Wednesday 21/08/24

1. In BIG PICTURE NEWS, we look at Reeves’s plans, the prospects for copper , Vietnam’s push for tech and UK insolvencies
2. In RETAIL & LEISURE NEWS, we see why Walmart is different and how McDonald’s aims to expand in the UK and Ireland
3. In TECH & TELECOMS NEWS, CrowdStrike lashes out and BT is disappointed
4. In MISCELLANEOUS NEWS, China’s property rescue plan makes a slow start and Tesla gets a sort of a win
5. AND FINALLY, I bring you a tasty-looking sauce recipe for fish…

So Reeves manages expectations, Antofagasta talks copper up, Vietnam touts for tech and UK insolvencies rise…

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:

BTW, just in case you were wondering, the number of stories that I’m selecting for inclusion in Watson’s Daily seems to be down at the moment – but that’s because it’s the summer (= fewer articles), companies have largely “done” reporting for now (= fewer articles) and because The Daily Telegraph is getting really weird currently. I don’t know whether this has something to do with ownership issues at the moment but it has gone noticeably downhill over the last few months IMO. I used to rate it more highly than The Times, but not any more…

Rachel Reeves planning to raise taxes and cut spending in October budget (The Guardian, Larry Elliott and Peter Walker) shows that the chancellor is looking to increase taxes (particularly from inheritance tax and capital gains tax), decrease spending and streamline benefits in October’s budget despite signs of improvement in the economy. The latest release of borrowing figures is due out today and will no doubt paint a sorry picture of the state of public finances – hence Reeves’s plans. Talking of which, UK chancellor plans to raise social rents to boost affordable housebuilding (Financial Times, Peter Foster, Jim Pickard and Joshua Oliver) shows that Reeves is looking at plans to increase social rents by the headline rate of inflation plus 1% for the next 10 years in order to boost the construction of affordable homes. She’s decided to do this to encourage the building of more affordable homes by giving  housing associations and councils better long-term visibility over cash flows, especially given that many are now facing big debt burdens and maintenance backlogs. * SO WHAT? * This is an important area for Reeves to address because local authorities have pretty much stopped building new homes, leaving housing associations to build most of the UK’s new social housing. Although Reeves’s proposed measures are good for the associations and local authorities, they will be painful for tenants (they already spending the larger part of their disposable income on the “basics” of day-to-day living) and could come back to bite the government in the form of higher benefits bills. All sorts of promises re social rents have been made and broken during the course of the previous government so I’m sure that authorities will welcome some certainty on this.

I thought that Net-zero drive ‘will push copper prices to record highs’ (The Times, Emma Powell) was worth mentioning because

the boss of one of the world’s biggest copper producers, Antofagasta, reckons that weak supply and the ongoing push towards electrification will increase prices of the red metal. Antofagasta benefited from price rises in the first half which went some way to mitigate the drop in production volumes. Demand for copper has dropped because of the turmoil in the Chinese real estate industry but the company reckons that demand elsewhere will rise as economies recover. * SO WHAT? * It’s difficult to tell whether the CEO is just talking his own book here because I said recently that, in fact, the glut of copper is likely to continue because a) China is currently sitting on big inventories (meaning that there’s going to be less need to buy more copper for a while yet from their point of view) and b) because Indonesia, India and the Democratic Republic of Congo are planning a significant increase in copper smelting capacity over the next couple of years. I would have thought that, over the longer run, prices WILL bounce back strongly because of electrification (because copper is a key ingredient in EV batteries) but I’m not so sure about Antofagasta’s opinion that it will come in the second half of THIS year.

Elsewhere, Vietnam pushes for high tech as investors pivot from China (Financial Times, A. Anantha Lakshmi) shows that the Asian country that has already been one of the biggest beneficiaries of businesses seeking to stay in the region but move out of China is continuing to look at ways of attracting foreign investors. It is targeting investment in semiconductor manufacturing, AI and green energy having already attracted volume manufacturers like Samsung and Foxconn. * SO WHAT? * Investors have, thus far, been a bit reticent due to a shortage of skilled labour and worries about the stability of the power supply whilst also facing competition from regional neighbours like Malaysia. Vietnam continues to attract rising amounts of inward investment, but in order to move up the manufacturing value chain it needs to upskill its workforce and invest in infrastructure. Apple’s Tim Cook and Nvidia’s Jensen Huang have visited the country this year and continue to show interest – so the business is certainly there for the taking! I guess it’s just a question of finding the right balance of incentives including land lease fees and taxes.

Back home, Thousands more companies fall into insolvency (The Times, Jack Barnett) reflects the sobering findings in a report from the Insolvency Service which shows that more companies fell into insolvency in the year to the end of July than was recorded in the same period in 2008-9 at the time of the financial crisis. Falling consumer spending thanks to the cost-of-living crisis proved to be particularly painful for the retail and hospitality sectors. * SO WHAT? * The rise in business insolvencies is usually associated with rising jobless and weakening economies – but at the moment we’re seeing record lows in unemployment and an economy that seems to be in recovery/rebound mode! I would have thought that a recovering economy, the prospects of falling interest rates and the potentially reinvigorating effect of a new government will hopefully arrest the momentum of failures. 

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 see why Walmart is different and how McDonald’s plans to expand in the UK and Ireland…

I thought that Why Walmart might not be a good proxy for US retail (Financial Times, Lex) was a really interesting article because it makes the point that although America’s biggest retailer by sales is traditionally seen as a proxy for the US retail sector as a whole, there are actually many ways that it differs from its nearest rivals. First of all, its size and business mix aren’t like the others – it gets a whopping 60% of its revenues from groceries (which are low margin), which has been a particular godsend amid the cost-of-living crisis. However, unlike other players in the sector like Target and Macy’s, it also has higher margin businesses like its third-party online marketplace, digital advertising and membership schemes that are really kicking in in terms of revenue contribution. * SO WHAT? * The fact that the company has managed to thrive under pressure and pick up more middle and higher-income shoppers in addition to bringing on new revenue streams is impressive. As things stand, it doesn’t look like the premium it enjoys versus its rivals will close any time soon…

Then in McDonald’s to create 24,000 jobs in the UK and Ireland (The Times, Tracey Boles) we see that Maccy D’s is planning to create an impressive number of jobs in the UK and Ireland over the next four years as it aims to open over 200 additional outlets. This will be its biggest expansion since 2002. The focus will be on opening high street restaurants. * SO WHAT? * Although this is undoubtedly great news for jobs, I wonder whether this expansion is a good thing given that people are tending to look towards healthier options these days plus there’s that whole thing about weight-loss drugs suppressing appetite, meaning that everyone will, in theory, be consuming fewer calories (something that consumer goods companies like Nestlé and Mondelez are getting increasingly worried about). McDonald’s is indeed a powerful worldwide brand and there are still notable gaps on the high street after the devastation of Covid but I just wonder how long they can keep the brand momentum particularly now they are more restricted in how they can advertise these days.

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!

CrowdStrike hits out and BT is disappointed…

CrowdStrike hits out at rivals’ ‘shady’ attacks after global IT outage (Financial Times, Stephanie Stacey) shows that cybersecurity company CrowdStrike, the one that was involved in that recent massive worldwide IT outage, is now fighting back against criticism now the dust has settled a bit. The president of the company said that rivals such as SentinelOne and Trellix were trying to use the July 19th disruption to promote their own products. * SO WHAT? * This is the obvious play if you’re a rival. But as CrowdStrike’s CEO said, no vendor can completely guarantee that their own software was not immune to similar incidents. I did a recent podcast on this where we came to the same conclusion – and that other vendors were secretly thinking that it could very well have been them in the same position. However, in the month since the outages, SentinelOne’s share

price has jumped by 19% while CrowdStrike’s has fallen by almost 25% (Trellix doesn’t have a share price – it is privately owned). Rivals are sensing weakness in CrowdStrike’s supremacy and are clearly going to try and make the most of this opportunity.

In BT takes £1bn hit as Sky and CityFibre strike broadband deal (The Times, Tom Howard) we see that BT has lost out big time from a decision by Sky to use CityFibre, the UK’s biggest alternative network provider (aka “altnet”), instead of BT’s Openreach. * SO WHAT? * At the moment, Sky uses Openreach’s network to supply fibre broadband to its six million internet customers but from next year it will start to use CityFibre’s network as well! BT’s share price fell by 8% on the news (hence the “£1bn hit” referred to in the article’s title, which refers to BT’s valuation as a company). CityFibre is the UK’s third biggest broadband firm after Virgin Media O2 at #2 and BT Openreach at #1.

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 makes a slow start and Tesla gets a small victory of sorts…

In a quick scoot around some of today’s other interesting stories, China’s $70bn property rescue plan limps off starting line (Financial Times, Joe Leahy and Thomas Hale) shows that China has only doled out a miniscule amount of the $70bn central bank fund launched in May to local government enterprises. The money was intended to help such enterprises buy up unsold property which could then be leased as social housing. The slow take-up has been dogged by the ongoing problems in the real estate sector which have shaken household confidence. * SO WHAT? * I have said for ages now that China’s piecemeal approach to addressing the massive debt problems in the sector has meant that confidence has not been restored. I keep saying that Xi needs to come out with a big, bold and dramatic plan that will rally the

country and give its people a focus on which to place their hopes. The launch of this fund was the nearest thing to this, but clearly it’s been a bit of a damp squib thus far.

Then in Tesla wins cut to EU tariff on cars built in China (The Times, Simon Freeman) we see that Tesla has managed to escape the worst of the latest round of EU tariffs on Chinese-built EVs imported to Europe. It will face an additional 9% tax on its China-built cars which is way less than rivals like BYD (17%), Geely (19.3% on the Volvo, Lotus and Polestar brands) and SAIC (a whopping 36.3% levy on its MG brand). All these tariffs will be in addition to the EU’s standard 10% tax on car imports. These proposed tariffs will be voted on by the EU’s 27 member states at the end of this month. I suspect that China will be considering its response if these proposals get voted through.

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 give you this sauce recipe today! It looks pretty simple – but I think that the key to this is using the same pan that you cooked the fish in otherwise I’d say that it could be pretty tasteless👍