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...
This was the week when Poles ousted the ruling party, DJ D Sol was told to quit and when China said it would join the AI shindig…
- IN THE MIDDLE EAST – the US warned Iran against getting involved in the Israel-Hamas war while China’s support for the Palestinians could increase its influence in the Arab world. Jordan warned that the Middle East was on the edge of an ‘abyss’ and called for humanitarian aid for the Gaza Strip whilst refusing to take in Palestinian refugees. The situation worsened considerably when a hospital was bombed killing many innocents. Egypt is also not keen on taking in Palestinian refugees via its Rafah crossing as it could worsen the region’s stability even more and that the displacement would become permanent. The US defence sector is now under pressure to supply munitions to Israel but it is already overrun with supplying Ukraine and replenishing depleted Pentagon stocks. There was speculation as to potential outcomes that included a) the war is confined to an Israeli ground assault on the Gaza Strip, b) the war will spread in the region as Iran gets involved and c) China could take advantage of the situation and impose a blockade on Taiwan while the US – and everyone else – is stretched. Fed chief Jerome Powell said that if the Israel-Hamas war escalates it could derail the global economy.
- IN THE US – we looked at why the US is outperforming Europe – in a repeat of what happened after the financial crisis. The US provided a bigger and broader-based stimulus to combat Covid, it’s not having to deal with a war on its doorstep and it hasn’t had to contend with energy prices as much as we have. Also, it has a much bigger tech-weighting than Europe (which helps with the hottest area at the moment – AI), it’s not as exposed to industries where China is strong and it’s got a massive pot of money to dole out for green tech that everyone is flocking to. Access to finance is also better but the main thing that could hold America back is the tremendous amount of debt it’s built up.
- IN CHINA – we saw the central bank pumping a huge sum of money into the financial system to boost the economy and a few days later we saw China unveiling a better-than-expected Q3 GDP growth number. In the meantime, Xi and Putin met in Beijing, hailing their “deep friendship” but stopped short of reiterating the “no-limits” partnership they talked about just before Russia invaded Ukraine.
- IN POLAND – the election saw a record voter turnout and it looks like the ruling government will be replaced by a pro-European coalition government.
- IN THE UK – an EY research report says that the UK economy will underwhelm next year due to higher-for-longer interest rates although it has upped its GDP growth forecasts for this year considerably! UK inflation was expected to fall this month, but it actually remained unchanged – which puts the Bank of England under pressure re interest rates and inflation. The OBR released its latest Forecast Evaluation Report where it ‘fessed up, admitting that it had done a 💩 job with its forecasts.
IN BUSINESS & CONSUMER TRENDS NEWS...
IN BUSINESS TRENDS…
- A PwC survey on law firms showed that billable hours were falling, something that was probably due to cost pressures and being unable to pass higher costs on to customers. If this continues, you’d think that law firms will have to cut more headcount. They are now paying the price of hiking wages over the last year or two.
IN CONSUMER TRENDS…
- Japanese consumer spending has slowed considerably in 2023, according to the latest research by Goldman Sachs. This is no doubt a result of real incomes falling by 3-4% since 2022, but it’s also probably due to changing working practices meaning that there are fewer spending opportunities!
- UK consumer confidence is weakening, according to the latest GfK report. This doesn’t bode well for the key Christmas quarter for retailers. In the meantime, a survey from Barclaycard shows that more consumers are buying second hand items and renting products in order to make their money go further.
- The olive oil shortage continues, resulting in a rise in a rise in thefts. Given that prices have risen by around 200% over the last year it’s hardly surprising! It’s not clear yet whether this is just a one off or whether poor harvests are going to continue because of climate change.
IN RETAIL & LEISURE NEWS...
IN RETAIL NEWS…
- Amazon announced plans to start deliveries via drones in the UK and Italy in late 2024. This will be the first time that Prime Air will be available outside the US. I’m not convinced about it being widely adopted but maybe they can still licence the tech to other firms – the sort of thing it’s trying to do with the tech in Amazon Go.
- Britain’s biggest car dealer Sytner posted another year of record profits thanks to drivers continuing to be willing to pay premium prices for new and used cars thanks at least in part to a shortage of supply. Amazingly, profits at Sytner are now more than double what they were pre-pandemic!
- M&S is preparing for a decent Christmas by planning to hire 40% more temp staff for the busy Christmas period than it did last year across the UK. Momentum is with the company at the moment as it just returned to the FTSE100 last month. Their plans and what consumers are saying (that they’re not confident, according to the GfK survey above) seem to be somewhat at odds.
- Online fashion brand Sosandar is putting its faith in the high street and planning a rollout of 10 shops (with a view to opening others). Until now, the brand has been online-only via its own website or that of M&S and Next.
IN LEISURE NEWS…
- Choice Hotels International (owns Radisson and Econo Lodge) launched a $10bn hostile bid for rival Wyndham Hotels and Resorts (owns La Quinta and Ramada brands) after previously having to abandon takeover talks. If the two combined, the enlarged group would be one of the biggest budget hotel owners in the US.
- Whitbread, the owner of Premier Inn, posted great results as London bookings were strong and the company continues to benefit from a shake-out in the sector as many independents have gone under during and since the pandemic. UK is pretty solid but it’s also aiming to be the biggest hotel chain in Germany! A share buyback and increased dividend will have pleased investors.
IN FINANCIALS NEWS...
IN BANKS…
- Bank of America posted a rise in Q3 profits, beating forecasts. It continued to benefit from the higher interest rate environment on the retail side and its traders made a ton from market volatility on the investment banking side.
- Goldman Sachs saw its profits plummet in Q3 despite seeing some action in deal making over the quarter. It had to make an $864m writedown for its fintech business and real estate investments. It’s now highly geared towards a pick-up in IPO and M&A activity.
- Morgan Stanley underwhelmed with its Q3 results as it proved to be another victim of the lack of deal flow. A new boss is coming in and the existing boss reckons he’ll benefit from a rebound in deal-making next year.
- The lack of deals didn’t just affect investment banks – KPMG announced plans to cut around 6% of its employees in the UK deal advisory teams and survivors are being told that they won’t get any pay rises this year.
IN INVESTMENT MANAGEMENT…
- Blackstone underwhelmed in Q3 thanks to a fall in profits from asset sales and investor nervousness about putting money into private equity funds. It has, however, built up a decent cash pile to invest in assets when the opportunity arises.
- Jupiter saw a net £1bn of fund withdrawals over the quarter and said that revenues would be lower next year thanks to it introducing a new fee structure for bigger funds.
- Schroders also saw assets slide as markets spooked nervous investors.
- M&G decided to close its property fund once and for all after twice having to suspend it in the last seven years. Retail investor appetite just isn’t there and it’s going to sell the underlying assets in a process that’ll probably take around 18 months.
IN WEALTH MANAGEMENT…
- Charles Schwab suffered with deposit outflow, unrealised losses on its securities portfolio and rising interest rates. The good news is that the outflow is now slowing down but its still got to deal with higher funding costs and the paying down of expensive loans it took out from the Federal Home Loan Bank.
- There was a contrast in fortunes for Hargreaves Lansdown, which saw just a trickle of new customers while rival AJ Bell did a lot better, according to a trading update. They are both suffering from clients preferring to pay down debt at the moment rather than invest in markets.
- St James’s Place announced that it was going to conduct a major overhaul of its fee structure following pressure from regulators and make it more transparent. It’ll be interesting to see whether this results in an outflow of customers.
IN CRYPTO…
- Binance has stopped taking on new British customers due to a tightening of regulations by the FCA on the promotion of crypto assets.
- The New York Attorney General, Letitia James, will be suing crypto firm Genesis Global, its parent firm Digital Currency Group (DCG) and Gemini for allegedly “defrauding” investors of more than $1bn. Get the popcorn and settle in – this should get interesting!
IN REAL ESTATE NEWS...
IN CHINA…
- Country Garden missed a payment on a dollar bond and now has international debts worth $11bn and total liabilities of around $200bn! Its problems seem to be far from over…
IN THE US…
- Prologis, the world’s biggest warehouse landlord, reckons that industrial property demand continues to remain robust despite the economy shifting away from its focus on goods. It believes that demand is now bottoming out as companies continue to re-jig their supply chains in the face of international tensions.
IN THE UK…
- UK house prices are rising at their slowest post-summer rate since the 2008 crash, according to the latest data from Rightmove although cash buyers are still keeping the top end of the London property market buoyant. Meanwhile, Barratt warned of a tough market resulting from would-be buyers struggling with mortgage costs – but a report from CBRE suggested in a report that empty offices could be repurposed to create almost 28,000 new homes in London. This sounds good, but you do wonder about the logistical nightmare!
- Flatshare website SpareRoom highlighted the massive rises in rent over the last year, with some postcodes in London seeing a 50% rise! On the other side of that, landlords have had to fork out over £4.3bn in extra mortgage payments over the last 12 months versus the previous year thanks to higher borrowing rates, according to research from Hamptons. No wonder they are raising rents or selling up!
- Rightmove competitor OnTheMarket just got bought by US company CoStar for £99m. This should get interesting as the parent company will no doubt pump some cash in and give Rightmove (and Zoopla) a run for its money!
IN AUTOMOTIVE NEWS...
IN DRIVERLESS CAR NEWS…
- Autonomous taxis from Waymo (Alphabet) and Cruise (GM) have been available in San Francisco for the last few months and it hasn’t been a smooth process as there have been notable incidents involving at least one ambulance and a fire engine which have forced authorities to make Cruise cut its fleet of cars in half! Fares are roughly similar to what you’d pay for an Uber, so many people are asking what the point of driverless is (they are supposed to be cheaper after all!)!
- That said, Sunak is paving the way for driverless vehicles in four years although the legislation has to go through various consultations and testing processes first. Legislation is one thing, but getting the public to trust driverless is another!
IN ELECTRIC VEHICLE NEWS…
- GM has decided to postpone the opening of its electric pickup truck factory in Michigan given lukewarm demand. Despite the oil price hovering around the $100 a barrel mark, sales of electric pick-up trucks are particularly weak at the moment, so the company has decided to bide its time.
- Tesla cut Model 3 prices in the UK again! The price of the popular Model Y will remain the same though. Tesla seems to keep cutting prices and I would have thought that current owners won’t like that – and it may put off potential buyers because they may think that Musk will do the same to them too, making depreciation steeper when it comes to selling them on.
IN TMT NEWS...
IN TECH NEWS…
- It looks like China will join the AI off-site at Bletchley Park next month after all where world leaders and companies at the cutting edge of AI will discuss ethics and how to avoid misuse of AI in the future. The UK is pushing for the formation of an international advisory group on AI (probably called the International Panel on Artificial Intelligence Safety – IPAIS) whose job it will be to produce an annual report on developments in AI and spread the word on the threats and opportunities posed by AI.
IN CHIP NEWS…
- Nvidia and Foxconn announced a tie-up to build “AI factories”, aka large data centres, to train autonomous vehicles, robotics platforms and LLMs. It’s not clear how they will be different from other data centres, but it’s good to hear that Foxconn continues to try and branch out from its massive reliance on Apple!
- TSMC reported weaker Q3 revenues because of weaker demand from automakers but it expects there to be an uptick in 2024 for chip demand after a tricky 2023.
IN SOCIAL MEDIA NEWS…
- The Israel-Hamas war has seen a huge surge of misinformation been spread on social media. X, Telegram and TikTok are among the platforms to have spread such misinformation but it seems to me that regulators wanting to make platforms more accountable for the content they allow are going to gain the upper hand. The lowering of guardrails and reduction in the amount of moderators in the name of cost cutting is now coming back to bite the platforms.
- LinkedIn announced that it would be cutting about 3% of its global workforce in the second round of redundancies this year due to momentum in their main earnings streams – ad sales and subscriptions for search professionals – falling behind the pace. This sounds brutal but this is also reflected by what recruiters have been saying in their recent results.
- X is starting to charge new users in New Zealand and the Philippines a $1 annual fee to unlock all the features. The company says that this is an anti-spam device but this is surely a test to see what the take-up is before rolling it out to the rest of the world!
- TikTok said that it is making a proper effort to curb misinformation in the Israel-Hamas war by increasing resources devoted to it. The EU has been particularly critical of X, Meta and TikTok about the role they have been playing in the spread of false news.
IN STREAMING…
- Netflix is likely to be the only streamer making a profit while Disney, Warner Bros, Discovery, Paramount and Comcast are all continuing to burn cash. Its crackdown on password sharing has boosted subscriptions and it aims to increase prices for British subscribers on the basic and premium plans while the ad-supported and standard tiers remain unchanged. It is also looking at making money from games based on successful franchises such as “Squid Game” and “Wednesday”, which is interesting given that it recently talked about making money from merch. Although it’s possible that the strength in the latest results is a one-off, it’s good to see the company making efforts to do something about its revenue streams!
IN TELECOMS NEWS…
- Nokia announced that it would be cutting 16% of its global workforce in order to reduce costs while it unveiled a 70% profit drop in Q3 profits. 5G rollout just hasn’t been as successful as everyone had originally thought.
AND IN OTHER NEWS...
- IN TRANSPORT NEWS – London bus operator Arriva was bought by infrastructure fund I Squared Capital and the latter has promised to invest over €2bn in growing Arriva’s fleet and electrifying it. I Squared continues to be on the hunt for bargains in the public transport space. In trains, the TransPennine Express is going to cut 20 services a day between Leeds and Manchester – so it’ll be interesting to see how quickly Sunak responds to this given his promises to spend some of the £36bn “saved” from a shorter HS2 on infrastructure projects in the region!
- Adidas seems to be recovering from its post-Kanye West slump as it was confident enough to raise its full-year guidance for the second time in three months! It seems to be going in the right direction anyway…
- Rolls-Royce announced that it would cut up to 2,500 white-collar jobs as the “new” CEO continues to put his mark on the company after conducting a senior management shake-up, a reduction in spending on non-core projects and the renegotiation of sales and maintenance contracts with customers.
BANTER
My favourite “alternative” video from this week was, perhaps inevitably, the one of the wholesome dog moment!