Watson’s Weekly 30-03-2024

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 the Baltimore Bridge collapse, when Trump’s Truth Social floated and when Merlin Entertainment warned everyone they’d be introducing surge pricing…

• IN THE US – the Francis Scott Key Bridge just south of the Port of Baltimore collapsed as a Maersk container vessel crashed into it. There were a number of fatalities and it has caused major disruption. Lloyd’s of London has warned that this catastrophe will trigger one of the biggest insurance losses in history.
• IN EUROPE – a report from the Kiel Institute from the World Economy cut its GDP growth forecasts for Germany although it did say that it expected a recovery to start in the spring. Higher energy costs since Russia’s invasion of Ukraine continue to be a major drag on Germany’s economy. Then we heard that the French budget deficit came in higher-than-expected, dealing a further blow to Macron’s handling of the country’s finances. Meanwhile, leaders of Balkan countries are urging NATO members to bring back conscription because of the rising threat from Russia.
• IN THE UK – a report from KPMG has forecast UK interest rates coming down to 3% by the end of this year, saying that the Bank will risk harming the economy unnecessarily if rates aren’t cut soon. Governor Bailey said last week that rate cuts are “on the way”.

IN COMMODITIES NEWS…

• Cocoa prices have overtaken those of copper now! They’ve risen by 50% this month alone – but if you look at the price performance last year, it’s almost jumped by as much as Nvidia has! This has all been thanks to poor weather and crop disease hitting growers in West Africa where the majority of beans are grown. Price rises tend to take 6-12 months to filter through to end product prices.
• Worries are increasing about China cornering the copper market as there are signs that China has been stockpiling the metal that is used in so many things! Copper plays an important part in the transition to a greener economy so this could be EVs all over again!

IN ENERGY NEWS…

• British energy imports hit a new high, according to the latest report from Offshore Energies UK, which shows that Britain is generating its smallest amount of energy ever! Around 40% of oil and gas used in the UK is now imported! Those SMRs can’t come quickly enough…

IN CURRENCY NEWS…

• The Yen fell to its lowest level versus the dollar since 1990 as Japanese policymakers poured cold water on the idea of further imminent interest rate rises.
• Bitcoin’s recent strong performance has woken VCs from their slumber and they are now investing in crypto start-ups once more, according to analytics provider Cryptorank. On the other hand, inflows into 11 new bitcoin ETFs that got approval by US regulators in January saw outflows last week. It’s too early yet to tell whether this is just a blip or a trend as fund inflows have helped to push crypto prices to record levels!

IN BUSINESS TRENDS NEWS…

• IN DEFENCE – the US and Japan are about to announce a major upgrade in their mutual defence treaty in order to counter the perceived growing threat from China. Japan has dramatically increased its defence capabilities over the last few years but the way it slots in with the Americans has a lot of room for improvement. Meanwhile, the US and UK have accused China of cyber attacks on politicians and companies, but obviously China denies the allegations. This will be particularly sensitive as the US and UK have elections at the end of this year.
• US BUSINESSES IN CHINA – it’s not really surprising to hear that American businesses are finding that their momentum in China is slowing down. This is partly to do with the current sluggishness of China’s broader economy but it also a result of understandable backlash from the Chinese to ongoing sanctions. Nvidia, Qualcomm and Micron Technology have been among those to be hit particularly hard.
• THE TECH CRACKDOWN – the EU has now launched investigations into Apple, Meta and Alphabet over whether Apple and Alphabet-owned Google are unfairly prioritising their own app stores to the detriment of rivals and whether Meta is getting an unfair advantage in advertising by using personal data. This will be the first test of the robustness of the Digital Markets Act, which is supposed to take on the dominance of “digital gatekeepers”. I think we’re going to see a lot more of this now.
• A RETIREMENT CRISIS – BlackRock’s boss, Larry Fink, warned everyone in an open letter about an imminent retirement crisis as he observed that while a lot of effort goes into prolonging our lives, not enough effort is going into how to finance retirement. Japan has long been cited as THE example of ageing society but China is arguably going to have an even worse problem down the road thanks to its previous “one-child” policy.
• IN INVESTMENT TRENDS – we see that US investment funds pulled $13.3bn from BlackRock’s climate change funds over the last few years as the backlash against the ESG trend continues to gather pace and we also see that green investment trusts losing ground as well. This could have repercussions on the whole green sector as such investment trusts are often buyers of assets from companies such as Ørsted who use the money raised to invest in other projects. Meanwhile, it’s become apparent that some major founders of Big Tech companies have been selling off millions of dollars worth of their shares this quarter, according to Verity LLC. This sell-off often occurs in Q1 (for tax reasons?) but it’s a lot higher than usual. This tends to make other investors feel a bit uneasy as there’s a sense of “do they know something we don’t know??”. Back home, the Bank of England is getting increasingly concerned about the next move of PE firms who loaded up on debt when it was cheap a few years ago and then went on a massive shopping spree for assets. They are not only concerned about a potential asset sell-off – they are worried that more money will have been lent against the assets in their portfolios that could potentially amplify any losses and result in an avalanche of selling.
• REGARDING THE TRAVEL BOOM – the aviation industry is doing extremely well thanks to the current travel boom! Aircraft deliveries have hit their highest levels since 2019 but Boeing is having a rough time of it due to that door incident in January. The CEO is carrying the can for this and will be staying on till the end of the year to presumably ensure a smooth handover while a load of other senior bods got the boot.

IN BATTERY NEWS…

• CATL is going to press on with its efforts to expand its US presence despite push-back but it also dismissed any talk of imminent commercialisation of solid state batteries, saying that Toyota is talking out of its 🍑 about alleged technical advances in that regard. CATL is instead working on alternative tech with sodium-ion batteries and condensed-matter batteries. Meanwhile, Chinese EV battery manufacturer EVE Energy is looking at potentially building a new gigafactory on the outskirts of Coventry that could be a major part of the planned UK Centre for Electrification, an investment zone in the West Midlands.

IN EV NEWS…

• Policy group Transport & Environment say that Chinese-made EVs are set to take a 25% share of the European market this year and although BYD missed profit forecasts, it’s still got plenty of room to cut prices further in order to help increase that market share.
• Tesla tried to get a bit of the limelight this week by saying that it is increasing the promotion of its driver-assistance tech it calls “Full Self-Driving Capability” but I have to say that I think this is just a publicity stunt.
• Nissan unveiled a plan to cut EV production costs that will help it launch 16 new EVs by 2026. Will this prove to be too little too late given the expected onslaught from Chinese EV manufacturers?
• Fisker’s nightmare continued as talks about a tie-up with a major manufacturer have been abandoned and it looks like it will be delisted by the NYSE due to “abnormally low” price levels. Fisker announced price cuts for its vehicles to drum up more sales but you do wonder why anyone would buy any of its cars given how dodgy things are looking right now.

IN GENERAL…

• The latest figures from the SMMT show that British carmakers announced a sixth consecutive month of rising production but there could be problems with exports to Canada due to an ongoing trade dispute between the two countries.
• Ferrari announced that it had doubled sales in Taiwan thanks to the rising wealth of chip entrepreneurs. Ferrari’s CEO observed that Taiwan demand has grown faster than in China or Hong Kong!

IN CONSUMER TRENDS NEWS…

• US consumers are continuing to spend despite some unease about the economy but then they might find it harder to find affordable Easter eggs due to rising cocoa prices (which I mentioned above!).
• There was good news for UK consumers as food inflation slowed down to its slowest pace since February 2022, implying that the headline rate of inflation is likely to fall, which could in turn put more pressure on the Bank of England to cut interest rates sooner rather than later.
• IN THE RESIDENTIAL PROPERTY MARKET – Zoopla said that confidence is returning to the UK property market as discounts on asking prices are narrowing and housebuilder Bellway said that it was pleasantly surprised by the quicker-than-expected rebound of the housing market as it is now selling over one-and-a-half times as many homes per week as it was in the autumn.

IN LEISURE NEWS…

• IN GAMBLING – 888 said that it was going to change its name to Evoke and pull out of the US sports betting market after a tumultuous year while, in contrast, rival Flutter Entertainment is looking to triple US profits before it shifts its listing from London to New York.
• Merlin Entertainment – which owns attractions including Legoland, Sea Life and Madame Tussauds, among others – said that it is planning to introduce “surge pricing” which means visitors will have to pay more at peak periods. I suspect this will be great news for operators of attractions that don’t adopt this dynamic pricing model as I would have thought this will be received very badly, particularly by families.
• London-listed leisure company Revolution Bars is looking at closing 25% of its venues as a condition of getting some financing. The nightmare in hospitality continues…

IN RETAIL NEWS…

• UK retail sales stabilised, according to the latest figures from the CBI and there was good news as stats from the monthly Asda Income Tracker showed that disposable incomes in the lowest-earning households in the UK have actually increased for the first time in over two years! Meanwhile, Kingfisher (owner of B&Q and Screwfix etc) announced another profit warning, saying that DIY demand had slowed down.
• IN ONLINE RETAILER NEWS – Amazon’s online pharmacy is getting a major boost from distributing anti-obesity drugs while Asos saw its sales plunge in H1 while it tries to focus more on profitability. Meanwhile, Chinese e-commerce players including AliExpress, Temu and Shein are making great progress in South Korea although there’s still quite a gap to bridge with the local e-tailing giant Coupang. Still, they are making ground fast…
• It was nice to see some positive news for a change from Morrisons, which announced its strongest quarterly sales growth since it was taken over in 2021.

• Analysis by the London Stock Exchange showed that the number of blockbuster deals shot up in Q1, highlighting a recovery in the M&A market after a long drought. It seems that deal activity has increased with the expectation of interest rates coming down and general confidence in the global economy turning a corner.
• F1 owner Liberty Media is currently in exclusive talks to buy Dorna Sports, owner of MotoGP. Dorna Sports is owned by Bridgepoint, the private equity firm.
• Boutique hotel group CitizenM is looking at a potential sale of the business as it looks to take advantage of the current travel boom.
• Design software group Canva just bought UK-based design platform Affinity from privately-owned developer Serif for cash and shares in Canva’s biggest ever deal.
• DS Smith appears to be in the middle of a bidding war because although it has an “agreement in principle” with FTSE100 rival Mondi, American company International Paper is showing serious interest in DS Smith as well!
• Danish pharma giant Novo Nordisk, of Ozempic and Wegovy fame, has just bought German biotech company Cardior Pharmaceuticals, which is developing heart disease treatments. The deal is worth €1bn.
• Amazon said this week that it would invest an additional $2.75bn into AI start-up Anthropic, bringing its total investment so far in the start-up to $4bn. No doubt it’s hoping that Anthropic will be to Amazon what OpenAI is to Microsoft!

IN SOCIAL MEDIA NEWS…

• Trump’s social media business, Trump Media & Technology Group (aka “TMTG”) had a very successful IPO on the NASDAQ this week meaning that the ex-president’s 58% stake is now worth $4.6bn! That should come in useful when paying his lawyers 🤣although he’s not allowed to sell for six months.
• Usage of X in the US has dropped by 23% since Elon Musk bought it, according to research by app-monitoring company Sensor Tower. Although every other major social media platform has experienced a fall in usage over the same time period, X’s drop has been particularly bad. Surely it’s about time that CEO Linda Yaccarino announced some kind of strategy to get things going again…
• The FCA brought out new guidance for “finfluencers” this week. This will punish social influencers who promote financial products or services without proper approval or authorisation. If they flout the rules, they could be committing a criminal offence that could be punishable by up to two years in prison, an unlimited fine, or both.

IN CHIP NEWS…

• China has banned the use of Intel and AMD chips in government computers and servers as the country makes efforts to reduce its reliance on foreign tech. Companies including Huawei and Phytium stand to benefit from this.

My favourite video this week was the one with the misheard song lyrics! Brilliant!