Watson’s Weekly 16-11-2024

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 – Trump secured control of Congress as he’s got a majority in both the House of Representatives and the Senate, so he’s pretty much going to be free to push his own agenda. Headline inflation was up slightly in October from the previous month, although core monthly and annual inflation stayed flat. Even so, the market is pricing in a 0.25 percentage point cut at the next Fed meeting in December while Fed chief Jay Powell says there’s no hurry to make drastic cuts, although he says that there’s still a lot to do to get inflation back to the bank’s 2% target. IN ONGOING REACTION TO TRUMP, Taiwan is talking about making big US defence purchases to show it’s serious about doing what it can to keep the US defensive umbrella, Brussels is freeing up billions of euros for defence and security from the EU budget, which might be good to counter any shortfall from Trump. The clean energy industry putting projects on hold at a time when financing is drying up and German energy company RWE has  decided to rein in its aggressive push into renewables. although this might actually work out well for our own renewable industry because it could ease up supply chains if the US decides to refocus. There are concerns about the continued viability of the global minimum rate of corporation tax and what Musk’s elevation could mean for AI. A Trump presidency proved to be a boon for the media sector in his first term as media outlets saw a rise in subscribers while cable networks saw an increase in views. On the flipside, Wall Street bonuses are expected to boom, bitcoin continued to hit new highs, as did Dogecoin. In Europe, the euro is weakening on rising concerns about the damage Trump’s tariffs will cause to European exporters, it’s thought that a deepening US-China trade war could hit UK exports badly and although Trump’s victory isn’t going to be great for the UK, it may not be as bad for us as it will be for the Europeans, although we could still be hit indirectly.
    • IN CHINA – the country is bracing itself for a deepening trade war with the US and its latest economic stimulus package disappointed investors.
    • IN EUROPE – Spain is outperforming its neighbours in terms of its economy thanks to a more relaxed approach to immigration, the ongoing strength of its tourism industry and inward investment from overseas, particularly from high value-added sectors. It was also interesting to hear that trading restrictions between the UK and EU might get easier next year as the Trade and Co-operation Agreement (TCA) between the two parties is due to be reviewed.
    • IN THE UK – the reaction to this government’s first Budget is continuing to manifest itself. Hospitality sector bosses says that the rise in employer NICs will force businesses to close and  British agriculture could see yet more drama (in addition to the recent IHT bombshell) as it looks like farmers that own a lot of land could make a killing by carpeting at least some of it with solar panels (they’ll get way more for it under government plans for renewables). In an interesting turn, Labour has lost 40% of the council seats it has defended since the election with the Conservatives being the main beneficiaries as its popularity has suffered in the intervening months. Meanwhile, chancellor Reeves announced plans to consolidate local government retirement schemes into 8 “megafunds”. This isn’t as extreme as previous speculation that there would be an even more dramatic consolidation into one mahusive fund but it will bring to a close the role of councils in administering their money. Separately, the HMRC got a surprise £700m windfall thanks to a successful appeal against the EC regarding state aid. A number of big UK companies could be in line for a payout…

IN ENERGY NEWS…

• • • There was an exciting development in nuclear fusion – a New Zealand start-up called OpenStar said that it had created plasma for way less than it normally costs in conventional reactors. It’s using a new reactor design to do this. Plasma is needed for the nuclear fusion process (hydrogen isotopes bang into each other inside a plasma and fuse together, releasing loads of energy)
    • Japan is on the verge of an energy storage boom as household interest for solar panels has been strong and the prevalence of virtual power plants connecting a number of home batteries via a cloud platform looks set to increase.
    • European gas prices boom on fears of supply disruption from Russia and comes at a sensitive time given that we’re heading into winter when gas demand for heating increases.

• The transatlantic law firm love-in continues as Herbert Smith Freehills announced plans to merge with US-based law firm Kramer Levin. It comes not long after A&O joined up with US firm Shearman & Sterling. There are benefits for both sides, but it remains to be seen as to whether cultural and structural differences can be successfully bridged for the long term.
• A report from Deutsche Numis said that the number of UK listed companies that have been taken private is now at levels last seen in 2021 thanks to improving financial conditions and rising confidence among buyers.
• Klarna looks like it’s going for a New York listing rather than a London one. This is another blow for the LSE but then again you would have thought that Klarna will be able to get a much better valuation stateside, particularly as we’re in a sort of Trump-fuelled markets honeymoon at the moment.

IN CHIPS NEWS…

• TSMC is on the verge of stopping production of advanced chips for China and any future supplies of such chips to Chinese customers will have to undergo an approval process that will probably include Washington. It looks like this is another move that is designed to appease to Trump and stop him from removing Taiwan’s defensive cover.
• Amazon has made advances in developing its own AI chips in order to wean itself of its current reliance on Nvidia. The company is pouring money into making custom chips in order to make its data centres more efficient and ultimately cut costs for itself and, of course, its customers.

IN OTHER TECH NEWS…

• Baidu unvelied some AI-powered smart glasses that use its LLM Ernie. The glasses will help wearers track calorie consumption, answer questions about their environment, play music and film videos. The glasses will only be sold in China initially but it goes to show just how good Chinese tech is!
• The FTC is planning on investigating Microsoft’s cloud business over alleged anti-competitive practices. It looks like this could be current FTC chief Lina Khan’s last hurrah as many expect her to be replaced by the incoming regime.
• SoftBank returned to profit after a turbulent few years thanks to some successful IPOs in India and rising tech valuations. This will be a welcome development after a number of turbulent years.

IN SOCIAL MEDIA NEWS…

• Meta got slapped with an €800m fine for using anti-competitive practices that put sellers on Facebook Marketplace at a disadvantage. Meta said it would appeal the decision.
• Bluesky Social (a social media platform co-founder by Twitter founder Jack Dorsey) has seen a major uptick in new users as X loses users in the aftermath of the election result. It’s got a way to go to catch up with X, though as it still only has 15m users versus the 600m that the latter has.
• In the meantime, advertisers are now coming back to X as they want to suck up to Musk and Trump. Not all of them are crawling back, but surely they will??  Meanwhile, a group of French newspapers is now suing X over copyright violations under French law. Meta and Google have, in the past, been ordered to negotiate and make payments to French media outlets – so you’d think that X is going to have to cough up as well…

IN MEDIA NEWS…

• Disney announced strong Q4 results, adding that it expects “double-digit percentage growth” in adjusted earnings for 2026 and 2027. This should give it some breathing space before a new CEO is appointed.
• Spotify announced that it would pay hosts of popular videos that hit certain criteria in a bid to take on the might of YouTube. This is particularly interesting given that there is an increasing trend of people watching or listening to their favourite podcasts on YouTube! YouTube is now #1 for podcast listening in the US!

IN TELECOMS NEWS…

• Some old school US telecoms companies have been given a new lease of life by AI! Lumen Technologies, for instance, has seen its share price boom by a massive 700% since the spring thanks to it signing $8bn worth of contracts with the likes of Google, Amazon and Meta as their internet backbone provider.

• Chinese carmaker Geely announced a near-doubling of profits in a strong set of Q3 results thanks to rising sales and a better product mix.
• Sales in Russia of Chinese cars has boomed since Ukraine-driven sanctions. Since Russia invaded, Chinese manufacturers’ market share of the Russian car market have gone from 9% to 57%! Interestingly, though, about 90% of Chinese cars being sold in Russia have internal combustion engines.
• Ford got slapped with the second biggest fine in NHTSA history of $165m for delaying the recall of over 600,000 vehicles with dodgy rearview cameras.
• VW announced a chunky $5.8bn investment in Rivian. Rivian needs the cash and VW needs Rivian’s software! It sounds like this has been driven by desperation but it sounds reasonably on a strategic basis.
• BMW has set aside £70m in preparation for potential payouts for dodgy car financing. They may never have to pay it, but it makes sense to make preparations just in case.
• German auto parts maker Continental has decided to cut sales guidance for the second time this year, but its performance wasn’t as bad as everyone had been expecting because cost-cutting measures were starting to gain traction.

IN RETAIL NEWS…

• Amazon launched a Temu competitor called “Amazon Haul” which is focused on items that cost $20 or less as a way to combat competition from the likes of Temu and Shein. It was rolled out to some US customers this week. I think this shows how seriously Amazon is taking its Chinese rivals but I do wonder how profitable it will be.
• Burberry’s new CEO announced turnaround plans, acknowledging some previous bad decisions and he promised to go back to classics. The problem is that the previous regime was trying to do something different because things had stagnated, so perhaps “going back to basics” might work for now but maybe not for the longer term…
• Space NK announced that it wants to open new shops as it looks to invest in the high street after a period of decent momentum. It certainly seems to me that beauty is where it’s at at the moment – something that M&S and John Lewis are also banking on!
• Homebase fell into administration although the owner of The Range and Wilko, CDS Superstores, bought some branches and saved about 1,600 jobs in the process. It also bought the brand and IP. Will this prove to be a good acquisition if the DIY and soft furnishings market goes in the same direction as the housing market?!?
• IN SUPERMARKETS NEWS, sales boomed as they hit their highest levels since lockdown, M&S overtook Waitrose in terms of market share and Aldi is closing in on becoming the UK’s third biggest supermarket, overtaking Asda.
• WH Smith announced plans to expand in the US as its travel division – the one with shops at airports, stations and hospitals – continues to go from strength to strength. In the UK, it continues to shift its focus away from the high street and towards travel hubs.

IN LEISURE NEWS…

• Just Eat Takeaway just sold Grubhub to delivery-focused casual dining chain Wonder for just $650m only four years after it bought it in a deal worth $7.3bn in 2020 😱! What a shocker of a loss!
• In gambling, Flutter posted great quarterly numbers thanks to strong demand for sports betting in the US at the start of the NFL season. It was confident enough to raise its full-year guidance for the second quarter in a row.

• IN EMPLOYMENT – the latest numbers from the ONS show that the UK labour market is slowing down as the unemployment rate rose slightly. However, the Bank of England has said that such stats may be unreliable as the way they are calculated had to be changed.
• UK renters are continuing to get clobbered by a falling supply of rental properties and rising demand for them. Tough times for tenants…

My favourite “AND FINALLY” video this week was the classic lockdown Zoom sketch! Lockdown feels a world away now doesn’t it!