Tuesday 18/07/23

1. In MACRO, ENERGY & COMMODITIES NEWS, China’s slowdown has repercussions, Rolls-Royce edges closer to making its SMRs, wheat prices rise on the lapse of the Black Sea deal and olive oil is is in crisis
2. In CONSUMER & RETAIL TRENDS, US pay catches up with inflation, a thinktank reckons double-digit public sector pay rises are possible, first-time buyer power diminishes, food prices ease, luxury fashion has a wobble and DFS does badly
3. In TECH NEWS, Microsoft faces a probe on bundling, AI regulation needs to learn from social media, ARK writes Twitter down, Robinhood wants to come to the UK and finfluencers face greater scrutiny
4. In INDIVIDUAL COMPANY NEWS, Tesla wants German expansion, German car makers suffer, Ford cuts prices, Lotus has supply problems and Eli Lilly makes a huge breakthrough with a drug that slows Alzheimer’s
5. AND FINALLY, I bring you a hilarious “magic trick”…

So China slows, Rolls-Royce’s nukes get closer, wheat prices rocket and olive oil has a nightmare…

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:

Slowdown in China raises market fears (The Times, Mehreen Khan and Callum Jones) highlights a slowdown in China’s economic growth as GDP expanded by just 0.8% in the April to June quarter, down from the 2.2% rate it reported in Q1 just after the lockdown restrictions were lifted. Stimulatory efforts have thus far had limited effect and analysts at JP Morgan, Morgan Stanley and Citigroup were among those to cut their annual growth forecasts for China. * SO WHAT? * The country’s massive real estate sector has proved to be a major drag this year, so I would have thought that this needs to be top priority for the government if it wants to pull the country out of its current rut. I think it has to be done loudly and with drama otherwise there’s a risk that people just won’t believe it – and they need to believe it in order to start spending again. If they don’t do this, there’s a risk that Chinese will just save more and spend less.

Then in Rolls-Royce in a ‘good position’ to develop small nuclear power plants (Financial Times, George Parker, Jim Pickard and Rachel Millard) we see that the company has a decent chance of finally getting to make its much-touted Small Modular Reactors as the UK government opens up an international tender for building

the new generation of nuclear power plants today. Energy secretary Grant Shapps said that its SMRs could potentially help the UK reach its its target of generating 25% of its electricity from nuclear power by 2050 versus the 15% level it’s at right now. Rolls-Royce is currently in a good position having already secured a lot of government funding thus far, but it’s being kept honest by other technologies being in the mix from the likes of GE Hitachi and X-energy, among others. The plan is to have a shortlist by autumn…

In commodities news, Wheat prices surge as Russia pulls out of pact on Black Sea grain (The Times, Eir Nolsøe, James Kilner and Chris Price) shows that wheat prices shot up by as much as 6.7% in trading yesterday while soya and corn prices also increased on the back of news that Russia has ditched the UN-brokered deal that has, up till now, allowed Ukraine grain exports through via the Black Sea. * SO WHAT? * This does, unfortunately, mean that global corn, wheat and fertiliser prices are going to increase again – and stay at elevated levels for longer – while prices of meat, dairy and cereals may fall more slowly than they would have done otherwise. Food price rises have been a major driver of UK inflation, so this will be painful, particularly as Ukraine and Russia supply around a third of the world’s grain. Interestingly, we actually produce a lot of our own grain, but as it is priced on a global basis, we are still going to pay more for it.

Then in Olive oil industry in crisis as Europe’s heatwave threatens another harvest (The Guardian, Sarah Butler) we see that the spring heatwave badly affected harvests in Spain, which accounts for around 50% of the world’s olive crop. Concerns are growing that the current heatwave will make things worse as trees shed unripe olives to save moisture. Poor harvests in Italy and Portugal aren’t improving the situation either, so it looks like prices are just going to have to go up and supermarkets may see a shortage in the autumn.

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!

US pay strengthens, a thinktank reckons the UK government’s being stingy, first-time buyers are up against it, food prices slow, luxury fashion wobbles and DFS needs to sit down…

Over in the US, Pay Raises Are Finally Beating Inflation After Two Years of Falling Behind (Wall Street Journal, Amara Omeokwe and Megan Tagami) shows that inflation-adjusted hourly wages rose by 1.2% in June versus June last year, marking the first time that pay growth has exceeded inflation for two years! * SO WHAT? * This is likely to make the Fed’s job more difficult as higher wages generally lead to people spending more, and if they do that they push prices up, thus perpetuating the inflation problem that the Fed’s trying to solve with higher interest rates.

Back over here, Public sector pay rises of 10% would add little to inflation, says UK thinktank (The Guardian, Richard Partington) cites research from the Institute for Public Policy Research (IPPR) thinktank which reckons that national finances could withstand an average pay rise of 10% for public sector workers without pushing the needle on inflation too much. It said that the effect on inflation would be minimised if funded by more borrowing and/or taxation. * SO WHAT? * Let’s bear in mind here that thinktanks generally have an axe to grind, particularly thanks to the way that they are funded and who works for them, but this is an interesting assertion and will no doubt be pounced upon by unions as definitive and incontrovertible evidence that the government was just being stingy last week with its 6% “final offer”.

Spending power for many is definitely taking a hit and First-time buyer borrowing power dented by £120,000 (Daily Telegraph, Melissa Lawford) shows that rising mortgage rates have effectively chopped the amount first-timers can borrow by about a third since the start of 2022, according to research by Capital Economics. It was tough enough before, but this is now making it even harder for younger people to get on the property ladder. * SO WHAT? * Mortgage rates have shot through the roof, so I don’t think this conclusion is really going to surprise anyone – although to see just how much spending power has been affected is sobering. An average first-time buyer with household salary of

£57,000 can now borrow £120,000 less than they could have done had they locked in a mortgage deal 18 months ago! No wonder first-timers are pulling back completely…

On the plus side, Producers ease pressure on Britain’s food prices (The Times, Mehreen Khan) cites the latest data from Lloyds’ monthly UK business tracker for June which showed that food and drink manufacturers had cut prices for the first time since February 2020! * SO WHAT? * This is clearly good news, but you do wonder whether this is going to continue given the Black Sea thing I mentioned earlier.

Meanwhile, Luxury fashion houses slump amid fears of China spending drop (Daily Telegraph, Szu Ping Chan, Chris Price and Hannah Boland) shows that Richemont (which owns brands including Cartier, Dunhill and Montblanc etc.) and LVMH (which owns brands including Louis Vuitton, Tiffany & Co, Christian Dior etc.) have seen their share prices suffer on concerns of a slowdown in spending by Chinese shoppers further to news of its economic slowdown (again, mentioned above). After a pretty good run which saw LVMH hit a valuation of $500bn in April, it seems that reality has caught up for now.

Elsewhere, DFS warns of ‘significantly worse’ market as cost of living crisis hits sales (The Guardian, Tom Ambrose) highlights disappointment at the sofa retailer as it said that the market was “significantly worse than expected” due to weaker sales of big ticket items amid the cost of living crisis. On the positives, DFS said that cost cutting had managed to take some of the edge off the negative impact of poorer sales and it is actually outperforming the market. * SO WHAT? * The fact is that companies like DFS see their fortunes tied to the movements of the housing market and consumer confidence, which stems from how their disposable income is looking. At the moment, it’s not looking good for many people – hence the weakness in sales. The drop has probably been made to look that much starker given that there was an unusual blip under lockdown when people “upgraded” their homes as they spent more time there. I think that it’s fair to say that people tend not to buy sofas very often, so you wonder whether the dip in sales will be prolonged.

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 faces more scrutiny, AI regulation needs to learn past lessons, ARK writes down Twitter, Robinhood might be available in Sherwood Forest after all and finfluencers face a crackdown…

Microsoft to face EU probe over Teams and Office bundling (Financial Times, Javier Espinoza) shows that the tech giant is going to get the full European Commission treatment over it unfairly bundling Teams with Office. The formal investigation will kick off next week and will look at whether Microsoft’s abusing its market dominance. * SO WHAT? * There is speculation that formal charges against Microsoft could be brought as soon as this autumn! No doubt the likes of Zoom and Slack will be pleased about this (although this has been a loooooooong time in coming!).

Efforts to Rein In AI Tap Lesson From Social Media: Don’t Wait Until It’s Too Late (Wall Street Journal, Deepa Seetharaman) is a really interesting article saying that we need to take the lessons we learned from not even attempting to regulate social media for over a decade and make sure that AI doesn’t go the same way. Some are suggesting the implementation of an independent AI ratings and review system that will cover the handling of private data, suitability for kids and other areas while others are looking to build socially responsible AI systems from the ground up. The saga continues…

Elsewhere in tech land, Cathie Wood’s ARK Writes Down Twitter Stake by 47% (Wall Street Journal, Jack Pitcher) shows that tech super-investor Cathie Wood has written down the value of ARK’s stake in Twitter by a considerable amount since Musk took the reins. She did say that her outlook had not changed (but of course she would say that otherwise here stake would be worth even less!!!). Supposedly she wants to buy more at current depressed

levels but she contends that no-one wants to sell her any at this time. Chuh. Yeah, right.

Meanwhile, Robinhood to bring stock trading app to Britain (Daily Telegraph, Matthew Field) shows that the app that gained notoriety as the engine behind the meme stock craze under lockdown has set its sights on the UK and has begun hiring with a view to potentially setting up shop by the end of the year. * SO WHAT? * This would be bad news for the likes of local rivals Freetrade and Lightyear as well as the stuffier alternatives like Hargreaves Lansdown. This would be the second time it has set its sights on the UK market, but it cancelled its initial plans back in 2020 as it had to deal with problems in its domestic market in the US centred around the effects of its gamification of investment.

Then in Watchdog’s crackdown on rise of finfluencers (The Times, Ben Martin) we see that the FCA is going to have a crackdown on financial influencers as their promotion of financial products and services on social media platforms increases. Back in May, it got together with the Advertising Standards Agency and Love Island social media influencer Sharon Gaffka, to warn influencers of the risks they run when promoting financial products. * SO WHAT? * The FSA has decided to go deeper now because of the increased incidence of finfluencer promotions. TBH if people are gullible enough to take financial advice from someone who parades around in the buff (or near-buff!) for the entertainment of millions of bored telly watchers or even a top American football player and his supermodel ex-wife, then maybe natural selection should just be able to run its course (incidentally, I think what Brady and Bundchen did was jail-worthy, but hey). The problem is that if you have too many of these people making ill-advised financial decisions, society ultimately has to pay – and it’s the taxpayers who will eventually have to foot the bill somehow. Prevention could very well prove to be cheaper than the cure!

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!

Car makers suffer apart from Tesla and Eli Lilly makes an Alzheimer’s breakthrough…

In a quick scoot around some of today’s other interesting stories, Tesla Outlines Plan to Create Largest Auto Factory in Germany (Wall Street Journal, William Boston) shows that Tesla has plans to double the size of German gigafactory which will help it to produce up to one million electric cars per year, making it the biggest auto-manufacturing plant in Germany! It just applied for permission to extend its current factory in Brandenburg so that it can increase its production capacity for vehicles and batteries. Tesla currently has partial approval but an environmental impact study has to be carried out before it can proceed any further. The gigafactory currently employs 10,000 workers, but if the extension went ahead, that number would rise to 22,500! This will be turning the screws on local rivals as per the following story…

Meanwhile, German car companies suffer heavy electric shock (The Times, Oliver Moody) shows that Germany’s three biggest car manufacturers – VW, BMW and Mercedes-Benz – have slashed their European production by almost 20% versus pre-Covid levels thanks to increased competition from Chinese competitors like Geely and Nio and falling demand for EVs in general. Legacy problems had been papered over by a backlog of orders due to widespread supply chain issues but the backlog has now been worked through, leaving not very much to get hopeful about! The figures came from analytics service MarkLines which feeds into the Handelsblatt newspaper.

Then in Ford Cuts Price of F-150 Lightning Electric Truck by Up to $10,000 (Wall Street Journal, Nora Eckert) we see that the blue oval cut prices on its popular F-150 Lightning by up to almost 17% on Monday as fat inventories and fierce competition force its hand. The company said that it was just passing on lower materials costs but surely this is a direct result of competition, no? The vehicle’s starting price has been cut by just shy of $10,000 to $49,995 with some iterations of the vehicle seeing bigger price cuts than others. Ford’s share price weakened by 5.9% on the news. * SO WHAT? * It’s a cut-throat business! When you consider that Tesla has a 60% market share in the US in EVs, according to Motor Intelligence, drastic measures are needed to stay in the game…

At the sports car end of the market, Lotus stuck in reverse after supply chain issues (The Times, James Hurley) shows that Lotus reported widening losses that it blamed on supply chain problems. It sold just 576 cars in 2022 versus 1,566 in the previous year. That said, 2022 saw the launch of the Emira, Evija and Eletre and the opening of a new production facility, so there is still hope!

There was some very exciting news in Eli Lilly drug shown to slow Alzheimer’s progression (Financial Times, Clive Cookson) as the pharmaceuticals company announced really promising phase 3 trial results for its new drug, Donanemab, which significantly delayed memory loss and cognitive decline! It has now been submitted for approval by the FDA and expects a decision before the end of the year. How amazing is this?!? Could this be the beginning of something truly wonderful?

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…

Gotta love this brilliantly executed magic trick! The look on the subject’s face is brilliant!