Watson’s Weekly 11-02-2023

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.

China’s balloon gets shot down, Google gets embarrassed by Bard and Adidas has celebrity problems…

• IN THE US – the Fed warned of more interest rate rises if the jobs data stays strong while Biden angered the Chinese by shooting down their spy balloon which apparently veered off course (and over sensitive military sites) because of “bad weather” 🤣. This isn’t great for the US-China relationship that had looked like it was thawing when Biden met Xi in Davos.
• IN INDIA – PM Modi is having Adani problems as his political opponents are pressing Modi and the ruling Bharatiya Janata party on their involvement with the Adani Group that was subject to a damning recent report by Hindenburg Research. So far the pressure has been largely ignored.
• IN TURKEY – there was a terrible earthquake, killing thousands. A state of emergency was declared and the Istanbul stock exchange was shut down for the first time in 24 years in order to stop panic selling.
• IN GERMANY – we saw that inflation fell to a five-month low, which surprised economists who were expecting it to rise further. This will give the ECB more to think about at its next interest rate meeting…
• IN THE UK – Sunak broke up the sprawling business department (the Department for Business, Energy and Industrial Strategy, aka “BEIS”) to refocus on energy and science and he did a bit of a reshuffle after sacking Nadim Zahawi for his dodgy tax issues. It’s too early to tell whether this is really going to do anything, but I guess a bit of streamlining is always good!

IN MARKETS NEWS…

China has seen a huge uptick in inward investment from foreign investors in 2023 with a $21bn injection thus far. There are high hopes for an economic rebound following the lifting of China’s zero-Covid restrictions and the positive economic data released after the lunar new year holiday has vindicated this stance so far.

The FTSE100 hit its highest ever levels this week thanks to takeover rumours and good news from some of the index’s biggest constituents. It was also interesting to note that this has been the best start to the year for the FTSE100 since 2013! This may suggest that beneath all the gloom, there may actually be some light at the end of the tunnel!

IN COMMODITIES NEWS…

• BP reined in its climate goals as it’s making way too much money at the traditional oil and gas! It cut its emissions pledges and increased production targets but said that its higher profits would finance renewables.
• North Sea oil and gas firm Serica is nearing the completion of a £644m deal to take over Tailwind Energy that could double its oil output. Given that it saw a massive rise in profits last year because of the strong oil price, you can see why it clearly wants more!
• Norway’s state-owned oil and gas giant Equinor (which used to be called Statoil) unveiled record profits – more than triple the profit it made last year! Yet another example of an oil company absolutely raking it in!
• Exxon announced that it would be streamlining a number of its business units as part of a general reorganisation. Interestingly, it said that there won’t be that many job losses – more of a reshuffle or resources.
• China appears to be back-pedalling on its climate commitments as it is using more fossil fuels to power energy-intensive businesses like those in the chemicals, steel and cement industries. Fossil fuels account for over 80% of China’s energy usage!

IN CRYPTO NEWS…

• The Bank of England and the Treasury are going ahead with preparations for a digital pound (aka “Britcoin”), saying that it could be launched by 2030. A final decision to go ahead with it will be made in 2025.
• It was really interesting to see luxury goods company Hermès beating an NFT “disruptor” in court for profiting from a digital version of its famous Birkin handbag. This will have been watched very closely by others and will be used as precedent for similar future cases.

IN AI NEWS…

• We saw that Big Tech companies are continuing to pursue alliances with AI groups as search wars just got more intense. China’s Baidu is working on its own AI chat/search bot while Google brought out its own, called Bard, to great fanfare. Unfortunately, its launch was a disaster and Alphabet’s share price dived as Microsoft gave more detail about what it was going to do with ChatGPT and Bing. Even Amazon is working on Alexa as it doesn’t want to miss the AI bandwagon either!

IN HARDWARE NEWS…

• Arm saw its profits rise by 28% over the last quarter, but it didn’t give any more guidance plans regarding its much-anticipated flotation plans.

IN JOBS NEWS…

• Some are saying that the Big Tech jobs cull has cost $10bn so far, but it’s still continuing with Dell cutting 5% of its workforce and Zoom cutting off a whopping 15% of its employees.

IN OTHER BIG TECH NEWS…

• Meta Platforms said it was going to rethink its Horizon Worlds metaverse app and aim it more towards teens with a view to releasing it possibly as soon as March.
• Microsoft may have to sell Call of Duty in order to get approval for its proposed $69bn takeover of Activision, according to the UK’s Competition and Markets Authority. Clearly, Microsoft isn’t happy. Sony is probably doing cartwheels! A final decision is expected in April.
• Nintendo had to cut forecasts due to chip shortages, but there might be some light at the end of the tunnel as it will (along with other platforms) be releasing the hottest game of the year so far in Hogwarts Legacy.
• SoftBank’s Vision Funds posted massive losses and the usually-high profile CEO Masayoshi Son has decided to swerve his usual investor presentation. The funds have been hugely damaged by investor rotation out of tech.

IN CHINA…

• Property brokers are getting nervous as buyers aren’t rushing in despite the government relaxing leverage limits after a prolonged crackdown. It might take a bit of time for things to normalise. Also, you would have thought that consumers will need to see property prices rise again to inject a bit of FOMO into the proceedings…

IN THE UK…

• IN RESIDENTIAL PROPERTY – Demand for new builds is rising, according to the likes of Redrow and Bellway, UK house prices are levelling out and mortgage rates are calming down. House prices may not bounce back as quickly as they have done in previous downturns and Barratt Developments is cautious about the rest of 2023, but will need to see how spring goes to get better visibility. The number of millennials and Gen-Zs living with their parents is at record levels as, presumably, they are all trying to scrape together a deposit, something that is very difficult if you are facing booming rents! Rental evictions in England and Wales have almost doubled in a year, but it’s unclear as to whether this trend will continue.

• Credit Suisse had a shocker, announcing its worst full-year loss since 2008 – and it cancelled the annual bonus for its top execs. This was due to rapid fund withdrawals from their wealth management, asset management and investment management divisions.
• Rothschild said it wants to take the investment bank private, interesting because most banks want to do the opposite!
• Finance sector jobs vacancies increased in the UK, so it’ll be interesting to see how long the momentum lasts.
• The City of London has started a review of financial services regulations in the UK to make it more competitive and attractive. Let’s see how that goes!
• It was interesting to see how US BNPL provider, Affirm, is trying to adjust to making profit (or minimising losses) in a rising interest rate environment. When interest rates were low, this was pretty easy, but now they are moving – and in the upward direction – they are finding it more difficult.

• Adidas had celebrity problems as it reported weak sales. Beyonce’s clothing line isn’t selling well and it has a ton of Kanye West’s Yeezy trainers that it needs to sell.
• The Adani Group continues to pose problems (as mentioned above) and the MSCI decided to cut weightings in its indices to better reflect the actual free float. All this meant that there was a lot of technical selling in addition to the “normal” selling due to the recent damning report from Hindenburg Research.
• Disney announced 7,000 job cuts and $5.5bn in cost reductions as new/old CEO Bob Iger performs open heart surgery on the company to get back on the growth track again.
• Mattel’s earnings fell in Q4 due to the hostile economic environment. It has inventory to get rid of – but it’s not the only one having problems! Rival Hasbro is also experiencing the same thing.

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

My favourite “alternative” story this week was the Mini Eggs game-changer in People discover ‘life-changing’ way of eating Mini Eggs and ‘won’t turn back’ (The Mirror, Ariane Sohrabi-Shiraz). I haven’t tried this yet but I am DEFINITELY going to!