Friday 22/09/23

1. In BIG PICTURE NEWS, the Bank of England left interest rates unchanged, Sunak enjoys an interesting week, a VC firm splits out its China business and Russia imposes a diesel export ban
2. In CONSUMER, RETAIL & LEISURE NEWS, UK consumer confidence rises, UK retail gets a lift, Next booms, JD Sports braces itself, Ocado has a downgrade, DFS sees its profits halve, SSP has a bounce and the City Pub Group toasts a decent performance
3. In IPO AND M&A NEWS, Kokusai Electric gears up to be Japan’s biggest IPO in five years, Arm falters, Cisco buys Splunk for $28bn in cash and Toshiba is to be taken private
4. In MISCELLANEOUS NEWS, Rupert Murdoch steps down, Deezer ups prices and Warner Bros invests in Leavesden
5. AND FINALLY, I bring you some epic pit stops…

So the Bank leaves interest rates unchanged, Sunak has an eventful week, a VC splits out its China business and Russia stokes oil prices…

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Bank of England’s interest rate pause raises hopes peak has been reached (The Guardian, Richard Partington) shows that the Bank decided to leave interest rates changed yesterday at 5.25%, which is the highest rate since the 2008 financial crisis. This followed a surprise weakening of inflation in August. Interestingly, the vote was a close call as the MPC voted 5-4, with the minority voting for another 0.25% rise. Sterling hit by interest rate decision (The Times, Mehreen Khan and Jack Barnett) highlights sterling’s fall to its lowest level for six months as it reacted to the Bank leaving interest rates unchanged while What does keeping UK interest rates on hold mean for homeowners and savers? (The Guardian, Rupert Jones) shows that those on floating rate mortgages will be relieved that their payments won’t go higher (for now) while the “non-move” will have minimum immediate impact on those on fixed rates – and more people who now have access to “the best rates we’ve seen for 15 years” (according to Anna Bowes at Savings Champion) may open savings accounts (if they can!). How long will the Bank of England keep interest rates high (Financial Times, Chris Giles) contends that future meetings are likely to result in no changes or more increases – not cuts – and that interest rates are likely to remain higher for longer. The idea is that this will keep borrowing costs high, increase returns on savings, slow the economy down and put downward pressure on inflation. That said, if the economy slowed down too much too quickly, the impetus would be on interest rates to be cut.

Rishi Sunak keeps relief in check after week of upbeat UK economy data (Financial Times, George Parker and Claer Barrett) shows that Sunak has had a pretty good week on the data front, what with the unexpected fall in the rate of inflation, the Bank of England’s decision to leave interest rates unchanged and public sector borrowing in August coming in by more than £1bn less than official forecasts. The road ahead is still going to be bumpy, particularly as more people will have to remortgage after their fixed deals lapse while Sunak and Hunt continue to resist increasing pressure to cut taxes – for the moment at least. * SO WHAT? * It would be an impressive achievement for Sunak to actually deliver on his January promise of halving inflation by year-end but he

seems to be within touching distance! I suspect that any tax cuts will be delayed to a) give them maximum impact ahead of next year’s elections and to b) eliminate any talk of complacency.

Rishi Sunak plans to overhaul A-level system with ‘British baccalaureate’ (Financial Times, Peter Foster, George Parker, Chris Cook and Anna Gross) shows that Sunak’s on a roll as he is now looking at a major overhaul of A-levels! A British bacc would require all 16-year olds who stay on beyond GCSEs to study core subjects including maths and English. As things stand at the moment, about 50% of 18 year-olds in England take A-levels but A-levels have perennially been criticised as forcing kids to specialise too early. The proposals are different to the International Baccalaureate that is already offered by some private schools in the UK and other countries. * SO WHAT? * I suspect that this is all part of stirring up debate and seeing what voters would get behind. Although there will doubtless be many critics out there of changing the existing system given that we’re just recovering from a highly disruptive Covid period and are now facing new challenges with AI, you could also argue that we have reached a crossroads – which means that now is actually a GOOD time to change. I have to say that I think we need to leave things as they are for the moment and let things calm down after Covid, but equally I think that we need to put some kind of long term plan in place.

Then in UK carmakers will have to meet electric car sales targets despite Sunak U-turn (The Guardian, Gwyn Topham) we see that UK carmakers will still have to sell EVs from 1st January or be forced to pay fines despite Sunak’s pushing back of the petrol/diesel car deadline earlier this week. According to existing guidelines, over 20% of each manufacturers’ new cars sold in 2024 have to be zero emission or they could face fines of £15,000 per vehicle! * SO WHAT? * Sorry, but given what happened earlier this week, this sounds plain stupid. For carmakers surely this represents the worst of all worlds – an extension of the deadline (particularly during a cost-of-living crisis) means that demand for EVs is bound to cool off, but at the same time they are expected to sell a relatively high proportion of EVs. Surely the government is going to have to soften its stance here…

Elsewhere, Venture firm GGV Capital to split off China business after US pressure (Financial Times, George Hammond and Tabby Kinder) shows that the American venture firm is going to split its Asia and US business just three months after rival Sequoia Capital did something similar to avoid the impact of a potential worsening of sanctions between the US and China. The separation is expected to complete early next year. I suspect that we will continue to see more separation of businesses as the tensions continue!

Then in Diesel prices jump after Russian export ban (Daily Telegraph, Eir Nolsøe) we see that there’s going to be more pain in store for Britain’s embattled drivers of diesel vehicles as Russia’s sudden ban on diesel exports immediately caused European diesel prices to spike by 5%. If this is sustained, along with production cut-prompted higher oil prices, it could potentially push inflation up around the world as it is used in agriculture, fisheries and long-haul transport.

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!

Consumer confidence recovers, UK retail rebounds, Next raises profit outlook, JD Sports braces, Ocado suffers, DFS sees profits halve, SSP travels well and City Pub Group toasts a decent job…

Consumer confidence rises to 20-month high (The Times, Jack Barnett) cites the latest survey by GfK which shows that UK consumer confidence, amazingly, is at its highest level since January last year! The survey was done even before we heard the news about the slowdown in inflation, which means that the reading could even improve next time! What’s going on?!?

Then in UK retail: falling inflation and consumer demand lift sector (Financial Times, Lex) we see that things seem to be turning a corner for some retailers as more of them are reporting surprisingly positive updates! With inflation appearing to ease as well (and consumer confidence rising, according to the GfK survey above), it appears that we may be in danger of a breakout of cautious optimism! Sales may have been buoyed by rising wages and any savings left over from the pandemic – and it looks like that momentum could continue!

With that in mind, Next raises profit outlook again and says prices could fall in spring (The Guardian, Sarah Butler) shows that Next increased full-year guidance for the third time in four months (this is notable given how traditionally conservative the company is) and reported that cost inflation was easing and that prices could fall next year! Young shoppers give JD Sports a spring in its step (The Times, Isabella Fish) highlighted strong sales for the six months to the end of July, powered by Gen-Zs enjoying salary increases, low unemployment and the benefits of living with parents – although JD Sports steps up security in wake of TikTok campaign (Daily Telegraph, Hannah Boland) highlights some caution given the negative experience the retailer had recently as victim of a campaign to “rob JD Sports”.

On the other hand, Ocado suffers biggest dip in 11 years following downgrade (Daily Telegraph, Daniel Woolfson) shows that Ocado’s share price tanked by almost 20% yesterday as broker BNP Paribas published a report that downgraded its recommendation from “neutral” to “underperform” just three months after upgrading it. * SO WHAT? * Call me a cynic, but single broker notes (particularly from a distinctly middle-of-the-road broker like BNP) very rarely have this much impact on their own – particularly if they’ve got nothing new/shocking to say. Given that Ocado’s share price has been rising for the last six months powered by rumours/hopes of an Amazon takeover and improvements in its JV with M&S, I think it’s much more likely that investors have enjoyed the ride and are now taking some money off the table. “Sell note from broker X” was a common 💩y answer you’d get from (usually) a trader if they didn’t know the real reason why a share price had suddenly tanked 🤣.

Then in Mortgage costs hit sofa sales, says DFS as profits drop 50pc (Daily Telegraph) we see that DFS is being buffeted by higher mortgage rates slowing down the property market – and its profits almost halved. Orders are currently 15% below pre-pandemic levels and the company doesn’t expect things to improve from here any time soon. On a positive note, DFS said that it had increased its share of the UK upholstery market to 38%, which is an improvement of 2%!

Meanwhile, US bounce for travel caterer (The Times, Dominic Walsh) shows that the owner of Upper Crust, SSP Group, was confident enough to raise annual earnings guidance thanks to a rebound in travel and brisk trading in the US market, which now accounts for 25% of group revenues! Then in City pubs are having a ball (The Times, Dominic Walsh) we see that the City Pub Group toasted a solid performance yesterday and reported strong performance during the Rugby World Cup and decent booking levels for Christmas. It sounds like the secret behind its success is to keep debt levels low, something that it particularly valuable in the current high interest rate environment!

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!

Kokusai Electric looks good, Arm falters, Cisco goes shopping and Toshiba goes private…

In a quick update on IPO and M&A activity, Kokusai Electric: Japanese listing arrives in time for chip boom (Financial Times, Lex) shows that the Japanese company which makes machines that are used for part of the chipmaking process is timing its IPO well as it leans into the whole AI/chip bandwagon and comes just after the initial exuberance of the Arm and Instacart IPOs. It is on track to be Japan’s biggest IPO for five years! That said, Arm drops below IPO price amid jitters in tech markets (Daily Telegraph, Matthew Field) takes the shine off Arm’s recent performance as it has dipped below its flotation price as investors perhaps question the valuation. As I have said before, you should never judge the quality or performance of a company by what its IPO price does on the day of flotation or shortly thereafter. Underwriters are usually part of the deal and their job is to support the share price for a certain period of time. TBH I’d take much more notice of an IPO if it tanks – because that means the real sentiment is much worse because even the underwriters can’t support it!

In M&A news, Cisco to buy cybersecurity company Splunk in $28bn cash deal (Financial Times, Wall Street Journal) highlights what would be Cisco’s biggest ever acquisition if it completes as the network equipment giant offered to buy Splunk, the analytics and software company, for a big lump of cash to further its push into AI. The combined company would provide customers with AI and other tools to analyse their data and find security threats. Cisco/Splunk: M&A deal could signal start of rate acceptance (Financial Times, Lex) says that Cisco has long been looking at security software as an area of focus so the deal makes strategic sense and it is likely that this dramatic move could trigger more big deals in the tech sector!

Then in £11bn private equity deal ends Toshiba’s 74-year run on the Tokyo stock market (The Times, Max Kendix) we see the end of an era approaching as Toshiba is to be taken private by a private equity consortium led by Japan Industrial Partners. This would be the biggest takeover deal in Japan this year if it gets shareholder approval in November! There is plenty to unravel at this massive conglomerate so it’ll be interesting to see how this develops.

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!

Murdoch resigns, Deezer ups charges and Warner Bros invests…

In a quick scoot around some of today’s other interesting stories, Rupert Murdoch steps down as chair of Fox and News Corp (Financial Times, Anna Nicolaou and Daniel Thomas) shows that the 92 year-old is finally going to be stepping down as chair of Fox and News Corp, marking the end of an era. His eldest son, Lachlan, will become sole chair of News Corp and will continue to be exec chair and chief exec of Fox. The old man can’t quite let go though – he will become the chair emeritus and be “involved every day in the contest of ideas”. What does Rupert Murdoch’s resignation mean for his UK media outlets? (The Guardian, Jim Waterson and Mark Sweney) suggests that the UK business may not see too much love under Lachlan’s stewardship and there is speculation as to whether News UK will still want to buy The Telegraph and the Spectator. * SO WHAT? * Although the move makes for a dramatic headline, it looks like Murdoch senior will still be pulling the strings!

*** NEWS JUST IN – UK regulator provisionally approves Microsoft’s $75bn Activision deal (Financial Times, Tim Bradshaw and Maxine Kelly) shows that the revised merger agreement submitted to the CMA looks like it’s done the trick so that the merger that it had originally blocked in April is now going to go through. * SO WHAT? * Given that Microsoft has already signed individual deals with companies including Nintendo and Sony “just in case”, I’m not sure that it’s going to make that much difference to rivals now. I would have thought it would be good for sentiment in Microsoft, though! ***

Elsewhere, Deezer to raise prices as music streamers turn screws on consumers (Financial Times, Anna Nicolaou) shows that French music streamer Deezer is going to increase its monthly subscription price by €1, following recent price rises by YouTube and Spotify. * SO WHAT? * It is interesting to note that, since 2011, Netflix’s standard subscription price has doubled while the price of a music subscription has stayed pretty static over the same time period. Clearly there is a lot of catching up to be done! That said, I am of the opinion that there will be a definite ceiling with music and that the big players will clear up because more people will cut down their subscriptions to just one provider – and that will be the one that has the most music.

Then in Warner Bros studios in Leavesden to expand, creating 4,000 UK jobs (The Guardian, Tom Ambrose) we see that the Warner Bros studios in Hertfordshire is going to have a major expansion that will create loads of jobs for the film and TV industry! The development is expected to complete in 2027 and add a whopping 400,000 sq ft to the existing Warner Bros Studios in Leavesden. * SO WHAT? * This is a welcome development for the industry that is currently being affected by the ongoing Hollywood actors’ and writers’ strike. Barbie, House of the Dragon and the upcoming Aquaman and the Lost Kingdom are among the most recent films/TV shows to be shot on these sound stages!

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…

F1 pit stops are incredible things to watch. Who knew that pit stops in other activities could give them a run for their money?!? My fave is actually the remote-controlled car one!