Wednesday 27/03/24

  1. In BIG PICTURE NEWS, US business in China stalls, the Bridge collapse sends shockwaves, Larry warns of a retirement crisis, the French budget deficit is worse than expected, the UK outlook improves and worries increase over China cornering the copper market
  2. In MEDIA NEWS, Truth Social booms on debut, Twitter usage drops markedly and finfluencers are warned
  3. In CONSUMER, RETAIL & LEISURE NEWS, we look at the fortunes of the US and UK consumer, Amazon’s hopes for an anti-obesity drug boost, Asos’s ongoing nightmare, 888 changing its name and Flutter looking to triple its US profits
  4. In MISCELLANEOUS NEWS, BYD misses profit forecasts, Tesla pushes “full self-driving”, Bellway is surprised on the upside and DS Smith is hot property
  5. AND FINALLY, I thought I’d bring you some great misheard lyrics…

1

BIG PICTURE NEWS

So US businesses aren’t doing so well in China, the Bridge collapse has repercussions, Fink says we’re facing a retirement crisis, France exceeds its deficit target, the outlook improves for the UK and concerns rise about China cornering the copper market…

I’m going to be doing the roundup of business news in March TODAY 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:

 

American Business Stalls in China (Wall Street Journal, Newley Purnell and Clarence Leong) highlights something that probably isn’t that much of a surprise given the ongoing trade war with China – that the progress of American companies in China is slowing down. If you can get full access to this article, you really should – it has got a BRILLIANT graphic on which companies have what size of exposure to China! Anyway, they are being hit by China’s response to sanctions and its drive for self-sufficiency (that has been largely driven – or at least accelerated – by sanctions). The other factor in this slowdown is the current state of China’s economy, which is a bit sluggish. Its GDP growth fell to its lowest level in decades last year, consumers are reining in spending (particularly on foreign brands) and its exports aren’t quite what they used to be. Some firms are now reducing their investment in China. Nvidia, Qualcomm and Micron Technology have been particularly hard hit by this slowdown but then Boeing saw a loss of orders following two fatal accidents in 2019, Walmart, Starbucks and Estée Lauder have felt more impact from local competition while Amazon and Meta get a decent chunk of advertising revenues there and it is now Apple’s biggest overseas market in terms of sales. * SO WHAT? * Although the size of the market is vast, there has always been a risk of doing business there because you never know what the authorities are going to do – and there’s always the risk of intellectual property theft, particularly in joint ventures. Still, foreign companies kept their eyes on the prize and have generally been willing to overlook such things in order to get a foothold in a massive market. It seems that this willingness to stay the course has been chipped away at over the last few years in particular and the Chinese are now giving the Americans (and others) a taste of their own medicine with sanction retaliations of their own. FWIW, I think that businesses that don’t have ANY kind of security risk will still be able to thrive over there but any company that uses or collects data in order to make its products work will always be susceptible to the whims of the authorities who can react to outside influences pretty quickly. For now, “de-risking” China exposure may be de rigeur, but I suspect that a lot of companies just won’t be able to help themselves and will do whatever they can to at least maintain a presence there – particularly when the economy shows more signs of picking up.

Then in Bridge Collapse Sends Exporters, Retailers Moving to Contain Business Fallout (Wall Street Journal, Liz Young) we see that the collapse of the Francis Scott Key Bridge just south of the Port of Baltimore has not only caused tragic loss of life – it has also blocked coal shipments and prompted companies from various sectors to reroute shipping volumes to minimise the economic repercussions of this catastrophe. The Port of Baltimore was the second biggest gateway for coal exports in the US last year – but it is also the busiest port in the country for autos and light trucks as well as for heavy farm and construction machinery. The area immediately around the ports is a major industrial centre that has a logistics park called Tradepoint Atlantic with tenants including Amazon, FedEx, UPS and Under Armour. At the moment, companies are assessing their exposure,

so I expect more developments to emerge as time goes on. Search suspended for missing people in Baltimore bridge collapse (Financial Times, Aime Williams, Robert Wright and Humza Jilani) cites Biden who has already said that the federal government would “pay for the entire cost” of rebuilding the bridge, while Danish giant Maersk confirmed that it had chartered the vessel, the Dali, that hit the bridge. I would imagine that there will be an almighty insurance bill to pay for damage to the bridge and disruption to the port. I have a feeling that this story is just going to run and run as everyone wants to get to the bottom of how something like this can happen.

The world faces a retirement crisis, warns BlackRock boss (Daily Telegraph, Michael Bow and Szu Ping Chan) cites the chairman of CEO of BlackRock, Larry Fink, is warning everyone about an imminent retirement crisis as he observes that while a lot of effort goes into prolonging our lives, not enough effort is going into how to finance retirement. He makes the valid point that retirement age remains at around 65, something that originated from the time of the Ottoman Empire, but now that life expectancy is generally into the 90s, something needs to be done to take increasing longevity into account. * SO WHAT? * I think that everyone knows about this but doesn’t seem to know what to do about it. The “easy” thing is to nudge up retirement age (although Macron would probably disagree that this is “easy” to implement 🤣 given the backlash he got for increasing the retirement age) but I think this just kicks the can down the road. There are many other factors to consider, IMO, such as age discrimination (if you are in your 40s and 50s – and older – it suddenly becomes MUCH harder to get a job as society generally prefers younger candidates for roles) and the freedom to work for as long as you want to. Governments around the world need to do something about this as soon as possible as demographics are getting older and older. Japan has long been cited as THE example of ageing society but China is arguably going to have an even worse problem down the road thanks to its previous “one-child” policy.

Meanwhile, French budget deficit overshoots target to hit 5.5% (Financial Times, Leila Abboud) highlights the widening of France’s budget deficit last year as it hit 5.5% of GDP versus the 4.9% forecast, dealing a blow to Macron’s credibility on finances. * SO WHAT? * Macron managed to hit deficit targets for the first four years of his first term in office that began in 2017 but then Covid hit and it all went out of the window. The eurozone’s second biggest economy is now suffering to the extent that it is lagging other eurozone countries who have been able to narrow deficits more rapidly. Clearly this is something that Macron’s opposition will be keen to latch onto…

Back home, Economy ‘turning a corner’ in boost for Sunak (Daily Telegraph, Chris Price and Szu Ping Chan) cites the latest economic outlook report from S&P global, which says that high inflation is expected to recede this year, leaving the way clear for interest rate cuts this summer. It said that consumers’ purchasing power was increasing, supported by a robust jobs market. It was interesting to see that S&P’s forecasts were more bullish than those of the Bank of England, which are still positive but more conservative regarding the upside. It sounds like the stars are aligning, but there’s still plenty that can go wrong! Still, it appears like things are going the right way at the moment…

Then in Industry, investors and politicians watch nervously as China stockpiles copper (Daily Telegraph, Eir Nolsøe) we see an interesting discussion on the state of copper at the moment. The metal is often seen as a barometer of the health of the world economy as it is used in so many things that touch our lives, so the fact that its price has risen by almost 10% over the last six months would suggest that things are improving. However, some are now saying that this is something to be concerned about as it could be a sign of China stockpiling the metal. Stockpiles have shot up from 30,905 tonnes at the end of December to 285,090 tonnes by the end of February! * SO WHAT? * Transition to a greener economy requires copper. It’s used in EVs, wires that carry electricity and solar panels – and in many cases, there is no other substitute! Copper supplies have been getting tighter as production forecasts have been reined in but mines around the world are getting to the end of their lifespan. China is world’s biggest producer and consumer of copper, so it makes sense that it is stockpiling it, but the fact that it is getting so powerful in this area potentially puts the West’s transition to greener technologies in Chinese hands. At the very least, the stockpiling could mean higher copper prices for longer…

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

MEDIA NEWS

Truth Social booms, Twitter doesn’t and finfluencers get warned…

Donald Trump has $4.6bn stake in social media group after market debut (Financial Times, Antoine Gara, Ortenca Aliaj, Stephanie Stacey and Mary McDougall) highlights the success of Trump’s social media business (Trump Media & Technology Group, aka “TMTG) which ended up closing 16% higher than its flotation price in its market debut on the NASDAQ yesterday. It listed after completing its merger with the Digital World Acquisition Corp SPAC on Monday. Trump owns 58% of the shares of the merged company before dilution is taken into account. This will no doubt come in handy for Trump to pay off his mounting legal bills but he is locked in for six months until he can sell. Trump Media & Technology Group is the business behind the Truth Social platform and now has a valuation of almost $12bn! The company has never turned a profit though (but since when did that stop SPAC-backed listings, eh??). Donald Trump taps superfans to make Spacs great again (Financial Times, Lex) describes TMTG as “a rightwing meme stock combined with the classic pathologies of the Spac bubble” and points out that it is difficult enough for less controversial platforms to turn a profit in the fickle world of social media – let alone one that’s associated by a man that consistently divides opinion – and that there’s no guarantee as to how long he’s going to hold the shares (apart from the first six months 🤣!). Tricky times lie ahead!

Meanwhile, Twitter usage in US ‘fallen by a fifth’ since Elon Musk’s takeover (The Guardian, Alex Hearn) shows that usage of Twitter in the US has fallen by 23% since Elon Musk bought it, according to research by app-monitoring company Sensor Tower. Interestingly, every other major social media platform has experienced a fall in usage over the same time period, but X’s has been particularly bad. TikTok usage fell by 10% while Facebook, Instagram and Snapchat experienced falls of less than 5%. Clearly, something needs to be done to address this! I think that X is in dire need of announcing some kind of roadmap to get things back on track…

Then in UK regulator warns ‘finfluencers’ to adhere to advertising rules (Financial Times, Sally Hickey and Laura Noonan) we see that the FCA announced new guidance yesterday for social influencers who promote financial products or services without proper approval or authorisation. If they flout the rules, they could be committing a criminal offence that could be punishable by up to two years in prison, an unlimited fine, or both. * SO WHAT? * Given that stats from McCann Relationship Marketing show that 62% of 18 to 29-year-olds follow social media financial influencers, it’s about time that something was done with regard to quality control! The new rules will apply to all companies that advertise to British customers – but they will also cover private or invitation-only social media channels including Discord and Telegram. 

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

CONSUMER, RETAIL & LEISURE NEWS

We look at the US and UK consumer, Amazon’s hopes, Asos’s failure, 888’s desire to change its name and Flutter’s American aspirations…

In consumer-related news, Never Ending Revenge Spending—‘What Is the New Norm?’ (Wall Street Journal, Jennifer Williams) shows that Americans are continuing to spend, despite ongoing misgivings about the state of the economy. Americans are still spending on discretionary items and experiences but this is keeping companies guessing. * SO WHAT? * “Revenge spending” has driven people to go to concerts, take trips and buy designer handbags but it seems that they are now reining things in a bit and indulging in “selective splurging”. I guess that “affordable luxuries” are the hot ticket at the moment, much as they are in the UK.

Back home, Food inflation slows but households are still struggling (The Times, Jack Barnett) cites the latest figures from Kantar which show that food price rises have now slowed down to their slowest pace since February 2022. The rate was down to 4.5% in the four weeks to March 17th, down from 5.3% in the previous month and significantly short of the 17% it hit in March last year. * SO WHAT? * This implies that the headline rate of inflation is likely to fall, which again is something that will put pressure on the Bank of England to cut interest rates sooner rather than later.

Meanwhile, in online retailing, Amazon hopes anti-obesity drug demand will boost pharmacy business (Financial Times, Camilla Hodgson and Oliver Barnes) shows that Amazon’s online pharmacy is doing really well from the red-hot demand for anti-obesity drugs amongst Americans, following the deal it

announced earlier this month to dispense medication on behalf of Zepbound’s maker Eli Lilly. Amazon Pharmacy is likely to generate “a lot of revenue” from Zepbound and Novo Nordisk’s Wegovy. This is definitely giving the business that started four years ago a major boost after a protracted period where it just didn’t make a dent in the existing network of insurers, pharmacy benefit managers and manufacturers. Then in Asos sales plunge as it plots revival in fight with Shein (Daily Telegraph, Hannah Boland) we see that sales for the online British fashion retailer fell by 18% in the first half while the company continues to focus on profitability. The company is trying to reduce the number of product lines in a bid to be able to cut costs and react to trends more quickly as it takes on the monster of Shein! Asos continues to lose market share while Shein continues to increase its share. At the moment, Shein looks likely to overtake Zara…

In leisure news, Gambling group 888 to change name to evoke (Financial Times, Eri Sugiura) shows that 888 is going to change its identity after a tumultuous year that has decimated its share price. The company will also focus on its core markets of the UK, Italy, Spain and Denmark whilst embarking on a series of cost-cutting measures. Meanwhile, Betfair owner hopes to triple US profits before listing switch (Daily Telegraph, Michael Bow) shows that Flutter Entertainment reckons it will triple US profits this year ahead of its listing move to the US. * SO WHAT? * American sports betting has driven a surge in earnings for many betting companies – although it is notable that 888 has not managed to enjoy the same success. In fact, it is looking to pull out of the US consumer sports betting business in order to cut costs (I guess that it didn’t get enough scale to do well in this hot area). Flutter, in contrast has benefited handsomely from the increasing legalisation of sports betting, to the extent that it’s moving its listing!

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

BYD stalls, Tesla pushes FSD, Bellway is surprised on the upside and DS Smith could be subject to a bidding war…

In a quick scoot around some of today’s other interesting stories, BYD misses profit forecasts as Huawei challenge emerges (Financial Times, Edward White and Gloria Li) highlights a bump in the road for BYD as intensifying competition and slowing sales growth meant that it fell short of expectations in its annual results. Given that the previous year showed a 400% jump in annual net profit, it was always going to be a big ask to smash this! In the meantime, it is facing increased competition from Huawei’s Aito brand whose M7 model is now the fourth best-selling EV in China so far this year! Tesla’s Model Y and two BYD models are ahead of it. Automakers beware: BYD can still afford to cut prices (Financial Times, Lex) warns that there’s still plenty of room for BYD to cut its prices in order to build market share. Automakers everywhere will be concerned…

…and then in Elon Musk Pushes to Increase Use of ‘Full Self-Driving’ Software as Tesla Sales Cool (Wall Street Journal, Ryan Felton and Rebecca Elliott) we see that Musk is trying to take some of the limelight by increasing the promotion of its driver-assistance tech it calls “Full Self-Driving Capability” but I have to say that I think this is just a publicity stunt.

Back in the UK, Housing market recovering faster than we thought, says Bellway (The Times, Tom Howard) shows that housebuilder Bellway is pleasantly surprised by the quicker-than-expected rebound of the housing market as it is now selling over one-and-a-half times as many homes per week as it was in the autumn.

Meanwhile, Bidding war is on the cards at DS Smith (The Times, Robert Lea) shows that DS Smith confirmed last night that it was in talks with a rival in the US despite an “agreement in principle” with rival FTSE100 company Mondi. Who said M&A is dead?!?

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 hope that you’ve all had the experience of watching Peter Kay’s classic bit of stand-up on misheard song lyrics. If you haven’t, you’re in for a treat here. The first time I heard this I was pretty much crying with laughter! Well here’s someone else doing a very clever one in a very creative way! The cookies in this clip sound like they are worth avoiding 🤣…

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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)