Category: Protected – Watson’s Weekly

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that Japan raised interest rates out of negative territory, Vietnam was engulfed in scandal and Nvidia announced an even more advanced chip!…

• IN THE US – the Fed kept interest rates unchanged in the 5.25-5.5% range at its latest meeting but indicated that there would still be three cuts this year. Confidence is building about the economy moving towards the 2% target and markets and the dollar strengthened as a result.
• IN CHINA – official figures from the National Bureau of Statistics showed a jump in industrial production, which is great news for the country and suggests that the 5% GDP growth target for the year is achievable.
• IN JAPAN – the Bank of Japan pulled interest rates out of negative territory to a range of 0-0.1%. This is the first time Japan hasn’t had negative interest rates since 2016 and is the first raising of Japanese interest rates for 17 years! The BoJ originally cut interest rates to -0.1% in 2016 to encourage banks to lend more and stimulate spending.
• IN VIETNAM – the country’s president resigned after just a year in office, becoming the second Vietnamese president to do so in 14 months amid a crackdown on corruption. Talking of which, Vietnamese property tycoon Truong My Lan has been accused of embezzling $12bn from the country’s Saigon Joint Stock Commercial Bank (SCB) and bribing central bank officials. The scale of the fraud is astounding and Truong My Lan faces the death sentence if found guilty. Corruption in Vietnam is nothing new, but to give an idea of scale, this is almost triple the amount involved in Malaysia’s sovereign wealth fund 1MDB, which US officials have previously described as the world’s biggest example of kleptocracy!
• IN RUSSIA – Vladimir Putin, somewhat unsurprisingly, managed to win the Russian election by a massive margin, cementing another six years in power.
• IN ARGENTINA – new president Javier Milei continues to try to come good on his election promises to take a chainsaw to Argentina’s state companies. However, as he only holds less than 15% of the seats in Congress, he has had to water down his proposals in order to get anything done. The efforts will no doubt continue!
• IN EUROPE – the Eurozone’s trade surplus hit its highest level since data started in 2002 mainly thanks to a strong performance by Germany. This is good news if Germany’s performance is sustainable! Meanwhile, Dutch far-right leader Geert Wilders is finding it impossible to form a government as no-one wants to work with him. His Freedom Party may have to concede the premiership as a result, but you do wonder what will happen given that it was the electorate that voted for them in the first place! Then we saw Turkey jacking up its interest rates from 45% to 50% just ten days before local elections in a move that’s been interpreted as showing that the central bank is indeed independent from the government. It’s all part of efforts to bring giddily high inflation rates down in a conventional way after years of President Erdogan urging the exact opposite course of action to tackle inflation.
• IN THE UK – inflation fell to 3.4% in February, something that the Bank of England will have to take into account regarding the future direction of interest rates. Talking of which, the Bank of England left interest rates unchanged in its meeting this week although it hinted that there could be three cuts coming later this year. Government borrowing came in higher than expected in February, which will make it difficult for the chancellor to finance any additional tax cuts. On the plus side, the latest Lloyds Bank monthly economic tracker shows that economic growth has broadened, implying that recession may be short-lived!

IN MINING NEWS…

• Brazilian mining giant Vale is facing a £3bn lawsuit in the Netherlands over the 2015 Mariana dam collapse in Brazil, which was one of the country’s biggest environmental disasters and resulted in 19 fatalities and the pollution of hundreds of kilometres of waterways. This is in addition to the class action launched in England in 2018.

IN ENERGY NEWS…

• The world’s biggest solar panel manufacturer, Longi, announced that it would be cutting up to 30% of its workforce in an effort to accelerate cost-cutting efforts that it put in motion last year. I suspect this will make US solar panels even more paranoid about getting flooded by cheap Chinese product as Longi will presumably just want to get rid of its inventory and have no qualms about undercutting American rivals.

IN BUSINESS TRENDS NEWS…

• According to the latest Bank of America survey, fund managers around the world are feeling at their most optimistic for two years about the prospects for the global economy.
• Hong Kong’s security laws are about to get a lot tougher as the its Legislative Council has just passed a new law that will come out on Saturday. This law builds on the security law brought in by Beijing in 2020 and really clamps down on activities related to national security. I think this has been in the offing for a while and is going to be the final nail in the coffin of Hong Kong being a major financial and business hub for Asia.
• Novo Nordisk is potentially going to get the most almighty boost soon as Wegovy, its blockbuster obesity drug, is due to get approval in China this year. The latest stats say that obesity rates in China now stand at 50.7% of the population so the market it huge. Other domestic makers are working on their own obesity drugs but this Danish pharma company stands to make a ton of money at least until its patent in China expires in 2026.
• IN PROFESSIONAL SERVICES NEWS – PE firms are increasingly investing in professional services companies like consultancies, talent agencies and accounting firms as presumably they like to mix their high risk/reward investments with ones that are more stable. On the other side of the fence partnerships get access to cash quickly that helps them to expand. Accountancy firm Deloitte launched its biggest reorganisation since 2014 in an effort to cut costs and right size itself after a prolonged period where there has been a lack of deals while consultancy firm Accenture cut annual revenue forecasts in response to a slowing market and an “uncertain macro environment”. They said that business flow projections this year aren’t good.
• IN THE UK – the latest S&P Global/CIPS flash UK PMI reported growth in March for the private sector but momentum for the services sector saw a slowdown. It was also good to see that manufacturing appears to be bottoming out as well, meaning that a recovery is more broad-based. That being said, the manufacturing sector is having a hard time as Make UK says that factories are experiencing massive lead times as a result of what’s going on in the Red Sea at the moment.

IN EMPLOYMENT TRENDS…

• It seems that there is a rising trend of Gen-Z workers participating in the “QuitTok” trend where they film themselves being made redundant and then upload it to social media apps like TikTok. They are also posting content about losing their jobs that highlight not only what they are going through but also which employers are making the cuts! This could be highly damaging for QuitTokkers’ future careers but at the moment the job market is still buoyant. Once things get worse, they will get a dose of harsh reality.

IN CONSUMER TRENDS…

• UK consumer confidence has gone sideways, according to the latest GfK survey. Although confidence levels overall remain unchanged, consumers are more positive about their personal finances over the coming 12 months.

IN TECH NEWS…

• Intel is to receive $8.5bn in US government funding as part of efforts to expand domestic production capacity for high-end semiconductors. Intel wants to become a “national champion” and compete with Asian giants such as TSMC and Samsung. The funds will be used to build new facilities in Arizona, Ohio, New Mexico and Oregon.
• Google was fined about $270m in France by the country’s competition authority for breaching commitments it made to negotiate licence deals with an array of news publishers in the country. In 2022, it promised to give publishers estimates of indirect revenue generated when including news content in its search results but the authority deemed that it did not follow through on its promises. Interestingly, Google agreed to just pay the fine and not contest it. Elsewhere, Google is in talks with Apple about putting chatbots on every iPhone via its Gemini bot.
• The US Department of Justice – with a whole host of other state and district attorneys – is suing Apple for potentially abusing its power in smartphones to snuff out competition from rivals and restrict customer choice. Apple is being accused of staying ahead of rivals not by being better but by virtue of its “unlawful exclusionary behaviour”.
• IN AI NEWS – Nvidia unveiled an even more powerful chip to extend its dominance in the AU market – the Blackwell GPU (aka GB200). This will obviously benefit Nvidia – but it will also boost other related companies and suppliers. Microsoft just hired the co-founder of DeepMind and 70 staff from his start-up to run Microsoft’s customer-facing AI business. We also saw that “deepfake” music start-up Voicify is being taken to court by the UK industry body BPI who is saying that it is breaching copyright by allegedly using copyrighted works to create the tech that replicates artists’ voices.
• Xiaomi’s quarterly results came in above market expectations but fell short of annual sales projections thanks to weaker smartphone sales.

IN MEDIA NEWS…

• PE firm Apollo Global Management offered $11bn for Paramount Global’s film and TV studio. This could scupper a deal that is already under discussion with Skydance Media. It looks to me like M&A activity is certainly hotting up!
• Reddit launched its IPO this week and saw its share price boom by 48% on its first day! This is pretty amazing considering it hasn’t turned a profit since its launch in 2005, but it sounds like it played the AI card by saying that its content is used to train AI models.
• Warner Bros Discovery planned to launch its Max streaming service in Europe to challenge market leaders Netflix and Disney. At the moment, it makes about 80% of its sales in the US market, so there is plenty of room for diversification!
• ITV announced more job cuts, this time at its in-house advertising agency, ITV Creative, in response to the biggest advertising downturn since the financial crisis. All eyes will be on when ITV’s ad revenues turn a corner…

IN TELECOMS…

• Three UK swung into its first loss since 2010 after posting a big loss for 2023 immediately after posting a big profit in the previous year. It says that it really needs its merger with Vodafone to go ahead in order to get the requisite scale to prosper.

IN BATTERY NEWS…

• Chinese EV battery giant CATL posted solid earnings for 2023 and announced a surprise special dividend as it benefited from falling raw material costs last year. It remains China’s biggest EV battery maker by far – with a market share of 53%!

IN EV NEWS…

• Troubled EV maker Fisker has decided to pause production for six weeks while it has talks with a big automaker that could result in an investment that could save the company.
• Honda and Nissan announced an EV tie-up which will involve joint procurement and development of components, but there is scepticism as to whether this will work or not given the two companies’ fierce rivalry.
• Renault is calling for a European war chest to be built up and used to clip the wings of incoming Chinese competition in EVs.
• XPeng managed to cut losses and report record high revenues, bringing it closer to profitability.

IN CAR NEWS…

• Bentley reported its second-highest annual profit in its history whilst also walking back its commitment to go 100% electric by 2030. The massive average spend of customers on options for their cars (70% of buyers last year spent an average of €40,000 on options in their vehicles!) helped to offset a fall in demand from China in the first half of the year.
• In the US, the National Highway Traffic Safety Administration opened an investigation into a recent fatal crash involving a Ford SUV whose driver-assisted tech is suspected to be at least partly at fault for the incident.

• Close Brothers decided to launch a £400m capital plan just in case it has to start paying out compensation after an FCA investigation into dodgy car financing. Close Brothers has the most exposure to car financing so this seems to be a sensible course of action.
• Prudential announced a rise in profits as sales in insurance policies rose when the border was lifted with China. Hong Kong was the main growth driver last year and the company is on track to meet 2027 targets that it set itself in 2022.
• Direct Line launched a £100m cost savings plan after returning to profitability. The company is due to announce the conclusions of a “comprehensive strategy review” in July.
• Nationwide agreed to take over Virgin Money, with the enlarged group on track to become the UK’s second-biggest mortgage lender. It pledged to extend its “branch promise” for both brands and keep all existing branches open to at least 2028 (it was originally going to be 2026).
• Investment banking bonuses have been slashed at European investment banks thanks to the lack of deals. Will this be the year that turns around??
• M&G unveiled better-than-expected profits as it saw a sharp increase in fund inflows from retail investors offsetting outflows from its institutional asset management business.

IN COMMERCIAL PROPERY NEWS…

• Evergrande has been accused by the China Securities Regulatory Commission of inflating its revenues by $80bn over the course of 2019 and 2020. This Evergrande thing just isn’t going away…
• British Land sold half of its stake in Meta’s abandoned office block to Royal London Asset Management for £192.5m. It’s now being transformed into a lab space that will attract higher rents. You wonder whether we’ll see more deals like this as this deal limits the risk to the landlord.
• L&G has decided to exit the property market thanks to high costs and the admin involved. It’s going to sell British housebuilder Cala as the new CEO is keen on streamlining the business.

IN RESIDENTIAL PROPERTY NEWS…

• UK house prices rose by their biggest margin in 10 months, according to Rightmove. This certainly adds to the argument that the UK residential property market is picking up after a tricky 2023.
• UK rents saw their biggest ever annual increases over last year, according to the latest ONS figures, and the biggest rise was in London where average rents were £2,035 per month!

IN RETAIL NEWS…

• Kering, the owner of Gucci, issued a profit warning as Gucci sales were particularly weak in the Asia Pacific region. Gucci accounted for two-thirds of the group’s operating income last year, but to be fair to it there’s been new management and a new creative director so I guess this has not yet had time to properly kick in. The problem is that rivals LVMH and Hermès are doing pretty well at the moment, so that makes Kering look particularly poor in comparison…
• Temu’s owner PDD Holdings managed to more than double its quarterly revenues, dubbing 2023 as a “pivotal” year thanks to Temu’s progress.
• It was really interesting to hear that the rising incidences of shoplifting is prompting supermarkets in particular to rein in their conversion to self-checkouts as they are losing more from stealing than they would be saving from having human cashiers! Go Team Humans!!!
• DFS and Wickes reported weak demand for big ticket goods as consumers continue to rein in spending. Separately, Wickes just bought a 51% stake in Solar Fast, a solar power installation company, for £5m with an option to buy the remainder in 2025.
• Tesco lost its logo battle with Lidl and is going to have to drop the logo for its Clubcard loyalty scheme after losing its appeal. It won’t appeal the decision.
• IN APPAREL RETAIL – Next announced strong profits and talked about an improving consumer backdrop while, on the other hand, Ted Baker brought in the administrators. The company just hasn’t been the same since the abrupt departure of its founder, Ray Kelvin, in 2019.
• Curry’s is going to go it alone after all as its two potential suitors are out of the picture. It rejected two offers from Elliott Advisors and didn’t get the offer it was hoping for from JD.com in the end. Still, it managed to raise its profit forecasts for the year as it said that it is getting its Nordic business back on track!

IN CONSUMER GOODS NEWS…

• Unilever has decided to spin off its ice-cream business in an effort to streamline the business after a turbulent few years. Unless a buyer is found, it’ll just become a stand-alone listed company by the end of the year. Reckitt is going to continue to sell Enfamil in the US despite last week’s judgment by an Illinois state court where a mother who said her premature baby died after consuming Reckitt’s product was awarded $60m in damages. This could become a serious problem for the company but we’ll just have to see where this goes…

IN LEISURE NEWS…

• IN TRAVEL – Gatwick profits are up but passenger numbers are still below where they were pre-pandemic. Samsonite is looking at a potential secondary listing on the New York Stock Exchange in order to broaden its investor base (it’s been listed on the Hong Kong Stock Exchange since 2011) and take advantage of the current travel boom.
• IN RESTAURANTS/HOSPITALITY – Nespresso said it would open its first “Nespresso Bar” in Old Broad Street, near Liverpool Street Station in London. If it works, it will be rolled out across Europe. Hot choc brand Knoops is looking to expand fast both domestically and abroad in the Middle East, US and China. This sounds interesting because I think it has no real competition at the moment – but surely others will see how successful it is and copy it. Surely Hotel Chocolat, for instance, has the means to do this?!? Meanwhile, the latest stats from the Insolvency Service show that some areas of the hospitality sector have been suffering badly as the number of closures has been climbing. Until the cost-of-living crisis subsides I suspect that more businesses in this sector will go bust.

• Boeing’s nightmare continues as it said that cash outflow would be higher in Q1 than previous expectations thanks to the ongoing repercussions of the door plug blowout crisis. The company’s share price has fallen by 25% since the start of the year and quality concerns remain.
• Trustpilot announced a return to profitability last year as the number of unique users on its website jumped by 30% as the company showed “resilient retention and strong growth across all regions”.

My favourite video this week was the one of the really cool clock! I’d love to see this IRL!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that US inflation surprised, TikTok suffered a major setback and Xiaomi launched its first EV…

• IN THE US – inflation rose by 3.2% in February. This was above market expectations and shows just how hard it is to get inflation from 3% down to 2%, with 2% being the target rate! Meanwhile Biden’s approval rating continues to underwhelm despite US GDP growth last year being the best of any large advanced economy, inflation falling faster, unemployment flirting with record lows and the S&P hitting record highs this year. Separately, the Energy Department is about to grant a $2.26bn loan to Lithium Americas and it will be used to build a refining plant in Nevada as part of the broader effort to build a domestic supply chain of lithium and other battery materials.
• IN JAPAN – officially revised figures show that Japan didn’t, in fact, fall into recession for the second half of last year because output actually expanded for the final quarter of last year, meaning that the country avoided two consecutive quarters of contraction (which is what you need to have a recession). Initial figures had suggested that output had actually contracted in Q4.
• IN THE UK – it looks like the UK may already have pulled out of recession as the latest ONS data showed that GDP actually rose between December 2023 and January 2024 thanks to 0.2% growth in the services sector.

IN COMMODITIES NEWS…

• IN OIL – Saudi Aramco unveiled its second-highest annual profit ever despite lower oil prices and state-led production cuts. This helped it to increase its dividend by 30% year-on-year. OPEC left its oil demand forecasts unchanged for 2024 while the IEA increased its demand forecasts.
• IN GAS – US natural gas producer EQT just announced that it would buy back Equitrans Midstream, a pipeline business that it had previously owned, to create a $35bn integrated gas group. It believes that this move will position it to take advantage of an expected AI-powered uplift in power usage in North Virginia as demand for data centres increases (this area has the world’s biggest concentration of internet servers).

IN ENERGY NEWS…

• The British government is going to start offering cheaper power to energy-intensive manufacturers (e.g. metal refiners and EV gigafactories) in order to help boost production of key minerals used in things like wind turbines, EVs and defence technologies.
• Meanwhile, Great British Nuclear has decided to delay the decision on where the first SMRs will be sited until June, which means that the official awarding of contracts is now unlikely to happen until after the next general election.
• The prospect of a nuclear fusion-powered grid is getting ever-closer as there have been some major breakthroughs made by Britain’s First Light Fusion and Commonwealth Fusion Systems in terms of energy production. There is increasing belief that it will be commercially viable by the 2030s!

IN CRYPTO NEWS…

• The FCA has now dropped its ban on crypto-backed securities and said that it “confirms it will accept applications for the admission of bitcoin and ethereum crypto exchange-traded notes in the second quarter of 2024”. Bitcoin’s price jumped by 5% on the news as this is clearly another sign of crypto inching ever-further towards the mainstream.

IN BUSINESS TRENDS NEWS…

• China is definitely going lukewarm on Apple and Tesla these days and both companies are experiencing weakening market share and sales as a result. They have both also had to resort to discounting in order to drum up business. This is concerning for both Apple and Tesla because China is their biggest single market, accounting for 19% and 22% of total revenues respectively in the last few fiscal years.
• US solar panel manufacturers are in a “dire situation” thanks to soaring cheap imports from China. Cheap Chinese solar panels have been a real boon for US renewable energy developers but it has had devastating consequences for domestic makers. Local makers like First Solar and Heliene want stricter enforcement of tariffs and a swift return to the imposition of duties against south-east Asian imports. It sounds like EV makers could suffer the same fate as solar panel makers if they are not careful…
• German container shipping company Hapag-Lloyd expects an earnings hit this year thanks to weakening demand, an increase in shipping capacity (loads of ships were bought when the industry was caught short during the pandemic) and the impact of the Red Sea crisis. Speaking of which, Russia is benefiting from the Red Sea disruption as it’s seeing higher demand for rail freight between Asia and Europe.

IN EMPLOYMENT TRENDS…

• Japanese workers got their biggest pay rise since 1992 in the annual wage negotiations between companies and unions. This may put further pressure on the Bank of Japan to raise its interest rates out of negative territory!
• The pace of UK wage growth is slowing down, according to a recent report by REC-KPMG. In particular, the rate of growth for starting salaries has fallen to its slowest pace in almost three years. More food for thought for the Bank of England as it considers what it’s next move will be regarding interest rates…

• The US House of Representatives has approved a bill to ban TikTok from app stores unless it’s sold by its Chinese parent company, ByteDance. The Chinese aren’t best pleased, ex-US Treasury Secretary Steven Mnuchin is putting a consortium together to buy it but China is unlikely to approve the sale as it would breach its export control rules! If the US ends up banning it, it’s likely that other countries – including the UK – will think about doing the same thing.
• Reddit is seeking out a $6.5bn valuation from a flotation that could kick off at the end of this month. I think this thing’s a turkey as the whole area is having a nightmare at the moment, what with all the troubles at Vice Media and Buzzfeed. The cynic in me says that Reddit’s trying to get this IPO off the ground before its valuation falls. Obviously all those in the deal will pump this up to get the feelgood, but I just don’t think the fundamentals are there…
• Messaging app Telegram is now up to 900m monthly active users and nearing profitability. It’s still got a way to go to rival WhatsApp’s 1.8 BILLION monthly active users, but it’s going in the right direction.
• Reliance Industries said that it would buy out Paramount Global’s stake in Viacom18, a JV between the two companies, for over $500m. This looks like the latest “elegant exit” for Hollywood studios as Paramount, Disney, Warner Bros and Sony have all decided to scale back their ambitions in the country due to the massive gap between content production costs and low Indian user revenues.

IN BATTERY NEWS…

• CATL’s share price jumped by 14% on news that it would collaborate with Xiaomi and BAIC Motor on a new factory that will build advanced battery cells. It is thought that CATL will benefit from a new generation of massive production lines that would improve cost efficiencies and return on equity.

IN EV NEWS…

• The CEO of Mercedes-Benz appealed for Brussels to lower tariffs on Chinese EVs because he thinks that increased competition will be good for innovation. I would take this with a MASSIVE pinch of salt because over a third of Merc’s cars are sold in China, so it would seem to me that he is highly motivated to push the case for Chinese EV manufacturers! Also, Chinese carmakers Geely and SAIC own a roughly 20% stake in Mercedes-Benz…
• Porsche warned that its transition to electrification will take a toll on profits but the company said it was “laying the groundwork in 2024 for a flying start in 2025”. This could be achievable given the prospects of the new electric Macan, a Taycan facelift and a hybrid 911.
• Meanwhile, mobile phone maker Xiaomi did what Apple couldn’t – and produced its first EV just three years after it said it would enter the car-making business. It is said to have better acceleration than Tesla and Porsche EVs while one version of the vehicle has a range of up to 800km! Has Xiaomi found a niche for cars that are tech-led??
• BYD is experiencing headwinds in its overseas expansion thanks to the general cooling in demand for EVs, but it is also having quality issues. Its issues could of course get worse if governments start to slap extra tariffs on their cars to protect local manufacturers!
• Fisker is looking very dodgy at the moment and is preparing for a potential bankruptcy filing. It recently said that it might run out of cash this year and it issued a “going concern warning” only last month where there was “substantial doubt” about its ability to stay in business. Nasty. Investors are clearly assuming the worst as Fisker’s share price collapsed by 46% on this news!

• Metro Bank announced plans to cut 1,000 jobs and scale back its seven-days-a-week operating model in order to cut costs. Tough times…
• Asset manager Abrdn is trying to cut costs and drum up new revenue streams to mitigate the outflow of assets to rivals and low-margin passive funds. CEO Stephen Bird’s original aim was to cut costs and raise income by growing the wealth management business and selling more investments directly to customers. He is clearly failing miserably. I think his days are numbered…
• Hedge funds are threatening to pull investments from India due to new rules from the regulator that will force them to “out” their underlying investors. The new rules were probably designed to prevent further Hindenburg-like shorting attacks on Indian companies although the official line is that the Indian regulator just wants to “better understand the ultimate investors buying Indian stocks”.
• Bain & Co released a report which concluded that PE firms are sitting on a record €3tn pile of assets after making tons of acquisitions over the last few years. PE firms loaded up on assets for knock-down prices during the Covid years when money was cheap and they are now left wearing hefty portfolios that they can’t easily sell. The problem is that they’ve not been able to offload assets, which means that investors can’t get their money out. And because investors can’t get their money out, they are reluctant to put more money in.

IN COMMERCIAL PROPERY NEWS…

• There’s now more empty office space in New York than in London, according to data from CoStar, as working patterns continue to evolve. At the moment, 9.2% of London office space is now vacant (versus just over 5% pre-pandemic) whereas New York is now experiencing a rate of 14% (this was below 9% pre-pandemic) – and the gap is expected to get wider.
• That being said, credit rating agency Moody’s said that it will be leaving Canary Wharf and heading to the City after it did a review last summer. This just adds to the talk of the ongoing Canary Wharf “exodus” (HSBC and Clifford Chance are also high profile tenants who are heading that way as well). The office vacancy rate in Canary Wharf now stands at 16% – its highest level for years.

IN RESIDENTIAL PROPERTY NEWS…

• UK mortgage arrears rose 9.2% in 2023 over the last quarter, according to the latest Bank of England stats. Although the absolute level of arrears is pretty low, the rate at which they are rising is potentially a cause for concern.
• The latest RICS survey showed that UK estate agents are feeling at their most optimistic regarding the near-term growth in house prices since June 2022.
• Vistry has managed to weather the housebuilding storm by building homes for housing associations and big build-to-rent landlords. I do wonder, though, whether whether rivals will bounce back more strongly when the housing market improves, as it is expected to do.

• IN CHIP NEWS – a Singapore-based chipmaking start-up, called Silicon Box, is looking to invest €3.2bn in a chipmaking plant in Italy. It plans to produce chips for AI, EVs and high-performance computing. This is great news for Italy, but also for the EU as the bloc set a punchy target of doubling its semiconductor production capacity by 2030 to 20% of the global total versus the 10% in 2021. Elsewhere, Arm unveiled its first chip design to power self-driving cars in a move to reduce its reliance on smartphone processors. The company believes that there is a lot of room for growth in automotive.
• Apple has decided to bow to Brussels and allow iPhone apps to be downloaded directly from their developers’ websites for the first time from this spring. This is all about complying with the Digital Markets Act which will come into effect later this month. Meanwhile, Apple announced plans to open its eighth store in Shanghai in a central business district this month. Will this help to arrest the current slide of iPhone sales??
• Nintendo and Universal Pictures announced plans to release a sequel to last year’s successful Super Mario Bros’ movie. It is scheduled to be released in April 2026!
• The National Audit Office reckons that the government’s recently announced plans to use AI to cut costs in the Civil Service may be tricky due to the existing “ageing IT infrastructure”. It was never going to be a smooth ride now was it!?!

IN RETAIL…

• IN THE US – US retail sales bounced back, albeit by less than the market was expecting. This was good news after a slow beginning to the year. Food for thought in the Fed’s next meeting re what to do with interest rates. Meanwhile, Dollar Tree, owner of the Family Dollar chain, said that it would be shutting down almost 1,000 of its 16,700 outlets over the next few years as it recalibrates its offering. I wonder whether the company’s positioning itself for an upturn in the economy and its customers being able to buy more.
• IN APPAREL – Superdry is now in talks with Hilco about a new loan to help with its turnaround efforts. Its nightmare continues. Zara owner Inditex announced plans to spend €1.8bn to boost its logistics “muscle” and power sales growth. It reported a strong start to the current quarter and continues to outperform arch-rival H&M.
• John Lewis managed to drag itself back to profitability, but isn’t going to share the love with its workers as it’s not going to pay a bonus (again). The company decided to ditch targets in non-core areas and focus (at last!) on retail!
• Morrisons announced a £1bn loss for last year as debt payments related to its private equity takeover increased. It continues to lose ground to the German discounters and I think it is in dire need of a new and distinct identity otherwise its decline will be terminal.
• US activist hedge fund Elliott Advisers decided to give up on buying Currys after having two offers rejected. Currys is holding out for an offer from Chinese giant JD.com.

IN LEISURE…

• Cathay Pacific manage to post its first annual profit since the pandemic thanks to a rebound in travel demand. This is just the latest example of an airline benefitting from a rebound in international travel!

• IN PHARMACEUTICAL NEWS – AstraZeneca boosted its drugs pipeline with the $1bn acquisition of French rare diseases company Amolyt Pharma while Eli Lilly announced a deal with Amazon to deliver medicines in America. It was also interesting to see just how important Wegovy has been not just to Novo Nordisk – but to the entire Danish economy!
• Adidas announced its first loss in 30 years as the end of the Yeezy collab hit hard. The company does, however, expect things to get better this year.
• Lego reported its slowest growth for seven years but managed to outperform its rivals in what the CEO said was the worst toy market for 15 years.
• The CMA announced that it would launch an investigation into the veterinary market over concerns that consolidation over the last few years has led to pet-owners being fleeced by overpaying for medicines and prescriptions.
• Deliveroo announced better-than-expected results for 2023 and was quite upbeat about its prospects for this year. There is still, however, a cloud hanging over the company in the form of the never-ending debate over whether workers should be classed as employees or contractors!

My favourite video this week was the one with the amazingly athletic basketball referee! Incredible skills!!!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week where Trump wrapped things up, Hunt announced potentially his last Budget and Nationwide bought Virgin Money…

• IN THE US – Trump continued to gain momentum this week on the campaign trail to the White House and we took a look at the six US swing states that he’ll be fighting over with Biden to be re-elected as president. The long, dull and needlessly-drawn out election process continues…
• IN CHINA – an official GDP growth target of 5% for the year was announced but there are doubts as to whether China will be able to hit it because last year’s 5.2% GDP growth was powered by consumption and weak comparatives with the previous year. Weakening consumer confidence and the prospect of more sanctions could make 2024 more difficult. Officials announced a radical plan to stimulate demand in China’s sluggish economy whereby old vehicles, fridges and washing machines could be exchanged for new ones, but the announcement was light on detail. Official figures showed that last year’s trade was boosted significantly by by exports to Russia, which became China’s fifth biggest single-country trading partner last year. Meanwhile, we saw that China’s defence spending is going to increase by 7.2% this year although some experts reckon this could be up to 30-35% light because it doesn’t include a number of things that others include when posting such a number.
• IN EUROPE – the ECB talked about June as being the earliest one could expect an interest rate cut, after it lowered official forecasts for inflation. Meanwhile, eurosceptic far-right Rassemblement National (RN) leader Marine Le Pen kicked off her European election campaign. The party is currently doing very well and it is on the way to becoming the biggest French party in the European parliament!
• IN THE UK – chancellor Jeremy Hunt announced what could potentially be last ever Budget. Most of the stuff had been trailed in the lead-up by the overall impression was that it was unexciting. Meanwhile, Hunt decided not to extend the policy of allowing councils to keep 100% of the proceeds of council house sales that was due to come to an end this April. This was particularly painful for English councils who are already facing extreme difficulties with finances. On the plus side. the latest S&P Global/CIPS composite PMI showed that overall business activity had been on the rise for four months in a row, leading some observers to conclude that the UK has already dragged itself out of recession.

IN COMMODITIES NEWS…

• OPEC+ members decided to extend existing production cuts until the end of June (they had originally been due to expire in March) in order to bolster the oil price. This had been widely expected in the market. Meanwhile, iron ore prices continued to fall, as did pork prices – which have a major effect on China’s inflation, given that China is both the world’s biggest producer and consumer of pork.

IN ENERGY NEWS…

• The UK’s renewables sector got an unexpected boost this week as the government announced a £1bn annual subsidy for the next UK renewable energy auction. This is four times as much money as had been made available before. The government also announced that it had agreed to buy two sites intended for nuclear power plants from Hitachi in ongoing efforts to kick-start plans for a new generation of reactors.
• There was an interesting report published by the Climate Action against Disinformation group which says that AI is going to cause a spike in energy use and that companies need to be more transparent about Big Tech’s AI-related energy use. It also warned that AI could help spread disinformation about climate science.

IN CRYPTO TRENDS…

• Bticoin smashed through its previous $69k-ish high but Sam Altman’s Worldcoin ran into more resistance – this time in Spain. Worldcoin’s collection of biometric information in return for some obscure digital token is not sitting right with a number of governments and authorities around the world!

IN BUSINESS TRENDS NEWS…

• Washington is now pushing for more tech export restrictions to China among its allies. The Netherlands and Japan are already on board but South Korea is proving to be reticent on this. It seems that the US is getting increasingly paranoid about China’s progress in tech, but particularly in semiconductors.
• The share price performance of US defence companies is lagging that of their European counterparts but this may be due to a logjam at the moment in Congress as the 2024 defence budget has yet to be approved. This is worrying investors about the future government’s commitments. Lawmakers have until March 22nd to pass the 2024 defence budget.
• M&A is showing signs of a turnaround. Morgan Stanley, Goldman Sachs and Lazard are all talking about a potential rebound in activity and there seem to be plenty of decent companies knocking around in the UK with attractive valuations.
• The Red Sea situation continues to pose difficulties as underseas cables that take internet traffic between Europe and East Asia are proving to be very difficult to maintain and repair given the current Houthi attacks. Shipping services provider Clarkson is having no such problems at the moment, though – and it has even seen an increase in demand for its advisory services.
• Meanwhile, serviced office provider IWG continues to benefit from the hybrid work trend as demand for offices in locations outside big city centres continues to get stronger.

IN EMPLOYMENT TRENDS…

• UK wage expectations are losing momentum as a survey of 3,000 CFOs shows that there’s an expectation of a wage growth slowdown. Wage growth is a major worry for the Bank of England as it could potentially stoke inflation just as it’s now coming down.

REGARDING CHINESE EVs…

• Chinese EVs sell well because they’re cheap and good, according to the chief exec of battery materials maker Umicore. While US makers are reining in production, China continues to plough ahead to the extent that sales of EVs made up over a third of new vehicles sold in China in 2023 versus 28% in 2022 and BYD has overtaken Tesla as the world’s biggest EV manufacturer! Chinese manufacturers are able to churn vehicles out because they don’t have any production “baggage” and they have really been able to streamline the process of going from design to production. If legacy manufacturers don’t learn from their Chinese counterparts and the way that they get their vehicles to market so quickly, they will fall further and further behind. Chinese EVs are coming to Europe, according to shipbroking giant Clarksons, as manufacturers have even gone as far as buying their own carrier fleets! At the moment, Chinese makers have about a 10% market share of the UK EV market but they want to expand that aggressively.

REGARDING EVs IN GENERAL…

• Both Tesla and BYD cut prices this week as the price war continues.
• Tesla had to stop production at its German gigafactory following a suspected arson attack on the power grid. Tesla’s German woes continue…
• Rivian unveiled two new lower-priced EVs in an effort to stimulate sales.

REGARDING CAR SALES…

• UK car sales hit their highest February level in 20 years but the proportion of cars sold to individual buyers actually fell (fleets were the big buyers) as range anxiety and hefty sticker prices continue to put people off making the jump to electrification. It was also interesting to hear that prices for used cars are now stabilising and margins are returning to normal, according to the boss of car dealership Vertu Motors. That being said, he observed that the retail demand for battery EVs (BEVs) remained lacklustre, despite a high level of discounting.

IN BANKS NEWS…

• The IMF warned that there would be bank failures in the US as high interest rates and weakening commercial real estate prices are endangering the whole sector.
• Banks want a crackdown on Apple as it continues to pursue its interest in the financial sector. Banks say that Apple’s access to users’ spending data will give it unfair advantage.
• Monzo got its $5bn valuation as it attracted another $430m investment in its latest funding round.
• Nationwide put in an offer to buy Virgin Money in a deal worth £2.9bn. This is the UK’s biggest banking deal since the 2008 crisis and the enlarged company would be the UK’s second biggest bank in terms of mortgages and savings.

IN INSURANCE NEWS…

• The new boss of Legal & General decided to take action in response to falling profits at its investment management business. Bonuses were slashed and hiring is restricted for the moment until the CEO conducts a “thorough review of the business”.
• Aviva’s profits rose thanks to a boom in demand in the UK for private health insurance as NHS waiting lists get longer.

IN RETAIL…

• US retailer Target announced its first sales decline since 2016 but it will now be embarking on a refresh to turn things around. Investors liked what they heard in the plan and sent the share price up by 12% in response.
• JD.com unveiled Q4 results that came in above expectations and investors liked plans announced by the company to plough excess profit back into the company as well as the setting aside of a chunky amount for a share buyback programme.
• IN THE UK – data from a BDO report showed that retailers had been hit by the longest sales downturn since lockdown as shoppers cut spending for the fifth month in a row. Another report from BRC and KPMG also showed that retail sales were hit last month thanks to the rain and cost-of-living crisis. Some of Britain’s biggest retailers lobbied ministers about Shein’s alleged used of tax loopholes to dodge customs bills, pushing back on Hunt’s recent efforts to tempt Shein to list on the LSE. Meanwhile, M&S saw its grocery sales outpace those of Aldi and Lidl as the M&S recovery continues to gather pace. Data from research company NIQ showed that M&S was the fastest-growing traditional grocer over the last 12 weeks!

IN LEISRE/RESTAURANTS NEWS…

• Greggs put in a great performance as it announced record annual profits whilst overtaking McDonald’s as the UK’s most popular breakfast takeaway. It also dished up a tasty bonus as a thank you to its workers. I think it’s doing a great job, but I think that there’s even better growth to be had in railway stations and airports – something that SSP and WH Smith are already benefitting from!
• Starbucks has suffered from boycotts in its Middle Eastern franchises because of its stance on the Gaza war. The group that owns franchises in the region, Alshaya Group, said it would cut 4% of its workforce due to “difficult trading conditions”.

IN TECH NEWS…

• Apple was slapped with a €1.8bn fine for breaking EU law over streaming five years after Spotify made the original complaint, accusing Apple of anti-competitive behaviour. Apple is going to appeal the decision but it’s likely that there will more of this sort of thing to come from regulators who are keen to maintain some kind of control of Big Tech. Apple is also facing a probe from the EC over its decision to ban Epic Games from its App Store.
• 17 city governments in China are trying to help smaller AI start-ups by giving them “computing vouchers” that will help them with data centre costs. Giants like Alibaba, Tencent and ByteDance are hogging all the expensive GPUs and Chinese authorities want to ensure that the minnows in AI don’t get stifled by the big fish in the pond before they can mature!

IN MEDIA NEWS…

• Meta and Google are doing very well from Temu’s massive ad spend in its bid to crack America! Temu is Meta’s #1 advertiser and it’s also in Google’s top five! The question is whether this will work long term or whether it’ll go the same way as Wish did a few years ago and wither away…
• ITV announced plans for additional cost cuts as it completed a £150m cost savings plan a year ahead of schedule and still needs to cut costs further because ad spend is still poor.
• Hipgnosis slashed the value of its music portfolio by 26.3%. Investors continue to question the value of its song catalogue as Hipgnosis has seen its share price halve over the last two years.

• IN M&A NEWS – Mondi has, appropriately for a packaging company perhaps, made an all-paper offer for smaller rival DS Smith that would create a £10bn giant in the industry. This combo has long been debated and if it went ahead it would create Europe’s biggest manufacturer of corrugated cardboard for packaging and boxes. Meanwhile, Warner Music Group is thinking of spoiling the party by potentially tabling an offer to buy French digital music company Believe that would be higher than the one made by a couple of private equity firms. Warner is just going to do some due diligence before launching a proper offer but the PE bid is at €15 a share versus Warner’s offer which could be €17 a share.
• IN REAL ESTATE – Foxtons reckons that the rent boom (especially in London) is losing momentum due to a greater supply of properties and a cooling off of demand and the latest S&P Global/CIPS construction PMI shows that activity stabilised in February thanks to improved demand prompted by falling inflation and rising expectations of interest rate cuts. It’s not yet back to growth, but it is knocking on the door.
• Eli Lilly is racing to boost production capacity for its obesity drug Zepbound that will compete with Novo Nordisk’s blockbuster appetite suppressant Wegovy. This is a huge market and the company clearly wants to surf this wave!

My favourite video this week was the one about how to make your own house! I thought this was pretty amazing!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that bitcoin breached $60,000, China paranoia increased and Ocado and M&S got feisty…

• IN GLOBAL NEWS – the global tax deal put together by the OECD back in 2021 is looking precarious. Over 135 countries signed up to paying a minimum 15% corporate tax rate in this deal and the US is getting particularly wobbly about it. If the US doesn’t sign I would have thought that the whole thing will fall apart (or at least be rendered pretty useless).
• IN THE US – the core inflation number rose between December and January, which means that it is more likely that the first interest rate cut is likely to be delayed until the summer.
• IN EUROPE – inflation in the Eurozone’s two biggest economies (Germany and France) fell to its lowest level since the middle of 2021 but services prices remained strong, making it more difficult to discern when the ECB should start to cut rates. Also, Hungary backed down, allowing Sweden to join NATO.
• IN THE UK – a member of the MPC blamed stubbornly high inflation on rich people spending “disproportionately” on travel, eating out and entertainment. She’s got a point but asking these people to spend less money isn’t going to go well – so the only way to curb their enthusiasm would be to tax them, which isn’t going to go well either, especially when there’s an election coming this year. Meanwhile, chancellor Hunt is considering the ditching of “non-dom” tax status as part of efforts to fund pre-election tax cuts while English councils face tough times ahead in terms of funding – as an annual survey of English councils showed that 10% of them believe that they’ll go bust in the next 12 months if things continue as they are.

IN OIL NEWS…

• We see that, despite Joe Biden’s best efforts, oil and gas industry profits have tripled during his term in office! Despite this, the industry still wants the Republicans to win the next election as the oil and gas companies feel that they will be more supportive. It seems that the industry may not get affected by who is in office by as much as had previously been thought.
• Research by European energy consultancy Rystad shows that western Europe has mostly switched away from reliance on Russian oil and into oil from the US and Canada. Meanwhile, Russia has been increasing its supply to China and India who have been getting it at a discount.

IN ENERGY NEWS…

• It looks like asset managers are continuing to move away form green investments and it’s possible that this could slow down the energy transition as the companies won’t have as much access to cheap money as they had in the past.
• We saw that there’s a project going on at the moment where Britain is going to be linked to the Sahara via cables laid on the seabed with solar panels on the Morocco end and a substation on the UK end! It sounds like it should be inefficient (because of the distance the electricity has to travel!) but it will still be able to provide a sizeable amount of electricity.

IN CRYPTO NEWS…

• Bitcoin breached $60,000 for the first time in two years! Where will it stop? Not far to go now before it hits the $69,000-ish that it hit in 2021!

IN BUSINESS TRENDS NEWS…

• The Red Sea is still disrupting shipping. A report by the BCC said that over 37% of Britain’s exporters have been impacted by the ongoing disruption in the Red Sea via increased costs and delays.
• Joe Biden has now declared that Chinese EVs pose a security threat and has ordered an investigation into whether they can be used for spying (remember that the Chinese said this about Tesla cars not long ago and banned state employees from owning them). The EC is already looking into whether Chinese car manufacturers have been unfairly helped by the state and although tariffs could be imposed to level the playing field, European car manufacturers think that this may not be enough. Officials from the UK’s Department for Business and Trade are also thought to be on the verge of launching a similar investigation. As if to underline the danger, the municipal government of Shenzhen announced a raft of measures designed to facilitate car exports for Chinese manufacturers.
• UK SMEs are very concerned about high inflation and high energy bills, according to BDO’s “Economic Engine” survey. There are also concerns about funding options for business expansion.

IN CONSUMER TRENDS NEWS…

• A big survey was carried out by the Association of International Retail which showed overwhelmingly that tourists would spend more in the UK if they reintroduced the scheme whereby they could reclaim 20% VAT on purchases.
• Data compiled by by Sensormatic Solutions and the BRC shows that Britain has seen its sharpest drop in high street footfall since the pandemic in February! This was blamed on one of the wettest ever Februarys and train strikes.
• There’s good news for UK retailers as the latest figures from the CBI show that the balance of retailers reporting weakening sales has dropped to its lowest level for ten months, meaning that consumers are spending again! Also, food price inflation is slowing down according to the BRC shop price index.

IN EMPLOYMENT TRENDS…

• The number of UK workers on zero hours contracts has gone up, according to research from the Work Foundation at Lancaster University. Those in unstable jobs were more likely to be particularly vulnerable to consistently high inflation as they are more likely to be in a position where they have had to trade security for flexibility that zero-hours contracts give.
• Royal Mail is getting sued by its Parcelforce delivery drivers in an action that is similar to that of Uber and its drivers where workers were initially classified as “contractors” rather than “workers”.
• The number of job vacancies has fallen by almost 15%, according to Adzuna, thanks to businesses being subject to high borrowing costs and recessionary gloom. In theory, this feeds into the argument that interest rates need to be cut sooner rather than later to give businesses more of a chance to borrow money at a lower cost in order to expand.
• UK law firm Pogust Goodhead, which specialises in group actions, announced that some junior lawyers could get paid up to £2m over three years! This is being made possible by an unusual agreement where American fund manager Grammercy invested £550m in the company, £200m of which is going to be a bonus pool from which partners and other lawyers can draw. It will be interesting to see whether other deals like this start popping up, especially as there seems to be increasing speculation that class actions will become a “thing” over here…
• IN LAYOFFS NEWS – Expedia announced that it would be cutting headcount by 9% and Electronic Arts said it would cut about 5% of its workforce as both companies engage in streamlining their respective businesses.

OVERALL…

• Google is now getting sued for $2.3bn by 32 media groups who say that they had suffered losses thanks to Google’s conduct in digital advertising.

IN AI NEWS…

• Apple shareholders Norges Bank Investment Management and Legal & General are pushing Apple to disclose more information about AI risks that the company faces, particularly around ethics. There are increasing calls about this sort of thing regarding AI but at the moment, disclosure isn’t actually binding.
• Big Tech companies continue to invest in smaller AI companies to keep ahead and we saw that Microsoft, OpenAI and Nvidia backed Figure AI in its latest funding round as it tries to bring AI-powered humanoid robots to the workforce “as soon as possible”! Amazon’s $1bn industrial innovation fund is also looking to invest in AI and robotics! Also, Microsoft agreed a “multiyear partnership” with French AI start-up Mistral as it broadened its involvement in AI.
• I thought that there was an interesting article on AI being thirsty! Development of AI involves vast computing power, which involves data centres – and those data centres need cooling down, which means that they need water. This, in turn, raises the question of the environmental impact of the current AI boom.
• IN CHATBOT NEWS – the BBC and the Civil Service are now dabbling in AI! BBC journalists will be using it to write headlines and repetitive admin tasks at the Civil Service will be carried out by chatbots in a bid to cut costs. Klarna said how good its customer service chatbot is! This chatbot, developed with OpenAI, is now handling the work of about 700 agents and is both faster and more accurate in solving issues – all whilst maintaining similar levels of customer satisfaction! Very scary…meanwhile, Chinese chatbots are now facing scrutiny by the newly-formed Artificial Intelligence Safety Institute, which will see whether AI systems present national security threats.

IN GIGAFACTORY NEWS…

• Tesla’s German gigafactory problems are continuing as officials from the water authority near Tesla’s factory in Grünheide want Tesla to close its wastewater line until further notice. There are concerns about Tesla’s factory expelling six times the permitted about of hazardous pollutants in the water system despite repeated warnings.
• JLR owner Tata announced plans to build a gigafactory in Somerset, just outside Bridgewater. It will be the biggest battery factory in the country and will be expected to supply almost 50% of the forecast battery manufacturing capacity needed for the automotive sector!

IN EV NEWS…

• Apple announced that it had abandoned plans to make its own EV. Some of those working on the secretive “Project Titan” will now switch to working in Apple’s AI team.
• Tesla unveiled its new car – the Roadster – and said that it will start shipping next year. The sports car’s 0-60mph time is an insane sub-one second!!!
• VW expanded its partnership with Chinese partner XPeng to collaborate on software and sourcing. A smart move IMO as VW continues to lose traction in the world’s biggest EV market.
• EV start-up Fisker announced a “going concern” warning this week, adding that it would cut staff numbers by 15% following a number of glitches during its first year of production. It’s not looking good…

IN OTHER CAR NEWS…

• It seems that Toyota’s view that hybrids were the way to go is actually turning out to be true! Sales of hybrids continue to climb whereas BEV sales as a proportion of new car sales are falling.
• Aston Martin’s losses are narrowing (good news) but the launch of its first electric model is going to be pushed back from 2025 to 2026 thanks to ongoing supply chain problems.

• Russia’s biggest state-owned lender, Sberbank, posted record profits thanks to a boom in domestic lending. Households have snapped-up state-subsidised mortgages and business have been borrowing money.
• Skipton Building Society’s 100% mortgage (the “Track Record”) mortgage has proved to be successful. It’s had a successful first nine months, arrears levels are at zero and it is a well-regarded product. This is particularly interesting in light of the talk that abounded this week about 99% mortgages…
• American Express announced plans to roll out BNPL in the UK where it will allow certain Amex users to pay for purchases worth £100 and over in equal instalments over three, six or 12 months for a fixed fee but no additional interest. How long can Klarna stay ahead??
• Klarna announced its fifth annual loss in a row. It’s aiming to float on the NYSE but I think that it needs to do this sooner rather than later before competitors eat away at its business.
• Britain’s biggest wealth manager St. James’s Place saw its shares tumble after it put aside £426m to cover potential refunds to disgruntled customers but it could get worse as negative newsflow erodes customers’ confidence…
• Hedge fund Man Group and asset manager Schroders posted disappointing numbers due to poor performance from quant strategies and restructuring costs respectively!

IN GLOBAL TRENDS…

• House prices have been rising worldwide, according to the FT’s analysis of OECD data. Many are now concluding that the deepest property downturn in a decade has pretty much bottomed out. House prices are now increasing or stabilising in most advanced nations whereas those in other countries are at least falling at a slower rate.

IN UK CONSTRUCTION…

• The CMA announced this week that it would be investigating the “suspected sharing of commercially sensitive information by housebuilders, which could be influencing the build-out of sites and the prices of new homes”. It will try to ascertain whether Barratt Developments, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and/or Vistry have colluded on house prices, the rate at which new homes are built and incentives offered to buyers. Some say that this is more down to the complexity of planning laws rather than anything else more sinister.

IN MORTGAGES…

• We saw speculation build about Hunt considering 99% mortgages, but he scrapped the idea due to a backlash from lenders who warned that such mortgages could prompt a surge in defaults among borrowers.
• Meanwhile, mortgage approvals hit their highest level since October 2022 and although expectations for an interest rate cut have cooled down a bit recently, they are still expected to fall (and bring mortgage rates down with them).

IN COMMERCIAL PROPERTY NEWS…

• Hammerson sold the Union Square shopping centre in Aberdeen for £111m, 8% lower than its value at the end of last year, to US-based real estate fund Lone Star as Hammerson ploughs on with offloading “non-core” assets. Hammerson has now sold off all of its less-dominant properties, freeing up more cash and leaving behind a more focused portfolio.

IN RETAIL NEWS…

• Electrical goods retailer Currys is attracting bid interest! It’s so far snubbed advances from activist investor Elliott Advisors and seems to be holding out for an offer from China’s JD.com, which has been doing its due diligence.
• Homebase is now up for sale again for the second time in four years as owner Hilco Capital wants to flip it after selling off assets and cutting rents. Homebase’s results were a bit of a shocker, though, as it reported big losses in a “challenging year”. It’s now looking as appealing as the last turkey in the shop…
• Halfords announced its second profit warning in just over a year! Cycling, retail motoring and consumer tyres underperformed but its service, maintenance and repair business did OK.
• IN GROCERY RETAILING – the latest Kantar figures show that Asda is lagging all of its major rivals on sales growth as its market share continues to erode. Lidl was the strongest performer over the latest quarter. Sainsbury’s is on the verge of reducing headcount by 1,500 as part of efforts to streamline the company in order to stay ahead of rivals. Also, the relationship between Ocado and M&S is getting increasingly tetchy as the former is threatening to sue the latter for what it sees as a payment that it is legitimately owed. M&S maintains that previously-agreed targets have not been hit, meaning that they are holding back on a £190m payment.
• IN OTHER NEWS – the UK is trying to persuade Shein to list on the LSE. It could potentially get a decent valuation over here as UK investors actually know quite a bit about fast fashion, but I maintain that there is big litigation risk with Shein as its stellar growth has, allegedly, been at least partly due to copying other brands’ designs.

IN LEISURE NEWS…

• British Airways owner IAG posted strong results on the back of the travel boom, EasyJet is about to return to the FTSE100 after a four-year absence and Ryanair is pushing Boeing for compensation for aircraft delivery delays.
• Red Engine, which owns darts-themed Flight Club and shuffleboard-themed Electric Shuffle, has seen sales boom since 2022 and announced the opening of more venues this year. It seems that customers can’t get enough of the experiences!

• IN MEDIA NEWS – Universal Music Group’s war on TikTok is intensifying as both sides are digging their heels in. UMG says that TikTok needs to pay more for access to music from its artists and TikTok is refusing to budge. If TikTok gives in now, it’s going to have to renegotiate will all the others! Meanwhile, UMG announced that it’s planning on streamlining its business although earnings actually increased over the course of 2023. Elsewhere, Disney announced a merger of its India business with Reliance Industries after its initial foray in the country fell short of expectations. This way, it can still keep skin in the game but not spend too much time on it.
• Alcoa has just agreed to acquire Australia’s Alumina for $2.2bn in the latest deal in the mining sector. Alcoa says that this deal will speed up decisions and help with cutting costs.
• Wincanton, Britain’s last independent road haulier, is now subject of a bidding war as the previously agreed bid with France’s CMA CGM looks like it’s going to be gatecrashed by an offer from America’s GXO.

My favourite video this week was the one about what it’s like to keep up with marathon superhuman Eliud Kipchoge! Amazing!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that the Nikkei hit its highest level for 34 years, Nvidia absolutely smashed it and Capital One laid down the challenge to credit card giants with its $35bn deal to buy Discover Financial…

• IN MARKETS & GLOBAL NEWS  – we see that the Nikkei, Europe’s Stoxx 600, the S&P500 and Dow Jones all reached all-time highs in trading this week while the NASDAQ also climbed as Nvidia’s success in AI stoked investor feelgood. Separately, the latest data from the Institute of International Finance (IIF) showed that global debt levels hit a record high thanks to higher interest rates impacting borrowing costs for governments and companies alike.
• IN THE US – the Fed minutes of the most recent meeting were published and it sounds like the rate-setters of the FOMC are keen for everyone not to get too hung up on hopes for imminent interest rate cuts, saying that they remains “highly attentive” to inflationary pressures.
• IN CHINA – we saw that the economy had a strong start over the eight-day lunar new year holiday as consumer spending over the period rose by 34% year-on-year and 19% versus pre-pandemic levels in 2019. This was the first time for five years that the festival managed to go ahead without any kind of Covid-related restrictions!
• IN EUROPE – the EU election campaign started officially this week and EC president Ursula von der Leyen is keen to get re-elected for another five-year period. Many will be relieved to hear that the latest S&P Global’s flash eurozone composite PMI showed that business activity across the bloc managed to reach an eight-month high despite a deepening contraction in Germany’s business activity. Speaking of Germany, the country’s central bank reckons that the country is “likely” in recession and that the “ongoing period of weakness” will continue for the foreseeable as it tries to deal with strikes, a problematic property sector and its bumpy transition to net zero, not to mention increasingly “cautious” consumer spending. It doesn’t look like getting much better any time soon as its coalition is split over how best to move the economy forward. Elsewhere in the bloc, the French government announced that it would cut an additional €10bn out of this year’s budget as it adapts to weaker-than expected economic growth.
• IN RUSSIA – it is interesting to see that Russia’s economy is growing quite well despite all the sanctions etc.! Its GDP grew by 3.6% last year after contracting by only 1.2% in 2022, according to data released by Rosstat earlier this month. The IMF now reckons that Russian GDP will grow by 2.6% this year – way more than is expected for the UK, France and Germany!
• IN THE UK – the former chief economist of the Bank of England, Andy Haldane, warned against leaving it too long to cut interest rates otherwise we could be dragged further into recession (although some economists reckon we’re already out of recession!). Goldman Sachs pushed back their expectations of when the BoE will start to cut interest rates – they originally thought it would be May but they are now saying June. The ONS unveiled Britain’s biggest budget surplus since comparable records began in 1993, which might give chancellor Hunt some room for tax cuts leading into the election but he’ll have to wait to hear how much he’s allowed to play with from the OBR. In the meantime, the bankrupt Birmingham council is going to have to take drastic action to recoup some money, but other councils aren’t that far off a similar fate if the government just leaves things as they are.

IN COMMODITIES NEWS…

• US natural gas prices are falling to levels not seen since 1995 as the country is facing its warmest winter since reliable records began in 1950, which means that demand for heating fuel will be low at a time when production tends to be at its highest.
• There was some excitement surrounding natural deposits of hydrogen as an unpublished survey by the US geological society estimated that up to 5tn tons of hydrogen exist in underground reservoirs globally! If this proves to be the case, geologists reckon that there will be a new hydrogen “gold rush”.
• There was disappointment from mining companies as falling prices and higher costs hit both Rio Tinto and Glencore.
• Talking about falling commodity prices, Anglo American Platinum (aka “Amplats”) announced that it would cut about 20% of its workforce in South Africa due to falling platinum group metal (PGM) prices. Anglo American owns 79.2% of Amplats and it is monitoring PGMs and diamonds which have been struggling particularly badly.
• IN OIL NEWS – Chord Energy and Enerplus are to combine in an $11bn deal, marking the latest deal in oil, following Diamondback Energy’s recent acquisition of Endeavour as players jockey for positions in key oilfields to get scale.

IN BUSINESS TRENDS NEWS…

• Countries and industries are feeling increasingly threatened by China as South Korean display makers Samsung and LG are putting aside rivalries to take on Chinese competitors and Renault is calling for resistance against the Chinese EV invasion while overseas investment in China has fallen to its lowest level for 30 years and Saudi Arabia is playing hardball with the Chinese to extract more concessions as part of juicy new tech deals.
• Deloitte is cutting back its UK deals business in response to poor profitability. It says that it Ywill cut down its regional deals advisory business, which often works on smaller transactions and it will pull back from being lead adviser on financial services and IP deals. This seems somewhat late to me given things look like they’ll pick up this year, but hey…
• The hospitality industry is pushing for help from the government ahead of the Budget and wants a reduction or suspension of VAT to avoid companies going under.
• Consolidation in the warehousing sector looks likely as we’ve already seen a flurry of activity what with Urban Logistics REIT looking to buy Aberdeen Property Income Trust, LondonMetric making an all-share offer for LXi REIT at the start of the year and Tritax Big Box’s offer to buy UKCM. It seems likely that the trading of property assets will increase as owners – including pension funds, insurance funds and private equity funds – decide to get out of the sector.

IN CONSUMER TRENDS NEWS…

• Eurozone wage growth slowed down for the first time since 2022, according to the latest data from the ECB. It’s not enough to make the rate-setters sit up and take notice though – well not yet anyway!
• UK households are seeing disposable incomes rising, according to the Asda Income Tracker, which says that they are at their highest levels since March 2022 but unfortunately, consumer confidence had a wobble for the first time for a number of months according to the latest GfK survey as people worried about recession.

IN EMPLOYMENT TRENDS…

• Recruiter Hays says that companies aren’t offering big pay rises to jump ship these days as the 20% average uplift just two years ago is more like 5% these days. Employers are getting more cautious and so the pay bump is now returning to the long term mean.

IN AI-RELATED NEWS…

• Nvidia posted strong results that boosted markets around the world and it’s now America’s third most valuable company after Microsoft and Apple. It looks like it will be very difficult to knock Nvidia off its perch!
• Google’s newest AI model, Gemini, had to suspend its generation of images of people proved to be controversial. OK, so this is probably a relatively easy fix but it this is a bit of a PR own goal!

IN HARDWARE COMPANY NEWS…

• Apple got hit by a €500m fine from the EU for violating European antitrust rules by allegedly restricting access to music streaming services. Spotify originally made an official complaint to the regulators in 2019.
• PC maker Lenovo announced a rebound in revenues in a sign that PC sales could have reached their low and we could now see a recovery. Chip makers have been saying the same thing.

IN SOCIAL MEDIA NEWS…

• The EU launched its TikTok investigation in response to concerns about its online content and how it safeguards children. If it’s found to be in breach of the Digital Services Act, TikTok could face threats of fines of up to 6% of their global turnover!
• Meanwhile, Reddit filed for an IPO according to an SEC filing and it wants to list its shares on the NYSE. I think that this sounds kind of dodgy as it is still making losses and the whole sector it having all sorts of troubles – as evidenced right now by Vice Media, which is going to stop publishing content on its flagship website. Rival BuzzFeed only announced the other day that it was going to cut 16% of its workforce! The whole sector’s a bit of a mess TBH so I do wonder whether Reddit is desperate to get an IPO away before valuations fall any further…

IN GAMING…

• It looks like the industry is suffering a slowdown as hardware sales are losing momentum and consumer spending on mobile gaming has shown signs of weakening. That being said, the PS5 and Xbox have been out for a few years now and maybe people are waiting for the Switch 2.0 that’s supposed to come out at the end of this year.

IN MEDIA…

• WPP saw a hefty 70% fall in profits thanks to a slowdown in ad spend and chunky restructuring costs. Advertising spend can usually be quite a good bellwether of where the economy is going but advertising agencies are facing the added headwind of the potential damage that AI can do to their business.

OVERALL…

• EV sales are slowing down, even in the world’s biggest EV market – China! The boom in subsidies in the last few years has helped sales, but those subsidies are now disappearing and weakness in China’s domestic market means that there is an increased likelihood that overseas markets are going to get flooded with Chinese EVs. European makers are so concerned about this that Renault’s CEO is even calling for rivals to get together so they can reduce costs and fight back against the likes of Tesla and BYD!

IN EV NEWS…

• BYD announced a share buyback and the launch of new luxury models, which went down well with investors.
• There was bad news for American EV makers as Rivian announced that it would be cutting 10% of its workforce as things continue to get desperate and Tesla got proposals for an extension of its German gigafactory rejected as the local town expressed concern about the enlarged factory’s impact on water levels and quality.
• Back in the UK, it looks like the site that Britishvolt was going to use for its gigafactory may be up for sale again as its current owners, Recharge Industries, are still “in default” one year on from buying the Northumberland site. FWIW, I think that Tesla should at least consider it given the troubles it is having on the Continent at the moment in German and the Nordics!

ELSEWHERE…

• California has just stopped the further rollout of Waymo’s driverless vehicles to more cities in the state. This is due to public safety concerns after recent well-publicised accidents with driverless vehicles. I wonder whether Alphabet (which owns Waymo) will have the patience to stay the course with driverless as it sounds like General Motors is really pulling back on its interest.

IN CREDIT CARDS…

• Capital One agreed to buy Discover Financial for $35bn in an all-share deal. This is one of the industry’s biggest deals since the 2008 financial crisis! It looks like it wants to mix it with Visa and Mastercard!

IN BANKS NEWS…

• IN EUROPE – European banks are having problems at the moment with their exposure to commercial property. The office market is particularly problematic at the moment while valuations in the US and Europe have pretty much halved while debt costs have risen. You do wonder how things will work out when interest rates start to fall as the banks will make less on the Net Interest Margin, but they will arguably make money on their property assets that will presumably rise in value as falling mortgage rates prompt more activity in the market. Spanish bank Santander announced that it would return almost €1.5bn to shareholders in the form of a chunky share buyback and dividend hike thanks to high interest rates boosting its annual net profits.
• IN THE UK – the banks that could potentially be most exposed to the FCA’s current motor finance investigation include Close Brothers, Lloyds Bank and Santander UK – but it’s worth mentioning that financing arms of manufacturers like Ford and VW could also be in the firing line. Barclays said it would return £10bn to shareholders over the next three years via buybacks and dividends and it aims to rely less on investment banking. Meanwhile, HSBC’s profits fell by a whopping 80% and it announced a $3bn charge on the value of its stake in Chinese Bank of Communications (aka “BoCom”). The CEO maintains that the worst is over for China’s real estate sector (but then he would say that as he’s trying to suck up to the Chinese authorities). Elsewhere, we saw Monzo getting an extra £350m in funding that will bring its valuation to £4bn ahead of a widely expected stock market flotation.

IN RETAIL NEWS…

• IN CHINA – there are hopes that the New Year splurge could become a boost to luxury goods companies. Given that Chinese shoppers accounted for over a third of the world’s luxury goods consumption before the pandemic, you can see why the likes of LVMH and Kering want them back!
• IN THE US – Walmart put in a strong performance in its stores and online over the holiday season but it’s also trying to find other revenue streams, as evidenced by it announcing the purchase of TV maker Vizio in a $2.3bn deal. This should give Walmart more opportunities to sell advertising through the TVs that Vizio makes.
• IN THE UK – The Body Shop’s terminal decline continued with the announcement of store closures and job losses, posh kitchen retailer Harvey Jones is on the brink of collapse and Superdry is in potential takeover talks. Meanwhile, shares in Currys rose thanks to bid interest initially from Elliott Advisors and then Chinese e-tailing giant JD.com.

IN CONSUMER GOODS NEWS…

• Danone delivered on its targets two years into its turnaround plan, Nestle’s sales missed forecasts and Mondelez defended its decision to continue doing business in Russia.

IN LEISURE NEWS…

• EasyJet looks like it’ll return to the FTSE100 four years after dropping out of it, helped by strong performance and future bookings.
• IHG, owner of the Holiday Inn and Crowne Plaza brands, announced a big share buyback and dividend payout. It had strong annual results powered by the boom in travel demand and an increase in revenue per available room.

• IN UK RESIDENTIAL REAL ESTATE – House prices look like they’ve bottomed out, according to stats from Rightmove, while rent rises are slowing down, according to research by Hamptons. Meanwhile, mortgages rates ticked up as the race for getting customers is cooling down and chancellor Jeremy Hunt is still considering offering 99% mortgages to help younger people get on the housing ladder.
• IN PHARMACEUTICALS – AstraZeneca had good news about the progress of its lung cancer treatment and Bayer cut its dividend by 95% in an effort to make a dent in its debt pile. Also, Indivior is thinking about quitting London as its primary listing and going over to New York. It’s the latest company to at least talk about this but then again it looks like it makes most of its revenues in the US, so it sounds like it’s just one of those things.
• Rolls-Royce doubled its profits and was upbeat about its prospects for 2024. It said that its first SMR project could be started on the Continent, particularly if the government continues to drag its feet on an SMR decision in the UK.
• BAE Systems continues to rake it in thanks to wars going on around the world and everyone needing more ammo (either to fight the wars or to replenish their stocks.

My favourite video this week was the one with the guy and his unusual commute!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week that the UK officially fell into recession, Uber announced its first share buyback and Musk moved another company out of Delaware…

• IN THE US  – inflation came in stronger than expected due to the rising costs of shelter, motor vehicle insurance and medical care. Meanwhile, Trump continues to edge Biden in the pre-election polls and caused a kerfuffle about NATO members when he criticised their perceived lack of defence spending. That being said, it looks like 18 of NATO’s 31 members are on track to hit targets of 2% of spending GDP on defence, with more expected to hit this mark as time goes on. Joe Biden is currently trying to push through a $95bn national security bill that includes $60bn of military aid for Ukraine “immediately”.
• IN JAPAN – we see that the country has slipped into recession and its economy has also been overtaken by Germany, being pushed into being the world’s fourth biggest economy. It was pushed into third place by China back in 2010 and it looks like Japan will be overtaken again in 2026 by India!
• IN EUROPE – the European Commission has released new forecasts which show that the eurozone economy will grow more slowly than expected.
• IN THE UK – inflation remained unchanged, chancellor Hunt is thinking about cutting public spending to fund tax cuts but then we heard the news that the UK officially fell into recession in the final quarter of last year.

IN COMMODITIES NEWS…

• IN OIL – Diamondback Energy announced the acquisition of Endeavour in a deal worth $26bn that will make it one of the biggest players in the Permian Basin, the biggest oilfield in the US. OPEC left its oil demand forecasts unchanged and BP struck a deal with the state-owned Abu Dhabi National Oil Company (Adnoc) that will deepen ties in the region.
• IN GAS – Shell reckons that LNG demand will surge 50% by 2040 and wants LNG to be seen as the transition fuel between coal and renewables.
• IN NICKEL – mining giant Glencore has decided to cease nickel production at its Koniambo mine in New Caledonia as weak prices have made it financially unviable – so it wants to sell the business! Nickel weakness was also responsible for the world’s biggest miner, BHP, announcing a hefty $5.7bn write-down. It’s considering mothballing the whole nickel operation if prices don’t improve.

IN CRYPTOCURRENCY NEWS…

• Bitcoin breached $50,000 for the first time in two years on hopes that last month’s Bitcoin ETF approval in the US will bring it closer to the mainstream and make it more investable.

IN BUSINESS TRENDS NEWS…

• IN CHINA-RELATED TRENDS – US companies are now finding exposure to China increasingly tricky as sanctions tighten and, as if to further illustrate how essential Chinese companies have become to western supply chains the world’s biggest solar company – China’s Longi Green Energy Technology – warned the US and Europe that their decarbonisation timetables will be delayed if they try to cut out Chinese suppliers. China accounts for over 80% of global production in solar manufacturing. Elsewhere, US law firm Latham & Watkins decided to cut off automatic access to its international databases for its Hong Kong-based lawyers in the latest example of how crackdowns by Chinese authorities are forcing global companies to change their business practices. New anti-espionage laws and crackdowns on global companies operating in Hong Kong have led many of them to change the way they do business there and now Latham & Watkins treats its Hong Kong office in the same way that it treats its mainland China office. Chinese fleets are cashing in on the Houthi crisis in the Red Sea and using their “Chinese-ness” to use the Suez canal without fear of attack due to China’s closeness with Iran. Mind you, Norwegian company Wallenius Wilhelmsen, the world’s biggest operator of car-carrying ships, announced record annual profits thanks to growing exports of Chinese EVs.
• It was interesting to see that X was accused by the Tech Transparency Project (TPP) of taking money from terrorists and other sanctioned groups in order to get their blue check mark! X swiftly removed the marks of those organisations shortly after the report was published but I suspect that there will be more of this going on as authorities around the world crack down on social media platforms.

IN EMPLOYMENT TRENDS…

UK wage growth slowed down less than expected although the labour market seems to be cooling down. However, a recent survey said that about a fifth of firms are still finding it hard to fill vacancies!

Employers are racing to beat the deadline for visa applications for skilled staff! In December, the home secretary said that the main salary floor for skilled worker visas would rise significantly from £26,200 to £38,000 from April.

Meanwhile, some PwC grad promotions have been delayed by six months because there just isn’t enough work for them to do to promote them. OK it’s a small number versus the overall number that will be promoted on time, but it still shows how difficult the situation is at the moment.

IN CONSUMER TRENDS…

• A Uni of Michigan survey said that US consumer confidence rose in January to its highest level since July 2021! The pressure on the Fed to cut interest rates continues to build…
• China’s consumers are still proving to be very cautious despite the country being in deflation for the last four months, as the latest figures showed that consumer prices fell at their steepest annual rate in 15 years in January! The property market continues to be problematic and that is hurting sentiment and confidence, meaning that even though spending power is rising, actual spending isn’t.

IN GENERAL…

• Although Stellantis has had a good run over the last three years, it said that it reckons that the coming year is going to be “turbulent” thanks to ongoing high wage costs, more competition from China and weaker demand for EVs.

IN CAR “POWER” NEWS…

• European carmakers in the Automotive Cells Company (the ACC) borrowed €4.4bn to spend on EV gigafactories over the next few years in an effort to reduce current reliance on China for EV car batteries. Given that about 40% of the cost of an EV is made up of the battery, it makes sense to have at least come control in this area!
• There was an interesting debate on the pros, cons and reality of hydrogen fuel cells, with the main conclusion at the moment being that they are not long-term viable for cars but they are viable for bigger vehicles.

IN EV NEWS…

• BYD is looking at setting up a factory in Mexico as a way into the US market.
• Lucid cut its prices by 10% as the EV price war continues.
• The UK’s used EV market continued to tank last year as new vehicles were sold at a discount to shift units and this looks likely to continue this year with an influx of new models and early adopters put their vehicles onto the market to help pay for the newer vehicles!
• It also became apparent that charging your EV predominantly from public chargers meant that you would be paying more to “fill” your EV than you would with the petrol equivalent. So not only are EVs now more expensive to buy in the first place, they depreciate like crazy and they cost more to “fill”. Hmmm. Not great PR then…

IN RIDE-HAILING…

• Uber announced its first ever share buyback, buoyed by its recent announcement that it had achieved its first full year of operating profit. It looks like this bad boy is growing up!
• Rival Lyft saw its share price hit a 52-week high following the company’s strong Q4 results. There was a bit of drama as it became apparent that the press release contained an extra zero on profit margins – so initial astonishment came back to reality quite quickly!

IN DRIVERLESS NEWS…

• Google-owned Waymo made its first driverless taxi software update following an incident last year where two of its vehicles hit the same pickup truck. No damage was done but it really seems that driverless just can’t catch a break at the moment…

IN INVESTMENT NEWS…

• The latest Bank of America survey showed that the world’s fund managers are feeling at their most positive since February 2022 on rising hopes that the global economy will manage to avoid a recession. Meanwhile, private equity firms have seen $40bn-worth of gains since the beginning of last year. Interestingly, a lot of these gains have been made in their more “mundane” lending business where they benefited from US regional lenders going bust last year.
• JP Morgan and State Street have quit the Climate Action 100+ group, which is trying to use shareholder influence to pressure companies to decarbonise using the collective power of the group. It sounds like the giants joined the group in 2020 in the ESG boom and are now leaving as it comes increasingly under fire. They say that the obligations of membership are too onerous and don’t prioritise the underlying clients.

IN OTHER FINANCIALS NEWS…

• The private equity owners of Shawbrook, the specialist savings and lending bank, are thinking once again of an IPO after abandoning previous plans to do so in 2022 because of tricky market conditions. BC Partners and Pollen Street Capital bought the bank in 2017 for £868m.
• Meanwhile, Close Brothers decided to cancel its dividend as investors are worried that the company could face a hefty fine or compensation bill as a result of the FCA’s investigation into alleged mis-selling in vehicle financing. It’s sounding increasingly like motor financing is going to be the next PPI…

IN COMMERCIAL PROPERTY NEWS…

• Warehousing appears to be slowing down in the US as companies revert to the pre-Covid “just-in-time” model.
• In the UK, Tritax and UK Commercial Property Reit agreed a £4bn merger that would see the enlarged group become the UK’s fourth biggest commercial property owner. There’s been a lot of consolidation in this industry already – and we also heard that private equity firm Blackstone is putting together two of its divisions to form a new warehousing group called “Indurent”.
• The gloom continued in Canary Wharf as Blackstone decided to postpone plans to sell a £250m tower in the district as discussions with a potential buyer broke down. This came just a week after news that another big building in the area got sold off at a massive discount and ongoing news that some big tenants are leaving.

IN RESIDENTIAL PROPERTY NEWS…

• The latest data from the ONS showed that average house prices felly by only £4,000 last year, which makes it look increasingly likely that the housing market could rebound this year.
• Mortgage rates showed their biggest one-month drop since December 2022 – the sixth consecutive monthly drop since December 2022. This should help the property market recover…

IN SEMICONDUCTOR NEWS…

• Arm’s share price continued to boom on the AI frenzy and the company, which is listed in New York, is now more valuable than every company in the FTSE100 apart from Shell and AstraZeneca!
• Aussie tech company Altium agreed to a $5.9bn takeover by Japan’s Renesas and although this makes strategic sense it’s not a given that this will be a great success as Japanese acquisitions seem to have a mixed track record.

ELSEWHERE…

• TikTok is continuing to fight against Universal Music, which is digging its heels in over music rights and payment. If another deadline is missed at the end of this month, there will be a big copyright claim to come. There will be a lot of people watching this to see who manages to win the tussle!

• Elon Musk is continuing in his crusade against Delaware, whose courts denied him a fat payout recently. He has now moved SpaceX’s incorporation away from Delaware to Texas and he’s not the only one pushing back against Delaware’s courts! Nevada and Texas are looking to lure companies away from Delaware, so they must be loving this!

My favourite video this week was the one with the fancy cheese on toast! I bet you’ve never had cheese on toast like this before!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week of the Xi/Putin love-in, Arrival departing and Arm’s roaring return…

• IN CHINA  – consumer prices fell at their fastest rate for 15 years in January. This was the fourth consecutive month of decline. Investors are now wondering whether Chinese deflation will spread globally as production overcapacity leads to Chinese manufacturers flooding non-domestic markets with cheap product. China’s stock market got a bump up on hopes that Xi was going to unveil some kind of stimulus but then we heard that the Communist party boss and chairman of its securities regulator got booted, without giving any reasons.
• IN RUSSIA – Putin’s main anti-war opponent, Boris Nadezhdin, was banned from running against Vlad in next month’s presidential elections in a ruling by the Central Election Commission. Meanwhile, Russia’s president had a call with President Xi that seemed to cement their continued stance against the US.
• IN EUROPE – Brussels gave in to farmer protests across Europe and slashed environmental targets. Farmers have been protesting in countries including Germany, France, Spain, Belgium, Poland and Romania and the concerns have been that they will switch their votes to far-right parties in June. EU President Ursula Von der Leyen wants to get re-elected this summer and needs the farmers’ votes! In the Netherlands, Geert Wilders’ bid to become Dutch PM was dealt a blow as a potential coalition member walked out of talks earlier this week because he was shocked by budget shortfalls that would occur because of Wilders’ spending plans. He’s having problems at the moment but if Wilders does manage to form a government, he’ll be the first far-right leader in the EU to do so in modern times.
• IN JAPAN – the Bank of Japan is considering lifting interest rates from the -0.1% they’ve been at since 2016. Some are saying that they could be lifted as soon as March thanks to growing momentum for wage increases and rising service sector prices.
• IN THE UK – jobs data from the ONS is going to be a bit tricky for the next six months as it’s using a new official survey after the one they’d been using had become useless because of the lack of respondents. This is going to make it difficult for the Bank of England to make interest rate decisions at a crucial time.

IN COMMODITIES NEWS…

• IN OIL – BP saw its profits halve but results came in better than expected while the company still faces criticism for reining in its green goals. Elsewhere, the would-be $57bn mega-merger of Woodside and Santos collapsed and ExxonMobil’s fight against ESG investors deepens, although the chief exec of Norway’s sovereign wealth fund criticised it for being overly “aggressive”.
• IN LNG – Biden’s decision to put approvals for new LNG export terminals on hold will please the environmentalists but not companies like Venture Global and Golden Pass who develop these plants – but US industry could benefit from cheaper natural gas because exports would go down. It could also benefit Russian LNG suppliers – which means that Biden is basically helping Russian gas demand!
• IN COPPER – A Bill Gates-backed mining company, called KoBold Metals, said that it had discovered Zambia’s biggest copper deposit in a century – and it could among the world’s top three high-grade copper mines! It used AI to find it and the discovery could lessen the world’s reliance on China for the material which is used in power transmission lines, EVs and wind turbines.

IN ENERGY NEWS…

• IN NUCLEAR NEWS – researchers at the Joint European Torus facility outside Oxford beat their previous record of power generation by nuclear fusion, which is a real step forward. One of the engineers involved in the country’s efforts to develop nuclear fusion power generation says that the tech will be viable by the early 2040s.
• IN RENEWABLES NEWS – Danish offshore wind developer Ørsted said that it will suspend its dividend, cut its targets for renewables, reduce headcount by almost 10% and withdraw from offshore wind markets in Norway, Spain and Portugal after a number of years of expansion. Costs have skyrocketed and many windfarm companies have been tied into agreements where raw material prices were a lot lower.

IN BUSINESS AND EMPLOYMENT TRENDS NEWS…

• IN BUSINESS TRENDS – Mexico has overtaken China to become America’s #1 exporter for the first time in 20 years! Also, it was interesting to hear that shipping container giant Maersk has decided to suspend a big share buyback and dividend pay out after warning that it would fall into loss this year. What a turnaround!
• IN EMPLOYMENT TRENDS – the latest data from the REC-KPMG report shows that wage growth has hit its slowest pace in almost three years. This should factor into the Bank of England’s decision on when to cut interest rates.

IN ELECTRIC VEHICLE NEWS…

• China’s Ministry of Commerce is trying to help its EV manufacturers expand overseas by doing things like working with shipping companies to integrate warehousing and logistics as well as encouraging banks to provide financial support to EV supply chain companies. Perhaps they can smell blood as many western EV makers are looking a bit lacklustre at the moment!
• Ford announced that it will be launching range of cheapo EVs to combat the Chinese onslaught and convince mainstream buyers to to make the switch to electric. Although I think that affordable EVs is the way to go I think that there is a risk that if they get too popular, charging networks (and, indeed power grids themselves) could prove to be a limiting factor – and this could have a significant detrimental effect on subsequent EV adoption because people may just give up and try again nearer 2035.
• Hertz decided to suspend plans to buy a load of Polestar vehicles this year after resale values collapsed last year! This is a major policy U-turn for the hire company. On the subject of used EV sales, the SMMT’s latest figures said that sales of used EVs in the UK doubled last year as new models came to the market and prices fell steeply.
• British electric van maker Arrival went into administration after burning through $1.5bn without ever selling a vehicle! Its 2021 NASDAQ flotation in 2021 was the biggest ever for a British company but its share price has evaporated by 99.8% since its peak valuation of £10bn as it drowned in debt.

IN OTHER AUTOMOTIVE NEWS…

• Toyota just cut its forecasts for EV sales as demand for hybrids boomed.
• Aston Martin is looking for its fourth CEO in four years as the current “ex-Ferrari” man left “by mutual consent”.
• A Waymo driverless car hit a cyclist this week. The cyclist was OK but this is yet another setback for driverless and the incident is going to be investigated by the police and California’s Department of Motor Vehicles.
• Parisians voted to impose higher SUV parking fees in the capital, with charges tripling in some areas! Charges will be payable for vehicles of over 2 tonnes – and that includes electric SUVs as well! Will this be adopted in other cities??

OVERALL IN THE UK…

• Retail sales grew by a sluggish 1.2% year-on-year in January thanks to weaker consumer demand, according to the latest figures from the BRC and KPMG.
• The Office for Budget Responsibility is considering the potential reversal of the tourist VAT tax that was implemented by Sunak when he was chancellor in 2020. This is what a lot of retailers (particularly luxury goods ones) have been pushing for…

IN LUXURY GOODS NEWS…

• Gucci owner Kering saw sales slide in Q4 as Gucci continues to underperform relative to some other luxury marques although sales had improved in North American and Asia-Pacific markets over the quarter.
• Farfetch looks like it’s heading for liquidation as creditors didn’t like last week’s $500m rescue deal from South Korean retailer Coupang and said that it had been rushed into. The luxury online platform’s valuation has fallen by 99% from its high in 2021!

IN CONSUMER GOODS NEWS…

• L’Oréal thinks that price rises will slow down this year to pre-pandemic levels after three years of relentless rises. Results came in below market expectations but the company sounded fairly upbeat about market prospects.
• Sephora has had a successful relaunch in the UK after leaving us in 2005. It was relaunched last year and its performance here has been very strong. It said that it will be opening more stores.

IN APPAREL RETAIL…

• Hobbs is now looking at opening in better locations having completed a raft of closures both in the UK and abroad. This looks like a show of confidence, no?
• TikTok is putting pressure on apparel makers by being largely responsible for speeding up fashion trends. This isn’t great for Uniqlo, which is slow to get from design to shelf, is better for Zara-owner Inditex, which is quicker, but it is particularly suited to Shein’s incredible turnaround that takes a matter of days! Talking about Shein, it continues to battle counterfeiting lawsuits ahead of its inevitable IPO and I would reiterate that I think that litigation risk is going to be a major problem for the fast-fashion company for quite some time to come. Meanwhile, Frasers Group increased its shareholding in Boohoo from 21.5% to 22.1%.

IN GROCERY RETAIL…

• The latest numbers from NIQ showed that M&S’s sales growth is outpacing Aldi’s to the extent that it is now the UK’s second fastest growing supermarket! Lidl is the only one ahead of it! Momentum really is with M&S at the moment…
• Sainsbury’s said it’s now producing a “food-first” agenda after poor performances by Argos and that it will be cutting an additional £1bn in costs over the next three years along with implementing a chunky £200m share buyback. It’s going to add another 10% of space for food and cut the footprint for clothing and general merchandising.

IN LEISURE NEWS…

• IN RESTAURANTS – major players like McDonald’s, Pizza Hut and Starbucks have seen sales suffer because they have been boycotted for taking sides in the war in the Middle East. Back home, Pret abandoned its last veggie-only stores due to lack of interest. The concept lasted for eight years.
• IN TRAVEL-RELATED NEWS – European airlines are bracing for the impact of record passenger numbers this coming summer despite the ongoing tricky economic backdrop and high ticket prices! Ryanair, easyJet and Wizz Air have all making positive noises about strong summer demand and rising prices at their most recent results announcements. Meanwhile, Boeing has found another problem with its 737 MAX fuselages. This could delay deliveries in the short term but it did say that 737s could still fly! What a nightmare. Now Emirates Airlines is sending in its own engineers to oversee Boeing’s production lines due to mounting concerns over its manufacturing quality! The nightmare continues…

IN AI NEWS…

• Microsoft did a deal with tech start-up Semafor to use its AI chatbot to put together news stories at a time when it is also facing a multi-billion dollar lawsuit from the New York Times. Semafor will post a breaking news feed called “Signals” that will not only offer breaking news – but also analysis on major stories. Signals will be written by journalists powered by AI for research.
• Google announced the launch of Gemini, its latest generative AI system, as it tries to catch up with Microsoft and OpenAI in the race for AI supremacy. Its most advanced model, Gemini Ultra 1.0, will be offered as a chatbot and integrated into its other productivity tools like Gmail, Docs and Sheets via a $20 a month subscription plan. Google will be renaming all of its AI products, including its Bard chatbot, as “Gemini” as part of a corporate rebrand to unify all of its offerings.

IN CHIPS NEWS…

• China’s biggest chip maker, SMIC, now has new chip production lines in Shanghai to mass-produce chips designed by Huawei. Some experts reckon that the two could come up with next-gen smartphone processors as early as this year.
• TSMC announced that it would add a second chip factory in southern Japan, raising its investment there to over $20bn as it seeks to minimise geopolitical risks.
• Arm’s share price jumped by over 50% in reaction to it increasing its profit and revenue forecasts thanks to continued demand for AI tech. It is seeing more demand from companies wanting to licence its designs to run AI but it also decided to raise forecasts because it expects to see a recovery in sales for smartphones – an area where it has massive market share!

IN OTHER TECH NEWS…

• Amazon announced that it had done a real with the UK’s biggest publisher, Reach, to access customer data for use in targeting online ads as it braces itself for Google’s move to kill off “cookies”. Very soon, internet users will be unidentifiable for advertisers as cookies disappear.
• Snap’s quarterly revenues fell short of market expectations due to intense competition and pickier spending by advertisers who preferred to go with its bigger rivals such as Meta and Alphabet.
• Yandex – famous for being known previously as “Russia’s Google” – has agreed to sell its operations in Russia in a cash-and-shares deal to a consortium of Russian investors. The remaining bit of the business will be rebranded.

IN BANKS NEWS…

• Italian bank UniCredit announced that it would be returning €8.6bn – its entire profit of 2023 – to shareholders as it had benefited from the high interest rate environment over last year. Its Q4 profits came in at over three times analysts’ estimates!
• UBS announced that it would be seeking out more cost-cuts as it continues to integrate with Credit Suisse as it announced a Q4 loss that actually wasn’t as bad as the market had been expecting.

IN OTHER FINANCIALS NEWS…

• Spread-betting group CMC markets cut 17% of its workforce in a bid to cut costs and will achieve this by merging back office positions and automating jobs. This latest move comes not long after rival IG Group also announced that it would be cutting a large number of jobs. This seems to be yet another company that is “right-sizing” after a hiring frenzy in the last few years.

IN COMMERCIAL REAL ESTATE NEWS…

• A Canary Wharf office that was once owned by Bear Stearns was sold for £160m less than the current owner had bought it for seven years ago! This could be bad as it may drag prices down for the whole area.
• Staying with the area, Canary Wharf Group is having trouble with the Tower Hamlets council over converting empty office space into residential flats. It wants to convert offices into a mix of residential, retail and hotel space in an effort to future-proof landlords as working patterns continue to change whereas the council wants to keep it office-heavy.

IN RESIDENTIAL PROPERTY NEWS…

• The latest Halifax figures showed that UK house prices increased by 2.5% in the year to January, making it the biggest increase since January last year!
• Meanwhile, over 100,000 mortgage borrowers are in trouble according to the latest data from UK Finance. The number of homeowners in arrears on their outstanding balances in the last quarter increased by a hefty 25% from the same quarter a year earlier.
• The UK’s going to get Dutch-style mortgages, which are fixed rate mortgages where rates fall automatically as borrowers pay them down! The lower rates in the UK only usually kick in when homeowners remortgage – so this sounds like a very interesting innovation! April Mortgages will offer loans to existing homeowners who are remortgaging and new buyers at the end of next month.

IN CONSTRUCTION NEWS…

• Confidence among industry players is rising, according to the latest S&P Global PMI for the services sector, thanks to rising expectations of interest rate cuts and weakening inflation.
• Barratt bought rival Redrow in an all-paper £2.5bn deal which they say could generate major cost savings. This represents one of the biggest deals between two UK-listed companies in the last year!

• ESPN, Fox and Warner are getting together to create a sports streaming platform that will have content from all major leagues in a deal that will transform the whole landscape of sports and media! The new service, referred to by some as “Raptor”, will comprise of content that covers about 55% of US sports rights! This caught the NFL and NBA completely off-guard so it’ll be interesting to see whether this will result in a shift in power for future negotiations.
• Disney unveiled a new roadmap for Disney at its latest quarterly earnings report. It is also going to invest $1.5bn in Epic Games and outlined a number of other initiatives at its earnings, which came in above market expectations.
• News Corp announced Q2 revenues that came in above market expectations thanks to strong performance in its digital real estate services, Dow Jones and book publishing businesses. It hopes to be a “core content provider for Generative AI companies” and remains in negotiations with AI players…
• Spotify posted a loss in Q4 last year despite the number of monthly active users and subscribers being above target. Lay-off costs and its push into audio books hit finances.

IN LEGAL ISSUES…

• The Elon Musk-Delaware court tussle is an interesting one as it highlights both Delaware’s supremacy in corporate law and Texas’s desire to challenge this (presumably with Musk’s backing if his appeal doesn’t go the way he wants it to!). We’ll have to see how this works out because it might prompt other companies to change where they are incorporated.
• The UK has delayed a much-anticipated code that governs the training of AI models using copyrighted material because it hasn’t been able to agree on a voluntary code of practice. This needs sorting ASAP but I’m guessing that the longer the delay, the more this benefits Big Tech companies.

ELSEWHERE…

• Uber announced its first ever annual profit as its earnings came in above market expectations.
• Novo Nordisk struck a $11bn deal to expand production of the Ozempic weight-loss drug by buying up three manufacturing sites. This should help with any production bottlenecks.

My favourite video this week was the one where some very famous air passengers got bumped from First Class to Economy!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Hong Kong called a stop to the Evergrande debacle, when Volvo decided to distance itself from Polestar and when Mark Zuckerberg said sorry…

• IN THE US – the Fed held interest rates steady, which was in line with market expectations. Fed chief Powell pushed back expectations of an early interest rate cut.
• IN CHINA – the China Securities Regulatory Commission decreed that investors would be restricted from short-selling to stop the slide in its markets (its CSI300 hit a five-year low early last week). Also, the latest data from the National Bureau of Statistics said that manufacturing output had fallen for the fourth consecutive month as lukewarm overseas demand for Chinese goods hit home. It was also interesting to see that Hong Kong is looking at proposals for a new national security law that will clamp down on espionage, treason and foreign political influence that would bring its own laws closer to those of mainland China.
• IN EUROPE – hopes for an early interest rate cut are fading but the Eurozone managed to avoid a recession despite Germany’s economy contracting. Meanwhile, Brussels was rumoured to be thinking of hitting Hungary’s economy hard if PM Orbán continues to block new aid to Ukraine, which he wasn’t too pleased about although later on in the week they came to an agreement and Orbán withdrew his veto. Meanwhile, Russia’s economy is benefitting from the war, according to the IMF, which upped its economic forecasts on the country. The country is readying itself for a presidential election in the coming weeks and support for “opposition” candidate Boris Nadezhdin seems to be growing (although he will surely not even come close to getting more of the vote than Putin).
• IN THE UK – chancellor Hunt was warned by the IMF not to squander money on tax cuts, but let’s face it – they are rubbish at making forecasts and they aren’t the ones facing the prospect of an election that they’ll probably lose. Meanwhile, ministers are getting ready to tell English councils to sell assets to help finance themselves. Although there are supposedly up to £23bn-worth of assets they could sell off, market conditions aren’t good and everyone and their dog will know that councils are forced sellers, so they are definitely going to low-ball any offers.

IN OIL NEWS…

• Saudi Arabia surprised oil markets by ditching plans to increase production capacity, which could imply that they think that we’ve reached peak oil demand already. Fall in demand from China has been a major factor. Meanwhile, Shell announced it would be raising its dividend and do a $3.5bn share buy-back despite profits falling last year. That said, the previous year was monstrous so the comparison wasn’t that relevant.

IN CRYPTO NEWS…

• Hamas victims are suing Binance for allowing the group access to financing. Crypto has long been criticised for enabling criminal and/or terrorist activities because of the anonymity it offers so the outcome of this case could become an important precedent. Elsewhere, FTX decided to ditch plans to make a comeback and George Osborne joined Coinbase, presumably to give it a bit of legitimacy given the dodgy reputation of anything crypto at the moment.

IN BUSINESS TRENDS…

• UK business confidence hit its highest level for January in eight years, according to the latest Lloyds Bank monthly business confidence index, as hopes increased of interest rates coming down this year. On the other hand, corporate insolvencies hit a 30-year high in England and Wales over 2023, according to the latest figures from the Insolvency Service. The gloom about last year was also reflected in research by EY-Parthenon, which said that the share of listed UK companies issuing profit warnings last year hit a record high.
• Flutter said that it would move its primary listing to New York, subject to shareholder approval. It might keep a secondary listing in the UK but given the way that the business has changed over the last few years, the move makes a lot of sense. It’s just galling for the FTSE as it’s just another British company going stateside.
• Pubs are in for a tough January as “dry” January is set to be the driest ever, with more people abstaining or opting to drink no-or-low-alcoholic drinks. Younger generations have generally been drinking less than previous generations but now the older demographic is joining them!

IN EMPLOYMENT TRENDS…

• The monitoring of employee movements is getting stricter – and EY is now looking very closely at how often staff come into the office. Return-to-office orders are now ramping up as employers are keen to see their employees working hard with their own eyes!
• 12,000 job cuts have been announced at UPS and Sky is to lose 4% of its UK workforce as the demand for dishes falls due to rising demand for Sky Glass and Sky Stream, which don’t need specialist installers.

IN CONSUMER TRENDS…

• Travel patterns look set to change, according to the UN World Tourism Organization, which predicted that tourism will return to pre-pandemic levels this year. Intense heatwaves and wild-fires in Greece last summer are starting to make travellers think more about cooler destinations such as Iceland and Denmark – which have seen a significant increase in arrivals between 2019 and 2023!
• UK shop price inflation slowed sharply to its lowest level in almost 2 years, according to the latest figures from the BRC.
• Consumers will be heartened by the latest Bank of England data which says that UK mortgage rates have fallen for the first time since 2021. This should bode well for the residential property market this year!

• Apple posted an increase in sales for the all-important holiday quarter last year, which broke its four quarter losing streak where its sales have been falling. Its iPhone business did well but there are concerns about a loss in momentum for China, its third biggest market.
• Alphabet didn’t shoot the lights out as poor advertising sales overshadowed decent performance at Google with its AI and Cloud business.
• Meta had a mixed week. Zuck had to face a grilling over online child safety in the Senate and made a public apology to the families whose lives had been devastated by the effects of activity on Meta’s social media platforms. Shortly after that, Meta announced record revenues at its results, the payment of its first ever dividend and a $50bn share buy-back!
• Microsoft reported record sales and revenues thanks to the booming demand for AI.
• IN SEMICONDUCTOR NEWS – Samsung posted its weakest earnings since 2011 thanks to poor performance at its memory chip division. This was its fourth consecutive quarter of decline. It seems that stocks that have real exposure to AI (e.g. Nvidia and AMD) are doing extremely well, while others that don’t (e.g. Intel and Texas Instruments) aren’t. Meanwhile, Newport Wafer Fab’s acquisition by Vishay Intertechnology still hasn’t been approved by the UK government two years on from when the government blocked NWF’s acquisition by a company that it said had links to China.
• IN AI NEWS – the Indian government has said that social media companies will be held accountable for AI-generated deepfakes posted on their platforms. Given that there are general elections being held in India this year, there is a sense of urgency here – and you’d think that Big Tech will have to play ball given the size and potential of the Indian market. Talking of deepfakes, X blocked searches of Taylor Swift as AI-generated sexually explicit images of her went viral on their platform. Pressure to police these platforms properly continues to build…

• EVs have had a shaky start to the year thanks to price wars, increased competition and flagging customer demand. Even the mighty BYD undershot expectations due to an ongoing EV price war, while GM expressed concerns that it had pushed for the electrification of its fleet too early and Renault announced that it had ditched plans to list its EV business, Ampere. If that wasn’t enough, we then saw that Volvo Cars was going to sell at least some of its 48% shareholding in Polestar to parent company Geely.
• There was drama at Tesla as a Delaware court judge told Elon Musk that he had to forfeit $56bn of share awards, the granting of which had been agreed back in 2018 as long as he fulfilled some pretty incredible targets – which he then duly did! Musk didn’t like that and is now looking to switch his HQ to Texas in protest while he appeals the ruling.
• Elsewhere, Toyota put in a solid performance over 2023, hitting a new record high for global sales while Ferrari posted record profits, enjoying particular success in the Americas and China in terms of sales.
• Paris is going to be holding a vote on whether to triple parking charges for SUV owners in some parts of Paris. 60% of Parisians polled said that they were in favour – and let’s face it, they did manage to get e-scooters off the streets in a similar vote a year or so ago. In the scooter vote, the turnout was very low but was predominantly comprised of older people – who clearly didn’t like them. Will the same happen again??

IN INVESTMENT NEWS…

• Ark bounced back after a tricky few years. Cathie Wood’s famous tech fund suffered in the massive tech sell-off but has bounced back strongly after spending time in the wilderness…
• BP got a letter from hedge fund Bluebell Capital Partners saying that it should abandon its clean energy strategy as it was a distraction from its core business.

IN BANKS NEWS…

• A report by Bain & Co reckoned that global deal activity will recover this year from its recent lows – something that investment banks and everyone in the deal chain will be pleased to hear!
• Deutsche Bank announced that it was going to make around 4% of its staff redundant as it chases cost savings – but it also unveiled its highest profits for 16 years in 2023!
• Julius Baer saw its profits more than halve as it wrote off a $700m exposure to the embattled Signa property group and announced the exit of its CEO. Will this be enough to draw a line under the whole thing??
• BNP Paribas shares fell by almost 10% in trading on news that it would fall short 0f its profit targets. The fact that it reported a 50% fall in its Q4 earnings proved to be a real buzz-kill.

IN RETAIL NEWS…

• Amazon reported a great Q4 performance but it faces increasing competition from the feisty Temu, which is spending billions of dollars on advertising. We also heard that it was forced to ditch its proposed $1.4bn deal to buy iRobot, which makes the Roomba robot vacuum cleaner.
• IN APPAREL RETAIL – Boohoo had something to cry about as lenders refused to extend debt payment deadlines, H&M’s CEO stepped down as the company comes under increasing pressure for weaker sales and profit margins while rivals Inditex (which owns Zara and other brands) and Shein keep competition tight. There were rumours that Superdry is considering a CVA as an option for restructuring but it looks like store closures and job losses are getting increasingly likely.
• IN SUPERMARKETS – Walmart announced that it would be opening new stores in the US over the next five years, a major turnaround from the strategy of the last few years to reduce store openings or keep them flat-ish. In the UK, Morrisons’ new boss has promised to “reinvigorate” the supermarket chain that has suffered particularly badly at the hands of the German discounters over the last few years. It sounds like the new CEO is gunning for a major overhaul…
• ELSEWHERE – outgoing chairman Dame Sharon White reckons that John Lewis will return to profitability this year – but she also announced that the company would cut about 10% of the workforce. Pets at Home faltered as it cut its annual profit forecasts due to weaker sales over the Christmas period.

IN RESTAURANTS…

• Starbucks had a disappointing quarter as it lost momentum in the US and faced tighter competition in China.
• SSP (owner of Caffè Ritazza and Upper Crust, among other brands) continues to do well from people returning to the office as its outlets at train stations and airports do brisk business.
• PE firm McWin Capital announced that it would buy Danish sushi restaurant chain Sticks’n’Sushi in a multi-million pound deal. There have been a lot of deals done over the last year or so in the restaurant space. I suspect that there will be more to come!

IN TRAVEL NEWS…

• Ryanair had to cut profit forecasts after a number of online travel agents removed their flights. Ryanair accused them of “scamming” customers by charging higher fees.
• Saga announced an “outstanding” performance of its cruise and travel business, but its insurance business remains problematic. Meanwhile, rival Carnival said that its earnings would take a hit from the ongoing conflict in the Red Sea. Royal Caribbean and MSC Cruises have also been affected.

• IN REAL ESTATE NEWS – Chinese developer Evergrande was ordered by a Hong Kong court to liquidate as it had failed to come up with a proper restructuring plan in time. It remains to be seen as to whether this will be recognised in mainland China. Meanwhile, IN THE UK RESIDENTIAL PROPERTY MARKET, Zoopla’s house price index showed a big 13% rise in property sales as mortgage rates fell, but sellers have had to cut asking prices by 10% or more to shift their properties. That being said, the latest stats from Nationwide shows that house prices increased at their fastest pace in a year.
• IN MEDIA NEWS – Universal Music Group threatened to stop licencing music to TikTok – and then they followed through with that threat, leaving many TikTok videos silent! Allen Media put in a $14.3bn offer to buy Paramount Global which was less than the $18.5bn he offered back in April. Other companies are lining up as potential buyers. WPP announced a drastic cost reduction programme and is committing more money into AI initiatives to stay ahead of the curve. Meanwhile, Channel 4 is set to cut 15% of its staff as it seeks to cut costs in the face of falling advertiser spend.
• IN PHARMA NEWS – GSK’s new jab for Respiratory Syncytial Virus (RSV) achieved blockbuster status (which means that sales have hit the $1bn mark), prompting the company to upgrade its long-term forecasts. GSK also announced 12 major product launches from 2025, which will also help long-term earnings. Also, Novo Nordisk’s share price hit a new high after it posted booming sales of its obesity and diabetes drugs Wegovy and Ozempic, pushing its market cap past the $500bn mark and confirming its position as Europe’s most valuable company!

Of course there was only one video that stood out as my favourite this week – and that was the one where Uncle Roger rates Kichi Kichi’s famous omurice! There’s a bit of swearing and adult humour here, but if you can look past that this is hilarious!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when US GDP surprised on the upside, 99% mortgage rates were mooted and ElevenLabs became a unicorn…

• IN THE US – GDP grew above expectations last year, meaning that it was up by 3.1% over the course of 2023. Separate data showed that consumer prices were losing steam – all of which would imply that the US economy is heading for a “soft landing”.
• IN CHINA – markets rallied on hopes that Bejing was considering a £222bn state rescue plan but then the PBOC cut the reserve requirement by 0.5%, freeing up money that could be used in lending. It’s another example of the piecemeal approach being taken by Beijing at the moment when really it’s economy could do with a broad-based boost!
• IN EUROPE – the ECB left interest rates unchanged at its latest meeting while President Christine Lagarde’s performance was criticised by her own staff for being “poor”. Economists at Germany’s IFO Institute think the country’s heading for recession while the ultra-right party AfD made ground due to increasing frustration with the government. There was some good news for Sweden as Hungary’s PM Viktor Orbán said he would approve its application to join NATO.
• IN THE UK – the EY Item Club of economists reckon that the UK’s economic growth will rebound in late 2024 thanks to potential interest rate cuts and tax reductions, Goldman Sachs reckons that the UK’s stock market will outperform the US and European markets this year and chancellor Hunt seems to have £20bn he didn’t know he had ahead of the March Budget thanks to higher VAT and income tax receipts and lower spending, according to the ONS. Meanwhile, English councils got allocated an extra £600m, which is nice, but considering that the Local Government Association estimated that councils are facing a £4bn deficit over the next two years, this does look somewhat like a sticking plaster patching up a gaping wound! Still, it’s better than nothing, I guess.

IN TRADE NEWS…

• The Red Sea troubles are set to have long-term repercussions as ships and equipment will be all over the place for quite some time because of all the disruption and now more car-carrying vessels have stopped going via the Suez Canal, taking the longer route around the Cape of Good Hope, adding to the voyage time and costs.

IN ENERGY NEWS…

• The IEA reckons that nuclear power generation will hit record highs, driven by new reactors in China and India, in addition to those coming back online in France following a period of maintenance.
• …talking of which, the French government, which owns EDF, is putting pressure on the UK government to pony up more money for the nuclear projects it’s working on. At around the same time, EDF said that Hinkley Point C could be delayed to 2031 and cost way more than originally thought (now up to £35bn rather than the initially-projected £18bn!).

IN BUSINESS TRENDS…

• The luxury sector has generally been losing momentum – and LVMH is feeling this. That being said, some believe that there will be a divergence in fortunes between those companies right at the top end of the luxury spectrum will outperform those further down because it is the high net worth individuals who will be driving growth, not those on “middle incomes”.
• IN THE UK – research by Begbies Traynor says that almost 50,000 UK companies are close to failure as they battle with higher interest rates and cautious customers. It was, however, interesting to see that UK business activity grew faster than forecast but that was probably thanks to the services sector as UK manufacturers cut production due to the ongoing Red Sea problems.

IN EMPLOYMENT TRENDS…

• We saw job losses at Microsoft, Ebay, SAP, Wayfair, Aberdn, Lloyds Bank and Levi Strauss as companies tried to right-size.
• Bank of America got feisty with employees, sending those they’d deemed to be doing too much WFH “letters of education”, pressurising them to go back to the office.
• John Lewis cut redundancy pay in half, which suggests that there are more big job cuts coming around the corner.
• Research by the CMA shows that 26% of employees think that they have a non-compete clause in their contract. There are calls to restrict the time period where someone’s not allowed to go to a competitor (some say you’re not allowed to go to a competitor for a year!) but it looks like this’ll be on the back-burner in the UK which US, Australia, Italy and Portugal are among the countries assessing what they will do about them.

IN CONSUMER TRENDS…

• Household disposable incomes hit their highest levels in two years and the latest GfK survey said that consumer confidence was also at a two-year high – but then a CBI report showed that retail sales fell at their steepest rate for three years!
• Those with money to invest didn’t pour their money into St James’s Place as their fund inflows halved! The company is due to launch a strategic review.
• There was some interesting speculation about Chancellor Hunt considering introducing 1% deposit mortgages to give the real estate market some pep, but it was roundly criticised as a gimmick although you do wonder whether this would level the playing field for those who don’t have access to the Bank of Mum and Dad.

• Eurostar passenger numbers have now returned to pre-Covid levels – and you’d think they’ll have another good year considering that the Paris Olympics is coming up in the summer.
• Cruise liners are getting bigger – and we saw the launch this week of Royal Caribbean’s Icon of the Seas, which will be the world’s biggest operating cruise ship. With 18 passenger decks, 7 swimming pools and over 40 restaurants and bars, it is five times the size of the Titanic! The sector’s bounced back from Covid but wants to drum up interest from younger people.
• EasyJet is forecasting shrinking losses as summer bookings are building well – but in terms of the planes themselves, Boeing’s nightmare is continuing as the CEO maintained that the company prioritises quality, but then we heard that a nose wheel fell off a Boeing 757 waiting for takeoff! Surely this guy will get fired…
• All this travelling is great for Antler, who makes luggage! It saw a boom in global sales of its suitcases and other accessories.
• Meanwhile, back home, Wetherspoons and Fuller’s traded well over the holiday season, but the night clubs sector remains in crisis, according to the boss of Revolution Bars.

• Tesla warned that sales growth would be “notably lower” in 2024 due to weakening demand, more competition and stubbornly high interest rates. However share prices of Chinese rivals – including Nio, Xpeng, Li Auto, BYD and Great Wall Motor – also fell as investors got nervous. That being said, BYD launched a new luxury brand – Yangwang – which will be releasing a Lamborghini-like sportscar with a $150,000 price tag that can turn 360° on the spot and float in water (something, perhaps, for James Bond to consider in his next outing – after he magically comes back to life, of course 😁).
• Meanwhile, Porsche’s finance chief made a bold prediction this week – that Europe’s 2035 petrol powered car ban could be pushed back further. There are rumours, even, that it could be abandoned altogether as some conservative EU lawmakers are proposing to ditch the deadline as they head towards EU elections this year.
• The FCA is now looking into allegations that motor finance companies made consumers overpay in finance deals. If they find this is the case, auto lenders could be facing a potential £13bn compensation bill! Lloyds Bank has the most exposure here, but others will be affected.

• IN REGULATORY STUFF – the FTC launched an inquiry into investments and partnerships between Alphabet, Amazon, Anthropic, Microsoft and OpenAI. It will look into what rights the tech giants’ investments confer on them and whether they harm competition. This could get interesting!
• IN CHIPS NEWS – Chip-making equipment maker ASML announced a record amount of orders in Q4 and 2024 is looking good! Meanwhile, China spent a record $10.6bn on chip imports in Q4, bringing the total amount spent on chips last year to a whopping $31bn! Despite many players getting more positive about an upturn in the chip cycle, Intel gave a muted outlook for 2024 in the near term but that might be coloured by its autonomous driving business being hit by recent developments. Meanwhile, Computacenter is on track to have its 19th consecutive year of rising profits. It looks like PC demand is turning up again – and that’s got to be good for chip demand as well!
• IN AI NEWS – AI voice-cloning specialist ElevenLabs achieved Unicorn status in its latest funding round. The $80m it raised this time will go towards research and infrastructure that will ensure ethical development. Meanwhile, Japan is looking at ways to use AI and automation to help with its increasingly tricky labour problems. According to research by the Recruit Works Institute (RWI), Japan will have a labour shortage of 11m people by 2040 with the number of people above 60 expected to hit a peak in 2042 (they already make up almost 30% of the population!)
• ELSEWHERE – Apple is now going to allow EU customers to download apps without using the App Store as it is forced to bow to the new EU Digital Markets Act, which aims to encourage competition. Spotify is now taking advantage of this. This could come to the UK fairly soon as a similar bill is going through the House of Lords.

• Research by LCH Investments shows that the world’s top 20 hedge fund managers made their biggest profits ever last year. They included the likes of TCI, Citadel and Viking.
• Aussie bank Macquarie raised a record amount of cash (€8bn) for a European infrastructure fund and it seems that interest in such funds is starting to gain momentum…
• Exxon is now suing two ESG investors, Arjuna Capital and Follow This, saying that they only push proposals that will “diminish the company’s existing business” by suggesting they go further in their eco-efforts. Sounds dodgy to me as they are only doing what activist investors always do – but if Exxon succeeds, this could be a major problem for all ESG funds IMO.

• IN COMMERCIAL PROPERTY – Blackstone said that it intends to make more acquisitions after a very busy Q4 at the end of last year. It already has $1tn of assets under management and wants to buy properties now before everyone else starts piling in.
• IN RESIDENTIAL PROPERTY – Hamptons data shows that homeowners who sold up last year made an average profit of £102,000 despite property prices falling. There’s talk of the reintroduction of Help to Buy to boost the market but RICS says that all it does is jack up house prices and doesn’t actually help all that much. Chancellor Hunt is also looking at 99% mortgages as another way of stimulating the market, particularly among first-time buyers. Housebuilder Crest Nicholson saw its profits fall by 70% after a “disappointing” year and its CEO left the company. IN MORTGAGES, we saw some contrasting actions as Nationwide cut mortgage rates in order to drum up more business while Santander lifted them in response to last week’s surprise rise in inflation. Real estate agent Foxtons sounded quite chirpy about home sales in 2024 after benefiting from a strong performance in lettings last year. Meanwhile, Rightmove stats say that private rents have hit new record highs, but this rate of increase is slowing down as first-timers buy houses.

• Netflix saw a record uplift in subscriber numbers for Q4 and announced that it had struck a $5bn deal over 10 years to be the new home of WWE Raw and other WWE shows in the US and oversees. This is part of efforts by Netflix to get into the world of live programming!
• Vice and Buzzfeed are having to sell off key assets as the world of digital media continues to suffer. BuzzFeed’s trying to sell Tasty and First We Feast, while Vice’s owner Fortress Investment Group is trying to sell Refinery29 as its efforts to sell Vice in its entirety fell flat.
• Advertising and marketing group Publicis announced plans to pour €300m into AI to stay relevant for the future! It’s concerned that AI will enable clients to do their own marketing and strengthen tech companies as competitors.
• Research by the Advertising Association and consultancy Warc shows that TV advertising is on track to have its worst year since the financial crisis (excluding the Covid pandemic). Traditional broadcasters are expected to suffer the most.

• State-backed French lottery operator Française des Jeux made an all-cash offer to buy Sweden-listed betting group Kindred to create one of Europe’s biggest betting companies. It gives FdJ options for international expansion and takes the heat off Kindred, which has been under pressure to sell itself.
• Sony has called off the proposed $10bn Zee merger in India and Sony is now seeking a $90m termination fee. Will this make other foreign companies more reticent about making big acquisitions in India?
• Biotech company Zealand has high hopes for its anti-obesity drug that is late on in the approval process. Novo Nordisk and Eli Lilly are making serious inroads in this area but I think there’s room for a few players given the size of the market!
• Tonic and mixer maker Fever-Tree had a historic moment this week as sales in the US market overtook sales in the UK market for the first time! It continues to pursue overseas growth…

I thought that there were some pretty good “alternative” stories this week, but TBH the one I liked the most was the pineapple hack!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when China managed to hit its GDP target, Post Office scandal developments reached fever pitch and Panmure Gordon and Liberum decided to join forces…

• GLOBALLY – Geopolitical concerns dominated Davos while global stock markets weakened as hopes for sooner-rather-than-later interest rate cuts faded thanks to strong US retail sales data, the ECB hinting that cuts would be more likely to happen in the summer than the spring and the UK seeing a surprise uptick in inflation.
• IN CHINA – Premier Li Qiang said at Davos that China’s GDP grew by 5.2% over last year, coming in slightly above the official target of 5%. Economists are now fretting about GDP growth in 2024 as China has ongoing problems with a declining birth rate and its massively indebted real estate sector.
• IN EUROPE – the ECB is looking increasingly likely to hold off on cutting interest rates and Germany’s nightmare continues as its GDP contracted by 0.4% last year thanks to higher interest rates and energy costs. The coalition is having all sorts of problems at the moment while the far-right AfD continues to see a rise in popularity.
• IN THE UK – inflation rose unexpectedly thanks to higher alcohol and cigarette prices but chancellor Hunt hinted that tax cuts could be on the cards ahead of the election this year as he outlined plans to have a March Statement and an Autumn Budget. Meanwhile, pressure built on Japanese IT company Fujitsu to compensate victims in the Post Office scandal and it admitted for the first time its role in the whole debacle and that it would pay compensation. Meanwhile, the government said that it would protect the litigation funding sector that made current developments possible in the scandal.

IN OIL NEWS…

• The IEA reckons there’s going to be a surplus of oil as demand growth slows and non-OPEC countries (particularly the US) step production up.
• Shell decided to suspend all Red Sea shipments until further notice while the war in the Middle East rages on. This is likely to push prices up as anything that’s normally shipped via the Red Sea will now have to go the longer way around, incurring more cost. Airline bosses are concerned about the price of jet fuel going up as that could mean that air fares will have to go up to compensate for higher costs.
• Shell decided to sell its Nigerian business for $1.3bn after 68 years there. It’s the latest foreign oil major to leave as they are increasingly deeming it to be more trouble than it’s worth for various reasons.

IN BUSINESS TRENDS…

• Insolvencies hit a 30-year high according to the UK’s Insolvency Service thanks to the ultimately fatal combination of higher interest rates, cost-of-living and pandemic impact.
• City law firms fell down the global pecking order in terms of earnings. US firms dominate and the highest placed City law firm was Allen & Overy (12th) while Anglo-American firm DLA Piper (3rd) did better. I would have thought that this has a lot to do with the lack of deal flow in the UK in particular.
• Logistics property landlord Prologis saw its profits rise in Q4 despite a tricky economic backdrop. It cited a positive outlook for the year and has an impressively high occupancy rate. I would have thought it would benefit from ongoing disruptions in global supply chains both in the short term (wars raging at the moment) and the longer term (as businesses realise that they have to have more readily-available inventory for “just-in-case!”).

IN EMPLOYMENT TRENDS…

• The IMF published a report which said that AI will affect 40% of jobs globally and will make inequality worse.
• A report by PwC said that British bosses are planning the biggest hiring spree in the G7 but then agency recruiter Page Group warned of slowing momentum in the jobs market. It cut full year profit forecasts and echoed the downbeat tone of rivals Robert Walters and Hays.
• Meanwhile, the UK’s annual wage growth slowed down to 6.5%, which means that wages have now outpaced prices for five months in a row!

IN CONSUMER TRENDS…

• The owner of Cartier, Richemont, managed to buck the overall trend of gloom for luxury brands as it reported a strong performance over the last quarter  thanks to decent performance in China, Hong Kong and Macau. However, Britain’s biggest retailer of Rolexes – Watches of Switzerland – saw its shares dive by a third as it warned that revenues would fall short of previous forecasts. Also, VW-owed brand Bentley reported weaker sales in 2023.
• Meanwhile, for mere mortal car drivers, there was good news and bad news! The good news is that UK fuel retailers are going to be forced to share information on price changes at the pumps within 30 minutes, making things much more transparent. The bad news is that the average UK car insurance quote hit a new high of £995 and new younger drivers faced a whopping 98% rise in premiums year-on-year!
• Despite the cost-of-living crisis, a Lloyds Bank survey showed that Britons continue to spend on leisure, something that was backed up by Hays Travel which saw a 93% rise in turnover and a doubling of total transaction value over the year!

• IN APPAREL RETAILING, Hugo Boss saw record revenues but lower-than-expected profits, which shocked investors. Its full year results will be released in early March. Fast Retailing (the Japanese parent company of Uniqlo) is suing Chinese fast fashion giant Shein for copying its most popular bag which was described by Vogue as the “hottest product of the year so far” in April 2023. I guess Shein will just add it to the pile of other lawsuits it faces on a continuous basis!
• IN FOOD RETAIL, Ocado saw record sales thanks to a surge in the number of M&S products sold on Ocado’s website but Sainsbury’s is going through a bit of a change at the moment as it’s ditching its financial services business and having a senior management shake-up.

• IN SALES AND PRICES NEWS – European EV sales fell for the first time since 2020 thanks to lower (or no) government subsidies. Also, in the UK, research by Auto Trader showed that the rate of depreciation on EVs is faster than that of petrol equivalents. It’s likely to get worse because manufacturers now have specific EV sales targets they have to hit, which means that there will be bargains to be had although Chinese EV manufacturers are gearing up for a price war. Companies like BYD will be in a particularly good position to cut prices aggressively as they make their own batteries – the biggest cost of an EV.
• IN INDIVIDUAL EV COMPANY NEWS – Hyundai and Kia are emerging as Tesla’s biggest threat in the US and it looks like they’ll consolidate their position over non-Tesla rivals this year with the introduction of new models. In India, electric scooter company Ola Electric is heading for what will be one of the biggest Indian IPOs in the last two years! It’ll have its work cut out convincing increasingly sceptical investors.
• IN BATTERY NEWS – European EV maker Northvolt is raising $3.4bn in debt from the EU and a consortium of banks to fund EV battery production at its factory in northern Sweden. BYD announced plans for a new EV plant in Indonesia as it continues to fight to become Indonesia’s biggest EV brand!
• ELSEWHERE…German car parts suppliers including Bosch and ZF Friedrichshafen are going to cut more jobs. Unfortunately, they have been hit by the double-whammy of big expenses involved in adapting their production to EVs and the fall in demand for EVs.

• UK house prices dropped at their fastest pace in over a decade, according to the latest ONS data. On the other hand, the latest RICS survey showed that newly agreed sales hit their highest level since March 2022 in December. Inquiries were also up for the fourth consecutive month and are now at their highest level since April 2022. Amidst all this, estate agents are becoming more optimistic about 2024, presumably because of the prospect of falling mortgage rates that will follow interest rates down.
• The latest Bank of England stats show that UK lenders are expecting a rise in mortgage demand this year but unfortunately, they also reported a rise in the number of mortgage defaults.
• Housebuilder Crest Nicholson announced its third profit warning in five months. Its current weakness is prompting increasing speculation that it will be bid for…

• IN AI NEWS – Microsoft’s chief had a dig at rival Google, saying that AI will threaten the latter’s long-held dominance of search. OpenAI also changed language related to its usage policies giving it more flexibility over using AI for military purposes. Meanwhile, Vodafone signed a $1.5bn deal with Microsoft where Microsoft will invest in Vodafone’s internet-of-things platform while Vodafone will use Microsoft’s cloud and AI capabilities to improve its customer service.
• IN HARDWARE – Apple has just beaten Samsung to become the world’s biggest smartphone maker by volume but it also announced it would cut iPhone prices in China as competition from domestic makers continues to heat up!
• ELSEWHERE – Google announced that it would build a new $1bn data centre in Britain and we heard that Deere & Co, the world’s second biggest farm machinery manufacturer has signed a deal with SpaceX to use Starlink to connect its tractors and other bits in areas that have poor internet.

• IN FINANCIALS – Goldman Sachs and Morgan Stanley had their worst profits for four years as business continues to be slow in investment banking and trading. Meanwhile, in the UK, small mid-cap brokers Panmure Gordon and Liberum announced plans to merge as the IPO and deal drought continues. This follows consolidation in the sector that we saw last year with Deutsche Bank buying Numis and Cenkos merging with FinnCap. It’s pretty desperate out there!
• Boeing’s problems just got worse as the scheduled resumption of 737 MAX sales to China has now been delayed following the Alaska Airlines incident.
• There are hopes that 2024 could be the year for Eli Lilly’s obesity treatment called Tirzepatide (but known as Mounjaro and Zepbound) as it is thought to have better efficacy than Novo Nordisk’s treatment – and it’s cheaper! Win-win…

There wasn’t a real stand-out for me this week, but I did find this video on how to “make” whipped honey quite interesting. How good could it actually be?? I mean it’s just honey with a bit of air, right? That said, aerated chocolate is pretty good, as is whipped yoghurt so maybe this will be the same…

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when the central banks did *ugger all, businesses got an MI5 briefing and Trainline got a major reprieve…

• IN THE US – inflation remained stubborn as the headline rate fell from 3.2% to 3.1% while core inflation remained unchanged at 4%. Core inflation strips out energy and food because of their relative price volatility. The target rate is still 2% and the Fed subsequently kept its interest rates unchanged whilst prompting excitement among investors by saying that it expected three interest rate cuts next year. Meanwhile, Biden continues to face voter scepticism about financing Ukraine’s war effort as a recent survey showed that 48% of American voters think the US is giving too much aid to Ukraine.
• IN EUROPE – the EU failed to reach an agreement about a €50bn funding package for Ukraine as Hungary’s PM Orbán vetoed the proposal. Elsewhere, Donald Tusk returned as Poland’s PM, which will be good news for Brussels as he is more of a Europhile than his predecessor. Meanwhile, the ECB left interest rates unchanged at 4% but, unlike the Fed, didn’t commit to cutting them any time soon.
• IN ARGENTINA – New president Javier Milei is embarking on a programme of “chainsaw economics” where he will be cutting spending by 3% of GDP as part of a whole raft of dramatic cuts. The IMF is clearly supportive as Argentina is its biggest borrower so if these measures help Argentina to pay them back more quickly they will be pleased!
• IN THE UK – the UK’s GDP shrank by more than expected in October, which doesn’t bode well for the prospects of the final quarter. Still, the Bank of England decided to leave interest rates unchanged at 5.25%, saying that there was still more work to be done to tame inflation.

IN OIL NEWS…

• OPEC+ has hit a new low in market share, according to the IEA. It shows that OPEC+’s market share in oil is now 51% as demand growth has slowed down and US output has increased. This potentially means that output cuts or increases will have less of an effect on the oil price.
• Occidental put in an offer to buy CrownRock in a cash-and-shares deal worth $11bn as the shale industry continues to consolidate.

IN COMMODITIES NEWS…

• Anglo American saw its share price fall by 20% as it cut its outlook for copper production for the next few years due to difficulties at mines in Chile and Peru. It’s had a tough time this year and things might get worse as it may soon be facing a class action lawsuit.
• Uranium investment vehicle Yellow Cake warned that China’s bid to corner the market in the radioactive investment vehicle could threaten western energy supply. Prices are already at 15-year highs as Chinese companies have bought on the open market, signed long term contracts and snapped up mines. Is this going to be lithium all over again??

IN COP28 NEWS…

• The draft COP28 agreement initially dropped the phaseout of fossil fuels but then they did manage to hammer something out that committed signatories to moving away from fossil fuels  towards net zero in 2050. The OECD pointed out that the transition would cost trillions of dollars and limit economic growth.

IN CRYPTO NEWS…

• M&G announced that it is investing $20m in bitcoin trading business Global Futures and Options (GFO-X), representing a rare new commitment from a proper asset manager into bitcoin since the FTX collapse.

IN BUSINESS TRENDS…

• Begbies Traynor is very busy as the number of insolvencies continues to rise while restructurer FRP is also benefiting from the rising number of companies falling into administration.
• UK lawyers, particularly City law firms, are seeing a rise in earnings thanks to corporate, insolvency and banking work.
• Business leaders got a briefing this week from MI5 on things including IP theft and the risks posed by terrorist organisations as part of an overall push to encourage better co-operation between business and intelligence on matters of national security.
• The Federation of Small Businesses (FSB) filed a “super-complaint” to the FCA over “banks that excessively demand personal guarantees for business loans” as banks look like they’re going to do what they did back in 2008 and not lend to smaller businesses (which hampers growth).
• Explosives and missile maker Chemring reported strong orders in the year to October – another company profiting from war.
• Rising demand for goods from Shein and Temu have been a major boon for the logistics sector, particularly in air cargo. The main potential fly in the ointment is going to be ongoing tetchy relations between Beijing and Washington.

IN EMPLOYMENT TRENDS…

• Hasbro has followed other big companies announcing major job losses as it said it was cutting a whopping 20% of its workforce. Spotify, Twilio, Maersk, ByteDance and all sorts of other companies have been conducting major culls over the course of 2023. EY said that it was shedding 10% of its partners in consulting and about 4% in strategy as part of an overall cull. Separately, Etsy said that it would cut 11% of its workforce as part of its restructuring.
• UK companies are still hiring, according to recruitment firm Manpower Group, while wage growth is showing signs of losing momentum and job vacancies have fallen for the 17th month in a row, according to the ONS.

IN CONSUMER TRENDS…

• UK consumer confidence has reached a 3-month high, according to GfK’s latest consumer confidence survey. Shoppers will have to pay more for less this Christmas, though, according to research published by the CEBR and Christmas dinner’s going to cost more, according to the Good Houskeeping magazine’s Cost of Christmas Dinner survey.
• Mortgage arrears appear to be hitting an eight-year high, according to banking trade body UK Finance while separate data from the Bank of England says the rate of mortgage arrears is at its highest level since Q2 2017. The bad news is that they will probably continue to rise.
• Tenants were “hit by the highest increase in rent for a decade” in November, according to stats from Hamptons while Zoopla research suggests that increases in rents are likely to slow down in 2024.

• Macy’s got an offer of a buyout from a consortium of investors to take it private at a 32% premium to its pre-announcement level (although this is less than half of what Macy’s was worth at its peak).
• Shein has been accused by rival Temu of using “mafia-style” tactics to intimidate suppliers, according to a US lawsuit. Shein is preparing for an IPO and I think that investors will need to take into account Shein’s dodgy reputation and potential litigation risk.
• Inditex had a very strong trading statement showing profits up by a third, which is particularly impressive given the current economic backdrop.
• In the UK, it sounds like Boots may potentially re-list on the FTSE100 – something that the LSE would no doubt welcome after a period when everyone seems to be abandoning! Currys pleased investors by saying that its troubled Nordic business was getting back on track and it reiterated its full year guidance. Ocado has added almost 600 new M&S products to its website, prompted by recent criticism that it wasn’t contributing enough to the JV.

• The world’s leading semiconductor companies are racing to produce the next generation of chips, with TSMC leading the charge, closely followed by the likes of Samsung and Intel.
• Nvidia has emerged as one of the biggest investors in AI start-ups this year, according to estimates by Dealroom. Clearly, it’s investing in order to stay ahead of the pack!
• Axel Springer announced a deal with OpenAI where it will provide content from publications such as Bild, Politico and Business Insider to OpenAI to train its models. It’s good that Axel Springer is monetising its content, but the worry is that long-term this might damage journalism as a profession.
• TikTok invested $1.5bn in Indonesia’s Tokopedia, an e-commerce unit of the GoTo tech group. This sounds like a strategic win for TikTok in its biggest market outside the US.
• The Electronic Entertainment Expo trade show – aka “E3” – is to be no more as it just never recovered from Covid. It’s been a major event in the tech calendar since it started in 1995.

• Tesla’s having a tough time at the moment. It’s having continued problems with Swedish unions – and is now looking for a Nordic expert to help it negotiate – while it also announced a major recall regarding its autopilot system. The recall won’t be that bad as it’s a software update but still, it’s not a great look PR-wise.
• GM’s Cruise driverless unit sacked nine senior execs and then followed the announcement up by saying that it is going to lay of f24% of its workforce. This is unsurprising given the repercussions of the October incident.
• Meanwhile, UK car production rose in November and is now at its highest level for five months, according to Lloyds’ Bank’s latest economic activity tracker.

• IN REAL ESTATE NEWS – the European mortgage market is on track to grow at its slowest rate in a decade this year, according to EY’s European Bank Lending Forecast report. This is mainly due to banks tightening their lending criteria UK average asking prices are falling, according to the latest Rightmove stats although “second-steppers” boosted demand for three and four bedroom properties in November. Estate agents reckon that a recovery in the property market is around the corner, according to the latest RICS survey. Sentiment appears to be improving as mortgage rates fall further.
• IN MEDIA NEWS – Netflix released full viewership data for the first time ever this week, providing viewing figures for its top programming for the first half of the year. It plans to release such a report twice a year. Spotify seems to be winning the streaming war but it has also cut 25% of its staff this year. I think that the business is now maturing and so it now has to make incremental operational improvements to keep everything going.
• IN FINANCIALS NEWS – the FCA told brokers to stop “double-dipping”, a practice whereby they make money from the interest earned on client cash deposits and charge them for the privilege of holding that cash! Visa and Mastercard are being investigated by the Payments Systems Regulator which is looking at putting a cap on “interchange fees” between the UK and EU which the duopoly has increased almost fivefold since Brexit. Hiscox wants to use AI for underwriting purposes and has done a tie-up with Google to develop an AI model that can automate the core underwriting process. Hiscox will use this tool from the second half of next year.
• Unilever is going to be investigated by the Companies and Markets Authority over allegations of “greenwashing” in a number of its household products. It’s not the only company to be accused of doing so and it’ll be interesting to see what happens as a result of this investigation.
• Vivendi is looking to split into three businesses to crystallise the value more efficiently in each. The three businesses – that will be separately quoted – will be film/TV, PR and an investment division based on publisher Lagardère.
• Pfizer is suffering post-Covid, but it’s not the only Covid hero to suffer – Moderna and BioNTech have also fallen behind. It’s now embarking on a massive cost reduction programme but TBH if it really wants to get back to the glory days, it’ll have to get involved with anti-obesity drugs IMO…
• Trainline got a boost this week as the government has decided to give up making its own centralised ticketing app. Trainline’s share price tanked when the proposal was made two years ago, but I suspect that investors assumed the government attempt would fail, which is why Trainline’s share price only had a mini-blip upwards on the news.
• Cigna abandoned its proposed mega-merger with Humana that would have created a health insurance behemoth. It’s going to look at smaller bolt-on acquisitions and do a share buy-back instead.

Anyone who knows me well will easily be able to guess my favourite “alternative” story of this week – it was the one with the amazing-looking chocolate pizza! It looks amazing (but perhaps not amazingly healthy 🤣)!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when China’s credit rating took a tumble, when Spotify cut 17% of its employees and when McDonald’s launched CosMc’s…

• GLOBALLY, pressure is mounting on central banks to cut interest rates as inflation is slowing down. Two years on from being too slow to raise them, will they be too slow to cut them as well?
• IN CHINA – Moody’s downgraded China’s debt from “stable” to “negative” thanks to rising debts at state-owned enterprises and the nightmare it’s having in its property sector at the moment.
• IN INDIA – PM Modi’s party, the BJP, put together a string of major victories in India’s state election, putting him in pole position to win another term in next year’s general elections.
• IN EUROPE – it wasn’t such a good week. EU leaders are dithering about a €50m slug of cash that is supposed to be going to Ukraine at a crucial time in the war. Trade talks didn’t go well either as the EU’s trade chief cancelled a trip to Brazil where he was supposed to sign a trade deal with the Mercosur nations and China then dismissed EU concerns about the trade deficit whilst also denying that there was overcapacity in its EV sector. All the while, the Eurozone moved closer to recession as output in the bloc’s four biggest economies continued to drop.
• IN THE UK – research from the Local Government Association (LGA) shows that almost 20% of English councils are close to bankruptcy this year or next because of the lack of government funding. This is the sort of momentum that no-one wants to see gaining pace…

IN COMMODITIES…

• The gold price hit an all-time high as interest rates are peaking and concern continues to abound because of the uncertain political backdrop.

IN OIL…

• Markets don’t seem to be taking into account the potential for conflict in the Middle East to spread to the Strait of Hormuz, which is used to transport about 20% of the world’s crude oil and LNG. If things escalate, supplies could be disrupted, which would mean oil prices going higher.
• There are talks of an Aussie LNG merger between Woodside and Santos that would create an absolute behemoth! Talks are ongoing but it would create a national champion if it went ahead…
• Meanwhile, Canada is talking about imposing greenhouse gas emission limits that would start in 2030 and get progressively tighter heading towards 2050, which is supposed to be when the industry hits net zero. The oil industry isn’t best pleased, but neither are the environmentalists who think that the measures don’t go far enough.

IN RENEWABLES NEWS…

• State-controlled UAE company Masdar just bought a 49% stake in the East Anglia Three offshore wind farm – one of the UK’s biggest wind farms – from Spanish developer Iberdrola. This will be the second deal struck by the UAE in two weeks as Masdar previously bought 49% of the £11bn Dogger Bank south project in the North Sea last week!

IN BITCOIN-RELATED NEWS…

• Bitcoin hit $42,000 for the first time since 2022, clearly tossing aside any concerns about scandals at FTX and Binance! Meanwhile, Coinbase said that it wants to create more crypto jobs in Britain as it presumably benefits from the downfall of rivals in the space!

IN BUSINESS TRENDS…

• German factory orders fell, according to the latest official figures. Things continue to go from bad to worse in Germany at the moment.
• The UK services sector grew for the first time since July, according to the latest S&P Global PMI. Businesses got a boost last month from rising demand from the US and EU.
• The UK M&A market hit its lowest level in a decade, according to research from LSEG Deals Intelligence, something that UK investment bank Peel Hunt is acutely aware of as it suffered a half year loss precisely because of this!
• The NHS is continuing to outsource more eye, hip and knee operations in its bid to cut surgery waiting lists. Companies such as Circle Health Group and Spire Healthcare continue to stand to benefit…

IN EMPLOYMENT TRENDS…

• The latest report by KPMG and REC shows that a recent surge in redundancies has resulted in the biggest jump in the number of job seeker numbers since lockdown! The hiring of permanent staff has fallen for the 14th month in a row.
  EY announced more job cuts thanks to the continued lack of deal flow. It seems to be being particularly brutal with its legal business.
• Spotify announced that it would cut its headcount by 17% amid a weakening economic backdrop and high interest rates. This is its third round of redundancies this year! Its CFO sold £7.2m worth of shares, which is normally a worrying sign – but it turns out that he’s leaving so it’s probably his last hurrah!

IN CONSUMER TRENDS…

• US consumers are increasingly turning to BNPL to pay for their holiday shopping as the cost of living continues to bite and the labour market shows signs of cooling off.
• Chinese borrowers are having a nightmare as they are defaulting in rising numbers. The big problem here is that late payment means you get cut off from all sorts of things as you get blacklisted.
• UK consumers are seeing their living standards fall while they face the worst food inflation in the G7, rein in spending and get hit particularly badly by inflation if they have a mortgage 😱! And talking of mortgages, 20% of first time buyers are signing mortgage deals of 35 years or more – the highest proportion since records began in 2005! They are resorting to this in order to make their monthly mortgage payments more affordable.

IN RETAIL NEWS…

• Alibaba is losing its lustre and it has relinquished its position as China’s most valuable online company after losing most of the gains it’s had since its 2014 IPO. Its online retail business is suffering from an increasing amount of pressure from newer rivals and has seen its market share in e-commerce slide from over 80% in 2014 to around 40% now!
• The company that superseded Alibaba in the #1 spot is PDD, Temu’s parent. The company is growing much more quickly than Alibaba and although it has overseas expansion ambitions, it may have to adapt its approach to suit local markets and be wary of ongoing US-China tensions.
• Online luxury retailing continues to falter with the likes of Farfetch, MyTheresa and Matches all suffering. I think this is because, of all the types of retailer, luxury retailers are the ones that concentrate the most on the actual experience. Online just doesn’t come close IMO!
• Frasers Group sees better sales but is cautious about the “softening” of the luxury market. That said, weakening in this area could throw up interesting opportunities either to consolidate what they have (e.g. Hugo Boss) or give them other targets to go for.
• Games Workshop is so bullish about its first half profits that it’s given its staff a £2,500 bonus to enjoy! How great is that ahead of a cost-of-living-crisis Christmas!
• Moonpig saw a rise in profits but a fall in the number of orders (because basket sizes were bigger). It is benefiting from using an AI algorithm which makes targeted recommendations.
• Sainsbury’s is winning back market share from Aldi and Lidl, according to the latest figures from Kantar. Although this is good news for Sainsbury’s, this is at least partly due to price matching with Aldi – and I wonder how sustainable that is over the medium-long term!

IN LEISURE NEWS…

• McDonald’s announced the launch in America of a new format called CosMc’s that will offer iced beverages, all-day Egg McMuffins (but no burgers or fries!) and will be drive-through only! CosMc’s is named after an orange alien mascot that featured in McDonald’s ads in the late 80s.
• SSP has benefited from more travellers, which means higher footfall in its outlets at stations and airports. Full year revenues have recovered significantly and it has been expanding into new overseas markets.
• On the Beach managed to breach £1bn in revenues for the first time as “revenge travel” has well and truly kicked in since lockdown! The company says that the majority of consumers have this year protected their holidays and not sacrificed them and that it was confident about the coming year.
• Travel company Tui is thinking of ditching its primary London listing and moving to Frankfurt instead. Although this will be bad news for the LSE, it makes sense for Tui given that 75% of the shareholders and share trading volumes are in continental Europe. It would also help the company cut costs and give it better trading liquidity.

• AbbVie made an offer for Cerevel Therapeutics for $8.7bn, enhancing its neuroscience portfolio. This is AbbVie’s second big acquisition in the last fortnight – the other one being ImmunoGen which it is buying for $10bn.
• Alaska Air made an offer for Hawaiian Airlines in a deal worth about $1bn but it will have to pass the regulators. Execs are hopeful that the deal will go through as there’s not much overlap for the airlines in terms of routes.
• Saudi Arabia’s sovereign wealth fund just bought 49% of Rocco Forte Hotels with the aim of helping it double in size over the next five years.
• Private equity firm Trive Capital Partners has just made a recommended offer for ten pin bowling specialist Ten Entertainment Group that values the business at £287m and is being struck at a 49.7% premium to the average share price over the past 12 months. This is just the latest example of consolidation in the leisure sector!
• Coventry Building Society launched a bid for Co-op Bank. If it is successful, the enlarged group would be big enough to take on the likes of Virgin Money.
• Meanwhile, Brookfield’s $13bn bid for Origin Energy failed to get shareholder approval. This is the second big deal that has failed in this way in the last few weeks – the first being US lithium miner Albermarle walking away from a $4.2bn bid for Liontown Resources in mid-October.

IN BATTERIES…

• Europe continues to fall behind on  automotive electrification as it’s only managed to secure 16% of the battery raw materials it needs by 2030 to hit EV battery targets. Meanwhile, the European Commission is now looking at offering €3bn in subsidies to battery makers in the EU.

IN EV NEWS…

• The EU proposed a 3-year delay to EV sales tariffs between the UK and EU that would have come into force next year. The rules had been introduced originally to encourage the development of the European battery supply chain – but things haven’t quite turned out as expected as the Chinese continue to be absolutely dominant in this area.
• Tesla’s fight against Sweden’s unions spread to Denmark and PensionDanmark, one of Denmark’s biggest pension funds sold out of its £46m stake in Tesla, ostensibly because of Tesla’s anti-union stance. Tesla also lost in its legal bid to force Sweden’s postal service, PostNord, to deliver its licence plates. Meanwhile, the UK won’t be taking part in the Cybertruck frenzy as much as the Americans because its weight means that the standard driving licence won’t cover it!
• Car dealership Vertu saw its value shrink by up to a quarter as it continues to suffer from falling demand for EVs.

IN OTHER CAR NEWS…

• Toyota is looking at making two potential investments in the UK after the government extended the petrol/diesel/hybrid sales ban deadline from 2030 to 2035. One involves a new model being made here and the other is making hydrogen fuel cells. Meanwhile, it sold down some of its stake in parts maker Denso, which is notable as cross-shareholdings in suppliers are quite common in Japan and some think that this could prompt other companies to reduce their cross-shareholdings as well.
• GM’s Cruise has been ordered by the California Public Utilities Commission to testify about the infamous October incident. It said that Cruise omitted crucial information about its vehicles’ safety.

IN AI NEWS…

• Meta and IBM launched an “AI Alliance” which takes an “open-source” approach to the larger players in AI at the moment – Google, Microsoft and OpenAI (who take the opposite approach). Dell, Sony, AMD, Intel and a number of uni start-ups and universities are also part of this new alliance.
• Google launched a new batch of AI models that will run directly on mobile phones for the first time. Being able to run an AI model natively on a mobile phone has two main advantages – firstly, it’s cheaper to run, and secondly, it means that private data will be restricted to the device itself.
• BlackRock will be rolling out its first generative AI tools to clients from the beginning of next year that will enable them to access information from its risk management systems. A number of financial services companies are also experimenting with AI tools for their own use and for the use of clients. Bank of America, Wells Fargo and PwC are among those who are already working on/launching such models.

IN OTHER TECH NEWS…

• Apple is looking to use batteries made in India for its latest generation of iPhones as part of an overall effort to lessen its reliance on manufacturing in China. It has told component suppliers of its preference to source batteries for its iPhone 16 from Indian factories!
• ByteDance announced a share buyback, putting its enormous $50bn+ cash pile to work ($5bn of this has been earmarked for the share buyback). It’s heading towards an IPO at some point but there are still regulatory clouds hanging over it so I guess a buyback is something to keep the investors happy for the time being!

• IN REAL ESTATE NEWS – The massively indebted Evergrande just got a stay of execution and has been given some extra time to put together a restructuring plan by a Hong Kong judge that will satisfy its creditors. It has until next month to come up with something. If it fails, this could have major repercussions not just on Evergrande – but also on China’s economy. Elsewhere, luxury brands are snapping up high profile commercial property (LVMH just bought 150 Avenue de Champs-Élysées for a whopping €950m, a record price for a building on the glizty street) as they look to protect their prestigious addresses but, overall, many property firms are now feeling the nasty hangover they got from “free money” when they borrowed at virtually zero rates of interest. We saw this most recently with Signa Group and Selfridges. In residential property, the latest stats from Halifax show that house prices increased in November, making it the second consecutive monthly rise. This has been mainly down to the relative short supply of properties on the market as opposed to red-hot demand.
• IN FINANCIALS NEWS – the SEC warned companies against “AI-washing” – where companies make false claims regarding their association with AI – and that they need to be making “full, fair and truthful” disclosures. I think that AI-washing is going to become the new “greenwashing”! Elsewhere, the Qatar Investment Authority is going to halve its shareholding in Barclays which would suggest that it doesn’t believe in Barclays’ current turnaround plans…then we saw that investment platform AJ Bell saw a huge rise in pre-tax profits thanks to the interest earned on customer accounts! You would have thought that although this is great right now while interest rates are high this state of affairs won’t last forever and it will need to make sure its core business is firing properly for when they don’t get this income!
• IN PHARMA NEWS – Novo Nordisk is already looking beyond its wildly successful obesity drug and is now looking into drugs that can stop you gaining weight in the first place! Research is in the early stages, but it sounds exciting! Meanwhile, Roche bought Carmot Therapeutics for up to $3.1bn. Carmot is developing its own anti-obesity drugs.
• The UK’s mobile networks are now facing a big class action as they are being accused of overcharging millions of customers on their phone contracts when they consistently fail to cut the amount charged to customers’ bills once the minimum term of their contracts expire.

My favourite “alternative” story from this week is actually this educational one about how to find the centre of a circle! I never knew this!!!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Europe’s inflation fell closer to target, when Shein filed for an IPO and when Tesla finally delivered on the Cybertruck…

• IN THE US – US GDP grew by more than expected in Q3. At an annualised rate of 5.2%, this was the fastest rate since 2021 and was was due to continued consumer spending and government subsidies for green industries.
• IN CHINA – factory activity contracted as the economy lost momentum, according to the latest PMI. This was the second consecutive month of contraction, which could imply that the government’s efforts to stimulate the economy either haven’t worked or haven’t fed through yet.
• IN EUROPE – Eurozone inflation fell by more than expected to 2.4% – its lowest level in over two years, edging closer to its 2% target rate. Although this could be seen as a victory against inflation, it has come at a cost – economic growth. France’s economy shrank and Germany’s unemployment rate rose as the eurozone heads towards recession. The far-right victor of last week’s Dutch elections, Geert Wilders, is looking to “moderate” his stance in a bid to make a proper bid for the premiership.
• IN THE UK – the OECD reckons that the UK’s on track to have the second lowest growth in the G7 over the next two years, just one place ahead of Germany, thanks to lingering inflation. Back in the UK, a Lords committee criticised the Bank of England’s poor record of inflation forecasts, which they argue made inflation worse than it should have been. I’d argue that the Fed, the ECB AND the Bank of England ALL got it wrong (they said that inflation was a temporary blip) so the fact that ex-Fed chief Ben Bernanke is supposedly going to come in and sort it all out in response to the report makes me laugh given that Bernanke didn’t always cover himself in glory. Then there was the news that Nottingham City Council issued a section 114 notice, basically declaring itself bankrupt. Councils had been particularly worried since the Autumn Statement didn’t give them much – and this was the result.

IN COMMODITIES NEWS…

• India plans to triple the amount of underground coal mining in order to meet the country’s fast-growing need for energy. The country’s coal ministry wants to triple output from underground coal mines by 2028. India currently relies on coal for about 75% of its power production.

IN OIL NEWS…

• OPEC+ decided to cut oil production, but the market treated this with scepticism as not every member was fully committed to the new target. Meanwhile, US crude oil inventories rose by more than expected.

IN RENEWABLES NEWS…

• Inflation may affect the viability of mini-nuclear power plants. NuScale Power, an American developer of Small Modular Reactors (SMRs – mini nuclear power stations) said this month that plans to build its first cluster of mini-nukes in Utah died after a number of towns that were backing the project pulled out due to rising costs. Despite this, the mayor of Tees Valley is about to agree a deal with US nuclear power company Westinghouse to build Small Modular Reactors (SMRs) in the North East.

MEANWHILE…

• Global stocks had their best month in three years as market hopes that interest rates would be coming down gathered pace, something that also helped the dollar to hit a three-month low.

IN BUSINESS TRENDS…

• South Korean defence firms such as Hanwha Aerospace, Hyundai Rotem and Korea Aerospace Industries are riding the wave of defence spending at the moment, helping the country to become one of the world’s top 10 defence exporters. It’s in a constant state of readiness anyway because of its neighbour and is robust enough to scale production very quickly and the Europeans are getting a bit nervous about it…talking of defence, the latest figures show that Turkey’s exports to Russia have boomed this year amid allegations that Turkey is becoming a backdoor supply route for sensitive items fuelling the Russian war machine.
• Deloitte and KPMG staff going to Hong Kong on business are being advised to take burner phones even if they’re not doing anything particularly sensitive. This is just symptomatic of the current wave of Chinaphobia gripping major corporates at the moment. Mind you, given the clampdown on western corporates recently, you can understand the paranoia…
• IN THE UK – UK business confidence is actually rising back to levels before the war in Ukraine, according to a monthly report by Lloyds Bank! This is having a positive effect on hiring plans. Meanwhile, given that I’m always banging on about how advertising is often seen to be a decent leading economic indicator, it was interesting to see that Channel 4’s chief said that the TV industry is seeing its worst advertising slump in 15 years! This isn’t boding well for the economy.

IN EMPLOYMENT TRENDS…

• Vacancies are increasing in the approach to Christmas, according to Adzuna, thanks to retailers and warehousing companies.
• The ONS’s new unemployment rate is 3.5%. This is notable because it’s lower than it was before and is using a new methodology because the previous one was deemed to be losing its accuracy.
• On the flipside, EY has decided to push some graduate start dates back in its advisory arm because of the lack of business while London has become the redundancy capital of the UK, according to REC. The tech and construction downturns have proved to be particularly damaging.
• A research report published by the Unit for Future Skills concluded that the finance and insurance sectors would be most vulnerable to AI taking over jobs. Management consulting was deemed to be most affected, followed by financial managers, accountants, psychologists, economists and lawyers – and London was found to be most impacted because of the concentration of these kinds of jobs. There was a mildly concerning article in The Guardian about a report alleging that Sports Illustrated published articles written by authors who were generated by AI! Sports Illustrated obviously denied the allegations. It’s already happening people 😱!!! The bots are taking over!

IN CONSUMER TRENDS…

• UK shop price inflation slowed down to its lowest rate in over a year, according to the BRC, as retailers cut prices ahead of the all-important Christmas season.
• Food producers have been found by the CMA to be guilty of putting prices up at a faster rate than their own costs were rising. Companies like Unilever deny this while supermarkets have already been cleared of indulging in “greedflation”.
• More consumers will use BNPL over the Christmas period, which is unsurprising given the cost-of-living crisis. A study shows that over 25% of adults in the UK will use BNPL as part of their Christmas spending – a rate which rises to 50% among parents with young children.
• Mortgage approval rates have risen for the first time in months despite a rise in borrowing costs! Is this the start of a modest housing recovery?? I wouldn’t have thought it would last too long though as we will soon be in the quietest time of the year for real estate (once the Christmas frenzy – i.e. wanting to move in before Christmas – is over, it usually all goes quiet for a few months as people build up cash again!).

IN RETAIL NEWS…

• IN CHINESE RETAILER NEWS – Shein filed to go public in the US – and although it’ll try to get a high price, there are political and regulatory risks. Meanwhile, Temu is going to be investing further in the US and its parent, PDD Holdings, has bought multiple ad units during the Super Bowl, which is some of the priciest ad real estate on broadcast TV! It is clearly putting its money where its mouth is!
• IN UK RETAILER NEWS – UK retailers are bracing themselves for a disappointing festive season, according to the CBI but online market places selling used goods – such as Amazon and eBay – are reporting a surge in sales as people aim to get the most for their money. Companies including Depop and Vinted have also been trading well. Luxury online retailer Farfetch had rubbish results and the founder is thinking of taking it private while Halfords warned of weaker profits. Elsewhere, Lush announced the opening of a new “hair lab” concept store in Brighton and Mountain Warehouse is planning on opening more stores after a strong first half performance.

IN LEISURE NEWS…

• EasyJet reported its first annual profit since the pandemic and the outlook is positive. The CEO observed that customers are starting to return to booking longer holidays and more expensive hotels.
• Saga is looking at financing options as it continues to battle with rising debts. Its CEO, Euan Sutherland, resigned. It looks like he has the opposite of the Midas touch and hasn’t really done a decent job for the last decade…

IN BANKS NEWS…

• Goldman Sachs said that it was reining in its previously aggressive China expansion ambitions given the ongoing US-China tensions.
• Barclays said that it is looking to drop thousands of investment banking clients in order to concentrate on the more profitable ones. This makes sense given that the bank is also looking to cut staff numbers as well.
• Lloyds Bank said it is going to close more branches whilst at the same time throwing its hat in the ring to buy Tesco Bank as the supermarket moves away from finance.
• Metro Bank got the OK from shareholders for its financing and is close to selling most of its home mortgage portfolio to Barclays. It then announced that it would be cutting 20% of its staff and reconsidering opening hours (especially Sunday opening).

IN INVESTMENT/WEALTH MANAGEMENT NEWS…

• Anti-greenwashing reforms that were due to come into force on January 1st next year have been pushed back to May 31st in response to City requests for more time to comply. The reforms are intended to stop fund managers from making false “green” claims.
• Financial advisers are going to be required by the FCA to hold more capital to cover potential compensation claims for poor advice. Until now, claimants have been paid out of the Financial Services Compensation Scheme but the new approach means that those who are guilty will have to pay more of their share.
• Trading app Robinhood is to launch next year in the UK. It’ll kick off with share trading of US stocks followed by London-listed stocks later on. I think they’ve got their work cut out given the relative lack of share-trading culture over here.

IN CHINA…

• We see the effects of the Chinese real estate crisis that were turned up a notch with Evergrande’s default in 2021. The scale of indebtedness in the sector that accounts for 25% of China’s GDP is frightening.
• Talking about indebtedness, Chinese authorities have launched a probe into shadow bank Zhongzhi, after the company described itself as “severely insolvent”. Shadow banks are getting dragged into the real estate abyss as they also lent money to the sector.

IN THE UK…

• IN COMMERCIAL REAL ESTATE – UK estate agent group Carter Jonas estimated that almost seven million square feet of office space in Canary Wharf currently falls short of environmental property standards, which could mean that Canary Wharf Group is left with a whopping bill to upgrade. Not great for them, but it could be a nice money-earner for construction companies and building materials suppliers!
• IN RESIDENTIAL PROPERTY – UK house prices are falling, according to the latest stats from Zoopla, as discounts are now getting bigger – 5.5% in November. This is the highest discount since 2018. Meanwhile, Rightmove remains bullish about its own prospects despite the imminent juicing up of rival OnTheMarket after the latter’s acquisition by deep-pocketed American property data group CoStar.

IN EV NEWS…

• The EU’s got a plan to get around the 10% Brexit tariff on EVs – it will extend the validity of the 2023 “statements of origin” into 2024 while the car industry itself continues to lobby for a three-year suspension of the tariff.
• Tesla’s Cybertruck is now ready for delivery and the prices have already been announced. Funnily enough, the prices are way higher than what had been stated previously ($61,000 starting price – way north of the $40,000 that had originally been touted!) but then again, those who’d put their deposit down have had a few more years to save the extra pennies given how many delays there have been to its release! Meanwhile, Tesla continues to battle Swedish unions – and there’s a bigger battle at stake here because losing in Sweden could have global implications for its workers!

IN OTHER CAR NEWS…

• VW is looking to cut more jobs as part of a €10bn cost-cutting exercise.
• Ford has slashed its profit forecasts thanks to lost production and higher labour costs resulting from the union strikes.
• GM announced a $10bn share buyback as a way to reassure investors about the health of its carmaking business. It also cut its investment in its driverless division Cruise. I think it needs to ditch the thing entirely as it is just a massive money pit IMO.
• Meanwhile, UK car production continues to increase – and has now done so for the eighth consecutive month!

IN AI NEWS…

• The US, UK and 16 other countries unveiled a new AI pact that calls for AI systems to be “secure by design”. It’s not binding, but it’s a step in the right direction!
• PwC launched a chatbot that can work out whether acquisitions are worth making. It should speed up the due diligence process but the timing of the announcement isn’t great given that it comes not long after the company made 600 redundancies in its advisory team.
• Retailers are using AI for inventory now. This will ensure that they have the right amount of stock in the right places depending on variables such as weather patterns and social media trends.
• OpenAI is readying itself for a employee share sale which will be an interesting indicator of sentiment following the dramatic events of last week! Talking of OpenAI, Microsoft now has a seat on its board, which will give it access to confidential information although it won’t be able to vote on key decisions. And talking of Microsoft, the company has shown that there are no hard feelings with the UK about the Activision Blizzard debacle as it announced a £2.5bn investment in a new data centre in west London and expanded computer capacity in Cardiff, among other things.

IN SOCIAL MEDIA NEWS…

• Meta has been accused of getting children addicted to its platforms and knew about underage users, but Meta is trying to shift blame onto the app stores, saying they should be tighter on age restrictions.
• Twitter has lost 3m British users since Elon Musk took it over, according to the latest figures from Ofcom and Ipsos. CEO Yaccarino’s job wasn’t made any easier by a frustrated Musk telling advertisers who’d abandoned the platform to “go **** yourself”.

ELSEWHERE…

• A report by VC group Atomico shows that funding for European tech companies has almost halved this year as US investors pulled back. It seems that this is at least partly because investors are now much more focused on profitability rather than raw growth.

• Private equity firm Blackstone announced it is to buy petcare marketplace company Rover Group in a deal worth $2.3bn. Rover Group now has 30 days to seek alternative buyers.
• Cigna and Humana are in talks to combine in what could become a new giant in the health insurance industry!
• The Saudi Arabian sovereign wealth fund is taking a 10% stake in Heathrow for £1bn. It’s buying it from Ferrovial which has been trying to offload its 25% stake for the last few months.
• AbbVie is to buy ImmunoGen in a $10bn deal which basically buys the former a promising new technology for treating cancer. This will be a much-needed boost given AbbVie’s anaemic drug pipeline.
• Aviva is buying a Canadian vehicle insurance rival for £100m as part of its drive to focus on business in the UK, Ireland and Canada.

• Novo Nordisk is looking at flexible pricing for its obesity drug. It’s not planning to cut prices but it’s talking to healthcare systems around the world about how they can spread the cost. I think that this shows a lot of confidence – and given that the obesity market is absolutely massive it’s a decent call, IMO!
• Rolls-Royce is looking to sell its flying taxi and electric plane business as the CEO wants to streamline the business as part of plans to quadruple profits.
• Uber was in the news this week for a couple of eye-catching reasons! Uber is having another go at tempting London’s black cabbies to join its app after its last abandoned attempt  in 2017. It is also pushing its train-booking service, something it’s had for a while but hasn’t pushed so much until now. Will Trainline be worried??

My favourite “alternative” story from this week was the one about which is better – Roses or Quality Street! I agree with the conclusion in this article 👍

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Sam Altman returned to OpenAI, when Jeremy Hunt announced the Autumn Statement and when Argentina got a new president…

• IN TAIWAN – plans for the opposition parties to get together got problematic over the weekend as neither party could agree who would lead the campaign! They have to unite in order to stand any chance of winning against the ruling DPP.
• IN EUROPE – the Eurozone is moving closer to recession, according to the latest data from the HCOB PMI. Business output fell in November for the sixth consecutive month and the number of jobs cut exceed the number of those created for the first time since the pandemic. The ECB said that it could potentially raise interest rates if needs be to tame inflation (although most believe that Europe has already hit the peak). Meanwhile, within the region, Germany’s government were forced to suspend a vote on the country’s budget for 2024 following a ruling by the country’s highest court declaring that the government’s move to shift €60bn to a climate fund breached fiscal rules to limit debt! Politics in the Netherlands shifted to the right as Geert Wilders won elections on Wednesday, benefitting from the increasing disconnect between liberal city-dwellers and more right-wing rural voters who are getting increasingly concerned about immigration and worsening public spaces. Turkey’s central bank whacked up its interest rate to 40% in order to tame inflation while Greece’s leftist Syriza party looks like it’s breaking up as nine of its MPs quit in protest against its leader.
• IN THE UK – chancellor Jeremy Hunt announced various initiatives in the Autumn Statement. It looks like he’s used any “spare” money to implement more broader-based measures than I had expected and it is, unsurprisingly, designed to win more votes. In the meantime, the latest “flash” reading of the S&P Global CIPS PMI highlights the first signs of economic recovery in the UK for four months. It was also good to see that UK business activity grew slightly in November.
• IN ARGENTINA – Radical libertarian Javier Milei won the presidential election and so Argentina will be facing an uncertain future until everyone can work this guy out.

IN OIL NEWS…

• Oil prices fell as the Opec+ alliance postponed a meeting which was scheduled to get members to commit to production targets. The group is expected to either keep production plans unchanged or cut them in order to support the price.

IN CRYPTO NEWS…

• Binance founder and CEO Changpeng Zhao pleaded guilty to money laundering yesterday. He’ll pay a $50m fine himself and sever any involvement with the business while Binance itself will pay fines of over $4bn to settle criminal charges. The new chief, Richard Teng, has called for calm and is committed to getting customers and regulators onside.

IN BUSINESS TRENDS…

• US private equity firm Carlyle sold its 28% stake in McDonald’s Chinese operations for $1.8bn in the latest example of a western private equity firm reducing exposure to the region.
• India is seeing a back-office boom which means that IT services workers are hot property! Multinationals are opening their own “Global Capacity Centres” (aka GCCs) to develop proprietary tech such as cyber security systems and AI. These centres are very cost effective because of cheaper labour costs.
• More businesses are closing than opening, according to the latest data from the ONS. Transport and storage businesses were hit hardest as rising energy prices, inflation and higher wage costs continue to hit hard.
• Compass benefitted from more companies deciding to outsource their catering – and it also managed to increase its prices as well. Not bad!

IN CONSUMER TRENDS…

• US retailers are not expecting great things from Black Friday given the squeeze on household incomes and it looks like they will have to offer deeper discounts to attract increasingly cost-conscious customers.
• UK retailers are also offering deeper discounts but, on the plus side, the latest GfK consumer confidence survey shows that Brits are starting to feel more optimistic about the economy and personal finances! Unfortunately, consumers will face more pressure on their finances as the energy price cap is set to rise from January, which means that bills will go up.

IN RETAIL NEWS…

• Electrical goods retailer AO World managed to return to profit after a year of painful cost cutting. It also pleased investors by lifting full-year profits.
• Go Outdoors saw profits almost halve last year as it struggled to cope with higher operating costs. On the plus side, sales are now showing signs of recovering and it’s going to roll out a new format in high streets called Go Outdoors Express after a successful trial.
• Halfords got a bid and rejected it not long after it threw its hat in the ring to buy rival bike specialist Wiggle out of administration. I still think that we’re potentially at “peak bike” for now and that there will be more sector consolidation.
• Kingfisher, which owns B&Q and Screwfix, announced its second profit warning in two months as its French business saw a weakness in sales. It has decided to concentrate on growing market share in Britain, France and Poland next year whilst keeping a lid on wage costs.
• UK beauty retailer Space NK has benefitted from the “Zoom Boom” of people wanting to look their best on video calls and reported strong sales!

IN LEISURE NEWS…

• Jet2 had strong results for the first half and although winter bookings have been a bit lacking, bookings for summer next year look pretty good.

IN CHIPS NEWS…

• Nvidia reported yet another storming quarter powered by its leading position in AI but investors remain concerned about the effect of the ongoing US-China trade tensions. Through it all, Nvidia is taking things in its stride and continues in its aim to be a one-stop chip shop as it announced an even better AI chip.

IN OPENAI NEWS…

• There was a kerfuffle over the weekend as there was speculation that Sam Altman would be returning as CEO of OpenAI, but then the board rejected this and appointed a new interim chief, Microsoft then hired Altman and his team but then he made a dramatic return to OpenAI as chief exec with a new board. There were comments that one of the reasons why Altman was ousted in the first place was that the company had been working on a new AI model which was so powerful that it caused safety concerns among staff.

IN OTHER TECH NEWS…

• The $69bn Broadcom-VMWare merger finally got approval from the Chinese regulator, which had been dragging its heels. Is this a sign of a thawing of relations between Washington and Beijing??
• The UK government has stopped advertising on X over the last few months although they continue to spend on Facebook and Instagram ads. This was happening even before last week’s anti-Semitism row.
• Sage announced booming profits and it’s working on an AI product that it says will be a game-changer for SMEs!

IN BATTERY NEWS…

• South Korean battery makers such as LG Energy Solution and SK On are reining in their US operations due to slow EV demand, which has itself prompted a pause in EV production capacity expansion at the likes of GM and Tesla. Ford announced that it would continue to build its Michigan factory but on a smaller scale precisely because of this.
• Stellantis is in talks with CATL about a 50-50 battery joint venture that would increase the affordability of EVs, although this means that superior Chinese tech is firmly embedded in European car supply chains!
• European battery maker Northvolt has made a breakthrough discovery of a sodium-ion battery which costs less to make, is more sustainable than existing lithium ion batteries and doesn’t require the use of any lithium, nickel, graphite or cobalt. It is currently designed for electrical storage plants but it could potentially be used in EVs.

IN CARMAKER NEWS…

• Nissan said that it plans to build new EVs at its Sunderland plant, which will be great news for the region.
• Musk is getting frustrated about workers at his Swedish factory striking to protect collective bargaining rights. Could this inspire other Tesla workers around the world perhaps??
• Fisker lost its second chief accounting officer in less than a month, shortly after unveiling its Q3 results. Fisker is finding out the hard way how difficult it is for a new car company to survive in an increasingly competitive space.

IN OTHER CAR-RELATED NEWS…

• The chief of GM’s autonomous car unit, Cruise, resigned after all the safety troubles last month. Cruise’s future is unclear but, for the moment, it has planned a more conservative reintroduction of its robotaxi service that will be much smaller-scale than before.
• France has voiced its support for the UK call to delay tariffs on electric vehicles. It had, up till now, been the only major European opponent of the UK’s request to defer the 10% duty on EV sales.

• Chinese shadow bank Zhongzhi warned that it was “severely insolvent”, which could have big implications for the whole $3tn shadow banking market as its exposure to a disastrous real estate sector is dragging everything down with it.
• Barclays said that it would be reducing headcount by 2,000 as part of a cost-cutting drive. The cuts will mostly come in the “back office” (non client-facing) departments.
• Citigroup announced imminent big job cuts as part of its own restruction.
• Swiss bank Julius Baer announced a profit warning mainly thanks to its exposure to troubled Austrian property group Signa.
• Virgin Money fell short of market expectations because it had to make bigger-than-expected provisions for bad loans to cover rising credit card arrears prompted by the ongoing cost-of-living crisis.

• IN REAL ESTATE NEWS – London landlords are racing to upgrade their office properties to new tighter standards, according to a survey by Deloitte. Meanwhile, EY is considering ditching its London HQ as it has a think about its ongoing office space requirements near the end of its 25-year lease.
• IN MANUFACTURING NEWS – farm equipment maker Deere & Company made downbeat forecasts for 2024 thanks to higher borrowing costs and an increasingly budget-constrained customer base and Thyssenkrupp wrote down the value of its steel business by a massive €2.1bn due to low demand and falling prices.
• Bayer shares fell by up to 20% to their lowest level since 2008 as investors expressed their disappointment with a blood-thinning drug that saw its drug trial halted. It had been seen to be a potential blockbuster and the cessation of the trial exposes Bayer’s relatively poor drugs pipeline.
• Lego is pinning a lot of hopes on its new proprietary line of Lego sets called “Lego Dreamzzz”, which is a result of four years of testing with children. The company is trying to wean itself off reliance on third party franchises like Star Wars and Harry Potter by coming up with its own “thing”, so we’ll just have to see how this goes!
• The UK Supreme Court decided that Deliveroo riders are contractors – and not employees – in the latest development in the whole gig economy thing. The Independent Workers’ Union of Great Britain will look to appeal against the ruling under international law…

My favourite “alternative” video from this week was the one with the trap door! You could have soooo much fun with that!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when Hotel Chocolat went to Mars, David Cameron made a dramatic return to frontline politics and Sam Altman left OpenAI…

• IN THE US – inflation fell to 3.2% in October, which was more than expected. It was its first fall for four months, so the implication here is that there is less pressure for the Fed to increase interest rates.
• IN TAIWAN – we saw that the two main opposition parties joined up in a bid to oust the ruling DPP in January’s presidential election. At the moment, this would be the only way they could win. China has framed the election as a choice between war and peace – and it is rumoured that the Chinese will roll back military threats if the opposition win.
• IN THE UK – UK inflation fell to 4.6%, which is more than the 4.8% economists were expecting and a victory for Sunak who had promised to halve inflation back in January. There was a dramatic Cabinet reshuffle this week paving the way for David Cameron to return to frontline politics as Suella Braverman was sacked as home secretary and replaced by James Cleverly. It was also interesting to see that the UK is going to rein in takeover screening powers in the National Security and Investment Act just two years after they were brought in to make overseas takeovers more difficult in sensitive sectors and industries.

IN ENERGY NEWS…

• The US and China, the world’s biggest polluters, announced that they would accelerate the rollout of renewable energy to offset their heavy reliance on fossil fuels, although they didn’t make any reference to the phasing out of fossil fuels. In the meantime, China’s emissions look set to fall from next year thanks to a record increase in clean energy investments.
• Danish wind power developer Ørsted reported major losses not long after it announced the recent cancellation of two major US projects, which cost it over £3bn to exit. No doubt this prompted the UK to offer higher subsidies for offshore windfarms after developers complained of being faced by extremely high prices – but it was also probably due to the fact that England has seen a major drop-off of onshore wind projects and needed to take action!

IN COMMODITIES NEWS…

• Glencore’s acquisition of Teck Resources’ coal business is expected to be a precursor to a full demerger. The coal business will then be spun off and listed in New York with secondary listings in Toronto and Johannesburg.
• The oil price weakened this week as China demand fell, suggesting that there might be cheaper petrol prices.
• IN LITHIUM – Exxon announced that it was starting to drill for lithium in Arkansas with a view to becoming a major US supplier to EV battery makers by 2030! Meanwhile, Geothermal Engineering Ltd is looking to diversify into lithium by raising £600m to build multiple sites by 2030. In doing this, it would join the likes of Cornish Lithium and Imerys British Lithium in tapping the region for resources to power the future of transport and power generation!

IN BUSINESS TRENDS…

• UK business confidence hit its lowest point this year, according to a report by Accenture and S&P Global. That said, sentiment in the UK is still actually better, on average, than many other regions – including Europe!
• Company collapses are on the rise, according to research from a company called Azets, and could reach their highest ever levels thanks to stubbornly high interest rates.
• Many defence companies reported this week as BAE Systems, Babcock and Qinetiq all reported higher order levels as war – and fear of war – prompted governments to increase their defence budgets.
• Many Middle Eastern carriers – including Emirates, Flydubai and Royal Jordanian – placed massive orders for planes worth tens of billions of dollars at the opening day of the Dubai air show.

IN CONSUMER TRENDS…

• US consumers are finally seeing a slowdown in consumer goods price rises, but they have also been buying less.
• IN THE UK, retail sales fell to a two-year low as interest rates continued to hit household incomes while UK wage growth eased in Q3 and consumers face rising energy bills according to Cornwall Insight and Southern Water, the latter of whom needs bills to go higher to pay for its turnaround. On the plus side, Premier Foods (which owns brands including Mr Kipling cakes, Angel Delight and Bisto etc.) announced price cuts on some of its ranges thanks to weakening inflation and cheaper production costs.

• Mars bought Hotel Chocolat in a £534m deal – at a massive 169.8% premium to its share price on Wednesday and came after Hotel Chocolat announced a loss for the year thanks to falling demand and failed expansion attempts in the US and Japan.
• Natura & Co sold The Body Shop to private equity firm Aurelius for £207m, which was way less than the £870m it bought it for in 2017! No doubt it suffered from increased competition as the years ticked by.
• Canadian insurer and money manager Manulife made an offer to buy UK credit investor CQS. It intends to fold CQS’s $13.5bn assets under management into Manulife’s $746bn in assets under management. Manulife is particularly strong in America and Asia.
• Young’s bought rival pub chain City Pub Group for £162m at a 46% premium to what City was trading at before the news. The whole sector seems to be seeing consolidation at the moment.
• Accountancy firm Mazars announced a tie-up between its US business and that of Forvis, a top 10 American accounting firm by revenue. They are both trying to build scale that will help them invest in tech and be more competitive internationally.
• Sports-focused private equity group Arctos bought into Aston Martin’s F1 team, saying that it will “provide extensive resources to enhance” the team’s “reach and brand”.
• General Atlantic, the US private equity firm, bought a controlling stake in Danish sandwich chain Joe & the Juice taking its shareholding from around 30% to up to 90%.
• Canadian private equity firm Brookfield Property Partners announced that it was going to cancel the sale of Center Parcs after it failed to find a buyer willing to pay the £5bn price it was seeking. Does this mean that we’ve reached “peak staycation”??

IN THE US…

• Amazon is showing signs of strong recovery after a period of cost-cutting and overhaul after a frenzied expansion over lockdown. It was also interesting to hear that Amazon is going to start selling Hyundai cars from next year! This will enable customers to get it from a local dealership and then pick it up or have it delivered. It sounds interesting but we’ll have to see how this goes TBH, but it sounds like a fun idea in theory…
• Target stock surged as investors applauded its tighter inventory control and expense management but Walmart saw its share price fall by 8% on its cautious outlook for the holiday season despite it actually raising full-year guidance.
• Home Depot unveiled a better-than-expected decline in same-store sales thanks to demand from professionals rather than amateur DIY-ers.

AMONG EUROPEAN RETAILERS…

• Ikea bought a Brighton shopping mall for around £145m as part of its effort to move away from its traditional out-of-town model to more central locations. It is planning to convert an empty Debenhams site in Brighton’s Churchill Square into a new Ikea that will open within two years.
• Danish jewellery chain Pandora is sounding a positive note ahead of the all-important Christmas season. It continues to experience accelerating growth quarter-on-quarter.

IN THE UK…

• Beauty company Avon is going to open its first actual store in the UK for the first time in its 137-year history. It won’t sell the full range, but it will be there to support its sales representatives. This is already doing well in Turkey.
• Burberry saw its profits hit by weakness in luxury goods spending. Its full-year revenue targets are looking a bit vulnerable now.
• Selfridges saw a shift in control at the top as Thai retailer Central Group has taken control of the department store after major shareholder Signa Investment Group got into financial difficulties earlier this month.
• Ocado signed its first ever non-grocery tech deal to supply an automated warehouse for McKesson Canada, which is a drug distributor that delivers over 40% of the country’s pharmaceutical products! I think that this is an amazing development because it opens up a whole new load of possibilities for the company…
• Petrol retailers will be forced to reveal profits – and could pay big fines if they don’t – thanks to new powers bestowed upon the CMA. The powers will come into force from next year.

IN LEISURE NEWS…

• Fuller’s says that it’s on track for a very merry Christmas as bookings are running 11% ahead of where they were last year! Let’s hope that the train drivers don’t spoil it all again with their strikes.

IN COMMERCIAL PROPERTY NEWS…

• British Land saw the value of its property portfolio drop by a whopping £200m thanks to high interest rates – but its occupancy rates are high across the board. This probably gave it the belief that it could find new tenants for the office space that Meta decided not to take up.
• Rival Landsec is shifting the balance of its portfolio away from the City and Canary Wharf towards the West End as clients are asking for smaller spaces with “more buzz”. That said, Great Portland said that it’s bought more London property than it’s sold for the first time in a decade having spent £123m worth of property since March with a view to spending an additional £700m.

IN RESIDENTIAL PROPERTY NEWS…

• Rightmove stats showed that the UK housing market beat expectations as average asking prices only dropped by about 3% from their peak in May while the number of agreed sales was only down by about 10% pre-Covid. Meanwhile, ONS data showed that the average price of a house fell for the first time in 11 years, but added the caveat that the sample size was smaller than it has been in the past. ONS data has a lag versus, say, property websites because it counts completed purchases where the mortgage has been agreed (and not just asking prices).
• A Hamptons report said that landlords are on track to to have bought the fewest number of homes since 2010 (excluding Covid) while the estate agents themselves are consolidating. In the meantime, estate agents are raking in tens of millions from the interest they get on rent deposits according to a report from the Tenancy Deposit Scheme. This income has been going up as rent rises mean deposits have increased as well.
• Housebuilder Crest Nicholson announced job cuts due to ongoing weakness in the housing market, which isn’t surprising given the generally negative newsflow.

IN TECH TRENDS…

• Lenovo is the latest company to say that it’s seeing signs of recovery in PC demand despite reporting its fifth consecutive quarter of shrinking revenues. It’s not alone in saying that there are encouraging signs, so maybe this is the bottom of the market??

IN REGULATION-RELATED NEWS…

• TikTok and Meta are now challenging their classification as “gatekeepers” for the purpose of the Digital Markets Act because they say it will limit their growth prospects. The legislation will force companies designated as “gatekeepers” to make their services interoperable with those of rivals and subject their currently closed ecosystems to competitors. The DMA is set to come into force in Q1 of 2024.
• Big Tech is resisting the Digital Markets, Competition and Consumer Bill (DMCC) which had been due to give more powers to the CMA. Big Tech is being given more opportunities to appeal things including forcing Apple and Google to allow alternative app stores and Google and Meta to pay news providers for content.

IN CHIP NEWS…

• Microsoft announced the launch of its own proprietary chips for AI as developers continue to look for alternatives to Nvidia, which has a virtual monopoly on high end GPUs that are needed to train large AI models.
• Nvidia just launched its most cutting edge chip in the form of the H200, which will replace the hotly demanded H100 as Nvidia’s fastest chip (it will double the speed of the current one) and it will be compatible with the current model

IN OTHER TECH NEWS…

• It turns out that Apple takes a chunky 36% cut of Google ad revenue from searches on Safari. The figure is usually secret but came out in the antitrust trial against Google. The contract between Google and Apple for Google to remain Apple’s default search engine is thought to be worth up to $15bn a year! The drama continues…
• YouTube has brought together a number of stars including Demi Lovato, John Legend and Sia who have agreed to offer AI-generated versions of their singing voices to be used as soundtracks for Shorts. The AI advance continues…

IN CAR-RELATED TRENDS…

• Owning a car is becoming less attractive these days as costs rise. Hiring is becoming more prevalent and many expect sharing to become the norm. However, I’ve seen this before and I don’t believe that people will stop wanting to own their own cars. The fact is that not everyone lives in areas with good transport and, for many, cars are the only way of getting around!
• German car parts giant Continental is going to be cutting thousands of jobs thanks to falling car production and chip shortages over the last few years.
• Driverless car unit Cruise is suspending an employee share programme in order to revalue (downwards!) the company. This looks like bad news as it shows that GM is kind of drawing the line under any previous bullishness in this area.

IN ELECTRIC VEHICLE NEWS…

• Companies are racing to make EV batteries recyclable. Hong Kong’s GRST and America’s OnTo Technology (as well as giants like BASF) are working on water-based tech that will bind battery components together and make them much easier than current batteries to recycle. This’ll be great but isn’t going to be an overnight cure for the perennial problem of recycling EV batteries.
• Carmakers are offering more discounts on EVs in order to shift them these days. In the UK, the average discount last month was 11% below RRP. Higher prices, wobbles about charging and safety and political attacks on EVs as well as reticence by potential buyers have really hit sales growth.
• Fisker cut production targets after a lacklustre Q3, sending its share price tumbling. The EV landscape isn’t good at the moment!

IN INVESTMENT NEWS…

• ESG investment is facing more criticism as there is speculation that MSCI, a major player in the ESG ratings space, gives higher rankings to companies that get better stock market performance! The problem here is that the ratings reflect this performance more than proper ESG criteria…
• Warren Buffett’s Berkshire Hathaway has sold off a number of shareholdings in Q3 including GM, UPS, HP and Chevron and his cash pile continues to build up. It’ll be interesting to see what he buys next!

IN PAYMENTS…

• Wise saw a massive 848% increase in profits made on customer balances in the six months to September thanks to the high interest rate environment which meant that they could enjoy earning revenues with zero effort! Nice if you can get it!

• Diageo’s CEO said she wants to introduce the world to tequila! The US and Mexico makes up 85% of the spirit’s sales, so there is massive room for improvement here. I think that a company of Diageo’s size and marketing muscle is able to convince people to change their tastes (I’ve seen this done before!) so it could get interesting!
• Pfizer announced that it is going to cut about 50% of its workforce at its Kent site as it rejigs the business. There will be additional job losses in the US and Ireland. Tough times as it transitions to post-Covid times.

I have to say I thought this game looked like a lot of fun! It could get a bit messy though…

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when China fell back into deflation, X launched Grok and WeWork filed for bankruptcy protection…

• IN THE MIDDLE EAST – Wall Street big hitters Jamie Dimon (JP Morgan) and Larry Fink (BlackRock) reckon that a global recession could be sparked by conflict in the Middle East at a time when a fragile global economy is just starting to recover from the major shocks of Covid and the Russia-Ukraine war. Dimon said that geopolitics is now shaping the future of the world in terms of freedom, democracy, food, energy and immigration (which is presumably why Goldman Sachs recently set up a stand-along advisory business to provide insight onto these very things!).
• IN THE US – Trump is currently enjoying a lead in the 2024 polls as more people doubt Biden’s handling of the economy and national security whilst also believing that they’ll be financially better off under The Orange One. Biden’s got an uphill battle but there’s still time to turn things around…
• IN CHINA – falling pork prices pushed China back into deflation (they’ve fallen by over 30% in the year to October!). Beijing has already implemented a stimulus to boost consumer spending and business investment but this will take time to filter through given the fragility of consumer confidence at the moment.
• IN EUROPE – business activity in the Eurozone has fallen by its fastest pace since November 2020, according to the latest S&P Global PMI survey. Germany has decided to introduce a multi-billion euro package to subsidise power for its manufacturers to help them out in the current “higher-for-longer” interest rate environment. This does smack of hypocrisy given that Europe is currently investigating Chinese companies for getting “unfair” help from the state but hey…Portugal is having a nightmare as its PM just resigned over a massive corruption scandal involving lithium mines. This leaves projects like re-privatising the national airline TAP and scrapping tax breaks for rich foreigners in limbo…
• IN THE UK – the first King’s Speech for 70 years was given by King Charles III, setting out the political agenda for the rest of Sunak’s term as the UK government continued with plans to regulate agencies that determine ESG ratings. There is also debate as to whether the FCA will be the regulator to oversee the adherence to these rules. I think that it is high time that this was regulated given the increasing influence of ESG funds and (until now) the lack of quality control!

IN OIL NEWS…

• Shell defended its move away from eco-friendly business areas whilst also announcing that the company is going to be investing more in its gas business to increase sales of LNG by 20-30% by 2030!
• Sunak was also due to unveil new legislation that will allow companies to bid for new licences to drill for fossil fuels in the North Sea on an annual basis. The argument is that this will protect jobs and strengthen Britain’s energy security by making us a bit more energy-independent, but the North Sea Transition Authority reckons that this won’t really move the needle in terms of making us any less dependent on oil imports.
• Saudi Aramco beat market expectations for net profits thanks to higher oil prices. Its plan to keep prices higher-for-longer is working in its favour but this may well contribute to higher-for-longer inflation for the global economy…

IN ENERGY NEWS…

• Britain struck a deal with the US to work together on nuclear fusion after an EU programme rejected the UK due to Brexit. This will involved sharing resources and building shared supply chains.

IN CONSUMER TRENDS NEWS…

• The latest BRC data showed that UK retail spending slowed down last month as pressure on household budgets continued. The question is whether this will continue going into Christmas…
• Grocery inflation is continuing to fall, according to the latest data from Kantar and it looks like Lidl and Aldi continue to attract more middle class customers as the squeeze on disposable income continues.
• This squeeze is pushing up the number of mortgage arrears, although a new “cheap” mortgage deal was announced by Nationwide, which is good news for those who can afford to put down a 40%+ deposit or equity stake!
• UK consumers continue to face other pressures, such as higher car insurance premiums from Direct Line and higher petrol prices as retailers take their sweet time in converting cheaper oil prices to cheaper prices at the pump. While we’re on the subject of cars, US auto loan delinquency rates are rising as lenders are now getting more nervous about car loans dished out during the pandemic.

IN EMPLOYMENT TRENDS NEWS…

• Recruiters have been seeing a sharp rise in the number of jobseekers over the last month, according to a report by REC and KPMG, presumably because more people are being made redundant and others are getting increasingly worried about their own jobs.

IN BUSINESS TRENDS NEWS…

• Digital advertising agency S4 Capital saw a 15% drop in sales over Q3 as the slowdown in ad spending from Big Tech continued to hit home.

IN OVERALL AUTOMOTIVE TRENDS…

• Official figures showed that Germany’s factory output fell to a three-year low in September thanks to a drop in car production. The slowing sales of EVs has been particularly problematic.
• Japanese carmakers are facing a dilemma at the moment – do they stay in China and face increasingly fierce competition with ever-improving local makers or do they just shift focus to the US and southeast Asia where they continue to do well?
• EV sales and prices seem to be suffering these days. In the US, EV makers are increasingly turning to discounts to shift vehicles while in the UK, the latest SMMT figures show that demand for EVs seems to have been dented by Sunak’s decision to delay the “electrification” deadline from 2030 to 2035, in line with the rest of Europe. Meanwhile, Auto Trader says that the price of used EVs has fallen so much that they now cost around the same as their petrol equivalents thanks to higher electricity prices.
• Tesla raised wages for German workers as efforts continue to keep unions out of the company! Tesla is currently the only major carmaker in Europe that does not have union representation on the shop floor!
• GM announced that it has decided to stop production of its fully driverless “Origin” van given recent problems with the whole driverless thing. California recently banned GM’s driverless vehicles due to safety concerns and it has had to pause operations in the US in order to “take steps to rebuild public trust”.
• Rivian plans to increase production of its electric trucks and SUVs in 2023, but TBH this is from a very low base – so don’t get too excited about this! The good news is that it is now shedding its exclusive agreement to only supply Amazon – so at least it can now get more orders from other customers.
• Swedish truckmaker Scania, which is wholly owned by VW, is going to launch a pay-per-use truck JV with logistics start-up Sennder. This is an admirable attempt to spark demand for electric trucks, which has been poor because of scepticism about the charging network and high prices.

IN AI-RELATED NEWS…

• X, NatWest and Cleo introduced their respective chatbots this week and comes shortly after rival Meta announced the launch of around 30 AI chatbots across its Instagram, Facebook and WhatsApp apps. ChatGPT launched a new service whereby you can create personalised versions of its chatbot with speech style, knowledge and behaviours as part of its $20 a month ChatGPT Plus service.
• Tech firms including Amazon, Microsoft and Alphabet are pouring even more money into cloud capacity in order to keep up with rising demand for AI. It sounds like this will continue to increase.

IN CHIP NEWS…

• Chipmakers who are more exposed to automotive-use chips, such as NXP, are falling behind companies who make them for PCs and smartphones due to the slowdown in EV sales, so they are under-shipping demand to avert inventory pileup.
• Meanwhile, Arm announced strong Q2 results, a slightly weaker-than-expected Q3 but it is positive about the full-year. It is hoping to benefit from the AI frenzy although the fact remains that it’s still mostly about smartphones, which aren’t doing brilliantly at the moment.
• Nexperia sold Newport Wafer Fab to US chip company Vishay Intertechnology, bringing an end to the whole Wingtech debacle and the UK government not wanting a company with Chinese ownership to buy the British chip company on national security grounds. Vishay’s CEO said that NWF would be an integral part of its expansion plans.
• Nvidia announced the development of three new China-specific chips that meet its growing demand for advanced chips on the one hand but satisfy US sanctions on the other. A tricky balancing act to be sure – but we’ll have to see if further US sanctions scupper the latest attempts to make money from the Chinese!

IN GAMING-RELATED NEWS…

• Epic Games moves into it latest phase of fighting a court battle against Google and its Play Store charges, which originally ended up with Fortnite being taken off its app store (and Apple’s App Store). It’s going to be an uphill battle…
• Nintendo said that it plans to make a live-action film based on its video game franchise “The Legend of Zelda”, which went down very well with investors as they will no doubt hope for similar success following the Super Mario Bros Movie. They plan to release one movie a year which could be a nice little earner outside consoles and games!
• Sony said it might not hit its console sales targets this financial year as it reported weaker-than-expected Q3 results yesterday. That said, sales might get a boost from the imminent launch of the new slimmer version of the console in its first major update to the PS5 since it was launched in November 2020.

ELSEWHERE…

• Apple might have to pay €14.3bn in back taxes after all, according to an advisor to the ECJ. An ECJ ruling is due next year, so EU Competition Commissioner Margrethe Vestager might yet get the last laugh!

• WeWork shares were suspended as investors braced for bankruptcy protection and then the company did actually file for bankruptcy, which enables it to terminate leases without big financial penalties and restructure its debts. SoftBank, a major investor in WeWork, still had to pay lenders (including Goldman Sachs) $1.5bn just days prior to WeWork filing for bankruptcy protection! SoftBank ended up posting a massive – and unexpected – $6.2bn loss in its Q2 results in its fourth quarter in a row of making losses. IWG hopes to profit from WeWork’s woes and has already taken on some of the buildings leased by WeWork. IWG’s Q3 revenues rose by 7% year-on-year but occupancy slipped a bit from 73.7% in the spring to 73.5% in the summer.
• The housing market looks like it’s past the worst, according to Savills, but UK construction activity contracted in October. That said, Persimmon said that the property market has bounced in the last five weeks and Taylor Wimpey also sounded an upbeat note, saying that it expected annual operating profits to come in at the high end of guidance. Maybe there are early signs of a turnaround??

IN BANKS NEWS…

• UBS announced its first quarterly loss since 2018 thanks to the cost of the Credit Suisse takeover. Still, the increased scale could help it catch up with rivals in the wealth management space!
• N26 withdrew from Brazil as the German fintech continues to rein in its overseas ambitions. It will concentrate on its European business as it has already pulled out of the UK and US.
• Metro Bank’s refinancing seems to have been successful in stemming deposit withdrawals so far. We’ll just have to see how things go from here and whether they come up with a decent plan going forwards!

IN BUY NOW, PAY LATER NEWS…

• Klarna is making preparations for a stock market listing as it is just setting up a new holding company registered in the UK, although it’s probably going to list in New York because it’ll probably get a higher valuation there.

IN INVESTMENT NEWS…

• The fortunes of private equity firms diverge as KKR prospers in infrastructure and property while Carlyle announces job cuts due to poor fund raising performance.
• Robinhood’s Q3 earnings were lacklustre as competition got tighter and trading revenues languish.
• Clara-Pensions, a start-up that aims to consolidate the UK’s 5,000 traditional pension funds, has just agreed its first deal as it has taken on the pensions of 10,000 former workers at Miss Selfridge, Warehouse and Wallis who are in the £600m Sears Retail Pension Scheme.

IN PROFESSIONAL SERVICES…

• Bain Capital made an offer to buy consultancy Guidehouse (which specialises in advising government organisations and businesses) in a deal worth $5.3bn including debt. This is the latest example of a private equity firm buying a professional service provider.
• PwC is going to cut up to 600 UK jobs via voluntary redundancies (initially, anyway!) as demand for its services has fallen. The axe will fall mainly on the advisory business and across all levels below partner. Rivals at EY, Deloitte and KPMG have already launched their own redundancy programmes.

IN RETAIL NEWS…

• M&S smashed analyst expectations and it even regained its title as top womenswear retailer after four years, overtaking Next in the process! The CEO said that it was experiencing a strong start to Christmas.
• Shein is thinking about putting in an offer for Topshop, which Asos bought for £330m in 2021 from Sir Philip Green’s Arcadia. If this went ahead, it’d be Shein’s second acquisition of a British fashion brand after it bought Missguided from Frasers Group last week!
• B&M has benefited from Wilko’s collapse and even jacked up its profits forecasts for the full year as it had an influx of customers. It bought 51 Wilko stores in the aftermath, all of which have now been rebranded.
• WH Smith profits almost doubled over the course of one year as it has benefited from rising traveller numbers going to its airport convenience stores. The UK high street business was a bit of a drag but the overseas business boomed.

IN LEISURE…

• Flutter, which owns Paddy Power and Betfair, warned that its profits for non-US operations this year would come in at the bottom end of expectations. Understandably, it looks likely that it’ll switch its primary listing to NY in Q1. This makes a lot of sense since the US is where’s it’s at now for Flutter in terms of growth.
• In pubs, Wetherspoon toasted better sales as it managed to outpace rivals as inflationary pressures have started to ease.

• IN MEDIA NEWS – Hollywood actors reached a tentative agreement with major studios and streamers that could bring an end to months of disruption in the industry. The agreement includes the biggest increase in minimum wages for 40 years, a new streaming participation bonus and various protections against the use of AI. Disney boss Bob Iger outlined the company’s future strategy but rival Warner Bros Discovery saw its share price have its biggest one-day drop since March 2021 after it said it would fall short of targets as the ad market had been particularly disappointing. In the UK, ITV cut back on new shows due to disappointing ad revenues. There’s definitely a trend here!
• IN AIRLINE NEWS – Ryanair reported a record high for profits and is on track to smash previous full-year records although it said that it does expect to be lossmaking for the first months of 2024. On the other hand, rival Wizz Air cut annual profit forecasts due to an “unprecedented operational challenge”.
• IN LUXURY GOODS NEWS – LVMH is going to buy LA-based eyewear maker Barton Pereira to enhance its existing eyewear division. LVMH aims to expand the brand outside Japan. Meanwhile, Watches of Switzerland announced plans to more than double its sales and profits in less than five years by expanding in the US and getting involved in the secondhand market where it will launch a Rolex-certified, pre-owned programme.
• IN PHARMACEUTICALS NEWS – AstraZeneca is making a push into the weight-loss market by signing an exclusive licensing agreement with Chinese company Eccogene, for an obesity and type 2 diabetes pill that is in the early stages of development.

My favourite “alternative” video of the week was the one with the AMAZING rice ball!!! I love this!

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

This was the week when the world’s first AI safety summit took place at Bletchley Park, when the Bank of England left interest rates unchanged and when Sam Bankman-Fried was found guilty of fraud and money laundering…

• IN THE US – the Fed left interest rates unchanged at their 22-year high (the Federal Funds Rate was held steady at the 5.25-5.5% range) while Fed chief Jerome Powell left himself room to increase rates further should the need arise.
• IN CHINA – FT research showed that direct investment in China has slowed down sharply while the number of tech IPOs has also fallen thanks to clampdowns by Chinese regulators on tech start-ups. Start-ups now have to proof of a more robust track record and sustainable business plan, which is cutting a lot of them out!
• IN JAPAN – the government launched a $113bn stimulus to tackle inflation that will fund tax cuts and cash handouts. There will also be an extension to existing subsidies to take the edge off rising petrol and electricity prices.
• IN EUROPE – the Eurozone’s economy contracted in Q3, as did Germany’s – meaning that they could both fall into recession if the next quarter is also negative.
• IN THE UK – the Bank of England left interest rates unchanged and warned that they could remain at higher levels “for an extended period of time” although some think that we’ve reached the peak and the next move is going to be in the downward direction. Meanwhile, the ONS is trying to fix the way our unemployment numbers are collated as the current methods aren’t working and aren’t accurate enough. It’s important because the Bank of England needs these to inform its decisions on interest rate policy.

IN OIL NEWS…

• The World Bank warned that the oil price could potentially go to $150 a barrel if the Israel-Hamas war becomes more prolonged.
• US oil inventories went up by more than expected, according to the Energy Information Association, which might help to take the edge of high oil prices.
• BP continued to focus more on profitable oil and gas projects but batted away suggestions that they’d be involved in any M&A going on in the sector at the moment, something that the likes of Goldman Sachs and Morgan Stanley are doing very well out of. In the meantime, Shell made decent profits in Q3, boosted by oil and gas production and higher oil prices.

IN RENEWABLES…

• Wind power company Orsted cancelled two massive US offshore windfarm projects, opting instead to pay the £3.3bn impairment charges instead. It has, along with rivals, complained about rising costs in the industry and voiced the need for governments to foot more of the bill.

IN CRYPTO NEWS…

• Bitcoin continues to do well despite all the negative press surrounding the Sam Bankman-Fried trial. There’s an expectation that there will be less supply of bitcoin next year and hopes that incoming regulation could bring crypto closer to the mainstream.

IN BUSINESS TRENDS…

• Smaller UK companies are getting more confident, according to the latest quarterly report from the Federation of Small Businesses (FSB) – which is something reflected by the Lloyds Bank business barometer which also showed businesses becoming more confident.
• That said, while insolvencies are hitting new highs, bankruptcies are benefiting the likes of PJT Partners, Houlihan Lokey and Paul Weiss who advise on them. EY’s latest research says that profit warnings are rising – and as if to illustrate the point, WeWork looks like it will go bankrupt – which has negatively affected investor sentiment in rivals such as IWG, which is actually doing quite well!

IN CONSUMER TRENDS…

• The luxury boom looks like it is losing momentum as LVMH saw a slowdown in its growth rate over Q3, a trend that was confirmed by DVLA figures which showed a fall in the sale of “supercars” in the year to March. Estée Lauder’s share price fell to its lowest level in six years as investors reacted to news of Chinese customers reining in their spending. Mind you, Prada bucked this trend by reporting stronger revenues, as did Ferrari when it reported its Q3 results.
• Consumers continue to face hurdles as home insurance premiums look set to rise after a period of higher claims due to unseasonable weather, high inflation and strained supply chains. UK mortgage approvals have fallen due to the knock-on effects of higher interest rates and real wages are falling as they can’t keep pace with inflation. At least shop price inflation is slowing down, according to the latest BRC figures!

IN EMPLOYMENT TRENDS NEWS…

• Grad recruitment is down as vacancies have fallen by 30%, according to jobs search engine Adzuna.
• Trainline has benefited from more people returning to work in offices as workers use it to buy their tickets. Most of this is from leisure travel so if business travel starts to improve that should provide a further boost.

IN AI NEWS…

• The inaugural two-day AI Safety Summit took place at Bletchley Park this week. A lot of AI’s big hitters – as well as representatives from many governments – took part and even Elon Musk added some celebrity stardust to the proceedings (although Presidents Biden and Macron gave it a miss). 26 nations agreed to co-operate over AI development while the US pursued its own efforts back home and although the “landmark” agreement isn’t legally binding, it is a first step! I thought it was impressive that the event even took place with so many big shots making it there in person but opinion was divided as to the damage that AI can do to society and countries are at different stages regarding how to regulate it. As if to further illustrate the need for regulation, an Australian academic was forced to admit using false information gleaned from Google’s AI chatbot Bard in a piece of research submitted to a parliamentary inquiry.

IN TECH HARDWARE NEWS…

• The $69bn Broadcom-VMWare merger was held up by Chinese regulators dragging their feet (presumably in retaliation for US sanctions) and a final deadline has been set for November 26th.
• Panasonic cut profit forecasts for its battery division due to worse-than-expected sales to Tesla, one of its main customers. It seems that there are a lot of EV manufacturers cutting back on EV/battery factory expansions due to slowing customer demand.
• Samsung managed to beat consensus in its Q3 results and although its memory chip business remained in loss for the third quarter in a row, the losses narrowed. It reckons that demand for memory chips will continue to improve from here – another major player saying the same thing!
• Western Digital announced that it would split itself in two after abandoning merger talks with Japan’s Kioxia. It will be separating into a flash memory business and a hard drive business, which is something activist investor Elliott Management has been pushing for for over a year.
• Huawei’s Mate 60 Pro phone continues to be popular in China’s domestic market and has raised its market share there from 9% to 13%! It’s coming for Apple, but Apple still has that status-symbol cachet at the moment and there may be trouble ahead given America’s moves to starve Chinese tech companies of advanced chips.
• Apple suffered its longest continuous streak of revenue decline in over 20 years. It’s thought to be down to a global drop-off in smartphone sales and the economic slowdown in China. Still, it’s just unveiled a new lineup of products ahead of the key Christmas season, so you would have thought that things will pick up from here!

IN SOCIAL MEDIA NEWS…

• Meta says it will charge EU users of Facebook and Instagram up to €12.99 per month to get ad-free versions in order to “comply with its data privacy rules” after the EU’s top court ruled that Meta needed to get users’ permission before targeting them with personalised ads.
• TikTok has asked its managers around the world to dole out more lower ratings in employees’ performance reviews. This is bad news for staff as this sort of move is a precursor to job losses. It also faces continued pressure for not sufficiently policing the content on its platform, particularly regarding Israel-Hamas war videos.

IN EDTECH…

• Byju’s is on the verge of collapse as the company that was once India’s most valuable start-up is about to start a programme of asset disposals to pay down its debts. It went on a massive debt-fuelled acquisition spree to consolidate its place in the edtech industry and it’s now backfiring…
• Educational publisher Pearson, which said that full-year profits will be coming in slightly higher than previous forecasts, is committing to the ongoing development and integration of AI in its transition from textbook purveyor to edtech master!

ELSEWHERE…

• Magic circle law firm Allen & Overy sold a stake in its legal tech business aosphere, to UK private equity firm Inflexion and US investor Endicott Capital whilst retaining a minority stake. It looks like this is part of an emerging trend of companies attracting private equity cash to finance non-core business units whilst retaining a stake to make sure they can participate in any potential upside.

• An agreement has been reached between Ford, GM, Stellantis and the powerful UAW union in America over recent strikes. Workers’ pay will increase by 25% over the next four years and they will be paid for the time they spent on the picket line! Stellantis reckons that the strikes will have cost it about €3bn in lost revenues.
• Toyota announced a more than doubling of its investment in a North Carolina factory that is being built right now to increase manufacturing capacity for hybrid vehicles and it announced a doubling of profits over the quarter, prompting it to raise its full-year forecasts. On the flipside, Toyota announced the recall of over 1.8m RAV4s built between 2013 and 2018 due to potential fire risks involving the batteries! This could be expensive because a software update this ain’t!
• IN LUXURY AUTO MAKER NEWS – Ferrari had a great Q3 and decided to raise its full-year guidance as a result. It beat market expectations for profits and revenues thanks to an improving sales mix and rising demand for vehicle customisation. However, Aston Martin had to cut sales forecasts because of production delays to its new DB12 model.
• JLR returned to profit in Q3 and raised its forecasts for the full-year. This marked its fourth consecutive quarter of growth so it certainly seems to be going in the right direction!
• Tesla had an important win in an Autopilot lawsuit which is examining its role in a fatal crash as a jury found that there wasn’t a manufacturing defect in the driver-assistance system.

IN BANKS NEWS…

• Deutsche Bank announced plans to shut down about half of its Postbank branches over the next two years but promised to drastically improve its digital offering. Germany’s bank branch network has dropped by over 43% over the last ten years as more customers move online but Deutsche has attracted massive criticism recently as the migration of Postbank’s 12m customers to its IT platform was disastrous.
• HSBC had some pretty solid Q3 results and pre-tax profits more than doubled thanks to higher interest rates boosting income. It chief exec reckons that China is now past the worst of the property crisis but I’d take what he says with a massive pinch of salt as HSBC is trying to suck up to the Chinese government (remember the government recently told commentators and analysts not to be so negative about China’s economy??) as it commits more to the Chinese market.

IN PAYMENTS NEWS…

• The FCA is taking action against PayPal and QVC as it believes that customers using its BNPL functionality were deemed to be “at risk of harm” because of the dodgy fine print in their contracts.
• Zilch, a British rival to Klarna, has just attracted a low single digit million pound equity investment from eBay ventures, giving Zilch an implied valuation of $2bn. It almost tripled revenues in 2023 but still reported an overall loss but it is clearly in a hot area as now over 25% of people in the UK now use BNPL services.