Wednesday 07/02/24

  1. In MACRO, MARKETS & OIL NEWS, China’s stock market has a bump up, Brussels concedes to the farmers and BP sees its profits halve
  2. In TECH, MEDIA & TELECOMS NEWS, TSMC invests in Japan, China ups the ante on advanced chips, Spotify posts a loss and Snap misses its revenue targets while ESPN, Fox and Warner get together for sports streaming as ad agencies evolve and KDDI takes control of Lawson
  3. In REAL ESTATE-RELATED NEWS, Neumann wants to return to WeWork, a Canary Wharf office takes a massive valuation hit, construction sector confidence rises and the UK gets Dutch-style mortgages
  4. In MISCELLANEOUS NEWS, we look at the latest developments in the automotive and banking sectors as M&S outpaces Aldi, Pret gives up on veggies and the Woodside/Santos would-be merger collapses
  5. AND FINALLY, I bring you an amusing husband/wife scenario…

1

MACRO, MARKETS & OIL NEWS

So China gets a bump, Brussels bows to the farmers and BP’s profits halve…

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:

 

China stock market jumps as Xi mulls state support (Daily Telegraph, Adam Mawardi) shows that the benchmark Shanghai Composite got a 3.2% bump in trading yesterday – its biggest one-day gain since March 2022 – on hopes that President Xi could provide emergency support for the stock market, which hit a five-year low last month. * SO WHAT? * So far, Beijing has taken a piecemeal approach to giving the country a proper boost and every time there is a whiff of something vaguely positive everyone gets excited. Last week’s restriction of short-sellers was just the latest half-hearted move by the administration to do something meaningful although the China Securities Regulatory Commission was clearly in a feisty mood when it said that malicious short-sellers would “lose their shirts and rot in jail”. Nice. If you add up the measures they’ve already taken (China’s sovereign wealth fund buying ETFs and bank shares and the £81bn cash injection from the People’s Bank of China into the banking system) they are not insignificant – but I think that the problem is that they have just

trickled out when really I would argue that they would have had more impact if they’d been announced together or as part of a raft of measures. If Xi could just repackage existing measures and sprinkle in some new ones to make it all seem fresh I would have thought that could really help the Chinese economy.

Meanwhile, Brussels bows to farmers’ protests by slashing environmental targets (Financial Times, Alice Hancock and Andy Bounds) shows that Brussels has decided to scale back a number of environmental targets following major protests by farmers, including things like the halving of pesticide use and cutting greenhouse gas emissions by 90% by 2040. * SO WHAT? * EU president Ursula Von der Leyen is hoping to keep her job in the upcoming EU elections this summer and she needs farmers’ votes! In recent weeks, farmers have been protesting in countries including Germany, France, Spain, Belgium, Poland and Romania and the concerns have been that they will switch their votes to far-right parties in June.

Then in further evidence of the reining in of environmental targets, BP CEO calls for pragmatism on green aims as profits halve (The Guardian, Jillian Ambrose) we see that BP’s new chief exec, Murray Auchincloss, said that he could stick to previously-agreed environmental targets (for it to be a net zero carbon energy company by 2050) but that it “move at the pace society demands”. The company committed to returning vast sums of cash to shareholders, but was criticised for doing so by campaigners who said that such “excessive” payouts would be better deployed in green initiatives. Although profits halved, the results came in better than expected .

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

TECH, MEDIA & TELECOMS NEWS

TSMC lifts Japan investment, China gets better at chips, Spotify user numbers rise, Snap falls short, ESPN/Fox/Warner get together, ad agencies face a process of evolution and KDDI wants to control Lawson…

TSMC Lifts Chip Investment in Japan Above $20 Billion (Wall Street Journal, Peter Landers and Jang Jie) highlights the company’s latest move to minimise geopolitical risks as it announced yesterday that it would add a second chip factory in southern Japan, raising its investment there to over $20bn. TSMC has already committed to spend around $40bn on two plants in Arizona whilst making a significant investment in Germany. * SO WHAT? * At the moment, TSMC’s current production capacity is concentrated in Taiwan, which will leave it – and the world – very vulnerable if China decided to invade it. TSMC’s first chip-making plant (aka a “fab”) is almost finished and is due to commence operations this year. Japan used to be at the forefront of chip manufacturing but has fallen behind in recent years.

Meanwhile, China on cusp of next-generation chip production despite US curbs (Financial Times, Qianer Liu) shows that China’s biggest semiconductor-maker, SMIC, now has new chip production lines in Shanghai to mass-produce chips designed by Huawei. Some experts reckon that the two could come up with next-gen smartphone processors as early as this year. * SO WHAT? * OK, so these chips have cost more than, say, the equivalent from TSMC and SMIC’s yield – the number of chips deemed to be good enough to deliver to customers – is less than one-third that of TSMC, but this is progress despite best efforts to stop the Chinese from getting their hands on advanced tech. The Chinese will get there eventually! Just look at what happened with cars, as an example…

Then in Spotify records a loss despite number of users topping 600m (The Times, James Hurley) we see that the streamer posted an operating loss of €75m in Q4 last year despite the number of monthly active users and subscribers being ahead of target (up by 23%!). Spotify fell into loss thanks to costs associated with laying off about 17% of its global workforce and those pertaining to its push into audiobooks.

Meanwhile, Snap’s missed revenue target takes bite out of share price (The Times) shows that the photo-messaging app fell short of market expectations in its quarterly revenues due to intense competition and pickier spending by advertisers who preferred to go with its bigger rivals such as Meta and Alphabet. Investors sent Snap’s share price down by a whopping 29% on the news. This came after Monday’s announcement that it would cut its headcount by 10% in order to invest in the company’s growth. * SO WHAT? * I keep saying it but this company is a one-trick pony. It is always going to have trouble clawing any kind of market share away from the behemoths that are in its playpen. I think it needs to find some kind of newer functionality sooner rather than later if it is to remain relevant – either that or get bought by another company.

In media news, ESPN, Fox and Warner Team Up to Create Sports Streaming Platform (Wall Street Journal, Joe Flint and Isabella Simonetti) shows that these three major players are joining forces to create a one-stop-shop sports streaming service that will have content from all major leagues in a deal that will transform the whole landscape of sports and media! The new service (not yet

named, but referred to by some as “raptor”) will comprise of  content that covers about 55% of US sports rights! Subscribers of streaming services of the companies – including Disney+, Hulu and Max – will be able to subscribe to the new service as part of a bundle. * SO WHAT? * This is a major development as sports content is used to hold traditional cable TV bundles together – where 💩 content is bundled together with expensive content (like films and sports) to provide a cheaper overall package. That has been unravelling over the last few years and now the media companies have decided the time is right to bundle all their good stuff (in sports) together for their collective benefit (and, presumably, future bargaining power with the individual leagues!). Overall I would have thought that this will be beneficial to consumers and these media companies but potentially less good for the individual sports leagues because “raptor” would arguably have more bargaining power.

Staying with sports for a moment, Super Bowl expected to be biggest sports betting event in US history (The Guardian, Callum Jones) shows that the upcoming Super Bowl is expected to bring in a record $23.1bn in gambling revenues from 67.8m Americans! Super Bowl LVIII is expected be the biggest sports betting event in US history and almost 43m people say that they are going to gamble online, at a retail sportsbook or with a bookie, according to a survey by the American Gaming Association. This will be a whopping 41% more than there were for last year’s event! * SO WHAT? * I talked last week about UK gambling company Flutter deciding to list in New York as more of its business is there as sports betting is growing at a rapid pace. Sports betting had been banned for many decades in the US until a supreme court ruling in 2018 struck this law down. Sports betting is now legal in 38 states and attracts billions of dollars! This is great for companies like Flutter and Entain – but there may come a time when there is another clampdown. I suspect that they will try to make as much money as possible before any restrictions are imposed in the meantime!

I thought that Advertising agencies should survive AI-driven disruption (Financial Times, Lex) was a really good read as there’s a lot of chat at the moment about what sorts of jobs are going to get wiped out by AI. The ad industry is one industry which is expected to be hugely impacted by AI, particularly as AI tools can be used by companies to make campaigns in-house. High margin media planning and buying work could also be heavily affected as ad agencies are bypassed. On the flipside, clients will value ad agency input more highly and better efficiencies could mean that ad agencies are able to expand their market to service higher numbers of smaller companies. I guess the main tone of this article is that AI created both threats and opportunities and the agencies who react most effectively will survive and thrive…

Then in KDDI bets on Japan’s greying shoppers with bid for Lawson convenience stores (Financial Times, Leo Lewis) we see that Japan’s second biggest mobile carrier, KDDI, has launched a $3.3bn tender offer for joint control (with the Mitsubishi trading house) of the Lawson convenience store chain! Its rationale is that Japan’s ageing population will be using such stores more (because they are “convenient” and will be providing more services like online medical consultations and other services) as time goes on. Lawson is Japan’s third biggest convenience store chain behind Seven & i’s Seven-11 and FamilyMart and the idea of this offer is to take the whole thing private. * SO WHAT? * Japanese convenience stores are amazing places and the competition is cutthroat. I’m not sure really of the rationale behind this apart from maybe KDDI may be able to provide better tech. Still, Japan’s big three slug it out daily and this might shake things up a bit.

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

REAL ESTATE-RELATED NEWS

Neumann wants to return to WeWork, Canary Wharf valuations take a hit, the construction sector gets more optimistic and Dutch-style mortgages come to the UK…

Adam Neumann seeks to buy WeWork back five years after his ousting as CEO (The Guardian, Lauren Aratani) shows that the co-founder who was kicked out in 2019 is looking to return and buy the company back (or at least provide it with debt financing). He’s been trying to get hold of representatives of the company but they’ve been reluctant to engage thus far. * SO WHAT? * FWIW I think Neumann is a massive 🐂💩 artist and the only reason why he can potentially buy the company back is the massive settlement he got on leaving after he had basically burned everyone else’s cash! I hope that WeWork can continue to rebuff his advances as it would validate his previous disastrous leadership. However, desperate times call for desperate measures and if things get worse it sounds like Neumann will come knocking!

Elsewhere in UK property news, Canary Wharf office to be sold at £160m discount as values tumble (Daily Telegraph, Riya Makwana and Chris Price) shows that the building that was once owned by Bear Stearns before it collapsed in the 2008 financial crisis has been sold at a £160m discount just seven years after Chinese investment group Cheung Kei Group bought it for £270m! Cheung Kei tried to offload it for around £400m in 2022 but didn’t get any interest. At the moment, JP Morgan has it on a long-term

lease. * SO WHAT? * This could drag prices down for the whole area as Canary Wharf has suffered a number of high-profile exits recently, such as HSBC. Clifford Chance and Credit Suisse have also threatened to leave. Nasty.

On a brighter note, Optimism in construction sector builds to highest level in two years (The Times, Jack Barnett) shows that the rising expectation of interest rate cuts and weakening inflation is prompting an outbreak of optimism among British construction companies such that it is now at its highest level for two years, according to the latest S&P Global PMI for the service sector! Nice!

Then in Dutch-style mortgages arrive in UK (The Times, George Nixon) we see that April Mortgages, a new Dutch-style mortgage lender, is about to launch fixed rate mortgages where rates will fall automatically as borrowers pay them down! It will offer loans to existing homeowners who are remortgaging and new buyers at the end of next month. The lower rates in the UK only usually kick in when homeowners remortgage – so this sounds like a very interesting innovation! * SO WHAT? * If it proves popular it will be interesting to see whether it’s adopted by other lenders! It does makes sense because the lower the mortgage balance, the lower the risk, right? There will also be no early repayment charges if someone moves house or repays the mortgage. At the moment, it will only lend up to 85% loan-to-value but this will change. Given what the UK residential property market has been like I think that it’s a good thing that other types of mortgage become available.

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

We take a look at the latest developments in the automotive and banking sectors as well as what’s going on on the high street and how the would-be Woodside and Santos deal is off…

In a quick scoot around some of today’s other interesting stories, in the automotive sector, Toyota trims EV forecasts as demand for hybrid booms (Daily Telegraph, Matt Oliver) shows that the world’s biggest carmaker has made further cuts to its EV sales forecasts as demand for its hybrids booms while Aston seeks fourth chief in as many years (Daily Telegraph, Matt Oliver) shows that chairman Lawrence Stroll is now seeking the company’s fourth CEO in four years as the current ex-Ferrari man, who’s only been there for less than two years, is out “by mutual agreement”. The drama at Aston Martin continues!

In the financial sector, UBS deepens cost cuts as it integrates Credit Suisse (Financial Times, Owen Walker) shows that UBS is clearly giving itself more wiggle room after its announced its latest results – where its Q4 loss was actually not as bad as the market had been expecting and Bankers suffer as UK falls behind world in M&A deals (The Times, Helen Cahill) cites the latest figures from PwC which just highlight what we already know – that last year was a disastrous one for M&A deals as the total value of transactions fell by 41%. The number of deals fell by 17% versus the global decline of 6%. Clearly, we’re in a down-cycle at the moment. At some point (I think this will be soon) investors will get confidence back (particularly if interest rates fall) and see how many cheap companies are out there and start buying again.

On the high street, M&S sales growth outpaces Aldi as it wins back shoppers (Daily Telegraph) cites research from NIQ, which makes it the UK’s second fastest growing supermarket! Only Lidl outpaced it! Is this the beginning of a turnaround as consumers get a bit more confident??

Then in Pret abandons its final veggie stores (Daily Telegraph, Hannah Boland) we see that Pret is getting rid of its last vegitarian-only store due to lack of interest. Its last three Veggie Prets in London and Manchester will be converted into regular branches by the end of the month. The concept lasted for eight years.

Elsewhere, Woodside, Santos End Talks on Merger That Had Possible $57 Billion Market Cap (Wall Street Journal, David Winning) heralds the end of what would have been a mega-deal that I mentioned at the end of last year!

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…

There will undoubtedly be some of you out there who have experienced something at least a bit like this with your partner! Obviously, ahem, not me 😁…

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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)