lend to. No doubt this debate will rage on as it will directly affect the growth potential of SMEs in particular.

Meanwhile, Lending to increase as confidence grows (The Times, Arthi Nachiappan) cites predictions by the EY Item Club that lending will rise as confidence continues to grow. The economic forecasting group reckons that total bank loans are set to rise by 1.2% in 2023, which equates to an additional £29bn in lending, due to the growing belief that the UK will avoid a recession. Generally speaking, confidence is increasing thanks to a combination of factors: better-than-expected economic growth, slowing inflation and the steep fall in wholesale gas prices being among them. It also expects mortgage lending to rise by 1.2% this year, rebounding from its lowest level in 14 years at the beginning of this year. * SO WHAT? * There seems to me to be quite a lot of confidence knocking about at the moment, not just by businesses – but also

consumers. It’s pretty surprising when you consider how expensive things have become these days, but it seems that whatever poll you look at currently draws the same conclusion! When that is the case, it is difficult to ignore and therefore needs to be factored into forecasts.

Then in ‘Sustainable’ pension funds accused of greenwashing over billions held in oil and gas firms (The Guardian, James Tipper) we see that, according to research by the Carbon Tracker Initiative, asset managers have invested $376bn in oil and gas companies despite saying publicly that they want to limit global temperature rises to 1.5°C. The environmental think-tank found over 160 funds badged as being “green” held $4.6bn in companies such as ExxonMobil, Chevron and TotalEnergies. * SO WHAT? * This comes as the UK’s FCA is planning to implement greenwashing rules that will aim to make investment funds more accountable for how they describe themselves regarding their environmental commitments. I’ve said this before but I think that most people don’t really understand how hugely elastic interpretations of ESG are. There are all sorts of rules governing what qualifies for inclusion in a fund and what does not and what seems to be simple enough to the individual (“I want to invest in environmentally-friendly companies”) can actually be fiendishly difficult to implement, depending on how strictly you interpret this. The fact of the matter is that funds that did NOT have oil or defence companies in their portfolios have generally performed badly since the outbreak of war in Ukraine and the relative underperformance has brought to light weaknesses in ESG funds’ armour. This is a moving feast, but clearly something needs to be done about this given that just under 50% of all UK employees pay into employer schemes or private pensions where they are able to make a choice as to how that money is invested.

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!

Amazon does an overhaul and Morrisons cuts prices…

Amazon Overhauls Delivery Network to Dispatch Packages Faster, More Cheaply (Wall Street Journal, Sebastian Herrera) shows that the e-tailing giant has embarked on a major overhaul to its US logistics network in order to get products to consumers faster and boost profitability. Initiatives have so far cut delivery times, streamlined inventory management and re-jigged search results that customers see on its e-commerce site. The recent changes have represented one of the company’s biggest ever shifts in the way it ships goods around the world. * SO WHAT ? * The change was needed given how the business expanded rapidly under lockdown and how demand has cooled since then. After a frenzied period where Amazon accelerated growth to meet the sudden demand, it’s probably just as well that it reflects on its experiences to continue to evolve with changing customer behaviour.

Then in Morrisons slashes prices in ‘deflation dividend’ (Daily Telegraph, Hannah Boland) we see that the UK supermarket has decided to get in on the price cutting that Sainsbury’s and Tesco’s started last week and slash prices of breakfast essentials by over 50%. This will be its fourth wave of price cuts since the beginning of the year. Various types of rolls, coffee and conflakes prices have been cut to the extent that they are now cheaper than the equivalent sold at Aldi, Sainsbury’s and Tesco. * SO WHAT? * Given that Aldi overtook Morrisons last year as the UK’s fourth biggest supermarket, clearly something had to be done to catch the eye of the increasingly thrifty consumer! Supermarkets seem to be smarting a bit from criticism of greedflation and not passing on price drops to consumers and have responded in a small way by making a big song and dance about cutting prices for breakfast items. Surely this will turn into a broader-based price war as consumers will no doubt be more price sensitive these days than they have been in the past. Bad for the supermarkets, good for the consumer…

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!

Public sector pay rises, grad pay falls in real terms, AI voice synthesis poses questions and fake meat continues to drop in popularity…

In a quick scoot around some of today’s other interesting stories, Public sector pay rises at record high as teachers quit (Daily Telegraph, Melissa Lawford) cites the latest CIPD’s quarterly “Labour Market Outlook” as showing that public sector employers are planning on increasing pay by 3.3% as they struggle to find staff – particularly in the education and healthcare sectors. Almost two-thirds of employers said that they were finding it hard to fill roles. * SO WHAT? * This represents a record high in terms of increase, but employers are facing both recruitment AND retention problems. In a tight labour market there are lots of alternatives and so it seems that many are preferring them instead. The state of pay and conditions always seems to be played out very publicly in the media and bad PR over the last few years will have done little to encourage people to join or stay. I don’t think much can be done here apart from boosting pay by a significant margin – or wait until the labour market gets weaker, neither of which will be easy.

Meanwhile, Graduate starting salaries plunge (Daily Telegraph, Eir Nolsoe) cites the latest Indeed data which shows that graduate salaries are taking a real terms hit of up to £6,500 as they just aren’t keeping up with inflation. The average grad starting salary is now £26,500 (which is higher than the £24,000 level it was at the beginning of 2019), but if you adjust this for inflation, it’s actually more like £22,237 in real terms. * SO WHAT? * This is tricky, but what do you do? If you raise wages, people spend more, which drives up inflation, which means you have to pay even more etc.etc. However, let’s be real – if people can’t afford to pay rent and eat food, who cares?? It may well be that employers will have to take on fewer people (or cut numbers) in order to take care of their staff but it seems that, for the moment, demand for workers exceeds supply…

AI voice synthesising is being hailed as the future of video games – but at what cost? (The Guardian, Josh Taylor) is a really

interesting article which takes a look at how AI could transform voice acting and music. To take an example, 2013 PS4 game Red Dead Redemption 2 used 700 voice actors to read 500,000 lines of dialogue over 2,200 days to bring it all to life. However, this can be hugely reduced by the use of voice synthesisers, such as the one made by Aussie software developer Replica Studios, which use AI to create real-time responses and almost limitless dialogue options. Replica uses the voices of 120 actors for use in video games that are capable of up to 1,000 different vocal tones! * SO WHAT? * This sounds scary from the perspective of actors not having control of what they say – and from the perspective of jobbing voice actors themselves who will undoubtedly lose out – but Replica argues that voice synthesisers will help smaller games studios release games on smaller budgets and give the actors on the roll income even when they are not in the studio. At the moment, there are no policies on all this, but as with everything in AI, there are many threats and many opportunities…

Then in Fake meat: has-beans suffer a market panning (Financial Times, Lex) we see that plant-based meat has fallen a long way from the frenzy of 2019 when Beyond Meat had a wildly popular IPO in 2019. The shares priced at $25 and shot up by almost ten times within two months, giving the company a valuation of almost $14bn. Since then, the share price has cratered by 94%. * SO WHAT? * The main reason for this weakness is plant-based “meat” has not been adopted widely enough and I think that is largely due to it costing more than real meat. In a cost-of-living crisis, everyone – including vegans and vegetarians – has been downgrading to cheaper proteins, be that in the form of cheaper cuts of meat or quinoa. The other thing is that there are relatively low barriers to entry to the industry. Beyond Meat is suffering, as is Impossible Foods, and it is worth noting that Brazilian meat behemoth JBS has actually closed down its US plant-based foods business, called Planterra, just two years after it launched it! I think that prices of its wares need to fall to at least the level of traditional meat to stand a chance of longer-term survival – but I would suggest that, given the fragmented nature of the market, the whole sector needs to consolidate in order for these firms to extract benefits of scale that can deliver reduced prices to the end customer.

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 put a video on here a little while back about Gary the Stormtrooper, so I guess it’s only fair to put his boss, Darth Vader on here as well in some of the best bits of the stop-animation Robot Chicken: Star Wars show!