Wednesday 29/07/26

In war news, US says it intercepted ‘surprise’ Iranian missile attack (Financial Times, Steff Chávez) highlights the latest agitation in the Iran war, ending what turned out to be a pause in attacks over the last few days. US Central Command said that all missiles were intercepted. In Volodymyr Zelenskyy reports positive Oval Office meeting as Trump shifts towards Ukraine (Financial Times, Christopher Miller) we see what appears to be a continued shift in Trump’s stance regarding Ukraine and Russia with the balance currently tipping in favour of Ukraine. Zelenskyy met Trump at the White House yesterday to get fresh military backing and double-down on efforts to end the war. They even discussed licences for Patriot interceptor production, among other things.

In news on natural disasters, Powerful earthquake hits Japan’s southern Kumamoto prefecture (Financial Times, David Keohane and Ryo Namiki) highlights the occurrence of a major earthquake on Japan’s southern Island of Kyushu at 4.27pm local time yesterday and Japan’s Takaichi warns of ‘race against time’ to rescue earthquake survivors (Financial Times, David Keohane) highlights the urgency of the rescue attempt that’s now involving 3,600 members of Japan’s Self-Defence Forces. Numerous deaths and injuries have already been reported while a number of factories were shut down in what is an industrial area. Many plan to restart today, however.

Back home, Burnham urged to increase tax on banks as Barclays’ profits soar (The Guardian, Kalyeena Makortoff) shows that the general secretary of the TUC is calling for banks to pay more tax in light of them “raking it in while working people and local businesses are struggling”. Barclays profits boosted by market volatility gains (Financial Times, Ortenca Aliaj and Laith Al-Khalaf) highlights bumper results by one such bank, although investors appeared to be

disappointed by its performance versus its American peers while Tax raid on banks would damage economy, Barclays chief warns (Daily Telegraph, Louis Goss and Tim Wallace) shows its CEO trying to play down the benefits of Burnham taxing the banks yet again. Don’t underestimate the economic power of a UK vibe shift (Financial Times, Lex) argues that the change in government leadership may have coincided with optimism that had already shown signs of improvement as data on GDP growth, retail spending and business sentiment which have all surprised on the upside over the last few weeks. Is this just a bit of summer feelgood or will it fade when the temperatures fall and we all face rising utility bills??

In Europe’s wind turbine makers examine merger prospects to create champions (Financial Times, Rachel Millard and Barbara Moens) we see that there’s rising speculation about consolidation among European players to get enough scale to take on the Chinese. Scale can help push down costs and unlock more spending on innovation and a tie-up between Siemens Gamesa and Nordex, for example could potentially work. Other players, such as Vestas, are also open to sector consolidation and the new M&A guidelines published by the European Commission in April, which emphasised the benefits of corporate scale, could provide a more amenable environment for tie-ups. * SO WHAT? * These guidelines have yet to be properly used – but wind turbines look like as good an area as any to see more consolidation. After all, Chinese makers benefit hugely from their near-complete dominance in a massive domestic market which helps to lower production costs while Europeans will be desperate not to see a repeat of China’s eclipsing of the European solar panel and battery manufacturing industries.

Nvidia revealed as tenant for $50bn data centre that will use its chips (Financial Times, Ryan McMorrow and Michelle Chan) shows that the chip giant has signed leases worth up to a whopping $50bn over 30 years for a massive 1gigawatt Texas data centre that is being built by Hut 8. It will house hundreds of thousands of Nvidia’s GPUs. * SO WHAT? * This just further highlights the circular nature of AI chip investment and Nvidia’s willingness – and ability – to finance ongoing growth. Meanwhile, Google is also using its vast balance sheet to finance its chips and data centres.

Closer to home, Scottish data centre boom spurs backlash (Financial Times, Simeon Kerr and Rachel Millard) highlights resistance from locals who would be affected by plans by the renewable energy and storage developer, Apatura, to build a number of data centres, one of which would cover the area the size of 42 football pitches. Resistance is growing among residents campaigning against large data centres who are worried about their access to water and electricity and the destructive effect they would have on the environment with negligible upside for local jobs. * SO WHAT? * At the moment, there are 24 “hyperscale” data centre developments (bigger than 100MW in size) planned in Scotland although they are not all expected to get approval because of the power demands. Interestingly, Scotland produced double the amount of electricity it consumed in 2024 – and 39% of its wind power was curtailed last year – so you can see why residents are questioning the rationale. Perhaps such resistance is a sign of things to come in England and Wales…

In China overcomes US ban with AI chip breakthrough (Daily Telegraph, Chris Price and James Titcomb) we see that Chinese chip giant Shanghai Yuliangsheng has made a breakthrough in the production of deep ultraviolet lithography machines, which are used to make semiconductors. Until recently only Western companies have been able to make such machines, with the most advanced being made by ASML of the Netherlands and Nikon of Japan. These

companies have been prohibited from selling to the Chinese due to US export controls as part of efforts to slow down China’s tech development. * SO WHAT? * The share price of ASML, Europe’s most valuable company and a leader in chip-making machines, took an 8% hit in response to the news while other chip names were also sold off. That sounds a bit weird to me because if they weren’t allowed to sell into China anyway then this development should make zero difference. I guess it was another excuse to sell…talking of which, SK Hynix shares slide despite sixfold profit surge on AI boom (Financial Times, Song Jung-a) shows that the South Korean chipmaker got sold off as its quarterly results failed to reach analyst expectations despite earnings increasing sixfold! The company’s share price has lost more than half its value since its June peak as everyone is now worrying about oversupply and what that can do to chip prices. SK Hynix itself remains optimistic, however.

Elsewhere, Rio Tinto buoyant on AI demand for metals as earnings soar (Financial Times, Nic Fildes) highlights a strong first half for the miner as it saw a 43% jump in underlying earnings for the period thanks to its efforts in cost-cutting and divestment programme bearing fruit. It has benefited from rising commodity prices and “productivity benefits” and maintains that it has decent exposure to commodities used in AI-related energy and data centre investments. Hyperscalers in particular are using a lot of copper, steel, lithium and aluminium.

Meanwhile, Apple becomes second $5tn company as investors flee AI stocks (The Guardian, Graeme Wearden) shows that Apple became the second company to breach the $5tn market cap milestone as investors switched out of AI stocks. Nvidia was the first to breach this mark when it got there in October last year. * SO WHAT? * It is thought that the rally in Apple’s share price has been driven by strong demand for its products but also because of its relatively low exposure to AI capex compared to its rivals.

In the world of luxury, Kering sales return to growth as Gucci slowdown eases (Financial Times, Adrienne Klasa) shows that Gucci’s parent company managed to increase its sales for the first time since the middle of 2023 as the new CEO’s efforts to turn the company around are gaining traction. The demand for jewellery and eyewear powered the Q2 performance while the fall in sales at Gucci slowed down. * SO WHAT? * This sounds like progress and reflects what looks like a turnaround in luxury as I said in yesterday’s Watson’s Daily that rival LVMH also returned to growth.

Elsewhere, Mike Ashley’s Frasers Group discloses position in Burberry (The Times, James Hurley) shows that Frasers Group revealed that it had a stake equivalent to 4.2% in Burberry, putting it into the company’s top 10 shareholders. * SO WHAT? * Frasers’ founder Mike Ashley is known for his wheeling and dealing and often takes stakes in rivals when they are weak. He’s been doing the same with Hugo Boss for years. No drama to see here (yet). BTW, Ashley isn’t the CEO of Frasers Group any more – his son-in-law Michael Murray is but most people still see Ashley as the organ grinder as opposed to the monkey.

Then in Ocado backs down from £190m fight with M&S (Daily Telegraph, Melissa Lawford) we see that Ocado has finally given up trying to force M&S to pay it £190m. M&S has always

maintained that Ocado hasn’t hit targets made in 2019 while Ocado had argued that it had. Both parties have now agreed to draw a line under the whole thing but M&S has refused to commit to building new warehouses or raise volumes until Ocado agrees to improved terms. It looks to me like M&S has got Ocado by the short and curlies here as Ocado is on a downhill trajectory at the moment.

UK restaurants under strain from extreme heat rush to install air conditioning (Financial Times, Stephanie Stacey) highlights a made rush being made by UK restaurants and pubs to install extra air-conditioning units and cooling systems following recent heatwaves. It’s becoming increasingly important in attracting customers and retaining staff but costs and delays are affecting take-up. * SO WHAT? * Installers and aircon companies such as Daikin must be thinking that they have an opportunity here not just in the UK – but in many parts of Europe as well. 

In Coca-Cola sales hit $13bn on back of World Cup hydration breaks (The Times, Jessica Newman) we see that both Coca-Cola and Unilever saw a big rise in sales thanks to advertising opportunities in the controversial hydration breaks! Unilever raises forecast as emerging markets drive sales (The Times, Isabella Fish and Graham Ruddick) shows that the consumer goods giant did so well that it decided to raise its full year outlook as a result!

In a quick scoot around some of today’s other interesting stories, World’s biggest EV battery maker pivots to AI, grids and ships (Financial Times, Edward White and Kana Inagaki) heralds an important pivot for China’s CATL as it is looking to evolve from being the world’s biggest EV battery maker to a company whose batteries power AI data centres and back-up electricity grids. * SO WHAT? * I think that this is the natural progression from EV batteries because, at some point, I really do believe that EV batteries will become commoditised and that big players in this area need to diversify their businesses. I have always said that I think that power retention is as important as power generation because if you can’t hang on to what you’ve generated it’s a bit like trying to empty a leaky rowing boat with a sieve rather than a bucket. CATL has already made inroads in this area and it makes eminent sense for them to continue to get in deeper.

In car news, Ford’s Sales and Revenue Are Down. The Automaker Isn’t Sweating It. (Wall Street Journal, Ryan Felton) highlights a disappointing Q2 for the blue oval thanks to weakening US sales. However, the company actually raised its full-year forecasts, saying that it believed that sales of pickups and SUVs would save the day. On the other hand, Mercedes-Benz cuts annual forecast amid China slump (Financial Times, Sebastien Ash) shows that the German

maker decided to cut its annual forecasts thanks to a weakening China market. VW and BMW have already had to do the same thing. This is disappointing but hardly unexpected…

In financials-related news, Hedge funds face demands to stump up collateral as AI stocks tumble (Financial Times, Ortenca Aliaj, Kate Duguid, Amelia Pollard, Costas Mourselas and James Fontanella-Khan) shows that US banks have been asking for more collateral from hedge funds over the last few weeks as concerns about the value of AI stocks increase. The sell-off has prompted massive losses for some hedge funds, so the banks are trying to protect themselves.

Then in Investors use crypto exchanges to avoid Chinese controls on AI stocks (Financial Times, William Sandlund) we see that some canny investors have been getting around Beijing’s control over foreign access to China’s equity markets by using “perpetual futures” (aka “perps”) on trading platforms such as tradeXYZ and Gate.com to track shares of CXMT, the chip company that had such a stellar debut this week. It’ll be interesting to see whether Chinese authorities decide to close this gap!

How about some cooking with a bit of drama?? Very clever!