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...
We follow the war, the world feels the repercussions and Tesla Energy gets some good news
IN WAR NEWS…
WHAT HAPPENED – Mojtaba Khamenei, son of the deceased former supreme leader, replaced his father as supreme leader. This was interpreted as meaning that there would be “more of the same” in terms of the way the country is run and he remained steadfast in keeping the Strait of Hormuz shut. Iranian exiles called for regime change but in the meantime Iran attacked desalination plants in addition to Big Tech offices and data centres in surrounding Gulf states.
HOW DID THE MARKETS REACT? Stocks fell, oil prices boomed and power prices in Europe were all over the place, depending on when investors thought that the war was going to be over and who/what had been bombed.
WHAT ARE THE IMPLICATIONS? The war could scupper the global economic recovery as it’s already causing doubts about the direction of interest rates and pushing up prices of important goods such as fertiliser. It’s causing India’s “Goldilocks” economy to wobble and taking the shine off Dubai as a haven in a difficult region. Asian stocks got sold down because Korea and Japan are particularly vulnerable to high oil prices given that they’re big importers for their energy-intensive industries.
Russia’s loving all this because Trump’s fuelling Putin’s war machine by pushing oil prices up (Trump’s even relaxed sanctions to facilitate buying!) – and India and China are buying it because they are so reliant on oil imports.
Commentators are saying that this is the “largest supply disruption in the history of oil markets”. It’s already disrupted events companies, like Informa, and travel companies, like Tui – although events have been postponed rather than cancelled and holidays to the region have been redirected to places like the Caribbean. Airlines that don’t hedge their fuel costs (the Big Four in the US and a lot of Chinese airlines) will suffer, particularly if the war drags on for a long time. Shipping giant Maersk has now suspended all operations at the Port of Salalah in Oman after drones attacked storage facilities there. This port is one of the Middle East’s key shipping and logistics hubs.
The latest official figures from the US Energy Department show that US petrol prices rose by 19% over the last two weeks while diesel prices saw a 28% hike over the same time period and there’s a risk that this war will have long-lasting repercussions on the global economy particularly because there doesn’t appear to be a proper “post-war” plan in place.
IN TRUMP THINGS…
The president’s strategy in Venezuela isn’t working in Iran, particularly as he didn’t get to choose the next leader.
New investigations were launched into EU countries and others – including the UK and Canada – so that the administration could find more excuses/loopholes to justify lifting to tariffs where they were before the Supreme Court spoiled the party. Meanwhile, on tariffs, there are efforts afoot by Costco customers to claw back tariff costs because of the Supreme Court’s decision.
IN REGIONAL/INDIVIDUAL COUNTRY NEWS…
IN THE AMERICAS…
THE US – US inflation was steady in February but the Iran effect probably isn’t included in this. Investors have been cutting their bets on any Fed rate cuts but the Fed is also looking at loosening restrictions on Wall Street banks in order to encourage lending and claw back market share from private credit groups. This doesn’t look like a good idea right now because of all the instability…
CANADA – the PM Mark Carney announced plans to invest most of a $25.7bn fund earmarked for defence spending into “forward operating bases” in the Arctic to assist Canadian armed forces in defending the Arctic “without the help of allies”. Sounds like a good idea!
IN ASIA…
CHINA – China’s exports boomed by 21.8% in the first two months of this year, which shows that all of America’s attempts to restrict its exports just didn’t work. Meanwhile, there was also good news about China’s consumer prices rebounding last month as they rose at their steepest pace in over three years thanks to lunar new year celebrations and booming oil prices, according to the latest data from the National Bureau of Statistics. This is good because China has been suffering from deflationary pressures for over three years because of sluggish consumer demand.
IN EUROPE…
UK – Rachel Reeves said that UK inflation is likely to rise because of the war, which makes it more likely that the Bank of England will keep interest rates unchanged for the year. Areas of the economy that are most likely to suffer include supermarkets with petrol forecourt operations (like Asda and Sainsbury’s), retailers across fashion, DIY and electronics (because they’ll have to hold more inventory), airlines (because of rising fuel prices, longer routes and falling demand) and manufacturing (because of higher energy prices). It might be mixed for banks (because although they can make more money with higher interest rates but loan defaults also rise) but it will be good for oil majors (like BP and Shell) and defence companies (like BAE Systems). In real estate it might not be great for landlords – like British Land and Land Securities – but it could be good for warehouse operators like Segro (because companies will probably want to carry more inventory to cushion against supply chain shocks).
Our gas supplies are looking vulnerable and the chancellor pledged to protect households from higher energy bills (although we don’t know where the money’s going to come from). The government should also consider unlocking investment in the North Sea in order to help with any future shocks…
COMMODITIES…
OIL – oil prices have shot up and although there’s been some volatility at the higher price levels depending on Trump’s pronouncements about the war, everyone’s speculating about how far north prices could go. Some are saying that they will breach the previous peak of $145.29 reached in July 2008 and hit $150 a barrel. The IEA then ordered the biggest ever release of stockpiled oil to take the edge off the rising oil price but the question is will it really bring down fuel costs?? It all depends on how long the war goes on for. Saudi Aramco, the Saudi Arabian state oil firm, warned about the “catastrophic consequences” of a prolonged blockage, so pressure is mounting to get this done.
GAS – this is actually a bigger problem than oil because of Qatar’s recent shutdown of its LNG facilities. There are no global gas reserves à la IEA for LNG, so everyone is highly exposed to higher gas prices. Europe and Asia are competing for limited LNG supplies and although the UK doesn’t import that much, everyone’s competing for the existing supply so we’ll be impacted by higher prices.
IN ENERGY NEWS…
Tesla has been given the all-clear by Ofgem to become a household energy supplier in Britain. It will be able to supply electricity to households and businesses up and down the country.
IN INVESTMENT & BUSINESS NEWS...
IN INVESTMENT NEWS/TRENDS…
TRENDS – Investors are looking at ways to minimise exposure to an energy shock and they are now looking to buy back into American Big Tech names. Tech has actually been the best performing S&P 500 sector since the war began.
M&A – Samsung has said that it’s actively looking to do AI deals so they can integrate the tech into their smartphones to eat away at Apple’s lead in the global market. Samsung has recently added Perplexity AI to its mobile operating system.
BUSINESS TRENDS…
The way we do business may have to change permanently from the “just-in-time” approach to a “just-in-case” mindset where companies will have to keep inventory in order to be able to absorb any supply shocks, which means that warehousing demand will rise (its already doing that according to Cushman & Wakefield). Companies will have to have multiple supply chains in order to minimise vulnerability to external events.
In private credit, BlackRock is now limiting redemptions, as is Cliffwater, but a Goldman banker got caught out when he said that some people were “just glad there’s something to talk about that isn’t software exposures and private credit…and this is at least a distraction from that”. I think that this highlights two things: firstly, that this is how people speak in these circles – they are just concentrating on the financial implications and secondly, that there is still concern out there about private credit markets.
Revolut finally got the go-ahead to become a proper UK bank after the Prudential Regulation Authority awarded it a full banking licence after years of delays. Revolut will shortly start to offer current accounts to a small number of new customers. It first applied to be a bank in 2021
IN EMPLOYMENT, CONSUMER & RETAIL NEWS...
IN EMPLOYMENT TRENDS…
Nvidia’s boss continues to maintain that AI won’t take everyone’s job and advised everyone that if you don’t have a PhD in computer science there will be plenty of jobs for electricians, pipe-fitters, steelworkers, network technicians, installers and operators.
Meanwhile, Oracle said that AI efficiencies from AI coding tools will justify upcoming layoffs while Australia’s biggest listed tech company, Atlassian will cut its workforce by 10% to adapt to the AI threat.
IN THE US – the latest Labor Department’s Bureau of Labor Statistics showed that American employers surprised on the downside. Economists had expected the employment rate to improve, not get worse. Weakness was pretty much across the board.
IN THE UK – separate reports from BDO and from KPMG/REC showed that the jobs market is suffering due to economic uncertainty and higher unemployment costs while agency recruiter Robert Walters painted a dire picture of the current situation and future prospects in hiring. The company’s boss said that Britain’s jobs market is in the “longest downturn” that recruiters have ever seen. Perhaps we can get some inspiration from the Dutch who stagger the minimum wage for workers aged 15 to 21. This incentivises companies to employ younger, less experienced staff. So far, the UK government has been going in the opposite direction in trying to narrow the gap between the youth rate and the adult minimum wage.
IN CONSUMER TRENDS…
IN THE US – petrol prices have shot up by 20% since Trump launched attacks on Iran. The White House maintains that the current price disruptions are only short-term. This could become problematic if the situation hasn’t changed by the midterm elections.
IN THE UK – the oil price nightmare means that households are going to have to brace themselves for higher utility bills.
IN RETAIL NEWS…
John Lewis paid its first annual staff bonus for four years thanks to decent performance in profits. At the moment, its stores aren’t yet suffering any Iran fallout in terms of higher bills or the flow of products.
IN TECH NEWS...
IN TECH NEWS…
Anthropic is now suing the Pentagon and other federal agencies over the latter’s branding of the company as a “supply chain risk”. Anthropic says that this will knock billions of dollars off their revenues for this year. This designation usually applies to Chinese and Russian vendors. On the plus side, Microsoft announced that it would be integrating Anthropic’s Cowork and Claude models into the new version of its “Copilot” virtual assistant.
AI is transforming modern warfare as AI systems suck in all the intel from drones, satellites and other sensors and come up with strike options faster than humans can. By way of illustration, in the last campaign against Isis, the coalition hit about 2,000 targets in the first six months of the campaign in Iraq and Syria. The same number of strikes occurred in just two days in the campaign in Iran! The US Department of Defense has, for the past two years, been integrating AI tech within its operations.
IN AUTOMOTIVE NEWS...
IN AUTOMOTIVE NEWS…
Carmakers don’t think that the current oil price spike is going to help EV sales because although petrol prices are rising, so are electricity prices! The original ZEV mandate projections have proven to be woefully wrong and need revisiting!
In the meantime, Chinese carmakers continue to gain momentum and the SMMT reckons that they will be on course to account for 20% of new vehicles on our roads as early as next year!
IN EV NEWS – Rivian is on the verge of launching a new vehicle – the R2 – and a lot is riding on it. Lucid is launching three new vehicles. Lousy timing given current circumstances and sentiment!
IN TRADITIONAL CARMAKER NEWS – VW announced that it’s going to cut 50,000 jobs in Germany by 2030 and they will fall across the group, including the Audi and Porsche brands. Ouch.
IN REAL ESTATE NEWS...
The Middle East war is having a stifling effect on a residential property market that had been showing signs of recovery. Nearly 500 mortgage deals were withdrawn by UK lenders in two days and the average deal tops 5% now as a result.
Then again, at the top end of the market, activity might pick up because rich people from the Middle East could buy London assets as a way of getting their money out.
Research from Zoopla showed that the competition among tenants for rental properties is at its lowest level since before the pandemic thanks to more young people living with their parents and an increase in first-time buyers