Thursday 17/10/24

BTW, Watson’s Daily is going to be 10 years old next month! I thought I’d mark it by having a beverage or two at Brewdog in Soho on Thursday November 7th. I’ll let you know timings and finer details, but if you want to say hello, that’s where I’ll be! It’s been quite a wild ride so far and Watson’s Daily has come a long way since the days when I used to write it in my freezing basement with only mice for company 😁 (and no – that isn’t a joke)! Thank you to everyone who has helped over the years – subscribers and Watson’s Daily ambassadors! There would be no Watson’s Daily without you 😍

In China to expand lending to approved property developers to $562bn (Financial Times, William Sandlund) we see that China’s Housing Minister, Ni Hong, announced that lending will be expanded for “white listed” housing developers – and the new money will be available by the end of this year. This “white list” of non-dodgy property developers was brought in in January this year and this latest move is designed to help complete unfinished projects and go some way to restore shattered confidence in the sector. This does feel like a sticking plaster on a huge gaping wound, but at least it’s a positive move. Also, lending vast sums to a sector that is hugely indebted sounds a bit dangerous to me…meanwhile, China’s show of force in massive military exercises alarms Taiwan (Financial Times, Kathrin Hille) highlights the latest development in Asian regional tensions as China stepped up military exercises around Taiwan, prompting concern in Taipei. Taiwan’s defence minister warned last months that Beijing’s escalation in presence both in the air and on the sea will make it harder to tell when exercises tip into war. I suspect that China is using America’s current paralysis (at least until the election) and everyone else’s energies being focused on the Middle East/domestic economies to continue to push the envelope.

Back home, UK inflation rate falls below target to 1.7% (The Times, Jack Barnett) cites the

latest ONS figures which show that UK inflation fell to its lowest level since April 2021 in September, dropping below the Bank of England’s 2% target by way more than the 1.9% that the market was expecting. How the drop in inflation ‘caught the Bank of England off guard’ (Daily Telegraph, Melissa Lawford) highlights the big drop in services inflation as something that the Bank didn’t foresee – it fell from 5.6% to 4.9% in September – in addition to core inflation and Pound falls as UK inflation declines more than expected to 1.7% (Financial Times, Sam Fleming and Ian Smith) shows the market reaction – basically, this sudden drop in inflation makes interest rate cuts far more likely and lower interest rates generally lead to a weaker currency. UK inflation surprise opens up wriggle room for lower rates and less painful budget (The Guardian, Phillip Inman) interprets this inflation drop as being a boon to the chancellor ahead of the budget because the likely interest rate cuts will mean that it’ll be cheaper for the government to borrow money to invest in the economy. Meanwhile, Companies curb advertising spending in the UK ahead of the Budget (Financial Times, Daniel Thomas) highlights the ongoing concerns of businesses about the potential impact of the Budget on consumer spending. Research from the IPA, which represents media and advertising agencies, showed that the July-September quarter was the first time in 14 quarters that total marketing budgets did not grow.

Then in commodities news, Rio Tinto’s iron shipments hold steady despite Chinese slump (The Times, Emma Powell) we see that iron ore shipments by the world’s second biggest miner have managed to stay largely unchanged – an impressive feat considering economic wobbles in China. Iron ore is the main ingredient for making steel – and steel demand is driven by the manufacturing and power sector – not the property industry – so this could explain why it’s not fared so badly.

UK luxury brands at risk of going from riches to rags (Financial Times, Kate Burgess) highlights current turmoil at Mulberry and Burberry, the UK’s only two listed luxury goods companies. Both brands are steeped in history and have a real identity but they are also facing losses and margin erosion as their efforts to pull themselves out of a rut have largely failed thus far. Both of them have suffered from hiking up prices at the wrong time in a bid to take on the bigger, more upmarket players like Chanel, but have failed. For now, Mulberry’s CEO has outlined plans to reposition the brand, abandon its strategy to grow the overseas store footprint and concentrate on the core UK market, which makes up almost 60% of sales. Burberry is currently making noises about being “more inclusive” and “re-engaging with core customers”. This luxury capitulation has barely begun (Financial Times, Lex) takes a somewhat pessimistic view about the wider luxury market, saying that although the super-premium brands like Hermès, Ferrari and Prada/Miu Miu are likely to continue to do well, others like LVMH are more vulnerable to changes and arguably a more fickle customer. * SO WHAT? * I think that, as far as the “berries” are concerned, they are in the early stages of strategy changes foisted on them by a difficult few years for consumers. IMO, luxury goods companies have come to over-rely for many years on rich Chinese tourists spending their way around the globe – and I think that has made brands lazy. They hoped that hiking prices up would help them to claw their way into the super-premium category that has been insulated from the vagaries of the global economy – but that was never going to happen as – again IMO – fashion houses find it much more difficult to go “up” what I’ll call the curve of luxury than they would do to go “down” it to appeal to the masses. I think that a dose of reality has been in order for a while now, particularly as it has now become apparent that Chinese tourists aren’t going to come to the rescue any more given what’s happening in China’s economy at the moment. I think that the ‘berries need to concentrate on their core offering and be much more picky about any kind of overseas expansion that they engage in whilst at the same time bolstering their domestic offering. I have faith that they can do this – but if they fail in execution, there’s always Mike Ashley hanging around waiting for them to fail so he can put in a cheeky low-ball offer! As far as the wider luxury piece goes, I think that Lex is being too pessimistic. It seems to me that many consumers have had a rough few years but now that global economies are generally in recovery/growth mode and the direction of interest rates is downward it seems to me that there are a lot of reasons to get more positive again. I also think that Lex is too optimistic when it comes to the top-end luxury brands as well. Yes, they have done well because their moneyed clientele have been insulated from economic gyrations – but they can’t keep growing forever! If economies continue to recover, I think that the tier below the super-premium category will provide much more in the way of growth prospects, particularly if the brands give them something to rave about!

Back in the real world, Third of households buy groceries from M&S (Daily Telegraph, Hannah Boland) cites the latest data from NIQ which shows that M&S has managed to increase its share of the grocery market over the last four weeks with 800,000 new customers! This made it the fastest-growing traditional supermarket since August! Clearly its efforts to improve the quality of its food are working. Interestingly, growth at Aldi has slowed while Asda continues to lose customers. * SO WHAT? * Given how well Aldi and Lidl did over the cost-of-living crisis, this shift to M&S would suggest to me that consumers are getting more confident again. M&S is definitely on a roll – and if consumers aren’t too freaked out about what Reeves unveils in her Budget, I think that momentum could grow.

Meanwhile, in the leisure sector, Ryanair blown off target by delays at Boeing (The Times, Alex Ralph) highlights bad news for the budget carrier as it said that it will have to fly fewer passengers than expected next year because it looks like Boeing will not be able to deliver enough of its new aircraft on time next year due to strikes and ongoing safety issues. * SO WHAT? * It’s not just a problem that Ryanair is seeing – and it’s not even just a problem with Boeing either. Many carriers are in the same position and Airbus is also having supply chain issues. I wonder whether this will lessen any prospect of air fares coming down given the capacity constraints…

In hotels news, Premier Inn owner aims to return £2bn to shareholders (The Times, Jessica Newman) highlights a fall in Whitbread’s first half profits but it outlined a new five-year plan to expand the number of rooms available, do a major overhaul of its restaurants and return over £2bn in cash to shareholders. It added that bookings had picked up over recent weeks for October and November and it expects that the launch of its new reservation system will help to power sales. * SO WHAT? * This all sounds pretty positive to me! Still, given the growth of rivals in the cheap-and-cheerful end of the accommodation market, particularly Airbnb, it is important that the company continues to innovate.

Elsewhere, BrewDog reveals losses doubled to £59m in final year under co-founder (The Guardian, Rob Davies) shows that the brewer released its results after a whopping four month delay and showed that, while revenues grew, costs grew more. The company returned to profitability in the first half of this year and efforts to keep this going will continue! Then in a bit of a random one, Greggs to open champagne bar ‘inspired by 1920s Paris wine bars’ (The Guardian, Zoe Wood) we see that Greggs will open a pop-up champagne bar at Fenwick in Newcastle. Sounds like fun!

Amazon to power electric vans with mini-nuclear reactors (Daily Telegraph, Matt Oliver) highlights the announcement yesterday that the e-tailing giant had led a £500m funding round for Maryland-based nuke start-up X-energy that is developing SMR tech. Amazon is also backing other such projects with a view to finding a way to power its growing fleet of trucks and data centres. This comes hot on the heels of recent news about Google signing an agreement to buy the world’s first private mini-nuclear reactors and Microsoft’s agreement to restart a mothballed nuclear reactor in the infamous Three Mile Island. * SO WHAT? * This power thing is really happening. Tech companies know that they need the power and that they are scrambling to get capacity to cope with future demand much as EV/EV battery manufacturers are seeking out sources of lithium and cobalt (see the story later in this section!). I think that this is the early stages of a major boom in demand for company-specific power sources – and demand for suitable land is surely going to keep rising.

Elsewhere in tech, ASML pours vinegar on investors’ chips banquet (Financial Times, Lex) follows on from the disappointing news I mentioned yesterday and observes that its share price tanked by a whopping 20% by the end of trading yesterday. Although it pretty much has the market to itself when it comes to manufacturing quality chip-making machinery, recent moves highlight just how much its fortunes are tied to the unpredictable behaviour of politicians who policies can have a huge effect on its order books.

UK to consult on ‘opt-out’ AI content scraping in blow to publishers (Financial Times, Anna Gross and Daniel Thomas) highlights bad news for content creators and publishers as the UK government is getting involved in the heated debate about whether AI companies should be allowed to scrape content from publishers and artists by default unless they “opt out”. * SO WHAT? * Big Tech companies argue that they should be allowed to do so freely but publishers and creatives have said that “opting out” is unfair and impractical because of the huge admin

that would entail to keep on top of things. This is clearly an epic struggle between allowing the fastest possible development of AI and the crushing of the humans that generate the material that could ultimately bring the end to their careers…

McKinsey Cuts Hundreds From China Workforce (Wall Street Journal, Yoko Kubota and Raffaele Huang) shows the ongoing culling of management consultants as it has decided to cut its China workforce by a third! The consultancy has decided to take drastic action to reduce security risks associated with doing business in China. * SO WHAT? * Given that it’s stopped working with Chinese local government clients and reduce the number of state-linked projects – all of which accounted for the lion’s share of its projects – I guess this is unsurprising. The China exodus continues…

In automotives news, GM raises investment in lithium mine to nearly $1bn (Financial Times, Camilla Hodgson) highlights GM’s latest efforts to secure supply of the essential ingredient for EV batteries by pouring more money into Vancouver-based Lithium Americas – a 45% increase on its existing investment! GM is to enter into a JV with the company to develop the Thacker Pass mine in Nevada. I have to say that, while lithium prices are low, I would have thought doing deals now in lithium will be a good thing given that we ARE moving towards EV (albeit at a slower pace than many had expected).

Then in Morgan Stanley profits rise by a third as Wall Street booms (The Times, Louisa Clarence-Smith) we see that the US bank unveiled a strong set of Q3 results, becoming the latest bank to beat revenue forecasts. Like many of its rivals, it has benefited from more IPO and M&A activity and decent trading revenues. Rivals Goldman Sachs and JPMorgan have also done very well over the quarter for the same reasons.

In a quick scoot around some of today’s other interesting stories, Stellantis vehicle shipments fall by a fifth (The Times, Robert Lea) shows that deliveries have dropped by a whopping 20% versus a year ago in the three months to the end of September. * SO WHAT? * Everyone knows that the carmaker has been suffering in the US because of the build-up of unsold vehicles and in Europe because of the imminent emissions-related fines, so this just confirms it. As I said before, I reckon that CEO Tavares saw this coming and announced that recent management reshuffle to give himself a bit more time to sort things out.

Meanwhile, Competition for graduate-level jobs has reached a record high (The Times, Sian Bradley) highlights research from the Institute of Student Employers (ISE) which shows that competition for graduate jobs has hit a record high with the average employer getting 140 applications per role!!! AI has had a major role to play in this because it has enabled candidates to spit out more (lower quality) applications, which the employers have had to deal with. Tighter visa rules have also resulted in the rescinding of job offers.

In Airbus to Shed 2,500 Jobs in Embattled Defense and Space Division (Wall Street Journal, Benjamin Katz) we see that the aeroplane manufacturer has decided to cut about 7% of workers

from its ailing defence and space division amidst programme delays, rising costs and tighter competition. This division makes satellites, spacecraft, jet fighters and drones. * SO WHAT? * Given that there are wars going on and demand for connectivity continues to rise, you would have thought this division would be doing well! However, it has had trouble keeping up with the latest tech, suffered from limited government spending and felt growing competition from the likes of SpaceX for its satellites and spacecraft. This sounds ridiculous to me given the demand out there! Airbus needs to get its act together otherwise it really is going to get left even further behind…

Elsewhere, Uber explored possible bid for Expedia in ‘super app’ growth push (Financial Times, Stephen Morris, James Fontanella-Khan and Oliver Barnes) is a very exciting-sounding headline, but the fact is that no official comment has been made and if there are any talks going on they are in the very early stages. That being said, the rumour is that a takeover could happen to create a travel super-app. Sounds interesting, so I thought I’d mark your card on this! TBC, I’m sure…

Native English speakers don’t always realise the difficulties foreigners have with learning this weird language 😁. This video reminds us all how ridiculous English can be at times! I’m half-Japanese and when I was a kid I was constantly explaining how to pronounce things and explain why jokes were funny to my mum (she couldn’t speak English when she arrived in the UK). It’s not until you start to explain why words are pronounced in a certain way or why precisely a joke is funny that you realise how confusing it all is! There is no better way of killing a joke by explaining it and finishing with the inevitable sentence “…and so that’s why it’s funny!” 🤣