Watson’s Weekly 24-08-2024

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.

*** HI THERE! Really sorry, but there appears to be a glitch in Watson’s Weekly for the first time ever! Basically, for some reason, there’s something funny happening with the links. 99% of them are behaving normally but you’ll notice that a few of them when you click on them you’ll have to click on a different part of the link to get you through to the relevant Watson’s Daily article. I’ll have to have a look at this but I just thought I’d let you know so that you know there’s nothing amiss your side! Apologies for that! All the best   Peter ***

This was the week when France announced a spending freeze, when PwC faced a China ban and when Waitrose announced extension plans…

• IN THE US – Kamala Harris’s economic policies got a lukewarm reception and were criticised by some as just being a list of gimmicks while Trump described them amounting to “communist price control”. Measures announced included hiking corporate tax, a ban on price-gouging in the food sector, a major boost in the housing supply and more tax breaks for families with kids and homebuyers. Meanwhile, the Fed looks highly likely to cut interest rates at next month’s meeting.
• IN EUROPE – we see that the Paris Olympics had a positive impact on the Eurozone but France announced a spending freeze and Germany’s manufacturing sector is still in a rut, which isn’t good because a) it’s the biggest economy in the Eurozone and b) it makes up a major part of Germany’s GDP.
• IN THE UK – public borrowing and income tax receipts boomed while private sector business activity grew by more than expected in August and by the fastest rate in four months. Meanwhile, chancellor Reeves is under pressure as she considers raising taxes and cutting spending in her October budget.
• IN MARKETS NEWS – global markets seemed to have made a full recovery after having a serious wobble recently and the MSCI cut the number of Chinese stocks from its global indices at its latest quarterly review, including stocks from countries such as India in their place.

IN COMMODITIES NEWS…

• IN OIL – investment in the North Sea is losing momentum as oil majors lose interest in investment because of the increasing tax burden they have to shoulder.
• IN GOLD – we’ve seen that Western investors are now buying into gold after a long period of Chinese buyers powering the gold price upwards. Westerners are buying ahead of expected US interest rate cuts while Chinese have been putting money into gold because they are seeking a safe haven from their embattled economy.
• IN COPPER – we heard that the CEO of Antofagasta, one of the world’s biggest copper producers, reckons that copper prices will recover from lows and be powered longer term by the move to net-zero (one of its uses is in EV batteries).

IN CRYPTO NEWS…

• US crypto manager Bitwise Asset Management closed a deal to buy London-based ETC Group as it dips its toes into European waters for the first time. This comes just months after US retail broker Robinhood bought European crypto exchange Bitstamp for $200m in June.

IN BUSINESS TRENDS NEWS…

• IN ASIA-RELATED BUSINESS TRENDS – China has started an anti-subsidy investigation into European dairy imports, presumably in a tit-for-tat move following the EU’s recent decision to slap a load of taxes on imports of EVs from China. In the same vein, PwC is bracing itself for a ban (and big fine) on doing business in China for six months for its part in the collapse of property developer. Meanwhile, it seems that China is becoming an increasingly tricky place to make money for foreign carmakers and Vietnam continues in its efforts to attract investment as companies and industries try to diversify away from China but stay in the region.
• IN ENVIRONMENT-RELATED TRENDS – clean fuel start-ups are collapsing as investors are increasingly focusing on profitability rather than growth and BlackRock’s support for ESG measures seems to be losing momentum in a backlash following the last few years of greenwashing and “woke capitalism”.
• IN INSOLVENCY TRENDS – a report from the UK’s Insolvency Service showed that more companies fell into insolvency in the year to the end of July than was recorded in the same period in 2008-9 at the time of the financial crisis. Falling consumer spending thanks to the cost-of-living crisis proved to be particularly painful for the retail and hospitality sectors. Across the Pond, a report from Carta showed that start-up failures in the US have rocketed up by a chunky 60% over the past year as founders run out of cash that flowed freely in the tech boom of 2021-2022. Carta said that the current rate of bankruptcies is over seven times higher than it was when it started tracking them in 2019!

IN EMPLOYMENT TRENDS…

• One of Britain’s biggest recruitment agencies, Hays, saw annual profits more than halve and it doesn’t see signs of improvement in the jobs market any time soon although the latest stats from job site Adzuna showed that vacancies increased for the first time this year, with the number of job ads rising by 1.1% in July. Elsewhere, a group of unionised vets went on strike in the first industrial action affecting the vet sector in the UK, UK unions are now pushing for “pay restoration” from the government after years of under-investment and it looks like deputy PM Angela Rayner’s crackdown on workplace harassment is going to bring the end of the office party as it will put more burden on employers to ensure they’ve taken “all measures” to prevent the sexual abuse of staff.

IN CONSUMER TRENDS…

• It looks like US consumers are really seeking out the bargains as Target, TJX and Walmart all did well over the latest quarter thanks to their cheap-and-cheerful offerings! It was also interesting to see signs of a recovery in demand for non-food items.

IN RETAIL NEWS…

• IN SUPERMARKETS – Walmart continues to differentiate itself from rivals as it broadens its revenues streams (e.g. a third-party online marketplace, digital advertising and membership schemes), Waitrose announced its first raft of new store openings since 2018 and Asda’s owners are under increasing pressure as it continues to lose sales and market share, according to the latest stats.
• 7-Eleven’s parent company, Japan’s Seven & i Holdings, announced that it had received an acquisition offer from the Canadian owner of Circle K, Alimentation Couch-Tard, which boosted Seven & i’s share price by 23% initially.
• JD Sports announced strong results, mainly thanks to a solid performance in the US market, which helped to offset falling sales in the UK over Q2.
• LVMH-owned Sephora announced job cuts in China as another sign of difficulties in the beauty sector over there. The sector has become increasingly tricky over the last few years thanks to improving domestic competition and the availability of cheaper products on platforms such as Alibaba and Tmall.
• Shein is considering selling shares directly to retail investors if it does an IPO in the UK. This is quite an unusual step for a deal of this size (the shares usually only go to institutional investors) and I wonder whether the company is considering this because it thinks that they will be more willing to pay a higher price (because they don’t really look at valuations)…
• Ted Baker shut its remaining UK stores as a potential licensing deal with Frasers Group hit a bump.

IN LEISURE NEWS…

• IN RESTAURANTS – data from the Hospitality Market Monitor showed that the UK’s casual dining sector is staging a bit of a comeback after a horrendous few years and McDonald’s announced that it would be opening over 200 additional outlets in the UK and Ireland over the next four years. This represents its biggest expansion since 2002.
• IN TRAVEL/TOURISM – the latest research from the CEBR think-tank shows that there is still a shortfall of foreign visitors to Britain versus pre-pandemic levels although passenger numbers at Gatwick edged up over the first half of the year. Short-haul has been particularly strong while long-haul has been slower to recover. London City Airport got permission to expand. This is expected to result in a near-40% increase in passenger numbers at the airport in one of the government’s first infrastructure decisions.
• Consumers are really appreciating experiences as data from the Hospitality Market Monitor highlighted the increase in the number of new hospitality venues – the first quarterly increase since mid-2022! The increase in the number of themed “competitive socialising” bars has been particularly notable (up by 28.9% in June versus the previous year!). Elsewhere, Universal is seeking out incentives from the government to build a theme park in Bedford. Given the likely economic benefit to the area and the country as a whole, I’m sure there will be some pretty chunky incentives on offer from our government!

IN AI-RELATED NEWS…

• OpenAI joined opposition to the California AI safety bill which is a piece of legislation (which is called SB 1047) that is intended to make AI safer for users. The California State Assembly is due to vote on the bill by the end of the month.
• The tech industry is now looking at suitable sites for data centres to power AI – and this is now including old power stations and industrial sites because they have the necessary area and are designed to take a lot of power.
• It seems that AI’s “killer apps” at the moment are AI-powered coding assistants which provide a significant boost for software engineers. The likes of Replit, Anysphere, Magic, Augment, Supermaven and Poolside AI (and others) have managed to attract almost $1bn of funding since the beginning of 2023. Using AI-assisted coding means that you can build more tech more quickly, so it is easy to see the value in this area. Meanwhile, the gaming industry continues to benefit from AI as it can help to create high quality visuals in a fraction of the time it normally takes and South Korea is at the cutting edge of AI in the classroom as it’s planning to use it in screen-based textbooks that can adapt to a user’s abilities.
• On the other hand, Research from Arize AI shows that 56% of America’s biggest business see AI as a potential risk to their business – a massive jump from the 9% it was at in 2022. Legal, regulatory and cyber security AI risks were cited as areas of concern.

IN OTHER TECH NEWS…

• AMD agreed to buy ZT Systems, which makes data centre equipment, in a deal worth $5bn in a move to try and close the gap with Nvidia.

IN MEDIA NEWS…

• Meta’s Facebook and Instagram platforms have been used by drug dealers and the like to advertise their wares despite claims that the platforms enforce a strict ban on such activities. It certainly shows that there is a real need for regulators to get tough to stamp this out.
• Walmart has become a serious player in advertising – its US advertising business has grown by 30% over the last year! One key differentiator that Walmart has over others is that, because it’s a retailer, it can track what people actually buy. It sounds like Walmart’s only just getting started!

• IN EV NEWS – although the EU implemented new tariffs on EV imports from China, Tesla managed to escape the worst of them, but they’ve still got to be approved by the EU’s 27 member states at the end of this month. Ford decided to cancel plans to make an all-electric large SUV, which was due to be the successor to its F-150 Lightning electric pick-up truck. Sluggish EV demand and increased competition from Chinese makers were cited as being among the reasons.
• IN DRIVERLESS – US regulators closed an investigation into GM’s Cruise self-driving system and then we heard that Uber announced a partnership with Cruise which will see the latter’s cars being used by the former from next year in an undisclosed location! This deal is similar to the one signed with Cruise rival Waymo in the city of Phoenix.

• IN REAL ESTATE-RELATED NEWS – China’s $70bn property rescue plan has got off to a slow start (i.e. it’s not really helping the situation) while in the UK, the market looks mixed. Rental property affordability is at its worst since at least 2017 but that’s at least partly due to loads of London landlords selling up. Meanwhile, Barratt is pushing ahead with its proposed takeover of Redrow despite the CMA’s reservations.
• A survey of execs concluded that management consultants were largely useless 🤣. They’ve culled tons of employees over the last year or two (so they should be a lot leaner than they were) and are now pivoting towards advising companies on how to implement AI.

My favourite “AND FINALLY” video this week is this one with dogs behaving amusingly 🐕 (or indeed dog owners editing videos amusingly 🤣)!