Thursday 22/02/24

  1. In MACRO, COMMODITIES & CRYPTO NEWS, we look at global debt, Fed jitters, Germany’s mess, the UK’s dilemma, consolidation in oil, disappointment in mining and thoughts on bitcoin
  2. In TECH NEWS, Nvidia smashes it and Lenovo’s revenues rebound
  3. In EV NEWS, Tesla gets rejected and Rivian decides to cut 10% of its workforce
  4. In MISCELLANEOUS NEWS, BAE Systems booms, warehousing consolidation looks likely, HSBC’s profits crater and households get more to spend
  5. AND FINALLY, I show you something interesting near St Paul’s…

1

MACRO, COMMODITIES & CRYPTO NEWS

So global debt rises, the Fed urges caution, Germany’s in a mess, Hunt gets some leeway, there’s more consolidation in oil, disappointment in mining and a mixed impact of Bitcoin on Coinbase…

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:

 

Global debt soars as high rates hit governments and businesses (Daily Telegraph, Tim Wallace) shows that global debt has hit a record high of £248tn thanks to higher interest rates impacting borrowing costs for governments and companies alike. Figures from the Institute of International Finance (IIF) shows that the world’s debt pile grew by $15tn last year so you’d think that the prospect of falling interest rates will ease the pressure.

Meanwhile, Fed strikes note of caution on US rate cuts amid inflation fears (The Times) shows that the Fed is keen for everyone not to get too hung up on hopes for imminent interest rate cuts, saying that it remains “highly attentive” to inflationary pressures. This came out in the release of the minutes of the most recent FOMC meeting on interest rates. Hopes remain, however, of a May rate cut…

Over in Europe, German coalition split over remedies for economic gloom (Financial Times, Guy Chazan) shows that Germany’s fragile and divided “traffic light” coalition still can’t decide how to boost its economy, even as it slashed its growth forecasts. The Social Democrats, Greens and liberals just can’t agree on anything as their solutions are diametrically opposed to each other! Meanwhile, Germany’s political fragmentation ‘frighteningly similar’ to 1930s (Financial Times, Sam Jones) is a chilling observation of Europe’s biggest economy in research produced by the Forsa Institute, one of Germany’s biggest pollsters. It says that elections could now lead to a parliament that is as fragmented as it it was on the eve of the Nazis seizure of power, which they did after two years of political deadlock. If you take into consideration that almost 20% of Germans say they will vote for a fringe party while the far-right AfD continues to enjoy an upsurge in popularity, it’s not looking good for those with a liberal outlook. * SO WHAT? * Having Europe’s most important economy in a state of paralysis is not good for Europe as a whole. It could even boost the confidence of populist movements across the bloc whose popularity appears to be gathering pace. If you top that off with a Trump election victory at the end of this year, the world could look like a very different place!

Meanwhile, Surplus threatens Jeremy Hunt’s plans for tax cuts (The Times, Mehreen Khan) shows that although the ONS unveiled the biggest budget surplus since comparable records began in 1993 in January, the figure came in below both the OBR and market expectations. Interestingly, January is often the only month when the government reports a surplus because self-assessment taxes are recorded at the start of the year. Total borrowing came in below OBR expectations and Hunt will now have to wait for the OBR to tell him how much he’s got to play with for his expected tax giveaways (although it’s expected that he will have less scope for this than previously thought mainly because of the shifting timing of expected interest rate cuts). This is clearly somewhat disappointing because the OBR actually got more optimistic about the economy just before the November autumn statement!

In commodities news, Chord Energy, Enerplus to Combine in $11 Billion Deal (Wall Street Journal, Ben Glickman) shows that the oil and gas producers will combine in an $11bn deal that is 90% in stock and 10% in cash. Chord shareholders will control about two-thirds of the enlarged entity. This marks the latest deal in oil, following Diamondback Energy’s recent acquisition of Endeavour as players jockey for positions in key oilfields to get scale. Meanwhile, Rising costs weigh on Rio Tinto (The Times, Emma Powell) highlights disappointing news from the Anglo-Australian miner which said that the costs at its main iron ore mine will increase by more than it expected this year as the labour market in the region remains tight. Falling prices for copper and aluminium also dented profits but Chinese demand for iron ore, a key ingredient for making steel, is still pretty solid despite concerns about consumer confidence and the state of the country’s property sector. Then in Glencore profits slump 75% on falling metal prices (The Times, Emma Powell) we see that falling commodity prices also hit the Swiss commodities giant.

In crypto, Bitcoin ETF boost cuts two ways for Coinbase (Financial Times, Lex) takes a look at the euphoria and reality of the crypto-trading platform as on the one hand its share price has shot up by almost 400% over 2023 and last week it announced its first quarterly profit in two years! Trading volumes rebounded towards the end of last year thanks to a bitcoin rally and expectations of regulatory approval of bitcoin ETFs. However, Coinbase is not likely to benefit from the ETF approval in the same way that the companies behind the ETFs (including BlackRock, Franklin Templeton and Invesco) are. This is because Coinbase will act as custodian of the bitcoins held by these funds and margins from this are very thin (Mizuho estimates that Coinbase gets a fee of just 0.07% for its role). There is also another downside whereby a rise in the popularity of cheap spot bitcoin ETFs will mean that fewer investors will actually bother trading “actual” bitcoins, so any uptick in custody revenues could be negated by a fall in bitcoin trading volumes. Coinbase says it’s not seeing this at the moment but clearly this should be a concern.

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

Nvidia smashes it and Lenovo recovers…

Nvidia eases nerves with a profit surge (The Times, Robert Miller) shows that the AI chip supremo announced last night that its Q1 revenues would come in above estimates, while total revenues increased by a whopping 126% versus a year ago. This was thanks, unsurprisingly, to AI chip sales but its gaming division and data centre division also put in very strong performances. It seems like the party just keeps on going!

Then in Lenovo’s Revenue Snaps Declining Streak (Wall Street Journal, Sherry Qin) we see that the world’s biggest PC maker saw its revenues increase for the first time since 2022, breaking a losing streak of five consecutive quarters of revenue declines. * SO WHAT? * It sounds to me like PC sales are set to rise again after a quiet few years following the lockdown boom when everyone suddenly had to work from home. The opinion that PC sales are set to rise is gathering momentum as more chip companies, including Intel, say the same thing. It’s also interesting to hear that AI is “actively developing personalised AI solutions”, which could give would-be buyers even more incentive to upgrade!

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

EV NEWS

Tesla gets a rejection and Rivian decides to cut more staff…

German town votes against Tesla plans to expand ‘gigafactory’ (The Guardian, Kate Connolly and Miranda Bryant) shows that residents of the small German town of Grünheide pushed back against plans to expand its gigafactory due to concerns about the plant’s use of groundwater and the potential contamination of drinking water if groundwater levels fall too much. There was a 76% voter turnout with 3,499 people voting against and 1,882 in favour of the expansion, which was supposed to enable easier access to the site and easier transport of the finished vehicles. The referendum isn’t legally binding, but clearly the residents need to be heard. * SO WHAT? * Tesla’s problems in Europe continue after the whole strike thing that started in Sweden and spread across the Nordics last year.

Meanwhile, across the Pond, EV Maker Rivian to Cut Salaried Workforce by 10% (Wall Street Journal, Sean McLain) highlights further troubles at the electric pick-up truck maker as it expects vehicle output to remain unchanged amid tricky market conditions. The company’s share price fell by around 13% in trading after hours. * SO WHAT? * Things are looking pretty desperate here IMO. The overall demand for EVs appears to be weakening and even though Rivian is losing a whopping $43,373 for every vehicle it’s selling at the moment, it surprised everyone by LOWERING the starting price of its vehicles by $3,100 earlier this month! Some are taking this as a sign of a further softening in demand.

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

BAE Systems booms, consolidation in warehousing looks likely, HSBC sees profits plummet and households get more to spend…

In a quick scoot around some of today’s other interesting stories, Sales soar at BAE Systems as global tensions rise (The Times, Robert Lea) shows that the defence company is raking it in thanks to wars in Ukraine, the Middle East and elsewhere. It’s pretty positive about the outlook, has a stacked order-book and now has a record backlog of work worth almost £70bn. The future is looking good thanks to confirmation that it will build the new generation of submarines, plans to build the Tempest fighter jet with Japan and Italy and the benefits of its massive £4.4bn acquisition last year of Ball Aerospace. BAE warns it could take West years to re-arm in face of Russia (Daily Telegraph, Matt Oliver) also suggests that the replenishment of munitions, guns and vehicles will be another boon. * SO WHAT? * Recent geopolitical tensions and a real shifting of the global political landscape is giving many countries cause to spend more on defence, reversing years of falling spend (for some) which has meant that capacity has been allowed to dwindle. Clearly that is now changing and, given the lengthy nature of defence contracts, defence companies will continue to benefit for some time yet!

UK’s scramble for sheds could be the start of a deals boom (Financial Times, Lex) suggests that consolidation in the warehousing sector will gather pace as players chase scale to lower the cost of capital. The share price of the UK’s biggest player in this space, Segro, has dropped by a whopping 40% since the start of 2022, but we have recently been seeing a flurry of activity. Urban Logistics REIT is looking to buy Aberdeen Property Income Trust, LondonMetric made an all-share offer for LXi REIT at the start of the year and Tritax Big Box agreed to buy UKCM. It seems likely that the trading of property assets will increase as owners – including pension funds, insurance funds and private equity funds – decide to get out of the sector. * SO WHAT? * I think that long term demand will underpin demand for warehousing because of the rising need to hold inventory due to an increasingly uncertain geopolitical and regulatory landscape.

Yes, warehousing demand in the US appears to be weakening at the moment as some companies are reverting to the pre-pandemic “just-in-time” inventory management strategy but I’m not so sure how sustainable that strategy will be given the reasons I just outlined.

HSBC shares fall most since 2020 after profits plummet 80% (Financial Times, Kaye Wiggins and Stephen Morris) shows that the bank’s shares got a bit of a shock after HSBC reported the quarterly profit drop of 80% and a chunky $3bn charge on the value of its stake in Chinese bank Bank of Communications (aka “BoCom”). * SO WHAT? * This just goes to show that China exposure for banks isn’t going great at the moment as the country’s economy continues to lose momentum. HSBC remains committed to China (it earns most of its profits in Asia) and its chief exec says that he believe that the worst is over for China’s real estate sector and that government efforts to spark demand were taking effect. Really??

Then I thought I’d finish on a positive note in Households have more to spend on treats as disposable income rises (The Times, Isabella Fish) as the Asda Income Tracker suggests that British households have more money to spend on “extras” than they’ve had since March 2022 thanks to rising wages, weakening inflation and a cut in national insurance. It said that an average household’s disposable income increased by 6.1% year-on-year  – that’s about £230 a week – in January! HOWEVER, this overall figure masks the extent to which those in the poorest 20% of households saw their disposable incomes drop by 0.5% year-on-year, which equates to a shortfall of £69 a week. Still, the CEBR reckons that spending power is going to “continue growing in 2024, supported by a generally more positive economic outlook”. * SO WHAT? * OK so it’s not a rosy picture for everyone, but at least things seem to be going in the right direction. Let’s hope it keeps going that way without prompting another spike in inflation!

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…

For those of you who work in the City, I thought I’d show you this because I walked past this darn thing every day for a good few years without really realising it! Keep your eyes open, people 👀! My wife even used to work in this building at the beginning of her career!

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)