Friday 24/03/23

1. In MACRO NEWS, the Bank of England raises interest rates
2. In TECH NEWS, TikTok continues to fight, Beijing gets involved and Allen & Overy plugs AI
3. In FINANCIALS NEWS, Block gets hammered, Cenkos and FinnCap get together and Amigo Loans is a goner
4. In MISCELLANEOUS NEWS, UK consumer confidence improves, Ford expects electric losses, Evergrande strikes a deal, Accenture cuts tons of jobs, Wickes is positive and the London stock market loses ground
5. AND FINALLY, I bring you a salad hack and another illusion…

So Bailey follows Powell…

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:

Bank of England raises interest rates to 4.25pc and warns of further pain (Daily Telegraph, Eir Nolsoe) shows that Bank of England governor Andrew Bailey increased interest rates from 4% to 4.25% yesterday, mirroring what Fed chief Jay Powell did a day earlier. He said that he needed to see more evidence of inflation losing momentum as February inflation surprise sealed Bank of England rate rise (Financial Times, Delphine Strauss and George Parker) says that news of a surprise increase in inflation the day before probably knocked any waverers on the MPC to opt to vote for a rise despite the current turmoil in the banking sector. * SO WHAT? * Bailey is walking a tightrope at the moment – if he puts rates on hold too soon, inflation could gain momentum again and become more entrenched, but if he raises them to much and too quickly, it could make things more problematic for the banks and trigger a credit crunch that could snuff out any economic recovery.

📢 JUST A REMINDER FOR YOU! I will be reviewing the business and financial markets news of March with Jake Schogger of the Commercial Law Academy NEXT WEEK, so if you want to watch/listen in, you need to register HERE. Hopefully see you there!

Is this the end of UK interest rate rises or are there more to come? (The Guardian, Phillip Inman) suggests that we’ve potentially hit the peak of interest rates as wage growth is slowing, energy costs are expected to fall and market consensus suggests that inflation will be back down to below 2% in spring next year. The Bank said that it will need to see “persistent” inflationary pressures before another increase can be approved but markets are now pricing in another 0.25% rate rise at the next meeting.

That being said, The Bank of England made a historic error that must not be forgotten (Daily Telegraph, Ben Marlow) points out how rubbish Andrew Bailey’s record has been at getting the decision right at the crucial time (like other central bankers, he dismissed inflation as being transitory for absolutely ages 🤣) and suggests that they are now being put under pressure from a crisis of their own making. Perhaps an overhaul (or at least review) of how the Bank and MPC work would be in order once the dust has died down…

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!

TikTok’s nightmare continues and Allen & Overy talks AI…

TikTok CEO grilled for over five hours on China, drugs and teen mental health (The Guardian, Kari Paul and Johana Bhuiyan) shows that TikTok’s chief exec Shou Zi Chew had a right old roasting at a five-hour US Congress hearing yesterday as pressure continues to build towards a total ban on TikTok in the US. TikTok chief admits Chinese parent company has access to data (Daily Telegraph, James Titcomb) highlighted Chew saying, “…we have employees in China, so yes, the Chinese engineers do have access to global data” but also that there was “no evidence” that TikTok user data had been accessed by the Chinese government.

Beijing will oppose the forced sale of TikTok (The Times, Callum Jones) showed that the Chinese government weighed into the heated debate, saying that it would “firmly oppose” a forced sale of TikTok. * SO WHAT? * The app has over a billion users around the world, so the stakes are high – but I find it pretty interesting that China would step in to defend a company that it has traditionally hated because its largely frivolous content does not match up to the values of President Xi’s “collective prosperity” values. This would suggest to me that this is more about geopolitical point-scoring than a burning drive to defend one of its tech titans. It also

makes me think that maybe all the security worries are actually well-founded. I mean, if China is supporting a company that we all know that it hates, perhaps there is something to all the security worries, right? Meanwhile, UK parliament bans TikTok from official devices (Financial Times, Robert Wright) shows that the UK parliament has now banned TikTok from its devices just one week after the UK government banned it. It’s not looking good for TikTok right now…

Tech summit: Allen & Overy turns to the magic of AI for savings (The Times, Alex Ralph) is an interesting article that looks at A&O’s “Harvey” chatbot. At the moment, it is used to do an initial draft that is then edited and amended by real lawyers. Given that everyone bangs on about how much time it saves, the inevitable question turned to whether this will mean a reduction in fees charged to the clients (because lawyers charge by the hour!). Funnily enough, the lawyer questioned gave a non-committal answer 🤣. * SO WHAT? * I think that clients will only be impressed by the use of AI if it a) speeds up the process while staying accurate and b) saves them money. Anything other than that and I don’t think they care! It is still a work in progress but I think that teams will need to come up with some killer uses (that are ideally adaptable to or by their clients) for it to really move the needle.

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!

Block takes a pasting, Cenkos and FinnCap huddle up while Amigo loans stops all lending…

Shares of Jack Dorsey’s Block Fall on Short-Seller Report (Wall Street Journal, Peter Rudegeair) highlights the latest hatchet job by short-seller Hindenburg Research. In its latest damning company report, Hindenburg said that, after a two-year investigation, it has concluded that payments company Block (formerly known as Square) had overstated the number of users and facilitated suspect payments via Block’s Cash App. It also said that criminals used Cash App to move drug money or pay for sex trafficking and that Block targeted those on lower incomes with “predatory loans and fees”. The company’s share price dropped by up to 22% initially on the news, but recovered to be down by around 14% on the day although it has lost 78% since its peak in August 2021. * SO WHAT? * Hindenburg has a knack for sniffing out dodgy companies and practices and so when it publishes research AFTER it has shorted the stock in question, investors sit up and take notice. Hindenburg famously laid into Nikola, the disgraced electric truck company, and most recently the Adani Group, which is still trying to recover. This is pretty incredible and it makes me think how INCREDIBLY lucky rival payments firm Stripe was to IPO last week! If it had left it any longer, an allegation like this may have depressed valuations for the whole sector…

Back in the UK, Cenkos Securities and finnCap agree £43m merger (The Times, Helen Cahill) highlights the merger of two small-cap brokerage firms that would have combined revenues of over £50m, 210 clients and 230 staff in equity capital markets, M&A, debt advisory and private funding. This comes only months after Panmure Gordon and FinnCap broke off merger talks last November. Cenkos/FinnCap: merger of City brokers underscores their plight (Financial Times, Lex) says that this is a defensive move after a tough few years which has seen juicy deals dry up – the total amount of money raised on London’s junior AIM market dropped to its lowest level for 20 years last year! Other rivals in the space, Peel Hunt and Numis, have also suffered but they did at least make money last year. It could well be that this merger prompts further consolidation in the sector as the M&A and IPO landscape continues to look pretty paltry…

Elsewhere, Subprime lender Amigo Loans halts all lending as it winds down business (Financial Times, Siddharth Venkataramakrishnan) heralds the final countdown for the embattled subprime lender as it is halting all lending immediately after previous attempts to revive it have failed. The whole sector has suffered from a major regulatory clampdown (remember Wonga, anyone?) but Amigo ultimately failed because it lent money to people who just couldn’t afford to repay it. * SO WHAT? * What a downfall! Amigo listed in 2018 at a valuation of £1.3bn, but it is now only worth about £2m. The whole sector has suffered from lending money to dodgy borrowers and the increasing popularity of buy now, pay later providers.

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!

UK confidence grows, Ford says it’ll lose money on EVs, Evergrande strikes a deal, Accenture wields the axe, Wickes is chirpy and the London stock market loses ground…

In a quick scoot around some of today’s other interesting stories, UK consumer confidence improves despite dip in personal finance outlook (Financial Times, Daria Mosolova) provides further evidence of improving sentiment as the latest GfK survey shows that consumer confidence has improved this month while outlook on personal finances has worsened. That said, consumer confidence overall is down versus March last year as macroeconomic factors continue to squeeze household finances and general purchasing power.

Ford Says It Will Lose $3 Billion on EVs This Year as It Touts Startup Mentality (Wall Street Journal, Mike Colias) highlights rather downbeat expectations for EVs this year as it continues to transition to electrification. It outlined a new financial reporting structure yesterday to give better transparency into its performance. It will have three units: Model e, the EV business; Ford Blue, the traditional combustion-engine business; and Ford Pro, its commercial vehicle business. * SO WHAT? * I think it’d be fair to say that many “traditional” makers are in investment mode at the moment, but we’ll see how they do as more attractive and interesting vehicles continue to come to market.

Evergrande Strikes Deal for $19 Billion Bond Restructuring (Wall Street Journal, Rebecca Fogg, Frances Yoon and Alexander Saeedy) is an interesting article which heralds a way forward for the most indebted property company in the world! Basically, it has agreed a restructuring deal with a number of bondholders that could keep it alive. * SO WHAT? * It’s not 100% approved just yet, but this latest development brings it a step closer to safety. It is still facing difficulties, though – it needs to finish properties that it started over the next few years and its EV subsidiary also needs to source fresh financing otherwise it’ll have to shut down after delivering over 900 units of its Hengchi 5. The tough times continue, but there might be light at the end of the tunnel!

Accenture cuts 19,000 jobs on slowdown fears (The Times, Callum Jones) shows that the management consultancy is planning on cutting 2.5% of its workforce over the next 18 months – but this is actually not that big in the scheme of things given that it has 738,000 employees, 229,000 of whom have been employed in the last three years! * SO WHAT? * This is to be expected given that rivals at McKinsey and KPMG have also made cuts recently. Although this is clearly terrible news for those affected, it sounds like these companies needed a bit of pruning after the massive hiring spree they’ve been engaged in particularly over the last few years. This is going to sound super-cynical but it might also help these companies keep employees on their toes and perhaps less likely to pressure them on pay. I do wonder what they think about this over at EY as they ponder a split between the auditing and consultancy arm…

DIY retailer Wickes reports ‘bright’ outlook buoyed by young renters (The Guardian, Reuters) sounds an upbeat tone about its immediate future – in stark contrast to rival Kingfisher (owner of B&Q and Screwfix) with its more downbeat assessment. It said that it was benefiting from homeowners and renters improving their existing properties. Given that it pretty much does what Kingfisher does, you do wonder what they are doing differently…

Then I thought I’d include London stock market £200bn smaller than Paris (Daily Telegraph, Simon Foy) because it shows that London’s crown as Europe’s premier market for trading equities is slipping considerably as it is now £204bn smaller that its French rival – a major turnaround from when London was almost $2tn bigger in dollar terms than the Paris bourse when the pound was a lot stronger. * SO WHAT? * Europe continues to pull financial operations to the continent and we’ve seen a lot of recent newsflow showing companies quitting the London market (CRH) or avoiding it (Arm) for more lucrative climes where they will get punchier valuations. You do wonder whether the government is going to address this as part of its current overhaul of City regulations given its importance to the country’s GDP…

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…

This might be a bit late as salad shortages might be coming to an end as the domestic harvest kicks in but just in case you want your salad to last a bit longer, here’s something that you might consider: People are only just realising you can use a SodaStream to keep salad fresh (The Mirror, Zahna Eklund).

And while you are thinking about that, how about pondering the illusion in: Only those with ‘exceptional skills’ can spot man hiding amongst statues in 6 seconds (The Mirror, Ariane Sohrabi-Shiraz). Do you have “exceptional skills”??