Thursday 08/02/24

  1. In MACRO, FOSSIL FUELS & RENEWABLES NEWS, China takes action on slumping markets, Germany’s industrial output falls by more than expected, Geert Wilders’ bid for power falters and we look at the wider consequences of ExxonMobil’s fight against the ESG brigade and who benefits from Biden’s LNG ban, Orsted has a ‘mare, nuclear fusion gets closer and we get our first private nuke plant
  2. In CONSTRUCTION & REAL ESTATE-RELATED NEWS, Barratt buys rival Redrow and UK house prices rise fast
  3. In AUTOMOTIVE NEWS, China gives its EV makers a helping hand and Ford announces low-cost EVs
  4. In MISCELLANEOUS NEWS, we further consider the latest development in sports streaming, Disney unveils its roadmap, Sainsbury’s announces cost-cutting, TikTok puts the pressure on apparel makers, Frasers ups its stake in Boohoo, Uber announces its first ever profit and the UK labour market slows down
  5. AND FINALLY, I bring you some amazing parachuting skills…

1

MACRO, FOSSIL FUELS & RENEWABLES NEWS

So China finds a scapegoat, German industrial output disappoints, Geert Wilders hits a hurdle, we look at Exxon’s battle vs ESG and who wins from Biden’s LNG ban, Ørsted’s nightmares and positive developments on nuclear fusion and nuclear power in the UK…

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:

 

Further to recent Chinese stock market weakness, China removes head of market regulator as it battles stock meltdown (Financial Times, Joe Leahy, Ryan McMorrow and Chang Leng) highlights Beijing’s latest move to shake up its stock market as it just removed the Communist party boss and chairman of its securities regulator, who had been building a reputation for cracking down on brokerages! No reasons were given. It sounds like he was just the fall guy for the benchmark CSI300 falling by 44% from its peak in 2021. * SO WHAT? * At the end of the day I would have thought that there’s not much he personally could have done about the disaster that has befallen China’s real estate sector and its eye-watering debt levels. That, combined with shaky consumer confidence, doesn’t make for party time on the stock market. This isn’t going to do anything, though – UNLESS the government comes out with a co-ordinated push that involve a number of measures being implemented to boost the fortunes of its economy.

Meanwhile, in Europe, German industrial output falls more than expected in December (The Times, Jack Barnett) cites the latest release from Destatis, the German statistics agency, which shows that German factory output fell steeply in the last few months of 2023. It doesn’t look like things will get much better in the near term either as new orders are looking pretty anaemic as well. Germany is currently suffering from a combination of weaker export demand resulting from a higher interest rate environment, China jacking up its production of industrial goods and motor vehicles and cutting reliance on German imports as well as energy price rises after Russia’s invasion of Ukraine. All of this is particularly damaging to Germany because it is one of the world’s biggest exporters.

Then in Geert Wilders struggles to find coalition partners in the Netherlands (Financial Times, Andy Bounds) we see that the far-right leader’s prospects of becoming Dutch PM have been dealt a blow as one of his key potential partners abandoned coalition talks on Tuesday night. The leader of the centre-right New Social Contract (NSC) said he was shocked by new information about the budget shortfalls that could result from Wilders’ proposed big-spending programme. * SO WHAT? * Wilders is exercising his right to form a government after his Freedom Party (PVV) won 23.5% of the vote in November elections, which made it the biggest in parliament. However, talks to form this government have not gone well. At the moment, everything is in limbo, but if Wilders did form a government he would be the first far-right leader to take power in any EU country in modern times. At the moment, the populist movement seems to be gathering momentum – and it is a theme that I mentioned in this year’s edition of Watson’s Yearly. For now, Mark Rutte is heading a caretaker government made up of a four-party coalition that imploded after a disagreement over immigration in July…

In fossil fuels news, ExxonMobil takes legal hammer to climate shareholder groups (Financial Times, Patrick Temple-West, Myles McCormick and Attracta Mooney) gives more colour on a story that I mentioned recently about the fact that the $400bn oil

giant is trying to crush ESG investors Follow This and Arjuna Capital for using shareholder activism “for the sole purpose of attacking ExxonMobil from within”, adding that “there is no good reason to believe they will stop”. It seems that Exxon is pursuing this case with particular zeal three years on from hedge fund Engine No.1 using its vote to oust three of its board members in a demand to address climate change more seriously. In that case, Engine No.1 have over 944,000 shares whereas Follow This’s shareholding was just 37 and Follow This’s was at 505, worth just $51,000 at current market prices. * SO WHAT? * This is quite interesting because it seems that Big Oil is now seeing that ESG investing is now on the back foot and presumably smells blood. Investors like Follow This are using their say as shareholders increasingly to force companies to take actions that they otherwise wouldn’t take and I think that oil companies are going to string things out for as long as they can and make it as expensive as they can for shareholders to keep doing this. I also believe that this won’t just be relevant for the oil sector – I think that it will have ramifications for activist investors in general – not just ESG activists.

Following on from what I said in Monday’s edition of Watson’s Daily about Biden putting approvals for new LNG export terminals on hold, I thought that Who are the unintended winners from Biden’s US LNG ban? (Financial Times, Lex) was quite interesting because it looked at the flipside of this, because obviously companies like Venture Global and Golden Pass (which have plans to develop LNG plants) and LNG importing countries in Europe are going to suffer. This particular article observes that US industry, including steel and chemicals, could benefit from cheaper natural gas because exports would go down as a result of the suspension – but it could also benefit alternative LNG suppliers like Russia. So basically, Biden’s suspension could actually be a great boon for Russian gas demand!

In renewables news, Ørsted suspends dividend, cuts jobs and exits offshore wind markets (Financial Times, Rachel Millard) shows that the Danish offshore wind developer announced that it will suspend its dividend, cut its targets for renewables, reduce headcount by almost 10% and withdraw from offshore wind markets in Norway, Spain and Portugal after a number of years of expansion. Ørsted is 50.1% owned by the Danish government and is trying to streamline operations in order to move forward. The company was once seen as a success story of how an oil and gas company can successfully morph to renewable energy but its share price has collapsed by over 70% since its peak in 2021 when environmental stocks were enjoying a successful patch. Separately, Vestas, which is the world’s biggest market of wind turbines, yesterday heralded its return to profitability after several years of suffering from sustained margin pressure. * SO WHAT? * Wind firms have had a lot of problems over the last year or so as costs have risen exponentially for them and the agreements that they signed years ago have effectively ended up trapping them into hugely loss-making ventures. They have all been appealing to governments to provide more subsidies to keep projects going but have been met with varying degrees of success. Things got so bad that Ørsted even abandoned two massive US offshore windfarm projects last year at an effective cost to them of £3.3bn as that was the preferable option! When the dust settles, I would expect more growth as countries are still going to want to become more energy independent over the long term after seeing the after-effects of what happened when Russia invaded Ukraine. This is another theme I explore in Watson’s Yearly!

In positive nuclear developments, Commercial nuclear fusion by 2040s (Daily Telegraph, Jonathan Leake) cites engineer Paul Methven, who is currently overseeing the UK’s latest efforts to develop nuclear fusion-generated power, as saying that the tech will become viable by the early 2040s. Hooray! Then in First private nuclear power plant to be built on Teeside (Daily Telegraph, Jonathan Leake) we see that Britain’s first “private” nuclear power station will be built on Teeside using four SMRs on the north bank of the River Tees. This will be the first time in history that British taxpayers won’t be footing at least some of the bill for nuclear power! The aim is to have them up and running by the early 2030s. US manufacturer Westinghouse will be supplying the reactors. Wow – a historic moment!

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

CONSTRUCTION & REAL ESTATE-RELATED NEWS

Barratt offers to buy rival Redrow and UK house price rises accelerate…

Barratt to buy rival Redrow for £2.5bn (Financial Times, Joshua Oliver and Ivan Levingston) is the lead story in today’s FT and the boards of both FTSE housebuilders are recommending the all-share merger which they say could generate major cost savings. This represents one of the biggest deals between two UK-listed companies in the last year! The enlarged entity will be called Barratt Redrow and plans to keep Redrow as an upmarket brand. Merger of Barratt and Redrow will create a ‘resilient’ powerhouse (The Times, Tom Howard) observes that the last 18 months have been particularly tough in a higher interest rate environment (which has pushed up mortgage rates and “scared off” buyers) and some City analysts reckon that this could be a sign that the two companies are positioning themselves for a rebound in the market. The £90m in cost savings that they are looking achieve could result in up to 10% of the combined workforce losing their jobs. How failure to build forced construction giants to merge (Daily Telegraph, Matt Oliver) contends that this is effectively a defensive merger which the companies have been forced into because of less-than-ideal market conditions although the companies themselves aren’t badging it as such! The results of both companies, announced yesterday, would tend to back up this

view as they were pretty bad. Then Barratt and Redrow’s deal will do little to help UK housing (Financial Times, Lex) shows that this isn’t yet a done deal as it will still have to pass muster with the regulator. If it does go through, there will be many benefits in planning, financing and operations but it will remain to be seen as to whether consolidation will lead to more houses being built to make up our well-publicised shortfall. * SO WHAT? * I’m always a bit cautious when I see that a deal is an all-share one. This usually means that the deal is defensive in nature (as in, it means that both sides are coming together because of rubbish market conditions or increased competition or both) and by the looks of both companies’ lacklustre results that’s what it seems to be. However, optimism about the prospects for the housing market seems to be gathering pace and if the two companies have timed it right, they might be positioning themselves favourably to benefit from the imminent upswing!

Following on from this, UK house prices rise at fastest rate since January 2023 (The Guardian, Jack Simpson) cites the latest Halifax figures which show that UK house prices increased by 2.5% in the year to January, making it the biggest increase since January last year! This is thanks to the falling mortgage rates, the likelihood of falling interest rates and resultant positive impact on both buyer and seller confidence. January marked the fourth consecutive monthly rise! Things certainly seem to be coming together…

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

AUTOMOTIVE NEWS

China helps its EV makers and Ford looks to the future…

China Offers Support to Accelerate EV Makers’ Global Push (Wall Street Journal, Tracy Qu) shows that China is trying to encourage its EV makers to expand overseas by doing things like establishing R&D centres and working with shipping companies to integrate warehousing and logistics resources in foreign markets.  The Ministry of Commerce said that it would help jolly things along by encouraging banks to provide financial support to EV supply chain companies both domestically and abroad. * SO WHAT? * These moves sound really positive for Chinese EV makers and I suspect that Beijing is sensing that non-Chinese EV makers are in a particularly weak state at the moment. The thing is that trade groupings like the EU could potentially just turn around and slap import taxes on Chinese EVs, saying that the state is unfairly subsidising its own makers at the expense of others – but then Beijing could then threaten to stop/reduce the supply of batteries and/or battery materials as it has a stranglehold on them. This wouldn’t be good for the EV market as a whole – and it’s already seeing a slowdown in momentum – so maybe some kind of compromise will be found. Still, I think that everyone needs to be developing tech that DOESN’T rely on Chinese input otherwise we are all forever going to be on the defensive and have our range of counter-actions limited.

Then in Ford to launch low-cost EVs to rival Chinese carmakers (Daily Telegraph, Melissa Lawford) we see that Ford is planning to launch a range of cheapo EVs to combat the Chinese onslaught and convince mainstream car buyers to make the switch to electric. This sounds pretty exciting given that price is one of the biggest hurdles that people have regarding whether or not to buy an EV. Ford Could Get 50% More Profit Without EVs (Wall Street Journal, Stephen Wilmot) highlights an upbeat outlook from Ford as it pointed to robust US sales, (hopefully) no more strike costs to contend with, the impact of last year’s cost-cutting programme coming through and a full year of profit from its new Super Duty F-Series truck. * SO WHAT? * I think that affordable EVs is the way to go – but there is a danger that if TOO MANY people end up buying them that charging networks won’t be able to cope and confidence will be back to square one. If THAT happens, then it could take another few years of people seeing a proper surge in the number of chargers being installed to reconsider their buying options.

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

We take another look at the latest developments in sports streaming, Disney’s new roadmap, Sainsbury’s strategy, TikTok giving apparel makers a headache, Frasers buying more Boohoo, Uber making its first annual profit and the UK jobs market cooling…

In a quick scoot around some of today’s other interesting stories, Streaming Venture From ESPN, Fox and Warner Blindsides Sports Leagues (Wall Street Journal, Joe Flint and Isabella Simonetti) shows that the new streaming venture I mentioned yesterday caught the NFL and NBA completely off-guard, How You Stream Sports Is About to Be Transformed by a Blockbuster Media Deal (Wall Street Journal, Isabella Simonetti and Amol Sharma) gives a more practical overview of what this will mean for viewers (it’ll make things easier for sports-watchers as it will be more of a one-stop shop, but there will be some sports missing) and cable TV companies (this could be very bad for them as the attractions of cable bundling will evaporate) while Disney, Fox and Warner sports streaming platform foreshadows consolidation (Financial Times, Lex) highlights more likely consolidation to boost profitability. Sports Gambling a Growing Money Laundering Risk, U.S. Says (Wall Street Journal, Richard Vanderford) highlights another thing I touched on yesterday – about sports betting gaining momentum. If the new sports-streaming venture makes sports more popular then you would have thought this is going to be a real boost for sports gambling as well! And if that gets more popular the scope for money-laundering will also increase. Is this a sector ripe for regulation?? I think so!

In Disney Turns to Taylor Swift, ‘Fortnite’ to Bolster Its Fortunes (Wall Street Journal, Robbie Whelan) we see that Disney chief Bob Iger set out a roadmap for Disney at the company’s quarterly earnings report yesterday. The company is going to invest $1.5bn for a stake in Epic Games and stream an exclusive cut of Taylor Swift’s Eras Tour concert movie on Disney+, among other things. Disney’s quarterly earnings came in above market expectations but there is still a lot to be done – particularly if Iger is to continue to fend off pressure from activist investor Nelson Peltz who wants a seat on the board to shake things up.

In retail-related news, Sainsbury’s announces cost-cutting drive in ‘next level’ changes (The Times, Isabella Fish) highlights the

supermarket chain’s intentions to cut an additional £1bn in costs over the next three years and launch a chunky £200m share buyback scheme. It said that it wants to refine its loyalty scheme, “right-size” the company and pursue a progressive dividend policy. Interestingly, the company intends to push a “food-first” agenda and add another 10% of space for food and cut the footprint for clothing and general merchandise by between 20 and 30%. * SO WHAT? * This sounds like Sainsbury’s is keeping its foot on the gas, but it also sounds like there will be job cuts as well (particularly at Argos?)…

In apparel retailing, Viral TikTok fashion trends pose new threat to fast fashion’s leaders (Financial Times, Lex) highlights an interesting phenomenon whereby the speed of TikTok fashion trends is causing apparel retailers a real headache as it is difficult for them to keep up! Shein is particularly swift as it can get from design to production within days – and as such expects that its sales will more than double to almost $60bn by 2025. * SO WHAT? * I think that this is going to be an increasingly important issue as faster turnaround will be vital to grab more market share. I would argue that companies that are slower with this turnaround – such as Fast Retailing’s Uniqlo – will either suffer badly or have to make huge changes to their production models in order to adapt.

Meanwhile, Frasers raises its stake in Boohoo again (The Times, Jessica Newman) shows that Frasers Group has taken its holding in Boohoo up from 21.5% to 22.1%. Frasers has been nibbling away at Boohoo and Asos in particular over the last few months. Is there some masterplan to come I wonder?? He now has access to so many brands across the whole scale of apparel retailing. What’s he going to do with it all??

Elsewhere, Uber records first annual profit as market value approaches $150bn (Financial Times, Camilla Hodgson) shows that the ride-hailing company managed to report its first ever annual operating profit, which delighted investors. Its earnings came in above market expectations. It seems that the company is growing up!

Then in Slower wage growth boosts case for interest rate cut (The Times, Jack Bennett) we see that the latest stats from REC-KPMG show that wage growth has hit its slowest pace for almost three years! This would imply that the heat is coming out of the labour market and makes it easier to argue for interest rate cuts to come sooner rather than later.

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…

You may not know this but many years ago, before I went to uni, I was mad keen on joining the Royal Marines. We used to have a schools liaison officer whose job it was to help keep us informed about the Marines and gently encourage us to apply. In order to do that, he used to offer various trips and experiences – and one of these was to go to a place called Dunkeswell where the Royal Navy and the Royal Marines used to do their parachute training. Anyway, to cut a long story I got to jump solo on a static line (so I jumped on my own – not attached to an instructor or anything) after a LOT of training! We also had to pack our own parachutes – which was pretty wild. You could have heard a pin drop when the instructor told us how to tie the knots that held the bag that contained our parachutes! The bag itself is attached to a strong point in the plane via a sort of cord and when you jump out of the

plane with this bag on your back, you rapidly reach the end of the cord and then the knot on the bag breaks leaving the bag hanging out of the plane and your parachute opens. Once it opens you can then control the direction using toggles. We had to do “parachute rolls” to land and if you did them incorrectly you could break your leg (which, unfortunately, one person did on our intake) because of the old school parachutes we were using. Sports parachutes that you see on TV are way more manoeuvrable and this video shows you some AMAZING skills!

Watson's Daily is a hard-working start-up striving to help people get a better understanding of the business world. I would really appreciate your involvement in spreading the word and recommending it to your friends, colleagues, relatives etc. by clicking and sharing on the links below. Please help me to help you and I will throw in a small thank-you!

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)