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 the week when everyone reacted to Trump getting shot, when chip stocks took a beating and when Netflix hit record revenues…
- IN THE US – everyone was reeling from the assassination attempt on Trump! Basically, most people (including Biden disciples) reckon Trump is nailed on for the win, so bitcoin jumped (Trump is bitcoin-friendly, apparently) and TSMC shares fell (because Trump is not particularly supportive about continuing to defend Taiwan). Donations for Trump’s campaign flooded in and he picked his running mate, Ohio senator JD Vance. A Trump/Vance maganomics agenda could result in trade wars, tax cuts for American businesses and individuals, a rolling back of climate commitments and the promotion of fossil fuel production. Meanwhile, the pressure continued to build on Biden to give up by increasingly high-profile individuals while the Fed made noises about an interest rate cut. The market is expecting a September cut.
- IN CHINA – official figures showed that the country’s GDP growth rate lost momentum in Q2 but there’s still time for it to make up ground to hit its “around 5%” full year GDP growth target.
- IN EUROPE – Ursula von der Leyen got a second terms as EC president, the ECB left interest rates unchanged but German manufacturing output was disappointing, according to the latest figures from Eurostat. It dragged down the performance of the rest of the bloc as a result.
- IN THE UK – the IMF upgraded growth forecasts for the UK but cautioned that interest rates will stay high unless service sector inflation falls. Economists at various investment banks upgraded their UK growth forecasts following the conclusion of the Euros football tournament and the government’s agenda was set out in the King’s speech. There were some areas that weren’t covered – there were no bills covering the regulation of AI, none giving 16-year-olds the right to vote and nothing on social care. Still, I guess it’s early days. Among other things, Labour is getting started with the process of nationalising railways and Starmer is looking to improve relationships with Europe. For now, it looks like hopes of an imminent rate cut from the Bank of England are receding because although the headline inflation figure of 2% is pretty good, service sector inflation remains stubbornly high.
- IN SOUTH AFRICA – President Ramaphosa did his first state of the nation address as head of a coalition government. He made largely pro-business noises about committing to the country’s economic revival and investing heavily in infrastructure. We’ll have to wait to see whether he executes this successfully!
IN ENERGY NEWS…
- Italian PM Meloni is planning on reintroducing nuclear energy 35 years after the country shut down its last nuclear power plant via investments in small modular reactors that could be operational within 10 years and help the country to cut its reliance on imported fossil fuels.
- The Labour government has committed to accelerate investment in green energy by streamlining the planning process (among other things!) and setting up Great British Energy. It will take quite some time to see the fruits of these efforts but at least they are going the right way!
IN COMMODITIES NEWS…
- Anglo American has decided to make additional production cutbacks at its De Beers diamond business. Prices have fallen because of high inventory levels but they have also weakened because of slower demand from Chinese customers and, I would suggest, the rise of synthetic diamonds.
- The prices of cotton futures have dropped to their lowest level since October 2020, which is less than half of the decade-high peak they reached in May 2022 thanks to a major rise in production in Brazil. Meanwhile, global demand has decreased thanks to higher take-up of man-made petroleum-based fabrics like polyester, which cost less and are cheaper to produce than cotton.
IN BUSINESS AND EMPLOYMENT TRENDS NEWS...
IN BUSINESS TRENDS NEWS…
- Fears of a trade war with China have increased as the WTO criticised China’s lack of transparency in how it subsidises industry in its latest report. It voiced particular concerns about the EV, semiconductor and steel industries.
- Shipping continues to be disrupted thanks to ongoing attacks on merchant vessels by Yemeni Houthi rebels in the Red Sea and resulting impact on traffic in the Suez Canal. Maersk, the world’s second-biggest container shipping line, reckons that the situation will continue to stretch capacity.
- The world’s biggest industrial property company, Prologis, highlighted an interesting trend as it raised its annual forecasts – that the slack in warehouse demand is being taken up by warehouses being converted into highly lucrative AI data centres!
IN EMPLOYMENT TRENDS…
- The UK job market is cooling down, according to the latest figures from the ONS. Annual pay growth is slowing down while unemployment is going sideways. That being said, wages are rising faster than inflation at the moment (that hasn’t always been the case over the last few years!) so there is still a danger that inflation could remain stubbornly high.
- The WFH trend is continuing as research from CBRE shows that just 43% of white-collar workers are commuting to work at least three times a week (mind you, that’s up on 37% this time last year!) while 71% make the commute two days or more. This should be good news for companies that supply office workers (e.g. Compass Group, which runs a lot of work canteens).
- Employers are getting a bit nervous about Labour’s promises to overhaul workers’ rights because they think it’ll make recruitment more expensive and potentially less flexible. Mind you, if reforms had been made maybe Amazon workers would now be unionised – but they aren’t now because the GMB union didn’t get enough votes in the ballot held this week.
- Microsoft cut its Diversity & Inclusion team because of “changing business needs” and no longer sees the function as being “business critical”. I guess that companies fell over themselves to have this in the wake of the #BlackLivesMatter and #MeToo movements and I suspect that leaders think they can get the same guidance from outside contractors rather than having a dedicated function in house.
IN AUTOMOTIVE NEWS...
IN EV NEWS…
- IN SALES – dealerships are hopeful that the transition to EVs will get more people buying new cars more often as they have faster replacement cycles. Meanwhile, in the UK, sales of used EVs are going up as prices are coming down as early adopters are flooding the market.
- The UK’s charging network is growing at a rate of a new one every 25 minutes, according to a report by ChargeUK. The vast majority of the UK’s 1m chargers are home chargers and at businesses whereas just 65,000 of that number were public chargers, so there is still a long way to go!
- Serbia has promised to prioritise the supply of lithium to European car manufacturers over Chinese ones when it develops one of the world’s biggest deposits of lithium in the north-west of the country. This could be a major boon to Europe’s EV industry as it could produce 17% of EU demand.
- As things stand, the UK has no plans to impose tariffs on EV imports from China, which puts us on a different path to the EU. Cue a massive influx of Chinese EVs on UK roads!
IN CONSUMER & RETAIL NEWS...
IN CONSUMER NEWS…
- UK retail spending is rising, according to the latest figures from Kantar. It was interesting to see that sales at supermarkets boomed with the Euros football frenzy but grocery price inflation fell to its lowest level since September 2021.
IN RETAIL NEWS…
- A lot of luxury brands are having problems at the moment. Some aspirational brands including Versace, Burberry, Marc Jacobs and Bottega Veneta are offering discounts of up to 50% as China’s middle-classes continue to rein in the spending. Burberry has brought in a new CEO to sort things out – but they are not alone in experiencing difficulties. Hugo Boss had to cut its full-year forecasts and Richemont also cited China weakness as a factor in its poor performance. UK retailer Frasers Group also said it had experienced weakness in luxury sales but seemed to be pretty blasé about it, saying that they were confident things would bounce back.
- Ocado announced upgraded cashflow and earnings forecasts, but then again it has built a reputation over the years of over-promising and under-delivering.
- Hotel Chocolat announced plans to open 25 new stores with the backing of its relatively new owner Mars, the confectionary company that bought it last year for £531m.
IN TECH NEWS...
- Given all the hype, it is worth considering why AI might not succeed as much or as quickly as everyone thinks it will. It’s in the early stages of development, there isn’t any obvious “killer app” at the moment, it’s not a given that the returns will justify the enormous capex it’s sucking in at the moment, the impact of AI is still unclear and we don’t really know yet whether it really will be as transformative as the hype would suggest.
- China is making progress towards the creation of a socialist AI as the Cyberspace Administration of China (CAC) is batch-testing LLMs from the likes of ByteDance, Alibaba, Moonshot and 01.AI to see whether their LLMs “embody core socialist values”. I have to say that I think this is great news for the Americans in particular because I think that AI is only as good/useful as the information it feeds on. If that is restricted in any way then I think this will limit its long-term usefulness (or at least it won’t be as good as AI that is developed more freely using more information sources).
- Bitcoin miners are trying to benefit from AI by converting their data centres into more AI-friendly ones. Rewards for bitcoin mining recently halved and AI is now the hot ticket with demand for facilities outstripping demand. This is great for both sides – the miners get access to higher and more stable revenues and the AI lot get faster access to the computing power they need!
- Chip stocks took a pasting this week thanks to the market’s perception of Trump’s increased chances of winning the presidency because he is noticeably lukewarm on committing to the defence of Taiwan. There are concerns about whether exports of advance chips/chip-making equipment to China will get tighter as well.
- IN CHIP NEWS – TSMC raised its full-year forecasts as it bet on a prolonged AI boom. TSMC accounts for over 90% of the world’s most advanced chip production but the fragile geopolitical situation can’t be ignored. Meanwhile, OpenAI and Broadcom entered talks about developing a new AI chip (but don’t get too excited – that’s likely to be miles away if it ever happens!) as OpenAI understandably wants to broaden its supply chain (it’s very Nvidia-heavy at the moment!).
- Meta has decided not to release its AI model in the EU as it says that regulators in the bloc are too “unpredictable”. This just highlights growing tensions between regulators who want to protect users and competition while Big Tech wants to innovate and break things. The EU’s AI Act will come into force next month while the DMA and GDPR also look to protect user privacy.
- Microsoft is now facing investigation by the CMA regarding its deal with AI start-up Inflection. Microsoft hired the founder of Inflection and a number of his colleagues to run its new AI division whilst it also signed deals with Inflection to access its AI models, something that was seen by many as an acquisition in all but name. Regulators want to discourage Big Tech buying up promising smaller tech companies because of its detrimental effect on competition.
- That being said, Alphabet is in talks to buy cyber-security start-up Wiz for $23bn in what would be its biggest ever acquisition. This will be the latest push by Alphabet into cyber security after it bought Mandiant two years ago for $5.4bn.
- The SEC is being urged to investigate NDAs at OpenAI as whistleblowers are saying that they are too restrictive. This could get quite interesting given the sensitivity surrounding the development of AI…
- IN HARDWARE NEWS – both Apple and Samsung saw phone shipments rise in Q2 although their overall share of the market fell thanks to growing competition from Chinese rivals. Meanwhile, labour troubles at Samsung could take the edge off its Q2 performance and potentially benefit rivals like SK Hynix if employees decide to jump ship.
IN MEDIA NEWS…
- Netflix announced record revenues thanks to a combo of hit shows and the success of the ongoing crackdown on password-sharers. New subscriber numbers came in above Wall Street expectations and Netflix lifted its revenue forecasts for the full year.
- French ad giant Publicis announced better-than-expected Q2 results which prompted it to raise its full-year earnings guidance as well. The fortunes of ad agencies can act as a useful lead economic indicator, so a recovery in ad spending overall is quite a positive sign for the global economy.
IN MISCELLANEOUS NEWS...
- IN FINANCIALS NEWS – Goldman Sachs reported a big rise in profits thanks to the rebound in dealmaking activity. Morgan Stanley also benefited from this as well as higher revenues from trading. Mainstream banks with less exposure to investment banking and trading have been suffering because savers have been moving their money elsewhere to get better returns.
- IN IPO NEWS – European IPO market activity has risen over the first half of this year and although London’s IPO market has been quite muted so far, the pipeline is said to be strong. Meanwhile, Shein’s expected IPO on the LSE will put the FCA to the test given that it’ll have to tread a fine line between “getting the business” and maintaining standards. Klarna continues to gear up for a New York listing, probably in the first half of next year. It’s not clear what valuation that it will be seeking, but details of all that sort of thing will be hammered out nearer the time.
- IN M&A NEWS – sunglasses giant EssilorLuxottica bought US streetwear brand Supreme from VF Brands for $1.5bn. It sounds like EssilorLuxottica plans to expand Supreme’s eyewear line by launching Supreme-Meta smart glasses following the success of its Ray-Ban Meta glasses. Even more intriguingly, Meta is thought to be considering a multi-billion euro investment in EssilorLuxottica. It’s been trying to “break into” wearables for years what with that big acquisition of Oculus a while back. If you could mix EssilorLuxottica’s style, brands and licences with Meta’s connectivity and Supreme’s coolness, I think that could be a killer combo…elsewhere, Pernod Ricard sold most of its international wine brands to Australian Wine Holdco to focus on its premium spirits and champagne business. Pernod Ricard will maintain its US and French wine brands.
- IN REAL ESTATE – Property developers are bracing for a “green belt gold rush” as the new government is keen to cut red tape and relax planning restrictions. This is great but developers will still have to contend with high mortgage rates and environmental regulations. Consumers themselves will also have to deal with high interest rates, although they are expected to start to fall this year. Meanwhile, Rightmove research suggests that the UK housing market is poised for a boom thanks to expectations of interest rate cuts, which will result in mortgage rate cuts. I guess this was reflected in the latest ONS data which showed that house prices in London and the South East have jumped for the first time since May and April 2023 respectively, implying that the housing market slump has ended. In commercial property news, there were some interesting plans submitted for a remodelling of HSBC’s famous Canary Wharf skyscraper for when the bank departs in 2027. This is all part of Canary Wharf Group’s plans to make the whole area less finance-heavy.
BANTER
My favourite “AND FINALLY” video this week was the “tricky challenge” one! Have you tried it yet??