Thursday 01/06/23

  1. In MACRO, ENERGY & CRYPTO NEWS, the US and UK see slowing growth, while France and Germany see falling inflation, Erdogan lifts Turkey, a new gas deal demonstrates the pulling power of the US and crypto could get a boost
  2. In TECH NEWS, Foxconn surfs the AI wave, Sunak wants the UK to be at the forefront of AI legislation and UK workers want guidance
  3. In RETAIL NEWS, IKEA invests in e-commerce, B&M booms, Iceland warns and WH Smith is looking good
  4. In MISCELLANEOUS NEWS, there’s talk about EV charging, Portugal gets a lithium boost, WE Soda aims for a London listing, Franklin Templeton is to buy Putnam and British Land drops out of the FTSE
  5. AND FINALLY, I bring you an incredible snooker shot…

1

MACRO, ENERGY & CRYPTO NEWS

So Europe and the US face contrasting outlooks, Erdogan boosts Turkey, a synthetic gas venture goes to the US and crypto could get a leg up…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

UK and US poised to fall into recession as interest rates dampen growth (The Guardian, Richard Partington) cites a report from credit ratings agency Moody’s, which outlines a rather downbeat forecast for the G20 economies. It predicts recession in the US, Germany and UK, saying that the ongoing rise of interest rates will continue to dampen inflation growth. Meanwhile, according to a separate official data release in Falling German and French inflation lifts hopes of an end to eurozone rate rises (Financial Times, Martin Arnold) inflation in Germany and France actually fell more rapidly than economists had been predicting, reaching their lowest levels in at least a year. This raised hopes that the ECB might not have to increase interest rates too much further from here, particularly as it came so soon after Spain’s bigger-than-expected fall in inflation. * SO WHAT? * I always say that I treat predictions by ratings agencies with caution because they failed so spectacularly in the past to see the financial crisis coming – but also because it seems to me that they have a tendency to tell us what we already know and not be particularly good at forecasts. When you consider other data from different sources that show a general improvement in sentiment and confidence – plus the fact that even the Brit-bashing IMF had to change its opinion about a predicted recession – I don’t think this will have anyone quaking in their boots. Regarding the other release, Germany is already in recession so maybe that will be seized upon as a reason for the ECB to go easy although it tends to be more focused on the core inflation rate, which cuts out energy and food prices (because they can be particularly volatile and therefore skew the headline number) and it has said that it wants to see this measure fall towards its 2% target before they even THINK about halting interest rate rises.

Elsewhere, Erdogan’s pre-election spending spree boosts Turkey’s economy (Financial Times, Adam Samson) cites the latest release from the Turkish Statistical Institute which shows that Turkey’s GDP increased by 4% in Q1 versus the same period in 2022,

coming in above economists’ forecasts. This was no doubt thanks to some of his ultra-loose monetary policies that were implemented to boost his chances in the election where he increased wages of public sector workers and retirees, gave away a free month of gas and spent billions on reconstruction projects in the wake of February’s earthquake. * SO WHAT? * As I’ve said before, I think there may be a post-election hangover to deal with after the result was finally settled particularly as investors seem unconvinced, if the sustained pressure on the lira is anything to go by. Many economists expect that Erdogan will have to tighten policies now the election is in the rear-view mirror – and this is likely to clip the wings of economic growth.

Then in Total and Belgian energy start-up plan US synthetic gas investment (Financial Times, Shotaro Tani and Leslie Hook) we see that TotalEnergies and Tree Energy Solutions are planning to build a $2bn synthetic natural gas plant (probably in Texas), highlighting the attractions of the money available from the Inflation Reduction Act to embark on such projects. The chief exec of Tree Energy Solutions said that the incentives provided by the IRA had brought forward the development of the project by a number of years. The gas produced by this plant will be for the US market but will also be exported to Europe and Asia. * SO WHAT? * Synthetic methane is popular because it can be carbon neutral to burn due to the fact that it can be produced with CO2 that comes from the atmosphere or taken from waste sources. The resulting product is identical to natural gas and has the advantage of being useable in the existing natural gas infrastructure – which includes LNG facilities! Critics point out that there are risks of methane leakage in the production process and others say that it is not enough “just” to be carbon neutral – and that we need to go further. That said, this is surely a step in the right direction. It remains to be seen as to whether we are going to see a deluge of companies flooding into America keen to get some of the IRA dollar for themselves…

I thought I’d include Bitcoin: crypto backers hope scarcity can solve everything (Financial Times, Lex) because it is an interesting article that highlights the cryptocurrency’s current strength (it’s up 67% so far this year) and the fact that it might go up even more soon because of an event that happens once every four years called “the halving” where rewards for bitcoin mining are reduced by 50%. * SO WHAT? * At the moment, miners get 6.25bitcoin for verifying a new block of transactions on the blockchain but next year that will fall to 3.125 and eventually it will fall to zero. Bitcoin’s price has, in the past, risen in the lead-up to halvings in the past. Whenever bitcoin goes up now, you’ve got a clever-sounding answer to explain it – you’re welcome 😁!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

2

TECH NEWS

Foxconn boards the AI fun bus, Sunak wants the UK to lead AI regulation and workers want more guidance…

iPhone maker Foxconn follows Nvidia with forecast for AI sales boost (Financial Times, Kathrin Hille) highlights another company that will benefit from the AI boom – the world’s biggest contract electronics manufacturer, Foxconn! In its AGM yesterday, it forecast that its AI server business would at least double from here in H2 thanks to the massive frenzy in AI that will boost demand for its servers that are sold by branded vendors including Dell. It also supplies them directly to large data centre users like Google and Amazon. At the moment, it has a 40% global market share in servers and 20% of this was in AI. Outside AI, however, Foxconn was pretty cautious about the outlook thanks to uncertainties over inflation and global geopolitical tensions. * SO WHAT? * Although Foxconn will undoubtedly benefit from the AI boom, it has lots of other products that will dilute the glory. That said, Foxconn: party animal is latest tech group to become an AI lister (Financial Times, Lex) says that the company has a history of successfully surfing the wave of the newest trend and that AI could boost its

server business in the short-term and AI-equipped devices in the medium term with more upside to come…

Continuing on the theme of AI, Rishi Sunak touts leading role for Britain in AI regulation (Financial Times, George Parker and Cristina Criddle) highlights Sunak’s latest lofty ambitions – this time, it’s to make Britain a global centre for AI and be at the cutting edge of AI regulation that will keep everyone safe as the tech develops, but won’t get too hysterical about it (which is what the Europeans are doing). I guess the aim is to be more stringent than the US and less so than Europe. He is set to discuss regulatory plans with Biden in Washington next week. Meanwhile, Almost 60% of people want regulation of AI in UK workplaces, survey finds (The Guardian, Heather Stewart) shows the concerns of workers in a survey published by the Prospect trade union as many will be worried about job security. Recent research by Goldman Sachs reckoned that AI could potentially replace up to 25% of the global workforce, although this could be mitigated by jobs that supported it. They identified administrative jobs as being most at risk while others in law, architecture and engineering also set to suffer.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

3

RETAIL NEWS

Ikea puts more into e-commerce, B&M does well, Iceland warns and WH Smith looks good…

There’s been a lot of retail news this week! IKEA Looks to Speed Up E-Commerce With Software Acquisition (Wall Street Journal, Trefor Moss) highlights the Swedish retail giant’s announcement that it would buy Made4net, the US supply chain software provider for an undisclosed sum. This is part of the retailer’s plans to improve the online shopping experience for its online customers. The online business continues to see rising orders and IKEA wants to make sure it stays ahead of the curve. * SO WHAT? * Online has become an important part of IKEA’s business and it has accelerated from accounting for 7% of sales pre-pandemic to around 25% last year. The deal sounds good strategically as it will just speed up and streamline the whole process. It will also enhance its US business, which it is looking to grow!

In the UK, B&M profits as shoppers trade down (The Times, Isabella Fish) shows that the discounter is benefitting from budget-conscious customers trading down from more expensive competitors with both revenues and sales rising (home and garden categories was particularly good), Red tape and rules are chilling for food firms, warns Iceland (The Times, Isabella Fish) shows that the frozen food chain is complaining that admin and regulations are driving up costs for British food businesses and Summer is looking good at WH Smith (The Times, Isabella Fish) shows that WH Smith has done so well over Q1 that it raised its annual profit outlook. Its travel business (which has outlets in railway stations and airports) is doing particularly well and it said that it would account for more than 70% of all revenues by the end of the year and 85% of its profits! It was also good to see that its rather less racy high street business did quite well and was in a “good position” going into the summer period.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

4

MISCELLANEOUS NEWS

There’s talk of charging EVs, Portugal gets the lithium go-ahead, WE Soda could break the LSE’s bad run, Franklin Templeton aims for Putnam and British Land drops out of the FTSE…

In a quick scoot around some of today’s other interesting stories, Ministers urged to impose electric car charge to discourage driving (Daily Telegraph, Eir Nolsøe) shows that the think tank Resolution Foundation has suggested that a per-mile road tax on electric cars should be imposed to bolster tax revenues and reduce commission on Britain’s roads. The proposals suggest utilising GPS data which could be used by the government to charge motorists more for driving in congested areas. As things stand currently, EV drivers will have to start paying vehicle excise duty from 2025 but Resolution’s suggestion addresses the current lack of fuel duty that makes up most of the revenues the Treasury gets from drivers. Westminster gears up for a huge tax raid on electric cars (Daily Telegraph, Eir Nolsøe) emphasises the point and says that EVs are currently 60% cheaper to run than petrol and diesel vehicles and a 6p-per-mile tax (which the Resolution Foundation is suggesting) would still mean that they will be 20% cheaper to run. * SO WHAT? * The Resolution Foundation is not the first to suggest some kind of pay-per-mile system but I have to say that I think that there will be huge resistance by drivers on any attempts to track their GPS data. That on its own is enough to put the mockers on THAT idea IMO, but it is clear that a solution must be found to claw back all that lost revenue.

Staying with the subject of EVs, there’s good news for manufacturers in Boost for Europe’s EV makers after Portuguese lithium mine given environmental nod (Financial Times, Harry Dempsey) which shows that London-listed Savannah Resources has been given the go-ahead by Portuguese authorities to open up one of Europe’s first large-scale lithium mines. * SO WHAT? * This is great news for EV manufacturers as demand for lithium in Europe is expected to quadruple by 2030 while the region only

currently produces less than 1% of the world’s supply. Not so good for environmentalists, though. Permits for such projects have been very difficult to come by but the EU Critical Raw Materials Act was unveiled in March aiming to simplify permit processes for mining companies. This could be a precedent for the opening of more mines in Europe…

Meanwhile, Soda ash group aims to be ‘big fish’ in London with $7.5bn valuation target (Financial Times, Harry Dempsey and Adam Samson) shows that the world’s biggest natural soda ash producer, WE Soda, announced plans to float on the London Stock Exchange, where IPO proceeds are down a whopping 80% year on year after having listed only two companies on the main market over Q1! It could qualify for entry into the FTSE100. Soda ash is used to make glass and washing detergents and demand is expected to increase from 65m to 81m tonnes per year by 2030 due to increased demand for solar panels and lithium carbonate processing. WE Soda: IPO would help London’s dusty commodity franchise sparkle (Financial Times, Lex) reckons that the LSE should be all over this as it would plug a hole left by companies who quit the London market to go elsewhere. There is a lot of growth potential here but there is a possibility that soda ash prices could fall from recent highs.

Elsewhere, Franklin Templeton to buy Putnam Investments for more than $1bn (Financial Times, Brooke Masters) highlights a tasty-sounding acquisition between two big-name asset managers as Franklin Templeton continues to buy its way into becoming a multi-class asset manager and British Land to drop out of FTSE 100 in reshuffle but Ocado survives (The Guardian, Graeme Wearden) shows that British Land will now fall out of the FTSE100 in the index’s latest quarterly reshuffle. Ocado managed to hang on – just – while engineering company IMI will replace it. This is notable because British Land has been in the FTSE100 for the last 21 years. It has suffered due to the impact of rising interest rates and the damage caused by last year’s autumn mini-budget.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

5

...AND FINALLY...

…in other news…

Have you ever played snooker? I used to love it and played it for years. When I first started, I had to put the white right at the back of the D (well as far back as I could whilst just about seeing the reds) and used the rest for a lot of shots. And no, that wasn’t last week 🤣 (I know many of you who have met me will know I’m not the tallest of people!). Anyway, what this man does is just plain ridiculous!

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)

 

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