Thursday 15/08/24

1. In MACRO NEWS, US inflation drops, Trump promises an economic boom, China’s industrial production weakens and we look at what’s next for UK interest rates
2. In TECH NEWS, the US considers a break-up of Google, Apple opens up tap-to-pay tech and Musk’s xAI launches Grok-2
3. In MISCELLANEOUS NEWS,  Bangladesh orders get cut, Mars’s move looks expensive, a Hong Kong investor buys UK wind farms, Balfour Beatty takes a hit and international students return in smaller numbers
4. AND FINALLY, I bring you a couple of Italian guys who make a very good point…

So US inflation falls, Trump makes promises, China’s industrial production weakens and we look at what could be in store for UK interest rates…

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:

Drop in US inflation boosts hopes of Federal Reserve rate cut (The Times, Louisa Clarence-Smith) shows that inflation in the US dropped to its lowest level since March 2021 in July, raising expectations of a potential interest rate cut by the Fed in their meeting next month. The latest official figures showed the headline number dropping from 3% to 2.9% versus July 2023 and was below market expectations. The market now implies that there is a 50% chance that the Fed will make a 0.5% cut to interest rates next month (i.e. bigger than the “usual” 0.25% increment that central banks generally tend to implement) as recent data reflected a slowdown in the labour market, which in turn prompted worries about a potential recession in the US.

Meanwhile, Donald Trump promises an ‘economic boom’ if he wins US election (Financial Times, Alex Rogers) highlights a promise made by Donny T in a speech yesterday where he said that he would, if elected, bring “a brand new Trump economic boom” but that if he wasn’t, there would be a “1929-style depression”. He said he would cut prices of cars, housing, insurance and prescription drugs and blamed Biden for the rise in consumer prices whilst also committing to continue his 2017 tax cuts. I guess you can say whatever you like when you’re on the

campaign road but then again we did see a “Trump bump” when he came to power before and he could certainly invoke a sort of sugar rush if he won by cutting taxes immediately. The problem is that this will make the deficit even higher.

China industrial production dips as property slowdown weighs on growth (Financial Times, Joe Leahy, Wenjie Ding and William Sandlund) cites the latest data from the National Bureau of Statistics which shows that China’s industrial production rose by 5.1% in July, falling short of market expectations of 5.2% and growth of 5.3% the previous month. * SO WHAT? * Xi is putting a lot of effort into dragging his country out of its current economic rut by pushing an industrial-led recovery but it doesn’t seem to be getting much traction at the moment. I still think that Xi needs to take more sweeping measures to solve massive debt problems in the real estate industry. China’s slump continues in the meantime.

Back home, Inflation surprise means homeowners can breathe a sigh of relief (Daily Telegraph, Eir Nolsøe) follows on from yesterday’s news that the headline inflation rate was up, but not by as much as everyone had been expecting. However, news that services inflation growth has slowed down by more than expected has prompted further speculation that the Bank of England could decide to cut interest rates twice by the end of this year – from the current 5% to 4.5% (i.e. two cuts of 0.25%). Is UK services inflation finally on the right path? (Financial Times, Valentina Romei) observed that services inflation has been falling since the peak of 7.4% in July last year but has remained stubbornly high – so the greater-than-expected fall to 5.2% (which was largely due to sharp drops in the rate of price rises at restaurants and hotels) versus market expectations of 5.5% and the Bank of England’s expectations of 5.6% means that it’s now going in the right direction, although it’s still a lot higher than the 2% target! * SO WHAT? * With services inflation slowing down and wage growth being at its lowest for two years, the pressure certainly seems to be building on the Bank of England to cut interest rates further.

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!

A Google break-up is considered, Apple opens up pay-tech and xAI launches Grok-2…

In US considers Google break-up after monopoly ruling (The Times, Louisa Clarence-Smith) we see that the US DoJ is thinking about ordering Alphabet, Google’s parent company, to divest parts of its search business which a US federal judge recently deemed to be an illegal monopoly. Following last week’s judgment, the DoJ is looking at potential “punishments”. Alternatives to a break-up could include forcing Google to share more of its data with competitors and/or implementing measures that will ensure it doesn’t get an unfair advantage in AI products. * SO WHAT? * This all sounds pretty dramatic but, TBH, we’re not really going to be able to work out what the consequences are until we see more concrete statements by the DoJ. In the meantime, Google is obviously going to appeal the recent decision. I would have thought, though, that this is at least going to spell the end of the cosy relationship between Google and Apple with the former basically paying the latter a LOT of money to be its default browser (it’s basically what you see on “Safari”). I wonder, though, whether users are going to get a worse experience – at least initially – because let’s face it, Google kicks Bing’s @ss (as just one example!). Still, dominant search engines have been decimated in the past – those of a certain age will recall that Yahoo! was the search engine of choice before Google came along and spoilt the party. TBH, I think that search in its traditional form is potentially going to die out anyway to be replaced by AI so Google has had a pretty good run.

Then in Apple to open up tap-to-pay technology to other developers (Financial Times, Michael Acton) we see that the tech giant is going to open up the tech behind Apple Pay and Apple Wallet to third party developers in a number of countries

(Australia, Brazil, Canada, Japan and New Zealand – with others to follow!) thanks to regulatory pressure from authorities in the US and EU. Apple had previously argued that keeping access to the NFC chip within its own walled garden protected users’ security. This decision has come not long after Apple allowed access to the NFC chip in the EU in a settlement in June. * SO WHAT? * I would say that this is one of Apple’s most successful forays into the world of finance/payments. After all, it’s currently winding down its credit card and savings account partnership with Goldman Sachs and it decided earlier this year to ditch its flirtation with BNPL. Apple Pay/Wallet is extremely convenient – but don’t worry, Apple won’t be left completely empty-handed by all this – developers are still going to have to sign a commercial agreement with Apple and pay “associated fees”.

Meanwhile, Elon Musk’s xAI launches Grok-2 in race to catch ChatGPT (Financial Times, Cristina Criddle) highlights the release of xAI’s newest version of its chatbot, Grok-2. It claims to equal the performance of the likes of OpenAI, Google and Anthropic – and that means that this company that was founded in March last year is now mixing it with the top five AI developers in super-quick time! Grok-2 will be available to paying subscribers of X and the company also plans to release the model to developers later this month so they can build apps for it. * SO WHAT? * Interestingly, according to LMSYS (which is a leading site for comparing AI model capabilities), Grok-2’s performance is actually better than those of Meta’s and Anthropic’s best models (Llama 3.1 and Claude 3.5 respectively)! OpenAI’s latest model, GPT-40, is #1, followed by Google’s Gemini Pro at #2 in terms of performance. I think that this is amazing, but when you’ve got someone like Elon Musk throwing money at it (he’s currently seeking board approval to get Tesla to invest $5bn in the company after recently raising $6bn in a funding round), the development was never going to be slow! I guess the ball’s in OpenAI’s court now for Chat-GPT5!

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!

Bangladesh turbulence prompts concern, we consider Mars’s move, a Hong Kong investor buys into UK wind, Balfour Beatty suffers and international students return in smaller numbers…

In a quick scoot around some of today’s other interesting stories, Global fashion brands cut Bangladesh orders after turmoil (Financial Times, Benjamin Parkin) follows on from chaos in Bangladesh in the wake of its controversial PM resigning and then running off to India recently and highlights the immediate commercial implications. Factories were shut for a number of days after she fled and some that were owned by loyalists to the PM that supplied the likes of H&M and Zara, were set fire to in the uprising. The weeks of violence that culminated in Sheikh running away have left an estimated 500 people dead and delays of deliveries of clothes and shoes for the new season in Europe and North America. * SO WHAT? * In the short term, factories have worked overtime and transported product by air, wiping out any profits for the deliveries, but now they are seeing Spanish and German buyers as being among those now sourcing from Cambodia or Indonesia given Bangladesh’s current state. The longer this goes on, the worse it will be for Bangladesh because this will have highlighted just how reliant some companies have become on the country. It may mean that sourcing shifts permanently to other countries – but at the end of the day, Bangladesh’s obvious priority needs to be its people and the restoration of law and order. H&M, Zara, Decathlon and Fast Retailing are thought to be among those with exposure but they haven’t made any official statements.

Then in Mars defensive move in snacking isn’t a light bite (Financial Times, Lex) we see that although Mars did in fact eventually make a $36bn offer to buy Pringles maker Kellanova yesterday (I said in yesterday’s Watson’s Daily that a deal was coming) it does seem like the price was very high (it was made at a chunky 42% premium over Kellanova’s pre-deal three month average share price). * SO WHAT? * It seems that Mars may have made a desperate move to diversify its chocolate-heavy offering with buying up the salty snack offerings from Kellanova – but the problem is that we are now entering an Ozempic world where consumers are either opting to cut down on ALL snacks or going for cheaper own-brands. Does this story make you feel strangely hungry?!?

In domestic matters, Hong Kong investor buys UK wind farms for £350mn (Financial Times, Chan Ho-him) shows that a consortium led by CK Infrastructure has agreed to buy 32 onshore UK wind farms for £350m from Aviva Investors as part of the ongoing expansion in its utility business. CKI has also applied for a secondary listing on the LSE – and it looks like it will gain entry on Monday. * SO WHAT? * CKI reckons these assets will provide “immediate returns, stable cash flows and recurring profit contributions”. Will others now be tempted to have a dabble in UK utilities?? CKI also has major interests in gas and electricity assets in Australia, New Zealand and Canada.

Then in Balfour Beatty profits hit by cost of US military housing scandal (The Times, Tom Howard) we see that Britain’s biggest building group unveiled disappointing half-year results thanks to the ongoing cost of lying to the US military about repair work on thousands of soldiers’ homes in the US (the company was ordered to pay a £49m fine and appoint a monitor to oversee its work) and the last-minute cancellation of a contract to build a block of student flats in the UK. * SO WHAT? * Despite this, the company is upbeat about its outlook as it has changed the focus of its business to helping governments in the green energy transition (e.g. building nuclear power stations) and emphasising the protection of its margin.

Following on from the story I mentioned earlier this week about UK universities in crisis, International students to return in smaller numbers to UK universities (Financial Times, Amy Borrett and Peter Foster) shows that the number of overseas students applying to UK universities has fallen by 35% versus August 2023 although this is an improvement on May when the drop was a whopping 57% versus the previous year. There is a particularly sharp decline in students from Nigeria and India. * SO WHAT? * This is going to put pressure on universities that have come to rely heavily on the influx of foreign students but I guess, on the flipside, that’s going to be a boon to domestic students and Clearing. Meanwhile, the Office for Students, the UK’s higher education regulator, recently advertised for a contract worth up to £4m for pro services companies to handle restructuring programmes in clear expectation of a wave of university insolvencies. Nasty.

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…

When you think about this, it does actually make sense 🍰!