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.
IN BIG PICTURE NEWS...
This was the week of CPTPP, Germany showing Europe who’s boss and Disney ditching the metaverse…
- IN CHINA NEWS – we see that China is retaliating against the West by shutting down access to China’s biggest academic database, the China National Knowledge Infrastructure (CNKI). China continues to pull away from the West (or the West is pushing it away, depending on your point of view). This will make research into China much more difficult.
- IN RUSSIA NEWS – Putin is looking at deploying tactical nuclear weapons in Belarus, it’s now recognising China’s renminbi as one of its main international reserve currencies and it’s now changed the rules so that any Western company leaving Russia will be forced to make a 10% “voluntary contribution” of the sale to the Russian state.
- IN EUROPE – Spain is making tough calls on how to deal with its pension shortfall by making its young people contribute more to its social security system. Separately, Spain’s inflation slowed down in March – as did Germany’s – which means that the pressure has eased on the ECB for now.
- IN TURKEY – President Erdogan is trying to be nice to the electorate by promising to cut residential and business electricity bills by 15% next month. He is facing elections in the middle of May, so clearly he’s trying to get into everyone’s good books after a patchy response to the terrible recent earthquakes.
- IN THE UK – Britain became a member of the CPTPP trade agreement to great fanfare but it’s difficult to see much practical upside from this as we’ve already got bilateral trade deals with most of the members!
- MEANWHILE…Finland got the clearance to join NATO thanks to Hungary eventually approving its application. Both Sweden and Turkey are now dragging their feet on Sweden’s membership but I would have thought Finland’s entry was more urgent given that it shares a 1,304km border with Russia!
IN OIL NEWS…
- Commodity trader Vitol saw massive profits last year thanks to the energy crisis. Although rivals including Trafigura, Glencore and Mercuria also did well, Vitol’s performance was even better.
IN BUSINESS TRENDS NEWS…
- Deal-making over the first quarter was at its lowest levels for ten years as falling valuations and rising interest rates have killed the vibe. Wall Street bonuses have hit their lowest level since 2008 and prospects for this year aren’t looking great either at the moment (although I’d say we have to wait until the dust settles on all this banking stuff first).
- UK business confidence hit a ten-month high, according to a Lloyds Bank survey. Companies are getting more upbeat about their ability to fill vacancies and the direction of the wider economy.
IN FINANCIALS SECTOR NEWS...
THE IMPACT OF THE BANKING CRISIS CONTINUES…
- US Treasury secretary Janet Yellen is pushing for World Bank reform on climate change as its efforts thus far have been judged as being insufficient. Yellen is pushing for some kind of roadmap by April.
- The Bank of England is looking to tighten capital rules on lending to SMEs, which is causing a lot of concern by SMEs and companies like Funding Circle as this is going to stunt growth.
IN US BANKING NEWS…
- First Republic still isn’t out of the woods yet despite last week’s high profile bailout and its shares crashed by another 46% while credit rating agency S&P Global made things worse by downgrading its rating.
- West coast lender PacWest had to get $1.4bn of cash from Atlas SP Partners to bolster its finances as it saw a massive outflow of 20% of its deposits as jitters in the sector continue.
- Janet Yellen stated the Treasury’s commitment to support smaller lenders, but First Republic’s share price kept falling anyway as around two-thirds of its clients had deposits that contained over $250,000 (the threshold beyond which their money is not guaranteed as things stand). Confidence was dented further as Yellen refused to commit to a broader lifting of the $250,000 threshold.
IN EUROPEAN BANKING NEWS…
- UBS rescued stricken rival Credit Suisse in super-quick time over the weekend. UBS paid peanuts to buy its rival but as part of the deal AT1 bond-holders were wiped out to the tune of $17bn. Condemnation of this wipe-out soon followed as bondholders usually take precedence to equity holders in these types of situations. Unsurprisingly, US investors are lining up to sue. Massive job losses look likely as a result of this takeover and Credit Suisse’s investment bank looks particularly vulnerable at this stage.
IN OTHER FINANCIALS NEWS…
- Payment fintech Block got hammered thanks to the publishing of a damning report by short-selling Hindenburg Research. The report said Block (formerly known as Square) had overstated the number of users, facilitated suspect payments via Block’s Cash App and targeted those on lower incomes with “predatory loans and fees”. Block denied everything, Hindenburg pointed out that it had been investigating Block for two years and we’ve seen some spectacular impact that Hindenburg’s poking around has had on Nikola (electric truck company) and Adani Group (Indian conglomerate). Nasty.
- Two UK small-cap brokers Cenkos Securities and FinnCap agreed a £43m merger just months after talks between FinnCap and Panmure Gordon failed. There’s been a lack of M&A deals and IPOs, so this looks like a defensive merger. Maybe this will prompt further consolidation in the sector as the deal pipeline is still looking pretty anaemic.
IN TECH NEWS...
IN AI NEWS…
- There are increasing appeals for rules to govern AI given the current proliferation of its usage and it was interesting to see that negotiations are continuing between AI companies and news publishers regarding access to their quality content.
- Google launched the updated version of its AI chatbot Bard but it turns out that it still makes the same mistakes as the last version!
- Meanwhile, magic circle law firm Allen & Overy was very positive about how their own in-house chatbot “Harvey” is doing but they were less forthcoming as to whether its use would result in lower fees for clients 🤣!
IN TIKTOK NEWS…
- TikTok continues to face an uphill struggle, although parent company ByteDance still has another app ace up its sleeve – CapCut. Still, TikTok’s super-slick algorithm continues to be the main bone of contention between China and the US as the company faced a five-hour Congressional hearing that fretted about data security risks. Things then took another turn as the Chinese government said that it would “firmly oppose” a forced sale of TikTok.
IN OTHER TECH NEWS…
- China is now putting more effort into nurturing domestic chip and equipment companies like SMIC, Hua Hong Semiconductor and others in order to better cope with tighten US export controls on a longer term basis. Strict US controls may well backfire in future as China ends up making its own chips and not needing the US at all!
IN CAR-RELATED NEWS...
- Brussels tried to find a compromise with Germany to get their proposed ban on the sale of combustion-engined cars from 2035. German car manufacturers wanted to have an exemption for e-fuel-powered cars, so the EC has provided that – but say that these cars must have bits fitted that mean that neither petrol nor diesel can be used. Basically, this shows how powerful Germany is here – it’ll be interesting to see whether the EC crumbles completely!
- Prices for used EVs fell as more of them hit the market and Tesla reduced its prices – but they are still expensive!
- Ford launched a new EV – the Explorer – taking it closer to its goal of being 100% electric by 2025. However, Ford still expects $3bn of losses in EVs this year as it transitions to electrification.
- Meanwhile, it turns out that Maserati has aspirations to spin itself out of Stellantis and see the same success as Ferrari and Porsche before them. No dates were mentioned, but it is clearly on the radar.
- News for VW was mixed this week. On the one hand, VW is having problems pulling out of its Russia business but on the other it turns out that one of its luxury brands, Lamborghini, is raking in the profits. Aston Martin will be looking on in hope as it wants its DBS to do for it what the Urus has done for Lamborghini!
IN CONSUMER AND RETAIL NEWS...
IN CONSUMER TRENDS…
- UK consumer confidence is improving although the outlook for personal finances has worsened.
- UK house prices remained stubbornly high, according to Rightmove, but the latest ONS data said that prices in the south west have taken a hit over the last two months. DIY and a buoyant housing market usually go hand-in-hand but there has been a mixed picture here. On the one hand, Kingfisher (which owns B&Q and Screwfix) is seeing a slowdown in DIY but rival Wickes is still doing really well!
- In terms of spending, Unilever is indulging in a bit of “shrinkflation” to pass on price rises on the sly, Foot Locker expects sales to weaken over the coming year but Nike is doing a roaring trade and making inroads into its inventory.
IN RETAIL NEWS…
- GameStop in the US (remember this meme stock??) saw its share price sky-rocket by 48% as it surprised the market with news of its first quarterly profit for seven consecutive quarters! Apparently its efforts to cut costs and get its store offering right are paying off…
- Superdry announced a deal to sell its IP in Asia to South Korea’s Cowell Fashion in order to broaden its appeal. This could be great IMO – especially if it gets rid of the meaningless kanji that the company insists on using in its designs!
- It seems that John Lewis is thinking about scrapping its partnership structure – and while it’s wasting time pondering that, M&S is nicking its customers. Dame Sharon Lewis needs to be sorting out the core business – not fiddling around with peripheral stuff. She is just wasting time IMO.
- It was interesting to see a survey by trade body Revo and consultancy Lambert Smith Hampton which shows that up to 40% of shops need to be repurposed in the next five years as consumer habits have changed permanently since lockdown.
IN OTHER NEWS...
- It was another big week for job losses as Accenture announced it was cutting 2.5% of its workforce (19,000 people!), Amazon laid off another 9,000, Indeed is cutting 15% of its staff (2,200 employees) and Just Eat is axing 1,700 delivery staff. Tough times – but then again most of these companies did have a massive hiring boom over the last few years.
- Starbucks got a new CEO but faces tough competition in China from a whole host of domestic and foreign rivals.
- The world’s most indebted real estate company Evergrande is close to announcing a big bond restructuring deal which will bring it closer to safety.
- Zurich legalised cannabis as part of a trial to ascertain economic and health benefits!
BANTER
My favourite “alternative” story this week was actually the video of Jordan Belfort of Wolf of Wall Street fame explaining the concept of sales. I’m not a fan of his or the way he acted but this is a brilliant explanation 👍