Watson’s Weekly 24-05-2025

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 WAR NEWS…

• Trump decides to leave Russia and Ukraine to it as he steps back from negotiations, appearing to abandon his promise to end war in Ukraine.

IN INDIVIDUAL COUNTRY NEWS…

• US – Moody’s became the last credit rating agency to downgrade the country’s AAA rating due to its rising debt, Treasury Secretary Bessent obviously blamed this on Biden’s administration and the country’s borrowing costs increased as a result of the downgrade. This was a pretty eventful week, even by Trump standards, as he managed to push through his centrepiece “big, beautiful” tax bill through the House but by just one solitary vote, formally accepted a $400m plan from Qatar and  baited South African president Cyril Ramaphosa in a baying Oval Office reminiscent of the Zelenskyy mauling. His administration’s Make America Healthy Again commission published a fairly damning report on the current state of childrens’ health and the reasons behind it, in what is probably going to be a precursor to a big dramatic clampdown on the food industry, chemicals companies and social media. The administration also continued its vendetta against Ivy League universities in its latest attack on Harvard by immediate withdrawal of its student and exchange visitor certification, which will force existing international students to switch enrolment to alternative universities and probably put would-be students off going to Harvard and possibly American universities more widely. Some Ivy League universities are having financial issues as they are having to offload assets at discount prices as everyone knows they are forced sellers.
• IN EUROPE – the European Commission cut its growth forecasts for this year and next due to all the uncertainty but there was relief in Brussels as pro-EU candidate Nicuşor Dan won Romania’s election over the weekend (although populists are closing the gap across Europe), the EU imposed a flat €2 tax on low cost items on small packages entering the bloc which should hit the likes of Shein and Temu – and Spain got hit by phone and internet blackouts just weeks after that big power outage! Apparently this was due to Telefonica mucking up a system upgrade but you do wonder whether something funny’s going on there at the moment…
• IN UK – the UK and EU agreed a post-Brexit reset, the headlines of which were extending access for EU boats to British fishing grounds and youth employment mobility. British ports are seeking compensation for installing border infrastructure that won’t now be needed. Elsewhere, UK inflation came in higher than expected at 3.5% (but that was due to the impact “Awful April”), UK public sector borrowing costs rose by more than expected last month, private sector activity dropped but the latest GfK consumer confidence survey reflected a glimmer of hope for household sentiment and the government had to perform a U-turn on winter fuel payment cuts while net migration to the UK fell by half in the year to December 2024.

IN ENERGY…

• Clean energy stocks fell thanks to the impact of cuts to clean energy tax credits in Trump’s “big, beautiful” bill – but then we heard that the big offshore wind project run by Norwegian energy group Equinor off the coast of New York is due to restart again after it had been suspended.
• Renewable energy suffered more blows outside the US this week. New Zealand abandoned its net zero push by lifting a ban on drilling for oil and gas that had been put in place by former PM Jacinda Ardern in 2018 and UK energy developer SSE announced that it will cut spending on renewable projects over the next five years. This is just the latest blow to Milliband’s net zero plans.

IN CRYPTO…

• Bitcoin hit a new high of $109,760 on hopes that the US will soon agree on a set of regulations for digital assets that will help to make them more mainstream.

IN CONSUMER TRENDS…

• BILLS – UK energy bills should fall by 7% this summer, according to Cornwall Insights, thanks to falls in wholesale gas prices. This will come in very welcome at the moment!
• PROPERTY PRICES – in the UK, figures from Rightmove show that the average asking price for a UK home hit a new high of almost £380k in May although prices in Kensington & Chelsea, London’s most expensive borough, have fallen to their lowest levels since 2013 as London property continues to underperform. In China, young home buyers are getting less eager to buy property as youth unemployment stands at about 16.5% and attitudes towards home ownership are changing.
• SPENDING – consumers are still spending on holidays but Ryanair warned that price rises are on the cards because of the enforced purchasing of sustainable aviation fuel, rising air traffic control fees and limited plane capacity.

IN RETAIL NEWS…

• IN LUXURY – Chanel profits dropped sharply thanks to weakness in its performance in Asia, so its new artistic director has a real job on his hands. On the flipside, Ralph Lauren saw higher profits and revenues for Q1 thanks to raised prices and lower cotton costs. Canada Goose sales also rose over the quarter but it didn’t unveil guidance for the full year because of economic uncertainty and the fact that its peak winter season is still a way off.
• IN APPAREL – Urban Outfitters saw sales and earnings jump in Q1 thanks to robust performance by each of its brands, including Anthropologie and Free People.
• IN GENERAL MERCHANDISING – Target sales fell sharply thanks to a combination of customer backlash at the abandoning of its DEI policies and the fact that its current product mix is more weighted to discretionary spend (only 22% of its total revenues come from groceries, which tends to hold up during a downturn). In the UK, M&S gave us more detail about the recent hack attack that will take until July to recover from. This is a real shame as its turnaround efforts were coming through nicely until that happened.

IN CONSUMER  GOODS…

• Swiss footwear maker On is looking at Asia expansion and aims for China to make up 10% of global net sales and Nike announced that it would be selling products on Amazon following a five-year absence but Deckers (the company that owns Hoka, Ugg and Teva) announced a weaker-than-expected outlook for the current quarter and decided not to share its outlook for the full year.

IN LEISURE…

• RESTAURANTS/TAKEAWAYS – Greggs announced a return to form thanks to rising sales of peach iced tea, mint lemonade and pizza, bizarrely enough! SSP, the company that owns Upper Crust among other brands, saw a welcome rise in operating profit as its cost-cutting efforts are coming through but it decided to postpone the flotation of its JV in India given the uncertain economic outlook.
• IN TRAVEL – EasyJet, Ryanair and British Airways owner IAG are seeing a pick-up in summer bookings despite slowing economies and an increasingly uncertain geopolitical outlook.

IN EMPLOYMENT TRENDS…

• US college grads are having a nightmare getting jobs as businesses have been cutting hiring plans due to economic uncertainty.
• Deloitte said that it’s going to cut back on bonuses, pay and promotions due to profits falling short of expectations. The shortfall of deals to advise on has hit a lot of companies, including EY, who were relying on them.

IN INVESTMENT NEWS…

• SPACs are making a comeback courtesy of a number of small boutique banks using this way to come to market. The peak was back in 2021 but the last few years have been quiet because of high interest rates.
• Data from Morningstar shows that investors have increasingly been putting money into world ex-US mutual funds and ETFs since Trump came to power. In fact, the last three months have seen the highest monthly INFLOW total on record!

IN FINANCIALS NEWS…

• The FCA is finally going to regulate BNPL specialists like Klarna etc. New legislation will force these companies to check whether shoppers can afford to pay back loans and borrowers will be able to complain to the Financial Ombudsman. This has been on the cards for years, so the lenders have had a lot of time to adapt but it seems to me that they’re no longer all that different from traditional credit card companies…
• Talking of BNPL specialists, Klarna saw its losses widen over Q1 as customers missed loan repayments. Concerns are rising over the financial health of US consumers
• Meanwhile, Legal & General bought real estate investor Proprium Capital Partners for an undisclosed price as it continues to broaden its efforts in private assets.

IN AI NEWS…

• Microsoft will be offering xAI’s Grok models to cloud customers under the same terms as OpenAI’s ChatGPT. Although Microsoft is OpenAI’s biggest backer financially, it’s clearly trying to wean itself off complete reliance on it.
• UBS is using avatars of its analysts to free them up to focus on more productive things. Duncan and I talk about this in Episode 938 of the podcast 🎙️- but I also talk about this with Ralph in Episode 939 🎙️as we look at how this could affect the equity research profession – and other ones as well!
• Google announced an overhaul of its search engine to make it sound more like a chatbot, in “AI Mode”. It makes search more conversational and less link-heavy.
• OpenAI announced that it would buy Jony Ive’s hardware start-up IO for $6.4bn in a push to develop AI-powered hardware that could eventually replace the smartphone. They say that the new gadget they’re working on isn’t going to be a phone or smartglasses (although I really think that smartglasses are the way forward) but they are going to have to be going some to beat Apple given the latter’s technical prowess and oodles of available cash.
• CoreWeave, the AI data centre operator, has managed to raise an impressive $2bn in a junk bond offering, giving itself a useful lump sum to play with. There was strong demand.

IN OTHER TECH NEWS…

• Apple announced that it would go ahead with building a $1.5bn component plant in India with Foxconn, ignoring Trump’s demands to return manufacturing to the US. This would be Apple’s latest shift away from China and towards India.

IN SOCIAL MEDIA NEWS…

• Strava’s valuation hit $2.2bn at its latest funding round after its purchase of Runna. It’s impressive to see a lockdown “winner” continuing to do well.
• Telegram’s profits hit $540m despite its founder potentially facing jail time. This has been thanks to rising numbers of paying users and gains it has experienced via tie-ups related to its own cryptocurrency, Toncoin.

IN BATTERIES…

• China’s CATL had a decent market debut on the Hong Kong Stock Exchange this week in what was the world’s biggest listing of the year to date globally. Separately, founder Robin Zheng reckons that the China truck market will be 50% electric by 2028. He reckons that trucks using his batteries could cut cost-per-tonne-kilometre by a chunky 35% versus those fuelled by petrol.
• GM declared that it wanted to “seize EV battery leadership from China” by cutting battery costs. Good luck with that.
• Ford announced that it would be sharing one of its battery plants with Nissan. It built two EV battery plants over the last few years but only uses part of one of them, so it makes sense for Nissan to get some use out of it.

IN CAR TECH…

• A study was published in the US Proceedings of the National Academy of Sciences highlighting the importance of “social sensitivity” in prioritising the impact of multiple hazards. It emphasised the need for autonomous cars to react more like humans to minimise risks. Overcoming this hurdle would be a huge leap forward (and I’d imagine that this would be vital for insurance purposes as well!).
• There was an interesting piece in The Guardian that highlighted just how advanced Chinese cars are in terms of tech. Chinese makers continue to put pressure on established brands by providing an array of decent cars across a range of price points that are packed with tech that others charge extra for. Duncan and I talk about how advanced tech in Chinese EVs is really making everyone else look bad in Episode 938 of the podcast 🎙️.

IN INDIVIDUAL COMPANY NEWS…

• Musk said this week that he’d be stepping back from politics/DOGE and concentrating on Tesla. He recently clashed with members of Trump’s cabinet and is opposed to his trade policies.
• China’s BYD vehicles outsold Tesla’s in Europe for the first time last month, according to research firm Jato Dynamics. While Tesla reported a 49% monthly drop in April, BYD saw a 395% increase, including hybrid model sales. Musk has torpedoed the Tesla brand and, without a slew of new models in the pipeline the damage he’s wrought could take some time to get over.
• Honda cut its EV budget by a third in order to focus on hybrids in response to lacklustre EV demand.
• Meanwhile, California’s ban on new petrol-powered cars by 2035 is looking very vulnerable thanks to the Senate voting to block it. This will be a nightmare for the EV industry but a victory for the broader car industry.

• IN LAW NEWS – Kirkland & Ellis poached top Skadden Arps partners Graham Robinson, Laura Knoll and Chadé Severin as the battle for top talent rages on while two former partners of Allen & Overy – now A&O Shearman – set up shop to advise on private capital investments in the legal sector. The new company is called Dejonghe & Morley after the founders.
• Novo Nordisk is having all sorts of problems as the boom of its Ozempic and Wegovy is dying out. Its share price has halved since last summer, it booted out its CEO last week and there are now more alternative treatments on the market. It’s also lagging arch rival Eli Lilly in the next generation of weight loss drugs in pill form.

My fave video this week was this absolute belter of a bet 🤣🤣🤣!