Thursday 30/08/18

1. In MACROECONOMIC NEWS, emerging market currencies get clobbered and Turkey’s banks get downgraded

2. In CAR-RELATED NEWS, Dyson plans an EV test site, Aston Martin and China’s NIO announce flotation plans and Waymo highlights driverless weaknesses

3. In TECH NEWS, Facebook goes global with “Watch”, Apple unveils a hugging seat and its CEO Tim Cook sells a chunk of shares

4. In OTHER NEWS, I bring you a weird hotel and the latest divisive optical illusion. For more details, read on…

So emerging markets get another kicking as ratings agency puts the boot in…

Fresh stress grips weakest emerging-market currencies (Wall Street Journal, Saumya Vaishamapayan and Mike Bird) shows renewed weakness of emerging markets currencies – particularly with the Turkish Lira and Argentinian Peso – as investors renew focus on the rising trend of US interest rates and the damage that will do to countries that have particularly large exposure to the dollar (higher rates effectively increase the cost of borrowing as the countries in question are borrowing in dollars). The Lira fell close to its all-time lows versus the dollar, with further weakness in the South African Rand and new lows for the Indonesian Rupiah, the Brazilian Real and India’s Rupee. I think that Eric Wong, a fixed-income portfolio manager at Fidelity International puts it best when he explained that “After what we saw happen in Turkey, the market started to ask what country was next: South Africa, Brazil, Indonesia. The market is still gripped at time by fear, trying to differentiate the good ones from the bad ones”. * SO WHAT? * Clearly this is a serious problem as around 48% 

of the world’s $30tn in cross-border loans are denominated in dollars and so some countries who are particularly exposed are suffering the double-whammy of a weaker currency (strong dollar) AND higher borrowing costs (interest rates going up).

As always, currency agency Moody’s makes its move well after the horse has bolted and is a fast-disappearing dot over the horizon in Turkish banks suffer downgrade (Daily Telegraph, Anna Isaac) as Moody’s decided to downgrade 20 of Turkey’s banks in (delayed) response to the central bank sticking doggedly to its stance of not raising interest rates amid ridiculously strong inflation and a freefalling currency. In its usual incisive style, the company said that “the downgrades primarily reflect an increase in the risk of downside scenario, where a further negative shift in sentiment could lead to a curtailing of wholesale funding”. * SO WHAT? * Regular readers of Watson’s Daily will by now be familiar with my view that ratings agencies are largely useless as predictors of the future – but they are great at telling us what everyone already knows. Maybe they would argue that predicting the future is not their primary role and that their job is to just come up with a credit-rating score that is “independent” and usable for others. Still, it’s like having someone tell you who won the Grand National a month after the race has finished – interesting, but would have been far more useful beforehand. However, Turkey’s cause will not be helped by this ratings change and there will be knock-on effects for other countries in the emerging markets universe.

In car-related news, Dyson looks to the future, Aston Martin and Chinese Tesla wannabe NIO announce flotation plans while Waymo shows that the way forward for driverless still has challenges…

In Dyson to build UK site to test electric vehicles (Financial Times, Peter Campbell and Michael Pooler) we see that Dyson its planning a purpose-built state-of-the-art facility to test prototype electric vehicles in a £116m expansion to its Hullavington site in Wiltshire. The site will include an off-road track, a racing circuit and office space for up to 2,000 extra workers. This is all part of the company’s plans to break into the nascent electric-vehicle industry. * SO WHAT? * This sounds very exciting and will no doubt fuel the ever-increasing hype surrounding the company that transformed the world of vacuum cleaners and made £500 hairdryers things to be lusted after. The fact is that they’ve produced precisely diddly-squat as of now, so although I’d like to get excited, I’m not really. The company is planning on bringing the first of its vehicles to market by 2021, but given that they don’t have expertise in cars, I’m thinking that the learning curve will be very steep indeed. Good luck to ’em, but they’ve got their work cut out. You would have thought that Tesla and all the other proper car manufacturers will have got their EV stuff sorted by that time so Dyson is going to have to come up with something truly revolutionary to get anywhere near competing. Even if they DO come up with something great, the next major hurdle is how they are going to produce in numbers sufficient enough to make the vehicles commercially viable. There is a looooooooong way to go!

Cool as Bond: Aston Martin shrugs off spectre of Brexit (The Guardian, Angela Monaghan) is a story that’s doing the rounds today as it is getting people shaken and stirred (sorry about that – the temptation to get a cheesy-Bond reference in there was just too great!) because Aston Martin has announced it intends to float on the London Stock Exchange with a potential £5bn price tag. The company says that will sell at least 25% of its shares, which will help it to invest in greater production volumes and new products. A prospectus is due out in September. * SO WHAT? * Although it does sound exciting, the fact is that we are fast approaching Brexit. CEO Andy Palmer argues that the company is truly global and so any sales 

weakness in one region will be compensated for by strength in others. However, Aston Martin IPO: boy racer (Financial Times, Lex) is a bit more measured in terms of enthusiasm as it warns that a £5bn is extremely toppy in valuation terms. The article points out the success Ferrari has experienced since the Fiat affiliate floated on the New York Stock Exchange in 2015 – the shares have more than doubled since then – but also says that Aston has more exposure to the UK and lacks the “free advertising” that Ferrari gets from F1 racing. Aspiration must be tempered, it seems, especially with Brexit around the corner.

Talking about cars, Chinese electric vehicle maker NIO targets £8bn New York listing (Daily Telegraph, Hannah Boland) despite concerns of slowing domestic growth and waning investor sentiment as the Tencent-backed Tesla wannabe looks to milk its hype to the max. An additional cloud hangs over the company in the form of potential trade tariffs as electric vehicles are precisely the sort of thing that Trump will be focusing on. However, a more pressing pain in the *rse for NIO is SoftBank pulls plug on plans to invest in Chinese Tesla rival (Wall Street Journal, Julie Steinberg and Mayumi Negishi) as the Japanese company that had been poised to take a sizeable stake (worth around $200m) in the company decided in the end not to do so. The reasons for pulling out were not forthcoming at this time. * SO WHAT? * There’s an awful lot of hype surrounding electric vehicle companies, but I fully expect most of them to lose out big time to the existing players given their rate of cash burn and current production limitations. I don’t care how good the tech is or how beautiful their cars are – if they can’t manufacture them in enough numbers with enough consistency, they will fail.

Waymo’s driverless cars ‘struggling to cope in traffic’ (Daily Telegraph, Hannah Boland) raises some very salient questions about the current and near-term capabilities of driverless vehicles – namely that there are far more problems than had originally been anticipated in their day-to-day functionality. A new report from The Information suggests that driverless cars are having problems with understanding the rules of the road and that their safety drivers are regularly having to take over (Uber’s safety drivers have to do so every 13 miles, apparently) – which would all suggest that we’re not as far along with the tech as we think we are regarding driverless vehicles. Waymo (owned by Google’s Alphabet) is thought to be furthest along with the tech and is aiming to have its cars on the roads with no safety drivers by 2020 when there is favourable weather and the routes are well known. * SO WHAT? * I still think we are way off having these things on our roads in any real numbers. Even when the tech gets more advanced, it will still have to overcome the hurdle of finding people brave enough to climb aboard. 

In tech news, Facebook tries to get a slice of YouTube’s action with a new service, Apple introduces a new cuddly car seat and its CEO sells off a nice chunk of shares…

Facebook goes global with ‘Watch’ feature in bid to take on YouTube (Daily Telegraph, James Titcomb) shows Facebook’s ongoing efforts to take on YouTube at videos by rolling out its “Watch” service globally. “Watch” is intended to be an alternative dedicated video hub that is tailored to individual user interests and will include things like sports, news bits and celeb videos. Watch has already been around in the States for the last year, but has largely been seen to be as a bit of a flop thus far but it has been making efforts to buy up some exclusive material such as Premier League football rights in a number of countries

and Major League Baseball in the US. * SO WHAT? * Facebook generally do quite well nicking other people’s ideas, pumping money into them and using its massive user base to boost the product, but the company is facing a tough task as a recent survey found that only 14% of Facebook users in the US tried Watch at least once a week and 50% had never even heard of it! It’s obviously possible to turn this around, but even Facebook isn’t going to find it easy.

There are two interesting stories about Apple in the press today – one of them being Shape shifting seat can warn motorists of danger ahead (Daily Telegraph, Natasha Bernal) which tells us that the company has just patented a new car seat that protects drivers by “hugging” them and vibrates to warn them of dangers on the road (aka the Haptic Feedback for Dynamic Seating System) – and Tim Cook sells $58m of Apple shares as stock hits new high (Daily Telegraph, Matthew Field), as his company continues to knock it out of the ballpark. * SO WHAT? * The seat thing is quite interesting as there’s a lot of secrecy surrounding Apple’s activities in electric cars – so any new snippet like this is always pounced on – and Tim Cook’s share sale is impressive. He’s now apparently worth something like $700m and plans to give away most of his wealth to charity.

…And finally, in other news…

Do you like horror films? Like to have the bejeezus scared out of you from time to time? Then maybe this is for you: USJ hotel’s horror-themed room is back, ensures customers won’t have a good night’s sleep (SoraNews24, Koh Ruide https://tinyurl.com/y72b4dx6). Travelodge this ain’t!!!

AND FINALLY, do you remember that whole blue/gold dress thing a while back that got everyone arguing? Well what about this one: Beach or a door? Optical illusion baffles people as nobody can work out what the photo is actually of (The Mirror, Zoe Forsey https://tinyurl.com/y7rn4qum).

As always, thank you for reading Watson’s Daily!