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 that the Nikkei hit its highest level for 34 years, Nvidia absolutely smashed it and Capital One laid down the challenge to credit card giants with its $35bn deal to buy Discover Financial…
- IN MARKETS & GLOBAL NEWS – we see that the Nikkei, Europe’s Stoxx 600, the S&P500 and Dow Jones all reached all-time highs in trading this week while the NASDAQ also climbed as Nvidia’s success in AI stoked investor feelgood. Separately, the latest data from the Institute of International Finance (IIF) showed that global debt levels hit a record high thanks to higher interest rates impacting borrowing costs for governments and companies alike.
- IN THE US – the Fed minutes of the most recent meeting were published and it sounds like the rate-setters of the FOMC are keen for everyone not to get too hung up on hopes for imminent interest rate cuts, saying that they remains “highly attentive” to inflationary pressures.
- IN CHINA – we saw that the economy had a strong start over the eight-day lunar new year holiday as consumer spending over the period rose by 34% year-on-year and 19% versus pre-pandemic levels in 2019. This was the first time for five years that the festival managed to go ahead without any kind of Covid-related restrictions!
- IN EUROPE – the EU election campaign started officially this week and EC president Ursula von der Leyen is keen to get re-elected for another five-year period. Many will be relieved to hear that the latest S&P Global’s flash eurozone composite PMI showed that business activity across the bloc managed to reach an eight-month high despite a deepening contraction in Germany’s business activity. Speaking of Germany, the country’s central bank reckons that the country is “likely” in recession and that the “ongoing period of weakness” will continue for the foreseeable as it tries to deal with strikes, a problematic property sector and its bumpy transition to net zero, not to mention increasingly “cautious” consumer spending. It doesn’t look like getting much better any time soon as its coalition is split over how best to move the economy forward. Elsewhere in the bloc, the French government announced that it would cut an additional €10bn out of this year’s budget as it adapts to weaker-than expected economic growth.
- IN RUSSIA – it is interesting to see that Russia’s economy is growing quite well despite all the sanctions etc.! Its GDP grew by 3.6% last year after contracting by only 1.2% in 2022, according to data released by Rosstat earlier this month. The IMF now reckons that Russian GDP will grow by 2.6% this year – way more than is expected for the UK, France and Germany!
- IN THE UK – the former chief economist of the Bank of England, Andy Haldane, warned against leaving it too long to cut interest rates otherwise we could be dragged further into recession (although some economists reckon we’re already out of recession!). Goldman Sachs pushed back their expectations of when the BoE will start to cut interest rates – they originally thought it would be May but they are now saying June. The ONS unveiled Britain’s biggest budget surplus since comparable records began in 1993, which might give chancellor Hunt some room for tax cuts leading into the election but he’ll have to wait to hear how much he’s allowed to play with from the OBR. In the meantime, the bankrupt Birmingham council is going to have to take drastic action to recoup some money, but other councils aren’t that far off a similar fate if the government just leaves things as they are.
IN COMMODITIES NEWS…
- US natural gas prices are falling to levels not seen since 1995 as the country is facing its warmest winter since reliable records began in 1950, which means that demand for heating fuel will be low at a time when production tends to be at its highest.
- There was some excitement surrounding natural deposits of hydrogen as an unpublished survey by the US geological society estimated that up to 5tn tons of hydrogen exist in underground reservoirs globally! If this proves to be the case, geologists reckon that there will be a new hydrogen “gold rush”.
- There was disappointment from mining companies as falling prices and higher costs hit both Rio Tinto and Glencore.
- Talking about falling commodity prices, Anglo American Platinum (aka “Amplats”) announced that it would cut about 20% of its workforce in South Africa due to falling platinum group metal (PGM) prices. Anglo American owns 79.2% of Amplats and it is monitoring PGMs and diamonds which have been struggling particularly badly.
- IN OIL NEWS – Chord Energy and Enerplus are to combine in an $11bn deal, marking the latest deal in oil, following Diamondback Energy’s recent acquisition of Endeavour as players jockey for positions in key oilfields to get scale.
IN BUSINESS, CONSUMER & EMPLOYMENT TRENDS NEWS...
IN BUSINESS TRENDS NEWS…
- Countries and industries are feeling increasingly threatened by China as South Korean display makers Samsung and LG are putting aside rivalries to take on Chinese competitors and Renault is calling for resistance against the Chinese EV invasion while overseas investment in China has fallen to its lowest level for 30 years and Saudi Arabia is playing hardball with the Chinese to extract more concessions as part of juicy new tech deals.
- Deloitte is cutting back its UK deals business in response to poor profitability. It says that it Ywill cut down its regional deals advisory business, which often works on smaller transactions and it will pull back from being lead adviser on financial services and IP deals. This seems somewhat late to me given things look like they’ll pick up this year, but hey…
- The hospitality industry is pushing for help from the government ahead of the Budget and wants a reduction or suspension of VAT to avoid companies going under.
- Consolidation in the warehousing sector looks likely as we’ve already seen a flurry of activity what with Urban Logistics REIT looking to buy Aberdeen Property Income Trust, LondonMetric making an all-share offer for LXi REIT at the start of the year and Tritax Big Box’s offer to buy UKCM. It seems likely that the trading of property assets will increase as owners – including pension funds, insurance funds and private equity funds – decide to get out of the sector.
IN CONSUMER TRENDS NEWS…
- Eurozone wage growth slowed down for the first time since 2022, according to the latest data from the ECB. It’s not enough to make the rate-setters sit up and take notice though – well not yet anyway!
- UK households are seeing disposable incomes rising, according to the Asda Income Tracker, which says that they are at their highest levels since March 2022 but unfortunately, consumer confidence had a wobble for the first time for a number of months according to the latest GfK survey as people worried about recession.
IN EMPLOYMENT TRENDS…
- Recruiter Hays says that companies aren’t offering big pay rises to jump ship these days as the 20% average uplift just two years ago is more like 5% these days. Employers are getting more cautious and so the pay bump is now returning to the long term mean.
IN TECH NEWS...
IN AI-RELATED NEWS…
- Nvidia posted strong results that boosted markets around the world and it’s now America’s third most valuable company after Microsoft and Apple. It looks like it will be very difficult to knock Nvidia off its perch!
- Google’s newest AI model, Gemini, had to suspend its generation of images of people proved to be controversial. OK, so this is probably a relatively easy fix but it this is a bit of a PR own goal!
IN HARDWARE COMPANY NEWS…
- Apple got hit by a €500m fine from the EU for violating European antitrust rules by allegedly restricting access to music streaming services. Spotify originally made an official complaint to the regulators in 2019.
- PC maker Lenovo announced a rebound in revenues in a sign that PC sales could have reached their low and we could now see a recovery. Chip makers have been saying the same thing.
IN SOCIAL MEDIA NEWS…
- The EU launched its TikTok investigation in response to concerns about its online content and how it safeguards children. If it’s found to be in breach of the Digital Services Act, TikTok could face threats of fines of up to 6% of their global turnover!
- Meanwhile, Reddit filed for an IPO according to an SEC filing and it wants to list its shares on the NYSE. I think that this sounds kind of dodgy as it is still making losses and the whole sector it having all sorts of troubles – as evidenced right now by Vice Media, which is going to stop publishing content on its flagship website. Rival BuzzFeed only announced the other day that it was going to cut 16% of its workforce! The whole sector’s a bit of a mess TBH so I do wonder whether Reddit is desperate to get an IPO away before valuations fall any further…
IN GAMING…
- It looks like the industry is suffering a slowdown as hardware sales are losing momentum and consumer spending on mobile gaming has shown signs of weakening. That being said, the PS5 and Xbox have been out for a few years now and maybe people are waiting for the Switch 2.0 that’s supposed to come out at the end of this year.
IN MEDIA…
- WPP saw a hefty 70% fall in profits thanks to a slowdown in ad spend and chunky restructuring costs. Advertising spend can usually be quite a good bellwether of where the economy is going but advertising agencies are facing the added headwind of the potential damage that AI can do to their business.
IN THE AUTOMOTIVE SECTOR...
OVERALL…
- EV sales are slowing down, even in the world’s biggest EV market – China! The boom in subsidies in the last few years has helped sales, but those subsidies are now disappearing and weakness in China’s domestic market means that there is an increased likelihood that overseas markets are going to get flooded with Chinese EVs. European makers are so concerned about this that Renault’s CEO is even calling for rivals to get together so they can reduce costs and fight back against the likes of Tesla and BYD!
IN EV NEWS…
- BYD announced a share buyback and the launch of new luxury models, which went down well with investors.
- There was bad news for American EV makers as Rivian announced that it would be cutting 10% of its workforce as things continue to get desperate and Tesla got proposals for an extension of its German gigafactory rejected as the local town expressed concern about the enlarged factory’s impact on water levels and quality.
- Back in the UK, it looks like the site that Britishvolt was going to use for its gigafactory may be up for sale again as its current owners, Recharge Industries, are still “in default” one year on from buying the Northumberland site. FWIW, I think that Tesla should at least consider it given the troubles it is having on the Continent at the moment in German and the Nordics!
ELSEWHERE…
- California has just stopped the further rollout of Waymo’s driverless vehicles to more cities in the state. This is due to public safety concerns after recent well-publicised accidents with driverless vehicles. I wonder whether Alphabet (which owns Waymo) will have the patience to stay the course with driverless as it sounds like General Motors is really pulling back on its interest.
IN FINANCIALS NEWS...
IN CREDIT CARDS…
- Capital One agreed to buy Discover Financial for $35bn in an all-share deal. This is one of the industry’s biggest deals since the 2008 financial crisis! It looks like it wants to mix it with Visa and Mastercard!
IN BANKS NEWS…
- IN EUROPE – European banks are having problems at the moment with their exposure to commercial property. The office market is particularly problematic at the moment while valuations in the US and Europe have pretty much halved while debt costs have risen. You do wonder how things will work out when interest rates start to fall as the banks will make less on the Net Interest Margin, but they will arguably make money on their property assets that will presumably rise in value as falling mortgage rates prompt more activity in the market. Spanish bank Santander announced that it would return almost €1.5bn to shareholders in the form of a chunky share buyback and dividend hike thanks to high interest rates boosting its annual net profits.
- IN THE UK – the banks that could potentially be most exposed to the FCA’s current motor finance investigation include Close Brothers, Lloyds Bank and Santander UK – but it’s worth mentioning that financing arms of manufacturers like Ford and VW could also be in the firing line. Barclays said it would return £10bn to shareholders over the next three years via buybacks and dividends and it aims to rely less on investment banking. Meanwhile, HSBC’s profits fell by a whopping 80% and it announced a $3bn charge on the value of its stake in Chinese Bank of Communications (aka “BoCom”). The CEO maintains that the worst is over for China’s real estate sector (but then he would say that as he’s trying to suck up to the Chinese authorities). Elsewhere, we saw Monzo getting an extra £350m in funding that will bring its valuation to £4bn ahead of a widely expected stock market flotation.
IN RETAIL, CONSUMER GOODS & LEISURE NEWS...
IN RETAIL NEWS…
- IN CHINA – there are hopes that the New Year splurge could become a boost to luxury goods companies. Given that Chinese shoppers accounted for over a third of the world’s luxury goods consumption before the pandemic, you can see why the likes of LVMH and Kering want them back!
- IN THE US – Walmart put in a strong performance in its stores and online over the holiday season but it’s also trying to find other revenue streams, as evidenced by it announcing the purchase of TV maker Vizio in a $2.3bn deal. This should give Walmart more opportunities to sell advertising through the TVs that Vizio makes.
- IN THE UK – The Body Shop’s terminal decline continued with the announcement of store closures and job losses, posh kitchen retailer Harvey Jones is on the brink of collapse and Superdry is in potential takeover talks. Meanwhile, shares in Currys rose thanks to bid interest initially from Elliott Advisors and then Chinese e-tailing giant JD.com.
IN CONSUMER GOODS NEWS…
- Danone delivered on its targets two years into its turnaround plan, Nestle’s sales missed forecasts and Mondelez defended its decision to continue doing business in Russia.
IN LEISURE NEWS…
- EasyJet looks like it’ll return to the FTSE100 four years after dropping out of it, helped by strong performance and future bookings.
- IHG, owner of the Holiday Inn and Crowne Plaza brands, announced a big share buyback and dividend payout. It had strong annual results powered by the boom in travel demand and an increase in revenue per available room.
IN OTHER NEWS...
- IN UK RESIDENTIAL REAL ESTATE – House prices look like they’ve bottomed out, according to stats from Rightmove, while rent rises are slowing down, according to research by Hamptons. Meanwhile, mortgages rates ticked up as the race for getting customers is cooling down and chancellor Jeremy Hunt is still considering offering 99% mortgages to help younger people get on the housing ladder.
- IN PHARMACEUTICALS – AstraZeneca had good news about the progress of its lung cancer treatment and Bayer cut its dividend by 95% in an effort to make a dent in its debt pile. Also, Indivior is thinking about quitting London as its primary listing and going over to New York. It’s the latest company to at least talk about this but then again it looks like it makes most of its revenues in the US, so it sounds like it’s just one of those things.
- Rolls-Royce doubled its profits and was upbeat about its prospects for 2024. It said that its first SMR project could be started on the Continent, particularly if the government continues to drag its feet on an SMR decision in the UK.
- BAE Systems continues to rake it in thanks to wars going on around the world and everyone needing more ammo (either to fight the wars or to replenish their stocks.