Watson’s Weekly 31-08-2024

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.

This was the week when Starmer attempted to reset relations with the EU, when the CEO of Telegram was arrested and when everyone went crazy for an Oasis reunion…

• IN THE US – the US economy grew faster than expected in Q2, which is a nice boost for Team Kamala, and Joe Biden and Xi Jinping set up a phone call as a tentative step towards mending US-China relations. Meanwhile, China continues to weigh up which presidential candidate is going to be least bad for relations between the two countries.
• IN EUROPE – a fatal knife attack involving a Syrian immigrant perpetrator put immigration back at the top of the agenda in Germany and boosted AfD’s popularity, while in France, Macron refused to endorse a leftwing government. Meanwhile, PM Starmer had a trip to Europe to mend relations but was warned that he should not try to side-step Brussels if he really wanted to do so properly.
• IN THE UK – speculation continues as to what taxes the government will be raising in the forthcoming Budget and it seems that fears of a rise in Capital Gains Tax is prompting a wave of asset selling. Interestingly, a recent YouGov survey showed that over half of Britons disapprove of the Labour government so far.

IN COMMODITIES NEWS…

• IN OIL – the UK government has decided to palm off the North Sea situation onto the courts as it decided not to challenge the legal bid to block the development of the Rosebank oilfield in the North Sea. Environmentalists argue that developing it would violate the UK’s obligation to hit net zero targets. In the meantime, Shell announced that it would be cutting headcount by a whopping 20%, mainly in Britain and the Netherlands.
• It seems that the glory days of energy trading are over as Gunvor’s earnings halved in the first six months of 2024 due to a lack of volatility and mining giant BHP outlined a downbeat outlook for commodity prices mainly due to ongoing sluggish demand from China.

IN BUSINESS TRENDS NEWS…

• Supply chains continue to evolve thanks to a series of unusual events over the last few years (Covid, Ukraine War, Suez blockage, Houthi rebels in the Red Sea etc.) and it now means that the “just-in-time” system of yesteryear needs to be backed up by more near-shoring and stockpiling.
• China has decided to hit back on all the sanctions by restricting shipments of key semiconductor materials, prompting concerns about western production of advanced chips and military optical hardware.
• Data from three real estate agencies seems to show that office vacancy rates in the hubs of Shenzhen, Beijing, Guangzhou and Shanghai are 20% upwards – a rate that’s higher than it was in June 2022! Also, rents are at least 10% lower than they were two years ago. Vacancy rates are expected to rise.
• Back in the UK, business confidence remained at an eight-year high, with construction being particularly worthy of mention as it reckons it will benefit from the government’s ambitions regarding housebuilding.

IN EMPLOYMENT TRENDS…

• SMEs are getting hit by rising wages, something that may get worse under a Labour government that is poised for an overhaul of workers’ rights. This is likely to increase overheads.
• Saudi Arabia is putting pressure on City firms with presence in the Kingdom to hire a greater proportion of local staff (the previously mandated level was 50% – it will now be 70%), which is making recruitment – which was already difficult – very tricky!
• Banking workers’ union Accord is calling on financial services groups to invest in major reskilling programmes to help the workforce adapt to an AI world. Citigroup said in a recent report that half of banking jobs could be at risk from automation.

IN INVESTMENT TRENDS NEWS…

• Unilever is walking back its commitments to plastic waste reduction and paying living wages in another example of companies reneging on their ESG promises. So it’s not only oil companies that are doing this!
• Vanguard has also watered down its commitment to back ESG measures as it voted to put in place precisely zero environmental or social shareholder proposals in 2024! This comes not long after we saw BlackRock behaving in a similar fashion. It seems like they are just trend followers like everyone else – and not the trailblazers they like to think they are.
• Investors are pulling money out of India after a period where it benefited from investors moving money out of China. Foreign ownership of Indian stocks is now at its lowest level for 11 years but locals continue to pour their savings into the market. Who will crack first??

IN TECH NEWS…

• IN AI-RELATED NEWS – Apple is in talks to invest money in OpenAI, which is holding its latest funding round. Word is that this funding round will give OpenAI an implied valuation of over $100bn. Nvidia shares have taken a pummelling in trading despite revenues more than doubling as expectations were high. The company has become a victim of its own success as it has a history of smashing expectations.
• Cybersecurity firm CrowdStrike had to cut guidance for the full year and it also outlined a downbeat assessment of the current quarter. This was bound to happen given that it was at the centre of one of the worst computer outages ever.

IN MEDIA NEWS…

• Meta’s chief Zuckerberg pushed back (very belatedly) against pressure from the US government to sensor anti-vax posts on his platforms during the pandemic. However, it does seems like Big Tech founders in particular are squealing at the prospect of tighter content curbs from regulators around the world.
• Telegram’s CEO was arrested in Paris on charges of “failing to prevent criminal activity” on his platform. Musk was obviously up in arms about this (perhaps because he could be next!) and this could have wide implications.
• Meanwhile, X faces a ban in Brazil as it has failed to comply with court orders. Musk is crying censorship while the judge said that he wants to protect democracy from misinformation and hateful content.
• Billionaire Edgar Bronfman decided to drop his bid for Paramount and get out of the way of Paramount’s previously agreed deal with Skydance.

IN RETAIL NEWS…

• Chinese retailer PDD, which owns Pinduoduo and Temu, announced that its revenues had fallen short of expectations thanks to tighter competition both at home and abroad. Investors freaked out and the stock dropped by 29%! Temu’s global expansion is losing momentum as it seems to be at the end of its rapid growth phase.
• In the US, shoppers are still going to the mall but they’re getting more picky while those on lower incomes are still suffering in the ongoing cost-of-living crisis – as evidenced by Dollar General’s downbeat outlook for the year. Meanwhile, Walmart has decided to open up its warehousing, delivery and returns services to third-party merchants in a move that echoes a similar strategy at Amazon, where over 60% of its sales on its website are for goods sold by third-parties. Walmart’s offering will be called Walmart Fulfilment Services and will launch on September 10th. Gap announced higher sales for Q2 and was quite upbeat about its prospects in Q3 as its turnaround continues.
• In the UK, the latest BRC figures show that footfall for August increased versus July while retail prices fell for the first time in almost three years, mainly thanks to clothing retailers having to sell their summer stock at a discount. That being said, Kurt Geiger said that it managed to increase sales by almost 10% last year thanks to customers buying “affordable luxuries” and its ongoing US expansion. Sainsbury’s announced that it is going to invest £130m in buying 10 outlets from Homebase and converting them into large supermarkets in its biggest expansion in over ten years!

IN CONSUMER GOODS NEWS…

• Lego announced record profits (although China performance was weak) and announced aims to have all of its products made entirely from renewable or recycled materials by 2032 by using plastic resin sourced from renewable or recycled materials.
• Birkenstock reported its highest ever quarterly sales as the whole “ugly” footwear trend continued. Birkenstock, Hoka, Asics and On Running have all benefited from this whole chunky shoe trend. The question is how long can this go on for??

IN LEISURE NEWS…

• Qantas announced a drop in profits as air fares continue to ease and Ryanair expects fares to continue to fall this winter by about 5%.
• Bingo halls are surfing the “experiential” leisure trend with the likes of Dabbers Social Bingo, Buzz Bingo and Rank Group (which owns Mecca Bingo halls) all benefiting. Although this sounds great, I’ve seen this happen before when money’s been tight so I would expect this to be a phase. Still, there’s a lot of money to be made in the meantime!
• Pubs are pushing back against a potential ban on smoking in outdoor areas including pub gardens, restaurant terraces and children’s playgrounds. We’ll have to see how this plays out, but if it does come into force I think it’s likely that hospitality venues will suffer.
• Everyone went mad about an Oasis reunion and tour. Apart from the band themselves, those that stand to benefit include promoters like SJM and Live Nation (which owns Ticketmaster).

• IN DRIVERLESS NEWS – Uber is going to fund British driverless car start-up Wayve and enter into a partnership where it’s AI software is going to be integrated into Uber’s network. Wayve’s software helps cars to “learn” driving by using videos and data from real life and it’s thought that this helps them to adapt better to the driving environment.
• IN EV-RELATED NEWS – GM has become the latest car maker to pull back on its EV commitments as it has decided to postpone production at its planned $3.5bn battery plant in Indiana, which it’s working on with Samsung SDI, by about a year to 2027. GM and rival Ford Motor have decided to delay or cancel various EV models given slower-than-expected demand. Hyundai has become the latest company to increase its investment in hybrid cars as the demand for 100% electric continues to tail off. The company said that it would double its hybrid range to up to 14 models in response to rising demand, especially in North America. Elsewhere, Polestar continues to struggle and BYD managed to post a rise in profits on strong EV sales. Meanwhile, research by Field Dynamics showed that there are still big “charging deserts” in the UK and figures from the SMMT show that car production dropped in July.

• IN FINANCIALS – LSE research shows that deal activity has been rising and Barclays boosted the half-year bonus pool, which would back that up. Meanwhile, Klarna said it wants to halve its workforce by increasing its use of AI and insurance and investment group Prudential managed to post first-half profits that came in above market expectations despite China weakness.
• IN REAL ESTATE-RELATED NEWS – Lloyds Bank just raised its borrowing limit multiple for first-time buyers from 4.49x to 5.5x household income in a move designed to help more people get on the property ladder and a report from Zoopla says that it looks like the housing market is heading for a brisk autumn. A report by Hamptons and Countrywide showed that first-time buyers made up 48% of house hunters in London this year – the highest proportion since at least 2010 – but we also saw ONS data which showed that the number of new houses built last year was disappointing.
• Eli Lilly launched a cheaper version of its Zepbound weight-loss drug which is half the price of its original injectable pen. Demand continues to be super-strong!

My favourite “AND FINALLY” video this week is the one with the incredibly talented chocolate artist!