Wednesday 15/02/23

1. In MACRO, CRYPTO & MARKETS NEWS, US inflation eases, NATO suggests a solution for Finland and Sweden, Sunak looks at a wage deal, we look at Erdogan and his earthquake response, nuke gets green status in the UK and Binance has a bad day
2. In MANUFACTURING-RELATED NEWS, Air India makes a massive purchase, Toshiba’s profit evaporate, Ford cuts thousands of jobs in Europe and the EU announces emissions targets
3. In TECH NEWS, Apple in India hits challenges, TSMC gets sold off, TikTok continues negotiations and SoftBank rests on Arm
4. In CONSUMER-RELATED NEWS, we see how UK wages rise (but still lag inflation) and how consumers are spending on Airbnb and Tui while Waitrose cuts prices and Barclays cuts customer options
5. AND FINALLY, I bring you how to make a killer eggs-benny…

So US inflation continues to ease, NATO suggests a solution, Sunak considers a pay deal, we look at Erdogan’s response, nuke in the UK and Binance’s bad day…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

US inflation eases again for seventh consecutive month (The Guardian, Dominic Rushe) shows that the interest rate rises made last year are well and truly kicking in as inflation rose at an annualised rate of 6.4%, according to the latest release from the Bureau of Labor Statistics. It’s pretty amazing to think that inflation ran at 9.1% as recently as last June, but it’s fallen since then. That said, it’s still way higher than the Fed’s target of 2%, so there’s a way to go yet. The main risk that everyone is sensitive to is that the tight labour market could still lead to higher wages, and higher wages lead to more spending (even it is just to buy the same amount of “stuff”, only at higher prices) which can then lead to more price rises, which pushes up inflation.

In Nato suggests Finland and Sweden could join alliance separately (Financial Times, Henry Foy and Richard Milne) we see the latest in the ongoing saga of Finland and Sweden trying to join NATO while Turkey continues to dig its heels in to make life difficult (it can do this because all of NATO’s members have to agree to new entrants). The development here is that NATO had stipulated that they join as a pair, but NATO is now saying that they can join separately and is a tacit admission that the mighty NATO has failed in its bid to cajole Turkey’s President Erdoğan into playing ball (he’s holding out for the countries returning dissidents he wants to “talk to”). That said, Erdoğan has indicated that he would be willing to approve Finland’s application as has less of a beef with them. Finland has the longest border with Russia of any EU country – at 1300km – so you can see why NATO’s keen on getting it on board…

Rishi Sunak explores public sector pay deal that backdates wage offer (Financial Times, George Parker and Robert Wright) suggests that the government is moving forward with some kind of wage deal that means we will (hopefully) have fewer public sector

strikes. Sunak and Hunt are currently looking at giving workers a lump sum by backdating next year’s pay rise which will kick in in April. We’ll just have to sit back and see what happens on this one…

Further to the tragic earthquake last week, How Erdogan turned Turkey into a disaster zone (Daily Telegraph, Matt Oliver) takes a look at why so many people are holding President Erdoğan at least partially responsible for the damage caused. Many experts are now saying that the majority of the deaths were preventable because building rules that were put in place after another earthquake in 1999 have been largely ignored, allowing poor quality structures to be built across Turkey. Also, the country’s main disaster response agency, Afad, seemed to have no contingency plan in place to deal with the aftermath of an earthquake. * SO WHAT? * It’s interesting to see in this article that Japan is held up as being a bastion of virtue in the way it deals with construction in regard to earthquake-proofing buildings. Well it’s wrong – because I remember a massive scandal that happened in the mid-noughties when there was a mass-falsification of architectural documents that approved buildings that were sub-standard (it’s often referred to as “the Aneha scandal” and was a VERY big deal at the time). The way that Erdoğan has reacted to this earthquake thus far, though, has not inspired confidence and his political opponents should be making mincemeat of him ahead of the elections in a few months’ time. For now, though, the humanitarian effort takes precedence – and quite rightly so. It is a tragedy of epic proportions.

In energy news, Nuclear power to get ‘green’ status as Britain races EU to hit net zero (Daily Telegraph, Matt Oliver) shows that Chancellor Jeremy Hunt is expected to grant nuclear power plant projects such as Sizewell C in Sussex “green” status in order to give the industry access to billions of pounds for funding. This status would make it OK for more institutional investors and environment fund specialists to put money in. Nuclear power is being classed as “green” because its process does not produce carbon dioxide. * SO WHAT? * It is worth noting that many fund managers have expressed caution with regard to how they view the green credentials of nuclear – so I guess that the government’s new classification here will make their lives easier by essentially making that decision for them. A new “green finance” strategy is expected to be published in the next few weeks.

In Binance suffers worst day since December as crypto crackdown escalates (Daily Telegraph, James Titcomb) we see that the crypto exchange saw its worst day of withdrawals (over $830m!) on Monday, according to data firm Nansen, after US regulators ordered another crypto firm called Paxos to cease issuing Binance USD, a “stablecoin” linked to the dollar. Paxos had been endorsed by Binance but the regulators (in this case, New York’s Department of Financial Services) said that the “stablecoin” had not been registered! Binance’s chief, Changpeng Zhao, was quick to say that customer funds were safe, but nervy investors withdrew funds anyway. * SO WHAT? * Binance USD is the world’s third biggest stablecoin and there is $16bn of it in circulation. It is commonly used to trade with other cryptocurrencies on Binance and makes up around 22% of the company’s reserces. Will it now be its downfall? It’ll be interesting to see how “CZ” worms his way out of this one!

Then in FTSE 100 hit record closing high; US inflation slows slightly to 6.4% – as it happened (The Guardian, Graeme Wearden) we see the effect of slowing US inflation and bid speculation in the UK telecoms sector after news of Liberty Global taking a slice of Vodafone emerged. The FTSE closed at a new high, coming within touching distance of 8,000!

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!

Air India puts in a massive order, Toshiba’s profits disappear, Ford cuts jobs and the EU announces emissions targets…

In manufacturing news, Air India makes record-breaking purchases from Airbus and Boeing (The Guardian, Jasper Jolly) is a massive deal for both Airbus and Boeing as the airline, owned by the Tata Sons conglomerate, has ordered 250 planes from Airbus and 220 from Boeing in the biggest ever order of new passenger aircraft. Huge aircraft order delivers boost for British workers (The Times, Robert Lea and Tom Howard) shows that workers at Airbus’s north Wales factory in Broughton will benefit as they will probably be making the wings. It is also likely that Rolls-Royce will also benefit, but it’s now known by how much at the moment. * SO WHAT? * Air India is making a serious bet on the rapid expansion of air travel in Asia and this is a major statement of intent from Tata, which took back control of what was a struggling airline only last year (Air India actually started as Tata airlines back in 1932!). Quite literally – onwards and upwards!

On the other hand, Toshiba’s profits fall 90% as top executive resigns (Financial Times, Eri Sugiura) highlights a decimation of Toyota’s quarterly operating profits as the scandal-ridden Japanese giant saw the departure of another top exec (this time its COO) because of improper entertainment expenses. The results came in well below analyst forecasts as it faces a buyout proposal from a consortium led by Japanese private equity firm Japan Industrial Partners. The weakness was blamed on a major drop in demand for its hard drives as customers reined in expenses. * SO WHAT? * Toshiba’s been in trouble for years. The lumbering behemoth has lurched from one scandal to another, so the prospect of a private equity firm buyout probably doesn’t look that bad. The company

certainly needs someone to extract value from it! I think that this will be watched with great interest by private equity firms as a test case for whether this is possible elsewhere. If this works out, I think there will be a LOT of similar activity as Japan is not short of companies like this (although not all of them will be as big as this!)…

Then in Ford to cut nearly 4,000 jobs in Europe, including 1,300 in UK (The Guardian) we see that the American car maker is making further cuts in its European operations, citing rising costs and the transition to EVs as the catalysts for change. * SO WHAT? * Unions blame the government for not encouraging more EV sales by providing subsidies, but I think this has been on the cards for ages as Ford has pulled back from operations outside the US over the last few years.

Talking of the transition to EVs, EU lags behind UK as it announces ban on petrol and diesel cars (Daily Telegraph, Chris Price, Eir Nolsoe and Adam Mawardi) takes a look at the latest developments as the European Parliament gave its official approval to a ban of carbon-emitting petrol and diesel cars by 2035 with a view to getting them off the roads by 2050 and EU drives though truck emissions targets with new 2040 goal (Financial Times, Alice Hancock and Peter Campbell) highlights a the commitment to make trucks and coaches in the EU cut their emissions to near zero by 2040. * SO WHAT? * The car thing is behind our own target of 2030, but I guess that the European carmakers have been campaigning tirelessly to give themselves more wiggle room in the race to electrification. The truck and coaches emissions target is pretty important, though, as they account for about 20% of the bloc’s emissions. Heavy vehicles will have to cut their emissions by 45% by 2030 and 90% by 2040 while city buses will have to be zero emission by 2030.

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!

Apple has India problems, TSMC shares fall, TikTok continues negotiations and SoftBank’s future rests on its Arm…

Apple’s manufacturing shift to India hits stumbling blocks (Financial Times, Patrick McGee and John Reed) shows that Apple’s plans to increase production in India are hitting problems as production yields aren’t good enough at the moment. At the moment, the end product of a casings factory only churns out one product in two that is good enough to be sent to Foxconn – and Apple expects there to be zero defects. * SO WHAT? * Apple has been sending its people into India to upskill Indian workers’ capabilities as part of its campaign to wean itself off its extreme reliance on China. However, it has found the pace of change markedly slower than that it enjoyed when it originally went into China. Apple is also experiencing frustration with logistics, tariffs and infrastructure. That said, the potential for India is huge, but it looks like it will take some time!

Meanwhile, TSMC shares decline after news of stake sale by Buffett’s Berkshire Hathaway (Financial Times, William Langley) shows that shares in the semiconductor giant took a dive as news emerged that investment company Berkshire Hathaway (Warren Buffett’s company) had cut its stake by 85% after holding its shares for just a few months. Berkshire Hathaway also cut its holdings in Activision Blizzard and Bank of New York Mellon. * SO WHAT? * This is worth mentioning because BH tends to have an investment horizon that is usually measured in years – not months! Still, maybe the downbeat prospects outlined by TSMC itself contributed to the feeling that upside would be limited for a while…

TikTok’s Talks With U.S. Have an Unofficial Player: China (Wall Street Journal, Liza Lin and Raffaele Huang) takes a look at the latest situation with regard to TikTok’s ongoing negotiations with the Committee on Foreign Investment in the US (“Cfius”). Surprisingly, the Chinese government is being seen as a potential partner to break the deadlock if it could allow third parties in the US oversee the code for the algorithm that TikTok uses to recommend content. * SO WHAT? * Biden’s administration has been pushing for TikTok owner ByteDance to sell off the US business because of ongoing data security concerns (specifically, it alleges that China will be able to have access to TikTok’s user data), but clearly ByteDance doesn’t want to give the importance of the US to its business. The negotiations continue…

SoftBank’s future rests on Arm (Financial Times, Kana Inagaki) is an interesting article which points out that, what with all the shenanigans with its Venture Funds, Arm is the one constant shining light in the company’s portfolio and all efforts will be poured into making a success of its much-anticipated IPO. * SO WHAT? * SoftBank was built on the outrageous success of its early investment in Alibaba – but now Arm accounts for more of SoftBank’s net asset value! At least Arm has been doing pretty well – which is more than can be said of SoftBank’s tech Vision Funds – so it’s no wonder that such importance is being placed on it. Will it become SoftBank’s next Alibaba? If it doesn’t, SoftBank is going to be in a lot of trouble as the magic aura it once had is disappearing fast.

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!

Wages continue to lag inflation but consumers still spend on Airbnb and Tui whilst Waitrose does what it can and Barclays pulls back from instant consumer credit…

In a quick scoot around some of today’s other interesting stories, UK wages grow faster than expected but lag behind inflation (Financial Times, Valentina Romei) shows that growth in average regular pay (i.e. not including bonuses) rose to an annualised 6.7% in the last quarter of 2022. It grew faster in the private sector than the public sector, but rises are still lower than inflation that’s currently running at 10.5%.

So what is everyone spending money on then?? Well it seems that holidays are proving to be popular as per Airbnb Posts First Annual Profit as Travel Demand Remains Strong (Wall Street Journal, Konrad Putzier) which shows that consumer wonderlust is currently winning against austerity in some households as it benefited from increased cross-border travel (Americans in particular have been keen to travel abroad and take advantage of the strong dollar) and growing demand for breaks in urban centres. The company did try to calm overexcitement, though, by saying that it expected “increasing downward pressure” on average nightly room rates in 2023. Airbnb’s share price was up by 41% year-to-date, though – so you can see why everyone’s getting a bit hot under the collar!

Tui hails ‘very strong’ start to year amid bookings rush (Dominic Walsh) confirms consumers’ desire to get away and although it lost its crown as Britain’s biggest tour operator to Jet2, it continues to bounce back from the lows of the pandemic. Booking momentum is strong and people continue to be willing to travel!

Meanwhile, If you can’t beat them, join them . . . Waitrose is cutting prices (The Times, Isabella Fish) shows that even Waitrose is now cutting prices in order to stop them from “defecting” to rival supermarkets. From today’s it’s going to cut prices on over 300 own-brand products by around 20%. * SO WHAT? * I guess it’s got to do something, but I would have thought that anyone who regularly shops at Waitrose now – and hasn’t defected – is unlikely to care too much about this. I just with Waitrose would do something a bit more imaginative!

Barclays pulls back from instant consumer credit (The Times, George Nixon) is an interesting article which shows that Barclays is reining in its £2.5bn consumer lending operation which offers credit to shoppers – including BNPL – at the checkouts of a whole array of high street retailers. It will apparently cease lending through all retailers apart from Amazon and Apple from the end of March and there will be no new borrowing going on once existing loans have been repaid! * SO WHAT? * Barclays says that it’s doing this because existing point-of-sale tech is old and clunky – but surely it’s also a major reflection of its lack of confidence in this area of finance for the time being. No doubt it’ll come back with a new offer when it has shiny new tech in place and believes in better economic prospects!

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…

One of my favourite-ever breakfasts is eggs Benedict. Have you ever had it? A good one is a sight to behold! So when I saw this video, I thought I’d show you the joy of eggs-benny done proper like 👍