Thursday 03/08/23

1. In MACRO, MARKETS & COMMODITIES NEWS, the US downgrade prompts anger, European IPOs dwindle and wheat prices rise
2. In REAL ESTATE-RELATED NEWS, house price discounts increase, rental home numbers are likely to fall further, home-buyers take on longer mortgages and Taylor Wimpey sees weaker demand
3. In BUSINESS/CONSUMER TRENDS NEWS, BAE Systems benefits from war, Virgin Money is the latest to prepare for the worst, blockbuster weight-loss drugs face a reckoning, TV watching habits continue to evolve, high street sales weaken but Ferrari sales don’t
4. In TECH NEWS, China wants more limits on tech use for kids, Meta fights human rights groups, Qualcomm takes a hit, Arm aims high and most of Hopin gets sold
5. AND FINALLY, I bring you a stir-fry hack…

So America hates the downgrade, markets wobble, European IPOs dwindle and wheat prices tumble…

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:

Fitch blames Trump riots for US credit downgrade (Daily Telegraph, Szu Ping Chan and Chris Price) highlights ratings agency Fitch’s downgrade of America’s AAA credit rating one notch to AA+. Clearly, this wasn’t the only reason for the downgrade – but it was mainly due to events, including the Capitol Hill riots, that have had the cumulative effect of polarising the main parties. The Democrats have become more left wing and the Republicans have gone further to the right and this has contributed to the lack of agreement on things like the recent debt ceiling. Global markets wobble in wake of US government debt downgrade (The Times, Mehreen Khan and Callum Jones) reflects the immediate reaction as investors digested the sudden downgrade as markets around the world fell while senior American officials criticised the decision. * SO WHAT? * It seems to me like the US government was pretty arrogant here as it had been put on watch earlier in the year – and

it probably didn’t think the ratings agency would dare. It’s yet another blow for Biden and a very early Christmas present for his Republican opposition. OK, so he’s got a lot of time to turn things around before the presidential election next year but his opposition are very much going to be using this! 

Meanwhile, European IPOs fall to lowest level since 2009 (Financial Times, Nikou Asgari) shows that the the number of companies listing in Europe has dwindled to its lowest level since the financial crisis as macroeconomic issues and increasing openness for listing in the US have taken their toll. * SO WHAT? * Europe continues to lose high growth companies who get taken private or seek higher ratings and bigger valuations from US listings as US investors seem to be more willing than their European counterparts to take on more risk and are more comfortable buying into companies that have fantasy valuations! Companies are also more reluctant to do an IPO against a tricky economic backdrop of high inflation and rising interest rates. I’m sure things will bounce back for IPOs but we need markets to be on a more sustained positive footing before any of that can happen!

Then in Wheat prices rise 5pc after Russia attacks grain sites (Daily Telegraph, Eir Nolsøe and Chris Price) we see that overnight drone strikes on Izmail, Ukraine’s main inland port, pushed wheat prices up although they did subsequently retreat. The damage was such that ships headed there had to stop or change course. Wheat and corn prices had been falling in recent days as hopes increased of better output in other markets thanks to improved weather.

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!

We look at trends in house prices, rentals, mortgages and what’s the latest at Taylor Wimpey…

In real estate trends, South East homeowners hit by jump in price discounts (Daily Telegraph, Melissa Lawford) cites data from Zoopla which shows that 8% homeowners in the south east saw asking price discounts of 5% or more in the last month. This is higher than the five-year average of 4.4% and the highest in the country. Estate agents are now saying that high mortgage rates are forcing quick sales and I would have thought that this will gather pace as more people come to the end of their fixed rate periods and have to renew.

It’s going to get worse for tenants as well because One in 10 rental homes to be lost as landlords sell up (Daily Telegraph, Alexa Phillips) cites the latest data from real estate adviser CBRE which contends that 10% of homes will fall out of the rental market as landlords decide to sell their properties because mortgage costs have gone up so much. Buy-to-let has become way less attractive and increasingly out of reach. * SO WHAT? * All of this means higher rents. Hamptons estate agents say that average rent on a newly-let property has risen by 9.3% over the last year and renters

are now spending 32% of their salary on rent, a figure that rises to 37% in London. There is just no escape from higher costs in property market at the moment!

Then in Rising UK interest rates force homebuyers to take on longer mortgages (The Guardian, Julia Kollewe) we see that British housebuilder Taylor Wimpey warned that rising interest rates are weakening the housing market and making homes less affordable, which is having the knock-on effect of homebuyers taking on longer mortgages to make the payments. They said that the proportion of buyers taking on mortgages of over 36 years has nigh on tripled since 2021 to 27%! 42% of second-time buyers are now going for mortgages of longer than 30 years, which is up from 28% in 2021. Its first half results were pretty good in that the company completed more homes than expected in the time period and were confident enough to keep their full-year forecasts intact, despite costs increasing. Q1 was pretty good, but then market conditions got worse between April and June as more mortgage rate hikes hit sentiment. Taylor Wimpey: rising rates have not cancelled out home-buyer demand (Financial Times, Lex) reckons that a housing crash is unlikely given ongoing strong underlying demand and this may be helped by mortgage lenders reducing their rates to drum up business.

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!

BAE benefits from war, Virgin Money braces for impact, weight-loss drugs face a reckoning, TV habits evolve and high street sales weaken but Ferrari sales don’t…

War drives record orders for BAE Systems (The Times, Helen Cahill) shows that BAE Systems is benefitting from war – and the fear of war – as it turns out that the company has a backlog of orders worth a whopping £66bn, £21bn of which are orders that have come in over the last six months! Revenues were up by 11% and operating profit rose by 20% in its record first half results. Interestingly, orders from Ukraine were “quite a small” portion of the general growth in demand and the company said that the broader increase in defence spending by governments will need an expansion in production capability in Britain and Europe. BAE Systems: forecasts rise alongside geopolitical tensions (Financial Times, Lex) says that the Air and Maritime divisions made up over half of first-half revenues in programmes that span decades although the biggest growth came from Maritime. * SO WHAT? * Although the company’s share price has increased by over 70% since the start of 2022, this actually lags companies like Germany’s Rheinmetall (share price has tripled!) and Sweden’s Saab (share price has more than doubled). As the Ukraine war continues and concerns about a Chinese invasion of Taiwan refuse to fade, I would have thought that the outlook will continue to be positive for the company. With decent cashflow, more spending on R&D and increased production capacity the company could try to expand by acquisition – but the price of those acquisitions could increase as other defence companies could also look do the same thing!

Then in Virgin Money’s bad debts rise amid credit card pain (Daily Telegraph, Simon Foy) we see that the high street lender has increased its provisions for bad debts to £547m in anticipation of debts going bad over the last quarter, noting that it had seen a “gradual increase in credit card arrears” thanks to the ongoing cost-of-living crisis. As things stand at the moment the level of borrower arrears is “modest”. Clearly this needs to be monitored closely!

In consumer trends, Lawsuit alleges blockbuster weight-loss drugs cause ‘stomach paralysis’ (Financial Times, Jamie Smyth) highlights what could become a very serious problem as pharma companies Novo Nordisk and Eli Lilly could be on the verge of facing numerous lawsuits because it is claimed that they did not warn patients that their diabetes and weight-loss drugs can cause stomach paralysis and severe vomiting! Personal injury law firm Morgan & Morgan is acting on behalf of a 44 year old woman who was hospitalised and lost teeth! It has signed up 400 clients from 45 US states who also claimed nasty side effects from taking the drugs. * SO WHAT? * Talk about a buzz-kill on what analysts had been predicting could be a market worth $50bn by 2030! The side effects – particularly of constant vomiting – sound horrific. This

could prove to be an absolute nightmare for the companies involved (although it is clearly horrendous for the individuals affected).

Meanwhile, British viewers shun broadcast TV for digital services, Ofcom finds (Financial Times, Daniel Thomas) cites Ofcom’s media nations report which says that the weekly audience of broadcast TV dropped from 79% in 2022 from 83% in 2021, with even older audiences making the switch to digital services. That figure was 88% pre-pandemic and it shows the ongoing shift from “linear” TV viewing (where people watch scheduled programmes on traditional channels) to digital. Average TV viewing times have also fallen, with a particularly sharp decline among older people. Interestingly, the average amount of time spent watching content across all devices was 4 hours 28 minutes per person per day, which is actually 12% lower than it was in 2021 (although we were in lockdown back then!). Also, about 20% of adults listen to podcasts every week. * SO WHAT? * This has massive implications on advertising in particular. The way we consume media is changing and the days of planning your activities around the times your programmes were on are almost gone. I have to say that now, even I am thinking of putting together evening watching of a mix of YouTube videos and streamed content! It really is amazing how viewing habits have changed over the years as people become increasingly able to watch exactly what they want to watch when they want to! This then highlights the importance of ad providers to be able to target audiences more effectively so they can make the right pitches to the right companies whether that be via AI or by looking at the raw data.

Then in High street sales dampened by rainy July and wave of train strikes (Daily Telegraph, Hannah Boland) we see that rail strikes and rain conspired to keep consumers off the high street last month, according to the latest figures from MRI Springboard. Shopper numbers usually increase as the school holidays lead to more people spending time in city centres – but not so this time! Overall, though, footfall rose in shopping centres and retail parks in July versus June, but the rises were narrower than they would normally be. * SO WHAT? * The cost-of-living-crisis continues and I think this makes consumers even more flaky when confronted by rain and striking transport workers. The question is whether consumers will really start to tighten their belts when they come back from their holidays and hunker down in preparation for Christmas…

At the other end of the scale, Pimped-up Ferraris in profits race (The Times) shows that Ferrari has done a roaring trade over Q2 and it even raised full-year forecasts as its customers continued to spend and go wild on their cars’ options lists. Profits were up by 33% versus Q2 last year and it was interesting to see that hybrid vehicles accounted for 43% of total shipments, more than double the previous level. Talk about the rich getting richer!

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!

China wants more control over kids’ tech use, Meta faces off with human rights groups, Qualcomm suffers from smartphone weakness, Arm goes for a chunky valuation and Hopin enters a new chapter…

In a quick scoot around some of today’s other interesting stories, China proposes tighter limits on children’s use of tech (Financial Times, Ryan McMorrow, Nian Liu and Qianer Liu) shows that Beijing has announced proposals by the Cyberspace Administration of China to restrict minors’ device usage by forcing hardware and software makers to roll out a new “Minor Mode” that will set usage and time limits on devices. Some functions would be allowed between, say, the hours of 10pm and 6am – and the new mode would also sync with mobile phones. * SO WHAT? * This comes just two years after the state restricted minors’ game time to just three hours per week and shows that the state is not letting go of this. The idea of all this is to cut addiction and promote healthier activities. This is particularly bad news for games developers as well as video and games bloggers. As a parent myself, this sounds like quite a good idea in theory – but I think that the implication and policing of this could be problematic.

Meta in rift with human rights groups over moderation (Financial Times, Hannah Murphy) shows that Facebook’s parent is now facing down accusations from human rights groups like Internews that they aren’t doing enough to remove harmful content and misinformation online. Internews said that recent headcount reductions at Meta had led to poorer moderation due to teams being “under-resourced and understaffed”. It said that response times to reporting dangerous content was generally erratic (which wasn’t the case for content related to the Ukraine war – that was prioritised), among other criticisms. * SO WHAT? * TBH I think that being a content moderator must be a terrible job from a health (and particularly mental health) perspective because you get to see the worst and most distressing material that the internet has to offer. I really do think that this area could really benefit from the advance

of AI so that humans don’t have to put themselves through watching things like terrorist beheadings etc. Still, we’re clearly not there yet…

Elsewhere, Qualcomm, Stung by Sluggish Smartphone Market, Plans Layoffs (Wall Street Journal, Asa Fitch) shows that the chipmaker saw its share price weaken in trading yesterday as it reported disappointing sales and another round of job cuts. * SO WHAT? * Its core business is providing chips for mobile phones but smartphone sales have languished over the last few quarters after a massive surge during the pandemic. This doesn’t bode well – and we’ll have to wait and see whether this downbeat assessment of smartphone sales for the rest of the year is an opinion that is echoed by Apple when it reports.

Meanwhile, Chip designer Arm seeks record valuation from New York float (Daily Telegraph, Gareth Corfield) shows that the current owners of Arm, Softbank, are looking to get a $70bn valuation from a forthcoming IPO and it looks like an investor roadshow will kick off in September. However, Arm/SoftBank: chip sector multiple would mean $32bn IPO valuation (Financial Times, Lex) shows that although Softbank will be pumping up the desired valuation as much as possible, the fact of the matter is that its 90% global market share of chips in smartphones is not quite as compelling as Nvidia’s dominant position in advanced AI chips, which is why it should not be valued in the same way as Nvidia is!

Then in Virtual events start-up splits after pandemic boom ends (Daily Telegraph, Matthew Field and Gareth Corfield) we see that former lockdown legend Hopin, the virtual events company, is selling off the main part of its business (its events division) to US video conferencing rival RingCentral for an undisclosed amount. Hopin was once valued at £6.1bn but its popularity evaporated once in-person meetings became possible once more. Founder Johnny Boufarhat, who made a whopping £100m in the company’s glory days, will step down as chief exec but will have a seat on the board. What sad end to such a dramatic story!

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…

I thought I’d bring you a couple of cooking-related videos today! The first one is this stir-fry hack for tenderising meat and this one shows you how to make the very tasty Japanese side dish “nasu no dengaku” (which is basically aubergine with glazed miso). The latter dish is so good that I would wager that it would turn most aubergine-haters into aubergine-lovers! Most recipes for this go for frying – but I also do it in the over or, even better, on the barbecue! The glazed miso bit has to be done under a grill, though – but that bit doesn’t take long 👍