Monday 31/10/22 🎃

1. In MACRO & ENERGY NEWS, Lula wins in Brazil, Russia changes the rules on grain and energy companies in the UK get a boost
2. In TECH NEWS, Google faces a game-changing court case, the pressure on Meta intensifies, Twitter plans big job cuts, Foxconn employees flee and it’s a mixed bag for the Indian gaming scene
3. In CONSUMER TRENDS NEWS, European consumers cut back and UK property demand in the south-east falls
4. In MISCELLANEOUS NEWS, HSBC’s green credentials come into question, BA’s owner sniffs around easyJet and Russian car makers try to resurrect production
5. AND FINALLY, I bring you a potentially risky Halloween trick…

So Lula makes a comeback, Russia turns the screws and UK energy companies get a boost…

📢 I will be doing the usual monthly news roundup with Jake Schogger of the Commercial Law Academy THIS WEEK on Wednesday 2nd November at 5pm. To see that, you will need to register HERE. It’s FREE – and given that it’s been yet another incredibly eventful month, I think it will be particularly useful to attend this call in order to make sense of what’s been going on !

Lula wins Brazil presidential election in historic comeback (Financial Times, Bryan Harris, Michael Pooler, Carolina Ingizza and Michael Stott) shows how the 77-year-old man who served two terms as president between 2003 and 2010 but was then accused of corruption and jailed before his convictions were annulled has made a dramatic political comeback by beating the right-wing incumbent Jair Bolsonaro in a closely-fought election. Luiz Inácio Lula da Silva won by less than 2% and his victory heralds a forthcoming lurch to the left for Latin America’s biggest country. He will take office on January 1st. Here endeth the rein of Tropical Trump! * SO WHAT? * This is pretty interesting as it signals the return of Lula, who I think it is fair to say has a LOT of baggage! It is also interesting to see that his is the latest victory of a left-wing leader in a region that had swung to the right in the last few years. It is likely that Lula will unleash spending on social projects and infrastructure, but he has yet to provide details on costings, which has already unnerved investors. He will also face difficulties in Congress, which is right-leaning, so he won’t have a completely free hand to make changes.

Meanwhile, Russian exit from Ukraine grain deal ‘catastrophic’ for poor nations (Financial Times, Polina Ivanova, Emiko Terazono and Roman Olearchyk) shows that Putin’s decision to abandon the wartime deal that keeps the supply of grain flowing through southern Ukraine will instantly result in prices booming, which will make life way harder than it already is for poorer nations. * SO WHAT? * This was a surprise move as grain traders and analysts did not expect such a sudden termination. Arif Hussein, who is the chief economist at the UN World Food Programme, says “dozens of countries” would be affected and the International Rescue Committee warned of “catastrophic consequences of Russia suspending its participation” in the deal that had been agreed over the summer in Istambul, which guaranteed safe passage for cargo ships coming from ports in the Black Sea. There is currently enough grain on these ships to feed over 7m people. Will this move alienate countries like Turkey and Saudi Arabia?

Then in Energy lifeline eases pressure on taxpayer (Daily Telegraph, Rachel Millard) we see that Elexon, which manages the electricity trades that keep power flowing, has made life a lot easier for embattled household energy suppliers by lowering the size of deposit needed to give power plants when they order electricity in advance. Elexon is owned by National Grid Electricity System Operator (NGESO) and gets a deposit from suppliers when they order power in the future just in case they go bankrupt. The size of the deposit increased when Russia invaded Ukraine, but Elexon feels it is able to reduce the amount required because of falling electricity prices. * SO WHAT? * This – along with warmer-than-usual weather at this time of year – will ease some of the pressure on electricity companies. However, as we all know, things can change again very quickly! Still, at least this provides some respite…

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!

Google faces a big case, Meta faces anger, Twitter faces job losses, Foxconn workers flee and India has gaming issues…

Google case before high court could reshape internet economy (Wall Street Journal, John D. McKinnon) shows that the whole tech industry is going to face a reckoning as the federal shield law is going to face scrutiny in the Supreme Court. The law, aka Section 230 protects the likes of YouTube, Facebook and Yelp for being sued for harmful content posted on their platforms by third parties. The Supreme Court is to hear a lawsuit brough against Google where the plaintiffs say that Section 230 should not protect platforms that direct people to harmful content, such as terrorist videos. Big Tech argues, however, that any laws that restrict content allowed on their platforms violates their First Amendment rights to free speech. Reducing Section 230’s protections could interfere with algorithms that keep users engaged and open the floodgates of litigation. * SO WHAT? * Big Tech critics say that these companies have enjoyed far more immunity than should be allowed and this has let them become too powerful. I am a big supporter of efforts to ensure that harmful content is suppressed and that tech companies are brought to account for facilitating things like acts of terrorism, violence and suicide. It’ll be interesting to see how this case goes or whether all the money that Big Tech have poured into lobbying will win out.

Talking of Big Tech, Meta shareholders vent anger at Zuckerberg’s spending binge (Financial Times, Richard Waters and Harriet Agnew) shows that some of the company’s big shareholders have been venting their frustrations with Meta Platforms as Zuckerberg continues to plough on with pouring money into the development of the metaverse. Losses at its metaverse development division, Reality Labs, are set to expand “significantly” next year after having reached $9.4bn already in the first nine months of this year! * SO WHAT? * Investors are bleating – but what do you expect when you invest in a company where the co-founder owns 13% of the equity in the company and 54.4% of the voting rights?! This is what tech companies DO! From the company’s point of view, though, it’s things like this that show why founders want to keep control of their companies – they want to have the flexibility to take a loooooooong term view of where their company is going. No doubt if this had been a “normal” company shareholder would be calling for Zuck’s head right now – but it isn’t. It may well be that the metaverse money pit could be the death of Meta/Facebook – but maybe it could work! I don’t think there is anything investors can do right now. If they don’t like it, get out of the stock (although that’ll be painful given that it has lost 74% in just over a year) or put your grown-up pants on and strap in for the long term.

Then in Twitter is drafting broad job cuts in whirlwind first weekend under Elon Musk (Wall Street Journal, Alexa Corse and Salvador Rodriguez) we see that Twitter has drafted plans for massive layoffs after he axed the CEO and CFO last week. These two were set to collect severance packages of over $100m, but Musk says he isn’t required to pay them!). It is thought that the axe will come down on engineering, in addition to other areas as Musk concentrates on cutting costs. Many employees are worried that he’ll cut jobs before November 1st – a vesting date for Twitter’s compensation scheme – thus denying them payment, although Musk has since refuted this. I expect more fireworks to come as Musk does not stand still!

Then in Workers flee China’s Covid restrictions at Foxconn’s huge iPhone factory (Financial Times, Ryan McMorrow and Gloria Li) we see that workers have been fleeing over the weekend from the world’s biggest iPhone factory in Zhengzhou because of a coronavirus outbreak. Covid has spread while food and medical supplies have been running low and workers are being locked in dorms under quarantine. Many workers have thought **** that, I’m off – and have run away on foot over the weekend. Some decided to walk hundreds of kilometres rather than suffer quarantine conditions. Foxconn has said that it will “improve the living and working conditions” for those workers willing to stay. * SO WHAT? * Wow. Think about THAT when you order your iPhone 14. This sounds like a nightmare but China’s strict stance on Covid is leading to incidents like this and, of course, a contraction in the economy. How long can this last?? Foxconn has not had the best of records when it comes to employee welfare – and it hasn’t exactly covered itself in glory this time around. You do wonder whether the company will learn from things like this as it looks to expand in the automotive industry.

Elsewhere, India’s ban on Chinese video games proves to be a double-edged sword (Financial Times, Benjamin Parkin) takes a look at what’s going on in India since a lot of Chinese games were banned in the aftermath of fighting between India and Chinese soldiers that resulted in deaths of the former at the hands of the latter on the Himalayan border. Since 2020, the Indian government has banned popular apps (including TikTok) and games from China in retaliation for the deaths but some believe that its actions are making other game developers wary of investing in India. SuperGaming and other Indian developers have tried to fill the gap in the meantime and have ambitions to become the next Zynga, Ubisoft or EA. * SO WHAT? * Although the environment is uncertain for foreign developers, maybe this is the time for Indian developers to shine and make their own mark. It will probably, however, take years before they can compete on the same level as others, but then again all it takes is one global smash hit and it could be catapulted into the stratosphere!

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!

European consumers get more cautious and UK property demand in the south east drops…

European consumers cut back on discretionary spending (Financial Times, Valentina Romei) shows that it’s not just us tightening our belts at the moment – the latest sales data shows that spending on cars, going to the cinema and hotels has dropped, as has expenditure on big ticket items. Despite this, the ECB looks set to continue to raise interest rates to combat inflation. All of this just reflects what we’re going through in the UK.

Demand for property slumps in the South East ahead of rate rise (Daily Telegraph, Alexa Phillips) cites the latest report from Zoopla which shows that demand for property in the region has fallen by a whopping 40% since the mini-Budget was announced! Mortgage costs had already risen, but Truss’s move put the frightners on potential buyers. Tough times. How long can higher house prices last??

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!

HSBC greenwashes, British Airways’ owner considers acquisitions and the Russian automotive industry limps on…

In a quick scoot around other interesting stories today, Sustainable HSBC ‘puts billions into fossil fuels’ (The Times, James Hurley) highlights early conclusions from an investigation carried out by the Bureau of Investigative Journalism and the BBC which claim that at least $2.4bn of deals that HSBC has used to reach its target of contributing up to $1tn in sustainable finance and investment by 2030 were actually funding activities that added to the climate crisis! This follows on from the advertising regulator banning a series of HSBC adverts last month for misleading customers over its sustainable finance target. * SO WHAT? * If this is true, talk about greenwashing! Sometimes it may be difficult to tell exactly where the money is going but banks should be taken to account for it, particularly if they are making big climate boasts. I suspect that HSBC won’t be the only bank doing this – it’s a bit like saying that it was only VW that fiddled emission numbers a few years back – they were all at it! I think regulation needs to tackle this – but policing it could prove to be much more difficult IMO. Who knows, maybe there are banks out there who are NOT doing this. If this is the case, they need to shout this from the rooftops asap otherwise they will be tarred with the same brush as HSBC.

Then in British Airways owner looks to snap up rivals as easyJet falters (The Times, Robert Lea) we see that IAG, which owns British Airways and was formed over ten years ago via the merger

of BA and Iberia, is thinking about buying troubled airlines including easyJet and TAP (Portugal’s flag carrier airline) after it managed to return to profitability in the summer. * SO WHAT? * I think this sounds like the testosterone talking at the moment! The airline industry (especially in Europe) is not in a good state at the moment. OK, so you could argue that this is why it could be possible to buy airlines on the cheap but given uncertainty on oil prices and the length of the economic downturn, I’d be inclined to be more cautious and save my money. If acquisitions could be made without increasing exposure to expensive debt, then that might not be so bad, but then again I think that you still need sustained underlying demand – which is by no means certain at least for the next year or so.

Where are the air bags? Russia’s hobbled auto industry struggles to reboot (Wall Street Journal, Georgi Kantchev and Nick Kostov) is a really interesting article that I’d recommend you read in full if you have access as it looks at Russia trying to build businesses and industries that were abandoned by Western companies taking a stand against the Russian invasion of Ukraine. Essentially, they are trying to make the most of what has been left behind but are also being forced to make their own parts etc. as suppliers have just dried up. The argument here is that this is what’s going on in the automotive industry – but it could be something that applies in other industries as well. It remains to be seen whether this will benefit Russia in the longer term as it become less reliant on outsiders.

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 day is upon us! I have to admit, I’m pretty ambivalent regarding Halloween but my kids love it. However, there is something a bit evil about the person in this article: Man branded ‘evil’ as he plans Halloween sweets prank – but some think he’s a ‘legend’ (The Mirror, Zahna Eklund). Oooooh! If you live in a rough neighbourhood, I’d say this would be a risky move! Mind you, someone I know – who shall remain nameless – played a similar trick on local kids back in our university days. This person got a bottle of wine, drank it with some friends, washed it out and filled it with water and then put the cork back in. When the kids came around (they were older kids – more teenagers), they gratefully took what they thought was wine and ran off 😱! I was absolutely amazed that there was no backlash afterwards 🤣