Watson’s Weekly 30-09-2023

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 a week where the FTC took on Amazon, Amazon invested big in Anthropic and progress was made with Hollywood writers…

• IN GERMANY – the latest Ifo survey shows that business activity in Germany is now hitting five-year lows and many economists think that the economic slump there is going to go on for longer than previously expected.
• IN THE UK – the latest report from KPMG contends that the UK economy is going to lose momentum in the second half of the year, rumours continue to fly about the fate of HS2 and sterling has a tough time largely because our interest rates look like they’re peaking while it seems that they’ve still got a bit more upside in the US. Economic growth expectations for the UK are also pretty low.

IN COMMODITIES NEWS…

• Russia has managed to dodge G7 price caps on most of its oil exports, according to research by the Kyiv School of Economics and Greek shipping magnates have made billions in selling tankers to the Russians.
• There was an interesting discussion about China oil demand reaching its peak this year. The IEA reckons it won’t reach its peak until 2030 but the country’s rapid take-up of EVs could having a significant effect.
• Although the oil price is heading towards $100 a barrel, it looks like shale drillers won’t be tempted back presumably because they’ve been burned badly in the past by a heady boom and bust cycle.
• There’s potentially good news for this winter – that the risk of blackouts is likely to be less this year than it was last year because European gas stocks are looking good and more French nuclear reactors are coming back online, all of which will contribute to the energy mix.
• Olive oil stocks are running out after summer wildfires and particularly hot weather in countries that produce it. It looks like global production could fall to less than half what it was last year thanks to the weather!

IN BUSINESS TRENDS…

• IN GLOBAL TRENDS – global trade has dropped at its steepest pace since the pandemic, according to the latest stats from the World Trade Monitor. There are no immediately obvious signs that this is going to change in the short-term.
• IN CHINA TRENDS – fears are increasing about China’s real estate sector problems bleeding into other sectors, particularly into commodities given that construction-related demand is a major driver. US companies are saying that the business environment in China is getting worse and Western companies appear to be “de-risking” their China businesses at an increasing rate in order to insulate themselves against tightening US-China trade tensions.
• IN UK TRENDS – UK business confidence has fallen, according to the latest Lloyds Bank business confidence tracker. That said, it’s thought this might improve again following the Bank of England’s recent decision to keep interest rates unchanged. Meanwhile, the manufacturing sector is still reeling from Sunak’s reining in of climate commitments last week. This is understandable given that they have to make plans years in advance and this has no doubt pulled the rug from underneath them!

IN CONSUMER TRENDS…

• US consumer confidence fell for the second consecutive month on rising fears that the country will fall into recession next year.
• It seems that consumers aren’t gambling as much as Entain (the owner of Ladbrokes, Bwin and Coral) reported a decline in online gaming revenues. It was also due to unfavourable (to Entain) sports results which meant higher payouts.
• UK families are having a particularly tough time as they have to contend with rapidly rising childcare costs thanks to back-to-office-prompted demand! As if things weren’t bad enough at the moment with other rising costs!

• The FTC and 17 states filed a lawsuit against Amazon saying that it overcharged customers, stifled competitors and mistreated third-party sellers on its website. This is a big test for Big Tech and the FTC, so we’ll just have to see how it goes.
• The outlook for UK retail sales has improved, according to the latest from the CBI. OK so they have fallen for the fifth consecutive month, but the rate at which they have fallen is slowing down. Apparel sales were particularly slow in September but the feeling is that there will be a bottoming out and spending will start to improve.
• Asos cut full-year profit forecasts thanks to wet weather in contrast to the more successful Next, which recently raised its full-year forecasts.
• H&M announced a sharp rise in profits for Q3 thanks to its continued focus on profitability and inventory control.
• John Lewis announced the sale and lease-back of 12 Waitrose supermarkets, the proceeds of which are to be used to update stores, cut prices and bolster its online business. I still think it needs to make drastic improvements to its core business and make a big deal about it. This move does not sound like it is enough at all!

• IN CHINA – the Evergrande drama continues as more of its bosses were put under house arrest, but then the company’s shares were suspended again until further notice just a month after its shares started trading following a 17-month suspension!
• IN UK COMMERCIAL PROPERTY NEWS – London offices lost just over 17% of their value in a year, according to the latest data from BNP Paribas and commercial property landlords took a big hit as the WFH phenomenon has hit demand for office space. As if to illustrate this point, Meta paid a whopping £149m to landlord British Land (the equivalent of 7 years of rent!) to get out of its lease because it said that it doesn’t require the space any more.
• IN UK RESIDENTIAL PROPERTY NEWS – the number of UK first-time buyers has fallen by 22%, according to the latest research from Halifax Mortgages and their average age has gone up as property has become less affordable, although more recent mortgage rate cuts have pushed the average five-year fixed-rate mortgage to below 6%. There may be some “bargains” around the corner as Zoopla research has shown that discounts to asking prices have been increasing – and new housing starts have seen a big surge in order to beat the June 15th deadline past which they will be subject to onerous new regulations aimed at cutting carbon emissions. However, the market may not necessarily get flooded with new homes because if building on the houses was started before that deadline they won’t be subject to the new regulations. That means that there is no urgency to finish them any time soon!

IN CAR NEWS…

• Biden is going to be making a crucial decision on how the $7,800 tax credit on EVs will be applied. The problem is that it won’t be applicable to cars that contain components from countries that are a “foreign entity of concern” (i.e. China) starting from next year, which could be a massive problem for Ford in particular, as it is planning to use batteries that utilise Chinese battery tech and materials. This is such a serious issue that Ford announced that it would suspend development of a gigafactory that was using technology from CATL pending further clarification on this. There was some good news for Ford, though, as it seems to have made progress with its auto workers in Canada thanks to a wage increase and improved pensions.
• Carmakers are calling for the EU to delay a 10% tariff on EV exports from Europe. It’s supposed to come into effect from January but the makers say this would just open the door to Chinese cars as European cars would get more expensive in comparison. Interestingly, on the flipside to this, Tesla might face scrutiny as part of an EU investigation of car makers who export from China.
• Nissan committed to go all-electric by 2030 despite Sunak’s recent push-back of the new petrol/diesel car sales deadline to 2035.
• Weirdly, Sunak kept EV sales targets for manufacturers unchanged despite his pushing back of the deadline last week. This means that they will still have to ensure that 80% of the cars they sell by 2030 will have to be fully electric. I’d say that this is the worst of all worlds for the manufacturers because potential buyers have lost their sense of urgency to buy EVs because of the push-back of the deadline while the pressure remains for auto makers to make the switch to electrification.

IN BATTERY NEWS…

• Northvolt announced that it is to build a battery gigafactory in Canada. This will be its first facility outside Europe and was selected for its renewable energy, supply of raw materials and “the attitude of the government”.

IN AI-RELATED NEWS…

• Amazon announced that it would be investing $4bn in AI start-up Anthropic over a few years. This is a chunky sum but the move is particularly interesting as it signals a departure from Google. It will still lag Google and Microsoft in terms of AI “presence” but it’s a step in the right direction and Amazon has very deep pockets, so can throw more money into this!
• Everyone got excited about news that Sam Altman (OpenAI), Jony Ive (ex-Apple, now LoveFrom) and Masayoshi Son (SoftBank) were getting together to develop some kind of AI gadget that will change humanity but I suspect this is all part of the masterplan for OpenAI to pump up its valuation to $90bn and has yielded nothing concrete as yet.
• Meta announced the launch of 28 new AI-powered “persona” chatbots to encourage more engagement, which sounds like fun. Zuck wants them to be more than talking search engines – he wants them to be your friend!

IN OTHER TECH NEWS…

• There are reports that Apple’s new iPhones are overheating. Not great PR, but Apple hasn’t responded (presumably this will be sorted in a new software update).
• Huawei impressed with new gadgetry despite US sanctions on the export of advanced tech. It sounds like it’s on the road to independence from US tech!
• Fortnite developer Epic Games announced that it would be cutting 16% of its workforce in order to contain costs. Is this the beginning of the end??

• IN FINANCIALS NEWS – Binance, the world’s biggest cryptocurrency exchange, is selling its Russian business to CommEx for an undisclosed sum. Sounds a bit dodgy given that the “top tier VC”-backed CommEx only launched the day before 🤣. DWS paid $25m to settle SEC probes into its alleged “greenwashing” of ESG investments. It was also interesting to hear that the FCA is going to launch a review by the end of the year into private valuations (but I don’t know how they can really enforce anything) and that the space insurance industry has a lot of room to grow, particularly as more LEOs are being launched these days.
• IN M&A NEWS – dealmaking on the London Stock Exchange has hit its lowest point since 2013! The pipeline is looking a bit better at the moment, but we’re still losing flotations to New York…the CMA is to launch an in-depth investigation into Arçelik’s purchase of Whirlpool’s European appliances business and Portuguese flag-carrier TAP goes up for sale as the government aims to reduce its share.
• ELSEWHERE – Lululemon and Peloton end their feud and enter into a partnership, effectively cross-promoting each other’s products. McKinsey has decided to pay out an additional $230m to settle most of the remaining claims that it was responsible for boosting opioid sales and the EU is in talks with Moderna over the supply of new Covid vaccines.

My favourite “alternative” videos from this week involved modern pole vaulting and an example of “practical” pole vaulting!