Wednesday 02/08/23

1. In BIG PICTURE NEWS, Saudi finances get tricky, UK industry gets gloomy and UK house prices drop dramatically while more lenders cut mortgage rates
2. In FOOD & DRINK NEWS, Greggs wants to expand, Starbucks does well in China, Diageo puts in a decent performance and Molson Coors reports record sales
3. In TECH NEWS, Meta wants to give us AI personas and more targeted ads while Panasonic bids farewell to LCD screens
4. In INDIVIDUAL COMPANY NEWS, Uber gets out of the red, BP’s profits fall, BMW gets dinged, Pfizer shifts towards cost cuts and Man Group has a shocker
5. AND FINALLY, I show you how to speak Yorkshire, bah goom…

So even the Saudis are affected by borrowing costs, UK industry braces for recession, UK house prices drop and mortgage rates come down…

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:

Blow for Saudi Crown Prince as borrowing costs hit record (Daily Telegraph, Melissa Lawford) shows that there’s a cloud over plans to transform Saudi Arabia’s economy in the form of booming banks borrowing costs. The Crown Prince is ploughing tons of money into all sorts of projects including the $500bn Neom region. While oil revenues fund such projects, there is also a certain amount of foreign investment and borrowing – and rising interest rates have become very painful. The three-month Saudi Arabian Interbank Offered Rate (aka “Saibor”), which is used to reflect the interest rates banks charge each other for short-term loans has gone from less than 1% 18 months ago to over 6% this week. Saudi Arabia’s riyal is pegged to the dollar which means that the Saudi Central Bank has to track the Fed’s interest rate decisions despite inflation there being way lower than it is in the US. * SO WHAT? * The IMF’s World Economic Outlook report published last week reflected forecasts for GDP growth in biggest economy in the Middle East to go from 8.7% in 2022 to just 1.9% in 2023! This was the biggest downgrade of any major economy in the report. FWIW I find it hard

to believe that Saudi Arabia is REALLY going to be too troubled by all of this because even if they are having a hard time financing, I think that there will be many other countries (particularly China) who would be more than happy to step in given the Crown Prince’s ambitions and the attraction of being able to play a part of its incredible growth story.

Meanwhile, Industry braced for recession as rates soar (Daily Telegraph, Tim Wallace) cites the findings of the latest S&P Global survey which shows that manufacturing activity fell in July at the steepest rate so far this year. * SO WHAT? * Although it seems that interest rate rises are now showing signs of slowing inflation down, fears are increasing that the same forces will lead to a recession.

Then in Fastest fall in house prices for 14 years with ‘tougher times ahead’ (Daily Telegraph, Simon Foy and Tom Haynes) we see that house prices have dropped sharply, according to Nationwide’s latest house price index. It said that annual house price growth dropped by 3.8% in July, a level that hasn’t been seen since 2009! Then in Three large UK lenders cut mortgage rates as inflation outlook improves (Financial Times, Siddharth Venkataramakrishnan) we see that NatWest, Halifax and Virgin Money are the latest lenders to cut their mortgage rates to attract business. Metro Bank’s chief exec Dan Frumkin made a very interesting point when he said that despite expectations that the Bank of England would be raising interest rates at this Thursday’s meeting he didn’t expect mortgage costs to react too much because they rely on swap rates. Swap rates are based on the market’s expectations regarding inflation – and the market expects them to go up by at least 0.25%. Being a buyer in this market is still fraught with all sorts of potential difficulties!

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!

Greggs outlines ambitions, Starbucks does well in China, Diageo toasts success and Molson Coors posts record sales…

Greggs to open more shops in airports and stations as pizzas lift sales (The Guardian, Charmaine Wong and Sarah Butler) shows that Greggs has plans to expand after unveiling higher sales which were powered by its evening pizza deals! Extended opening hours and new food ranges have proved to be a real hit with customers. Sales increased by a healthy 16% despite the company putting through price rises and pre-tax profits shot up by a chunky 41% for the first half of the year. The company wants to continue the momentum and announced plans to roll out 100 new outlets over the next six months, including its first ever 24-hour drive-through outlet. * SO WHAT? * Greggs could well be in a sweet spot as the cost-of-living crisis continues and I think that once people get the Greggs habit, it’s something that’s likely to stick even when the economy improves IMO.

Then in Starbucks’ cup is half empty in China (The Times, Callum Jones) we see that sales at Starbucks actually fell short of Wall Street expectations over Q3 because of its sluggish performance in the US. The massive 46% jump in comparable store sales in China took the edge off but was not enough to eclipse Starbucks’

domestic performance. Fun facts alert: the world’s biggest coffee chain has 37,222 cafes in over 80 markets – but 61% of them are in the US and China!

Then in booze news, Diageo lifted as drinkers raise a more expensive glass (Daily Telegraph) shows that the beverages giant posted a respectable 10% jump in sales and 7% rise in pre-tax profits whilst simultaneously passing on price rises to customers. It sounded cautiously positive about the outlook and said that it would be concentrating on revenue growth. Meanwhile, Molson Coors capitalises on Bud Light backlash with record sales (Financial Times, Steff Chávez) reflects record quarterly sales which gave it enough confidence to upgrade its full year numbers as it benefitted from a controversial ad campaign for Bud Light that backfired badly. Other brewers, including Molson Coors, benefitted by taking market share from the brand owned by AB InBev. Like Diageo, Molson Coors appeared to be able to pass on higher costs to customers without much resistance – which was not the case with Heineken. * SO WHAT? * Maybe Heineken is just an outlier, but it seems to me that consumers have generally been OK with price rises. That said, the fact that one of them (Heineken) has been having problems may mean that the cracks are starting to show and that this could be the beginning of the end for the good times…

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!

Meta offers funky chatbots and Panasonic ditches a boring business…

Meta prepares chatbots with personas to try to retain users (Financial Times, Hannah Murphy and Cristina Criddle) is an interesting article which shows that Facebook’s owner Meta is about to launch an array of AI-powered chatbots that have different personalities (or “persona”) as soon as next month. Prototypes capable of having humanlike discussions have been tested out and it looks like there’s one that emulates Abraham Lincoln and another that talks to you in the manner of a surfer! * SO WHAT? * The idea of this is to provide a bit of fun for users, offer better search functions and improve engagement – which will then no doubt help to attract advertisers! Whilst improving engagement, it will be able to gather even more information about users which could further help advert targeting. Talking of ads, Meta Offers to Seek Consent for Highly Personalized Ads in Europe (Wall Street Journal, Sam Schechner) shows that the social media giant has suggested that it asks all users in Europe to decide whether they want to see ads based on their interactions with its apps in a bid to satisfy regulators. If THIS goes ahead, the hit to ad revenue could be BIG –

look at what happened to the digital ad market when Apple decided to change its privacy settings when people had the choice to opt IN as a default rather than having to opt OUT. This could take the shine off recent results which showed a rebound in ad revenues this year, but not just yet.

Elsewhere, Panasonic: TV finale clears way for happier sequel in electric car batteries (Financial Times, Lex) heralds the end of an era in that the Japanese company is going to liquidate its LCD panel subsidiary after being a drag on performance since 2011. It made LCDs for automotive and industrial use but the factories will now be used to churn out EV batteries. * SO WHAT? * To cut a long story short, flatscreen LCD TVs used to be hot products that were sold at a premium. The problem was that they got commoditised and razor-thin margins made them much less attractive to make. The danger is that EV batteries could potentially go the same way, so in order to take advantage of the EV trend, Panasonic will need to act fast in order to catch up to China’s dominant CATL.

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!

Uber makes money (at last!), BP disappoints, BMW has a hard time, Pfizer looks to cut costs and Man Group has a shocker…

In a quick scoot around some of today’s other interesting stories, Uber finally rides out of the red (The Times, Callum Jones) shows that the company just announced its first ever quarterly operating profit as it has emerged triumphant from the nightmare of the pandemic. It started in 2009 and listed in 2019 during which time it expanded from ride-hailing to food delivery and freight but Uber: steeper driver charges are only a short-term fix (Financial Times, Lex) warns that the ongoing tightness in labour markets and driver disgruntlement at rising “take rates” from the company may mean that Uber loses drivers – and if that happens, more people will be left without rides and that will hit company finances. This is a positive development for the company – but there are still potential for banana skins along the way yet…

BP Profit Declines More Steeply Than Peers’ as Lower Oil and Gas Prices Bite (Wall Street Journal, Jenny Strasburg and Mari Novik) shows that the oil giant unveiled a 70% fall in profits over Q2 versus the same period a year ago as it was hit by falling commodity prices and weaker refining margins. * SO WHAT? * This performance was actually worse than the 50% falls we saw recently with Exxon Mobil, Shell and Chevron and it seems that the company has appeared to want to compensate for this for its shareholders by upping its dividend and continuing with its share buy back. No wonder it’s de-prioritising its green ambitions – or maybe the company is intentionally making things look bad to get the green critics and government off its back??

Elsewhere, BMW hit by rising production costs (Daily Telegraph, Howard Mustoe) highlights BMW’s warning to investors that

production costs for its EVs are higher than expected and that its profit margin for the latest quarter has suffered. This statement was made ahead of the company’s earnings announcement scheduled for tomorrow. * SO WHAT? * Companies sometimes do this sort of thing to soften the blow and give flighty investors time to absorb the information. They will no doubt be asking questions tomorrow about how the company plans to improve its finances! Rivals in this segment are also feeling the pinch as Mercedes-Benz recently indicated that demand for its top-end models was showing signs of waning and Bentley also said last week that its sales had slipped in the first half of the year.

Pfizer has plans to cut costs as Covid treatments tumble (The Times, Callum Jones) shows that revenues at the pharmaceuticals company more than halved over the quarter thanks to a sharp drop in demand for its Covid vaccines. It is expected that revenues will recover once government supply contracts expire and it can sell the treatments commercially. That said, the company stated that if things don’t recover, it will embark on a broad-based cost-cutting programme. How things change eh??

Then in Man Group shares tumble as performance fees and profits collapse (Financial Times, Costas Mourselas) we see that the share price of the world’s biggest listed hedge fund manager fell by 7.4% after it admitted that performance fees and profits fell sharply. * SO WHAT? * The jury’s out on whether this is a suitable investment for many as its performance can be very volatile but the company reiterated its commitment to growing its credit offering after buying credit fund specialist Varagon last month, saying that it was open to more acquisitions in this area. It continues to aim to be a one-stop investment shop for clients by providing a broad offering comprised of long-only managers, equity hedge funds, quant hedge funds and private credit.

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…

My dad was from Yorkshire – and I was born there (ostensibly because my dad said that this would have, at the time, qualified me to play cricket for Yorkshire). When my mum (who is Japanese) came with him to the UK, her English wasn’t that great and she remains the only person I know to have watched episodes of Coronation Street to improve her English comprehension 🤣 (and yes, I know that the long-running soap is set in Manchester, but from her point of view the accents were similar enough!). Anyway, if you ever find yourself oop north, this might help you: Guide to Yorkshire’s unusual sayings and slang that other Brits won’t understand (The Mirror, Nia Dalton). This is quite good, but I think that THIS GUIDE is actually better. Ta ra 👋!