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 of HS2 drama, John Lewis drama and Spotify moving into audiobooks…
- IN GLOBAL DEVELOPMENTS – there was panic in the bond markets as US treasuries were subject to a major sell-off and UK bond yields reached their highest level since 1998! Investors clearly believe that central banks will keep interest rates higher for longer than had previously thought. Meanwhile, the WTO slashed its growth forecast for global trade growth in half thanks to stubbornly high interest rates hitting customer spending power in the US, Europe and Asia.
- IN CHINA – it’s hoped that the current Golden Week holiday will give the economy a bit of a boost. It is interesting to note that, eastern European countries are benefiting from a China exodus as companies decide to spread their bets given the ongoing China-US tensions. They are also benefiting from Chinese companies wanting to move closer to their customer base.
- IN THE UK – debate raged about HS2 as northern mayors battled right up to the wire to save the Birmingham-Manchester leg of HS2 but it was to no avail as Sunak axed the extension but promised to use the money saved on transport improvements in the region. It is worth noting that Labour’s Keir Starmer refused to commit to undoing the HS2 cuts. Sunak also announced an intention to reform A-levels with the introduction of a new broader “Advanced British Standard” qualification and committed to introduce a yearly raising of the legal smoking age, which I think sounds good but will be very difficult to enforce!
IN ENERGY NEWS…
- Rolls-Royce made it to the short-list to supply Britain’s first mini-nuclear power plants. Six designs are in the running to get £20bn in taxpayer funding and Rolls-Royce is thought to be a front-runner. Contracts are due to be awarded next summer.
- The West continues to rely on nuclear materials from Russia, including enriched uranium. Did you know that, last year, US power companies bought almost 25% of their fuel supplies from Russia?? The West continues to try to wean itself off Russia-supplied materials but clearly this is still a work in progress!
IN BUSINESS EMPLOYMENT & CONSUMER TRENDS NEWS...
IN BUSINESS TRENDS…
- CASINOS – Macau casinos are bouncing back and gambling revenues are rising. Of the six casino operators in Macau, Sands China and Galaxy Entertainment are more focused on leisure gamblers and least exposed to the clampdown of high-rollers and therefore more likely to see upside.
- FOOD PRODUCERS – US food giants like Campbell Group and Conagra Brands are thinking about how they will react to the impact of Ozempic and other weight-loss drugs. Recent research by Morgan Stanley suggests that daily calorie consumption could fall by up to 30%, which could be bad for these companies!
- UK MANUFACTURING – the latest S&P Global/CIPS manufacturing PMI highlighted the worst fall in factory output for 15 years thanks to the effects of higher interest rates and a downturn in global demand.
- UK SERVICES – thankfully, the UK services sector contracted by less than had been expected last month despite consumer spending weakening. I say thankfully because the services sector makes up most of the UK’s GDP!
IN EMPLOYMENT TRENDS…
- Bosses could get punished for “excessive” monitoring of their staff. The Information Commissioner’s Office (ICO) has the power to impose fines of up to 4% of a company’s global turnover for breach!
- Those pesky bosses also reckon office workers will be back to five days in the office by 2026, according to a report by KPMG. In a tight labour market, employees have the upper hand – but we’ll see what employers’ true colours are when the pendulum swings back to them. However, I think that the longer more people work from home the more “normal” it will become and the harder it will be to eradicate.
IN CONSUMER TRENDS…
- RETAIL PRICES – UK retail inflation dropped to its lowest level in a year, according to the latest stats by the BRC. This is particularly good news for lower income households where the proportion of disposable income spent on “basics” like food and utilities is higher.
- UTILITY BILLS – English water firms on the verge of hiking water bills to cover the cost of repairing leaks as they seek approval from Ofwat for their 2025-2030 spending plans.
IN RETAIL & LEISURE NEWS...
IN RETAIL NEWS…
- SHOPLIFTING – 88 retailers have come together to ask the Home Secretary, Suella Braverman, to take action against the rise in shoplifting and violence against staff. They want stronger action against the perpetrators and more police to respond to incidents. I guess this is a sign of the times and a consequence of the cost-of-living crisis…
- JOHN LEWIS – had an eventful week this week! First of all, it reported an 8% rise in footfall to its stores but then the chairman of John Lewis, Dame Sharon White, announced she would be stepping down by early 2025 (although you’d think that could be earlier if they find a suitable replacement).
- IN APPAREL RETAILERS – Boohoo warned that sales will fall by more than expected this year as shoppers bought fewer items while competitors like Shein continue to pile on the pressure. The embattled Superdry sold off its South Asian intellectual property assets for £40m as part of a JV deal with Reliance Brands, India’s biggest retailer. This comes not long after it did something with its Asia-Pacific IP rights to South Korea’s Cowell Fashion Company. What will it sell off next??
- Tesco put in a solid H1 performance, giving it enough confidence to raise both sales and profit forecasts for the full year. The results came in above consensus estimates and the CEO sounded quite upbeat about the run-up to Christmas!
IN LEISURE NEWS…
- Greggs is trading well and promised that it would not increase prices this side of Christmas. There was discussion as to future growth potential with franchising, which has plenty of upside from here.
- Britain’s biggest Mexican food chain Tortilla is looking to expand both domestically and in Europe. Sounds great but this is a crowded market.
- Airbnb is thinking about moving into the longer-term rental market and is looking at providing more “experiences” and “become a greater part of your daily life”. It wants to offer rentals for up to a year and potentially rental cars, among other things.
IN REAL ESTATE NEWS...
- IN CHINA – Evergrande’s shares started trading again after they were suspended during an investigation of its founder. They shot up by 42%! Sounds dodgy to me as the investigation is still ongoing, the debts are still high and there’s no plan (that I’m aware of)!
- IN SAUDI ARABIA – we see that Riyadh Season, a government-backed entertainment project overseen by the kingdom’s General Entertainment Authority, has put up most of the $55m of debt and equity raised by HyperSpace, a digital theme park set-up. It’s all part of plans to create great leisure facilities that will appeal to locals and tourists alike!
- IN EUROPE – house prices fell – on an annual basis – for the first time since 2014. This is notable because EU house prices have been rising by 50% on average since 2015 before they started to cool last year as a result of rising mortgage rates. House prices fell particularly steeply in Germany – by 9.9% – over the last year.
- IN THE UK – the construction industry is suffering from a slowdown, prompting companies to cut their headcount. House building also saw its worst drop-off in activity since April 2009! From the consumer side, house prices are falling in all UK regions for the first time since 2009 but given that they’re still high, it wasn’t surprising to hear that 25% of new homeowners aged 29 and under are opting for extra long mortgage terms (aka “marathon mortgages”) of up to 40 years to keep monthly mortgage payments reasonable. The proportion of people going for marathon mortgages has historically been about 10% – so 25% is a very big jump! REGARDING RENTALS, tenants continue to face higher rents and data from Rightmove shows that renting is now more expensive than it’s ever been! A separate report from Hamptons recently concluded that rents were rising at their fastest ever pace as well. A lot of this is driven by private landlords selling up, which leaves build-to-rent landlords in pole position to move in a make money with their superior financing and bargaining power.
- Canadian investment firm Brookfield announced it would buy Banks Renewables, one of the UK’s biggest renewable developers, in a $1bn deal. This is a rare bit of positive news in a sector that’s been hit with generally negative newsflow about projects being abandoned because of cost rises and lack of government funding etc.
IN TECH NEWS...
IN AI NEWS…
- Calls for AI “guard rails” are increasing to prevent AI from generating toxic speech, misinformation and assisting crimes. A group of companies in this space, including Anthropic and Google DeepMind, are putting together “AI Constitutions” to keep their models on the straight(ish) and narrow. However, there is clearly an urgent need for this given the rapid development of AI at the moment!
- Publishers such as the News Media Association say that the proliferation of AI-fabricated articles under false branding poses “significant threats to the information ecosystem”, again emphasising the need for deals to be struck between news outlets and companies like OpenAI.
ELSEWHERE…
- The EU is looking at potentially reassessing tech exports to China as the whole China-paranoia continues and is particularly protective of tech in semiconductors, AI, quantum computing and biotech. Meanwhile, on the other side of this, Apple has bowed to Chinese pressure to ban unapproved apps – but then this is understandable considering that 20% of its revenues now come from China! In other Apple news, it rolled out an update to stop its new iPhones overheating.
- Amazon and Microsoft are now going to be investigated by the CMA for their respective dominance in cloud computing as an Ofcom study found that these two players alone have a 70-80% market share between them!
- Candy Crush saga reached a major milestone this week as it hit $20bn in revenue since it was released back in 2012! The game’s developer, King, is now a subsidiary of Activision Blizzard.
IN AUTOMOTIVE NEWS...
IN EV NEWS…
- China’s EV makers are really putting a lot of pressure on the “established” European car makers and BYD in particular is now within touching distance of Tesla in terms of number of cars sold!
- Talking of Tesla, sales fell in Q3, but that was down to it having to close down factories to prepare production lines for the refreshed Model 3 and new Cybertruck. On the plus side, Tesla kept its full year production targets unchanged. Talking of the Cybertruck, deliveries got delayed yet again! Still, I suspect that those who had ordered theirs expecting delivery in 2021 won’t be all that surprised!
- As if to emphasise the difficulty posed by Sunak’s recent decision to leave EV sales targets unchanged for car manufacturers despite delaying the new petrol/diesel car deadline (they have to ensure that 80% of their new car sales are zero emission by 2030, for instance) the latest figures from the SMMT show that EV sales are suffering “due to lack of incentive”.
- Meanwhile, much-hyped Vietnamese EV maker VinFast said that it still plans to go ahead with a global expansion despite its first car on sale in the US being absolutely panned by the critics and the fact that its share price has dived by 90% from its IPO peak. Style over substance??
IN OTHER CAR NEWS…
- Ford put in a strong performance in Q3 thanks to stronger demand for its big petrol-engine pickups and hybrid vehicles.
- GM announced an all-electric line-up for Europe spearheaded by its Cadillac brand. On the downside, it could be facing the biggest recall in history due to a problem with airbag inflators made by ARC Automotive.
- Owning a car in Singapore just got even more expensive as a “Certificate of Entitlement” (which entitles people to buy a car) will cost $106,000! This means that a Toyota Camry Hybrid that would cost $28,855 in the US will cost the buyer a whopping $183,000 including everything in Singapore! The average household salary in Singapore is $121,188 so you can see that the COE isn’t anywhere near affordable for many people!
IN MEDIA NEWS...
IN STREAMER NEWS…
- Netflix is aiming to emulate Disney by pushing merch from its programmes as another revenue stream. Until now, it’s waited a long time to make sure something is a hit before doing so but now it’s going to get more prepared earlier so that it can get the full benefit if something proves to be a hit. Meanwhile, Netflix looks like it’s going to jack up the price of its ad-free service although there aren’t many details about when that will be or by how much it will increase.
- Spotify announced that it would be launching audiobooks on its platform as it searches for more ways to diversify its revenue streams away from music. It hasn’t worked that well with podcasts so far, so let’s hope that audiobooks work out for them!
IN SOCIAL MEDIA NEWS…
- Meta is planning on charging up to €13 per month for users in the EU to get ad-free use of Facebook and Instagram. It looks like this will be rolled out over the next few months in the EU and European Economic Area (which includes Switzerland). Although everyone will no doubt be up in arms about this, it will only bring it in line with other platforms such as YouTube, Twitch and Reddit who all have ad-supported and ad-free options.
- TikTok’s parent ByteDance managed to turn an operating profit of almost $6bn in Q1 of 2023, almost double last year, thanks to it focusing on expenses. The cloud of whether or not it will be banned in the US continues to hang over it, though…
- X hired the services of Paris Hilton to create exclusive content. It’s all part of “new” CEO Linda Yaccarino’s efforts to spark better performance from the platform by boosting audience numbers.
IN M&A AND IPO NEWS...
IN M&A NEWS…
- Wall Street bankers continue to hope for more deals! Fees earned by the likes of Goldman Sachs, JP Morgan Chase and Morgan Stanley peaked in 2021 and although there’s been some life recently with Arm’s IPO and Cisco’s $28bn acquisition of Splunk it’s too early to tell whether this is the beginning of another upswing.
- Eli Lilly bought cancer specialist Point for $1.4bn for a massive 90% premium to its Monday closing price, prompting speculation that more biotech companies could be cherry-picked by other Big Pharma names.
IN IPO NEWS…
- VCs are calling for start-ups to delay IPO plans after Arm and Instacart underwhelmed. Markets are quite choppy at the moment so companies may well only come to market if they absolutely have to!
- Birkenstock is looking to raise up to $1.58bn via its proposed IPO, which looks likely to launch on October 11th on the New York Stock Exchange. This gives the company an implied valuation of $9bn.
AND IN OTHER NEWS...
- IN FINANCIALS NEWS – Metro Bank mooted an emergency £600m capital raising, which then freaked everyone out enough to prompt a collapse in the share price and subsequent meetings with the Treasury. Surely it won’t be allowed to fail??
- BAE Systems got a massive £4bn contract to build nuclear submarines as part of the Aukus security agreement with Australia and the US. Rolls-Royce and Babcock will also benefit and it’ll create tons of jobs!
- French transport equipment maker Alstom saw its shares fall by 37% in trading on news of major cuts to its cash flow forecasts. This was partially thanks to delays by UK customers taking deliveries but also because of its big inventory build-up that came of its desire to insulate itself against possible supply chain interruptions.
- AstraZeneca paid $425m to settle US lawsuits alleging that two of its heartburn drugs – Nexium and Prilosec – caused kidney damage after prolonged use. The company admitted no wrongdoing.
BANTER
My favourite “alternative” videos from this week the one about the ridiculous pizza and the father-son surfing!