Thursday 04/04/24

1. In MACRO NEWS, US inflation stays high and might delay our interest rate cuts (which might dent Sunak’s bid for re-election), Eurozone inflation falls and more Baltimore repercussions emerge
2. In MEDIA NEWS, Bob beats Nelson, Paramount enters exclusive talks with Skydance and Spotify looks to raise prices again
3. In CAR NEWS, Tesla looks for gigafactory sites in India and Ford EV sales surge while Fisker’s troubles worsen
4. In MISCELLANEOUS NEWS, Google considers charging for AI, the Taiwan earthquake underlines the need for diversification, the EU investigates Chinese solar manufacturers, the beauty industry slows down and Morgan Stanley decides to stay in Canary Wharf
5. AND FINALLY, I thought I’d bring you some very fancy potatoes…

So US inflation sticks (which could mean our own interest rate cuts might be delayed), Eurozone inflation falls and Baltimore repercussions persist…

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:

Stubborn US inflation risks delay to rate cuts, says Fed (Daily Telegraph, Tim Wallace) highlights persistent US inflation and how it means that interest rate cuts are being delayed. Fed chief Jerome Powell said that he needs “greater confidence that inflation is moving sustainably toward 2pc” which means that he is waiting for more data before he starts to cut interest rates from the level it’s been at since last July (5.5%). Why US inflation risks derailing rate cuts in UK (Daily Telegraph, Tim Wallace and Szu Ping Chan) contends that the Fed, the ECB and the Bank of England could potentially start to cut rates in June if they all want to cut together, although markets are increasingly looking at a Fed cut in July now because of the strength of the US economy. * SO WHAT? * The thing is that it’s usually the US that makes the first move on interest rates, so any delay by Jay and chums probably means that the UK and ECB might hold off. Having said that, we were the first ones to start raising rates in December 2021 before the Fed in March 2022 and then the ECB in July 2022. If the Bank of England holds off on interest rate cuts, it could be due to a combination of a stubbornly tight labour market, strong wage growth, relatively high inflation and growth gaining momentum.

As we’re on the subject of the UK I thought that Can Rishi Sunak stage the biggest electoral comeback in decades? (Financial Times, Jonathan Vincent and George Parker) would be worth

mentioning because it says that although a general election is expected closer to the end of the year (particularly as it gives the current government more time to see economic improvements coming through, arguably giving them more chance of getting more votes) it is possible that big defeats in local elections on May 2nd could lead to more Conservative in-fighting which could weaken Sunak’s position to the extent that he feels compelled to call an election in June. The Conservatives are currently 20 points behind Labour in the polls and no party has ever recovered from such a deep deficit this close to an election since 1970. That being said, there are a few things that could help them close that gap. Firstly, there’s a relatively large pool of “undecided” voters but 60% of them voted Conservative in 2019; secondly, as we approach the election and the reality of a Labour win hits home, supporters of the Reform party might switch their votes to Conservative. However, the reality is that Sunak needs to win over those who intend to vote Labour in order to win – and at the moment, the only areas that voters put Conservatives ahead of Labour on are defence and security. At the moment, this looks like Starmer’s election to lose.

Then in Eurozone inflation rate falls to two-year low of 2.4% (The Times, Mehreen Khan) we see that inflation in the bloc fell to its lowest point since July 2021, which is weaker than the market was expecting. This puts more pressure on the ECB to cut interest rates at their meeting next week.

Meanwhile, Baltimore Bridge Collapse Triggers Extensive, Costly Logistics Diversions (Wall Street Journal, Liz Young) gives us the latest on the ongoing repercussions of the infamous bridge collapse. Business analytics group Dun & Bradstreet reckons that the impact of the port closure is costing about $1.7bn per week in the trade of consumer goods, automobiles, coal and other shipments. Although other port operators in New York, New Jersey and Savannah have the capacity to handle diverted cargoes, this will clearly raise transportation costs for shippers and logistics operators. Some container shippers including CMA CGM, Cosco Shipping and Evergreen Marine have declared force majeure, which means that they won’t cover the additional costs while importers and exporters of vehicles and heavy machinery are getting hit particularly hard.

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!

Bob wins, Paramount goes into exclusive talks and Spotify looks to increase charges (again)…

Bob Iger defeats Nelson Peltz by wide margin in Walt Disney board clash (Financial Times, Ortenca Aliaj, Anna Nicolaou and James Fontanella-Khan) highlights Disney’s win over activist investor Nelson Peltz who had been pushing for seats on the board to shake things up. The company said that shareholders had voted for its own board nominees “by a substantial margin” and only about 31% of all shareholders voted in favour of adding Peltz to the board. Iger unveiled a number of initiatives designed to appeal to investors: increasing Disney’s free cash flow target, an investment of $1.5bn into Epic Games, the promise of big cost cuts, a 50% hike in the dividend and a whopping $3bn share buyback. * SO WHAT? * The result draws a line under the fight that started in January 2023 when Peltz’s company, Trian Partners, disclosed that it had built up a significant stake in Disney. Although this fight wasn’t actually about ousting Iger himself, it came to be seen as a vote on Iger’s ability to turn Disney’s fortunes around – and Iger will no doubt be emboldened by the support he got when it mattered. You may be surprised to hear how much money was spent by both sides to get voters onside – Disney spent $40m, Trian spent $25m and another activist investor Blackwells Capital spent $6m! I guess the other big thing that Disney needs to deliver on will be who leads AFTER Iger leaves (he’s not getting any younger) as the most recent CEO prior to Iger was Bob Chapek, who was fired after just three years. Succession planning is really important for a company of Disney’s size!

Then in Paramount Enters Exclusive Merger Talks With Skydance, Spurning $26 Billion Offer From Apollo (Wall Street Journal, Jessica Toonkel and Miriam Gottfried) we see that the entertainment conglomerate is entering into exclusive talks (for 30 days) with Skydance despite private equity firm Apollo Global Management putting in a $26bn all-cash offer on Sunday. It is thought that Paramount ditched the Apollo bid because it was unclear how it would finance its bid. Paramount’s share price increased by 15% in trading yesterday. The deal comes at a time where Paramount has been struggling to make its streaming service profitable. More evidence of a revival in the M&A market, no?

Then in Spotify to raise prices for customers again (Daily Telegraph, Matthew Field) we see that Spotify is gearing up to raise the price of its streaming subscriptions for the second time in a year later this month. The rises will be up to $2 in five markets, including the UK, and could then follow in the US later in the year. Its main premium plan, which includes music, podcasts and 15 hours of audiobooks costs £10.99 per month in the UK currently. At the same time, Spotify will offer a slightly cheaper basic tier, which will exclude audiobooks (which will probably be around the same price as its current premium subscription) and there will be a higher tier that will have higher quality audio. This sounds fair enough, but you wonder how willing people will be to pay this…

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 looks for gigafactory sites in India, Ford’s EV sales surge but Fisker’s still in trouble…

Tesla scouts sites for $3bn India car plant in boost for Modi (Financial Times, John Reed and Peter Campbell) shows that Tesla is going to be sending a team out to India later this month to scope out potential locations for a proposed $2-$3bn electric car plant. This comes shortly after New Delhi last month lowered tariffs on higher-priced imported EVs for companies that commit to making them in India within three years. * SO WHAT? * This could be a nice little boost for PM Modi’s government ahead of a general election that begins this month. It would also give Tesla a nice little foothold in a market with loads of potential that could perhaps temper the ground Tesla seems to be losing in China. India has been relatively slow to adopt EVs, so in theory there is a lot of upside to be had here (particularly as China might find India to be a tricky market given the prickly relations between the two countries).

Elsewhere, Ford Electric Vehicle Sales Surge Amid Mixed Results Among Automakers (Wall Street Journal, Denny Jacob) shows that Ford sold enough EVs over Q1 to make it America’s second biggest selling EV brand behind Tesla for that time period. It also reported its best-ever quarterly hybrid sales record! * SO WHAT? * EV sales performance has been mixed of late. Tesla, for instance, reported its first year-on-year fall in quarterly deliveries since 2020 while GM saw EV sales drop by about 20% over the quarter. On the other hand, Hyundai Motor’s EV sales actually doubled in Q1. EV challenges continue…

Then in Fisker Withdraws Guidance Amid Strategic Options Evaluation (Wall Street Journal, Ben Glickman) we see that embattled EV maker Fisker has decided to withdraw all financial and operational guidance for 2024 due to its ongoing search for funding as it fights for survival. Is this the death of a thousand cuts?!?

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!

Google considers charging for AI search, Taiwan’s earthquake confirms the need for diversification, the EU investigates solar, the beauty industry loses momentum and Morgan Stanley decides to stay…

In a quick scoot around some of today’s other interesting stories, Google considers charging for AI-powered search in big change to business model (Financial Times, Madhumita Murgia and Richard Waters) shows that the Big Tech giant is looking at charging for new “premium” features powered by AI , which would mark the first time it has put any of its core product behind a paywall. The final decision has not yet been made. * SO WHAT? * As I said in Watson’s Yearly, if 2023 was the year when most of us started playing around with AI, 2024 is going to be about how AI is monetised. This move also shows how desperate Google is getting about the tech that could have a drastic effect on its advertising business. Having said that, Microsoft is all over AI with its investment in OpenAI and last year integrated ChatGPT into its Bing search engine, called Copilot. Despite doing all this, Bing is still miles behind Google in terms of search market share. Still, I think it’s good that it is looking at all the angles pre-emptively rather than waiting until it actually has to react.

Meanwhile, in Taiwan quake is a reminder of seismic risk to global chip supply (Financial Times, Lex) we see that the tragic earthquake that occurred in Taiwan yesterday, killing seven and injuring hundreds (so far) also forced the evacuation of semiconductor manufacturing plants. TSMC and smaller player United Microelectronics Corp had to stop machinery and evacuate staff from facilities in the aftermath. * SO WHAT? * The human cost of this is absolutely tragic. However, from a purely commercial point of view, what happened is a reminder that almost 75% of the world’s chip fabrication plants (“fabs”) are in Asia – and Japan and Taiwan (who have 200 fabs between them) are particularly prone to earthquakes. Not only is it wise for chip makers to broaden the footprint of their chip making facilities to avoid geopolitical risk, it would clearly be wise to do so for seismic reasons also.

Elsewhere, EU launches 2 probes into China solar manufacturers (Financial Times, Alice Hancock and Edward White) highlights the

ongoing hardening stance in Europe regarding cheap Chinese imports as the EU has now launched two investigations that will look into whether China’s solar panel makers benefited from state subsidies that gave them too much of a competitive advantage. The investigations will focus on two consortiums bidding to develop a solar park in Romania including the German subsidiary of Longi Green Energy Technology and two subsidiaries of Chinese state-backed power company Shanghai Electric. * SO WHAT? * I wonder whether this is going to be too little too late for non-Chinese manufacturers who’ve had to weather the onslaught and have already been whupped. EU solar panel manufacturers Systovi (France), Meyer Burger (Switzerland) and REC Group (Norway) have all shut manufacturing facilities in the last six months, for instance. If the EU comes down on this hard, there’s no way that China’s going to take this lying down – they will bring in sanctions of their own for sure!

Then in Beauty Slowdown Reflects Cracks in Consumer Spending (Wall Street Journal, Natasha Khan) we see that signs are emerging of a slowdown in the beauty industry after a strong performance post-lockdown. Beauty companies including Ulta Beauty, e.l.f. Beauty, Coty and Estée Lauder are clearly at risk here while consumer goods company PVH, which owns brands including Calvin Klein and Tommy Hilfiger, is also sounding a more cautious note about 2024 following weakening consumer spending over January and February. * SO WHAT? * I guess that there had been a real boom here post-pandemic so maybe this is not so much a slowdown as a “normalisation”. If interest rates come down and business and consumer confidence rise as they are expected to I wouldn’t expect this weakness to last too long.

Back home, Morgan Stanley to stay in Canary Wharf for another 14 years (Financial Times, Joshua Oliver) shows that the US investment bank has committed to another 14 years in its current office, which must be a relief for Canary Wharf Group (CWG) which seems to be bleeding tenants at the moment. It extended its tenure from the current 2028 to at least 2038. As part of the deal, CWG is going to fund an extensive refurbishment of the building that was completed in 2003. It certainly makes a change to see news of tenants that are staying in Canary Wharf  rather than leaving to go to the City!

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…

Yesterday I brought you some gym inspo – well today I thought I’d bring you some potato inspo 👍 The results here are outstanding!