Monday 31/07/23

1. In MACRO & OIL NEWS, the Bank of England is expected to raise interest rates this week and oil majors face more scrutiny
2. In TECH NEWS, Apple’s due this week, we look at X’s ambitions, SK Hynix and Samsung benefit from AI while we look at who controls AI and the debate about whether workers in this field need to be licenced
3. In REAL ESTATE NEWS, Blackstone pushes into AI data centres, office space demand rises above pre-Covid levels and mortgage rates are expected to fall
4. In MISCELLANEOUS NEWS, hospitality food costs are rising faster than prices in supermarkets and Rolls-Royce is looking good
5. AND FINALLY, I bring you some “impossible” body tricks…

So the Bank of England is expected to raise rates this week and oil majors come into focus…

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:

Bank of England poised to raise rates to a fresh 15-year high (Financial Times, Delphine Strauss) shows that our central bank is widely expected to raise interest rates this week despite early signs

that the rate of inflation is easing. At the moment, investors are expecting a 0.25% rise as being more likely than a 0.5% hike. The most recent release showed that overall inflation dropped unexpectedly – although services inflation fell by less than had been forecast – and there are signs that the labour market is losing some of its tightness. We will only have to wait until Thursday to see what the outcome is!

Then in Oil majors to face energy transition scrutiny as war profit boost fades (Financial Times, Tom Wilson and Myles McCormick) we see that Western oil and gas majors are likely to face renewed focus on their plans for energy transition following a prolonged period of bumper profits. It is worth noting that Chevron, Eni, Equinor, ExxonMobil, Shell and TotalEnergies all saw weaker Q2 earnings when they reported last week versus levels seen last year and BP, which is reporting tomorrow, is also expected to experience similar weakness. * SO WHAT? * The 18 months following the Russian invasion of Ukraine saw oil and gas prices shoot through the roof, powering industry profits to unprecedented levels. The focus over this period was more on supply rather than decarbonisation. While both BP and Shell have back-tracked in recent months on their climate commitments, others – such as Eni – have stuck with their plans. As things stand, investor focus on energy transition is more advanced than it is in the US (Exxon and Chevron both rejected climate change proposals this year) and, according to analysis by investment bank Raymond James, renewables and other low carbon energy solutions account for roughly 30% of total capex among European majors while they only account for less than 10% in the US. There is a loooooooong road to net zero by 2050!

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!

Apple limbers up, we look at X’s ambitions, SK Hynix and Samsung benefit from AI and we look at the latest thoughts on AI…

Then in Services are silver lining for Apple if iPhone slips (The Times, Callum Jones) we see that Apple’s latest results are due out this week and expectations are high for a strong performance. The company’s share price has boomed by over 56% so far this year but it is expected that slight iPhone weakness will be offset by the ongoing strength in Apple’s services business.

‘The everything app’: why Elon Musk wants X to be a WeChat for the west (The Guardian, Dan Milmo and Amy Hawkins) is an interesting article which delves into Musk motivations behind last week’s rebranding of Twitter to X. As I’ve said before, he wants to make an “everything app”, modelled on Tencent’s WeChat in China, and aims to add more and more functionality in communications and financial services over the coming months. Bearing in mind this transformation, Musk believes that the bird logo will be obsolete, hence the rebrand now. WeChat is ubiquitous in China and its ease-of-use comes down to the array of mini apps that exist within its “walled garden”, some of which are proprietary and some of which are from third parties. WeChat is like having OpenTable, Uber and Deliveroo within the Facebook app which uses your Facebook identity and Facebook payment account rather than your credit card – and you can use it to pay for other things like coffee and tube rides. * SO WHAT? * This all sounds lovely, but WeChat became what it is today while online services were still developing – but to do that now would be arguably more difficult because there are more prominent players in niches such as search (Google), social media (Facebook) and e-commerce (Amazon). The other thing is – will such platforms want to give control over their content to Musk and will users even trust Musk to oversee all this?

SK Hynix and Samsung’s early bet on AI memory chips pays off (Financial Times, Christian Davies and Song Jung-a) highlights the share price strength of South Korea’s leading chipmakers despite big operating losses thanks to investor hopes over the emergence of AI. * SO WHAT? * The combined global market share of SK Hynix and Samsung Electronics in “high bandwidth memory chips”

(“HBM” chips), which are key components in AI servers used to train AI systems such as ChatGPT, is a whopping 90% – so given the frenzy surrounding AI at the moment, you can see why investors are willing to overlook big operating losses! Both companies announced plans to double their HBM chip production next year as they scale back in other chips, where there is oversupply. HBM chips are used in Nvidia’s H100 GPUs, for which demand is super-hot at the moment.

There was some interesting AI discussion in Outcry Against AI Companies Grows Over Who Controls Internet’s Content (Wall Street Journal, Deepa Seetharaman and Keach Hagey), which does a great job of summarising the story so far with regard to resistance from content creators against bots scraping their content. * SO WHAT? * Authors, news publishers, Reddit and others want to get compensated for the content they provide and they are all in varying degrees of discussion with the likes of OpenAI about this currently. Ongoing lawsuits between the two sides could suddenly alter the equation and slow down the development of AI models if they get fined and/or have to make retroactive payments for content that has already been used. The drama continues…

I thought that AI workers could be licensed like the nuclear industry (Daily Telegraph, Matthew Field) was a fascinating article which shows that a paper written for the House of Lords published by DeepMind (an AI laboratory which is now part of Google, which is itself owned by parent Alphabet) suggested that researchers and companies who work on the most advanced AI algorithms should face some sort of vetting procedures. It was pushing for some kind of certification to prove that the individuals complied with specific privacy, ethics and safety standards. This has also coincided with the appeal for powerful algorithms to be subject to licensing. * SO WHAT? * This sounds like a reasonable suggestion given the huge ramifications of the rising pervasiveness of AI, but I do wonder how it will be enforced. That said, even if there are various loopholes, I still think we are morally obligated to do as much as we can to bring some kind of order and/or quality control to its development. Critics say there’s no need for this and implementing such measures will just make the already-powerful players more powerful because they are the ones that have the resources that will be needed to ensure compliance. They also say it will stifle innovation.

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!

Blackstone jumps on the AI trend, office space demand exceeds pre-Covid levels and mortgage rates are expected to drop…

Blackstone’s Breit sells property to finance push into AI data centres (Financial Times, Antoine Gara) reflects an interesting trend – that of buying into data centres that power the AI boom! The company’s $68bn flagship property fund has gone from being one of the world’s biggest buyers of property to being a major seller as it raises funds to plough into AI data centres. * SO WHAT? * Blackstone Real Estate Income Trust (aka “Breit”) bought about $60bn-worth of property from the beginning of 2021 to Q3 last year but then sold off over $10bn in assets to crystallise gains over the autumn period and are now leaping into a “once in a generation” opportunity to build properties that will take on rising computing demand from the AI boom. It is looking to splash out over $8bn to build a number of new data centres for some very big clients. Sounds like a plan – but I have no doubt that others will be looking to do the same, so I would expect prices of suitable sites to be very hot as everyone competes for the them for the same reason!

Elsewhere, Demand for office space bigger than before Covid (The Times, Dominic Walsh) cites the latest data from Rightmove (the

online property website) and EG (the supplier of property intelligence) which shows that the number of inbound inquiries to commercial agents for Q1 this year were higher than they were in the same period in 2019. The office property sector is also dealing with changes to the energy performance certificate that mean that they will have to meet increasingly stringent requirements firstly by 2027 and then 2030, which is going to cost landlords. Overall demand for office property depends on where you are in the country – so in Scotland, it’s actually gone up whereas London has seen demand decrease.  * SO WHAT? * I suspect that many landlords are currently worried about upgrading properties because of the costs not just for the labour and raw materials, but also because of the expense in financing it given debt is so expensive at the moment. They may also be more tempted to sell now if they think property prices are going to fall…

Then in residential property, Mortgage rates tipped to fall in boost from borrowers (Daily Telegraph, Melissa Lawford) shows that home buyers could expect more mortgage rate reductions if the Bank of England implements a 0.25% rise in interest rates this week – and doesn’t shock everyone with a 0.5% move. HSBC was the first bank to reduce its mortgage rates last week and then was followed by others.

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!

Hospitality is seeing food prices rising faster than at supermarkets and Rolls-Royce is looking good…

In a quick scoot around some of today’s other interesting stories, Hospitality food cost increases outstrip the supermarkets (Daily Telegraph, Hannah Boland) cites research from the CGA Prestige Foodservice Price Index which shows that pubs and restaurants have had to endure higher food price rises than supermarkets as their suppliers are hanging on for longer in passing on falling ingredient costs. * SO WHAT? * This just compounds the misery for pubs and restaurants as they are already having to pay higher wages and if the current situation persists, it will no doubt hasten the demise of many more. Some larger restaurant chains have tried to reduce costs by dealing directly with farmers.

Then in Rolls looking shipshape in wake of Covid (The Times, Robert Lea) we see that investors will be looking forward to more detail from Rolls-Royce as it publishes its official results this Thursday after last week’s surprise trading update got investors in a frenzy. * SO WHAT? * Investors will be wondering how much of the company’s current success is down to the new guy and how much was already put in place by the previous guy (Warren East) because that could potentially determine how things unfold from now. With civil aerospace revenues ticking along nicely and defence spending increasing strongly, there will be even more to cheer about if the whole Small Modular Reactor thing takes off!

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…

Can you touch your elbows together? Write with both hands? Well have a look at these and other challenges as outlined in Only 1% of people can do these ‘impossible’ body tricks – is that you? (The Mirror, Danielle Kate Wroe). There are some interesting individuals out there!