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 a week where the US managed to (eventually) avoid default, the first China-made commercial passenger plane took off and Nvidia hit a $1tn valuation…
- IN CHINA NEWS – the country’s economic recovery lost steam as youth unemployment hit a record high of 20.4% last month (but the headline rate has dropped), commodity prices are falling and the property market has been getting weaker.
- IN US NEWS – the US Senate passed a bill to end the debt-ceiling impasse and avoid default and credit rating agency Moody’s latest report reckons that the country will fall into recession along with Germany and the UK.
- IN EUROPE NEWS – Eurozone inflation fell to its lowest level since Russia invaded Ukraine, slowing faster than most economists had expected as inflation in Germany, France and Spain dropped, but ECB president Christine Lagarde said that inflation is still too high, implying that there could be more interest rate rises to come. Spain’s PM suddenly decided to call a general election just after his party took a drubbing in the local and regional elections! Turkey’s president Erdogan won the election (eventually!) and got yet another term in office and the West immediately pressured him to admit Sweden into NATO (he’s been dragging his feet on this).
IN ENERGY NEWS…
- The world’s renewables capacity is set to rise by around a third this year, according to projections by the International Energy Agency. Putin’s invasion of Ukraine has prompted a mad scramble for energy independence so wind and solar projects have been a notable driver in the shift to renewables.
IN CRYPTO NEWS…
- Bitcoin’s value may go up again over the next year despite it having already increased in value by 67% so far this year because of an event that only happens once every four years – “the halving”. Bitcoin’s value has risen in the past in the run-up to a halving…
IN BUSINESS, CONSUMER & EMPLOYMENT TRENDS...
IN BUSINESS TRENDS…
- China’s state-backed Commercial Aviation Corp of China had the first commercial flight of its C919 airliner on Sunday. OK so most of the parts came from outside China, but this signals potential competition in future for both Airbus and Boeing who currently dominate this market.
- TotalEnergies and Tree Energy Solutions are planning to build a $2bn synthetic natural gas plant in the US, highlighting the attractions of the money being made available via the Inflation Reduction Act. I suspect there will be a lot of companies opting to take Biden’s dollar here…
IN CONSUMER TRENDS…
- US consumer confidence fell across all age and income categories thanks to ongoing worries about the economic outlook. That said, it seems that more households are now considering the purchase of big ticket items in the next six months.
- UK food inflation calmed down a bit in May (from 15.7% to 15.4%), raising hopes that it may have peaked. Separately, there was speculation that the government is considering putting in place voluntary price caps on essential items like bread and milk. Needless to say, the retailers themselves aren’t keen…
- UK consumers got mortgage deals pulled after lenders reacted badly to last week’s higher-than-expected inflation figure. Lenders either pulled or raised mortgage rates in anticipation of more interest rate hikes from the Bank of England.
IN EMPLOYMENT TRENDS…
- US high-schoolers are increasingly foregoing university and taking advantage of the hot labour market at the moment, according to the latest figures from the Labour Department. It’ll be interesting to see whether this trend is something that will be felt elsewhere given that many countries are currently suffering from a cost-of-living crisis.
LOTS OF RETAILERS & LEISURE NAMES REPORTED THIS WEEK...
IN RETAILER NEWS…
- US discount retailer Dollar General saw its share price plummet by 20% as it unveiled a downbeat sales forecast. It said that it expected its core customer base to be squeezed for the rest of the year and that they are spending more on low-margin items (food) than higher-margin ones (non-food).
- US department store Macy’s also cut its annual profit and sales forecasts due to slowing customer demand. This has forced it to discount stock to clear it for the summer.
- IKEA announced the acquisition of Made4net, the US supply chain software provider, as part of its efforts to improve its customers’ online experience.
- Asda had a rejig by buying petrol stations from EG UK in an effort to close the gap with Sainsbury’s, but it’s funded with a ton of debt, which isn’t ideal in the current high interest rate environment.
- B&M did well from budget-conscious customers trading down and saw revenues and savings rising.
- WH Smith drew enough confidence from its Q1 performance to up its annual profit outlook. Its travel business is really motoring and even its stodgier high street business is doing quite well!
- Dr Martens did rather less well as it warned of dented profit margins. It is investing more money in the business and has suffered with marketing, distribution and inventory issues in the US.
IN LEISURE NEWS…
- Hollywood Bowl’s revenues hit a record high and it remains committed to being “affordable” entertainment in these straitened times.
- Vegan burger chain Neat Burger’s CEO said that the public is tired of vegan items as, on reflection, they were bombarded with too many poor quality products by too many companies desperate to jump on the vegan bandwagon. It seems that, for now at least, plant-based euphoria has dissipated, but I suspect this decline in interest has a lot to do with the fact that it’s more expensive than the meat and dairy products it emulates. I would have thought that this means there will be consolidation among brands with a few emerging stronger with more compelling offerings – because it seems that for these products to work they have to appeal to meat-eaters and vegetarians/vegans.
IT WAS ANOTHER EVENTFUL WEEK IN TECH...
IN AI NEWS…
- A group of over 350 AI pioneers signed a statement by the non-profit Center for AI Safety (CAIS) urging for governments to make AI a “global priority” alongside pandemics and nuclear war, saying that lack of control could result in the extinction of the human race 😱.
- More immediately, the sudden boom in AI will necessitate more data centres – and this will be bad for emissions as the information storage sector already has a bigger carbon footprint than the airline industry!
- Sunak said that he wants the UK to take a lead role in AI regulation. It seems that he may strike a middle course between the hyper-strict European and the super-relaxed Americans. As it is, almost 60% of people want regulation of AI in the workplace, according to a survey by the Prospect trade union.
- AI chips are getting scarcer, which is probably why Nvidia – which makes the highly desirable graphics processing units (GPUs) – hit a $1tn valuation this week.
- Foxconn is benefitting from the AI wave thanks to higher demand for its servers business while WPP is hoping to benefit from AI via its partnership with Nvidia to develop a platform that will create digital ads using AI.
IN OTHER TECH NEWS…
- Beijing is putting pressure on Arm to intensify chip co-operation with Chinese companies, universities and research institutes as it wants to continue to get access to its advanced tech.
- Meta announced the release of a new VR headset just one week ahead of the much anticipated release of Apple’s first foray into this area. A lot of improvements were made, but let’s face it, everyone wants to see what Apple’s going to unveil next week!
IN NEWS RELATED TO THE AUTOMOTIVE SECTOR...
IN CAR NEWS…
- Elon Musk got a warm welcome in China as some other non-Chinese companies are rethinking their commitment in light of ongoing tensions with the US. Elsewhere, Tesla is opening up its Supercharging network to other marques – starting with Ford. This will kick in in spring 2024 and other brands will also be allowed to use the network in due course (other marques have already been able to use some of the Supercharger network in the UK since last year).
- The leaders of Mercedes-Benz, Stellantis and others are appealing for a delay to the post-Brexit “rules of origin” that are due to kick in at the beginning of next year that will slap a 10% tariff on cars exported between the UK and EU if they don’t have at least 45% of their parts sourced between the two regions. They say that it’s too soon and that they will need a delay until 2027 to catch up with battery production.
IN EV NEWS…
- We heard that France’s first EV battery gigafactory will start production this summer in Lens. It’s owned by the Automotive Cell Company, which is itself jointly owned by TotalEnergies, Stellantis and Mercedes-Benz. The region is being nicknamed “battery valley” after having recently attracted another Taiwanese battery maker wanting to build a factory there.
- London-listed Savannah Resources has been given the go-ahead by Portuguese authorities to open up one of Europe’s first large-scale lithium mines. This is great news for European EV makers as demand on the continent is expected to quadruple by 2030 and it hardly produces any at the moment!
- In the UK, the think-tank Resolution Foundation is suggesting that ministers charge EV drivers a per-mile road tax to make up for the fuel duty that would be lost as drivers switch to electric. This will necessitate access to GPS data which is bound to be controversial, which could be a deal-breaker in the end! A solution has to be found for lost revenues, though…
- Auto Trader says that prices of used EVs have now bottomed out and demand is starting to grow faster than supply. They are, however, still expensive to buy, the charging infrastructure isn’t quite there yet and range anxiety continues to affect buying decisions.
AND IN OTHER NEWS...
- IN REAL ESTATE NEWS – UK house prices slipped, according to Zoopla, and the latest stats from Nationwide show that rising mortgage rates are responsible for recent pressure.
- IN DEAL-RELATED CHAT – the number of UK deals on the LSE hit a seven-year low (although the total value of global deals actually fell by a chunky 42% year-on-year, so we’re not the only ones suffering!) but soda ash group WE Soda is eyeing a London listing, potentially on the FTSE100! It was interesting to hear that some VCs, PE firms and accountancies are using AI to screen for potential acquisition targets – which would presumably speed up the selection process! Meanwhile, Franklin Templeton announced the acquisition of rival Putnam Investments for over $1bn as the former continues in its efforts to become a multi-class asset manager.
- IN OTHER NEWS – the FTSE100 had its quarterly reshuffle this week and British Land dropped out, to be replaced by IMI. Much was made of Ocado managing to hang on despite recent poor performance. British Land has been in the FTSE100 for the last 21 years but has suffered due to the impact of rising interest rates and the damage caused by last year’s autumn mini-budget.