Tuesday 05/11/19

  1. In TRADE & COMMODITIES NEWS, the US and China edge closer to a deal, India refuses to sign a pan-Asian trade pact and Freeport uses AI to mine copper
  2. In NEWS BY SECTOR, German manufacturers ask for government help on EVs, cloud gaming gets a boost from China’s 5G rollout, UK MPs call for more gambling restrictions and auditors face a shake-up
  3. In INDIVIDUAL COMPANY NEWS, BA’s owner buys Air Europa (and Ryanair doesn’t like it), Uber skids and Mothercare faces collapse
  4. In OTHER NEWS, I bring you some truly awful dad jokes…



So excitement builds as hopes for a US/China trade solution nears, India refuses to sign a regional trade pact and Freeport uses AI to optimise copper mining…

US, China consider rolling back tariffs as part of initial trade deal (Wall Street Journal, William Maudlin and Alex Leary) cites people close to current negotiations between the two sides who seem to imply that a partial trade deal is getting closer. The “phase one” agreement would cover Chinese purchases of American farm goods, tighter controls on currency speculation, measures to protect intellectual property and ways for US industries to broaden their China business. Nothing’s finalised but that hasn’t stopped excitement building as per Wall Street closes on record highs (The Times, James Dean) where markets spiked on hopes that a deal will be signed this month.

Then India decides not to sign China-backed pan-Asian trade deal (Financial Times, Benjamin Parkin and John Reed) shows that India will not be signing off on the Regional Comprehensive Economic Partnership (RCEP) despite 15 other nations (including the 10 Asean nations plus China, Japan, South Korea, Australia and New Zealand) doing so. This trading agreement has been under discussion since 2012 and India has decided not to go ahead with it because it doesn’t want a deluge of Chinese imports when it’s got big trade deficits with it already.

Having said that, India has left to door open to joining the trade deal at a later stage. If it had joined, the group would have been the world’s biggest trading group. * SO WHAT? * Maybe I’m reading too much into this, but it seems to me that PM Narendra Modi is biding his time for better terms on the agreement. He’s got a lot to deal with in his own backyard and I think a delay will favour India. If the economy continues to slide, he has more chance of getting more domestic support saying that India NEEDS the pact, but if things turn around he will be in a better position to negotiate more favourable terms.

Freeport turns to artificial intelligence to raise copper output by 90,000 tonnes (Financial Times, Neil Hume) takes a look at Freeport-McMoran, one of the world’s biggest producers of copper, which is aiming for a 5% production uplift via the use of Artificial Intelligence at its mines. The US-listed company is testing out its AI model at a site in Arizona with a view to rolling it out across the whole of the Americas. This model, which was developed with McKinsey, uses data sensors around the mine and optimises the performance of its crushers and processing mills. * SO WHAT? * Copper is vital in the move away from fossil fuels towards renewable energy because it’s used in wind turbines, rechargeable batteries and charging points so any ways that mining can be optimised will be well-received. Success here will mean that miners can extract more from existing mines whilst simultaneously reducing carbon emissions and slowing the need to open new ones. I think this is an exciting development for AI and would imagine that other similar initiatives will pop up in both the mining and other industries to optimise existing assets (and probably find new ones).



German auto manufacturers seek help with EVs, China’s 5G rollout hastens development of cloud gaming, MPs put more pressure on gambling firms and ructions in audit continue…

German car executives call for electric-vehicle backing (Financial Times, Joe Miller) shows that the German government is being called up to boost demand for electric vehicles. This coincided with yesterday’s production launch of VW’s first mass-market all-electric vehicle, the ID.3, but Chancellor Angela Merkel stopped short of bringing forward her previously stated target of investing €3.5bn on installing 1m charging points across the country within ten years and broaden subsidies. The ID.3 will go on sale in Europe next year for around €30,000. Stephan Weil, the minister-president of Lower Saxony and member of VW’s supervisory board, pointed out that the success of electric vehicles will depend on having enough charging points and appealed for a change in tenancy and residential property laws that will make their installation easier. * SO WHAT? * Given how important the car industry is to Germany it seems only right that it should apply more pressure to the government to help its transition to new technologies. TBF, this applies in every country – not just Germany – and we have seen time and again that higher subsidies lead to more sales while cutting subsidies kills sales – just ask Tesla! I would expect other countries will be doing the same thing – but with Germany putting its full weight behind this push I’d argue that the  movement is more likely to spread. The only caveat on this is how to implement measures that will help the industry without being judged to be anti-competitive.

China 5G rollout to boost cloud gaming (Financial Times, Tom Hancock) looks at how the rollout of 5G services across China will put a rocket under the development of cloud-based gaming in the world’s biggest video games market. Cloud technology will mean that players can get high-powered gameplay on low-powered devices such as mobiles as all the whizzy tech stuff will be done on powerful remote servers as 5G allows for much faster transition speeds. London-based trade body GSMA estimates that China will have 600m 5G mobile subscribers by 2025. * SO WHAT? * Alibaba and Tencent

are likely to be particularly competitive in this space and will be able to increase revenue streams via in-game adverts etc and selling data to game designers. Interestingly, as things stand, US cloud gaming services will rely on subscriptions whereas Chinese gamers will be playing for free which will also potentially boost usage very quickly. Tencent launched its WeGame cloud gaming service in August and NetEase partnered with Huawei for its own one earlier this year. Alibaba teamed up last year with Intel to work on its offering. None of these services are perfect just yet, but the potential gains are there for the taking and the companies involved have got very deep pockets. I think that 5G will spell the end of “traditional” console gaming and that perhaps a Nintendo Switch-like functionality between a mobile phone and, say, a big TV at home will be the way forward.

It’s all going from bad to worse for UK gambling companies as Shares in UK gambling firms plunge as plans for online curbs emerge (The Guardian, Rob Davies) shows that these firms, who are still reeling from the shock of government-imposed betting limits on their previously highly profitable Fixed Odds Betting Terminals (FOBTs), are facing even more pressure from MPs who are recommending a strict clampdown on online casino games. * SO WHAT? * This is a cross-party initiative and, if adopted, would drastically reduce the amount of money they earn from slot-machine players who make up over a third of the industry’s income, according to the Gambling Commission. 888 saw its share price fall by 14% on the news with GVC (which owns Ladbrokes) taking a 10.5% hit while other players such as William Hill, Flutter Entertainment (which owns Paddy Power Betfair) and online slot-machine maker GameSys all weakened. These firms certainly are on a losing streak at the moment…

Then in UK audit shake-up spurs flood of inquiries for non-Big Four firms (Financial Times, Tabby Kinder) we see that the UK government is looking at proposals from the competition watchdog that will force all large listed businesses to appoint one of the Big Four (Deloitte, EY, KPMG and PwC) plus another firm to conduct joint audits. This will mean that smaller accounting firms will get a big boost in audit enquiries (they’ve already been seeing an uptick) but Big Four accountants: catch of the day (Financial Times, Lex) argues that this won’t necessarily improve the quality of the audits as smaller accountants are not immune to mistakes and companies won’t necessarily be keen on this initiative as it will mean that they will have to pay out more in fees.



BA’s owner buys Air Europa, Uber suffers losses and Mothercare goes into administration…

In a quick scoot around other news, British Airways group to buy Air Europa for €1bn (Financial Times, Philip Georgiadis) heralds a chunky acquisition for International Airlines Group (IAG) that will help it to expand in the South American transatlantic market and make Madrid Europe’s next hub airport but O’Leary demands IAG sells assets as part of €1bn takeover (Daily Telegraph, Simon Foy and Oliver Gill) shows that Ryanair’s boss isn’t taking this lying down. Separately, he’s also having a headache with Ryanair hit by further delay to Boeing 737 Max deliveries (The Guardian, Julia Kollewe and Gwyn Topham) that could affect the company’s plans for summer 2020.

Elsewhere, Uber booked another quarterly loss as revenue climbed (Wall Street Journal, Heather Somerville) shows that the ride-hailer still faces challenges, although it was

more upbeat about its prospects in 2021. Remember, a lock-up on the shares expires tomorrow, so things could get interesting as early investors decide to lock in profits.

Then Mothercare in fight to protect staff pensions after collapse (Daily Telegraph, Laura Onita) highlights yet another big UK high street name edging towards the retail trapdoor of death. Shops remain open for now, but 2,500 jobs are at risk as the company’s fate is decided by adminstrators. * SO WHAT? * I don’t find this surprising given that Mothercare has been in trouble for quite some time now. FWIW, I think it was bound to fail because it targets a very narrow demographic that I would argue is particularly prone to shopping online. Anyone who has had young kids will know that dragging them around shops is not always an enjoyable experience – and when you have an age demographic that is used to buying things more cheaply online (without screaming kids in tow!), it’s hardly surprising that the physical shops have become a greater burden. Maybe someone will buy the brand itself and a few shops, but this will be another headache for retail landlords as “another one bites the dust”.



And finally, in other news…

It’s one of those rare times again where I can’t find anything to put in this section! So here are some really bad dad jokes to keep you going today:

A slice of apple pie is $3.00 in Barbados and $3.50 in the Bahamas. These are the pie rates of the Caribbean.

What did the pirate say on his 80th birthday? AYE MATEY

What do you call a dog that can do magic? A Labracadabrador

Let’s all hope that I can find some decent stories to put in this section tomorrow otherwise this’ll be a looong week! 😜

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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)