Friday 04/08/23

1. In MACRO & OIL NEWS, the Bank of England raises interest rates, the UK services sector weakens, Turkey’s inflation rate jumps and oil prices rise on Saudi threats
2. In TECH & GAMING NEWS, Apple beats expectations, Altman’s Worldcoin runs into trouble and Nintendo booms
3. In RETAIL & CONSUMER GOODS NEWS, Amazon smashes it, Next forecasts bigger profits and Pets at Home does well while Wilko is at risk and it’s Yeezy does it for Adidas
4. In MISCELLANEOUS NEWS, Apollo’s chief warns, KKR closes in on a big purchase, ethical funds see massive outflows, the LSE works with Microsoft, Rolls-Royce has great numbers, Wizz Air lags and the NHS does something dramatic
5. AND FINALLY, I bring you some cool Japanese tech…

So the Bank of England raises interest rates, UK services slow down, Turkey’s inflation rate jumps and oil prices rise…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

*** ALSO, IF YOU WANT TO ATTEND THE LATEST MONTHLY ROUNDUP WITH MYSELF AND JAKE SHOGGER OF THE COMMERCIAL LAW ACADEMY, PLEASE CLICK HERE. It’s going to be next Wednesday 9th August at 5pm – so it’d be great to “see” you there 👍

Bank of England raises interest rates by 0.25 percentage points (Financial Times, Delphine Strauss, George Parker and Mary McDougall) shows that the Bank of England lifted interest rates by 0.25%, as per the Fed and the ECB before them, in order to combat rising inflation. The 5.25% rate is the highest for 15 years but this 0.25% hike was widely expected. Andrew Bailey’s medicine finally appears to be working (Financial Times, Delphine Strauss) suggests that peak inflation may be in sight but Interest rate above 5pc until 2026, says Bank (Daily Telegraph, Szu Ping Chan, Tim Wallace and Melissa Lawford) shows that we shouldn’t really get too excited as the bods at the BoE are guiding our expectations to brace for the long haul. Let’s face it, though, things can change – but for the moment, high interest rates will be “the new normal”.

As if to compound the misery, Slowdown in services sector raises fears of recession (The Times, Tom Howard) shows that the UK’s

all-important services sector experienced its slowest rate of growth so far this year in July according to the latest S&P Global/CIPs survey and it is, at best, expected to go sideways from here. Exporters – and those in the travel and leisure industries – were among the more optimistic respondents, but despite the gloom the services sector is still holding up better than manufacturing, which continues to be in the doldrums.

Meanwhile, Turkey’s inflation rate jumps to almost 50% (Financial Times, Adam Samson) shows that the eight month streak of slowing inflation has now been broken as a weaker lira (thanks to the new finance minister’s abandonment of propping up Turkey’s currency), an overheating economy (the massive wage hike for public sector workers implemented ahead of the presidential election is still filtering through) and rising taxes (including a whopping 200% rise in petrol taxes!) have conspired to push consumer prices up by 47.8% in July versus July 2022. Cafés, restaurants and hotels showed the biggest annual price rises, though, with a huge increase of 82.6% over the period! Interest rates have more than doubled since June and further increases are expected. The central bank’s chief reckons inflation will peak out at 58% by the end of the year, then fall to 33% by the end of 2024 and 15% the year after. Many outside observers are, however, concerned that raising interest rates is all a bit wild and could be tempted to step in and reverse any progress that has been made.

Then in Oil prices spike as Saudi threatens supply cuts (Daily Telegraph, Melissa Lawford) we see that oil prices got a boost thanks to Saudi Arabia warning that it would make deeper oil production cuts to push prices up. Analysts are saying that this is at least partly motivated by Crown Prince Mohammed bin Salman’s desire to rustle up funds to make some kind of dent in the Gulf State’s rising borrowing costs, which I referred to a couple of days ago. Russia also announced supply cuts yesterday.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Apple outperforms, Altman’s Worldcoin projects hits issues and Nintendo feels the Mario power…

Apple Sees Third Straight Quarter of Falling Sales, but Services Unit Hits Record (Wall Street Journal, Aaron Tilley) shows that although revenue fell for the third consecutive quarter – with iPhone revenues falling short of estimates – its services business put in a solid performance. Revenues from this division hit a record $21bn thanks to more users taking out subscriptions to music/TV streaming and buying software in the App Store. * SO WHAT? * This sounds like a pretty good performance and it’s good to see the services business go from strength to strength as I would imagine that its revenue streams are less volatile than those from Apple’s various devices (but we are mainly talking about phones here!). Mind you, with the launch of the new iPhone 15 expected in September, revenues may well bounce back after Apple’s longest sales decline since 2016! The iPhone currently makes up around half of Apple’s overall sales – which is actually down from almost two-thirds of revenue in 2016 (this is thanks to a rising proportion of revenues coming from services).

I thought that Kenya halts Worldcoin data collection over privacy and security concerns (The Guardian, Dan Milmo) was worth mentioning as the eyeball-scanning Worldcoin project founded by

OpenAI’s Sam Altman has hit a potentially serious hurdle as the Kenyan government has now banned it while it investigates major data privacy and security concerns. Worldcoin/Altman: lowballing for eyeballs will not brake AI juggernaut (Financial Times, Lex) highlights shortcomings in the way that Worldcoin works – in that, much in the same way that Meta’s digital token project failed, regulators and governments are already against it and it is potentially on a hiding to nothing. And this is not even taking the tricky aspect of collecting biometric data, using it and storing it securely into account! The drama continues…

Then in Nintendo jumps to £1bn profits powered by Super Mario film (The Guardian, Dan Milmo) we see that the twin successes of The Super Mario Bros Movie and the new Zelda game helped to power Nintendo’s 82% increase in profits in the last quarter. Console sales were up even as people wonder about a successor to the popular Switch. Nintendo: Mario movie means Switch keeps on giving (Financial Times, Lex) looks at the pros and cons of Nintendo’s ageing console (it’s been around for seven years!) – that keeping it going saves on marketing and development costs on the one hand, but that future profits are at risk as potential buyers plump for newer consoles from Sony or Microsoft on the other. * SO WHAT? * I think that the Switch has had a pretty good run – but it’s definitely time for something new. Rumours are that something could be unveiled next year but there’s no concrete evidence out there to support this at the current time. For now, the company can just milk the cash cow that keeps on giving!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Amazon does really well, Next predicts bigger profits, Pets at Home sees a sales boom, Wilko’s in trouble and it’s Yeezy going for Adidas…

In retailer news, Amazon Delivers Surprisingly Strong Profit as Retail Business Improves (Wall Street Journal, Dana Mattioli) shows that Amazon smashed the market’s quarterly profit expectations following a bit of a lacklustre period where cost cuts were made and its logistics operations were streamlined. The company’s earnings turned out to be almost double analyst estimates as overall revenue for Q2 was up by almost 11% and Amazon’s share price jumped up by 10% in response to the news. * SO WHAT? * It seems that Amazon’s latest news confirms the roaring comeback of Big Tech after a period spent in the wilderness. Those with AI capabilities – like Amazon – stand to benefit most from this bounce-back and I expect them to put up an even stronger fight than before as regulators around the world line up to take their businesses to task!

Back in the UK, Next predicts bigger profits as shoppers flock to summer sale (The Guardian, Sarah Butler) shows that customers are spending more money on clothing than had been expected. Its summer sale proved to be particularly popular but it did say that it expected sales growth to slow down for the rest of the year. * SO WHAT? * This is an impressive performance from a retailer in a very difficult market (remember what I said yesterday about retail sales?). This bellwether of the high street no doubt benefited from the combination of its offline and online capability which gives it more flexibility with click-and-collect and returns than its online-specialist rivals. Will the good times continue to roll, though, as customers continue to feel the squeeze on their disposable incomes?

Pets at Home laps up Covid boom sales (The Times, Isabella Fish) shows that the retailer posted higher sales as the Covid boom with pets continues to power its earnings. Vet services and retail sales increased by 16.3% and 7.1% respectively thanks to rises in prices and volumes! * SO WHAT? * Despite the cost-of-living crisis, people continue to prioritise spending on their pets and are cutting back on other expenditure.

Meanwhile, Wilco on brink of collapse with 12,000 jobs at risk (Daily Telegraph, Hannah Boland) shows that the homeware chain is edging closer to failure as it admitted that it was preparing to bring in the administrators. * SO WHAT? * Wilco now has two weeks to find a buyer for all or part of the business. It will be protected during this time period from action by creditors as it tries to hammer out some kind of rescue deal. It looks like it will be another victim of the inflationary environment and the squeeze on the finances of its customer base.

Then in Adidas pledges to donate €110mn to charity from Yeezy sale (Financial Times, Olaf Storbeck) we see that the sportswear company has promised to donate a chunk of change to charities fighting racism and antisemitism after it managed to successfully offload some of its stock of Yeezy trainers designed by the disgraced rapper Kanye West. A second release of Yeezy trainers will go on sale later this month. The announcement was made at its Q2 results yesterday and it was mildly optimistic about prospects for the rest of the year. * SO WHAT? * It looks like the company is managing to get past its very public break-up with the controversial rapper. It’s not quite there yet, but I think that the potential damage has turned out not to be as bad as everyone had been expecting!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

We look at the latest for PE firms, more ESG outflows, LSE’s latest project, Rolls-Royce’s success, Wizz Air’s turbulence and a major development for the NHS…

In a quick scoot around some of today’s other interesting stories, Apollo chief warns private equity industry ‘in retreat’ as rates rise (Financial Times, Antoine Gara) highlights the opinion of Marc Rowan, CEO of Apollo Global Management, as he believes that PE is coming to the end of an era of cheap money and easy targets as everyone now faces lower growth and higher interest rates – but then KKR in Advanced Talks to Buy Simon & Schuster for Roughly $1.65 Billion (Wall Street Journal, Jessica Toonkel, Laura Cooper and Jeffrey A. Trachtenberg) highlights another massive PE deal that is in the offing 🤣! * SO WHAT? * I would always say that it is wise to take any advice or opinions from investors with a MASSIVE pinch of salt because they can often be just talking their own book. If they say that something is looking really interesting, you can put money on the fact that they’ve probably already bought it and if they say something’s rubbish then you can bet that they’ve already sold out of it and desperately want it to go down/ go down further! It’s of course true that the days of borrowing money at ridiculously cheap money to finance purchases are over – at least for the time being – so it means that the PE firms just have to be a bit more picky. However, there are always deals to be done if the price is right – and I think that KKR will probably be taking advantage of the fact that Simon & Schuster is clearly up for a bit of M&A action given it already had a failed deal with Penguin Random House.

Staying on the financial theme, Ethical funds suffer backlash with £1bn retreat (The Times, Callum Jones) reflects the latest reading of the Fund Flow Index from Calastone, which shows that outflows from ESG funds in July hit £376m, the most on record! Scepticism has been increasing regarding greenwashing (and, no doubt, strong performances by defence companies in particular!). This was the third month in a row for ESG funds to see an outflow. * SO WHAT? * I suspect that the time is right for some ESG funds to merge but also to forge newer, more distinct identities. As I have said before on many occasions, ESG is notoriously wishy-washy and is ripe for a tightening. I believe that if ESG investors can make their investment criteria clearer they can use this to attract more money but I’ve also always thought that ESG investing is like fighting with one hand tied behind your back as you don’t have the full array of toys to play with. It was all dandy when everyone and their dog was jumping on the ESG bandwagon because funds had to buy the same kind of stocks, so they in effect self-perpetuated their own theories. Now that their performance was killed by outperformance of oil and defence stocks, many of the funds have been caught with their pants down and are now looking for ways to survive in the new more transparent environment. It’s not surprising that clients are deciding to park their money elsewhere.

Then in London Stock Exchange Group teams up with Microsoft to develop AI models (Financial Times, Nikou Asgari) we see that the LSE is working with Microsoft and various banks to create proprietary generative AI models that will harness the power of AI whilst still safeguarding confidential information. Microsoft took a 4% stake in LSE Group at the end of last year and has signed up to a ten-year strategic partnership. * SO WHAT? * This sounds like a good idea and is a welcome respite from the constant criticism of the LSE’s recent lack of success at attracting IPO action. This is a long-term project though, so nothing to get TOO excited about right now…

In other stories today, Rolls-Royce should have been quicker to raise prices, boss says, after profits surge (The Guardian, Jasper Jolly) shows that Rolls-Royce posted a strong performance for the first half – which didn’t come as too much of a surprise after last week’s very positive and unscheduled trading statement – and Rolls-Royce ‘in holding pattern’ awaiting decision on mini-nukes (Daily Telegraph, Howard Mustoe) highlights that the company is being kept hanging on the prospects for its much-hyped Small Modular Reactors. It remains quietly confident of getting government funding to move forward with building the next generation of nuclear plants but it has to wait for a decision.

Elsewhere, Wizz Air stuck in rivals’ shadow as shares slide (The Times, Robert Lea) shows that the gap between its performance and those of rivals Ryanair and EasyJet is getting wider as the company’s pre-tax profits for the quarter proved to be underwhelming. It is now paying the price for taking the risk of not hedging against rising oil prices and it has also not been able to hike fares by as much as its rivals. It remains to be seen as to whether this gap will get wider still…

Then in NHS goes private to end record backlog (Daily Telegraph, Laura Donnelly) we see a really important story which highlights that Rishi Sunak is plotting the biggest expansion of private sector involvement in the NHS since Blair was in power in order to clear massive backlogs and waiting lists. Private sector firms will be getting involved in the operation of community diagnostic centres for NHS patients which will involve huge amounts of scans and checks. As things stand at the moment, there is a waiting list of 7.47m people, the highest number since records began in 2007. * SO WHAT? * Companies such as InHealth will be involved in these independently-run centres and, from October, anyone who’s been on a waiting list for more than nine months without being given an appointment will be given the option of switching to a provider with a shorter wait! Sounds expensive – but necessary if the government is to even stand a sliver of a chance of staying on in power at the next election…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I thought I’d bring you a bit of fun today. Here is some very cool tech in Japan, some of which I’ve seen before and some of which I haven’t!