Tuesday 03/09/24

1. In MACRO & OIL NEWS, Kamala Harris says no to Nippon Steel, Scholz reacts to the AfD victory and oil company taxes hit the North Sea
2. In AUTOMOTIVE NEWS, China EV sales rise, VW considers German plant closures and petrol cars are rationed
3. In CONSUMER & EMPLOYMENT TRENDS, UK retail sales pick up, London workers are slower to return, ministers try to quell CEO concern as strikes look more likely
4. In REAL ESTATE-RELATED NEWS, Blackstone does a €1bn deal for European warehouse assets and Rightmove causes a kerfuffle
5. AND FINALLY, I bring you gourmet on a budget…

So Kamala says no, Scholz reacts and oil company policies come home to roost…

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 Kamala Harris opposes Nippon Steel’s $15bn bid for US Steel (Financial Times, James Politi and David Keohane) we see that the Vice President is appealing to the masses by declaring that US Steel should stay “American owned and American operated” rather than be bought by Nippon Steel for $15bn. She went on to say that “We will continue to strengthen America’s manufacturing sector”. Trump has also vowed to block the proposed acquisition but Nippon Steel, for now at least, says that it remains “committed” to the deal. * SO WHAT? * This is an obvious appeal to blue collar workers and will satisfy both the United Steel Workers and United Auto Workers unions who have both backed Harris since she entered the race. Even though Nippon Steel continues to push the advantages of the deal (that it’ll invest at least an additional $1.3bn on US steel plants if the deal went ahead and that getting together will protect them both from the onslaught of the Chinese), I think that Harris sees an easy target here for an easy win. She can be very vocal about protecting American interests without upsetting the applecart too much given that Japan is an ally. I don’t see this working for Nippon Steel but I see this working very well for Harris. As for whether US Steel could have done with a big investment to boost their capabilities – well that is another question. I wonder whether there will be a push to create a “national champion” with US Steel getting together with domestic rivals…

German chancellor reacts to ‘bitter’ far-right election victory (Financial Times, Guy Chazan) follows on from the far-right AfD’s weekend triumph and reiterates what I said yesterday – that the results of the two state elections in Thuringia (which the AfD won) and Saxony (where the CDU won, with the AfD coming in a close second) were a disaster for the three parties in Scholz’s coalition (his Social Democrats, the Greens and the liberal FDP). In fact, the Greens and FDP did so badly in the Thuringia that they will no longer have parliamentary representation there! The SDP were relieved that they managed to garner enough votes to continue to have a presence in both parliaments, but still – this is not good. Given that no party wants to work with the AfD the instability in Germany is likely to continue.

Labour’s tax plans whip up a storm in the North Sea (The Times, Greig Cameron) contends that the coming months are going to be crucial for Britain’s oil and gas industry because it will be waiting nervously to hear its fate under the Labour government. The new government has been vocal about its plans to shift to renewable power and away from fossil fuels but oil and gas industry leaders have warned that if the government doesn’t help them, production decline will accelerate, investment will dry up and jobs will evaporate. Thus far the chancellor has committed to pre-election pledges to end new exploration drilling, take more windfall tax over an extended period of time and cut some investment allowances from November. All eyes will clearly be on the Budget on October 30th for more detail but in the meantime, Neo Energy puts brakes on North Sea investment over Labour plans (The Times, Emma Powell) highlights the immediate impact of all this uncertainty – that Neo Energy, which has a 50% stake in the £900m Buchan project (one of the biggest developments in the North Sea), said it would suspend investment because of the expected rise in windfall taxes and tighter emissions rules. * SO WHAT? * I guess this all comes down to how much the government wants us to have a meaningful oil and gas industry and how willing it is for us to import oil and gas until renewables really start to kick in. We’ll just have to wait and see!

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!

China EV sales rise, VW considers plant closures and petrol cars get rationed…

China EV Sales Rise on Government Subsidies, Inventory Buildup (Wall Street Journal, Jiahui Huang) shows that Chinese EV makers posted stronger sales and deliveries over August thanks to Beijing’s expanded car trade-in programme and car dealers building up stock ahead of the peak September and October months. BYD, Li Auto, Leapmotor, XPeng, NIO, Zeekr and Xiaomi all announced strong performances that were broadly in line with market expectations. They were given a lot of help by the government’s increasingly generous trade-in programme (the government doubled trade-in subsidies for replacing old passenger cars to about $2,820!).

Contrast that with the mood in Volkswagen considers German plant closures to save billions in costs (The Guardian, Jasper Jolly) where we learn that the German car manufacturer is thinking about shutting not one – but two German factories – in what would be its first ever closures in its home country. Its struggles with the transition to electrification continues. * SO WHAT? * So many things are coming together at the moment that do not bode well for VW and other German carmakers. You’ve got a government in limbo, an industry beset by negatives (rising overheads, falling demand for EVs), the potential for Chinese tariff retaliation (in response to the EU’s slapping of import taxes on

Chinese vehicles) and a strengthening Chinese EV industry that’s desperate to expand abroad. Although some other European makers are less exposed to operations in China, conditions aren’t looking good for them over there or indeed over here.

Meanwhile, Petrol cars rationed to meet eco targets (Daily Telegraph, Matt Oliver) shows that carmakers are now restricting sales of petrol and hybrid vehicles in Britain in order to avoid having to pay big net zero fines, according to the CEO of car dealership Vertu Motors. The practical impact of this is that if you order a car today, you might not get it until next February! The Vertu Motors chief also observed that some dealerships were sitting on an excess of more expensive EVs that just aren’t being sold. * SO WHAT? * This is all due to the UK’s Zero Emissions Vehicle (ZEV) mandate which stipulates that at least 22% of cars sold by manufacturers must be electric from this year. Basically, the ZEV rules have a sliding scale of sales requirements which means that this proportion of EV sales to overall sales rises every year and manufacturers have to pay a £15,000 fine for every petrol car that exceeds their quota! Larger manufacturers like Stellantis and Ford have already said that they would not be able to sell EVs at a discount forever to drum up demand – and it seems that they are now being forced to restrict the sales of petrol cars. Although EV registrations went higher in July, sales continue to be powered by corporate buyers for their fleets while private buyers continue to keep their hands in their pockets.

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 retail sales pick up, London workers have a slower return and ministers try to calm concerns while strikes look more likely…

In consumer trends, UK retail sales pick up as shoppers seek picnic and barbecue food (The Guardian, Sarah Butler) cites the latest figures from the BRC and KPMG which show that warmer weather boosted retail sales, particularly for food, clothing and gardening products. On the other hand, sales of big ticket items like furniture, household appliances and other homewares continued to fall as households kept a lid on spending. A separate survey by Barclaycard found that over a third of Britons reckon that this coming Christmas will be more expensive than last year and 20% of those polled expressed concern about how they’d cope with the pace of rising costs. Although the economy is proving to be more resilient than expected, this clearly isn’t filtering through to the whole of society.

In employment trends, London workers limit days in office due to cost of commute (Financial Times, Delphine Strauss) cites some research published by the Centre for Cities think tank which shows that, out of the international cities where it surveyed both employees and employers (which included London, Paris, New York, Toronto and Sydney), Londoners have been the slowest to return to work. It found that over 25% of workers in London go to the office only once or twice a week and just 62% go in on three days – while 80% of Parisians go in. One of the main reasons for this slow return to the office is the cost of the commute and the think tank suggests that employers should potentially subsidise travel, something that Parisian employees are already obliged to do. * SO WHAT? * I think that subsidising travel is a questionable idea because, at the end of the day, it is the employees’ choice to live where they do, taking into account where their place of work is. Why should money, that could go into YOUR salary, go to subsidise Bob from accounts who enjoys living in the middle of nowhere?!? We used to have an old geezer in my office who used to whinge constantly about his long commute from Haslemere (a lovely place) to London because he had to get up at 4.30am (my heart bleeds 🤣 – try 4am, bucko!) and I DEFINITELY would not have wanted to subsidise HIS travel (he lived in a £2m house 🤑)! Also, is it really fair to subsidise them and not subsidise those who pay through the nose to live more centrally so they don’t fall asleep at their desks?? If you then go further and subsidise EVERYONE’S travel, then you’re paying out even more money. The ONLY caveat with this, though, is if people perhaps bought under lockdown, thinking that WFH would become permanent (although I’d argue that would have been incredibly naive) or whether there are genuine reasons for living far away. Still, I think that there are plenty of other ways of getting office attendance up (the easiest one being mandating it, of course). Although I now work from home, I am a big fan of working in the office – you get so much from it in terms of camaraderie, creativity and learning. I do think, however, that one or two days working from home is a nice balance if you can get it though…

Meanwhile, Ministers to meet CEOs to quell fears over UK employment rights overhaul (Financial Times, Jim Pickard) shows that the government is trying to respond to the rising sense of corporate panic as deputy PM Angela Rayner and business secretary Jonathan Reynolds are going to hold a business breakfast today with leading chief execs to allay concerns about expected changes in employment laws (dubbed “Make Work Pay”). Contentious measures include the right for employees to “switch off”, a ban on zero-hours contracts, more generous sick pay, collective bargaining in social care, giving employees full employment protections from their first day and reversing all anti-strike legislation brought in by the Conservative government over the last decade – and it is this concern that has led business confidence to evaporate because the overhaul sounds like it’s going to cost employers, which in turn could dent investment plans. * SO WHAT? * All of these measures sound great on the face of it but the fact is that a balance needs to be struck in order to help companies grow whilst at the same time doing the right thing by employees. If it swings too much in favour of the workers, we could have some pretty tricky economic problems on our hands just as the economic data seems to be pointing to a recovery.

Get ready for another wave of strikes now that Starmer has caved (Daily Telegraph, Ben Marlow) paints an altogether more negative picture of what the government’s done so far – denying that there are signs of growth emerging and claiming that the UK’s economic situation was so catastrophic that the government was forced to ditch winter fuel payments for pensioners (saving £1.5bn a year) whilst on the same day announcing a £10bn increase in spending to finance chunky pay deals for public sector workers. More strikes are in prospect in the immediate future – gas emergency workers represented by the GMB union, more rail strikes just as Aslef had agreed to a big pay deal and the BMA is now advising members to “bank” the government’s pay offer whilst preparing to have more strikes for another 26% rise (in addition to the one its already had) between now and 2028. * SO WHAT? * Of course, it’s not as black-and-white as all this. It’s not ditching fuel payments for ALL pensioners (but it is going to cause problems for many) and public sector worker pay has suffered over the years, so it’s playing catch-up. However, it seems to me that unions are getting emboldened after being shunted into the sidings over a long period of time and I think that they are going to get more and more feisty the more successful they are at getting pay deals. I really think that, at the moment, we are seeing positive signs for the economy despite the dire warnings we’ve been hearing and I think that Labour is still in a sort of a honeymoon period post election but if its labour reforms stop investment in business dead in its tracks and shatter business confidence, we’re going to see rising unemployment, more strikes and more pay deals that will lead to higher taxes and rising inflation. Labour is also going to, willingly, take away its only defence – the anti-strike legislation – so if unions decide to take advantage (which they will), the will be nothing that the government can do about it. Let’s hope that the government gets the balance right between doing the decent thing by workers and encouraging economic growth.

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!

Blackstone buys more warehouses and Rightmove causes a right stir…

In a quick scoot around some of today’s other interesting stories, I thought that Blackstone agrees €1bn deal for European warehouse assets (Financial Times, Joshua Oliver) was particularly interesting given what I said yesterday about warehouses as the US investment group continues to bet on the logistics sector by buying another major warehouse portfolio – this time via buying an 80% stake in Burnstone, which owns properties across Germany, France and the Netherlands. Blackstone has been building up assets in the warehousing space for the last few years as it aims to surf the boom in e-commerce. * SO WHAT? * It certainly looks like the sector is coming back to life after a tough two years prompted by higher borrowing costs. I would not be surprised to see more deals here.

Then in Takeover talk drives Rightmove stock higher (The Times, Martin Strydom) we see that news of REA Group, an Aussie listings company controlled by Rupert Murdoch’s New Corp, potentially buying Rightmove (something I mentioned yesterday) sent shares in the latter up by an impressive 27.4% in trading but Rightmove can play hardball on asking price. It doesn’t need a Murdoch takeover (The Guardian, Nils Pratley) suggests that Rightmove isn’t desperate for a takeover given its current massive market share in its niche and Rightmove watches and waits for bidding war (The Times, Helen Cahill) says that it can afford to wait although Murdoch’s Rightmove approach may struggle to get a second viewing (Financial Times, Lex) points out that the benefits to REA would be limited, given the lack of geographic overlap and the high price it’d have to pay for the UK’s market leader. It is an entertaining development, though!

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…

I may have showed you a video like this recently but can’t quite remember! Anyway, I think that this “gourmet-meal-on-a-budget” is actually very clever!