Tuesday 14/05/24

1. In MACRO & COMMODITIES NEWS, the City gets excited about the UK, BHP gets its latest offer rejected and we look at why everyone’s getting so hung up on copper
2. In TECH NEWS, Microsoft is to face EU competition charges, Hunt has $1tn tech dreams, Apollo and Intel consider building a chip plant in Ireland, Permira takes Squarespace private, OpenAI rolls out updates and SoftBank reports solid performance
3. In RETAIL NEWS, Temu’s US growth slows, Walmart announces layoffs, GameStop booms again, Heathrow lays into the tourist tax and Asda aims to build a new “town centre”
4. In MISCELLANEOUS NEWS, EVs emerge as the top company perk, superfans offer opportunity and housebuilding slows
5. AND FINALLY, I thought I’d bring you a mesmerising pancake…

So banks get bullish on the UK, Anglo American rejects another offer and everyone chases copper…

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:

City’s revised forecasts show economy racing ahead (The Times, Jack Barnett) shows that a number of City banks and consultancies have jacked up their UK GDP forecasts following last week’s ONS release showing that the economy had expanded by 0.6% in Q1. It doesn’t sound like much, but it is the fastest growth we’ve had for three years! Wages are rising faster than inflation, confidence is returning, it looks like the Bank of England will cut interest rates next month, the housing market looks like it’s bottoming out and the IPO pipeline is building ahead of imminent rule changes (according to the London Stock Exchange). The cherry on the top would be Hunt deciding to cut taxes as a pre-election gambit but it doesn’t sound like he’s got much slack to play with – still, there are more reasons to be positive than negative at the moment it seems!

Anglo American rejects fresh £34bn takeover approach from BHP (Daily Telegraph, Michael Bow) shows that former has rejected a second takeover bid from rival BHP whilst promising to provide shareholders with a workable growth plan that it can follow on its own. The second bid was priced at a level 9.7% higher than the initial bid, but Anglo maintains that this still “significantly undervalues” the group. BHP still has until May 22nd to make a final bid. Why the World Has Gone Cuckoo for Copper (Wall Street Journal, Julie Steinberg) takes a look at why everyone’s so interested in copper at the moment (this is why BHP is trying to buy Anglo American, for instance – to get more exposure to copper). Basically, copper is used in a wide variety of green tech – from solar panels, wind turbines, power cables to energy storage systems! As a result, demand for copper is expected to increase – which is why copper futures are up by 20% this year! The US government in particular is concerned about potentially being caught short regarding copper supply (presumably it doesn’t want to repeat the experience it’s had with lithium, for instance, where the Chinese have pretty much sewn up supply) and has made a number of infrastructure investments and even taken a stake in First Quantum Minerals’ Zambian mines worth up to $3bn. * SO WHAT? * It’s good that the US government is putting its money where its mouth is regarding copper, but it will still be up against China fighting for assets! Let’s hope we don’t see a repeat of what happened with lithium…

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!

Microsoft gets into more trouble, Hunt dreams of a British $1tn tech company, Apollo and Intel enter talks to finance an Irish chip plant, Permira goes for Squarespace, OpenAI releases updates and SoftBank booms…

Microsoft set to face EU competition charges over Teams software (Financial Times, Javier Espinoza) shows that the European Commission is not satisfied with Microsoft’s recent move to unbundle Teams from Office (and other software) in Europe. This would be an escalation of a case that dates back to 2020 after Slack, which is now owned by Salesforce, put in a formal complaint about Microsoft’s Teams (that it was using its dominance in productivity software to push something for “free” that should be a separate service). Charges could come in the next few weeks and if Microsoft is deemed to have breached EU competition law, it could face fines of up to 10% of its global annual turnover. * SO WHAT? * This is just another example of regulators around the world clamping down on Big Tech – something that we’re going to be seeing a lot more of as new laws, like the Digital Markets Act, come into force!

I’ve included Jeremy Hunt bets on creating a $1tn ‘British Microsoft’ (Financial Times, Michael O’Dwyer and Harriet Agnew) by way of light relief because apparently our chancellor believes that the UK can make its own $1tn tech giant that would be capable of rubbing shoulders with the likes of Microsoft or Google. He wants the UK to be “the world’s next silicon valley”. * SO WHAT? * I think this is pure fantasy. We already had a world leading tech company in Arm and allowed it to be sold to SoftBank in 2016! This is a company with a virtual monopoly in smartphone chips – and we let it slip through our fingers gladly! TBH I think that the main obstacle to growing a British Microsoft is the way we fund companies. I think that there is a risk that if there is anything even remotely good, some US tech company has the money to buy it without really batting an eyelid. Also, investors over here can be more conservative than those in the US – but then again you could point to Baillie Gifford’s massively successful punt on Tesla when it bought shares at $6 a pop. I think that there has to be a real concerted effort by the government to fund such companies and really look after them if they are serious about making strides towards this dream. Anything less just won’t do IMO because I don’t think we can rely on investors to provide the necessary financial firepower.

Then in Apollo and Intel enter talks to finance $11bn chip plant in Ireland (Financial Times, Antoine Gara, Michael Acton and Jude Webber) we see that US chip giant Intel has entered into exclusive talks with private capital group Apollo Global about financing an $11bn chipmaking plant in Ireland. * SO WHAT? * Intel is in the middle of a multi-year overhaul of the business in a bid to regain the lead in chips from TSMC and Intel. As part of this, the company is looking to spread chip production outside Asia. It is already building a new government-subsidised plant in Germany. The Apollo side of this is also quite interesting – it is getting

increasingly active in providing complex investment-grade loans and this month it told its shareholders that it expected to originate over $200bn in debt over the next few years, concentrating on new infrastructure including digital communications networks, data centres, renewable energy and semiconductors (basically, all the hot areas right now!). It is able to do this because its insurance business has over $500bn in assets.

Meanwhile, Permira to take website builder Squarespace private in $6.9bn deal (Financial Times, Maria Heeter, Antoine Gara and Alexandra White) shows that London-based PE firm Permira has agreed to buy website building software company Squarespace for $44 a share in cash, a 15% premium to Squarespace’s closing price on Friday, just three years after it floated! * SO WHAT? * If this goes through, it will be one of the biggest-ever deals supported by non-bank lenders, providing a further example of how popular this type of funding is becoming these days. Permira itself is also involving private credit funds Blue Owl and Ares Capital, who are stumping up $2.65bn in financing. I wonder what they are going to do with the company! Its share price has dropped by about 20% since its listing in 2021 and I do wonder about “DIY” website companies given that there are some decent players in the space and the frenzy of lockdown has calmed down somewhat.

OpenAI rolls out AI updates to GPT-4 as it seeks to get ahead of Google (Financial Times, George Hammond) shows that OpenAI has launched updates to its GPT-4 model as Big Tech groups continue to jostle for AI supremacy. It stopped short of calling it GPT-5, but the new developments include the ability to interpret voice, video, images and code as well as it being much faster. The firm’s CTO demonstrated live voice translation across languages which, interestingly, sent shares in language-learning tool Duolingo down by about 5% in response. Google’s got its annual developer conference this week, so we’ll see what it has got up its AI-sleeve! * SO WHAT? * OpenAI is the pace-setter in AI, but then Google, Meta, Anthropic and Mistral are among the companies to have been working hard to narrow the gap. OpenAI is due to publish an update on the status of GPT-5 later this year while CEO Sam Altman says that it will be “materially better” than GPT-4.

Meanwhile, Arm owner SoftBank reports £1.2bn profit as it shifts towards AI (The Guardian, Jasper Jolly) shows that Japanese tech investor SoftBank managed to make a profit for the second quarter in a row although it wasn’t enough to offset losses over the rest of its financial year. It managed to make chunky gains on its investments, including Arm and DoorDash. SoftBank’s Arm should give Son a hand in AI (Financial Times, Lex) shows that SoftBank is clearly doubling down in investments in AI – it was part of a $1.05bn funding round for UK self-driving start-up Wayve Technologies last week – but it’s not all going to be plain sailing because although it dominates CPUs for smartphones, catching up with the likes of Nvidia on GPUs used in data centres and AI (something that Arm announced that it will be moving into) will be another kettle of fish entirely. If it can get Arm fully engaged in the AI revolution then it will be able to reap some chunky rewards!

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!

Temu slows, Walmart cuts headcount, GameStop booms, Heathrow complains about the tourist tax and Asda wants to create a “town centre”…

Temu Cools on the U.S. After Shelling Out Billions (Wall Street Journal, Raffaele Huang and Shen Lu) shows that bargain app Temu, having poured a ton of money into expanding in the US, is now looking to scale back and seek out other areas for growth! It is now turning more of its attention to Europe and other countries and now expects less than a third of its sales to come from the US this year versus a whopping 60% last year! * SO WHAT? * What a massive – and sudden turnaround – less than two years after it became the US’s second most popular shopping app after Amazon.com. Although Temu is at pains to say this change in heart has nothing to do with TikTok’s travails in the US market, you would have thought that it will have a LOT to do with it considering it was as recent as February that we saw Temu’s massive advertising blitz in the Super Bowl. Given this about-face, you would have thought this could have major implications for ad revenues for the likes of Meta and Google, who benefited greatly from Temu spending freely.

In other US retailer news, Walmart to Lay Off and Relocate Workers (Wall Street Journal, Sarah Nassauer) shows that the retailer announced that it is going to be cutting hundreds of corporate jobs and “asking” most of those working from home to move back into the offices. * SO WHAT? * This is another nail in the coffin for WFH and is a reflection of the ongoing cost-cutting drive at the company.

In GameStop shares double as ‘Roaring Kitty’ returns to social media (The Guardian, Callum Jones) we see that shares in the video gaming chain doubled in trading yesterday on the return of “Roaring Kitty”, the influencer who sparked the meme stock frenzy

in lockdown in the company. He popped up on X for the first time since 2021 but was vague about future plans. * SO WHAT? * The stock eased back to end the day up by “only” 74%, but the underlying business of GameStop is still poor – and it recently announced a terrible quarter! It sounds like things are starting to get dangerous again as the herd starts to move!

Meanwhile, in the UK, Travel fees and tax-free shopping ban are hurting Britain, says Heathrow (Daily Telegraph, Christopher Jasper) shows that Heathrow Airport is now throwing its hat in the ring along with a lot of luxury retailers in criticising the scrapping of VAT for international visitors. The company said that this move is “curtailing the UK’s global connectivity”. That being said, the airport reported that it was heading towards having its busiest year on record after passenger numbers rose by 4.8% last month, adding that it had its busiest day since October 2019 on April 19th 2024!

Then in Asda to build ‘new town centre’ in London (The Times, Tom Howard) we see that Asda is looking to venture into property development by redeveloping a ten-acre site it owns in Park Royal. This will still need planning approval but Asda wants to build a new shop and up to 1,500 flats, a third of which will be affordable, in partnership with Barratt Developments. There will also be new restaurants, coffee shops, gyms and shop units. * SO WHAT? * OMG! ANOTHER supermarket is now fiddling around with a potentially expensive foray into property development! Waitrose did precisely this (and it seems to have fallen flat). WHY doesn’t Asda just stick to its knitting and make its supermarkets better?!? This sounds like a very expensive project that will just suck in money while what Asda REALLY needs to do is rejig its offering and forge a distinct identity to fight back against the German discounters!!! What an absolutely awful idea this is!!!

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!

EVs become the hot ticket (for company perks), superfans present an opportunity and housebuilding slows…

In a quick scoot around some of today’s other interesting stories, ‘Easier than pensions’: why electric cars are the hot company perk (Financial Times, Peter Campbell and Emma Jacobs) takes a look at a current bright spot for EVs – more employers are allowing staff to lease EVs for their personal use via salary sacrifice schemes, enabling them to get big savings on tax and national insurance schemes. Such schemes cut the cost of the car significantly whilst also making the company and staff look good. * SO WHAT? * This is significant. The SMMT observed that, of the 85,000 EVs sold in the UK in the first three months of this year, a whopping 80% were classed as “fleet” (aka company cars) while the remainder was from plebs like me and you. Third party providers, including Octopus and Tusker, are doing very well from managing the admin of leasing arrangements. Interestingly, salary sacrifice can also be used on used vehicles. Although this is great at the moment, once an incentive like this disappears, demand suddenly crashes – however, for now at least, this is a ray of sunshine for EVs!

In ‘Superfans’ offer rich pickings for music industry (The Times, Tracey Boles) we see that the music industry is increasingly looking into ways of monetising “superfans” as streaming revenues start to top out. Superfans are willing to splash out on early access to music, tickets and merch and the companies want to tap into this! * SO WHAT? * Goldman Sachs reckons that the “superfan market” could be worth more than $4bn a year in revenues and music companies including Universal and Warner are looking at providing superfan experiences!

Then in Wet weather and costly mortgages fuel fall in housebuilding (The Times, Ben Martin) we see that the number of new homes registered for construction fell by a whopping 20% year-on-year in Q1, according to the latest stats from the National House Building Council. * SO WHAT? * It is likely that higher mortgage costs were to blame, but then if you think that interest rates are going to come down from here, it’s likely that the situation will improve.

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 have to say that I am a massive fan of street food – particularly those small places that only have one or a few items but just do those really well! This guy is amazing 😲! It almost seems a shame to eat his artwork!