Wednesday 31/07/24

1. In MACRO & MARKETS NEWS, we look at the latest in Harris/Trump, Maduro gets feisty, the BoJ raises interest rates again, Iran vows revenge, Eurozone inflation rises, investors signal an early cut from the BoE and Labour gives and takes while London loses out on mining dominance
2. In CONSUMER TRENDS & GOODS NEWS, Gen Z teetotallers make themselves felt, Diageo suffers, Adidas sprints ahead, L’Oréal does well outside China and Danone benefits from easing prices
3. In TECH & MEDIA NEWS, the CMA looks into Google/Anthropic, Microsoft’s splurge on AI looks like it should pay off but Azure sales slow down, Nvidia shares slow, management consultants look to benefit from the AI boom and Gen-Zs turn away from TV
4. In MISCELLANEOUS NEWS, we look at Tesla issues, HSBC’s triumph, St James’s Place’s boost, GSK’s rising confidence and Temu backlash
5. AND FINALLY, I bring you an impressive penalty kick…

So we look at the latest election news, the BoJ increased interest rates, Iran wants revenge, Eurozone inflation rose, investors expect an interest rate cut from the BoE and Labour makes changes while London’s supremacy in mining slips…

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:

Soooo…I’m back from holiday! Apologies for the delay today but I got back pretty late last night. Should be back to normal from tomorrow 👍

Kamala Harris draws level with Donald Trump in race for the White House (Financial Times, John Burn-Murdoch and Oliver Roeder) gives us the latest state of affairs in the US presidential election as we edge towards the final stretch to the November 5th election. Thus far, it looks like Harris has managed to bridge the gap with Trump only a week into her presidential campaign, according to analysis by the FT. She has also managed to gain ground across almost every demographic group since Biden bowed out. Still, 100 days out from the election, she has provided a much-needed boost to the Democrats’ campaign. The (incredibly long and drawn-out) drama continues!

Staying in the Americas, Nicolás Maduro threatens Venezuela opposition leaders amid crackdown on dissent (Financial Times, Michael Stott and Joe Daniels) highlights the aftermath of Venezuela’s election that was held on Sunday, which the incumbent leader managed to win. The result was disputed by opponents, sparking riots and demonstrations. The US, EU and most Latin American governments have called for Maduro to publish detailed polling data, but that hasn’t been forthcoming as yet. This is speculation as to whether Venezuela’s military will get involved in some way, but at the moment, the official line is that it will respect the result. * SO WHAT? * This is important because Venezuela is a decent-sized exporter of oil and stability in the country is more likely to result in more predictable behaviour regarding oil production than conflict (if it decides to just open the taps in defiance of OPEC’s wishes, it could lead to a fall in the oil price for instance – particularly if it inspires other countries in a similar position to follow suit). Maduro also has the backing of Moscow and Beijing, so if he lost the election Russia and China could potentially lose at least some influence in the region.

There was some quite surprising news in Asia in Bank of Japan raises interest rates to 0.25% (Financial Times, Kana Inagaki and Leo Lewis) which showed that Japan’s central bank announced a boost in interest rates from the 0-0.1% range % to 0.25% in order to arrest the ongoing decline in the Yen and BoJ provides more fuel for Japan’s dramatic bank rally (Financial Times, Lex) highlighted the relative outperformance of Japan’s banks versus other “sexier” sectors such as tech as higher interest rates benefit banks in particular because higher rates give them more room to make money. Expectations of further increases continue to grow…

Meanwhile, Iran vows revenge for killing of Hamas political leader Ismail Haniyeh (Financial Times, Andrew England, Raya Jalabi and Najmeh Bozorgmehr) highlights rising tensions in the Middle East as Iran has vowed to avenge the attack, which it accuses Israel of carrying out. This comes just hours after Israel claimed to have killed a senior Hizbollah commander in an air strike on Beirut. Worries will increase on the back of this of a full-scale war in the Middle East. * SO WHAT? * This is particularly

embarrassing for Iran, which means that it is probably more likely to get more deeply involved in any kind of retaliation. Turkey also weighed in with its own condemnations of the killing and warned that the act could widen “the war in Gaza to a regional scale”. The US has been leading diplomatic efforts to come to a peaceful agreement but I guess that the President’s attention is being taken up by election matters.

Closer to home, Eurozone inflation edges up to 2.6% in July (Financial Times, Martin Arnold) reflects the latest official inflation figure for the bloc, which poses the ECB with a bit of a headache. Many want it to cut interest rates but a rise in inflation could suggest that such a move may be too early. This is a bit higher than the 2.5% increase in June and above economist expectations of 2.5% in July.

Back home, Investors beef up bets on BoE interest rate cut (Financial Times, Mary McDougall) shows that markets are now suggesting that there is a 60% chance that the Bank of England will cut interest rates at tomorrow’s meeting – up significantly from the 40% markets were suggesting earlier this month. Some observers are saying that the BoE could be focusing on the longer term and that may be more inclined to cut rates in order to encourage growth. The main nagging worry has been stubbornly high services inflation (although the headline number has been encouraging).  We’ll see soon enough!

The new Labour government continues to establish itself and Some taxes will have to rise in 30 October budget, says Rachel Reeves (The Guardian, Eleni Courea) shows the chancellor softening us up for some tax hikes, although Reeves says that national insurance, VAT and income taxes will remain unchanged. She is saying that this is needed to go towards addressing a £22bn shortfall in public finances. She has, however, refused to rule out rises in inheritance tax, capital gains tax or pensions changes. Elsewhere, Labour raises budget for renewable projects to £1.5bn (Financial Times, Rachel Millard and Jim Pickard) shows that the new energy secretary, Ed Milliband, has increased potential financial support by a chunky 50% for renewable power projects following pressure from the clean energy industry. Labour wants to quadruple offshore wind capacity, double onshore wind capacity and triple solar power capacity in order to meet net zero targets by 2030, which is five years faster than the Conservative government had planned. On the flipside, Labour scraps dozens of planned railway lines in blow to small town Britain (Daily Telegraph, Christopher Jasper) shows that the new government has had to make some difficult decisions regarding plans to reopen a number of railway lines and stations that had been closed for decades. The Conservatives had put £500m aside in a Restoring Your Railway fund to do this but that has now been axed by the new chancellor.

Then in markets news, London loses its historic grip on global mining sector listings (Financial Times, Harry Dempsey and Nic Fildes) we see that New York, Toronto and Sydney have overtaken London as a listing venue for the world’s biggest mining companies. * SO WHAT? * It has always seemed a bit bizarre to me as to why we had so many big mining stocks listed in London. It seems that this has largely been for historical reasons but more recently, a combination of global mining companies wanting to streamline their operations and Russian companies being delisted because of the invasion of Ukraine are forming a double-whammy which is leading to an exodus. Mining companies are increasingly of the opinion that they can get higher valuations outside the UK and that investors outside Europe have fewer hang-ups on ESG measures. It seems to me that this sort of migration is inevitable and just a sign of evolution. The problem is that holes that could be made by the likes of Anglo American and Glencore leaving London need to be filled by something else otherwise the whole market shrinks. I think that this is something that the government needs to address – it’s not enough to leave it to market forces.

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!

Gen-Zs make their presence felt, Diageo suffers, Adidas booms, L’Oréal does well outside China and Danone benefits from slowing prices…

Non-alcoholic Guinness sales surge among teetotal Gen Z (Daily Telegraph, Melissa Lawford and Hannah Boland) is a really interesting article which highlights changing tastes among Gen-Zs who have been at least partly responsible for Guinness 0.0 sales doubling in Europe in the year to June, according to Diageo’s preliminary results. Guinness 0.0 launched in 2021 had has, in the last six months, become the UK’s top-selling non-alcoholic beer! However, Diageo warns ‘negative pressure’ will continue after fall in sales (The Times, Helen Cahill) shows that the company reckons that margins will continue to be tight following a “challenging year” and Diageo’s lack of clarity is hard to swallow (Financial Times, Lex) says that this is all very well – but there was no steer from the company on when things are going to improve! This is something that investors will be particularly interested in as the company announced a shock profit warning back in November – so they will be looking for signs of improvement.

In other consumer goods news, Adidas Sets a Faster Pace as Sneaker Sales Sprint Amid Summer of Sport (Wall Street Journal, Andrea Figueras) provides further evidence that the embattled

sportswear company is emerging from a few tricky years as it announced a hefty increase in net profits for Q2. Inventory levels have been falling – something that is particularly important as higher inventories generally mean that more product has to be shifted at discounted prices. * SO WHAT? * It does seem that Adidas is managing to climb out of its rut while Nike continues to stay there and the company itself said that momentum is “faster than we had expected”. Adidas left its full year guidance unchanged for 2024.

Elsewhere, L’Oreal Earnings Rise on Growth Outside of China (Wall Street Journal, David Sachs) shows that the performance of L’Oreal’s business in emerging markets, Europe and North America has managed to offset relative weakness in China. Customers outside China were lapping up skin products while consumer reluctance in China continues.

Then in Danone Backs Guidance as Shoppers Welcome Easing Price Hikes (Wall Street Journal, Dominic Chopping) we see that the company had a decent Q2 as customers bought more of its branded products thanks to an easing in price hikes. The company said that sales growth over the quarter was driven more by volumes than higher prices, a change from recent years.

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 CMA looks into Google/Anthropic, Microsoft should do well from AI longer term but Azure sales slow in the short term, Nvidia momentum calms down, management consultants push to benefit from AI and GenZs ditch trad TV…

UK regulator looks at Google’s partnership with Anthropic (The Guardian, Alex Hern) signals the latest regulator vs Big Tech tussle as the UK’s Competition and Markets Authority (CMA) has launched a preliminary investigation into the partnership between Google and AI start-up Anthropic. Google invested around $2bn into Anthropic in 2023 and the CMA is looking into whether the partnership has led to “the creation of a relevant merger situation”. * SO WHAT? * Concerns continue to surround Big Tech investments in smaller AI start-ups because they can be interpreted as takeovers in everything but name. This means that Big Tech gets all the advantages of a takeover without attracting all the regulatory hassle. However, it seems that regulators are getting wise to this (the CMA is already investigating whether the deal between Amazon and Anthropic is effectively a merger, for instance). The CMA is also looking into OpenAI/Microsoft and Microsoft/Inflection. However, I imagine that this is tricky to prove (although it seems fairly straightforward to the casual observer) and it’s probably why the investigation of the deal between Microsoft and Mistral was dropped in May. FWIW, I think this is a sticky problem because if you’re a feisty AI start-up you need a lot of money to scale. Big Tech has both the money and the interest – so if regulators poke their noses in, there’s a risk that the growth of smaller companies will be held back if Big Tech can’t get involved. After all, they are the ones with the deep pockets and relevant expertise. On the other hand, being in a position to cherry-pick promising start-ups means that it’s more likely that those small start-ups won’t be able to grow to the size of others independently, which is bad for competition. This is a toughie.

Then in Microsoft’s AI spending plans should stack up (Financial Times, Lex) we see that although some AI stocks are having a bit of a rough patch at the moment (chip makers like AMD seem to be doing better than software giants like Microsoft) it is likely that the investment that Microsoft is making in AI will pay off as both companies are saying that there is pent-up demand for AI – it’s just that investors are preferring chipmakers’ solid sales today than software companies’ promises of growth tomorrow and rewarding them accordingly. Unlike some other big investors in AI, Microsoft at least has something to show for it – it’s already launched a number of services enhanced by AI that they are able to charge for. On the other hand, Microsoft under a cloud as Azure sales slow down (The Times, Louisa Clarence-Smith) highlights a sales growth slowdown in its cloud computing division, which may sway flakier investors. However, the company remains confident of the positive contributions that AI can make.

In other AI-related news, Nvidia shares close down 7% as tech sell-off reignites (Financial Times, Emily Herbert, Tim Bradshaw, Jennifer Hughes and Michael Acton) highlights a bit of profit taking in the chipmakers of late as Nvidia and Arm are among those to see their share prices weaken – but don’t cry too much as they are still worth more than double now what they were this time last year! * SO WHAT? * It seems to me that investment in and demand for AI is going to continue as more commercial uses are found – but there’s nothing wrong with investors taking some money off the table at this point. I mean, Samsung Electronics reckons that sales of its AI memory chips will more than triple in Q2 versus Q1, which pushed its share price higher!

Then in Management consultants find sweet spot in the AI boom (Financial Times, Lex) we see that management consultants are making progress in advising clients on how to implement AI in their businesses. For instance, Boston Consulting Group reckons that around 20% of its revenues this year will come from AI-related work while Accenture is also thought to be benefitting from the AI frenzy. * SO WHAT? * At the moment, tech companies are putting money and time into building a massive AI infrastructure backbone – but the problem is that no-one still knows for sure what AI can be used for (in order to generate profit). Management consultants are now making a niche for themselves advising companies on how to make AI integral to their operations rather than just becoming another add-on. The idea is that, with their help, AI can be integrated in such a way that the end product can differentiate their clients’ services from competitors and provide additional revenues streams.

In media news, Blow to BBC as Gen Z turns off TV (Daily Telegraph, James Warrington) cites the latest figures published by Ofcom which show that just 48% of of 16 to 24 year-olds watched broadcast TV during an average week in 2023 – down significantly from 76% in 2018. The rate among 4 to 15 year-olds is even worse at 55% versus 81% just five years ago. * SO WHAT? * Streamers including Disney, Netflix and TikTok are all benefitting from this exodus from terrestrial TV while other platforms including TikTok and YouTube continue to eat into your average punter’s viewing time. It seems to me that this trend is only going to continue as younger generations get used to seeing what they want when they want. At the end of the day, though, there’s only so much time that people have to view content in one day. The problem is that this may mean that content overall is “dumbed down” and becomes what people want rather than what they need. Terrestrial broadcasters in particular need to be ready for this and prepare to avert their own doomsday.

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!

Tesla has issues, HSBC triumphs, St James’s Place rebounds, GSK’s confidence rises and Temu experiences a backlash…

In a quick scoot around some of today’s other interesting stories, Inside the WSJ’s Investigation of Tesla’s Autopilot Crash Risks (Wall Street Journal, Paul Overberg, Emma Scott and Frank Matt) we see that the WSJ is investigating Tesla’s safety record by cross-referencing crash data and local police records. So far, it alleges that Autopilot has difficulties with obstacles, crashes involve veering off the road and that National Highway Traffic Safety Administration (NHTSA) findings are quite similar to those of the WSJ. It also alleges that the NHTSA has also withheld key information from the public and that Tesla has tight control over crash data. Talking of safety, Tesla Recalls More Than 1.8 Million Vehicles Due to Hood Issue (Wall Street Journal, Gareth Vipers and Don Nico Forbes) highlights Tesla’s latest recall, this time due to a software glitch that could result in the hood of the vehicle becoming unlatched that could potentially obstruct a driver’s view. The company says that this will be resolved by an over-the-air software update, but still – it’s not great, is it! * SO WHAT? * I know I’m going to sound like a complete nutter for saying this but I do really wonder whether Elon Musk gets particular special treatment when it comes to his companies. Tesla cars (and particularly the Autopilot function) have allegedly caused some arguably avoidable deaths and yet Tesla continues to march forward. When GM’s Cruise and Waymo have some arguably less major problems, they get banned. How is this reasonable? This also feeds into recent allegations of inappropriate behaviour by Elon Musk towards previous female employees. It seems to me that someone out there deems Musk to be too valuable to humanity to face the music from some of the less cuddly aspects of his life/achievements. Musk is deeply impressive and his intelligence and ambitions are incredible – but there does seem to be something funny going on IMO.

In financials news, HSBC shareholders given $3bn buyback after ‘strong’ profits (The Times, Ben Martin) shows that the outgoing chief exec, Noell Quinn, is riding off into the sunset giving investors a golden good-bye thanks to stronger-than-expected first half profits. * SO WHAT? * Investors have been whinging about not getting a big enough piece of the pie, so Quinn is signing off by giving it to them. The company’s increasing emphasis on its China business continues…

Then in St James’s Place shares jump by fifth as it sets out cost-cutting plans (Financial Times, Emma Dunkley) we see that the British wealth manager seems to have turned a corner, reporting bigger profits and a bigger inflow of money from customers than expected over the first half. Its ongoing commitment to cut costs also went down well with investors who sent its share price soaring in trading yesterday.

In other news, GSK raises forecasts on healthy results (The Times, Alex Ralph) highlights greater confidence from the pharmaceuticals giant which raised its full-year forecasts for the second time this year as it announced better-than-expected quarterly results. This came thanks to growth in its HIV and cancer treatments.

Then in Chinese online store Temu faces supplier backlash over business model shift (Financial Times, Eleanor Olcott and Tina Hu) we see that Temu is having to deal with push-back from suppliers in China who are being pressured by Temu to give them access to warehouses in the US and EY. They are also tiring of Temu’s practice of issuing them with fines, particularly when it’s not even their fault. * SO WHAT? * It seems to me that practices by the likes of Shein and Temu are increasingly dodgy as they try to make their mark outside China and avoid potential trading sanctions in different jurisdictions. Don’t get me wrong, Amazon’s no angel, but it sounds like Shein and Temu take corporate behaviour to another level…

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…

You may well know now that I’m more of a fan of the game with the oval-shaped ball – but this is a special penalty taken in a bit of inclement weather. I bet Ronaldo wouldn’t have taken this 🤣