Watson’s Weekly 14-12-2024

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.

The Assad regime fell in dramatic fashion, the ECB cut interest rates and China signalled an easing of monetary policy…

• IN WAR NEWS – Assad’s regime in Syria was defeated and Bashar al-Assad himself (and his family) popped up in Moscow after fleeing the country. The rebels who liberated the country tried to consolidate control but a number of nations (including the UK) suspended asylum claims from Syrian refugees.
• IN ASIA – China is sticking with its year-end GDP growth target of 5% despite its trade numbers being disappointing and inflation undershooting market consensus although the Politburo said that it would be implementing “more proactive fiscal policies” to jolt the country out of its economic rut. Lawyers and accountants are getting ready for a fees bonanza in expectation of more tariffs on Chinese imports but the Chinese have got some pretty serious firepower themselves in terms of retaliation. The South Korean president faced an investigation for treason relating to his sudden implementation of martial law but remained defiant, saying he’d fight to the end – although it turned out that he was impeached this weekend anyway.
• IN EUROPE – the ECB cut interest rates by 0.25 percentage points and it’s now 3%. This was widely expected. Meanwhile Spanish PM Pedro Sánchez is faced with the tricky task of passing a budget for Q1 next year whilst members of his inner circle are facing allegations of corruption.
• IN THE UK – PM Starmer held talks with the president of the EC this week and they scheduled a meeting with all EU leaders on February 3rd to talk about defence co-operation. The post-Budget economic gloom was echoed by research from BDO that showed business confidence had fallen sharply and business leaders continued to warn chancellor Reeves about the negative impact of her Budget tax rises. Already difficult decisions are going to be even harder to make with dodgy employment figures from the ONS and a survey by Indeed showed that hiring is falling more sharply in the UK than in other major economies although a survey of small businesses by KPMG showed that a whopping 92% of small businesses were confident about the outlook for their companies over the coming year, something that was echoed in a separate survey by Aviva.
• IN THE US – inflation rose slightly last month versus September and the market is now pricing in a 98% likelihood of a 0.25 percentage point cut at the Fed’s meeting next week. Talking of Fed-related things, Trump said that he wouldn’t remove current Fed chief Jerome Powell before his term in office is up in 2026.

IN ENERGY NEWS…

• Renewable electricity from wind, solar and hydropower is set to overtake the amount of power generated by fossil fuels for the first time ever, according to analysis by Ember, a think-tank. These renewables will account for about 37% of the electricity we have generated this year versus 35% from fossil fuels. It sounds like we’re making progress towards the government’s target of having “95% clean power by 2030”.
• Meanwhile, BP is spinning off its offshore wind business into a joint venture with Japanese power company Jera. The new business, called Jera Nex BP, will become the world’s fourth biggest wind-generating company after Orsted, Iberdrola and RWE.
• Ministers are looking at weakening the rights of communities to block clean-power projects in order to speed up processes. This is not going to be popular and will definitely test the resolve (and probably popularity) of the government.

IN RESIDENTIAL PROPERTY…

• The average house price hit £300,000, according to figures from the Halifax which means that only 10% of earners can afford to buy a home in England. That being said, the latest RICS survey showed that estate agents were generally optimistic about the market next year although they are worried about the possibility of another market downturn thanks to recent rises in mortgage rates and wavering consumer and business confidence. A report from Rightmove concluded that the London market is set for a decent 2025 after a lean few years as more RTO is kicking in and estate agents are now reporting that they now have more homes for sale now than in any December for the last ten years!
• Rent inflation is slowing down, according to data from Zoopla but students are getting priced out of London as rents are rising faster than loans.
• New UK planning rules were set out this week that are designed to speed up the decision process in order to meet house-building targets. The government is aiming to build 300,000 new homes per year – something that has not been achieved since 1969!

IN COMMERCIAL PROPERTY…

• A bid by US private equity firm Blackstone to buy the “Can of Ham” for about £300m has failed as no-one could agree on a price. This was being closely monitored by many as a test of market appetite for major commercial properties – and it failed on this occasion!

IN TECH NEWS…

• China is launching an antitrust probe into Nvidia for suspected violations of China’s anti-monopoly law. Annoying though this might be, Nvidia can weather this China storm as it has almost complete dominance in high-end AI chips – and China makes up just 15% of its revenues.
• SpaceX is now valued at a massive $350bn, which now means it’s more valuable than ByteDance, the parent of TikTok! Given SpaceX’s dominance in satellites (and other areas with absolutely massive barriers to entry!) and Musk’s proximity to the White House you would have thought it will continue to go from strength to strength.
• The European Commission is now investigating Meta and Google regarding a secret ads deal that targeted teens. Staying with Google, the company is teaming up with Samsung to make smart glasses and VR headsets while its YouTube platform is raising prices for its streaming in the US thanks to rising prices for content.
• AI content-scraping rules are continuing to cause friction as the Copyright Alliance, a US cross-media industry body that represents big companies emphasised its “strong opposition to the introduction of AI exceptions” to copyright rules just days ahead of the UK government’s launch of a consultation into AI and creative industries. The concern here is that the government might go soft in its bid to encourage the development of AI by allowing algorithms to scrape content from publishers and artists unless they “opt out”.
• TikTok owner ByteDance’s appeal to the US Court of Appeals failed, which means that TikTok could get banned in America. Trump could now be TikTok’s only hope!

IN MEDIA NEWS…

• Warner Bros is looking at splitting its TV and streaming/studios business, which many are interpreting as a precursor to an out-and-out break-up. This is part of a company-wider restructuring and was well-received by investors. Meanwhile Sky’s parent Comcast struck a deal with Warner Bros Discovery, thus averting the sudden disappearance of content.
• Advertising revenues look set to hit $1bn for the first time this year, according to research by GroupM in what could be a positive sign for the global economy.
• Omnicom and Interpublic look set to combine in a £23bn megamerger that would make the combined group bigger than WPP, the current #1. It will probably result in big lay-offs as there is a lot of overlap. There are, however, concerns over whether the deal will actually be any good for creativity or innovation.

IN TARIFFS NEWS…

• Trump’s threatened import tariffs are likely to hit the US auto industry as a lot of the parts of US-made cars are made outside the country. Just 32% of the F-150 pickup truck’s parts are made in the US or Canada, for instance!). This will increase manufacturing costs and at least some of these costs are going to be passed on to the customer, meaning that inflation is likely to rise and, if the rises are too steep, customers just won’t buy the cars.

IN INDIVIDUAL COMPANY NEWS…

• GM announced that it is giving up on robotaxis and will instead use the knowledge it has gained thus far on driver assistance systems. This leaves Waymo and Tesla as the only Western players with scale in the game. This was unsurprising in that GM’s investors have been focused on financial performance whereas Waymo has a deep-pocketed parent in Alphabet and Tesla has Musk – money-raiser-supreme and Trump’s BFF, so the latter two have more leeway than GM.
• The Abu Dhabi Investment Authority-managed CYVN Holdings has now bought McLaren Holdings. McLaren has been a money pit for ages so we’ll see whether things improve under new ownership…

IN CAR FINANCING…

• Bank shares jumped after news that the Supreme Court is allowing an appeal against the recent Court of Appeal ruling on car finance mis-selling, which struck fear into the hearts of a number of the big players. Close Brothers and Lloyds Banking Group had a relief rally and the hearing is due to take place between January and April next year.
• Claims management companies are getting their ducks in a row (e.g. Bott and Co, Courmacs Legal and The Claims Guys are among those who could benefit) following last month’s judgment on car finance mis-selling and will be targeting the potential £25-£30bn of compensation that could potentially be on offer.

IN CONSUMER TRENDS…

• Energy bills are likely to rise to £1,762 under the April price cap, according to the latest research from Cornwall Insight, the energy consultancy. This is the time when Ofgem next updates the price cap and is going up because of higher LNG demand from Asia through the summer and Britain’s increased reliance on LNG imports.
• Shopping bills are also set to rise as veg prices are soaring – and the price of Christmas dinner is set to be 6.5% higher than it was last year or 3.4% higher, depending on which report you read! The main upshot, though, is that prices are higher this year.

IN RETAIL NEWS…

• Inditex, Zara’s parent, had a rare mis-step as it missed market expectations for revenues thanks to increased competition from low-cost clothing retailers, poor weather and thrifty customers. On the plus side, it said that its autumn-winter collections were going down well with shoppers.
• Tesco is thriving but Asda’s losing ground, according to the latest market share figures. Everyone will be looking at January numbers to see how Christmas has gone so that they can gauge how the consumer will react going forward.
• Wallgreens Alliance Boots is in talks with US PE firm Sycamore Partners about a potential takeover, something that is bound to spark interest in Boots’s fate in the UK. It’s not clear now whether WAB will be gobbled up whole or whether it would be open to being broken up. If WAB goes private, it will be able to do its revamping jiggery-pokery away from prying investor eyes but it’s got a ton of debt and a lot of problems that need solving.
• Moonpig posted losses thanks to a write-down of its “experiences” business which it bought two and a half years ago. At the moment this makes up about 10% of Moonpig’s business but I think it may have to wait for consumers to feel a bit more flush before that division takes off.
• Currys warned of incoming price rises as it was left reeling from the Budget changes although it did actually manage to post decent sales. Let’s see what Christmas brings to this retailer!
• It looks like the FCA is dragging its feet a bit with the proposed Shein listing in Q1 as it is checking supply chain issues and weighing up the company’s much-mentioned legal risks.

IN THE US…

• Costco managed to show strong earnings in Q1 – but it was quite interesting to see that they they did well from customers loading up on goods at both the highest and lowest price points! An example of this was in meat where it saw the biggest increase in sales for more expensive cuts as well as the cheaper ones.

IN LEISURE NEWS…

• Tui reported solid annual profits but reckons that momentum will slow down over the next year thanks to still-high inflation and the shift of Easter holidays into Q3. Overall, it sounds like the company is being cautiously optimistic versus, say, the positive vibes we got recently from On The Beach.

• IN M&A RELATED NEWS, Nippon Life has offered to buy Resolution Life for $8.2bm in order to find growth outside its stodgy domestic business. Rivals such as Dai-Ichi Life and Sumitomo Life are also on the overseas acquisition trail for the same reason and it looks likely to continue. Meanwhile, the proposed Kroger-Albertsons merge was blocked as the FTC’s decision not to let it go ahead was upheld.
• IN FINANCIALS – US asset manager AllianceBernstein is suing Switzerland over its decision to wipe out $17bn of debt when the state enabled the takeover of Credit Suisse by UBS last year. Elsewhere, HSBC is reviewing the retail banking business outside the UK and Hong Kong as part of wider plans to streamline the business.
• RE LISTING COMINGS-AND-GOINGS – industrial equipment hire firm Ashtead is thinking about moving its primary listing from London to New York but given that the firm made 98% of its operating profits in the US last year, it’s hardly surprising! On the plus side, Canal+ looks set to list on the LSE this side of Christmas but although it would be big enough to enter the FTSE100, it won’t be included because it is domiciled in France.
• The recent Mastercard settlement moves the UK closer to the prospect of more class actions because although the amount of money that was finally settled upon (£200m) was way less than what they had been going for (£14bn), the mechanics of how to “do” class action lawsuits now exists.

Of course the videos I highlighted this week of Rhod Gilbert were brilliant (in my opinion, of course!) but I have to say hats off to this woman doing that fiendishly tricky assault course!