Watson’s Weekly 06-07-2024

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.

This was the week when Labour won its first election in 19 years, when Biden felt the heat and when Europe brought in the tariffs for Chinese EV imports…

• IN THE US – things are getting heated for Joe Biden following his disastrous performance at the TV debate last week. Democrats have lined up to defend him, he admits that he “screwed up” but he continues to be under pressure to bow out of the race although both presidential candidates clearly have their individual issues!
• IN EUROPE – central bankers are getting increasingly nervous about the effect that Rassemblement National might have on Europe after Le Pen’s party won the first round of the vote which saw an unusually high turnout and a shift in the way different age demographics voted. Macron looks like he’s having to make compromises with the far-left in order to prevent RN from getting a majority. In all the kerfuffle, no one really noticed that the eurozone’s headline inflation rate fell to 2.5% (although services price inflation was still high at 4.1%).
• IN THE UK – Labour won the general election with a massive majority, sterling strengthened, Nigel Farage became an MP for the first time and we now await the new PM getting to work on his new policies! The UK services sector lost momentum as companies put activity on hold ahead of the election but at least the new lot will be able to benefit from falling inflation and fuel prices. City analysts are hopeful that this big Labour victory will increase confidence in the UK and attract investment as a result.
• IN SOUTH AFRICA – Re-elected president Cyril Ramaphosa managed to announce a new cabinet, a month after his ANC party lost its majority for the first time since the end of apartheid 30 years ago. So far so good, but it’s going to be a tough old road ahead…

IN ENERGY NEWS…

• Shell has halted the construction at one of Europe’s biggest biofuel plants, putting a spanner in the works of airlines’ ambitions to offer passengers lower-carbon flights. This is the latest example of an oil and gas company reneguing on its environmental promises.

IN BUSINESS TRENDS NEWS…

• Management consultancy Bain & Co are pulling back from working in certain sectors in China as it adapts its working practices in the country following its highly-publicised raids last year by Chinese authorities on its Shanghai offices.
• Air freight rates have been pushed higher because Shein and Temu send so much 💩 everywhere! It’s made worse by ongoing issues in the Red Sea making sea freight expensive as well, so there’s not much in the way of alternative! Mind you, the EU is considering slapping customs duties on the two e-tailers who split deliveries up into smaller packages to avoid paying duties (which is the thing that’s clogging up air freight).
• Air France-KLM has said it’ll take a dent in its finances because would-be visitors are avoiding Paris during the Olympic Games.
• UK manufacturing growth has slowed down thanks to shipping delays I mentioned above in the Red Sea and resultant higher freight costs.
• Law firm Hogan Lovells launched a new “microaggressions” hotline where staff can report transgressions anonymously. I think this is less about welfare (I really don’t think people are going to use this that much) and more about the firm covering itself from any future lawsuits because they can say that they provided a way that inappropriate behaviour can be reported.

IN EMPLOYMENT TRENDS…

• Morgan Stanley became the latest investment bank to ditch the bonus cap after Goldman Sachs and JP Morgan ditched it before them.
• British uni grads are finding it particularly hard to find an internship in what is the toughest market for at least seven years. It seems that the number of internships relative to job openings has trended lower than any year since at least 2018 as the wider jobs market experiences a slowdown.

IN CONSUMER TRENDS…

• UK house prices ticked up for the second consecutive month in June, according to the latest Nationwide figures, while Rightmove data shows that rents are also on the rise and Zoopla says that the proportion of gross earnings spent on rent are at a record high. In London that equates to an eye-watering 41% of earnings 😱! Although we tend to hear a lot about younger people having problems with renting and getting on the housing ladder, data from Paragon Bank shows that there is an increasing number of older people who have not been able to get on it either! Estate agent Savills reckons that new demand from the over-35s for private rental tenancies will shoot up by 8x by 2030.
• Rich people have started to sell up assets including shares and property in anticipation of a tax raid from a Labour government.

IN RETAIL NEWS…

• Amazon’s international business has rebounded after a period of streamlining and founder Jeff Bezos announced plans to sell $5bn of Amazon stock shortly after the company’s valuation breached the $2tn valuation threshold. The company also announced that it won a $1.3bn contract to build an Australian defence cloud which will enhance the secure sharing of information with allies.
• We heard that Dior and Armani were named as high end luxury houses using exploited labour in Italy, attracting criticism from a Milan court of failing to oversee their supply chains properly. Surely they won’t be the only ones doing this – and it also goes to show that it’s not just retailers at the cheap-and-cheerful end of things (like Boohoo and Shein) that indulge in a bit of labour naughtiness.
• M&S has launched a new clothing repair and alterations service as part of efforts to improve its sustainability credentials and it was also interesting to note that it was increasing stocks of smaller womenswear sizes, which implies that it customer base may be getting younger!

IN LEISURE NEWS…

• Embattled cinema chain Cineworld is looking at closing 25% of its cinemas in a bid to cut costs. It’s also renegotiating the rents for around half of its UK sites. Cinemas had a rough pandemic and just when things were starting to improve, they were hit by the Hollywood writers’ and actors’ strikes.

IN BATTERY & CHARGING NEWS…

• Hyundai and LG Energy have opened a $1.1bn battery cell plant in Indonesia as part of the country’s efforts to move further up the global EV supply chain. It’s the first of its type in Indonesia and is projected to have an annual production capacity of 10 gigawatt hours. About 90% of its products will be exported to South Korea and India.
• Europe’s biggest EV battery “hope” Northvolt continues to suffer mysterious deaths of people connected to its gigafactory. It is powered by renewable energy from a hydroelectric plant and will churn out lithium ion batteries that will have a 90% smaller carbon footprint than leading rivals. There are rumours of a potential $20bn stock market listing in 2025.
• A Cambridge-based start-up called Nybolt claims to have made a breakthrough by developing an EV that can be charged in just five minutes – the same length of time it takes to fill a car with petrol! It introduced the prototype vehicle, which has a range of 155 miles, last week. Clearly now this needs to be built at scale!
• The UK’s Road Haulage Association is now calling for the new government to invest in the virtually non-existent UK charging structure for Britain’s fleet of 300 electric HGVs. At the moment, there is just one public charging point for HGVs in the entirety of the UK!

IN CAR NEWS…

• EV sales in China rose in China in June thanks to government subsidies, tax breaks and steep discounts. BYD will have to watch its back, though, as domestic rivals are snapping at its heels!
• The EU decided to go ahead with imposing import tariffs on EV imports from China as negotiations between the EU and China failed to yield any results. BMW is belly-aching about the imposition talking about it being bad for competition, but this is clearly all about the company not wanting to suffer retaliatory measures from the Chinese for their China business. Mercedes-Benz and VW are saying the same for the same reasons.
• Tesla deliveries fell for the second straight quarter, but by less than the market was expecting and it got a bit of good news at the end of the week that it made it onto a Chinese local government’s list of EVs that can be bought by public, party and government groups for the first time. It is the only foreign-owned car maker on eastern province Jiangsu’s list.
• In the UK, new car registrations have reached a level not seen since 2019 and EV sales have reached their highest ever market share of 16.6%! On the flipside, though, there has been a general slowdown in sales over June and plug-in hybrid and hybrid sales have performed better than those of fully-electric cars.

IN AI NEWS…

• Google emissions have jumped by 48% in the last five years thanks to the expansion of data centres that power AI systems. This could put its “net zero by 2030” targets in jeopardy.
• Apple joined OpenAI’s board as an observer as part of the deal announced last month to integrate ChatGPT into Apple devices.
• There were a couple of interesting and controversial developments we heard about this week – firstly there was the all-AI generated ad from Toys ‘R’ Us which was made solely using Sora, OpenAI’s video making tool. Then there was the announcement by ElevenLabs which now has permission to clone the voices of Judy Garland, Sir Laurence Olivier, James Dean and Burt Reynolds so that users of its “Iconic Voices” tool can select them to read their favourite novels!
• Research from chip consultancy SemiAnalysis estimates that Nvidia is on track to sell $12bn worth of AI chips to China despite US sanctions! This wasn’t confirmed by the company itself but it does show that there are ways around these things if there is enough will and money involved…

ELSEWHERE…

• Meta was accused of breaking the EU’s new digital laws by using an advertising model that charged users for ad-free versions of Facebook and Instagram. If users don’t pay, their personal data is effectively deemed fair game for ad purposes. The EC says that Meta must launch “equivalent” versions of Facebook and Instagram that don’t use as much personal data.
• Samsung reckons it’ll see booming profits in Q2, carrying on the momentum it saw in Q1 when it returned to profit after four consecutive quarters of losses. It’s benefited from higher prices and strong demand for its powerful chips. Its full quarterly results will be released later this month.

• BlackRock bought Preqin, a UK private markets data group, for £2.55bn after fighting off competition from Bloomberg and S&P Global to buy it. There have been grumblings since that BlackRock had paid through the nose for the privilege.
• TDR Capital is looking to offload BPP and has appointed bankers to lead the sales process. This looks like another sign of growing confidence in the market as M&A activity continues to increase!
• Boeing agreed to buy Spirit AeroSystems in a $4.7bn deal after spinning it off back in 2005. This is all part of efforts to improve quality control after all the problems with the Boeing 737 Max jet. This has created problems, though, for its facility in Belfast where 2,400 jobs hang in the balance.
• The owner of Saks Fifth Avenue, holding company HBC, has agreed a deal to buy rival Neiman Marcus in a $2.65bn deal. Supporter say this will create a luxury retailing powerhouse while Amazon, which will take a minority stake in the company (which is to be called Saks Global) will provide it with tech and logistical expertise.

My favourite “AND FINALLY” video this week was the one with the absolutely amazing busker! A nice bit of music to end the week with 👍