Watson’s Monthly – NOVEMBER 2023 EDITION

Welcome to Watson’s Monthly! The Monthly is a document that gives you roundup of the major stories and developments that happened over the course of January.

This will give you a different view of how things developed over the month and will really help your understanding and recall of the events as they happened.

In GLOBAL MACRO – JP Morgan chief Jamie Dimon observed 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 set up a stand-along advisory business last month to provide insight onto these very things!).

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. Also, inflation fell to 3.2% in October, which was more than expected. It was its first fall for four months, meaning that there was less pressure for the Fed to increase interest rates any further – and so it was unsurprising that it left them unchanged at their 22-year high (the Fed Funds Rate held steady at the 5.25%-5.5% range). Fed chief Jerome Powell did, however, give himself room to increase rates further should the need arise.

In CHINA – the economy continues to falter as the latest PMI showed that factory activity contracted for the second month in a row and falling pork prices pushed the country back into deflation. 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. Meanwhile, 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 but then there was a bit of a kerfuffle as neither party could agree who would lead the campaign! 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 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. This hypothesis was backed up by 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. Also, the latest S&P Global PMI showed that business activity in the Eurozone has fallen by its fastest pace since November 2020. Meanwhile, 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. IN GERMANY, 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 so, presumably, this is why the government 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! Elsewhere, 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! IN THE NETHERLANDS, we saw the political pendulum swinging to the right as populist Geert Wilders won elections, 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. Sensing the chance of real power, Wilders has since looked to moderate his stance (this reminds me of what Marine Le Pen did in the French presidential elections) in a bid to be taken more seriously as a leadership candidate. IN PORTUGAL, we saw drama unfold as its PM resigned over a massive corruption scandal involving lithium mines, which makes important current projects like re-privatising national airline TAP and scrapping tax breaks for rich foreigners in limbo. IN TURKEY, we saw the central bank raise its interest rate to 40% in order to tame inflation while Greece’s leftist Syriza party edged closer to breaking up as nine of its MPs quit in protest against its leader.

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 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. There was a dramatic Cabinet reshuffle which paved the way for David Cameron to return to frontline politics as Suella Braverman was sacked as home secretary and replaced by James Cleverly. Fortunately for PM Sunak, UK inflation fell to 4.6%, which was more than the 4.8% economists were expecting and a victory for Sunak who had promised to halve inflation back in January and the latest “flash” reading of the S&P Global CIPS PMI highlighted 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. All of this came in useful for when chancellor Jeremy Hunt announced various initiatives in the Autumn Statement. It looks like he used any “spare” money to implement more broader-based measures than I had expected and they are, unsurprisingly, designed to win more votes in next year’s election. Meanwhile, the Bank of England left interest rates unchanged and warned that they could remain at higher levels “for an extended period of time” although many believe that we’ve already reached the peak and the only way is down from here. On the subject of the Bank of England, 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. Elsewhere, 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. 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 OIL NEWS – The World Bank warned that the oil price could hit $150 per barrel if the Israel-Hamas war becomes more prolonged but oil prices fell when Opec+ postponed a meeting – and they didn’t bounce back strongly when the meeting did eventually go ahead because the market wasn’t convinced that all members of the cartel would be fully committed to the target. US crude oil inventories rose by more than expected – which is also a factor to be taken into account, as is the fact that China demand appears to be weakening. In the meantime, Saudi Aramco beat market expectations for net profits thanks to higher oil prices and 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!

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. IN NUCLEAR POWER, 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.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 involve sharing resources and building shared supply chains. IN WIND POWER, Ørsted cancelled two massive US offshore windfarm projects, opting to pay a hefty £3.3bn impairment charge instead as the whole industry appeals for more state help to finance projects.

In COMMODITIES NEWS – India plans to triple the amount of underground coal mining by 2028 in order to meet the country’s fast-growing need for energy. India currently relies on coal for about 75% of its power production. 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 CRYPTO NEWS, Binance founder and CEO Changpeng Zhao pleaded guilty to money laundering. 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 NEWS, EY’s latest research says that profit warnings are rising, accountancy firm Azets says that company collapses are on the rise and bankruptcies are benefiting the likes of PJT Partners, Houlihan Lokey and Paul Weiss who advise on them. The trend was confirmed by the latest data from the ONS says that more businesses are closing than opening. I guess that it’s not surprising that UK business confidence hit its lowest point this year, according to a report by Accenture and S&P Global – but then in a Lloyds Bank report, business is actually returning to pre-Ukraine war levels! The defence sector continues to do well as BAE Systems, Babcock and Qinetic all reported higher order levels as governments around the world spent more on arming themselves. It is also interesting to note that 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. Meanwhile, the latest figures show that Turkey’s exports to Russia have boomed this year amid speculation that it is becoming a backdoor supply route for sensitive items fuelling the Russian war machine. The increasingly cautious stance that businesses are taking against China is continuing as Deloitte and KPMG are among the companies telling their staff to use burner phones even if what they are doing isn’t that sensitive and 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. In other business trends, 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.

IN EMPLOYMENT TRENDS NEWS, the new official unemployment rate is 3.5%, which is lower than what it’s been before as it is using the new methodology. 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. RE THE JOBS MARKET, vacancies are increasing in the approach to Christmas, according to Adzuna, thanks to retailers and warehousing companies. On the flipside to this, London has become the redundancy capital of the UK, according to REC. The tech and construction downturns have proved to be particularly damaging. Grad recruitment is down as vacancies have fallen by 30%, according to jobs search engine Adzuna while EY has decided to push some graduate start dates back in its advisory arm because of the lack of business. At the same time, a report by REC and KPMG said that recruiters have been seeing a sharp rise in the number of jobseekers over the last month, presumably because more people are being made redundant and others are getting increasingly worried about their own jobs. In terms of future employment prospects, 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.

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! 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 🤣! There was a whole load of drama involving OpenAI as co-founder Sam Altman was sacked, offered a job at Microsoft, then reinstated whilst ousting virtually all of the existing board in the space of less than a week! IN CHATBOT 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. Separately, 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. In another example of the ever-evolving uses of AI, 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.

In SEMICONDUCTOR NEWS, Nvidia launched its most advanced chip yet in the form of the H200, which replaces the current H100 chip. Also, it reported yet another strong quarter thanks to its leading position in AI but investors remained concerned about the effect of the ongoing US-China trade tensions. With this in mind, 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. Elsewhere, Microsoft announced the launch of its own proprietary chips for AI and Arm announced strong Q2 results. It is interesting to note that 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. We also saw that 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.

In TECH HARDWARE NEWS, 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. 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! It was also fascinating to hear 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! IN GAMING, 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.

In SOCIAL MEDIA 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 competitor access. The DMA is set to come into force in Q1 of 2024. Meanwhile, 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. Talking of Meta, the company 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. Elsewhere, 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”.

In CONSUMER NEWS, US consumers are finally seeing a slowdown in consumer goods price rises, but they have been buying less. IN THE UK, the latest data from the ONS shows that real earnings for full-time workers had fallen over the last year as they have failed to keep pace with inflation(the average earnings of a full-time employee has risen by 6.2% in the last financial year – the biggest annual increase recorded since records began in 1997!). This may well explain why the latest BRC data showed that UK retail spending slowed down last month while mortgage arrears are rising (but mortgage approval rates also rose for the first time in months!). Consumers are also facing higher car insurance premiums from the likes of Direct Line but, fortunately, grocery inflation and shop price inflation is slowing down. Still, 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.

In LUXURY GOODS NEWS, Luxury online retailer Farfetch had rubbish results and the founder is thinking of taking it private, 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 and Burberry saw its profits hit by weakness in luxury goods spending. Its full-year revenue targets are looking a bit vulnerable now. On the other hand, Prada bucked the “luxury slowdown” trend by reporting stronger revenues, as did Ferrari when it reported its Q3 results and 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. Meanwhile, 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.

In RETAIL NEWS, ONLINE RETAILER Amazon is showing signs of strong recovery after a period of cost-cutting and overhaul (which most recently included the closure of its “Amazon Style” apparel stores) after a frenzied expansion over lockdown. In the UK, Asos announced a downbeat outlook at the delayed publication of its results and blamed the weather for poor sales while 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…IN OFFLINE RETAIL, beauty company Avon is going to open its first actual store in the UK for the first time in its 137-year history, Frasers sold Missguided’s brand and IP to Shein (and there is a possibility that Frasers could have more of a relationship with Shein – which filed for an IPO in the US – as the latter aims to expand in Europe) while Next announced strong results and upgraded its annual profit expectations for the fourth time in five months. 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. Sainsbury’s is winning market share back from Aldi and Lidl, M&S smashed analyst expectations and it even regained its title as top womenswear retailer after four years, overtaking Next in the process, B&M continues to benefit from Wilko’s collapse, electrical goods retailer AO World managed to return to profit after a year of painful cost cutting. Go Outdoors saw profits almost halve over the last year – but sales are starting to recover, Halfords got a bid and rejected it – but then warned of weaker profits and 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. 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, 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 but 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..IN RETAILER TRENDS, UK retailers are bracing themselves for a disappointing festive season, according to the CBI, and they are offering deeper discounts to attract shoppers although the good news is that the latest GfK consumer confidence survey shows that Brits are starting to feel more optimistic about the economy and personal finances! 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.

In LEISURE NEWS, we see that IN GAMBLING, 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, Fuller’s says that it’s on track for a very merry Christmas and Wetherspoon toasted better sales as it managed to outpace rivals as inflationary pressures have started to ease. IN TRAVEL, 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 and EasyJet reported its first annual profit since the pandemic, but rival Wizz Air cut annual profit forecasts due to an “unprecedented operational challenge”. Jet2 had strong results for the first half while 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…then we saw that 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 CHINA, Chinese authorities are now investigating shadow bank Zhongzhi after the company described itself as “severely insolvent”. This could have serious implications for the $3tn shadow banking market and is another reminder of the severity of the situation given that the real estate sector accounts for about 25% of China’s GDP.

In THE UK, in COMMERCIAL PROPERTY, 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. Meanwhile, London landlords are racing to upgrade their office properties to new tighter standards, according to a survey by Deloitte.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 being 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.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. IN RESIDENTIAL PROPERTY, Zoopla says house prices are falling and discounts to asking prices are getting bigger but then again the latest Nationwide figures showed that house prices actually rose unexpectedly last month, Rightmove stats showed that a fall in average asking prices was less than the market was expecting and Savills said it reckoned the housing market was past its worst. IN HOUSEBUILDING, the latest RICS survey says construction’s in a rut as output is falling and housebuilder Crest Nicholson announced job cuts due to ongoing weakness in the housing market, which isn’t surprising given the generally negative newsflow. IN THE RENTAL MARKET, a Hamptons report said that landlords are on track to have bought the fewest number of homes since 2010 (excluding Covid) while estate agents themselves are consolidating. Not good for tenants. It was also interesting to learn that 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!

In THE US, 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.

In CAR NEWS, An agreement was 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, Ford has slashed its profit forecasts thanks to lost production and higher labour costs resulting from the strikes and 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 (but more about that below!). 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, VW is looking to cut more jobs as part of a €10bn cost-cutting exercise and JLR returned to profit in Q3 and raised its forecasts for the full-year. This marked its fourth consecutive quarter of growth! IN LUXURY CAR 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. IN OTHER CAR-RELATED NEWS, 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 and in the UK, car production continues to increase – and has now done so for the eighth consecutive month!

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. Meanwhile, 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! IN OTHER INTERESTING DEVELOPMENTS, European battery maker Northvolt 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. Also, 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.

In EV NEWS, France 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 but it looks like 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. OVERALL, EV sales and prices seem to be suffering these days. In the US and UK (where the average discount last month was 11% below RRP!), EV makers are increasingly turning to discounts to shift vehicles. 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. AMONG THE INDIVIDUAL MAKERS, Tesla continues to have personnel problems. It raised wages for German workers in order to keep the unions at bay, but it’s still having problems with strikes in Sweden. On the plus side, Tesla’s Cybertruck is now ready for delivery but the prices are way higher than what had been stated previously. It also had an important win in an Autopilot lawsuit which examined its role in a fatal crash – where the jury eventually found that there wasn’t a manufacturing defect in the driver-assistance system. Rivian plans to increase production of its electric trucks and SUVs in 2023 and 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. Fisker cut production targets after a lacklustre Q3, sending its share price tumbling, and then it 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. Elsewhere, Nissan said that it plans to build new EVs at its Sunderland plant, which will be great news for the region.

In DRIVERLESS NEWS, GM announced that it has decided to stop production of its fully driverless “Origin” van given recent problems with the whole driverless thing and the driverless car unit, Cruise, is suspending an employee share programme in order to revalue (downwards!) the company. The chief of the unit then 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.

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. 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. Also, 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.

In BANKS NEWS, Goldman Sachs said that it was reining in its previously aggressive China expansion ambitions given the ongoing US-China tensions while Citigroup announced imminent big job cuts as part of its own restructuring. IN EUROPE, 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! Swiss bank Julius Baer announced a profit warning mainly thanks to its exposure to troubled Austrian property group Signa and 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. IN THE UK, Barclays said that it would be reducing headcount by 2,000 as part of a cost-cutting drive and subsequently announced that it is looking to drop thousands of investment banking clients in order to concentrate on the more profitable ones. This makes sense given the headcount reduction. 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 is making its move away from finance. Also, 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). Meanwhile, 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 ACCOUNTANCY NEWS, PwC announced that it 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. Then 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.

In OTHER FINANCIALS NEWS, 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! 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 likely to list in New York because it’ll probably get a higher valuation there. Although Robinhood’s Q3 earnings were a bit meh thanks to tighter competition and lacklustre revenues but it announced intentions 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. Elsewhere, 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.

In M&A NEWS, AbbVie announced plans 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. 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?? Cigna and Humana are in talks to combine in what could become a new giant in the health insurance industry! 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. 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. 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. 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. 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. 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.

Novo Nordisk continues to benefit from its anti-obesity drugs – which it seems can also treat other conditions! Its Wegovy drug is doing extremely well – but if Eli Lilly’s Mounjaro diabetes drug gets approval for treating obesity there will be more competition (although it sounds like there’s enough demand to go round!). Meanwhile, 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! 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. In gloomier news, 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. Moderna had a nightmare as its shares were hit by a bigger-than-expected quarterly loss and a downbeat outlook as demand for its Covid vaccine has tanked. Then 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.

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’s boss Bob Iger outlined the company’s future strategy and the company kicked off the process of buying the rest of Hulu that it doesn’t own in an $8.6bn deal. 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. Then in the UK, ITV cut back on new shows due to disappointing ad revenues.

In TELECOMS, BT announced bigger profits thanks to higher bills for customers and the implementation of cost-cutting measures. Vodafone offloaded its Spanish business to Zegona Communications as part of efforts to streamline its business. In FOOD & DRINK, 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! Beyond Meat announced that it would be cutting a whopping 19% of its non-production staff and 8% of its global workforce thanks to waning demand for its products and competition from the likes of Tyson Foods and Impossible Foods. In MANUFACTURING, 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. IN OTHER NEWS, 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! Then it turns out that 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??