Tuesday 09/10/18

  1. In MARKETS AND OIL NEWS, investors get spooked by Italy’s EU spat and we look at high oil price knock-on effects
  2. In TECH HARDWARE NEWS, Sony looks towards a PS5 and Facebook announces its new Portal
  3. In UK RETAIL NEWS, there’s more evidence of a slowdown and French Connection has a hike
  4. In INDIVIDUAL COMPANY NEWS, Google admits a big data breach
  5. In OTHER NEWS, I bring you a fusion of art and music. For more details, read on…



So markets get hammered on Italy/EU shenanigans and the higher oil price is leading to uncertainty in Nigeria and consolidation between rivals…

Italy’s budget battle with EU spooks global stock markets (The Guardian, Richard Partington) highlights a global market sell-off yesterday as investors got nervous about Italy’s spat with the EU over its budget, the prospect of weaker Chinese growth and increasing tensions between negotiators in the US-China trade talks. Brussels is concerned that Italy’s plans will increase its budget deficit (the difference between income from taxes and the amount of government spending). Meanwhile, investors are worried that the budget put forward by Italy’s newly-installed government will increase the cost of borrowing as well as its overall debt – which is already the second highest in the Eurozone as a percentage of GDP, behind only Greece. * SO WHAT? * The Euro weakened against the dollar and most European markets posted losses yesterday. Basically, something has to give between the two sides. As things stand, it looks to me like the EU is going to look bad whatever the outcome. If it blocks Italy’s proposed budget it will be accused of meddling and effectively ignoring the will of the people, whereas if it treats it more leniently it faces a potential backlash from other members who will maybe feel that their efforts to comply with EU guidelines will effectively be ignored by giving Italy a “free pass”. It’s not going to be easy, though – especially when you have the Italian deputy PM saying in a news conference (with French far-right leader Marine Le Pen) that “We are against the enemies of Europe – Juncker and Moscovici – shut away in the Brussels bunker”. Juncker in the bunker.

Given that oil prices have remained stubbornly high of late, it is unsurprising that there have been some repercussions. In Nigeria’s fuel subsidies bill set to soar on rising oil price (Financial Times, Neil Munshi) we see that the high prices have led to a massive increase in the cost for fuel subsidies in Nigeria, Africa’s largest oil producer. Weirdly enough, although it produces 1.7m barrels of crude oil per day, it has next to no refining capacity which means that it has to import 90% of its fuel.

Nigeria has only just started to recover from oil prices dropping to about $30 a barrel in 2016 but it isn’t really benefitting from recent price strength. As Tunde Ajileye, a partner at SBM Intel, put it “We sit on a double-edged sword: when oil prices go down, government revenues go down and it becomes difficult to get foreign exchange. When oil prices go up, while there is usually an increase in government revenues…the big issue is that for refined products like fuel and diesel, the prices go up and [then]…the subsidy bill goes up”. * SO WHAT? * Proceeds from crude oil account for a massive 56% of government revenues, but its annual fuel import bill is over $7bn – so you can see why this is a big issue, and it comes just as Nigeria heads towards elections early next year. This means that the current situation is making a tough scenario even more difficult as uncertainty is bound to breed even more instability. It is a shame because the country could potentially produce 2.5m barrels per day but poor infrastructure, pipeline sabotage and massive corruption all mean it is performing well short of what it could do. The situation doesn’t look like improving any time soon as Opec seems pretty keen to keep prices at current levels.

Other than that, Offshore driller Ensco to buy Rowan in all-stock deal (Financial Times, David Sheppard and Mamta Badka) highlights the creation of a combined entity that will create an offshore specialist with 83 rigs and major drilling contracts that have operations covering six continents. It will have an enterprise value of £12bn and is the latest example of industry consolidation as players bet on scale as being the answer in an industry upswing. Other examples of recent industry consolidation include Baker Hughes paying $550m for a 5% stake in the drilling division of Abu Dhabi’s state oil company yesterday and Transocean buying Ocean Rig last month in a cash-and-shares transaction valued at around $2.7bn. * SO WHAT? * Given that oil prices have risen by almost 50% in the last twelve months, it is unsurprising that the deal-making that dried up following the 2014 downturn has returned with a vengeance. As JPMorgan analyst Sean Meakim put it, “significant consolidation in the offshore drilling sector was practically inevitable given the backdrop of a half-decade’s worth of declining utilisation and rates globally. The company will be by far the largest shallow-water driller globally”. I suspect that there will be more to consolidation to come!



In tech hardware news, Sony eyes a “PS5” and Facebook unveils its new Portal…

There’s often chat every now and again as to whether there really is a need for games consoles any more, so Sony commits to successor for PlayStation 4 (Financial Times, Kana Inagaki, Leo Lewis and Lionel Barber) puts that debate to bed as the company’s president confirmed plans for the next generation of console. Some believe that Sony has not done enough in mobile gaming, given the explosion in its popularity, and is behind the curve on esports where estimated global audiences of 167m watch pros playing each other online. * SO WHAT? * It’s too early yet to speculate about what the new console could look like, but it seems that Sony is undergoing a mindset shift at the moment which could help it to embrace change – as per upping its game in esports – rather than trying to control it. After all, the company recently opened up Fortnite Battle Royale so that gamers could play each other across different consoles – something it never would have considered in the past.

Facebook launches video-calling device Portal (Financial Times, Hannah Kuchler) looks at a new gadget

launched by Facebook, in partnership with Amazon, intended to help its users keep in touch with friends and family. It will enable users video call as they walk around the house using AI to zoom in and out and change focus. The Portal can operate like a smart speaker and users will be able to ask Alexa questions by saying “Hey, Portal” and it will compete with Amazon’s Echo Show, which also has a video screen. The device is now available for pre-order in the US in two sizes – the 10-inch screen costing $199 and the 15.6inch device costing $349. * SO WHAT? * Maybe I’m just old-fashioned, but I HATE this idea. It’s bad enough with Smart TVs watching your every move (that’s not paranoia – it has actually happened with the cameras monitoring people without their knowledge) but having a device so you can call your FB mates? What’s wrong with meeting them in person, calling them on a phone or Skyping/Facetiming them? I think it sounds mega-creepy and although the company says “Facebook doesn’t listen to, view or keep the contents of your Portal video calls. Your Portal conversations stay between you and the people you’re calling. In addition, video calls on Portal are encrypted, so your calls are always secure”, I’m not inclined to trust them. I can see why they are doing it, but I just don’t like where it’s going. Also, my house is always untidy (lego everywhere – not me, it’s my kids honest), dishes next to the sink etc. so the last thing I need is a friend calling me when I’m wandering around in a t-shirt and trackie bottoms loading the dishwasher!



In UK retail news, figures show that growth is slowing right down and French Connection sees a big uplift on news of the founder selling out…

Retail growth slowest in five months (The Times, Emma Yeomans) cites the latest figures from the British Retail Consortium which show that retail sales in September slowed right down, although online retail and clothing sales showed some signs of life. Barclaycard will also release data today that confirms this trend and it noted that around 62% lacked confidence in the economy, with around the same proportion expressing worries about

rising fuel prices. Also, almost half of consumers are planning on spending less this Christmas versus last year. * SO WHAT? * This could be just a bit of a slow patch, but with Brexit coming up I doubt consumers will be loading up with abandon.

Following on from what I said yesterday, On your Marks…race on as French Connection boss says au revoir (Daily Telegraph, Ben Woods) shows how excited investors got about the prospect of the co-founder of FCUK selling out. The shares roofed it by 45% in morning trading before settling down to a 28% gain by the close. This article does a great job of giving you the history of the company – so well worth a read if you have the time. What I said yesterday still stands – whoever buys this stake (and probably the company) really has their work cut out.



In individual company news, Google has a data nightmare…

I’m not going to spend too much time on Google exposed user data, feared repercussions of disclosing to the public (Wall Street Journal, Douglas MacMillan and Robert McMillan) because I suspect this is going to be a story that will continue to develop. The nub of it is that Google exposed the data of hundreds of thousands of users of the Google+ social network in spring and didn’t disclose the breach because they thought it “would draw regulatory scrutiny and cause reputational damage” (no sh!t, Sherlock!!!).

Parent company Alphabet responded yesterday by introducing new data privacy measures and shutting down all consumer functionality of Google+. * SO WHAT? * I bet Facebook is secretly pleased that Google will be taking the heat now but this really does highlight the downsides of online convenience. I also wonder whether it will mean that the US will be more inclined to either adopt European GDPR or perhaps make a US version. Surely, it would be easier to adopt the European guidelines as they are already there so it would be much quicker – but then again nothing is logical in this world! I suspect that this will be great news for some service providers such as lawyers and management consultants who will advise on the inevitable rise in demand from companies looking to check their current standards.



…And finally, in other news…

I thought I’d leave you today with something quite clever: Katrina McHugh: Pop charts…as you’ve never seen them before (BBC, Lucy Todd https://tinyurl.com/y9o9y754).

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0755hrs 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 **
7,233 (-1.16%)26,487 (+0.15%)2,884 (-0.04%)7,73611,947 (-1.36%)5,300 (-1.10%)23,469 (-1.32%)2,730 (+0.49%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)