Thursday 28/03/24

  1. In BIG PICTURE NEWS, the yen hits a new low, more weakness is predicted for Germany and we look at the ongoing effects of the Baltimore bridge disaster
  2. In M&A NEWS, we see that the number of big deals doubles in Q1, F1 is close to buying MotoGP, Citizen M looks to sell, the DS Smith race heats up and the Bank of England gets concerned about what’s next for PE firms
  3. In CAR NEWS, CATL dismisses the imminence of solid state, Chinese EVs are set to storm Europe, Fisker cuts prices, UK car production rises again but there are problems with exports to Canada
  4. In MISCELLANEOUS NEWS, Amazon puts more money into Anthropic, more companies look to AI to streamline supply chains, confidence returns to the UK property market, Morrisons posts strong sales growth and consumers search for affordable Easter eggs
  5. AND FINALLY, I thought I’d bring you some inspirational sporting moments…

1

BIG PICTURE NEWS

So the Yen hits a new low, pessimism on Germany persists and the Baltimore repercussions grow…

Did you miss our March news roundup yesterday? Well if you don’t want to miss the roundup for April, the next one’s on Monday 29th April at 5pm with Jake Schogger of the Commercial Law Academy. HERE’S THE LINK TO REGISTER! See you there!

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Japanese yen falls to lowest level since 1990 (The Times, Jack Barnett) shows that the yen has weakened to its lowest level to the dollar since 1990 in the aftermath of a stock market and property crash! The yen sell-off occurred in response to Japanese policymakers pouring cold water on the idea of further imminent interest rate rises. This means that currency speculators saw more value in parking their money in US assets because of better returns with a federal funds rate of 5.25-5.5%, which is way higher than Japan’s 0.1% base rate.

In Europe, Experts cut GDP growth forecast for Germany (The Times, Jack Barnett) shows that pessimism about the German economy persists as a report from the Kiel Institute for the World Economy forecasts that Europe’s biggest economy will have a GDP growth rate of just 0.1% this year. It did say that it expected a recovery to start in spring but momentum will be weak. These conclusions are an amalgamation of forecasts from five think tanks. Higher energy costs since Russia’s invasion of Ukraine continue to be a major drag on Germany’s economy.

The Baltimore bridge disaster: what happened and who will pay? (Financial Times, Michael Peel, Robert Wright, Ian Smith and Aime Williams) is a really interesting article that goes into what happened, why and what the repercussions are of this catastrophe. First of all, such instances are thankfully extremely rare but risks have risen over the years as international trade in goods has increased and ships have grown larger. Container volumes moving through US ports have almost doubled in 20 years. The ship that crashed into the bridge, the Dali, was one of the newer bigger vessels and it’s possible that its size could have been a major contributor. Entry to and departure from ports are always the tricky areas of every voyage (much like take-off and landing for planes, I guess) so ships navigating in these waters usually take on a pilot with local knowledge – and this was the case with the Dali. Some are wondering whether there should have been more collision prevention safeguards and initial impressions are that in this bridge’s case, they were inadequate. The fact that this bridge was built in 1977 means that it probably was not designed with vessels the size of the Dali in mind, which means such measures would not have been implemented. It is interesting to note that a 2021 report by the American Society of Civil Engineers found that 42% of bridges were over 50 years old and 7.5% were “structurally deficient” which was probably made worse by a combination of more intensifying use, their age and shortage of funding for repairs. For now, the federal government is going to foot the bill to build the bridge back, but you can bet your bottom dollar that there is going to be a ma-hu-sive insurance claim to come through. The ship will have have been covered by mandatory protection and indemnity insurance that covers crashes, oil spills and other disasters and is provided in the first instance, in this case, by Britannia P&I Club. In terms of economic impact, shipping traffic into and out of the port will be suspended until further notice and it’s likely that car shipments will be most affected by this although it seems that manufacturers will be able to reroute their shipments to nearby ports. Meanwhile, Baltimore bridge disaster to cost Carnival $10m (The Times, Robert Miller) shows that cruise ship company Carnival Corporation (including Holland America Line and Princess Cruises) has already estimated the impact of the disaster for itself as it was forced to close its terminal at the port. * SO WHAT? * The fact of the matter is that, at this stage, there are still more questions than answers and it’s too early to know how much this is all going to cost. Some are already saying that it will cost more than the $2bn shelled out over the Costa Concordia grounding in 2012. I would not be surprised!

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

M&A NEWS

Big deals abound, F1 considers MotoGP, Citizen M looks at a sale, DS Smith ponders its options and the Bank of England gets antsy about PE firms…

Blockbuster M&A deals more than double in first quarter (Financial Times, Ivan Levingston) cites data from the London Stock Exchange which says that the number of blockbuster deals (takeovers worth at least $10bn) shot up in Q1, highlighting a recovery in the M&A market after a long drought. The main drivers were the big US deals in the energy, tech and financial sectors. The overall value of global M&A increased by 30% despite the total number of deals falling by 31%. Deal activity has increased with the expectation of interest rates coming down and general confidence in the global economy turning a corner.

As if to illustrate that, in today’s broadsheets we have Formula One owner closes in on €4bn deal for MotoGP (Financial Times, Matthew Garrahan and Samuel Agini) which highlights the fact that F1 owner Liberty Media is in exclusive talks with Dorna Sports, owner of MotoGP, having seen off a rival bid from TKO. Dorna Sports is itself ownerd by Bridgepoint, the private equity firm. We also saw CitizenM owners explore potential sale of hotel group (Financial Times, Ivan Levingston, Joshua Oliver and Oliver Barnes) which shows that the owners are of the boutique hotel chain are working with bankers to look at a potential sale of the business in order to fund expansion and take advantage of the current travel boom while DS Smith shares jump as bidding war looms (The Times, Robert Lea) highlights the potential bidding war for British cardboard box manufacturer DS Smith between International Paper of the US and Mondi, although DS Smith should find a better cardboard coupling at home (Financial Times, Lex) reckons that the Mondi deal would be better as it

would create a European champion and have better cost savings. * SO WHAT? * OK so the potential F1 deal might prompt the interest of the competition regulators as private equity firm CVC Capital Partners once owned both F1 and MotoGP but were forced to sell MotoGP in 2006 as a condition of buying F1 after the European Commission raised concerns. Other than that, though, I think that it’s fair to say that it definitely FEELS like there’s more M&A activity going on. And if you think there’s a lot going on now I suspect it will ramp up again when interest rates ACTUALLY get cut in the world’s major economies.

Then in Bank of England sounds alarm over private equity ‘correction’ (Daily Telegraph, Szu Ping Chan and Michael Bow) we see that the Bank of England voiced concerns that the PE debt-fuelled buying spree over the last few years may have resulted in rising risk to financial stability of the firms themselves and the assets that they hold in their portfolios. * SO WHAT? * The PE firms took on tons of debt when debt was cheap (low interest rates), “filled their boots” and then watched as debt costs shot through the roof. All the while, it is relatively common practice for PE firms to lend money against the assets that they hold, thus gearing up their exposure to even more debt. The main problem here is that if the value of the underlying assets fall appreciably, it could prompt a death spiral where PE firms are forced to sell assets on the cheap to raise funds which then forces other firms to do the same – creating a vicious cycle to the bottom. The Financial Stability Committee (FSC), which is part of the Bank of England and monitors UK financial stability, is launching a review to get a better idea of the current situation. We’ll just have to wait and see how this goes but it is certainly something to monitor going forward…

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

CAR NEWS

CATL pooh-poohs solid state, Europe awaits the China EV invasion, Fisker slashes prices, UK car production rises but there are Canadian problems…

In EV battery news, China’s ‘battery king’ dismisses solid-state EV commercialisation as years away (Financial Times, Robin Harding, Ryan McMorrow, Gloria Li and Harry Dempsey) shows that the founder and chief of the world’s biggest EV battery maker, CATL, says that hopes for solid state EV batteries are too optimistic and are still years away from commercial reality despite Toyota last year saying that it could deliver solid-state batteries as soon as 2027. He said that the tech wasn’t yet good enough, fell short on durability and still had safety problems. * SO WHAT? * The argument for solid state batteries is that they are more stable than the current lithium ion technology and could really further EV tech by enabling improved driving range. The thing is, this guy doesn’t work at Toyota so doesn’t actually know (although he clearly knows a lot about batteries!) and the fact that CATL is working on alternative tech with sodium-ion batteries and condensed-matter batteries means that he’s at least tempted to talk his own book. Interesting opinion – and he may well be right – but I’d take this with a pinch of salt.

Meanwhile, in EV news, Chinese-made EVs set to take 25% of European market this year (Financial Times, Peter Campbell) cites analysis from policy group Transport & Environment which makes this prediction that will send chills down the collective spines of non-Chinese EV manufacturers. Almost 20% of battery cars sold in the EU last year were manufactured in China and that’s expected to rise to over 25% this year as Chinese manufacturers increase market share. The Brussels probe into whether Chinese manufacturers have enjoyed an unfair advantage over other manufacturers because of state subsidies is still ongoing. * SO WHAT? * It is thought that a tariff of 25%, as opposed to the current one of 10%, could not only raise up to €6bn a year for the European Commission – it would also “make EU cars competitive with EVs made in China”. The problem is that this could also catch out Tesla, BMW and Renault’s Dacia brand

which all sell battery vehicles in Europe that are actually made in China. It would also prompt a backlash from the Chinese side as well. Still, the margins on Chinese EV are still big enough for Chinese EV manufacturers to absorb the cost of tariffs – I guess it just depends how much they are willing to pay to break into the European market…

Then in EV maker Fisker cuts prices to stay afloat (Daily Telegraph, Hannah Boland) we see that EV maker Fisker has slashed prices of its vehicles by up to a whopping 39% in a desperate bid to stay afloat. It is cutting the price of its higher-end Ocean “Extreme” electric SUV to $37,499 – which is a $24,000 discount! Prices for its Ultra and Sport models have also been discounted. It paused production earlier this month and trading in its shares was halted earlier this week after investor panic took hold after its talks with Nissan (allegedly) fell through. Fisker is on the verge of being delisted from the NYSE. * SO WHAT? * It looks to me like this company is toast. This huge discounting is the final act of desperation in my view. It’s a shame, but then again it just goes to show how fiendishly difficult – and expensive – it is to run a profitable EV start-up. I like cars and watch quite a lot of online reviews – but I have never seen such universally bad reviews as I have of the Fisker Ocean. Rivian’s had problems but at least the vehicle itself has been well-received.

Back home, British carmakers report rising production six months in a row (The Times, Robert Lea) shows that British car factories have managed to report rising production for the sixth consecutive month, according to the latest figures from the SMMT, but then UK car exports to Canada face 6% tariffs within days as trade dispute deepens (Financial Times, George Parker and Peter Campbell) shows that British exports to Canada could just get more expensive from April 1st thanks to an ongoing trade dispute between the two countries. The post-Brexit trade arrangement between the two countries is set to expire, meaning that some British car exports will attract a 6.1% tariff for containing significant EU content. Cars originating in Britain mush be 50% UK-made in order to qualify for export to Canada without attracting tariffs. This increases to 55% in September.

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

Amazon pours more into Anthropic, AI is increasingly used to optimise supply chains, confidence in the UK property market rises, Morrisons puts in a solid performance and consumers are on a cheap Easter egg hunt…

In a quick scoot around some of today’s other interesting stories, Amazon pours additional $2.75bn into AI startup Anthropic (The Guardian) shows that Amazon said yesterday that it would put an additional $2.75bn into Anthropic, bringing its investment into the AI startup to $4bn. The two are looking to develop foundation models, which underpin generative AI systems, with Anthropic using Amazon’s AWS as its “primary” cloud provider. * SO WHAT? * This is another example of a Big Tech company making strategic investments in AI tiddlers, something that is increasingly attracting the attention of antitrust regulators…

Then in Companies Are Seeking Real-World Supply-Chain Gains in New AI Tools (Wall Street Journal, Liz Young) we see that companies are continuing to look for ways that AI can help them cut costs, accelerate distribution and adapt to disruptions. German software firm Celonis is working with confectioner Mars to use AI to streamline its logistics operations, secondhand apparel retailer ThredUp has been using AI in its distribution centres to “improve throughput and productivity” and Uber Freight (a division of Uber Technologies) has created a chatbot that enables shippers to ask questions about their logistics

operations. As I’ve said before, if last year was the year that most of us started to use AI and experiment with it, this year is about companies harnessing the capabilities to enhance profitability benefits from it.

Elsewhere, Confidence returning to property market as buyers pay up (The Times, Tom Howard) cites Zoopla as saying that confidence is returning to the UK property market as discounts on asking prices are narrowing, Morrisons posts strongest sales growth since takeover (The Times, Isabella Fish) heralds a rare bit of positive news for Morrisons as the UK’s fifth largest supermarket posted its strongest quarterly sales growth since it was taken over in 2021 and Shoppers on the Hunt for Affordable Easter Eggs as Outlook for Chocolate Makers Sours (Wall Street Journal, Andrea Figueras) follows on from Tuesday’s story about rising cocoa prices, saying that affordable Easter eggs may be harder to come by as a result. Chocolate makers are having to either take the prices on the chin or pass them on to end customers – something that’s difficult to do with common discretionary items in a cost-of-living crisis. Chocoladefabriken Lindt & Spruengli has already increased prices but Nestlé may have to make further increases while Hershey said that earnings growth this year is likely to be limited due to these higher ingredients prices. Tricky times. However, I hope that you all enjoy an enjoyable Easter break whatever Easter eggs you decide to buy!

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…

I thought I’d finish this week (because we’ve got a long Easter weekend coming up) on a high with these inspirational moments in sport. TBH, I don’t think that the Brownlees’ moment will ever be surpassed as the ultimate example of brotherly love and sporting sacrifice.

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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)