Watson’s Weekly 12-10-2024

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.

• IN THE US – the minutes of the latest Fed meeting were published this week and it seems that its members were split on the 0.5 percentage point cut. Markets since reflected an even higher chance of a 0.25 percentage point cut at the next meeting. Official figures then showed that inflation cooled at a slower-than-expected rate – but I don’t think this is going to halt a cut at the next meeting as inflation still slowed down!
• IN CHINA – Chinese stocks hit their highest point in two years when markets resumed after last week’s “Golden Week” holidays, but then two days later they had their worst fall in 27 years over renewed concerns over economic growth prospects and disappointment that the government didn’t follow up recent stimulus with further wider-reaching measures. The rising number of retail investors seems to have boosted market volatility. Meanwhile, teachers in China (and some other public sector workers) had their passports taken away as part of President Xi’s ongoing anti-corruption and anti-espionage drive and tariffs were slapped on EU brandy in the escalating trade war with Brussels.
• IN EUROPE – France’s new PM, Michel Barnier, announced a very controversial budget with a ton of spending cuts and tax rises for business and rich people. This goes against everything that Macron has tried to put in place since he came to power and is likely to split the National Assembly. Keeping with European controversy, Portugal’s PM is trying to introduce measures that will cut the tax burden of its young people for 10 years in order to stem the flow of emigrants. However, these controversial measures still have to get approval from parliament.
• IN THE UK – Reeves is facing pressure from all sides to compromise on PE tax loopholes, to cut business rates for retailers, to rein in plans on a punitive new alcohol duty system and from the automotive industry to review the whole transition to electrification.

IN ENERGY…

• Energy secretary Ed Miliband has just approved a scheme that will provide a financial back-stop for dam developers. This should encourage the building of a number of new dams across England and Scotland that will be used to store backup hydropower for when wind and solar falls short.

IN MINING & OIL…

• Rio Tinto put in an offer to buy Arcadium Lithium but at a punchy price for a company that produces lithium, which is not in favour at the moment due to overproduction.
• Oil prices rose on Middle East concerns but then fell over concerns about weak Chinese demand, Norway’s Equinor bought a 10% stake in Danish wind farm developer Ørsted and Malaysia’s biggest stock market is about to launch a market for supplies of waste cooking oils that can be converted into biofuels! Will this prove to be a nice little earner for the embattled British chippy??

IN BUSINESS TRENDS…

• PwC launched a standalone tech and AI division that will focus on tech innovation, AI engineering, cloud and data. The firm also announced that it will also reconfigure its consulting, deals, risk and tax businesses to create six new teams.
• Mega-trials are increasing in frequency and proving to be very lucrative for law firms! Lawsuits worth a combined £83bn+ have been filed in the High Court since the beginning of last year, according to litigation analysis group Solomic. The UK’s biggest litigation practices generated 48% more revenues in their most recent financial year versus five years ago, according to estimates from The Lawyer!

IN EMPLOYMENT TRENDS…

• Ministers published draft legislation that is being billed as the biggest overhaul of UK employment law in a generation while businesses fretted about how the new employment rights would be implemented and have held back on recruitment.
• A record 35% of 18-24 year-olds have been classed as “inactive” this year – the highest level since records began in 1992 – partly driven by the post-pandemic mental health crisis which seems to have affected us much more than youth in other countries. This is definitely something that needs addressing by the government…
• Online gig platforms like Fiverr and Upwork have suffered hugely as their respective share prices have dropped to less than a 20% versus their pandemic peaks and are now shifting their focus from growth to profits now.

IN INVESTMENT TRENDS…

• Battery storage investment funds have gone quiet, mainly because battery storage operators are more reliant on market prices than offshore wind developers, for example. This makes profits visibility more difficult, hence the reticence to invest.
• Pension funds are pushing for Reeves to redefine the UK’s “public sector net debt” measure to include the financial value of assets created by government spending on infrastructure and green energy projects because they argue that it could unleash further private sector investment. On the other hand they are pushing for the LSE not to loosen the existing listing rules. They say that they don’t want standards to drop but cynics could say that they should just do their due diligence properly 😱😜.

IN BATTERY NEWS…

• Battery makers including CATL and Gotion High-Tech are working on “superfast charging” batteries for EVs that take less than ten minutes to charge. The Holy Grail of charging is being able to charge a car in under 5 minutes, which would bring it in line with how long it now takes to fill a petrol/diesel car with fuel. The problem is the faster the charge, the more unstable the battery can get, so there are safety issues.
• LG Energy announced a dive in profits in Q3 thanks to ongoing sluggish demand for EVs. While things aren’t great now for non-Chinese EV makers (and those in their supply chains), demand will pick up – it’s just that LG Energy, and other companies like it, will have to weather the drought in the meantime.

IN OTHER CAR-RELATED NEWS…

• GM is thinking about what to do about its China business – should it try and stick it out or cut its losses and leave? It’s been seeing its market share just gradually leaking away over the years.
• Stellantis’s CEO announced a management shake-up but I think it’s probably a tactic to buy him a bit more time after last month’s profit warning.
• Musk unveiled a new robotaxi to great fanfare but it doesn’t matter how good or how cheap the thing is (under $30k), it has to be allowed to operate on roads around the world to be viable and that ain’t going to happen for years IMO. Also, given Tesla’s dire track record regarding delivery it’s not going to happen for years anyway!
• Auto parts maker Continental actually said that it expected to meet its full-year guidance. This either means that it’s 🐂💩ing or that perhaps there are some early signs of things bottoming out for the automotive industry!

IN TECH…

• Google was ordered by a federal judge in San Francisco to open Android to app store rivals following a successful lawsuit brought by Epic Games. Everyone then got excited about Google being forced to break up – but if it ever did it won’t happen for years.
• LG Electronics announced disappointing Q3 profits while rival Samsung also announced similarly-disappointing Q3 performance, in this case because of Chinese rivals flooding the market with cheap chips.
• OpenAI looks like it’s going to change its structure from that of a non-profit to that of a public benefit corporation (PBC). This is a pretty new type of corporate structure and the fact that any takeover would have to satisfy both shareholders and stakeholders is likely to protect it against approaches.
• The UK launched a new regulator – the Regulatory Innovation Office (aka “RIO”) – whose job it is to accelerate approvals for new technologies in fields such as biotech and driverless vehicles. It will sit within the Department for Science, Innovation and Technology and cover areas such as space, driverless cars and lab-grown meats. Sounds like an interesting place to work!
• AMD rolled out a new chip to rival Nvidia’s H200 AI chips. It continues to narrow the gap with Nvidia!
• Roblox was the subject of the latest Hindenburg Research hatchet job. They were sold off initially given how the report ranted about dodgy user stats and its lack of protection for users but actually didn’t lose as much ground as you’d think in the end. I suspect this will run, though, as I think Hindenburg’s research is very well done and they’re not going to want to let this go.
• Musk caved in to court orders in Brazil and X is now back up and running in the country. X had to remove extremist content and agreed to appoint a legal rep in Brazil. Let’s hope other jurisdictions get inspired by this and feel more emboldened about taking him on (if they have reason to!).

IN MEDIA NEWS…

• Netflix posted record UK revenues thanks to decent content and the ongoing clampdown on password sharing. The benefit of the clampdown can’t last forever so I guess that focus will no doubt shift back onto content and generating as much revenue as possible from their franchises.
• The FT’s global profits fell just short of £30m in 2023, a 5% increase on the previous year. It was largely driven by corporate subscriptions.

REGARDING PRICES…

• UK house prices rose for the third consecutive month, according to the latest Halifax data, and are now close to record highs while the latest RICS survey said that house prices across all of England and Wales have risen for the first time since October 2022. I guess the main takeaway here is that house prices are rising!
• Affordable housing developer Vistry managed to massively underestimate the costs of completing nine developments in southern England and it said that this would hit profits by up to £115m over the next three years! The company maintains that the damage is contained to these nine sites but investors are obviously going to be spooked by this and wonder whether the problems go deeper.
• Student landlord Unite managed to enjoy rental growth of 8.2% for the 2024-2025 academic year, which was above previous expectations of 7%. This was helped by a record number of undergraduate students. Prospects continue to look good for Unite!
• Property investor Brookfield gazumped British warehouse landlord Segro with a higher all-cash offer for Tritax EuroBox, which had looked like a done deal. Segro hasn’t yet come back with another offer.
• JCB announced that it would cut hundreds of jobs as it warned of a market downturn. This sounds weird to me given that the government says that it’s on a mission to make a serious dent in the housing shortage and there’s a ton of development to be done for nuclear power stations, wind farms, data centres etc.etc. over the next few years. I wonder whether there’s something else wrong at the company…

IN RETAIL NEWS…

• Japanese retailing giant Seven & i started the week by looking to sell off non-core assets and make themselves a more focused (and therefore more shareholder-friendly) company. However, Couche-Tard came back with an increased offer that was 20% higher than its original one. The drama continues…
• Selfridges decided to take the PIF – and by that, I mean that Saudi Arabia’s sovereign wealth fund bought a 40% stake in Selfridges from the troubled property business Signa while Thailand’s Central Group has 60%. This should steady the ship a bit after a period of limbo.
• John Lewis axed the CEO role (a role that previous chair Dame Sharon White had created and filled with her own candidate) and reverted to its previous structure. CEO Nish Kankiwala will become a non-exec adviser to the board by March 2025. Meanwhile, the new chair – Jason Tarry – is a long-time Tesco veteran who actually knows what he’s doing when it comes to retail (unlike Dame Sharon White who had a public sector background while Kankiwala came from FMCG). Still, there is room for him to fail as well given he’s clearly got experience with supermarkets but nothing else really (but at least that’s better than what’s gone before).
• Shein announced that it had doubled UK profits after sales jumped up by 40%, a pretty useful development given its much-anticipated IPO.
• eBay is going to ban private sales of e-bikes on its platform from anyone from October 31st. Only “eligible business sellers” will be allowed to sell them as the platform acts in advance of the Product Regulation and Metrology Bill that will force online marketplaces to take reasonable steps to ensure goods sold on their sites are safe. The rising instances of e-bike fires has prompted eBay to take action.

IN CONSUMER TRENDS…

• The latest release from the BRC shows that spending on clothes boosted UK retail sales in September and that retail spending overall increased at its fastest rate in six months. Separate Barclaycard data showed that non-essential spending rose as well. What happens from here is going to depend a lot on what happens now in Reeves’s budget!
• Research from UBS predicts that Reeves’s mooted new tax regime (TBC in the forthcoming budget) is going to lead to the biggest exodus of millionaires in the world. In contrast, Germany, France and Italy are expected to see numbers of millionaires rise over the next five years.
• Further to the mooted tax changes mentioned above, UK execs have ramped up their selling of shares ahead of the Budget in order to avoid widely expected tax rises in the forthcoming budget at the end of this month. Directors are selling shares and even whole businesses because of their fears of a hike in CGT!

My favourite “AND FINALLY” video this week was the one with the incredible potato-cutting! Not a sentence I ever thought I’d find myself saying 🤣!