Wednesday 03/04/24

  1. In MACRO, ENERGY & BUSINESS TRENDS NEWS, inflation in Germany falls, EU gas storage hits new highs, the Bank of England’s forecasting gets an overhaul and UK manufacturing turns around
  2. In CAR NEWS, Tesla disappoints, Xiaomi still has room, used EV prices fall and car manufacturers face an uncomfortable scenario
  3. In RETAIL & LEISURE NEWS, Amazon pulls back on tech, Superdry goes terminal, Waitrose cuts prices again and shares in Revolution Bars get suspended
  4. In MISCELLANEOUS NEWS, Deloitte reverses the office trend, house prices and mortgage approvals rise, Home Depot goes shopping, BC Partners offloads and Microsoft sells Teams separately
  5. AND FINALLY, I thought I’d bring you some gym inspo…

1

MACRO, ENERGY & BUSINESS TRENDS NEWS

So German inflation weakens, EU gas levels look healthy, the BoE gets an overhaul and UK manufacturing has some good news…

Don’t miss our next news roundup for April, it’ll be on Monday 29th April at 5pm with Jake Schogger of the Commercial Law Academy. HERE’S THE LINK TO REGISTER! See you there!

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:

 

Fall in German inflation boosts hopes of ECB rate cut (Financial Times, Martin Arnold) cites the latest official figures which show that consumer prices in Germany rose by 2.3% in the year to March, down from 2.7% the previous month and below consensus forecasts of 2.4%. Although services prices rose over the period, they were eclipsed by falling energy prices, food costs and slower goods inflation. * SO WHAT? * This will put more pressure on the ECB to start cutting interest rates as the slowdown in price rises implies that the battle against inflation is being won, particularly as this latest figure comes after weaker-than-expected inflation readings in France, Italy and Spain last week.

Meanwhile, EU exits winter with gas storage at record levels (Financial Times, Shotaro Tani) cites data from Gas Infrastructure Europe which says that Europe has come out of the winter season with record levels of natural gas in storage – at 58.7% full – which puts the region in a good position over the summer where it tops up levels ahead of next winter. This has been helped by a mild winter across the region, strong imports of LNG, sluggish economic activity and a real push by the EU to reduce its use. It is possible that the EU could reach its target of reaching 90% capacity in early August – way sooner than the original target of November! Hopefully this will be good for energy bills somehow!

Then in Bank of England prepares for ‘once in a generation’ overhaul in forecasting (Financial Times, Sam Fleming) we see that our central bank is looking to overhaul the way it comes up with and communicates its forecasts for the economy after the current way it approaches this has proved to be pretty 💩. A growing number of BoE bods want to use projections of alternative scenarios along with a central forecast. A report on its forecasting, commissioned by the BoE from former Fed chief Ben Bernanke, is due to be published this month. * SO WHAT? * Bailey has been consistently useless not only in predicting what the economy will do, but also with the way he has communicated it to the markets. He’d better get it right after this Bernanke report and “overhaul” otherwise he will be toast (although it seems that the Bank of England, unlike any other employer, is reluctant to let someone go who is such a consistent underperformer). The “what if” scenarios described above aren’t exactly new – this is what pretty much all investment banking economists have been doing for years so although Bailey might big it up it really isn’t anything truly radical. The only thing I’d say about the offering of various potential scenarios in forecasting for the Bank of England is that doing things this way is often seen as an 🍑-covering exercise and could potentially muddy the waters, potentially diluting the Bank’s main message. If you have access to the full version of this article you should have a look at it as there are some really interesting charts at the bottom of it which show how other central banks express their forecasts! FWIW, I think that the officials should actually travel around more in the real world rather than sit around in their ivory towers. That way I think they’d get a real feel for the economy by keeping a constant dialogue with people in different industries.

Jump in domestic orders ends two-year UK manufacturing dip (The Guardian, Phillip Inman) heralded some much-needed good news for the manufacturing sector as the latest S&P PMI showed that a jump in domestic orders has propelled UK factories out of a slump and prompted output to hit a 20-month high! * SO WHAT? * This is particularly welcome news as factory owners have had a tough 2022 and 2023. However, it’s too early to crack open the Bolly just yet as the ongoing troubles in the Red Sea are likely to continue to be a drag on progress on export activity. The expectation now is that positive momentum will continue, however.

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

CAR NEWS

Tesla disappoints, Xiaomi has upside, used EV prices come down and car manufacturers face an uncomfortable scenario…

Tesla sales fall for first time in four years (The Times, Robert Miller) shows that Tesla unveiled its first quarterly drop in deliveries for the first time four years, falling short of Wall Street estimates. It blamed the phasing-in of an updated version of the Model 3 at its factory in Fremont, California as well as plant shutdowns caused by shipping disruption in the Red Sea and the arson attack that cut power to its German factory. * SO WHAT? * This isn’t great for Tesla and you do wonder whether it’s reached the limit of what price cuts can do for sales. There is one weird thing, though – this Times report (and the one in today’s FT) said that Tesla’s big Chinese rival BYD unveiled Q1 sales that had CRATERED by 43% versus the previous quarter. This all sounds a bit confusing considering that the report I referred to in yesterday’s Watson’s Daily had a much more positive tone regarding BYD! It SOUNDS like March sales were particularly strong after a weak first two months of the year – so maybe this is what the 43% cratering is referring to. If I get more clarity on this I’ll let you know!

Then in Xiaomi can still accelerate on its electric car launch (Financial Times, Lex) we see that the mobile-phone-company-turned-EV-maker looks like it could make a decent stab in its new arena as its cash reserves of over $15bn will make it easier to weather a price war than its more cash-strapped EV start-up and trad automaker competitors. It will also be helped by its brand recognition both in its domestic market and abroad in addition to its superior tech. Xiaomi is the world’s third biggest smartphone maker after Apple and Samsung with a global market share of 13% and pre-orders for its new EV reached 89,000 within the first 24 hours of its car going on sale. Not too shabby, eh?

Back home, Used EV prices fall 12pc amid flood of cheap Chinese rivals (Daily Telegraph, Christopher Jasper) cites research from the AA which shows that the value of second-hand EVs has crashed since the beginning of this year thanks to an influx of cheap new Chinese EVs. Chinese EV makers continue to push for greater market share while the EU faffs around thinking about how to respond to state subsidies doled out to Chinese manufacturers, which European carmakers and policymakers alike believe to be anti-competitive. The big worry for carmakers: what if the EV slowdown is not a blip? (Financial Times, Peter Campbell) is a really interesting discussion about whether the current weakness in EV sales is just a short-term thing or whether, in fact, consumers just aren’t going to buy because the cars are too expensive, the charging infrastructure is insufficient and the petrol/diesel deadline has been kicked into the long grass (2035). Interestingly, one former EV adviser to the UK government reckons that demand won’t actually increase appreciably until later this decade! * SO WHAT? * There have been times recently when I’ve wondered whether we’ve been sold a bit of a lie about EVs, their true eco-friendliness and whether the FOMO surrounding them has been overdone. I think that things are particularly tricky at the moment because we’re still in a cost-of-living crisis (although it seems that we might be out of the worst of it), the cars are more expensive than their petrol equivalents, the charger infrastructure still isn’t up to scratch and we’re about to be flooded with cheap Chinese EVs. The question is, when economies turn around, are buyers going to opt for an EV as their next “main” vehicle? It seems to me that there are fewer and fewer reasons to respond to that urgency meaning that used prices will get even weaker, which will perpetuate the downward spiral overall. I think that hybrids will continue to do well as will makers with at least some exposure to trad cars. I like the idea of EVs and some of them look pretty appealing – however, I still think that my next car is going to be a petrol one!

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

RETAIL & LEISURE NEWS

Amazon pulls back on some tech, Superdry edges closer to the abyss, Waitrose cuts prices again and share trading in Revolution Bars gets suspended…

Amazon to Remove ‘Just Walk Out’ Checkout Technology at U.S. Grocery Stores (Wall Street Journal, Talal Ansari) shows that the e-tailing giant has decided to make decisive moves on the tech it introduced a few years ago that wowed everyone at its Amazon Fresh stores where you picked items of the shelves and walked out of the shop with it having paid by magic (well, via an app on your phone – although “magic” is what it felt like!). Amazon Fresh stores in the US will now instead use Dash Carts which allow customers to use their carts to scan items while they shop, meaning that no cashiers are needed. * SO WHAT? * After years of some retailers trying their best to do away with manned checkouts, we’ve seen a return of the humans and it seems that even Amazon is reining in its new tech. The “Just Walk Out” tech will, however, still be used in Amazon Go locations and some Amazon Fresh stores in the UK. TBH, although this tech is clearly impressive, I’ve always been a bit sceptical about it as I believe that it is overkill and perhaps tech for tech’s sake as opposed to it providing any real cost savings. Is this Amazon admitting that??

Back home, Superdry shares fall after CEO rules out making takeover offer (The Guardian, Jack Simpson and Sarah Butler) shows that even co-founder Julian Dunkerton doesn’t want to buy his own company – something that sent its share price down by more than half in trading yesterday. Dunkerton still has a 20%

stake in the company. * SO WHAT? * Surely Dunkerton’s not going to walk away from this – but if the guy that founded the company and the one who’s tried his best to get it back on track since 2019 when he kicked out the disastrous previous CEO Euan Sutherland (who seems to have the exact opposite of the Midas Touch) isn’t interested in buying it, things must be BAAAAD. There’s probably no-one else who knows it better! I would have thought there will be some kind of clever deal where Dunkerton gets to hang on to a piece of the business whilst also hanging out other shareholders to (super)dry. This is a sad development for a company that was once seen as a British success story! The drama continues…

Then in Waitrose cuts prices for second time in two months (Daily Telegraph, Hannah Boland) we see that the supermarket has decided to cut prices in its stores in quick succession as it tries to wrest shoppers away from arch-rival M&S. It’s lowering prices of over 200 items by an average of 7%. It last cut prices as recently as February! M&S is currently the UK’s fastest growing grocer, according to the latest NIQ figures for the quarter – so Waitrose had to do something!

In leisure news, Revolution Bars suspends share trading (Daily Telegraph, Daniel Woolfson) shows that the bar and club operator is in deep doo-doo as its shares were suspended on AIM following its failure to publish financial results. The company claims to be “actively exploring all the strategic options”.  Ouch. The company, like other rivals in the space, has been hit by a perfect storm of cost increases (wages, food and drink) and Gen-Zs drinking less and going home earlier than previous generations.

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

Deloitte bucks the trend, house prices and mortgage approvals rise, Home Depot goes shopping, BC Partners offloads successfully and Microsoft sells Teams separately…

In a quick scoot around some of today’s other interesting stories, Deloitte reverses Covid cuts by expanding office space in London (Financial Times, Simon Foy) shows that the Big Four accountant is bucking the trend and has announced that it will be taking on extra office space in central London just two years after it made cutbacks! It seems that people are returning to the office in increasing numbers! In residential property news, House prices rise for second month in a row (The Times, Martin Strydom) cites the latest Nationwide figures which shows that house prices showed their strongest year-on-year growth since December 2022 although March house prices fell slightly, surprising the market. Economists still reckon that house prices will go much higher by the end of this year, though. Mortgage lenders’ price war triggers jump in approvals (Daily Telegraph, Szu Ping Chan and Chris Price) cites the latest Bank of England data which shows that mortgage approvals have hit their highest level since September 2022 thanks to the expectation of interest rate cuts and falling mortgage rates. Optimism in the UK residential property market continues to gain momentum it seems…

In M&A news, Home Depot has bet $18bn on US housing market paralysis (Financial Times, Lex) highlights America’s biggest DIY retailer’s purchase of speciality building products supplier SRS Distribution as being, on the one hand, a good move that will expand its reach among contractors and builders but, on the other, it reflects pessimism about the prospects for the broader housing

market. Home Depot, much like B&Q in the UK, is often seen as a proxy for the housing market and right now the market seems to be stagnant. Getting more exposure to pros may be a good move as they visit stores more often and tend to spend more than traditional home DIY-ers.

Then in BC Partners sells IT group Presidio in sign of thaw for private equity deals (Financial Times, Will Louch) we see that US investment firm Clayton, Dubilier & Rice has agreed to buy IT business Presidio from UK rival BC Partners. There is debate here as to whether this is the start of more portfolio reshuffling among PE firms as M&A activity seems to be coming back to life! * SO WHAT? * In the last few years, PE firms in particular shipped in cheap money when interest rates were low and hoovered up reasonably priced assets that had been hit by Covid. This resulted in a lot of them becoming mini-conglomerates with all sorts of random assets that were bought for their valuation rather than any overarching strategic reasons. With borrowing becoming more expensive, PE firms are looking to offload and it seems that now may be a good time for a bit of reshuffling and perhaps a streamlining of portfolios…

Then in Microsoft to sell Teams separately from its Office software (The Times, James Hurley) we see that Microsoft will now sell Teams separately following pressure from competition regulators. It already separated out Teams and Office six months ago to avoid a fine from the European Commission, but it is now going to roll this out worldwide. * SO WHAT? * This comes four years after Slack and other rivals complained that offering this service “for free” was anti-competitive. AT LAST! This just feeds into the overall trend of regulators cracking down on Big Tech. I expect to see more of this kind of thing from now on…

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…

I’ve not tried this because it looks very difficult but it is pretty amazing to watch! It looks like it could be pretty painful though if you do it incorrectly!

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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)