Watson’s Weekly 22-04-2023

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 where China’s GDP rebounded, Tesla took a hit and Apple made a splash…

• IN GLOBAL NEWS – G7 ministers agreed to accelerate the transition from fossil fuels to renewables and they agreed that it would be important to reduce Russia’s influence on nuclear energy supply chains.
• IN CHINA NEWS – China’s GDP growth for Q1 came in higher than expected at 4.5% (market expectations were for 4%). This is pretty good, bearing in mind that the official full year target is 5%! Expectations are that momentum will continue to improve. While ECB chief Christine Lagarde warned of alienating China, it turns out that BT has been stress-testing supply chains in the event of a Chinese invasion of Taiwan, something that a company called Prism has said is an increasingly common request from corporates. In the meantime, China has been imposing sanctions on western companies in retaliation.
• IN UK NEWS – UK inflation stayed in double-digits for last month – at 10.1% – coming in above expectations and, along with evidence of strong wage growth the pressure is building on the Bank of England for their next interest rate decision. Meanwhile, the ongoing public sector strikes are affecting the economy while the Bank also looks at overhauling the bank deposit guarantee scheme which needs to be done in order to bolster confidence in the whole banking system.

IN COMMODITIES NEWS…

• IN OIL – Some big investors in BP are getting together to potentially oust the current chairman in protest at the company walking back its green commitments.
• IN GAS – current gas storage in the EU is running ahead of schedule, which is potentially good news for next winter, but that didn’t stop Putin from making more threats about choking off supply.

IN CRYPTO NEWS…

• Coinbase is threatening to move to the UK as Biden is accused of “punishing” tech and dragging his feet on putting a regulatory framework in place. London is seen as potentially more attractive as there’s only one regulator it’ll have to deal with (the FCA) whereas in the US there are two who oversee commodities and securities separately.

IN BUSINESS TRENDS…

• The number of UK company collapses is rising thanks to higher energy prices, no more government handouts and tighter credit conditions – and the UK food and drink sector has been particularly badly hit in that regard.
• On the flipside, the latest survey by the ICAEW shows that business confidence is improving.

IN CONSUMER TRENDS…

• Consumer confidence is also rising, according to the latest survey from GfK, and they might even get some more money to play with as the FCA is warning banks about not passing on higher interest rates to their saver customers.
• Cash-strapped customers are being squeezed by higher rents as the latest ONS data showed that rental growth hit a record high for the 11th consecutive month!
• There are mixed messages out there from takeaway operators as Just Eat Takeaway has seen them spending less on take-outs while Deliveroo actually put in a “resilient performance” in Q1 thanks to its more premium offering.

OVERALL…

• There was an interesting article this week on the impact of the imminent influx of Chinese EVs will be on net zero promises. Currently, EVs are not as green as they could be, mainly as a result of how the power is generated to power the factories where they are made along with things like shipping etc.
• Interest in EVs in the UK is falling, according to research by Auto Trader, because the benefits of actually owning an EV are fading given higher electricity prices, falling petrol costs and higher up-front costs.

IN EV NEWS…

• Tesla’s Q1 earnings took a hit as its price-cutting campaign sacrificed profits for boosting volumes. Renault whinged about Tesla’s price cuts, saying that the move killed value.
• Ford announced it would be selling its popular F-150 Lightning pick-up truck in Norway, which will be the first time it will be available outside the US.
• JLR announced it would be investing £15bn over five years towards the shift to electrification as part of its plans to be 100% electric by 2025.

MEANWHILE…

• VW announced it would be committing €1bn to building an innovation centre in China, demonstrating that it is very much wanting to be there for the long term.
• GM ditched Apple CarPlay and Android Auto on its new vehicles to push its own in-car infotainment systems. They join the likes of Tesla and Rivian in not offering this functionality, which in my opinion is not a good idea as it seems that proprietary systems are just not very good.
• In the UK, GKN’s automotive business, Dowlais, had a nightmare stock market debut in London as its share price fell by 20%. This is a real blow for the LSE given that it is going through a bad patch of losing IPOs to New York at the moment.

• Apple made a splash this week as it launched a new high-yield savings account in the US in conjunction with Goldman Sachs. This is just the latest move in Apple’s drive to have presence in financial services – and services overall!
• US banks saw a lot of withdrawals, which spooked investors in banks such as State Street, Northern Trust and BNY Mellon – as well as brokers like Charles Schwab (although in the latter’s case it wasn’t so bad because customers just switched money to another account).
• Bank of America announced that it would cut about 2% of its workforce despite actually posting Q1 results that came in above market expectations.
• Goldman Sachs underperformed Wall Street sales and revenue expectations for Q1 thanks to lack of deal flow. It’s also spending money on reversing out of consumer banking at the moment.
• Morgan Stanley also announced weak Q1 results and had a downbeat outlook. Although wealth management was a bright spot, it wasn’t bright enough to outweigh the downer in investment banking performance.
• Allianz is putting its stake in struggling fintech N26 up for sale at a massive discount as it just wants to get rid. Clearly, Allianz has decided to jump of the fintech hype train…
• In financial services – EY announced 3,000 job cuts in the US after its failed break-up while management consultants McKinsey and Bain announced delays for new starters as business levels are muted at the moment.

IN AI NEWS…

• MEPs are currently close to agreeing a list of proposals governing the use of AI. Discussions on this are expected to conclude next week as calls for exerting controls over AI increase and concerns about the effect on jobs deepen.
• Google is looking at using AI to build sophisticated ad campaigns that will be not too dissimilar to those produced by proper ad agencies.
• Snap launched its “My AI” chatbot powered by ChatGPT in addition to new AR services for businesses. This all sounds reasonable but I’m sure its ideas will be copied by others (which often seems to be the way of Snap’s best ideas!) soon enough!
• Elon Musk is rumoured to be planning a launch of a rival to OpenAI because he has apparently hired various engineers from top places.
• Monzo has just said that it has banned candidates from using ChatGPT in applications, according to a new disclaimer in its job ads. No doubt other employers will follow suit!

ELSEWHERE…

• Instagram is going to cut or relocate most of the staff at its London HQ – even those in its metaverse team in Reality Labs – as Zuck continues with his ruthless “year of efficiency” plans.
• Social media platforms are getting twitchy about prodding from lawmakers and regulators. Meta is being accused by the Virtual Global Taskforce (a group of 15 law enforcement agencies around the world) of not doing enough to combat child abuse while WhatsApp and Signal joined together to object to the upcoming Online Safety Bill.
• It seems that Zuck’s Metaverse ambitions are falling apart at the moment, but he’s trying to hang on by now offering the Horizon Worlds VR app to teenagers to drum up more buzz. Roblox, meanwhile, seems to be doing very well in a virtual universe that seems to be thriving!
• Twitter has started cutting legacy blue check marks, much to the annoyance of some multi-gazillionaire creators.
• Discord is growing pretty well at the moment as it benefited hugely from lockdown but is now reaping the rewards of not being beholden to ad revenues. It has a $9.99 subscription service and could well do an IPO in the future.

IN HARDWARE…

• China’s dominance in drones (particularly from DJI!) is continuing. Will the West ever catch up??
• Dell is looking to diversify its supply chain away from China, responding to increasing concerns by clients.

• Merck made an all-cash bid for Prometheus Biosciences for almost $11bn – a massive 75% premium to Friday’s closing price! Merck is trying to pep up its drug pipeline and boost its position in immunology. Prometheus’s flagship treatment isn’t yet fully approved, so this is a big risk and shows just how desperate some cash-rich companies are to keep their pipelines going.
• At one point this week, a number of listed public companies on the LSE were subject to £4bn-worth of takeover bids! The most high-profile of these was a rumoured bid by private equity firm Apollo for embattled online retailer THG, which now has until May 15th to put in a final offer.
• Japanese games-maker Sega Sammy launched a €706m offer for Rovio Entertainment, of Angry Birds fame. Will it be able to make a success of the characters and help its overall push into mobile gaming?
• China’s Anta raised $1.5bn in a placement on the Hong Kong market and will use the money to pay down debt and bolster its balance sheet. Anta owns France’s Salomon and Canada’s Arc’teryx. This shows that there is investor appetite for the right companies!

• IN THE US – discount retailers such as Dollar General and Dollar Tree are trying harder to appeal to more cash-strapped middle classes by making upgrades and offering more groceries. Given how successful Aldi and Lidl have been at this in the UK, you’d think this was the way to go! At the other end of the scale, Whole Foods is planning “office” job cuts that will affect less than 0.5% of its global workforce as it tries to streamline its structures.
• IN EUROPE – Ikea announced that it was going to make a massive €2bn investment in the US, opening eight big new stores and nine smaller outlets within the next three years.
• IN THE UK – WH Smith put in a great performance as its travel business (outlets in railway stations and airports) has really taken off. It’s on track to make up over 70% of all revenues by year end and about 85% of its profits! Elsewhere, the ONS took the unusual step of criticising supermarkets for not passing on lower international food prices, something particularly notable given that we recently saw food price inflation jump by its biggest margin for 45 years! Also, after the euphoria surrounding the bid rumours by Apollo, THG was brought back to reality as it unveiled disappointing results.

• EasyJet put in a solid performance in further evidence that the travel industry is bouncing back nicely after a catastrophic pandemic.
• Entain – the owner of Ladbrokes, Coral and Sportingbet – had a strong Q1 powered by gaming revenue growth in the US, giving it confidence to achieve its full-year guidance.
• Heineken saw group sales rise as Europe and the Americas performed above analyst expectations. Profit margins have been squeezed but cost-cutting initiatives are expected to take the edge off.
• Johnson & Johnson reported higher quarterly sales and even raised forecasts for the full year as it is nearing a resolution to the Baby Powder/cancer uncertainty.
• Lockheed Martin, along with other arms makers, is undershooting expectations at the moment as hopes for super-hot sales have been met with supply chain issues. I’m pretty calm about this as I’d say that there is plenty of underlying demand from many governments around the world as they all increase their defence budgets.
• Netflix gained subscribers but at a slower pace. The next stage of their growth is bound to be from those who currently share passwords as the company is cracking down on them, meaning that at least some of them will start paying for themselves.

My favourite “alternative” story this week was this one: ‘My boyfriend’s snoring drove me nuts – now I make money from his wheezing sounds’ (The Mirror, Zahna Eklund). How enterprising (and hilarious!) is this?!?