Friday 26/05/23

1. In MACRO NEWS, the US slows down and Germany falls into recession
2. In TECH NEWS, Nvidia booms, OpenAI warns Europe, Bertelsmann sees opportunities in AI, TikTok tests its own AI chatbot and the metaverse loses investors
3. In RETAIL & CONSUMER NEWS, luxury retail splutters, American retailers see sluggish sales, UK retailers feel a slowing momentum, Pets at Home wags its tail, Asos seeks help, UK lenders increase mortgage rates and energy bills look set to stay higher for longer
4. In INDIVIDUAL COMPANY NEWS, AJ Bell beats rivals, Fever-Tree increases market share and Cineworld is set for a comeback
5. AND FINALLY, I bring you the natural follow-up to Monday’s techno…

So the US slows down and German falls into recession…

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:

America’s economy slows as rates and bank troubles take their toll (The Times, Mehreen Khan) shows that GDP growth hit 1.3% in Q1, which was actually higher than the official estimate of 1.1% but a lot lower than the 2% expected by independent economists. The growth rate has slowed down since the 2.6% expansion at the end of 2022. It seems that higher interest rates and a mini-banking crisis took their toll although growth was powered by consumer spending, decent exports and government spending. The immediate future isn’t looking great either, though, as the Biden

administration is having a lot of trouble with the country’s debt ceiling which could potentially cause it to default.

Meanwhile, German economy sinks into recession as UK defies the experts by avoiding one (Daily Telegraph, Szu Ping Chan and Melissa Lawford) shows that Europe’s biggest economy saw a contraction in Q1 this year, following a contraction of 0.5% at the end of last year. This gives it the rather unwelcome distinction of being the only economy in the G7 to fall into technical recession during the Ukraine war! A technical recession occurs when there are two consecutive quarters of GDP contraction. Its industrial sector is struggling as it continues to wean itself off Russian energy and consumers are being faced with food price inflation that is even worse than ours (21.2% versus UK food price rises of 19.1%)! This makes me think that the European Commission must be smoking something as they recently increased their GDP forecasts for the bloc. If your biggest economy is having a nightmare, how can they up their predictions?? I suspect they are trying to do the time-honoured thing of blagging it and seeing whether talking it up will work…

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!

The AI fun bus rolls on but the metaverse runs out of puff…

Nvidia races towards $1tn club as AI frenzy drives chip stocks higher (Financial Times, Tim Bradshaw) shows that the company smashed its quarterly results and upped its sales forecasts thanks to booming demand for its AI processors, sending the share price up by 24%. Investors were particularly impressed by its sales forecast being over 50% more than Wall Street’s previous consensus! Just to give you an idea of what impact this had on the valuation, yesterday’s move alone added $184bn to its market cap, which is more than the entire value of Intel or Qualcomm and the biggest one-day gain in history for a US stock! It is now within touching distance of reaching the $1tn valuation mark, only hit so far by Apple, Microsoft, Alphabet, Amazon and Saudi Aramco. Nvidia excitement also lifted TSMC and ASML (but by “only” 3% and 5% respectively) as well as AMD and Micron. It is expecting “exponential growth” from cloud and internet companies in addition to the automotive, financial services, healthcare and telecoms sectors. Interestingly, Intel’s share price fell because it is deemed to be behind the others in the shift to AI. Nvidia: thanks to AI, the chips are up for CEO Jensen Huang (Financial Times, Lex) emphasises the massive share price jump – and that the company has gone from being best known for making gaming chips to being the go-to company to power generative AI overnight! At the moment it really is at the cutting edge and no-one is able to touch it. Yesterday’s euphoria will no doubt help the company get over the disappointment of its failed attempt to buy Arm…

Elsewhere, OpenAI warns over split with Europe as regulation advances (Financial Times, Richard Waters, Madhumita Murgia and Javier Espinoza) highlights the OpenAI chief’s warning that ChatGPT could be withdrawn from the EU if it tries to over-regulate AI. Sam Altman said that he had “many concerns” about the planned AI Act, which is due to be finalised next year. OpenAI: profits cap will no longer fit as capital surges in (Financial Times, Lex) reminds us that OpenAI started in 2015 as a non-profit research organisation with the noble goal to benefit humanity via AI. However, development costs are big – and getting bigger – so it created an offshoot called OpenAI LP, a “capped profit” division governed by the non-profit parent. Early investors agreed to caps

on returns of 100 times their money while later investors agreed to a 20x cap. This multiple reflects just how rare such a return is but the frenzy for all things AI would suggest that this cap is going to have to be lifted (or taken away?)!

Meanwhile, AI is an opportunity for creative industries, says Bertelsmann boss (Financial Times, Laura Pitel and Olaf Storbeck) reflects the opinions of the chief exec of Europe’s biggest media group, Bertelsmann (which owns publisher Penguin Random House and music label BMG) who says that he believes that AI presents a net opportunity, which goes against many of his peers in the industry who see it more as a threat because the rise in popularity of AI-generated ambient music pushing their acts down the streaming charts – not to mention intellectual property concerns. * SO WHAT? * There are already some interesting uses of AI emerging – such as using AI to dub popular TV shows into different languages, using it to automatically select appropriate background music for trailers for TV programmes and using it to “read” the emotions of protagonists in TV shows to place content-appropriate adverts. More uses will undoubtedly emerge as it continues to develop!

TikTok Is Testing Its Own AI Chatbot Called Tako (Wall Street Journal, Sarah E. Needleman) highlights TikTok’s current moves in AI as it develops its own chatbot to help users find content and get recommendations. So far, it has been tested in the Philippines, and will answer questions and have conversations with users. Still, the cloud of uncertainty still hangs over TikTok as to whether it will get banned. Until then, excitement is likely to be mooted I would have thought…

Then in Mass exodus of public shareholders from London metaverse fund as bubble bursts (Daily Telegraph, Matthew Field) we see that over 99% of investors in a SPAC designed to invest in the metaverse have withdrawn their money! £120m was pulled from the Hiro Metaverse Acquisitions I SPAC as SPACs overall continue to fade into nothingness. The amount of money raised in SPAC deals fell from a peak of $163m in 2021 to “just” $13.4bn last week, but this mass withdrawal also reflects ongoing scepticism about the viability of the metaverse.

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!

Retail slows but Pets at Home does well, Asos seeks assistance, UK lenders hike mortgage rates and energy bills look set to be higher for longer…

In retail news, ‘The world is not just China and the US’: luxury industry confident despite headwinds (Financial Times, Adrienne Klasa, Leila Abboud and Silvia Sciorilli Borrelli) suggest that there have been some wobbles in the luxury retail segment as share prices of LVMH, Hermes and Kering were all down by 5%, 6.5% and 3% in trading on Tuesday and continued to get weaker. LVMH rejected any suggestions that there were causes for concern and pointed out that newer markets like India and Africa provided plenty of growth potential while the performance of Europe, America and Asia remained solid. * SO WHAT? * Of course there are ongoing unknowns in US-China tensions, the war in Ukraine and the cost-of-living but the rich will continue to be insulated from the worst of it all as the rising cost of the “basics” form a much smaller percentage of their disposable income than those lower down the socio-economic scale. Chinese tourists, a major driver of luxury goods sales, continue to travel abroad in greater numbers and the growth of the country’s increasingly affluent middle classes is expected to continue to be a major driver for the foreseeable future.

Over in the US, Kohl’s, Costco, Lowe’s Sales Sluggish as Shoppers Pull Back (Wall Street Journal, Dean Seal and Sabela Ojea) shows that US consumer spending habits continue to adapt to straightened economic circumstances as retailers themselves get more concerned about their ability to pass on higher prices to customers. Overall, though, Americans have been spending a higher proportion of their disposable income on going out, which has benefited the likes of Urban Outfitters and Abercrombie & Fitch (which actually increased its revenue outlook for the year) while sales of big ticket items have fallen, which dented DIY retailer Lowe’s prospects. CostCo said that its average daily transaction amount also fell over the most recent quarter thanks to weakening sales of more expensive items. Middle income consumers are having a hard time, which is having a detrimental effect on retailers like Kohl’s, which has to try to offer more value to get customers to part with their cash. The flipside to this is that companies that offer up bargains are seeing brisk business. Discount chain Dollar Tree and Walmart are benefiting from their value offering, for instance.

Back in the UK, Retailers losing sales and staff as costs bite (The Times, Arthi Nachiappan) cites the results of the latest survey by the CBI which show that retail sales volumes fell this month versus the same period last year while staff headcount fell at the fastest rate since February 2009 following the financial crisis. Given the economic headwinds, retailers are now taking a very cautious

approach and it’s not likely to change too much in the near future although it is notable how both businesses and individuals seem to be getting more optimistic, especially as the fear of recession has faded…

Meanwhile, Pets at Home cashes in as a dog’s life is one of luxury (The Times, Isabella Fish) shows that we’re not shy of spending money on “high-end” food and accessories for our pets despite the squeeze on household incomes as revenues rose and membership of its VIP loyalty club and Puppy & Kitten Club are rising nicely. Annual pre-tax profit did fall, however, thanks to the costs involved in finishing off its new distribution centre. * SO WHAT? * The lockdown pet boom has definitely benefited Pets at Home, but it seems that pet ownership continues to grow and the company continues to push more profitable services like grooming and veterinary care. I personally think that once you own a pet you are much more likely to own them throughout your life so although there was a lockdown boom I would think that this won’t drop off appreciably.

Then in Asos seeks £75m from investors as revenue falls (The Times, Tracey Boles) we see that the troubled online apparel retailer is looking to raise cash from shareholders in order to bolster its balance sheet. This is all happening while management tries to streamline the business and become more profitable. * SO WHAT? * I think that this does not bode well for the company. If I were a shareholder, I’d want to see a robust action plan and material ways in which to tackle the ongoing problem of returns. I wonder if anyone will buy it?? Could there potentially be some kind of deal like M&S has with Ocado here? What about Primark (owned by Associated British Foods) for instance??

Consumers continue to face headwinds and UK lenders increase mortgage rates after gilt yields rise on inflation data (Financial Times, Siddharth Venkataramakrishnan, James Pickford and Akila Quinio) shows the immediate reaction by lenders such as Nationwide jacking up their mortgage rates to take into account this week’s revelation of a worse-than-expected inflation increase. Other lenders including Leeds Building Society, Foundation Home Loans, MPowered and Scottish Building Society said that they would be increasing rates or cutting some products as a result of the recent release. And it doesn’t stop there for the harried consumer – High energy bills are the UK’s grim new normal (Daily Telegraph, Ben Marlow) says that although the energy price cap has fallen, bills will remain higher for longer because we’re still importing gas, new nuclear power plants won’t be going online for a while yet, renewables are still unreliable and we are still behind on power storage.

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!

AJ Bell kicks 🍑, Fever-Tree takes market share and Cineworld rides again…

In a quick scoot around some of today’s other interesting stories, AJ Bell: DIY investment platform runs rings around rivals (Financial Times, Lex) highlights the company’s growing market share in investment platforms as it continues to beat rivals like Hargreaves Lansdown. DIY investing has been increasing in popularity over the years (it was given an appreciable boost under lockdown) and AJ Bell’s customer base has been growing despite economic headwinds. Assets under management continue to grow and revenues were up by an impressive 37%. I would have thought that increase in personal investing is only going to increase as time goes on.

Elsewhere, Here comes summer as Fever-Tree Drinks increases market share (The Times, Dominic Walsh) shows that the posh mixer company has continued to make progress and now has a 52.2% share of the mixer market! * SO WHAT? * It does seem to be firing on all cylinders now what with pub and restaurant revenues kicking in after a nightmarish Covid, decent supermarket sales and

solid performance from its new range of adult soft drinks – and we’re now heading into summer! I have to say that I think that this company is doing a great job but I worry that its product range may be too narrow to survive long term. I can see it getting snapped up at some stage by a giant like Diageo and becoming “just another brand”. I do think that there is more mileage to go in the meantime, though!

Then in Cineworld looks for fresh start amid plan to exit US bankruptcy (The Guardian, Kalyeena Makortoff) we see that the world’s second largest cinema chain (the biggest is AMC Entertainment, which owns Odeon) has indicated that it is going to exit bankruptcy protection in July after having secured more backing from lenders for its restructuring plan. This comes almost nine months after having filed for bankruptcy protection in the US due to massive debt problems and disappointing ticket sales. This is progress, but remember that its share price has fallen by almost 99% over the last five years! There is a looooooooong way to go yet!

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…

Following on from Monday’s “how to techno” video, I thought that this was the natural progression. Impressive!