Wednesday 24/04/24

1. In MACRO & COMMODITIES NEWS, the US Senate passes a $95bn aid bill, the Bank of England’s chief economist sounds cautious, UK borrowing is higher than expectations, we look at UK election timing options, Ithaca buys Eni assets, De Beers’ output falls, farmers expand cocoa planting and Tianqi Lithium warns of losses
2. In EMPLOYMENT, CONSUMER & RETAIL NEWS, the US regulator bans non-compete clauses, UK grocery prices slow down, Asda sees a fall in sales, JD Sports expands in the US, ABF gets upbeat and Kering gets downbeat
3. In CAR NEWS, GM raises its profit outlook and Tesla doubles down on affordable EV
4. In MISCELLANEOUS NEWS, Congress approves a ban on TikTok, Spotify’s profits boom, Mattel falls short and Sunak champions investing in defence
5. AND FINALLY, I bring you a really expensive way to chop carrots…

So the US approves funding, the Bank of England’s chief economist gets cautious, UK borrowing exceeds expecations, we look at UK election timing, Ithaca buys Eni assets, diamonds have a wobble, farmers turn to cocoa and Tianqi Lithium warns of losses…

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:

In US Senate passes $95bn bill including aid for Ukraine (Financial Times, James Politi) we see that the US Senate has finally approved a bill for aid to Ukraine, Israel and the Indo-Pacific region, in a boost for Biden. It seems that the bill got broad support with 79 senators voting for and 18 against.

Back in the UK, Bank of England’s chief economist dampens hopes of summer interest rates cut (Phillip Inman) shows that Huw Pill is warning against cutting interest rates too early to make sure that inflation is well and truly out of the picture, putting himself at odds with the tone of recent utterings of the governor of the Bank of England. Markets responded to this by pushing back expectations of the first interest rate cut from August to September. Meanwhile, UK borrowing overshoot raises doubts about tax cuts (The Times, Jack Barnett) cites the latest ONS data which shows that the government borrowed £6.6bn more than expected last year which means that chancellor Jeremy Hunt’s hopes for dishing out tax cuts in the run-up to the election less likely or unlikely (btw, this was a story from yesterday but it came out while I was writing – so didn’t make it into the final edition of Watson’s Daily!). Talking of elections, Summer or autumn? Rishi Sunak’s election date dilemma (Financial Times, George Parker, Delphine Strauss and Jim Pickard) takes an interesting look at the case for calling for an election in the summer and the case for holding one in the winter! Technically speaking, though, the very latest possible date for a general election is January 28th 2025 but most people expected that the general election will happen in the summer or the winter. A summer election could occur in the event that the Conservatives get battered in the May 2nd local elections because it would give Sunak detractors less time to get their act together. If they go better than expected, he could decide to lean into the momentum. Many believe that an autumn election is more likely, however, because the Conservatives are way behind on the polls right now and that waiting until the end of the year will increase the likelihood of a combination of falling interest rates and rising spending power making the electorate feel better about themselves and the economy. Sunak could also used the Conservative party conference in Birmingham in early October as a way to rally the troops.

Meanwhile, in commodities news, Ithaca Energy agrees £750mn deal for most of Eni’s UK oil and gasfields (Financial Times, Rachel Millard) shows that the London-listed company has agreed to buy almost all of Eni’s UK oil and gasfields that will transform it into one of the North Sea’s biggest producers, which could more than double its existing output. Eni will keep a 38% stake in the enlarged group and the deal is expected to complete in Q3, subject to regulatory approvals. * SO WHAT? * Ithaca has grown quickly over the last two years, buying North Sea rival Siccar Point in 2022. This deal will boost its capabilities significantly and having Eni as a major shareholder will bolster its financial strength and technical capabilities.

Then in De Beers’ diamond output drops after slow recovery triggers production cut (Financial Times, Harry Dempsey) we see that output for the diamond business of Anglo American dropped by a whopping 23% in Q1. The twin impacts of a reining in of luxury spending and the increasing prevalence of lab-grown diamonds combined to slow a recovery in demand. * SO WHAT? * Although De Beers said that it had seen signs of recovery in Q1, Diamond market shows serious cracks from man-made stones (Financial Times, Lex) suggest that the impact of cheaper laboratory grown diamonds (LGD) is going to be long-lasting – in 2023, synthetic diamonds accounted for more than 10% of the global diamond jewellery market. If you couple that with the fact that there is currently an oversupply of gems, the prospects for diamond prices aren’t great.

Elsewhere, Latin American cocoa farmers rush to expand planting as prices spike (Financial Times, Lex) shows that booming prices for cocoa are prompting farmers in Ecuador, Brazil, Peru and Colombia to rush to buy seedlings and increase the acreage for cocoa in their crop. New York cocoa futures hit a record $12,191 per tonne last week – up from $3,000 just a year ago – so you can see why the farmers are keen! * SO WHAT? * Interestingly, Ghana and the Ivory Coast supply two-thirds of the world’s beans but in both places, governments have fixed prices to insulate against volatility. Unfortunately, although this protects them from a slide in prices, it means that they can’t participate in the upside – and that means that they are not incentivised to invest in their plantations and improve yields. On the other hand, producers in Latin America don’t have such an arrangement and obviously want to adapt to what’s going on in the market. For them, more than 80% of the price of the crop goes to the producer directly! The danger, though, is that by the time the new plants bear fruit, the prices may have come back down again.

In Tianqi Lithium Shares Dive After Warning of Wider Losses (Wall Street Journal, Jiahui Huang) we see that Tianqi Lithium shares dropped by a whopping 19% in early trade on Wednesday in Hong Kong and by 10% in Shenzhen, the daily limit, after the Chinese lithium producer warned about widening losses caused by weak product prices and a tax dispute in Chile. * SO WHAT? * Prices for lithium carbonate, a key raw material for EV batteries, have fallen by around 60% since their peak in July last year. The main reason for this has been falling demand for EVs in China. Ouch.

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 regulator bans non-competes, UK grocery prices slow down, Asda loses ground, JD Sports expands in the US, ABF is upbeat while Kering goes downbeat…

In employment trends news, Employee non-compete agreements barred by US regulator (Financial Times, Stefania Palma and Amelia Pollard) shows that the US FTC has voted to ban non-compete agreements in order to avoid wage suppression and promote innovation. Non-compete agreements limit employees’ ability to quit their job and go to a rival employer or set up a rival business. The FTC said that around 30m workers have such restrictive contracts and that they are responsible for putting a lid on wages and limit new ideas. In response, the US Chamber of Commerce announced that it would sue the regulator saying that it did not have the constitutional and statutory authority to enact the rule, accusing the FTC of a “blatant power grab”. * SO WHAT? * I think this could get pretty nasty. I guess that there are some industries and businesses (like AI, for instance) where you can understand the need for non-competes. Losing someone to a rival could be extremely painful and potentially devastating for a business (especially if it’s small). However, there are plenty of other areas where non-competes just smack of desperation and sheer spite. I’m sure there will be many watching with interest as this unfolds, but although I would be surprised to see ALL non-competes banned, I can see the ban being implemented for SOME jobs and industries in order to stop employers abusing their position.

In consumer news, Grocery price rises in Great Britain slow as cost of toilet rolls, butter and milk falls (The Guardian, Julia Kollewe) highlights good news for shoppers as grocery price inflation slowed down to 3.2%, its lowest level since November 2021. This is the 14th drop in a row and is notably lower then the annual rate of 4.5% this time last month, according to retail market research group Kantar. A combination of spending on promotional items along with falling prices of various categories helped take the heat out.

In retail news, Asda only Big Four supermarket to suffer fall in sales (Daily Telegraph, Matthew Field) shows that Asda was the only supermarket in the “Big Four” to see a drop in grocery sales over the last quarter, according to stats from Kantar. There are suggestions that Asda were unable to offer customers the best prices given the massive debts the Issa brothers incurred in acquiring Asda back in 2021, but this has been denied. Meanwhile, the supermarket has embarked on a strategy where it has been price matching products with Aldi and Lidl since January – but it appears that this is not working as yet. * SO WHAT? * I have to say that I think price matching is a lazy strategy. It is also indirectly advertising rivals as being a cheaper place to shop whilst also displaying that the company has zero imagination. Maybe the Issa brothers are so distracted by the company’s finances that they are not spending time thinking about strategy and a company identity. I’ve said before that I think that Asda USED to be a supermarket you’d go to if you wanted competitive prices. It has since been eclipsed in this area by Aldi and Lidl –

and done nothing about it. IMO, it can still reclaim this “bargain” reputation but it’s going to have to come up with something to differentiate it from its rivals. Aldi and Lidl have their middle aisles and Lidl has the in-store bakery. What about Asda?? Could they bring back services that other supermarkets have been abandoning (in-house bakeries, fishmongers etc) perhaps? What about exclusive in-store partnerships with other brands? I think a proper roadmap is needed here otherwise Asda could sink into oblivion.

Meanwhile, JD Sports strikes $1.1bn deal to expand into US (Daily Telegraph, Michael Bow) shows that the footwear and athleisure retailer has managed to buy Alabama-based chain Hibbetts, which stocks basketball shoes and sneakers from brands like Nike and Adidas. * SO WHAT? * This is particularly interesting because it makes a change from American companies buying up British assets but it also furthers the retailer’s push into the US market. It will be the biggest takeover JD Sports has ever done and double the number of its US stores at a stroke! Given that the US is the world’s biggest and most profitable market for sportswear, valued at $120bn versus the UK market being worth $10bn, you can see the attractions!

In Primark owner AB Foods predicts ‘significant growth’ in profits (The Times, Isabella Fish) we see that the company is expecting “significant growth” for full year profits and cash generation, which is a more positive assessment than when it last pronounced its expectations back in January. The group – which in addition to running over 400 Primark stores is a leading producer of cane sugar and sugar beet – has seen its margins dented over the last few years thanks to rising costs but it seems that things are now calming down to more normal levels. Primark put in a particularly strong performance thanks to brisk demand for performance wear, leisure and knitwear in addition to a collection with Rita Ora. It continues to commit to the expansion of click-and-collect and not to home delivery!

At the luxury end of the market, Shares in Gucci owner Kering sink after profit warning (Financial Times, Adrienne Klasa) shows that shares in the French luxury group dropped by over 8% in response to it stating that it experienced a chunky fall in profits in the first half of 2024 as sales at its main brand Gucci fell. * SO WHAT? * This latest bit of bad news came shortly after the company issued a profit warning last month due to weaker sales, notable given the fact that rivals LVMH and Hermès have been experiencing decent growth and rising margins. Gucci is the main driver here as it makes up about half of group sales and about two-thirds of the profits and is in the midst of a turnaround with a new leadership. There are early signs of an improvement in performance thanks to new designer Sabato de Sarno but that has yet to gain full traction. Until Gucci recovers, the pain will continue. The company expects to see another weak quarter before things start to recover in the second half.

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!

GM does well, Tesla commits to lower-cost cars and Nissan commits to solid state…

In GM Raises Profit Outlook for 2024 After Strong First-Quarter Earnings (Wall Street Journal, Mike Colias) we see that General Motors felt confident enough to upgrade its profit outlook for the year as it benefited from rising demand for petrol-powered pickup trucks and SUVs whilst reining in investment in things like robotaxis. It unveiled a 24% increase in Q1 profit as a result! Sales were strong in its domestic market – and they more than offset considerable weakness overseas. China remains particularly problematic, which isn’t great as it is the biggest car market in the world.

After all the recent negative newsflow, all eyes were on Tesla and Tesla Accelerates Rollout of More-Affordable EVs as Profit Drops Sharply (Wall Street Journal, Rebecca Elliott) highlights the EV maker’s commitment to churning out less expensive vehicles. Musk said that Tesla was accelerating the launch of new models – including the much-hyped more affordable $25,000 model – and committed to “solve autonomy”, with ambitions to operate its own fleet of robotaxis, which might be called Cybercabs (although the official name has not yet been announced). Mind you, Robotaxis are not the solution to Tesla’s problems (Financial Times, Lex) is doubtful about the imminent arrival of autonomous taxis and says that emphasis of this on the earnings call was more about drawing attention away from the company’s falling sales and rising inventory levels. I couldn’t agree more!

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!

TikTok moves closer to a ban, Spotify booms, Mattel falters and Sunak endorses defence investing…

In a quick scoot around some of today’s other interesting stories, US Congress approves bill banning TikTok unless Chinese owner ByteDance sells platform (Financial Times, Demetri Sevastopulo) shows that the Senate voted overwhelmingly to approve legislation that will ban US app stores from carrying TikTok in 270 days unless ByteDance sells it. TikTok is likely to try to block the legislation. * SO WHAT? * A ban from app stores would mean that the app would no longer be able to get updates which would eventually render it obsolete. TikTok continues to deny that the Chinese government has any control over the app. The drama continues…

In Spotify hits record quarterly profit as premium subscribers stream in (The Times, Jessica Newman) we see that Spotify’s record quarterly profits were powered by an increase in the number of premium subscribers and a clampdown on costs. It wanted 2024 to be the year of monetisation and the company says that it is now delivering on that. What’s next, I wonder!

In Mattel Sales Miss Forecasts as ‘Barbie’ Boost Wanes (Wall Street Journal, Ben Glickman) we see that the toymaker’s sales fell by 1% in Q1 as the “Barbie boom” faded. On the plus side, the

company managed to narrow losses in Q1 via cost-cutting and tightening up on toy inventories – all of which enabled margin expansion. * SO WHAT? * It sounds like the company made the best of a bad job but it also seems to me like the company needs to come up with some kind of mid-term plan in order to get things back on the growth track.

Back home, Investing in defence companies is ethical, says Sunak (The Times, Patrick Hosking) shows that the Treasury and Investment Association declared yesterday that funds that invest in defence companies will still be able to classify themselves as “ethical” or “sustainable”. The joint statement was made to support the UK defence industry that has suffered from the ESG trend that has starved them of cash and comes just hours after the FCA said it was going to do a clampdown on “greenwashing”. * SO WHAT? * A number of funds run for/by charities will clearly object to this but I guess needs must here. The defence industry has suffered for a long time from investors shunning it but things have now changed. FWIW, I’ve always thought that ESG was a bit of a con because it is hugely open to interpretation and effectively pushed up valuations of companies and industries that were deemed to be “green” despite such credentials being difficult to prove. ESG is an area that sounds easy enough as a concept – but it is fiendishly complicated to keep track of, particularly if companies’ “green-ness” evolves over time!

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…

Do you find chopping up carrots and cucumbers in the usual way too mundane? Well here’s a video that will show you how to spice things up a bit! It looks like Tesla has you covered for those camping trips when you want to prepare crudités 🤣