Watson’s Weekly 20 -01-2024

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.

This was the week when China managed to hit its GDP target, Post Office scandal developments reached fever pitch and Panmure Gordon and Liberum decided to join forces…

• GLOBALLY – Geopolitical concerns dominated Davos while global stock markets weakened as hopes for sooner-rather-than-later interest rate cuts faded thanks to strong US retail sales data, the ECB hinting that cuts would be more likely to happen in the summer than the spring and the UK seeing a surprise uptick in inflation.
• IN CHINA – Premier Li Qiang said at Davos that China’s GDP grew by 5.2% over last year, coming in slightly above the official target of 5%. Economists are now fretting about GDP growth in 2024 as China has ongoing problems with a declining birth rate and its massively indebted real estate sector.
• IN EUROPE – the ECB is looking increasingly likely to hold off on cutting interest rates and Germany’s nightmare continues as its GDP contracted by 0.4% last year thanks to higher interest rates and energy costs. The coalition is having all sorts of problems at the moment while the far-right AfD continues to see a rise in popularity.
• IN THE UK – inflation rose unexpectedly thanks to higher alcohol and cigarette prices but chancellor Hunt hinted that tax cuts could be on the cards ahead of the election this year as he outlined plans to have a March Statement and an Autumn Budget. Meanwhile, pressure built on Japanese IT company Fujitsu to compensate victims in the Post Office scandal and it admitted for the first time its role in the whole debacle and that it would pay compensation. Meanwhile, the government said that it would protect the litigation funding sector that made current developments possible in the scandal.

IN OIL NEWS…

• The IEA reckons there’s going to be a surplus of oil as demand growth slows and non-OPEC countries (particularly the US) step production up.
• Shell decided to suspend all Red Sea shipments until further notice while the war in the Middle East rages on. This is likely to push prices up as anything that’s normally shipped via the Red Sea will now have to go the longer way around, incurring more cost. Airline bosses are concerned about the price of jet fuel going up as that could mean that air fares will have to go up to compensate for higher costs.
• Shell decided to sell its Nigerian business for $1.3bn after 68 years there. It’s the latest foreign oil major to leave as they are increasingly deeming it to be more trouble than it’s worth for various reasons.

IN BUSINESS TRENDS…

• Insolvencies hit a 30-year high according to the UK’s Insolvency Service thanks to the ultimately fatal combination of higher interest rates, cost-of-living and pandemic impact.
• City law firms fell down the global pecking order in terms of earnings. US firms dominate and the highest placed City law firm was Allen & Overy (12th) while Anglo-American firm DLA Piper (3rd) did better. I would have thought that this has a lot to do with the lack of deal flow in the UK in particular.
• Logistics property landlord Prologis saw its profits rise in Q4 despite a tricky economic backdrop. It cited a positive outlook for the year and has an impressively high occupancy rate. I would have thought it would benefit from ongoing disruptions in global supply chains both in the short term (wars raging at the moment) and the longer term (as businesses realise that they have to have more readily-available inventory for “just-in-case!”).

IN EMPLOYMENT TRENDS…

• The IMF published a report which said that AI will affect 40% of jobs globally and will make inequality worse.
• A report by PwC said that British bosses are planning the biggest hiring spree in the G7 but then agency recruiter Page Group warned of slowing momentum in the jobs market. It cut full year profit forecasts and echoed the downbeat tone of rivals Robert Walters and Hays.
• Meanwhile, the UK’s annual wage growth slowed down to 6.5%, which means that wages have now outpaced prices for five months in a row!

IN CONSUMER TRENDS…

• The owner of Cartier, Richemont, managed to buck the overall trend of gloom for luxury brands as it reported a strong performance over the last quarter  thanks to decent performance in China, Hong Kong and Macau. However, Britain’s biggest retailer of Rolexes – Watches of Switzerland – saw its shares dive by a third as it warned that revenues would fall short of previous forecasts. Also, VW-owed brand Bentley reported weaker sales in 2023.
• Meanwhile, for mere mortal car drivers, there was good news and bad news! The good news is that UK fuel retailers are going to be forced to share information on price changes at the pumps within 30 minutes, making things much more transparent. The bad news is that the average UK car insurance quote hit a new high of £995 and new younger drivers faced a whopping 98% rise in premiums year-on-year!
• Despite the cost-of-living crisis, a Lloyds Bank survey showed that Britons continue to spend on leisure, something that was backed up by Hays Travel which saw a 93% rise in turnover and a doubling of total transaction value over the year!

• IN APPAREL RETAILING, Hugo Boss saw record revenues but lower-than-expected profits, which shocked investors. Its full year results will be released in early March. Fast Retailing (the Japanese parent company of Uniqlo) is suing Chinese fast fashion giant Shein for copying its most popular bag which was described by Vogue as the “hottest product of the year so far” in April 2023. I guess Shein will just add it to the pile of other lawsuits it faces on a continuous basis!
• IN FOOD RETAIL, Ocado saw record sales thanks to a surge in the number of M&S products sold on Ocado’s website but Sainsbury’s is going through a bit of a change at the moment as it’s ditching its financial services business and having a senior management shake-up.

• IN SALES AND PRICES NEWS – European EV sales fell for the first time since 2020 thanks to lower (or no) government subsidies. Also, in the UK, research by Auto Trader showed that the rate of depreciation on EVs is faster than that of petrol equivalents. It’s likely to get worse because manufacturers now have specific EV sales targets they have to hit, which means that there will be bargains to be had although Chinese EV manufacturers are gearing up for a price war. Companies like BYD will be in a particularly good position to cut prices aggressively as they make their own batteries – the biggest cost of an EV.
• IN INDIVIDUAL EV COMPANY NEWS – Hyundai and Kia are emerging as Tesla’s biggest threat in the US and it looks like they’ll consolidate their position over non-Tesla rivals this year with the introduction of new models. In India, electric scooter company Ola Electric is heading for what will be one of the biggest Indian IPOs in the last two years! It’ll have its work cut out convincing increasingly sceptical investors.
• IN BATTERY NEWS – European EV maker Northvolt is raising $3.4bn in debt from the EU and a consortium of banks to fund EV battery production at its factory in northern Sweden. BYD announced plans for a new EV plant in Indonesia as it continues to fight to become Indonesia’s biggest EV brand!
• ELSEWHERE…German car parts suppliers including Bosch and ZF Friedrichshafen are going to cut more jobs. Unfortunately, they have been hit by the double-whammy of big expenses involved in adapting their production to EVs and the fall in demand for EVs.

• UK house prices dropped at their fastest pace in over a decade, according to the latest ONS data. On the other hand, the latest RICS survey showed that newly agreed sales hit their highest level since March 2022 in December. Inquiries were also up for the fourth consecutive month and are now at their highest level since April 2022. Amidst all this, estate agents are becoming more optimistic about 2024, presumably because of the prospect of falling mortgage rates that will follow interest rates down.
• The latest Bank of England stats show that UK lenders are expecting a rise in mortgage demand this year but unfortunately, they also reported a rise in the number of mortgage defaults.
• Housebuilder Crest Nicholson announced its third profit warning in five months. Its current weakness is prompting increasing speculation that it will be bid for…

• IN AI NEWS – Microsoft’s chief had a dig at rival Google, saying that AI will threaten the latter’s long-held dominance of search. OpenAI also changed language related to its usage policies giving it more flexibility over using AI for military purposes. Meanwhile, Vodafone signed a $1.5bn deal with Microsoft where Microsoft will invest in Vodafone’s internet-of-things platform while Vodafone will use Microsoft’s cloud and AI capabilities to improve its customer service.
• IN HARDWARE – Apple has just beaten Samsung to become the world’s biggest smartphone maker by volume but it also announced it would cut iPhone prices in China as competition from domestic makers continues to heat up!
• ELSEWHERE – Google announced that it would build a new $1bn data centre in Britain and we heard that Deere & Co, the world’s second biggest farm machinery manufacturer has signed a deal with SpaceX to use Starlink to connect its tractors and other bits in areas that have poor internet.

• IN FINANCIALS – Goldman Sachs and Morgan Stanley had their worst profits for four years as business continues to be slow in investment banking and trading. Meanwhile, in the UK, small mid-cap brokers Panmure Gordon and Liberum announced plans to merge as the IPO and deal drought continues. This follows consolidation in the sector that we saw last year with Deutsche Bank buying Numis and Cenkos merging with FinnCap. It’s pretty desperate out there!
• Boeing’s problems just got worse as the scheduled resumption of 737 MAX sales to China has now been delayed following the Alaska Airlines incident.
• There are hopes that 2024 could be the year for Eli Lilly’s obesity treatment called Tirzepatide (but known as Mounjaro and Zepbound) as it is thought to have better efficacy than Novo Nordisk’s treatment – and it’s cheaper! Win-win…

There wasn’t a real stand-out for me this week, but I did find this video on how to “make” whipped honey quite interesting. How good could it actually be?? I mean it’s just honey with a bit of air, right? That said, aerated chocolate is pretty good, as is whipped yoghurt so maybe this will be the same…