Wednesday 05/07/23

1. In MACRO & CRYPTO NEWS, UK inflation continues to rise, we look at why rising interest rates aren’t working, Sunak drops the UK’s climate pledge, the UAE aims to triple renewables and Binance has a tricky time in Europe
2. In TECH NEWS, the US looks at more China restrictions – this time for cloud computing – as the chip sector panics about China’s export curbs, India is pushing back on labour law changes and Meta’s Facebook faces a setback regarding personal data usage
3. In CONSUMER, RETAIL & LEISURE-RELATED NEWS, the average rate on a five-year fixed breaches 6%, Sainsbury’s says food price inflation is slowing, Naked Wines delays, Accor looks decent, Center Parcs loses a bidder and airlines continue to soar
4. In MISCELLANEOUS NEWS, Toyota makes a massive breakthrough in solid-state and equity fund withdrawals hit record highs
5. AND FINALLY, I bring you something you never knew about SPAM…

So we “win” at inflation, abandon our climate pledge as the UAE triples down on renewables and Binance struggles…

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:

Somewhat disappointingly, Britain is the only G7 country where inflation is still rising (The Times, Patrick Hosking) cites the findings of the latest OECD report which also shows that out of the 38 members only the Netherlands and Norway – in addition to ourselves – saw inflation rise! Why are interest rate rises not taming inflation? (Financial Times, Chris Giles, Valentina Romei and Alan Smith) says that moves in interest rates don’t fully filter down to the real economy for around 18 months (although they do actually have some effect much sooner than that) and that more economies are shifting from manufacturing to services. As services need less capital, it could mean that monetary policy shifts take longer to have an effect. Apart from that, the article focuses on three main reasons as to why the rises aren’t having as much effect as quickly as one would have hoped. Firstly, housing trends have changed in terms of ownership and how they are paid for. In the 1990s, the share of households owning a property with a mortgage was 40% – but that is now less than 30%. In terms of how they are paid for, fixed rate mortgages are now more prevalent than floating ones, meaning that many are insulated from interest rate fluctuations (that’s the whole idea!), which means that changes see a more delayed effect than they did in the past. When you consider that 70% of mortgage holders in 2011 were on floating rates, whereas now that figure is just above 10%, you can see why interest rate changes take longer to filter through! Secondly, the job market is tight because there are still labour shortages in many areas, particularly in the services sector. This means that wages are rising, which adds to inflation as people buy

more. Thirdly, interest rate rises started too late which means that the “normalised” level of inflation could be higher on a more permanent basis because pushing it back to the 2% target would necessitate massive tightening that could lead to recessions (and that is already the case with Germany).

Meanwhile, in environmental news, Revealed: UK plans to drop flagship £11.6bn climate pledge (The Guardian, Helena Horton and Patrick Greenfield) shows that the government is apparently gearing up to discard the climate and nature funding pledge made in 2019 given macroeconomic and geopolitical challenges. Clearly this isn’t popular, but then on the other hand UAE to triple supply of renewable energy to meet demand (Daily Telegraph) shows that the UAE will be investing up to £42bn over the next seven years to satisfy growing demand in an updated national energy strategy. Somewhat amazingly, when you consider that it’s an oil producing country, it says that it will be carbon-neutral by 2050.

Then in Crypto Giant Binance Struggles in Europe (Wall Street Journal, Patricia Kowsmann) we see that Binance has had a major nightmare in trying to expand in Europe as the Netherlands and Belgium have shunned it, France is investigating it for money laundering and Germany is dragging its feet on granting it a licence. Research firm Kaiko says that the company’s share of euro-denominated crypto trading has dropped from the 30% it was at in January to 15%, its current level. Also, CCData stats say that Binance’s global market share for spot trading has fallen from a peak of 57% in February to 42% last month. * SO WHAT? * Crypto platforms have had a rough ride since the FTX debacle and most regulators seem to be keen to stick the boot in. Given the European regulators’ distinct lack of enthusiasm to entertain them, Binance is having to rely more on markets in Asia, Africa and Latin America while user traffic in Vietnam, Turkey, India and Argentina is particularly high. The platform is currently engaged in meeting the requirements of new EU legislation, called MiCA, because it will fast-track progress as it allows access to all members once one member state approves (with the caveat that individual states still have the right to ban it if they feel there is a risk to users). Binance’s struggles continue…

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!

The US wants to limit China further, China’s latest response causes panic, India pushes back on labour law changes and Facebook takes a hit…

U.S. Looks to Restrict China’s Access to Cloud Computing to Protect Advanced Technology (Wall Street Journal, Yuka Hayashi and John D. McKinnon) shows that the Biden administration is looking at restricting China further by limiting access for Chinese companies to US cloud-computing services. Practically speaking, this would necessitate cloud providers such as Amazon and Microsoft having to get permission prior to providing cloud-computing services that use advanced AI chips to Chinese customers. This is meant to close a major loophole where Chinese AI companies can bypass current controls by using such cloud services because it enables them to access powerful computing capabilities without having to buy expensive equipment themselves. Further to yesterday’s news that China slapped export restrictions on two key minerals used in the production of advanced semiconductors, China’s curb on metal exports reverberates across chip sector (Financial Times) highlights immediate panic from the chip industry as South Korea’s commerce ministry called an emergency meeting to discuss the impact while Japanese trade minister Yasutoshi Nishimura said that his team were also considering what the impact might be. In the short term, price increases are likely (presumably as companies try to stockpile in advance of any further action), but longer term this will act as a massive incentive for the likes of Taiwan, South Korea and Japan to reduce their reliance on China’s materials (much in the same way that everyone’s now trying to wean themselves off Russian gas and energy). All of this will no doubt give US Treasury secretary Janet Yellen a lot to talk about on her

visit to Beijing this Thursday (if it still goes ahead!). * SO WHAT? * This is a nightmare for all concerned – particularly as AI is really taking off and is hungry for chips! I think that this is potentially a lose-lose situation here because if Biden doesn’t back down the likes of Microsoft, Amazon and Nvidia (and many others!) will get badly dented in their earnings power but if he does, he’ll look like he’s weak, which isn’t a good look for the presidential elections next year. I really think that there is going to have to be a workaround here given how vital these chips are to technological development.

Then in Backlash over labour reforms tests India’s manufacturing ambitions (Financial Times, John Reed) we see that the tide may be turning in India as recently amended laws to increase the length of working shifts from eight hours to 12 hours promoted by the likes of Foxconn and Apple are facing increasing resistance. * SO WHAT? * Supporters of the changes say that it will allow for two-shift production and make it easier for women to work at night. The Indian government has been keen to push the country as an emerging manufacturing hub that can be a real alternative to China but trade unions and opposition parties are resisting and this could make progress in the country much slower than had been expected.

Meta’s Facebook Faces Fresh Threat to Sending Personalized Ads in EU (Wall Street Journal, Sam Schechner and Nuha Dolby) highlights a major issue for Facebook as the EU’s Court of Justice ruled that the platform must get user consent before sending personalised ads in certain cases. This goes to the core of Facebook’s advertising model where it sends personalised ads to users based on their online activity and makes a lot of money from it! * SO WHAT? * At the moment, this ruling would only apply in the EU but others could use this as a precedent – and that could spread.

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!

Consumers face more mortgage hikes, food inflation slows, Naked Wines delays, Accor does OK, Center Parcs loses a bidder and airlines prosper…

Consumers continue to have a rough ride – and now Average rate on five-year fixed mortgage deal in UK climbs above 6% (The Guardian, Zoe Wood and Ben Quinn) marks a new high, according to Moneyfacts. The average two-year deal only recently breached 6% as well. This will just squeeze household spending power even more for existing mortgage holders when mortgages come up for renewal – and for new buyers. Still, it’s not all bad as Food inflation starting to fall, says Sainsbury’s as sales rise (The Guardian, Sarah Butler and Julia Kollewe) highlights the latest supermarket to say that food inflation is losing momentum although it reckons that prices will remain at elevated levels until at least the end of the year. Although it has been, like others, cutting prices on basic items, Nectar: cost crisis helps J Sainsbury hive off more data (Financial Times, Lex) shows that it’s been able to use its loyalty card scheme to offer more targeted benefits to shoppers than just across-the-board low prices, which is what the likes of Aldi and Lidl do. The good news for Sainsbury’s is that personalised benefits to shoppers make it harder to make direct price comparisons.

Elsewhere, Naked Wines delays publication of accounts as it posts sales slide (Daily Telegraph, Daniel Woolfson) highlights poor sales over the latest quarter and a delay in publishing its accounts. It also kicked out its current chairman after just nine months and drafted in co-founder and ex-chief exec Rowan Gormley to replace him – all of which helped send the share price 10% weaker. Subscribers are just abandoning…

Then in hotels/leisure news, Accor: post-Covid uplift gives Ibis a chance to soar (Financial Times, Lex) we see that while hotel groups are, in general, benefiting from a bit of a boom at the moment thanks to rising levels of leisure and business travel, Accor (which owns “affordable” brands including Novotel and Ibis) trades below its peer group – many of whom are talking about expanding their respective footprints – and is at a discount to one of its pre-Covid valuation multiples. * SO WHAT? * Although hotel chains are benefiting from the post-pandemic return to travel, I have said before that I believe companies that are more exposed to the “reasonably priced” element of holidaying should be more robust over the mid-term at least. Accor may have decent enough staying power if leisure travel loses momentum next year when household budgets are weakened further thanks to mortgage rate rises.

Favourites quit Center Parcs race (The Times, Tom Howard) shows that the proposed sale of Center Parks is looking a bit tricky as a number of bidders have taken themselves out of the running because private equity firms have been getting a bit more picky about the deals they do. CVC and Blackstone, two frontrunners to buy the posh chain of holiday villages, have pulled out, as have Aermont. Antin, GIC (Singapore’s sovereign wealth fund) and KSL Partners remain in the running. At the end of the day, current owners Brookfield Property Partners don’t have to sell up, but I guess they just felt like crystallising the value. The process continues…

Then in Airlines soar on pent-up demand (The Times, Robert Lea) we see that there’s more good news for airlines as Ryanair said it carried a record amount of passengers last month and that its planes are flying 95% full despite passengers paying 30% more for their tickets on average than they did pre-Covid. Wizz Air is also doing really well with passenger volumes up by 22% on last year as they fly at 92% capacity. The Great Holiday Bonanza continues!

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!

Toyota makes a massive solid-state breakthrough and equity fund withdrawals reach record levels…

In a quick scoot around some of today’s other interesting stories, Toyota says solid-state battery breakthrough can halve cost and size (Financial Times, Kana Inagaki) shows that Toyota has made a massive technological breakthrough in solid-state battery technology which means that the price, size and weight of batteries could halve! This is huge because although solid-state batteries are not new, making them commercially viable is. They are way more stable (and less likely to catch fire) and take less time to charge than current lithium ion batteries. Toyota now reckons it could mass-produce solid-state batteries for EVs by 2027 or 2028. * SO WHAT? * This is amazing. It has been something that car and battery makers have been seeing as the Holy Grail, so to get this news now is significant. If they are willing to supply other makers with these batteries I bet they could make a killing…

Then in Withdrawals from equity funds climb to new high (The Times, Emma Powell) we see that data from Calastone, the global funds network, shows that withdrawals reached their highest levels since last year’s disastrous Mini-Budget while ESG fund withdrawals accelerated, giving them their worst month on record. * SO WHAT? * The problem is that if you get too many withdrawals they can make markets go even weaker as funds are forced to sell shareholdings to fund the withdrawals. Markets just seem pretty risky at the moment what with the uncertain economic backdrop.

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 must say that I am not a fan of SPAM (if you are, then maybe the annual Spamarama festival held in Austin, Texas is the event for you with Spam cook-offs, Spam themed competition and live music! It was held last year, but not sure whether it’s going to happen this year. If not, what about the Waikiki Spam Jam here) but, after reading this article I learned something new: People only just learning what SPAM actually stands for after 86 years (The Mirror, Paige Freshwater). Hmmm. It ain’t going to change the taste, though!