Watson’s Weekly 18-03-2023

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.

This was a week characterised by huge drama in the banking sector, the latest version of ChatGPT and the UK Budget…

• IN THE US – the annualised rate of inflation slowed to 6%, which shows that the interest rate hikes are working – but given what’s going on with the banking sector the Fed might pause the next expected rate rise. There was also a meeting of the Aukus defence pact between the US, UK and Australia. Companies that would benefit from the agreement include BAE Systems, Rolls-Royce, Sheffield Forgemasters, Babcock International, General Dynamics, Huntington Ingalls, Lockheed Martin and Thales. Talking of defence spending, Sunak has committed to increase defence spending, as has China which wants to build a military “wall of steel”.
• IN EUROPE – the ECB raised interest rates by 0.5% from 2.5% to 3% despite the drama going on in the banking sector at the moment, so I guess it is confident that things will get sorted.
• IN FRANCE – President Macron decided to use special powers to force through his controversial pension reforms which include a lifting of the pension age from 62 to 64. There are threats that he could face a no confidence vote as a result, but his fragmented opposition will have to get organised in order to do this.
• IN THE UK – Chancellor Hunt unveiled the Budget. Most of the contents had been well-flagged previously but the main surprise was the abolition of the lifetime tax-free pension allowance that was supposed to help with stemming the exodus of senior doctors although some think-tanks doubted it. As with all Budgets, there were winners and losers. Business was not pleased that the corporation tax rise went through as planned.
• IN ARGENTINA – although we saw the country’s inflation rate breaking through the 100% barrier there is a lot to be positive about in its agriculture, energy, mining and digital services sectors.

IN COMMODITIES NEWS…

• Saudi Aramco, the world’s biggest oil company, unveiled the biggest profits ever seen by an oil and gas company at a whopping $161bn! Just to give you an idea of how immense this is, it is more than the recent profits of Shell, BP, Exxon and Chevron put together!
• The UK is on the verge of removing palm oil import tariffs in order to ease its passage to the CPTPP. Palm oil is controversial because it involves deforestation, but then Malaysia and Indonesia say that the tariffs aren’t fair because they don’t differentiate between the destructive and sustainable producers.

IN BUSINESS TRENDS…

• UK business confidence is rising, according to the latest survey from Accenture and S&P Global but then again the latest findings of the Insolvency Service show that company insolvencies are at their highest rate for four years!
• Saudi Arabia’s new airline, Riyadh Air, just splashed out £30bn on 72 Dreamliners from Boeing to take on existing carriers including Emirates, Qatar Airways and Etihad. Lots of airlines seem to be buying lots of planes these days don’t they!

IN BANKS NEWS…

• IN THE US – Tech-focused bank Silicon Valley Bank collapsed as it just couldn’t cope with the mass-withdrawals of deposits. The Fed moved to protect the deposits of all SVB’s customers in an attempt to calm the panic. HSBC bought SVB UK for £1 but investors were not satisfied by Biden’s verbal reassurances and VCs came in for a lot of criticism for stoking the panic while the sell-off of regional banks continued. Credit rating agency Moody’s downgraded the entire US banking sector and investors continued to be nervy so it was interesting to see First Republic got rescued by a consortium of big banks powered by “the three J’s”.
• IN EUROPE – Credit Suisse caused panic when it said that it found “material weaknesses” in its financial reporting controls which then resulted in a market sell-off that prompted the Swiss central bank to step in with a $54bn loan to calm nerves. There was speculation that UBS could take over its rival, which resulted in an offer on Sunday morning of up to $1bn (I’ll no doubt be writing more about this in tomorrow’s Watson’s Daily!).
• ELSEWHERE – NatWest announced it would limit customers’ crypto payments while Binance said that it would suspend sterling transfers as its payment provider, Paysafe, said it would restrict payments. This could mean that Binance’s customers won’t be able to withdraw their money in the next few months!

IN INSURANCE NEWS…

• We see that insurers face a “mega-trial” over the planes that have been stranded in Russia since it invaded Ukraine. The insurers want one big trial and companies like AerCap want to get on with individual actions to get their money quicker. This is going to get messy.
• Direct Line reported an annual loss thanks to higher claims costs, but it’s also having a tricky time at the moment because its CEO recently stepped down.

IN OTHER FINANCIALS NEWS…

• Stripe managed to raise over $6.5bn but at a valuation that was way short of its 2021 peak. It needed to do this because of the tax liabilities tied to its employees’ stock units. Other payments firms like Adyen and PayPal are also doing badly since their respective peaks in the last year or so
• The FCA threatened to shut down “shadow banks” (which basically act like banks but without a licence – like Revolut) unless they have proper safeguards in place to protect customers’ money – an action no doubt prompted by this week’s events!

IN AI NEWS…

• Microsoft announced that it is continuing to integrate AI into its suite of productivity tools while OpenAI announced its latest version of ChatGPT. The AI could be used for good things like improving the NHS by being used in diagnosis and giving better analysis of data faster and cheaper than a brand new system, but it’s also being used at the moment to cheat on job applications.

IN SOFTWARE NEWS…

• TikTok continues to come under enormous pressure as it objects to Washington’s stance that it is a security threat and the Biden administration is threatening a US ban. In the UK, Sunak banned TikTok on government mobiles, there’s speculation that its handling of personal information breaches UK law and it’s being accused of mishandling sexual harassment allegations against the former head of its UK operations.
• Meta Platforms cut headcount by another 10,000 as part of the “Year of Efficiency” just months after he culled 11,000 but pressure continues for it to cut spending on the metaverse.

MEANWHILE…

• Apple has high hopes for its mixed-reality headset that’ll cost around $3,000 a piece later this year (perhaps in June?).
• The UK commits £2.5bn to quantum computing over a ten year period in a bid to make us the “next silicon valley”.
• Brussels is looking to restrict imports of Chinese green tech in the Net Zero Industry Act by excluding it from public contracts and making it more difficult for buyers to get hold of subsidies. No doubt there will be some retaliation from China on this!

• VW announced that it would pour £160bn into EVs over the next five years, two-thirds of which will go into developing battery-powered cars and related software. VW also announced that it was going to pick Canada for its next battery plant while plans for its European one remain on hold as it waits to see what subsidies it can squeeze out of Europe…
• Amazon and Rivian look set to relax their exclusivity deal, allowing Rivian to manufacture for clients other than Amazon.
• Porsche announced great sales in its first year as a quoted company and has a positive outlook for strong momentum continuing.

IN CONSUMER TRENDS…

• UK wage growth slowed to 5.7% as unemployment stays near record lows, according to the ONS.
• Mortgage approvals fell by a whopping 25% in the final quarter of 2022, but I’d say that’s going to be the quarter with the biggest impact from the whole Truss-Kwarteng Mini-Budget debacle.

IN RETAIL NEWS…

• Inditex (owner of Zara et al.) managed to beat rival H&M’s performance again and topped it off by announcing an increase to the dividend!
• John Lewis had a shocker and scrapped the bonus but announced a new CEO who, like Dame Sharon White, has virtually zero retail experience. It continues to experiment at the fringes with formats in its non-food outlets whilst continuing to fail to address its core business.

• Pfizer announced a massive $43bn acquisition in – cash – to buy biotech company Seagen. The deal is expected to complete either at the end of the year or beginning of next but it will have to get past the regulators. Will this “break the seal” of deal flow for bankers??
• Celadon won the right to sell medical cannabis in Britain, becoming the first UK-based manufacturer of cannabis to get a licence to do so from the Home Office since the whole market opened up in 2018. This will enable it to sell its cannabis oil to certain private clinics, universities and pharma companies engaged in R&D.
• Trainline announced a strong lift in ticket sales thanks to foreign travellers visiting Europe. It was pretty good considering the strikes we’ve been having and I would have thought it’ll get better from here as strikes reduce, more people travel for leisure and return to commuting.

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

My favourite “alternative” story this week was the one about the guy who used ChatGPT to make money: Man tasks AI bot with making ‘as much money as possible’ and it goes very well (The Mirror, John Bett). Amazing!