Watson’s Weekly 04-03-2023

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.

ESG shenanigans, a solution to Northern Ireland and hydrogen-powered BMWs…

• REGARDING UKRAINE – the West wants countries like the UAE and Turkey to stop dodging sanctions against Russia, particularly regarding the re-exporting of things like drones and electronic components and the US has classed the UAE as a “country of focus” due to suspicions that it has exported goods to “US-designated entities. China wants an end to the war by peaceful means but is having to perform a delicate balancing act at the moment.
• IN EUROPE – pressure is mounting on the ECB as Europe’s core inflation figure rose unexpectedly in February, which was probably due to a greater extent to Germany also seeing a jump inflation thanks to higher food prices. The bickering over America’s Inflation Reduction Act between the US, Europe and UK is continuing as concerns increase about companies in cutting edge industries upping sticks and going across The Pond to help themselves to its very generous subsidies!
• IN THE UK – the EU and UK signed a historic Brexit deal on Northern Ireland that would now reduce bureaucracy and smooth trade whilst also perhaps freeing up negotiations on other bits of legislation. Separately, food price inflation hit a new high as milk, eggs and margarine prices increased particularly strongly. Elsewhere, the governor of the Bank of England hinted that we might have seen a peak in interest rates, but left the door open to change that stance, if needed. In energy news, energy secretary Grant Shapps called for a delay to the closure of coal-fired power plants to get us through next winter.

IN OIL NEWS…

• US oil exports to Europe have increased hugely thanks to the Ukraine war but its oil frackers see limited upside this year because they expect capex to rise.

IN CRYPTO NEWS…

• Crypto bank Silvergate’s survival is looking decidedly iffy as it said it had to delay the publication of its annual report with the SEC due to its tricky capital position after reporting a dire Q4. Another one bites the dust??

IN BUSINESS TRENDS…

• British companies are getting more optimistic about the outlook, according to research from Boston Consulting Group as over 61% of companies surveyed expected output to be “somewhat or significantly better”.
• French defence group Thales is planning to increase headcount by 15% next year due to increased defence spending around the world, something that companies like BAE Systems have also benefited from.

IN CONSUMER TRENDS…

• Brits head to Greece in record numbers as “revenge tourism” took hold but consumers are still facing challenges.
• Utility bills are likely to rise despite a fall in the price cap because the government’s price guarantee won’t be as generous, but the government might do a U-turn on this, perhaps at the next Budget.
• Consumers are returning to the high street as they return to offices in greater numbers, which is good news for the high street and shopping centres, but not so good for out-of-town retail parks.
• The over-50s are returning to work in greater numbers but there are calls for the government to change tax laws regarding pensions to make this easier to do.

IN GENERAL…

• ESG caused a kerfuffle as President Joe Biden looks like he’s going to use his presidential veto to push through a rule that will make fund managers overlay their investment decisions with ESG considerations. He’s been forced to do so because the motion to do so put forward by his party did not garner enough votes. Big fund managers are also pushing for more flexibility in ESG funds, which is hardly surprising as they’ve probably suffered from unflattering comparisons with the performances of funds that did not have such restrictions.
• Vanguard closed its UK financial advice arm after less than two years in operation due to lack of interest! The company was going to roll this service out in Germany and Europe but that’s got to be up in the air now.
• There were hopes that the Northern Ireland breakthrough will have cleared the bottleneck and pave the way for further negotiations re the financial sector on the Memorandum of Understanding signed two years ago.

IN BANKS NEWS…

• Chinese banks are trying a rather unconventional way of stimulating the housing market by offering mortgages to older customers aged between 80 and 95 😱 which can then be passed to their offspring! It also means that people can have longer repayment periods on their mortgages. This is pretty eye-catching and, given that life expectancy in developed countries is increasing, you would have thought that this is something that other countries may consider…
• Goldman Sachs said that is it looking at backing out of at least some of its consumer businesses after big losses. It always seemed a bit un-Goldman-like for it to diversify away from its bread-and-butter institutional and corporate client base, but we’ll see what happens next. This is just my opinion but I think that Goldman probably felt forced to put at least some effort into build a consumer business after the financial crisis but now that this is more of a distant memory, it can just go back to what it was doing before. But I could be wrong!

IN FINTECH NEWS…

• Stripe has really suffered from a general tech sell-off and the loss in momentum in e-commerce more generally. However, despite the pasting its potential valuation has taken, there is still pressure for it to continue to list as employees have already been given stock options that will expire.
• Revolut posted its first annual profit and is getting closer to obtaining a UK banking licence, but the bad news is that its own auditor left a “qualified” opinion on its accounts due to not being able to verify revenues that could be “materially misstated”.
• Klarna reckons that it’ll hit profit this summer after narrowing losses in Q4 of last year but I remain sceptical given the effect of the ongoing cost-of-living crisis and the prospect of a big regulatory clampdown (not to mention more competition from big established players).

• US home sales prices have fallen for the last 12 months in a row, its weakest run in over a decade, and this could be a factor in pushing the US into recession. If that happens, there could be a ripple effect which would be felt over here…
• In the UK, Zoopla says that 40% of home sellers are having to cut a chunk off the asking price to shift them and in terms of trends, Nationwide data showed that annual house price growth has fallen at its steepest annual rate since 2012 while rival Halifax said that house prices had actually stabilised in January, but had been falling for the four previous months.
• The industry body Home Builders Federation reckons that the number of new property completions per year in England could fall to their lowest levels since WW2, a concern backed by news that Taylor Wimpey is planning on headcount reductions in a sluggish UK market and will be building fewer homes this year.

IN AI NEWS…

• Another legal chatbot emerges as a British AI start-up called RobinAI has secured funding to develop a lawyer bot that can pick apart contracts and recommend new wording to solicitors. It’s said that this could cut contract reviewing time by up to 80%!
• There was a really interesting case involving the US patent office which concluded that a comic book that had been produced using AI would have its written content covered but not the AI-generated artwork because although the author used “prompts”, the outcome was “unpredictable”. I think this will have been watched very closely, but I don’t think the debate is over yet…
• It was really interesting to hear that Meta’s AI-powered advertising system, called Advantage+, has made up a lot of ground lost to Apple since it imposed a new privacy policy two years ago.
• Apple blocked the update of an AI-powered e-mail app called BlueMail because there were concerns that it could show inappropriate content. It’ll be interesting to see whether similar moves will be made regarding other apps that use AI…

IN TECH HARDWARE NEWS…

• The European Commission is now focusing on how Apple restricts apps from directing users out of its in-app purchasing system. The clampdown continues…
• It looks like Arm is going to list in New York and not London, although it is still possible that there could be a dual listing. Arm’s valuation may be a bit dented by China delaying the company’s exit from a tricky local JV because the longer it takes the more the sector downturn is likely to take its toll.

IN TECH SOFTWARE NEWS…

• Canada banned TikTok from government devices, following similar recent moves in the US and EU. Will this mean that TikTok could actually get banned more widely? I can certainly imagine more companies deciding that this is a potential security risk.
• The US House Foreign Affairs Committee has approved a bill to allow Biden to ban TikTok due to security concerns. Tricky times indeed for TikTok!
• Twitter cut another 200 jobs and then a few days later – it crashed!
• Salesforce announced better-than-expected earnings as it promised to prioritise profit over growth. This comes after a sustained period of pressure from activist investors who want a proper overhaul of the business.

OVERALL…

• Berlin is threatening to block the recent EU move to ban the sale of new cars with combustion engines from 2035 unless it exempts vehicles that run on synthetic fuels.
• BMW said that it is committing to be the first European car maker to go all-in on hydrogen fuel cells, aiming to have a hydrogen-powered X5 by the end of the decade. It’s great to look at tech that isn’t lithium ion (because there aren’t enough raw materials in the world at the moment to meet future demand!), but it’ll be a hard slog because if you think that the EV charging network is bad, hydrogen is on another level!

IN BATTERY NEWS…

• LG Energy Solution is putting its money where its mouth is as it’s building a factory in Ohio with Honda because it thinks the US market is going to be the top growth market this year.
• JLR’s owner Tata Motors is giving the UK government an ultimatum – contribute £500m to a battery factory or they will go to Spain instead.
• Aussie-based company Recharge looks like it’s finalising the deal to take over Britishvolt, keeping alive hopes of a gigafactory.

IN EV NEWS…

• Tesla is planning on building a factory in Monterrey, Mexico in a bid to increased production significantly, and Musk said that he is planning on making cheaper cars in the “next generation” of models.
• Meanwhile, Rivian’s frightening rate of cash burn continues while British EV start-up Arrival is facing a lawsuit for unpaid bills as its cash position continues to come under pressure.

ELSEWHERE…

• Aston Martin’s losses more than doubled, but it reckons the worst will be behind it in H2 of 2023. Hmm. Let’s see…

IN GROCERY NEWS…

• Sainsbury’s shut its Milton Keynes office as part of its overall cost-cutting plans.
• Lidl became the latest retailer to ration the sale of salad ingredients.
• Ocado’s full year loss came in worse than expectations as the cost-of-living crisis continues to hit home and the boom in online grocery shopping under lockdown faded.

IN NON-FOOD RETAILER NEWS…

• AO World has staged a comeback after the rollercoaster ride of lockdown highs and post-lockdown lows and was confident enough to make an upward revision to its annual earnings forecast for the third time in just over three months!
• Primark is expecting higher profits, but parent company Associated British Foods remains cautiously positive about the rest of the year.

• Watson’s Yearly 2022/23: coming shortly…

My favourite “alternative” story this week by far was this video of the adventures of Gary the Stormtrooper. Hilarious 🤣🤣🤣!