Friday 05/05/23

1. In MACRO, MARKETS & OIL NEWS, the ECB raises rates, the CMA vies for global impact and Shell unveils record profits!
2. In TECH NEWS, the big AI meeting happened and we look at why everyone is scared, how lawyers are using it as well as new pressures on Meta, Apple’s results and Shopify’s woes
3. In BUSINESS & CONSUMER TRENDS NEWS, it falls apart for Maersk, UK tourism boosts the services sector and Pinduoduo moves to Ireland, Chinese buy local carmakers and boost domestic tourism while consumers spend on houses, booze, trains, clothes and Peloton
4. In MISCELLANEOUS NEWS, US banks continues to suffer and Ferrari opens up sales again for its Purosangue
5. AND FINALLY, I bring you just the best trainers ever…

So the ECB follows the Fed, the CMA wants more and Shell has record results…

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:

ECB raises rates as Christine Lagarde warns of ‘more ground to cover’ (Financial Times, Martin Arnold) shows that the ECB raised interest rates by 0.25% to 3.25%, saying that there was more to come. Economists now reckon that there will be two more moves by July, which would mean that it would reach 3.75%. This would equal the record high it reached in 2001! Some are saying that the smaller 0.25% move (as opposed to previous 0.5% moves) shows that we are approaching the peak.

UK’s competition watchdog aims for leading global role (The Guardian, Dan Milmo) is an interesting article which contends that our Competition and Markets Authority regulator has ambitions to make a global splash after taking a “more significant global role” post-Brexit. Fresh from blocking Microsoft’s purchase of Activision Blizzard last month, it is now taking a look (as I said yesterday) at AI as it aims to establish itself as a third pillar of tech policing in addition to Washington and Brussels. Given that its enforcement powers are going to be considerably enhanced by the forthcoming digital markets, competition and consumers bill, it looks like its ambitions are getting more likely to become reality!

Meanwhile, in oil, Shell announces $4bn share buyback as it posts record first-quarter profits (Financial Times, Tom Wilson) shows that the oil major’s strong performance has continued as it saw higher trading earnings and strong performance from its LNG business, which mitigated lower oil and gas prices. There will be more detail on its future roadmap at the investor day next month.

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

The AI debate continues, Meta faces more issues, Apple beats forecasts and Shopify makes bit cuts…

Tech executives meet senior US officials for ‘frank discussion’ of AI risks (Financial Times, Richard Waters and James Politi) shows that execs of OpenAI, Google, Microsoft and others met with vice-president Kamala Harris yesterday to have a big discussion on AI and its future development. As things stand, the Office of Management and Budget said that it would release draft guidelines for public scrutiny this summer that will cover the federal government’s use of AI while the FTC has said that it will look at whether existing laws can be used to combat things like online scams and violations of privacy. Why AI terrifies everyone from Biden to Musk (Daily Telegraph, James Titcomb) likens the moment when Geoffrey Hinton, the British computer scientist seen as the father of AI, quit Google in protest at his creation to the time when Robert Oppenheimer, father of the nuclear bomb, said he had blood on his hands in the aftermath of Hiroshima and Nagasaki. His resignation was the culmination of a period where we have seen the incredible rise of ChatGPT which then led to appeals from tech leaders like Elon Musk for a slowdown – but some people are more concerned about the very real short-term risks like the “industrialisation of misinformation” and the massive rise in cyber crime. In the meantime, Lawyers to use AI for legal drafts (Daily Telegraph, James Warrington) shows that new software, called Lexis+, is being trialled by firms including Baker McKenzie, Reed Smith and Foley & Lardner. It will enable lawyers to research case law, summarise documents and potentially draft letters! LexisNexis was used to train it, meaning that the underlying material is top quality, thus avoiding any “hallucinations”. This should be pretty interesting. * SO WHAT? * I think that ChatGPT blew up so quickly and the tech is so impressive that everyone is still catching up with it. Clearly there are practical (e.g. cheating in education) and philosophical (e.g. who “owns” the product of AI) issues at stake here that need addressing – and quickly. However, it’s not all bad. Lexis+, for instance, sounds great and could potentially save a LOT of time although there may be a knock-on effect for jobs. In that case, jobs evolve – but it can’t be avoided. AI is most definitely coming!

Elsewhere in tech, Facebook and WhatsApp owner urged by UK bank to act on fraud as scams soar (The Guardian, Jess Clark) shows that Meta has been advised by British bank TSB to do something to stop customers becoming victims of fraud after noticing that they are being targeted by soaring instances of scams on Facebook, WhatsApp and Instagram. To give you an idea of

scale, the number of scams originating from Meta-owned platforms now make up 80% of cases in TSB’s main areas of focus – impersonation, purchase and investment. * SO WHAT? * Regulation really can’t come too soon IMO! This should have been addressed AGES ago, but I guess that things could get a lot worse with the advent of AI as it can easily be used to fool people into handing over passwords and other sensitive information.

Apple keeps iPhone to the fore as results beat Wall Street forecasts (The Times, Callum Jones) shows that robust iPhone sales helped Apple to beat market expectations for the latest quarter but the chief exec was keen to highlight the best ever performances for the services division (which includes iTunes, App Store etc.) but Apple suffers back-to-back sales slump as cost of living squeeze hits iPad and Macs (Daily Telegraph, James Titcomb) points out that this was the first time in four years – and only the third time in ten years – that the company had seen two consecutive quarters of weaker sales. The hype is going to intensify, though, as there is increasing speculation that it will unveil a high-end VR headset at its software conference next month. If it does come out, it will be Apple’s first major product launch in almost ten years! It will be aimed at pro users with a cheaper consumer version due thereafter. * SO WHAT? * It’s amazing that, after all these years, the iPhone is still by far and away the biggest driver for the company, but there you go! Next month’s product launch should be exciting but even though sales may not be stellar because of its expected hefty price tag, there may be a halo effect from the publicity that could give sales a little push. It may be, though, that consumers are waiting now for the next version of the phone before upgrading.

Then in Shopify to Lay Off 20% of Its Workforce as It Sells Logistics Business to Flexport (Wall Street Journal, Liz Young and Dana Mattioli) we see that Canadian online retail services platform Shopify is selling off its logistics-fulfilment operations to Flexport and its 6 River Systems warehouse robotics business to Ocado, calling it quits with a physical delivery business that just didn’t get enough traction. It will have to lose 20% of its workforce as a result of these developments. Investors loved this and sent the share price soaring by a chunky 24% on the news! * SO WHAT? * This sounds like a particularly big development for Flexport, which has an early employee of Amazon as its chief executive! Dave Clark played a key part in developing Amazon’s network so maybe Flexport could become a credible rival to Amazon in logistics in the future! As for Shopify, this is probably a sobering dose of reality as it wasn’t the only company to have overly-high hopes that pandemic trends would continue in a post-Covid world. At least it has now admitted that by choosing to sell these assets…

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!

Maersk faces a new reality, tourism pushes services, PDD moves to Ireland and we look at what consumers are spending their money on…

In business trends news, Maersk warns of ‘radically changed’ world as profits tumble (Financial Times, Richard Milne) signals a massive change for the Danish shipping and logistics giant that has been absolutely raking it in over the last few years (it made more money in the last three years than it did in the last six decades!) as it beat market expectations for Q1 but outlined a downbeat assessment for performance for the rest of the year. New ships are soon going to come online, which is likely to make things worse by putting downward pressure on shipping rates and trading volumes are expected to lag the amount of new capacity. * SO WHAT? * Freight rates have now fallen from record highs, so Maersk (which is the world’s second biggest container shipping line) and MSC (which is the world’s biggest) are readying themselves for a difficult rest of year although Maersk did decide to leave its full-year expectations unchanged. I often say in Watson’s Daily that Maersk is used as a barometer of global trade and, clearly, expectations are low – although I do find this a bit perplexing, particularly as China is already showing signs of a turnaround and is expected to pick up momentum…

Meanwhile, Tourism puts spring in step of services sector (The Times, Arthi Nachiappan) cites the latest CIPS/S&P Global survey which shows that output in the UK services sector grew last month at the steepest rate in a year! Unfortunately, high energy prices and wage costs continue to be passed on to customers but a rebound in domestic demand as well as a fifth consecutive month of rising exports have helped to bolster confidence. * SO WHAT? * This is in marked contrast to what’s going on in the manufacturing sector at the moment, but given that the services sector is by far the biggest contributor to UK GDP, that is not a disaster. Predictions of recession have yet to come to pass, but with a recovery in business and consumer confidence, it seems that there are more reasons to be optimistic!

Pinduoduo owner moves headquarters to Ireland amid US-China tensions (Financial Times, Eleanor Olcott and Cheng Leng) shows that the parent company of Pinduoduo, a Chinese discount ecommerce site, has moved its HQ to Ireland from Shanghai, according to recent US exchange filings. PDD Holdings is the parent company of Pinduoduo and Temu (an online marketplace launched last year in the US and now expanding in Europe) and it seems that the move is all about trying to get around any potential US-China sanctions. TikTok parent ByteDance moved its HQ from Beijing to Singapore recently for the same reason. PDD: Chinese ecommerce group seeks shelter in Ireland (Financial Times, Lex) highlights the fact that the move from Beijing to Dublin is unusual but its low corporation tax, young population and tax treaties with the EU have clearly made it compelling. However, the problem remains that there is still regulatory risk! You do wonder, though, whether other Chinese companies (e.g. car companies) will decide

to follow PDD’s lead in hopping over to the emerald isle! I don’t think that a wholesale shift of Chinese corporates is likely, though, as their government will no doubt put a stop to such an exodus.

In terms of consumer trends, Chinese switch to local marques (Daily Telegraph, Howard Mustoe) shows that VW and BMW are continuing to lose market share in China to local marques as government-guided investments in domestic steel and lithium production, low employment costs and an automotive industry with relatively little baggage are helping to advance their own car makers at pace. China is the world’s biggest car market and it is on track to become the world’s second biggest car exporter! * SO WHAT? * Foreigners won’t like this but I have to say that there seems to have been a notable trend of younger Chinese preferring to opt for domestic marques over foreign ones. That is a potentially painful trend for the likes of VW and Toyota etc. because this means it is likely that drivers will stay “domestic” as they get older. Foreign makers will have to come up with coherent China strategies in order to stem the slide, but any moves will be complicated by the ever-present threat of US-China sanctions.

Chinese tourist spending rebounds to pre-pandemic levels in boost to economy (Financial Times, Thomas Hale and Andy Lin) shows that spending on one of the nation’s most important national holidays topped pre-pandemic levels for the first time, according to authorities. Travel over this week’s labour day holiday was seen by many to be a bellwether of China’s economic recovery – and it seems to be on the right track! * SO WHAT? * A recovery in consumer spending is great, but this will also need to be backed up by a sustained improvement in performance in other areas of the economy. It seems that the end of zero-Covid has done wonders!

So what else are consumers spending their money on? UK mortgage approvals beat forecasts to hit five-month high (Financial Times, Valentine Romei) shows that at least some of them are spending it on property, according to the latest Bank of England figures, AB InBev raises a glass despite Bud Light debacle (The Times, Dominic Walsh) suggests that they are spending at least some of their disposable income on booze as the world’s biggest brewer posted Q1 results that were ahead of market expectations, Ticket sales leap helps Trainline offset the impact of rail strikes (The Times, Helen Cahill) shows that we’re buying more train tickets online despite all the rail strikes, Next in line for profits after sales are better than expected (The Times, Isabella Fish) shows that we’re buying more new clothes than expected (although the company sounds like it’s being cautiously positive for the rest of the year) and Peloton Leans Into Subscriptions as Brand Revamp Continues (Wall Street Journal, Sabela Ojea) shows that we might not be spending it on peddling furiously at home and going nowhere as the company tries to wean itself off selling fitness hardware and on to pushing online subscriptions (which is clearly a work in progress). The company’s share price has fallen by a chunky 59% over the last 12 months as it faces an uphill struggle to reinvent itself after a number of calamities.

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!

Banks just can’t shake off the gloom and Ferrari starts taking orders on the Purosangue again…

In a quick scoot around some of today’s other interesting stories, Trading halted in shares of two more US lenders as fears of banking crisis mount (The Guardian, Dominic Rushe, Julia Kollewe and Lois Beckett) shows that trading in two regional US lenders, PacWest and Western Alliance, was temporarily suspended yesterday as the recent rescue of First Republic by JP Morgan failed to calm investor panic about the viability of smaller banks. Shares in PacWest dropped by 50% yesterday while Western Alliance’s fell by 45%. Banking crisis/private equity: bargain prices create huge opportunities (Financial Times, Lex) makes the very interesting point that all this concern about the health of the banks is actually hurting their valuations so much that they could become viable targets for takeover by private equity firms who are willing to

stomach the initial risk. Such moves could incur political resistance and regulatory difficulties, but the potential upside could be enormous…* SO WHAT? * As things stand currently, it seems to me like the only way to actually calm investor nerves about banks is for the state to say unequivocally that it will guarantee all deposits. So far it has stopped short of that, but none of the actions so far have worked to calm sector-wide fears.

Meanwhile, I’m sure that we will all be relieved by the following news: Ferrari restarts order for first four-door sports car (Daily Telegraph, Howard Mustoe). For those of you with a £313,000 hole burning in your pocket, orders have now reopened following “unprecedented demand” 🤣. Ferrari’s order book now runs into 2025 and the company is now worth more than Stellantis, from which it was spun out in 2015! The luxury fun bus continues to roll on…

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…

These may just be the best sneakers ever: ‘Fast food’ reaches another level with new custom shoes – designed like cheeseburgers (The Mirror, Andrew Young). They would certainly be a conversation starter at the very least!