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.
IN BIG PICTURE NEWS...
Economists get cautiously positive, ChatGPT causes a kerfuffle and environmentalists take Danone to task…
- FROM A GLOBAL PERSPECTIVE – the IMF looks to upgrade forecasts because it believes there will be a pick-up in H2 that will continue into 2024 after positive data releases from Europe and the US.
- IN THE US – we saw that Janet Yellen was headed to Africa this week to visit Senegal, Zambia and South Africa to improve relations, but the Russians and Chinese have been doing this more consistently for quite some time, so now does seem a tad late to be sniffing around in order to make investments in things like metals for EV batteries and renewables! It was quite interesting to see drama increasing regarding the strong attractions of US incentives that are part of the recent IRA legislation. Bayer is hinting that it will go stateside in preference to “innovation unfriendly” Europe, turning the screws on the EU, while Europe appealed to the US to come to some kind of agreement so there isn’t a massive drain of companies out of Europe in search of American cash. Unless Europe ponies up the money sharpish, there will be an exodus.
- IN CHINA – we saw GDP growth weakening considerably from 8.1% in 2021 to 3% in 2022 and the first decline in China’s population since the early 1960s although China does now seem to be turning a corner now that the strict Covid restrictions have been eased. On that subject, President Xi Jinping is taking a risk regarding superspreading as we head to China’s lunar new year holiday when 1.4bn people take 2bn trips out of the big cities to go to their home towns and villages. It is the world’s biggest annual human migration and the problem is that vaccination in rural areas is somewhat patchier than it is in the big cities.
- IN EUROPE – Chancellor Scholz says that Germany won’t fall into recession, presumably emboldened by the milder weather and the fact that he now has LNG import terminals meaning that the country’s sorted for this winter. Turkey continues to resist Finland and Sweden’s application to join NATO and then Erdogan brought forward the date of the general election, hoping to add to his 20 years in power despite his party, the AKP, seeing its support looking more vulnerable than usual on the back of poor handling of the economy.
- IN THE UK – the governor of the Bank of England said that inflation could drop sharply thanks to the recent weakness in energy prices – and then we saw that UK inflation slowed down for the second consecutive month.
IN OIL NEWS…
- France’s TotalEnergies said it will absorb $2.1bn from windfall taxes from the UK and EU, about half of which will be the UK. Harbour Energy said it would cut jobs, blaming the cost of the windfall tax but then the IEA forecasts big oil demand this year as China opens up.
IN CRYPTO NEWS…
- Crypto lender Genesis and two of its subsidiaries filed for bankruptcy protection as the after-effects of FTX’s collapse continue. They managed to last longer than Celsius and Voyager who went under last year. Meanwhile, the interim chief of FTX is considering the resuscitation of the bankrupt exchange as a way to recover more value for customers than liquidating assets or selling off the platform…
INTERESTING BUSINESS, EMPLOYMENT AND CONSUMER TRENDS CONTINUE TO EMERGE...
IN BUSINESS TRENDS…
- Macau could be in a lot of trouble as a major gambling tycoon faces an 18-year jail sentence. This could lead to the stream of high-rollers dwindling to the territory. Given that they only account for 1% of the gamblers there – but a whopping 75% of all gambling revenue – this could be highly problematic. Gambling has generated up to 90% of tax revenue in the past, so this could be a very big deal!
- Three environmental groups are taking Danone to court, accusing the French owner of brands such as Evian and Activia of not doing enough to cut plastic pollution. If the environmentalists win, this could be massive as rivals including PepsiCo, Mondelez and Diageo – not to mention consumer goods groups like Unilever, P&G and Reckitt Benckiser may have to pay into a clear-up fund further down the line.
- UK house prices fell for the first month since October 2021 as rising borrowing costs dented the residential market. Vistry was the latest housebuilder to act in the face of a potentially slowing market by cutting up to 100 jobs. On the other hand, Crest Nicholson reckons that the market will pick up in the spring.
IN EMPLOYMENT NEWS…
- London law firms are employing all sorts of tactics to tempt their worker into offices by offering things like Brompton Bike hire, Ottolenghi-style brasseries, beehives and nail bars. If the economy slows down enough to dent these firms, I have no doubt this kind of stuff will disappear, to be replaced with directives to go to the office – or else! Just look at what happened at Goldman Sachs…
- The government proposed new measures to enable police to intervene more quickly in disruptive public protests in Britain in the face of strong criticism from rights groups. It is looking to broaden the definition of “serious disruption” in a new public order bill.
- Critics say that tech job culling at social media companies could lead to a surge in online terrorist content. On a broader level, though, it was worth noting that although the absolute number of job cuts in the tech sector sounds big, these cuts were made after a huge recruitment drive under lockdown.
- Following recent job cuts at investment banks, it’s possible to infer that jobs at companies involved in M&A are also vulnerable. Lawyers may be able to survive, though, as their work has a longer tail (e.g. a deal has to go through a number of hoops before it gets final approval). Also they can be deployed more easily elsewhere in the firm.
IN CONSUMER TRENDS…
- US companies are pulling back on price rises as customers are increasingly unwilling to pay, which may explain why US retail sales fell by their steepest rate last month for the whole year as inflation took its toll.
- In the UK, mortgages are becoming harder to get and banks are bracing themselves for a surge in mortgage defaults. UK wages continue to lag inflation, according to the latest ONS figures, and a broader range of consumers are using BNPL. Formerly something that was thought of as exclusive to “young-uns”, apparently almost 20% of the over-65s have used the products or plan to in the next 12 months. This is great for companies like Klarna – but the phenomenon has also been reflected stateside, benefiting companies like Affirm, Afterpay, Klarna, PayPal and Zip. In the midst of all this, the latest GfK survey shows consumer confidence has dropped to near-record lows.
THERE WERE SOME INTERESTING TRENDS IN RETAIL...
IN RETAIL NEWS…
In APPAREL RETAILERS, Chinese giant Shein is in talks for its latest fund raising at a level that gives it an implied valuation that’s a lot lower than it was at its previous fund raising round. At it’s peak, the company was the world’s third biggest private company after ByteDance and SpaceX. It still wants to launch an IPO in the US, which is its biggest market. FatFace had a strong Christmas, enjoying its best ever year for menswear and Reiss also had a great festive period. On the other hand, Dr Martens had a profit warning and Boohoo reported a poor performance as customers returned to the high street.
In GENERAL RETAILERS, Fortnum & Mason returned to profit and luxury retailers Burberry, Cartier and Aspinal generally did well although Burberry and Cartier saw some weakness in China as lockdowns took their toll. M&S signalled its confidence by announcing a store opening programme, WH Smith did well thanks to strong performances from their airport and railway station outlets and furniture store Dunelm had a great Christmas thanks to brisk sales of electric blankets and heated indoor airers! Hotel Chocolat also did well but wants to play it safe with Easter, aiming to run out of eggs rather than over-produce and then have to discount. On the downside, Matalan’s lenders took over ownership of the group while stationary retailer Paperchase was on the brink of collapse. Ocado posted its first ever annual fall in grocery sales as consumers returned to supermarkets and went bargain-hunting in Lidl and Aldi while THG cut its profit forecast for the fourth time in 12 months thanks to intensifying competition.
THERE WERE SOME MAJOR DEVELOPMENTS IN TECH & SOCIAL MEDIA...
IN TECH NEWS…
- Microsoft is considering putting $10bn into OpenAI which makes ChatGPT and says that it thinks it could revolutionise the way humans interact with computers. Chief exec Satya Nadella said at Davos that Microsoft would move swiftly to commercialise OpenAI’s tools and integrate it into all of its products. Not everyone was best pleased, though – artists are against it and getting increasingly concerned about copyrights around what the AI produces. I suspect there will be a lot of potential for lawyers to earn big fees with this given the uncertainty! Meanwhile, Microsoft announced 10,000 job losses as it adjusts to post-Covid spending habits and overall weaker economic backdrop.
IN SOCIAL MEDIA NEWS…
- Social media platforms are bracing themselves for a drop in user numbers ahead of the introduction of the UK’s Online Safety Bill which is now in its final stages in the House of Commons. They will have to tighten their age verification measures and an amendment was introduced that will impose jail time on senior execs accountable who fail to protect under-18s sufficiently by allowing harmful and illegal content.
- TikTok is looking to do an overhaul of its US business to satisfy US officials and lawmakers who continue to be concerned about user data and its China connections.
- Elon Musk is facing a big interest payment related to the $13bn of debt he used to finance the purchase of Twitter, meaning he’ll have to sell more stock and/or some of Twitter’s dwindling cash reserves. Some say that he could just let the company go bust, but I think that’s unlikely given the amount of money he’s sunk into it, plus the fact that he’d lose control of the company – something I’d imagine isn’t really his thing!
REAL ESTATE WAS A MIXED BAG...
OVERALL…
- KKR followed rival Blackstone in becoming the latest investment manager to limit fund withdrawals as increasingly nervous clients fight to pull their money out of an area that is likely to suffer in an environment where the cost of borrowing keeps rising. As a result of rising costs, commercial construction rates have hit their highest level for twenty years as builders are trying to take into account rising prices on initial quotes to ensure they aren’t left out of pocket.
IN RESIDENTIAL PROPERTY NEWS…
- Homebuyers seem to be returning to the market as HSBC becomes another lender to drop mortgage rates from the highs they reached in the wake of the mini-Budget-massive-shock. Although we’ve heard that developers like Barratt and Persimmon are holding back, Crest Nicholson reckons that the market will pick up again in spring.
- Elsewhere, it won’t be that surprising to hear that Russians are now the biggest foreign buyers of property in Dubai as the Ukraine war limits the options for the super-rich. Property broker Betterhomes says Russians are the biggest group of non-resident buyers, accounting for 15% of their transactions versus Brits on 12%, Indians 11%, Italians 7% and French 4%.
IT WAS AN EVENTFUL WEEK IN THE FINANCIALS SECTOR...
- IN INVESTMENT BANKING – Goldman Sachs saw its profits drop by two-thirds, undershooting analysts’ earnings forecasts thanks to the lack of deals. That said, rival Morgan Stanley did pretty well thanks to its expansion into wealth and asset management. Credit Suisse cut 10% of its European investment bankers – also due to the lack of deals – and Citi is clamping down on WFH. If you are deemed “unproductive” you get hauled into the office for “coaching sessions” 🤣.
- Elsewhere, Wise’s share price took a hit the fintech said that cross-border transfer volumes fell in the final quarter of 2022 to their lowest level in two years.
IN OTHER NEWS...
- IN CAR-RELATED NEWS, Renault and Nissan got closer to making a deal that would reset their 23-year-old alliance. They need each other in a world that is switching to electrification. Renault saved Nissan back in the day, but things have changed considerably since then. Meanwhile, EVs made up 10% of all new cars sold last year, according to figures from LMC Automotive. This was thanks to strong growth in China and Europe. In battery news, Britishvolt fell into administration and its site drew interest from more than a dozen companies. What a sorry end to a story that started out with a lot of hope…
- Chinese ride-hailer Didi resumed new customer sign-ups after a major clampdown from authorities but then a state-owned ride-hailing app called “Strong Nation Transport” was lauched to compete with it! The government really does seem to hate Didi!
- There were a few big management changes announced this week. Netflix’s co-founder Reed Hastings stepped down after 25 years to become the exec chairman, a move echoed by Cazoo’s chief exec Alex Chesterman. The difference is that Hastings is stepping down on a high while Chesterman is doing so after shares in his company have been decimated by 97% since flotation.
- A hydrogen-powered aircraft, made by Anglo-US group ZeroAvia, completed a 10-minute test flight in a major breakthrough in the bid to commercialise the technology.
- Deliveroo had a positive trading update as it returned to profitability, prompting upgrades from City analysts. Growth was strong going into the end of last year but its share price is still waaaaaaaay down on its flotation price!
AND IN UPDATES FOR WATSON'S YEARLY...
- Watson’s Yearly 2022/23: coming shortly…
BANTER
I’ve got two favourite “alternative” stories this week! There was this one: Pet duck that drinks tea, chases binmen and walks to shops wins fans across world (The Mirror, Stephen White) and the one about how to start your day in the most epic way: Hotel guests enjoy breakfast in bed outside in the snow at lavish ski resort (The Mirror, Milo Boyd). Nice 👍