Watson’s Weekly 13-07-2024

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 of disappointment for France’s far-right, of Apple having to conform and of the biggest overhaul of listing rules in the UK in a generation…

• IN THE US – the pressure continued to mount on Biden to step aside for an alternative presidential candidate, he launched a new offensive for his campaign, and promised to “complete the job” despite stumbling with his words – this time at a press conference – as Europeans sidled up to Trump’s foreign policy team at the fringes of the NATO summit in Washington, hedging their bets regarding the next White House occupant. In the meantime, experienced party members and donors are getting increasingly anxious about Biden staying in place as Trump opens up a lead in the polls.
• IN CHINA – speculation is building ahead of the Communist Party’s third plenum next week (there are usually seven plenums over the five-year term of the central committee) but it doesn’t look a a grand masterplan about how to jolt domestic demand and arrest the economy’s slide into a deflationary spiral is going to be forthcoming. Meanwhile Taiwan’s government announced plans to prepare public services and infrastructure to function in wartime “just in case”.
• IN EUROPE – it’s all about France as the far-right didn’t get the majority they wanted in the elections after all. The far-left did particularly well in the elections but no sooner had they united to fight off the far-right, they splintered back into their usual factions. Macron called for a “governing pact” to break the current impasse before swanning off to Washington for the NATO summit. At the end of the day, he’s the one that’s actually responsible for the mess because he called the election in the first place!
• IN THE UK – the new Labour government is facing major challenges but it has promised to address areas including health spending, construction, education and public sector investment among many other things. New chancellor Rachel Reeves has already started with the kitchen-sinking of all the bad stuff under the Conservatives, saying that the UK’s public finances are in their worst state since WWII. Meanwhile, GDP rose unexpectedly strongly in May, potentially signifying the start of an economic boom that Starmer might be inheriting as a recent survey by S&P Global showed that Britain was at the “top of the league” for business optimism with buoyant expectations for the second half of the year. From a consumer perspective, inflation is slowing down and wages are rising faster than prices – which means that the pressure on household finances is easing off (although this is obviously relative). I would also add that it seems to me like M&A activity has been picking up and now that we’ve got more relaxed listing rules and potentially the most stable government in the G7 for the next few years, the UK might not be a bad place for investors to park their money!

IN ENERGY NEWS…

• At least six renewables firms are planning new onshore windfarms following Labour’s reversal of the restrictions that the Conservatives put in place on turbines.

IN COMMODITIES NEWS…

• OPEC maintained its bullish outlook for oil demand growth and was even confident enough to boost its full year forecasts, powered by ongoing demand from major companies.
• On the other hand, BP is predicting that global demand for oil will peak next year while it also warned of lower-than-expected profits due to lower refining margins and a fall in the performance of its oil trading division.
• BHP has decided to suspend nickel mining operations thanks to oversupply from Indonesia. Nickel is used in making stainless steel – but it’s also a key material for EV batteries. Unfortunately, poor demand for EVs has led to falling demand for batteries which means that nickel prices have been hit by the double whammy of too much supply and too little demand.
• The chairman of coffee company Lavazza reckons that coffee prices will remain “very high” until at least the middle of next year thanks to pressures on the supply chain and worsening harvest conditions in Brazil, Vietnam and Colombia.
• Tea prices have risen considerably thanks to heatwaves and floods in India’s main tea-producing region. However, it’s unlikely to affect Brits that much because European tea bags contain just 30% of higher quality Indian tea so perhaps all this will do is mean that producers will just use lower quality leaves from places like Kenya and Uganda.

IN BUSINESS TRENDS NEWS…

• Vistry looks like it’ll be a key player in Labour’s housing drive, particularly as it switched focus last year to building homes for housing associations and local authorities. On the flipside, Barratt Developments said that it will be building fewer homes in the coming year as it will be limited by its relatively small landbank – an issue that it has tried to address with its recent deal to buy rival Redrow.
• Begbies Traynor reckons that high levels of corporate insolvencies will persist into next year as stubbornly high interest rates continue to put pressure on companies.
• Increased dealmaking activity is expected to boost investment banks, who are just kicking of results season. The benefits are already being felt by the likes of Linklaters and A&O Shearman who have paid senior partners around £2m each thanks to the fees generated.
• The profile of non-alcoholic beverages continues to rise as Carlsberg bought Britvic for £3.3bn and the biggest non-alcoholic beer brand in the US, Athletic Brewing, just closed its latest round of financing that has effectively doubled its valuation. Cheers!

IN EMPLOYMENT TRENDS…

• The number of management consultants fell by 3% last year, according to stats from the Management Consultancies Association, after work dried up following the industry’s hiring frenzy in 2022.
• UK recruitment agencies are having a hard time right now. Page Group issued a profit warning, as did Hays, due to employers taking longer to hire and because companies may have been waiting to see how the elections went in France and the UK.
• Samsung Electronics unionised workers have voted for an indefinite strike to get better wages and working conditions. The National Samsung Electronics Union has 30,000 members, making up almost 25% of the company’s workforce, and around 6,500 of its workers have been on strike since Monday.

IN DRIVERLESS NEWS…

• Shanghai got the go-ahead for the use of driverless taxis without supervisors. This newly-granted permission means that residents can now book free rides in robotaxis of four companies – Baidu, Saike Technology, Pony.ai and Auto X. The testing area covers about 127 miles of roads in Shanghai’s Pudong district. However, this isn’t going to go down all that well with humans, particularly as the unemployment rate for 16-24 year olds stood at 14.2% in May. Giving driverless taxis too free a rein at the moment will no doubt cause uproar because this will effectively kill off taxi-driving as a job option.

ELSEWHERE…

• South Korean battery maker SK On is really suffering because the demand for EVs in Europe is weak. This means that its net debt has quintupled as western EV sales have fallen way shorter than expectations. However, it’s not just SK On that’s suffering from this – Northvolt, PowerCo and Svolt have either cancelled or delayed plans to increase EV battery manufacturing capacity. Until EV sales start to improve I doubt this situation is going to get any better.
• It seems that Tesla has seen its market share in the US fall below 50% for the first time as competition from other makers (though not Chinese ones!) has increased. Meanwhile, foreign carmakers are losing market share in China as local rivals continue to sell well (comparatively).
• BYD announced a $1bn deal to build an EV plant in Turkey as part of its overall effort to boost European production.

IN RETAIL NEWS…

• Amazon could potentially be facing an investigation by the Groceries Code Adjudicator in the UK if it doesn’t improve its treatment of grocery suppliers. A recent survey said that fewer than 50% of Amazon’s suppliers thought that the etailing giant complied with its code of practice which meant that it was placed dead last among 14 retailers from 3,000 responses.
• The fashion industry in the UK continues to push for the restoration of the tourist tax break (where they don’t have to pay VAT) while Burberry announced that it was cutting its headcount, which it partially blamed on Sunak’s decision to ditch duty free shopping in the UK for tourists.
• Shein announced the launch of a €200m fund to tackle fashion waste but this is a paltry amount for a company that earned $2bn in profits last year and does have a whiff of sucking up to the British authorities ahead of a potential IPO on the LSE.
• Ocado announced that it was going to build a third robotic warehouse in Japan with its partner Aeon, Japan’s biggest grocer. It is scheduled to open in 2027 and represents a welcome bit of news for the company that has had a run of bad news recently.
• Superdrug managed to post a decent profit as it continued to benefit from the ongoing expansion of its cheaper own-label products.

IN CONSUMER GOODS NEWS…

• Consumer goods companies General Mills, Mondelez and PepsiCo are finding that they are losing their pricing power as consumers continue to rein in spending where they can. Relying on their well-known brands just isn’t sustainable for a lot of people who are still feeling the pinch.
• Nike’s still in a rut as it continues to rely on rehashes of old glories while the likes of Hoka, On and New Balance take market share. A new approach is definitely needed.

IN LEISURE NEWS…

• Cafe-bar chain Loungers announced record revenues, a slew of new openings and a strong start to trading for the current year. It’s great to hear good news from a restaurant chain for once, no??

• Microsoft and Apple ditched their seats on OpenAI’s board as regulatory scrutiny of their relationship intensifies. Instead, the companies will have regular meetings to communicate. This smacks of tokenism given that everyone knows just how close Microsoft and OpenAI are in particular!
• Apple has decide to give in to the EC in order to avoid a fine for anticompetitive behaviour and it has now opened up Apple Pay to rivals so that they can use their own virtual wallets instead of always having to go via Apple.
• User growth at X has stalled since Elon Musk’s takeover and Meta’s Threads takes advantage. It seems to me like a proper roadmap is needed for X. CEO Yaccarino has surely had long enough in the hot seat to know what needs to be done – so some execution is surely in order!
• China’s Xiaohongshu social media platform just got the backing of VC firm DST Global in its latest financing round, which is notable because non-Chinese investors are swerving Chinese tech companies right now due to crackdowns by Beijing. Xiaohongshu is China’s fastest-growing social media platform.
• Paramount Global agreed to merge with Skydance Media after all following the tabling of a new offer that involves more legal protections than the initial one.

• The UK announced its biggest overhaul of listing rules in a generation. The new rules will give company bosses more power to make decisions without shareholder votes by being more flexible on share-structures and will come into force on July 29th. Although the FCA has warned that there will be a higher risk of investors losing money, it believes that the potential rewards of more companies listing will outweigh this.
• Europe’s newest rocket had a successful launch this week. This is good news because it means that the Europeans are still in the game to provide their own satellites without just giving Tesla’s SpaceX a virtual monopoly.
• Dyson announced that it was going to cut almost a third of its workforce after a global review. It seems to me that the company needs to find a new hit product asap otherwise things could continue to slide. Its Zone Absolute+ Headphones just ain’t it as far as I’m concerned!

My favourite “AND FINALLY” video this week was the one where the cook used cheap ingredients to make something quite special! Very clever 👏