Watson’s Weekly 01-03-2025

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

Talk about wars and tariffs continued to feature this week…

• ON UKRAINE – Zelenskyy offered to step down in exchange for a proper peace agreement and membership of NATO, the UN passed a US resolution appealing for a “swift end” to the war in Ukraine with more Russia-friendly wording that Moscow and Beijing supported. The EU and UK held talks about Europe-wide defence funding, with rumours of a “Rearmament Bank” being aired as a possibility. Ukraine agreed a minerals deal with the US as the week progressed and Putin ended the week on a hopeful note about the progress being made on a Ukraine ceasefire.
• ON TARIFFS – Trump threatened China with additional tariffs of 10% and we were also reminded that tariffs on Mexico and Canada are going to come into force next Tuesday (unless there’s some kind of last-minute deal). Vietnam could be next in Trump’s firing line as its has benefited from becoming the “plus one” in the corporate “China plus one” strategy. Trump is planning on imposing 25% tariffs on EU goods and the Kiel Institute, a German thinktank, believes that these tariffs will snuff out growth for the EU and send inflation through the roof. If you want to keep track of which tariffs are happening where and when, then I would strongly recommend that you look at this very useful table in the FT.

MEANWHILE…

• IN THE US – The US House of Representatives passed a budget resolution to cut taxes by $4.5tn and spending by $2tn by 217 votes to 215. Although this is non-binding, this does show the way things are going. Trump also announced a “gold card” visa scheme for rich people who can get “green card privileges plus” for $5m and a bit of vetting because these people will be “spending a lot of money and paying a lot of taxes and employing a lot of people”.
• IN EUROPE – Germany had an election and the incoming chancellor (Scholz lost, obviously) said that he wanted “independence” from the US as Trump was “largely indifferent” to Europe’s fate but this is going to put Germany’s industrial giants in a tricky position because they make most of their money from international trade.
• IN THE UK – Starmer was probably expecting a difficult meeting with Trump in the US but got the complete opposite. What a contrast with the tetchy meeting earlier in the week with Macron and then the absolute shocker that poor old President Zelenskyy had at the end of the week. UK and India relaunched trade talks that fizzled out at the end of last year and there was speculation about the timing of a Spring Statement and whether Reeves would hike taxes again, given her £10bn of headroom has gone. Starmer decided to decimate the aid budget and use the money to fund the biggest rearmament programme since the cold war. We’re now planning to raise defence spending from 2.3% of GDP to 2.5% of GDP. Perhaps somewhat bizarrely, given the generally gloomy newsflow recently, the Lloyds Banking Group’s business survey reflected confidence hitting a post-election high in February.

IN COMMODITIES NEWS…

• IN OIL – Trump cancelled Chevron’s oil licence in Venezuela, reversing Biden’s “concession agreement”. This is likely to make a huge dent in Venezuela’s GDP. Meanwhile, BP signed a major deal to redevelop Iraq’s oil and gas fields, harped on about being mistaken about its dabble with renewables and the CEO promised to more than double its market value within five years.
• IN GAS – Shell reckons that LNG demand will jump 60% by 2040 thanks to accelerating economic growth in Asia, the need to decarbonise heavy industry and transport as well as rising demand from the increasingly energy-thirsty tech sector.
• IN COBALT – DR Congo will stop exporting cobalt for four months in an effort to arrest its ongoing price slide. DRC is the world’s second biggest producer of cobalt. It is an important ingredient in EV batteries.

IN CRYPTO NEWS…

• Bitcoin’s value fell below $90,000, while other coins fell even further. Crypto companies have boosted their investment in sports to keep the momentum that Trump has given them and broaden their appeal. Meanwhile, hackers stole $1.5bn from the Bybit crypto exchange in the “biggest digital heist ever”.

CONSUMERS…

• …continue to face hurdles and household bills are set to rise from April thanks to an increase in the energy price cap announced this week by Ofgem.

IN RETAIL NEWS…

• Shein’s profits took a major hit last year thanks to a tricky final quarter and increased competition from Temu. This won’t be great for its valuation and may delay its much-anticipated IPO (because it’ll want to get the best valuation it can when it floats!).
• Amazon reckons that savings made by increased automation in its warehouses can be funnelled into its push in AI. Elsewhere, Amazon announced plans to charge for the new and improved version of Alexa for an extra $19.99 a month.
• TK Maxx’s owner, TJX, reckons that it’ll continue to see strong demand this year for its stable of discount retailers. Q4 profits were good and consumer worries about inflation are helping to power budget-friendly retailers such as T.J. Maxx, hence the positive outlook.
• Ocado announced that it would cut more than 500 research jobs as it streamlines its R&D workforce in the face of a tricky outlook for its automated grocery warehouse business. It is suffering badly from not having any “automated warehouse” wins.
• B&M announced a profit warning, the CEO “retired” and it is now bracing itself for a big hit from Reeves’s tax raid and minimum wage hike.

IN LEISURE & TRAVEL…

• Starbucks announced the biggest cull in its history. It will affect everyone apart from those working in-store, in warehousing and in roasting. I guess this is all part of the “new” CEO’s playbook to turn the company around.
• UK high street travel agents are enjoying a revival – powered by Gen Zs who don’t want the hassle of doing all that research online!
• Qantas reported rising profits and was confident enough to pay a dividend for the first time since 2019! Demand was good both domestically and internationally and net freight revenue was also up.
• Heathrow profits jumped by 31% in 2024, a record year for the airport, adding heft to the argument for a third runway.

IN “BIG PICTURE” TECH NEWS…

• Trump is thinking about imposing retaliatory taxes on countries that implement digital services taxes against American companies. These taxes are likely to hit many EU countries, the UK and Turkey the hardest.
• Research from UC Riverside and Caltech shows that the increasing use of data centres by Big Tech is resulting in air pollution that has increased public health costs by over $5.4bn in the last five years. Will Trump do anything about this? I doubt it!

IN CHIPS NEWS…

• Nvidia’s revenues jumped almost 80% over the last quarter due to booming AI chip sales and the outlook continues to be rosy.
• Huawei made a major breakthrough in yield (basically, it’s getting more efficient at making chips) so it’ll be able to produce more chips. It continues to close the gap on the Americans!
• IN AI NEWS…
• DeepSeek is spreading like wildfire around China thanks to the backing of the government and mass take-up from state bodies. This is likely to be both good and bad IMO. It’ll be good to accelerate its development but it could be bad if something goes wrong.
• In the UK, those in the creative industries protested about the UK’s plan to automatically opt material IN to train AI models by default while creatives want the default to be “opted out unless asked”. The uproar prompted debate among UK ministers and final plans will be made later on this year.
• The European Centre for Medium-range Weather Forecasts (ECMWF) announced the launch of a new AI-powered model whose powers of prediction have been vastly improved. Although AI is already used in meteorological offices around the world, this model can outperform traditional forecasting methods (by about 20%!) for up to 15 days in advance!

IN TECH HARDWARE NEWS…

• Indonesia lifted its iPhone ban after Apple agreed to invest $320m into south-east Asia’s biggest economy via a couple of new factories.
• Apple announced that it would invest $500bn in the US over the next four years, which would involve the creation of 20,000 new staff. This sounds good, but companies often do this when a new president comes to office in order to curry favour with them.
• Microsoft urged Trump to rethink tighter AI chip export controls because it could force allies – such as Israel, India and Singapore – to use Chinese tech instead.

IN MEDIA NEWS…

• WPP is losing ground to French rival Publicis as ad spending is down due to uncertainty over the impact of Trump’s economic policies as well as weakness in China, the UK and US. Separately, the company observed that advertisers are returning to X, presumably to keep Musk happy given his presence in Washington!

• Tesla sales in Europe fell by 45%, according to the latest pan-European data. This could be due to unfair comparatives versus the strong performance last year but it is also likely to be due to adverse consumer reaction to Musk’s rantings and far-right support.
• Lucid Group’s CEO was replaced on an interim basis by its COO as the company continues to try to stem its widening losses. It has had to rely heavily on its majority owner, Saudi Arabia’s PIF, for the finances to keep itself going.
• BMW paused the planned £600m upgrade to its Oxford Mini plant in reaction to continued poor EV demand. Somewhat ominously, the company has informed the government that it’s going to decline the grant it previously agreed to build the upgraded facility.
• Aston Martin announced a delay to the launch of its first EV. It was supposed to introduce it in 2027 but it looks like this will be pushed back to 2030. It also said that it would cut 5% of its global workforce in pursuit of profits. It’s just the latest car manufacturer to announce delayed EV plans.
• Stellantis unveiled a 70% fall in profits last year but was optimistic about the positive effect of a broader EV line-up, the production of its own batteries and team-up with China’s Leapmotor. That’s a lot of “jam tomorrow” right there!
• The latest stats from the SMMT showed that UK car manufacturing production numbers fell in January thanks to sluggish demand and the delayed rollout of a number of new models.

IN COMMERCIAL PROPERTY…

• Research from the British Property Federation showed that over 80% of commercial properties will be unlettable in their current state. Right now, 83% of commercial properties in England’s major cities have an EPC rating of C or worse where A is the most efficient and G is the least. Rental properties will have to be graded A or B by 2030! Will this mean smaller landlords will give up and sell out to larger ones who are better able to absorb the upgrade costs? Consolidation seems like a viable option…
• Hammerson says that shopping centres are making a comeback because the gap in the cost of selling goods online versus selling them in shops is narrowing thanks to falling shop rents and rising warehouse costs.

IN RESIDENTIAL PROPERTY…

• The latest data from Zoopla shows that house values have increased at three times the rate as those of flats since the beginning of the pandemic as would-be buyers were put off by concerns over cladding and service charges.
• Landsec, which is better known for its presence in office space, announced that it would shift its focus to rental housing! It will embark on selling off various assets to fund the creation of a “£2bn-plus residential platform”. *

• IN FINANCIALS – JP Morgan said it will be putting aside $50bn to make a push into private credit, the latest bank to announce such a move. Hiscox estimated its exposure to last month’s LA wild fires to be around $170m (versus industry-wide exposure of $40bn) and Man Group saw its share price rise thanks to rising profits. Elsewhere, Stripe has seen its valuation go north of $90bn thanks to a surge in demand from AI companies.
• KPMG has been given permission by Arizona’s Supreme Court to set up a law practice. This is a big step but there are some big restrictions. Even so, this could be something that other Big Four players decide to have a go at (in theory) so they can be a one-stop professional services shop!
• Dockworkers in the US just won a new labour deal hanging them a 62% pay rise and a guarantee against fully automated machinery at East Coast and Gulf Coast ports for the next six years. Trump said in the election campaign that he supported the union but I find it hard to believe he’ll be quite so chirpy if things don’t go so well over the next few years.
• IN DEI NEWS – BlackRock, a previously prominent supporter of DEI initiatives, is now distancing itself from it but a majority of Apple’s shareholders voted against a proposal calling for it to axe its DEI programme. This certainly makes it stand out versus its other Big Tech rivals!
• Anglo-Dutch food delivery giant Just Eat agreed to be taken over by investment group Prosus at a price that is less than a third of what it was worth at its pandemic peak. Prosus has a number of food delivery businesses in its stable so could bring some expertise to the party.
• Unilever’s CEO got ousted less than two years into the job as he failed to jolt the company out of its rut. The CFO has taken over so we’ll have to see whether he can do anything about it!
• The world’s biggest brewer, AB InBev, announced a strong Q3 performance as strong sales of its premium beers managed to offset weakness in the China market. It had also strong demand for its non-alcoholic beer.
• Rolls-Royce managed to hit turnaround targets two years early under its “new”(ish) boss. Profits and margins for 2024 were up and the company was confident enough to announce a chunky dividend for shareholders, a share buyback and upgraded mid-term targets!

My fave video this week was the terrifying snowboarding video! Failure does NOT look like a good prospect here!