Tuesday 12/03/24

  1. In MACRO, ENERGY & CRYPTO NEWS, Japan avoids recession, the UK’s inflation basket changes, EQT creates an integrated gas group and the FCA lifts a ban on crypto-backed securities
  2. In TECH & MEDIA NEWS, a Singapore chipmaking start-up opts for Italy, Apple is to open a store in Shanghai, Reddit aims high, Telegram nears profitability and the TikTok debate gets more heated
  3. In CAR NEWS, BYD hits problems overseas and Xiaomi does what Apple couldn’t
  4. In MISCELLANEOUS NEWS, PE firms are left wearing a lot of assets, Superdry has more financing talks and Elliott walks away from Currys
  5. AND FINALLY, I bring you a bit of Cirque du Soleil…

1

MACRO, ENERGY & CRYPTO NEWS

So Japan avoids recession, vinyl gets the nod, EQT creates an integrated gas group and crypto goes more mainstream…

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:

 

Japan averts recession with revision to growth (The Times, Jack Barnett) shows that Japan managed to swerve recession in the second half of last year, according to the officially revised figures. Output expanded by 0.1% in the final quarter of last year – an improvement on the initial estimate of a 0.1% contraction. Given that there was contraction in Q3, the upwardly revised figure for Q4 means that Japan wasn’t in recession (= two consecutive quarters of GDP contraction) after all! This will no doubt add more to the argument that the Bank of Japan should raise interest rates from negative territory as inflation has also returned to Japan for the first time in two decades. Japan’s interest rate currently stands at -0.1%.

In the UK, Vinyl records return to UK inflation basket for first time since 1992 (The Guardian, Phillip Inman) shows that vinyl records have just made it back into the official basket of goods used by the ONS to calculate annual inflation. This “basket” is a list of items that is deemed to reflect what people actually buy and the items in this basket are tracked to show whether prices go up or down. The basket is revised on an annual basis to ensure that it is tracking prices of the right 744 items! Apparently, vinyl was given a massive push in the UK last year by Taylor Swift’s album 1989 (Taylor’s version), which was the biggest-selling vinyl record! According to data from the UK record labels association, the BPI, vinyl sales hit their highest annual level last year since 1990! In the latest revision of the list, 16 items joined the inflation basket while 15 dropped out. Items that were promoted included air fryers, spray oil and pre-packed salad while items that were removed included hand sanitiser, baking trays and roasting tins

(presumably because people used their ovens less frequently due to cost), rotisserie-cooked hot whole chicken, popcorn and sofa beds. I also thought it was interesting to see that takeaway tea and coffee dropped out as well – presumably this was because consumers are being more careful with their spending – not great for coffee shops I would have thought!

Then in EQT to create $35bn integrated gas group with deal for pipeline business (Financial Times, Amanda Chu and Alexandra White) we see that US natural gas producer EQT just announced that it would buy back a pipeline business that it had previously owned, Equitrans Midstream, to create a $35bn integrated gas group. It sold Equitrans back in 2018 following pressure from some activist investor. EQT said that the enlarged group would get improved access to markets for gas and make it better positioned to take advantage of the expected jump in power usage by AI in Northern Virginia, aka “data centre alley” (so-called because it has the world’s largest concentration of internet servers!). * SO WHAT? * This is just the latest of a series of pipeline deals done over the past year – which also includes Oneok’s $19bn purchase of Magellan Midstream Partners and Energy Transfer’s $7.1bn acquisition of Crestwood Equity Partners against the backdrop of increased M&A activity more broadly in the US oil and gas sector. It is interesting to note that many observers reckon that gas demand will peak later than oil because it is a lower-carbon fuel that will help with the transition from coal to renewables.

Then in Crypto-backed securities go mainstream after FCA lifts ban (The Times, Patrick Hosking) we see that the FCA has now dropped its ban on crypto-backed securities and said that it “confirms it will accept applications for the admission of bitcoin and ethereum crypto exchange-traded notes in the second quarter of 2024”. Bitcoin’s price jumped by 5% on the news as this is clearly another sign of crypto inching ever-further towards the mainstream. The FCA reiterated, however, that crypto remains “ill-suited for retail customers” and that the new products would only be available “for professional investors such as investment firms and credit institutions authorised or regulated to operate in financial markets only”. * SO WHAT? * It seems that there is a gap between politicians’ desire for the UK to develop into some kind of crypto hub and the FCA’s ongoing scepticism of the asset class. This latest move would appear to be a kind of compromise for now…

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

TECH & MEDIA NEWS

Italy’s chosen by a Singapore chip start-up, Apple plans to open a Shanghai store, Reddit aims high, Telegram hits 900m users and the TikTok row heats up…

Singapore chipmaking start-up to invest €3.2bn in Italy (Financial Times, Amy Kazmin and Mercedes Ruehl) highlights plans by Silicon Box, a Singapore-based semiconductor start-up most recently valued at $1bn, to invest a hefty sum  in a chipmaking plant in Italy, which would create hundreds of jobs. It plans to produce chips for AI, EVs and high-performance computing. * SO WHAT? * This is great news for Italy, but also for the EU as the bloc set a punchy target of doubling its semiconductor production capacity by 2030 to 20% of the global total versus the 10% in 2021. This is all part of a wider push to reduce reliance on China for strategic supplies. It is hoped that this deal will attract others in the tech industry.

Then in Apple to Open New Store in Shanghai Amid Falling iPhone Sales (Wall Street Journal, Tracy Qu) we see that the tech giant is about to expand its retail footprint in China by opening its eighth store in Shanghai this month just as iPhone sales in the world’s biggest smartphone market weaken. The store will be in Jing’an, a central business district. Shanghai already has the most Apple stores in mainland China – Beijing has “just” five! Recent data from market research firm Counterpoint showed that Apple’s iPhone sales in China fell by 24% in the first six weeks of 2024 versus the same time period a year earlier. * SO WHAT? * It seems to me that this could be a drop in the ocean and that Apple is going to have to address a more fundamental problem – that Chinese consumers are keen to buy from domestic makers, such as Huawei, in increasing numbers. A 24% drop is pretty chunky and things like cutting prices of its iPhone 15 is more of a sticking-plaster-covering-a-gaping-wound type action that may or may not work in the short term. It will be difficult for Apple to counter this – along with increasing wariness – rightly or wrongly – from consumers about potential security issues. This hasn’t been helped by negative publicity surrounding Apple in China that I referred to in yesterday’s Watson’s Daily. Apple will be hoping that this is just an anomaly – and if it isn’t, the company will be facing a much deeper problem.

In social media news, Reddit aiming for $6.5bn valuation from New York flotation (The Guardian, Jane Croft and Nick Robins-Early) confirms what I said last week that the news aggregation, content and discussion platform is looking to achieve a $6.5bn valuation in an IPO that could kick off later this month. If it did so, it would be the biggest IPO of a social media network for four years! The company reckons that there would be growth

opportunities in advertising and data licensing from the expansion of AI models. * SO WHAT? * I am very sceptical of this IPO. We have seen recently how other companies in a similar kind of area – Vice Media and BuzzFeed – are having all sorts of problems and monetising news aggregation and content is notoriously difficult – even for those with properly good content! I don’t blame Reddit for trying to get an IPO off the ground sooner-rather-than-later because the cynic in me thinks that its valuation is just going to get worse over time. At least if it does it now it will be able to lock in a larger amount of money. I would have thought that those involved in the deal will do their best to talk it up because they want more companies to come to market and this is quite high profile. Longer term, though, I just can’t see why Reddit will succeed where others haven’t.

Meanwhile, Telegram hits 900m users and nears profitability as founder considers IPO (Financial Times, Hannah Murphy) shows that the secretive messaging app has managed to attract a hefty number of monthly active users (up from 500m at the beginning of 2021) and is apparently approaching profitability, according to Russian-born founder Pavel Durov. Durov says that he has been offered “$30bn-plus” valuations but maintains that he is seeking an IPO. * SO WHAT? * Just to give you an idea of scale here, messaging rival WhatsApp, which is owned by Meta, has 1.8bn monthly active users (although this is only on mobiles). Telegram has been experimenting with advertising in certain regions but it now plans to roll this out globally. It will also start revenue sharing with creators this month and add business accounts and a “social discovery” feature which will help useds to meet up or date people near them. It’ll be interesting to see whether this really does fly or whether it dies a death. It seems to be doing pretty well for the moment, though!

Then in China accuses US of “theft” in TikTok row (Daily Telegraph, Matthew Field) we see that China has accused the US of “theft on a grand scale” in the state-run China Daily newspaper China Daily, as US politicians get ready to vote on a bill this week that could force TikTok’s owner ByteDance to sell TikTok in the next six months or face a ban across the board from American app stores! Trump was the last one to attempt to block the app in 2020, but this failed. This all centres around concerns that TikTok passes its data to the Chinese state – an accusation that the company vehemently denies. * SO WHAT? * A ban on TikTok in the US would be a huge deal for the platform and be a massive boon for Instagram. From a user and content creator point of view, a ban sounds unthinkable – but if you look at it from a security point of view you can understand the concerns. Would the lawmakers have the balls to do it though – particularly in election year?? 

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

BYD has issues while Xiaomi succeeds where Apple hasn’t…

Having Overtaken Tesla, BYD Is Running Into Problems Overseas (Wall Street Journal, Selina Cheng, River Davis and Raffaele Huang) shows that China EV maker BYD is experiencing headwinds in its overseas expansion. The main problem is an overall cooling in demand for EVs but it also has quality issues (e.g. a BYD bus in London caught fire which led to an immediate recall of 2,000 buses! Also, BYD vehicles need more fixes when sold overseas). * SO WHAT? * I don’t think that things like quality issues are insurmountable (these things are bound to happen, particularly for a company that’s just started to export at scale!) but slow demand is more problematic. It’s just going to have to wait things out like all the other manufacturers – but the main potential fly in the ointment could come when/if governments start to slap extra tariffs on their cars to protect local manufacturers.

Then in Xiaomi Set to Launch First Electric Vehicle on March 28 (Wall Street Journal, Jiahui Huang) we see that the Chinese mobile phone maker is set to launch its first EV, the SU7, just three years after it said it would enter the car-making business! Its four-door sedan stuffed with tech will launch on March 28th in China although there were no details on price. It is said to have better acceleration than Tesla and Porsche EVs while one version of the vehicle has a range of up to 800km! * SO WHAT? * This is an incredible achievement, don’t you think?? When you consider how long and how much money it took for Tesla to become profitable and all the difficulties that other EV manufacturers are having, just getting something to market is amazing! However, you do wonder what the quality’s going to be like given the troubles that ALL car manufacturers have…fingers crossed!

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

PE firms are left with lots of assets, Superdry tries to refinance and Elliott walks away from Currys…

In a quick scoot around some of today’s other interesting stories, Dealmaking slowdown leaves private equity with record unsold assets (Financial Times, Will Louch) is an interesting article that cites a report from Bain & Co which shows that PE firms are sitting on a ton of companies in their portfolios that are worth over €3tn following a “feast-famine” period of deal-making. The report shows how quickly the industry has grown over the last decade but also the challenges it has faced in a high interest rate environment where debt (which is how a lot of these firms finance their deals) became ever more expensive. PE firms generally tend to hang on to companies in their portfolio for three to five years and, according to the report, over 40% of the companies in their portfolios currently have been there for at least four years! This means that there are a large number of companies that could be up for sale soon. * SO WHAT? * While PE firms loaded up on assets for knock-down prices during the Covid years when money was cheap, they are now left wearing hefty portfolios that they can’t easily sell. This means that their underlying clients can’t get

out either, hence the logjam. This is now leading to PE firms facing difficulties in raising money for more purchases because investors aren’t going to give funds more money if there are doubts as to whether they’ll be able to get their money out when they want to further down the line. I think that the situation will improve this year, though, as the IPO market is showing signs of life (so PE firms could exit their investments this way) and interest rates cuts this year will make financing easier.

In retail, Superdry in talks with Hilco over new loan (The Times, Isabella Fish) shows that the embattled apparel retailer Superdry is in talks with one of its existing lenders to borrow up to £20m to help it in its turnaround efforts. Co-founder Julian Dunkerton is pursuing all options at the moment, including taking the company private. This company is having an absolute nightmare.

Then in Currys takeover bid abandoned after hedge fund’s offers rejected (Daily Telegraph, Chris Price) we see that US hedge fund Elliott has decided to give up buying Currys after two bids were rejected. Currys’ share price dropped by 11% on the news. So it looks like the company is holding out for an offer from Chinese e-tailing giant JD.com that may or may not come…

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…

This is a video of some Cirque du Soleil performers rehearsing some amazing tumbling on trampolines! I have absolutely no affiliation here but if you possibly can I would recommend that everyone goes to see Cirque du Soleil at least once in their lifetime. It is a live experience like no other (BTW, it’s a “circus” that has no animals – just humans! Many of them are ex-Olympic gymnasts). I took my family to see them at the Royal Albert Hall back in January and it was just incredible. Words don’t do it justice – you should just go to see it to believe it! I’ve had the fortune to see them perform a few times over the years and it continues to be an absolutely amazing experience 👍

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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)