This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week.
THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.
IN BIG PICTURE NEWS...
This was the week when NATO discovered massive defensive weaknesses, when Donny T got into more big doo-doo and when Nvidia became more valuable than the FTSE100…
- IN DEFENCE NEWS – NATO found that Europe’s eastern flank is 95% deficient in air defences that would be needed to fend off a full attack from Russia. Given that the Americans are less and less keen these days on helping Europe, leaders are going to need to up their defence game. Interestingly, in a sign that defence is becoming less of a dirty word these days, football club Borussia Dortmund has just signed a multi-year sponsorship deal with Rheinmettall, the German weapons manufacturer. Will we see an increasing amount of “sportswashing” to give defence companies a more acceptable image??
- IN CHINA – factory activity came in below expectations in May, in a bit of a blow to President Xi’s efforts to boost manufacturing as a way of pulling China out of its current economic rut. Xi also called for more efforts to provide China’s youth with “high-quality full employment” almost a year on from when the administration banned the release of youth unemployment stats because they made them look bad (they have since started to publish them again).
- IN THE US – the economy grew at a slower rate than expected in Q1. This, along with stubbornly high inflation, is going to make it more difficult for Biden to boast about his economic credentials in the run-up to the presidential election. The other bit of big news in the US this week was Donald Trump being found guilty on all counts in the “hush money” trial. He is now the first former US president to be convicted of a crime.
- IN EUROPE – Ursula von der Leyen’s path to a second term has hit some turbulence as some major groups in the European parliament are threatening to block her nomination if she does a deal with Italy. Meanwhile Germany’s far-right AfD did worse than expected in local elections after a string of recent scandals. That being said, it’s still ahead of where it was in the polls versus where it was five years ago.
- IN THE UK – Sunak caused a bit of a ruckus after he announced a £2.4bn pensioner tax cut although he caused panic at the other end of the age scale with the weekend announcement of the reintroduction of national service. Labour boasted about a letter of endorsement from 120 business execs that it said reflected confidence in its policies but this was later ridiculed as none of the FTSE100’s CEOs signed it. Meanwhile, Labour promised that there would be no budget until September if it won the election but it was called on to clarify the timing of its pledge to slap VAT on private school fees.
IN COMMODITIES NEWS…
- IN OIL – Saudi Arabia announced the sale of $12bn worth of Aramco shares to raise additional capital for its sovereign wealth fund. Closer to home, there was an interesting comment in the FT about why European oil majors aren’t taking part in the US oil consolidation frenzy at the moment – mainly because they’ve already been through this consolidation phase. Meanwhile, Shell and Exxon are close to offloading assets in the North Sea in their withdrawal from the UK’s oil basin.
- IN MINING – BHP abandoned its bid to buy smaller rival Anglo American, so now the pressure is on for the latter to deliver on its restructuring promises!
- IN OTHER COMMODITIES – wholesale prices of orange juice hit new highs due to poor harvests, which themselves are due to consecutive hurricanes and spread of the greening disease. The disease is spread by insects and turns the fruit bitter before killing the tree itself. There is no quick “orange” solution, so alternative actions will be required. Elsewhere, there have been some bird flu outbreaks among US poultry flocks. It sounds like the problem is relatively contained but that situation could change…
IN CURRENCY NEWS…
- Sterling hit its highest level in two years against the euro as the market is now assuming that the Bank of England will cut interest rates less sharply than the ECB will.
IN BUSINESS & CONSUMER TRENDS NEWS...
IN BUSINESS TRENDS NEWS…
- Consumer goods conglomerates may break up – as we’ve already seen that Unilever is trying to sell off its ice cream business and Reckitt Benckiser is looking to offload its baby formula business. It seems that “focused and profitable” is deemed to be “good” while “broad-based and growing” isn’t.
- Goldman Sachs is putting another $20bn into private credit – as this unregulated area of lending continues to grow.
- Food delivery companies are finding it difficult to deliver – as leading delivery apps in Europe and the US have been struggling since their respective IPOs as shares in Deliveroo, Just Eat Takeaway, Delivery Hero and DoorDash are all now trading way short of the pandemic peaks as investors shift their focus from growth to profitability.
- Business confidence in the UK has hit a new high – according to Lloyds Bank’s latest business confidence index it is at its highest level since November 2015. Given that we exited recession in Q1, GDP growth is looking good and inflation is within touching distance of the Bank of England’s 2% target it’s understandable!
IN CONSUMER TRENDS NEWS…
- A report by the IFS says that UK living standards have lagged most peer nations since 2010, which is no doubt something that Labour will be latching onto! Given that one of Sunak’s biggest hopes to hang on to power is the turnaround of the economy, this won’t be a welcome bit of research.
- Shoppers seem to be staying at home, according to the last data from the BRC. Footfall is down on the high street and in shopping centres while the weather didn’t help either. Retailers will be praying for a strong summer! It is interesting to note, however, that online shoppers are increasingly ditching their baskets mid-order, according to a different report, because of higher delivery costs, fewer delivery options and higher returns fees.
- Meanwhile, shop price inflation dropped to its lowest level since November 2021, thanks to falling food prices and the latest stats from the CBI showed that retail sales expanded at their highest pace in a year-and-a-half in May while the latest GfK consumer confidence index shows that optimism is now at its highest point for over two years!
- The performance of fast-food chains owned by the likes of Yum Brands and Darden Restaurants has been mixed while “fast-casual” chains such as Sweetgreen, Chipotle and Shake Shack have done quite well over the last quarter and this could be a reflection of the latter being frequented by more affluent customers. Will this continue when fast-food restaurants inevitably cut their prices again??
- QR codes are increasingly being ditched for paper menus in the US. The codes rose in popularity under lockdown but now customers are pushing back because of privacy concerns and the fact that their use seems to lead to lower takings. Will this trend come over here?
IN AUTOMOTIVE NEWS...
IN EV NEWS…
- BYD unveiled new hybrid models this week that have a 1,300 mile range! Range anxiety? Pfft. What-evs.
- Tesla is now telling suppliers who provide parts to cars for sale outside China to build components outside China and Taiwan by early next year due to the ongoing trade tensions and likelihood of more sanctions.
- In the UK, the car industry body – the SMMT – is calling from more help from the government to get people to buy EVs but it’s difficult to get away from the fact that EV costs are rising generally as governments around the world look at ways to claw back revenue that they used to get from petrol car users. Auto Trader reckons that EV prices will continue to fall as manufacturers resort to discounts in order to boost flagging sales.
- Faraday Future is the latest EV start-up to have problems as it announced that it was withdrawing its production target guidance for the year. Will this be the next EV maker to go down the toilet??
- It was interesting to see some research from the Energy and Climate Intelligence Unit which found that plug-in hybrids cost double to fuel versus the manufacturers’ promises! If this proves to be true, could this be another “dieselgate” waiting to happen??
IN OTHER CAR NEWS…
- Research from the IEA showed that global sales of SUVs hit a new high in 2023. Emissions from such vehicles accounted for 20% of the global increase of CO2. If SUVs were a country, they’d be the world’s fifth biggest emitter of CO2 ahead of Germany and Japan!
IN TECH NEWS...
- OpenAI is pushing forward with training its next-gen AI model after its recent clash with Scarlett Johansson, which could yet have repercussions for privacy. It also admitted this week that its models are being used for nefarious purposes by operations linked to Russia, China, Iran and Israel – but then you do wonder that if this tool is being used to do this that it could also be used to counter such actions.
- Elon Musk’s xAI hit its $6bn funding target, so we’ll just have to wait and see how this goes now!
- Nvidia became more valuable that all the constituents in the FTSE100 put together this week, but it’s not the only way to play the AI theme – Japanese suppliers such as Tokyo Electron, Towa, Advantest and Screen are all part of the AI supply chain.
- A specialist Chinese fund has raised $47bn to boost its chip industry while Chinese chipmakers – such as SMIC and ChangXin Memory – are making a real push to replace foreign suppliers with local ones to limit the effect of US sanctions.
- Tencent-owned Supercell has launched its first new title in over five years – Squad Busters – as the Finnish company tries to turn its fortunes around.
- Samsung workers are going to embark on their first ever strike on 7th June for one day as wage negotiations with the union have not gone well.
IN RETAIL & LEISURE NEWS...
IN RETAIL NEWS…
- Walmart store managers could benefit from a new scheme that will enable them to earn up to $500,000 a year! Cue a deluge of applications!
- Gap reported higher quarterly sales and raised full-year guidance as turnaround efforts seem to be taking hold. This was the first quarter in years that all of its brands – Gap, Old Navy, Banana Republic and Athleta – announced gains. Let’s hope it can keep/build on this momentum!
- UK politicians are calling for more scrutiny about a potential Shein IPO in the UK, given their less-than-angelic track record. It’s going to be a tug-of-war between the LSE (which desperately needs a high-profile and big IPO) and the politicians (who want to look like they’re doing the right thing in the run-up to the election).
- Profits at Boots boomed thanks to beauty sales. I would have thought this would be at least partly due to the downfall of department stores…
- Pets at Home announced a subdued trading performance but let’s be honest – all eyes are on the review that will be conducted by the CMA into the company’s veterinary business. Any upside will be limited until Pets at Home is cleared (if it is cleared).
IN LEISURE NEWS…
- Subway announced a $3.4bn bond offering, the largest bond of its kind, as it looks to pay down some of the debt that was incurred by PE firm Roark Capital Group when it bought Subway for $9bn earlier this year.
- American Airlines announced a disappointing Q1 performance thanks to it falling behind rivals in its provisions for business travel. The CEO has admitted his strategy is wrong and is now working to turn things around.
IN OTHER NEWS...
- IN M&A NEWS – Chevron’s takeover of Hess was backed by the latter’s shareholders, ConocoPhillips is to buy Marathon Oil, T-Mobile is to buy most of US Cellular and Asahi Kasei made a bid for Calliditas Therapeutics while EP Group bought Royal Mail. Some are saying that Royal Mail could be broken up as a consequence…
- IN REAL ESTATE NEWS – Zoopla reckons that house prices won’t go crazy this year because more houses on the market will cater for rising demand (they’ve been strong prior to this because the number of properties on the market has been low). Also, WeWork founder Adam Neumann decided to drop his bid to acquire the bankrupt company.
- Salesforce saw its share price plummet after it announced its lowest-ever quarterly revenue growth forecast as investors fretted about the threat of AI-powered rival offerings. Salesforce reckons it’ll be an AI winner but investors weren’t convinced…
BANTER
My favourite “AND FINALLY” video this week was the one about the cottonwood fire. I thought it was fascinating!