Tuesday 02/07/24

1. In MACRO NEWS, both US presidential candidates have problems, we look at the impact of the French election result and how the next UK government is going to benefit from a fall in inflation and fuel prices
2. In MANUFACTURING & LOGISITICS NEWS, Italian luxury houses have labour issues, mysterious deaths cast a shadow over Northvolt, UK manufacturing growth slows down, Boeing’s acquisition puts Belfast jobs in doubt, Harland & Wolff suspends share trading while Shein and Temu push airfreight rates higher
3. In CONSUMER & EMPLOYMENT-RELATED NEWS, UK house prices ticked up in June, British grads are warned of a potential “white-collar recession” and Morgan Stanley became the latest investment bank to ditch the bonus cap
4. In MISCELLANEOUS NEWS, Meta faces more regulatory pressure, Air France-KLM takes a hit from Olympic-avoiders, Hindenburg gets bullied by Indian regulators, Fox launches Tubi in the UK and Revolut’s profits hit a new high
5. AND FINALLY, I bring you some amazing Spanish guitar…

So both US candidates have issues, the French election results have repercussions and the next UK government will have something to look forward to…

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:

In the ongoing contest over which old grandad is the most embarrassing, US Supreme Court says Donald Trump immune for ‘official acts’ as president (Financial Times, Stefania Palma) makes a case for Trump as, somewhat incredibly, the US Supreme Court has ruled that The Orange One has broad immunity for “official acts” while he was president, which will probably delay his trial on charges of trying to change the result of the 2020 election. This means that it is highly unlikely that a verdict will come before the November election, which is great news for Trump (and his lawyers 🤣!). Meanwhile, Anger mounts at Joe Biden’s inner circle after debate debacle (Financial Times, Joshua Chaffin, Lauren Fedor, James Fontanella-Khan, Demetri Sevastopulo and Alex Rogers) shows that the other pipe-and-slippers-dodger is causing consternation among his party by refusing to back down after last week’s disastrous TV debate. Yes, we all have a bad day and being good at debating on TV doesn’t qualify you to be a decent president – but this is America’s future leader we’re talking about and he just doesn’t have the physical (and possibly mental) capacity. He is a spent force and Trump can smell blood. The drama continues…

Meanwhile, in a debacle closer to home, Five takeaways from France’s election (Financial Times, Leila Abboud, Ian Johnston, Alan Smith, Clara Murray and Steve Bernard) shows that the first round of France’s parliamentary election has resulted in Marine Le Pen’s far-right Rassemblement National gaining more ground across the country and all demographics. Despite this, it is not a done deal that she will gain a majority – for which she needs to get 289 seats out of 577 – and a hung parliament is still possible. The second round of voting takes place on July 7th. In terms of

five takeaways, firstly, the high voter turnout has led to a larger-than-usual number of candidates being eligible for the second round of voting. This dilutes RN’s chances of getting an outright majority. Secondly, the age demographics for the far-right have changed. Younger voters tended to vote more to the left of the political spectrum whereas the older you were the more likely it was that you’d vote for Macron (probably because you still remember what Le Pen’s father was like). This is a major turnaround versus the 2017 election when Macron was largely voted in by the youth. Thirdly, the type of people who voted for the far right has changed dramatically. Received wisdom was that the RN would perform badly among the wealthy, the highly educated, people over the age of 60 and women. Not any more. Fourthly, Macron’s popularity has disintegrated since he came to power on a huge wave of support for his reforms in 2017. Finally, the far left and far right were able to rely on their voting strongholds, which stayed firm. French markets rally may prove rose-tinted (Financial Times, Lex) shows that although French markets ticked up on the election news because investors believe that the RN won’t get a majority and that France will be left with a hung parliament, this could be wishful thinking. It is still eminently possible that RN could get an absolute majority so France is not out of the woods yet!

Then in Next UK government poised to benefit from fall in inflation and fuel prices (The Guardian, Richard Partington) we see that the latest figures from the BRC show that the next government will benefit from easing pressure on loosening pressure on household finances following a slowdown in annualised food price inflation (down from 0.6% in May to 0.2% in June, the slowest pace since October 2021) while data from the RAC shows that petrol and diesel prices fell for the second month in a row, also helping to take some of the heat off. The RAC still said, though, that filling up was still “too expensive” in England, Wales and Scotland. * SO WHAT? * TBH it all seems to be coming together for Sunak – but it’s going to be too little too late. When you think back to the disaster that ensued after Liz Truss, it is actually quite impressive that we’ve come to this point: inflation has hit the 2% target, manufacturing and consumer confidence is rising, the LSE has an improving pipeline of IPOs waiting in the wings (which will no doubt be helped by the forthcoming new listing rules) and it looks like the Bank of England will be cutting interest rates soon. I think this is not bad considering – but the situation could always be better and I think that many people believe that a change in leadership is needed to take things forward from here.

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!

An Italian raid shows it’s not just Boohoo that does cheap labour, Northvolt faces issues, UK manufacturing growth slows down, Boeing’s acquisition causes nerves in Belfast, Harland & Wolff are in trouble and air freights rise thanks to Temu and Shein…

Raids Find Luxury Handbags Being Made by Exploited Workers in Italy (Wall Street Journal, Nick Kostov) highlights a number of raids in Italy which have resulted in a Milan court criticising Dior and Armani for failing to properly oversee their supply chains. Milan prosecutors found that the two fashion houses used exploited foreign labour to make some of their high end products. For instance, Dior paid a supplier €53 to assemble a handbag that is sold in stores for €2,600 while Armani bags were sold to a supplier for €93 and resold to Armani for €250 and then priced at around €1,800 in the shops! The costs exclude leather and other raw materials. * SO WHAT? * This just goes to show that it isn’t just the likes of Boohoo and Shein who indulge in questionable supply chain practices. I would have thought that this will not have much of an effect on the luxury brands’ sales at this point, but if this gets bigger, then there may be problems.

Mysterious deaths cast a shadow over Sweden’s $12bn electric car battery champion (Daily Telegraph, Matthew Field) takes a look at some unexplained deaths that have happened in the factory itself and to those who have worked there. The accidents and deaths have put a cloud over Northvolt, which has managed to attract over $13bn in investment to build a European gigafactory to take on the Chinese. The site that is located just south of the Arctic Circle is powered by renewable energy from a hydroelectric plant and will churn out lithium ion batteries that will have a 90% smaller carbon footprint than leading rivals. There are rumours of a potential $20bn stock market listing in 2025. * SO WHAT? * The site aims to make sustainable, quality lithium-ion batteries but there have been issues which have led to some customers not getting their batteries on time and others losing patience altogether. Earlier this month, BMW apparently pulled out of a €2bn supply contract due to Northvolt falling behind schedule and unfortunately, Northvolt is getting increasingly known for its production problems. I guess this just shows how hard it is to produce quality batteries at scale. Apparently, it took Tesla and Panasonic almost ten years to get their shared battery facility in Nevada functioning how it should. In the meantime, I’m sure that the likes of CATL will be glad to supply Northvolt’s disgruntled customers!

Back home, UK manufacturing growth slows as shipping delays hit exports (The Times, Tom Saunders) cites the latest S&P Global/CIPS UK survey which shows that factories increased activity for the second month in a row in June, albeit at a slowed pace than in May. Momentum slowed thanks to shipping delays and higher freight costs which had an impact on exports. However, production volumes continued to rise thanks to more new orders coming in and ongoing efforts to clear work backlogs.

On the flipside, Future of UK factory in doubt after Boeing deal puts 2,400 jobs at risk (Daily Telegraph, Christopher Jasper) shows that the future of a major facility in Belfast could be up in the air following Boeing’s decision to buy Spirit AeroSystems. 2,400 jobs hang in the balance as production is likely to be re-jigged as it makes parts for both Boeing and Airbus. A buyer for the Spirit part of the facility is being sought currently, but if one is not found, the whole thing could be shut down as it would no longer be commercially viable. Meanwhile, Titanic shipbuilder Harland & Wolff suspends trading in shares (The Times, Emma Powell) shows that another Northern Irish business is in trouble as it failed to publish its audited annual results on time. It expects to publish them next week after it gets an agreement on what to do with the revenue figure, which was a sticking point with the accountants. The company remains in talks with the government about a £200m support package which it needs to pay down down debt and to be able to fulfil existing contracts.

Then in Shein, Temu Are Swamping Airfreight Capacity, Sending Rates Soaring (Wall Street Journal, Paul Berger) we see that Shein and Temu are becoming major drivers of the air cargo market out of China, taking up aircraft space at a rate that is squeezing freight rates skywards just as we head into peak shipping season later this year. Shipping volumes, particularly from manufacturing hubs in the southern airfreight-heavy region have shot up by around 40% over the last year at a time that is usually quite quiet. * SO WHAT? * Air freight is usually used for small, high-value items like smartphones and laptops but the two e-tailers are flooding air routes with cheap clothing and household goods that are going to Europe and North America. The average air freight spot rate in late June has more than doubled since 2019 as a result. I guess that as long as shipping rates are squeezed higher by ongoing problems in the Red Sea while Shein and Temu bombard air freight, the prospects for things easing before the end of the year look slim. That could mean that sellers of the goods may have to pass on higher costs to customers in the form of higher prices – which could then lead to higher 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!

UK house prices rise, British grads are warned of a “white-collar recession” and Morgan Stanley ditches the bonus cap…

UK house prices edged higher in June (The Times, Tom Howard) cites the latest figures from Nationwide which show that house prices increased slightly in June for the second consecutive month (they are 1.5% higher than they were at this time last year) while economists expect them to “flatline at best” over the summer as higher mortgages continue to make people a bit reticent. Transaction volumes are currently down 15% versus 2019, but then again maybe this will change with a new government and interest rates falling, which will prompt cuts in mortgage rates.

In employment-related news, British graduates warned of ‘white-collar recession’ (Financial Times, Eir Nolsøe) cites the latest data from Indeed which shows that grads trying to find an internship are facing the toughest market for at least seven years.

It seems that the number of internships relative to job openings has trended lower than any year since at least 2018 as the wider jobs market experiences a slowdown. It certainly looks like the post-Covid boom is losing steam although there are still jobs in lower-paying sectors like retail, hospitality and care. A similar pattern is emerging in the US also.

Meanwhile, Morgan Stanley ditches EU banker bonus cap in boost for London (Daily Telegraph, Matt Oliver) highlights the latest bank to ditch the bonus cap for its London bankers after Goldman Sachs and JP Morgan have done the same. The bonus cap, which limited banker bonuses to “just” twice their salary, came into force under EU regulations in 2014 to limit risk taking in the wake of the banking crisis. Britain scrapped the cap last year and now bankers at Goldman Sachs and JP Morgan will be able to earn 25x and 10x their basic salary. I’m not sure what Morgan Stanley bankers will cap out at but Citigroup is also said to be thinking of removing the ceiling as well. Cue a stampede from investment banks with the cap to those without both within the UK and from the Continent. Investment bankers quite like money 🤣…

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!

Meta faces more pressure, Air France-KLM suffers, Hindenburg gets bullied, Fox launches Tubi and Revolut’s profits hit a new high…

In a quick scoot around some of today’s other interesting stories, Meta accused of breaking EU digital law by charging for ad-free social networks (The Guardian, Dan Milmo) shows that the regulators are continuing to pile the pressure onto Big Tech as the EC said that Meta breached the EU’s new digital laws by using an advertising model that charged users for ad-free versions of Facebook and Instagram. If users don’t pay, their personal data is effectively deemed fair game for ad purposes. The EC says that Meta must launch “equivalent” versions of Facebook and Instagram that don’t use as much personal data. The pressure continues…

Then in Air France-KLM flags financial hit from tourists avoiding Paris Olympics (Financial Times, Philip Georgiadis) we see that Air France-KLM has warned investors to expect a dent in its financials as it seems that would-be visitors are giving Paris a swerve during the Olympics. The company said that traffic to and from Paris was lagging other European cities going into the Games which run between July 26th and August 11th but that it would likely normalise after that. Data from the Paris Tourist Office that was published last month predicted that hotel bookings would be weaker over the summer. I believe that the same thing happened with the London Olympics and it’s ironic given that I thought that part of the draw of the Games was the stimulus it would give the economy!

Indian regulators allege Hindenburg’s Adani report ‘indulged in unfair trade practices’ (Financial Times, Antoine Gara, Ortenca Aliaj and Chris Kay) is a really interesting article which shows that India’s markets regulator has sent Hindenburg Research a snotty letter saying that Hindenburg’s research note published last year on Indian billionaire Gautam Adani “deliberately sensationalised and distorted certain facts”. This could be a precursor to formal legal action. Hindenburg countered in typically robust fashion by saying that this was “an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India”. It now has 21 days to respond to allegations. It sounds like another drama is just starting!

In more mundane news, Rupert Murdoch’s Fox to launch free streamer Tubi in UK (Financial Times, Daniel Thomas) shows that Fox Corp is going to launch a free streaming service in the UK to rival Netflix and Disney with Tubi, an ad-supported digital TV channel. It will be launching in the next few weeks with over 20,000 movies and TV episodes at launch. Fox Corp bought Tubi for $440m back in 2020 and has become one of the fastest growing streamers in the US. The market is getting increasingly crowded isn’t it!

Then in Interest rates drive Revolut profits to record high (The Times, Ben Martin) we see that higher interest rates have helped to almost double revenues at Revolut and power the finteh’s profits to new highs. All it needs now is to secure a UK banking licence – something that it applied for three years ago 😅!

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!

…in other news…

When I was a kid I used to play piano (for about 11 years – I had a blind piano teacher and she was just brilliant!), the violin (for about 5 years) and when I was at uni I taught myself how to play the harmonica. I have always wanted to learn how to play guitar – and if I could play like this guy I think my life would be complete! Having said that, I would love to be able to play the drums 😁 particularly because it looks like it would be very cathartic and a lot of fun!