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 luxury slowed down, when the bankers’ bonus cap was removed and when the US ordered Nvidia to stop selling AI chips to China…
- IN THE US – GDP accelerated at a rate of 4.9% in Q3, its fastest pace since Q4 of 2021! It was driven largely by consumer spending. The Fed is due to meet next week to discuss interest rates, but it is widely thought that they will be left unchanged. The strength in GDP would suggest that interest rates are going to have to stay higher for longer.
- IN EUROPE – the ECB left interest rates unchanged amid worries that the Eurozone economy is going to be weak for the rest of the year at least. Germany continues to be a drag.
- IN MARKETS – it was interesting to note that the UK Parliamentary Contributory Pension Fund holds a severely underweight position in UK equities – which is other UK defined pension schemes. This suggests that the PCPF thinks the UK economy is going sideways, at best! This isn’t exactly a ringing endorsement of the government and the way it’s running things!
IN COMMODITIES NEWS…
- Anglo American cut its full year guidance for copper production thanks to a fire at a Chilean mine that led to power supply problems for 16 days. This is important given copper’s key role in solar panels and EVs. There were also weaknesses in iron ore production (maintenance issues in Brazil), diamonds (its DeBeers subsidiary had issues in South Africa) and coking coal (difficult conditions in Australia).
- IN OIL, Chevron announced its biggest-ever acquisition – a $53m all-paper bid for Hess. This comes less than two weeks after ExxonMobil announced its $60bn takeover of Pioneer Natural Resources. I think this is interesting because a) it seems to suggest that there is still a lot of mileage (and profit) to be had in fossil fuels and b) that there seems to be a move towards deal-making among oil groups in the Western hemisphere as global powers shift in the Middle East, China and Russia. The fact that Shell also announced job cuts at its low-carbon division adds to the feeling that oil companies aren’t really taking decarbonisation all that seriously.
IN BUSINESS EMPLOYMENT & CONSUMER TRENDS NEWS...
IN BUSINESS TRENDS…
- UK business activity continues to slow, although at a slower rate than it has been doing of late. The gloom continues in both manufacturing and services according to the latest S&P/CIPS flash UK PMI.
- WPP has had to cut its revenue forecasts for the second consecutive quarter as ad spend from Big Tech companies fell. It wasn’t all bad, though, as it did win new business in Q3 – but a turnaround in tech sector fortunes would clearly make a big difference.
IN EMPLOYMENT TRENDS…
- The latest employment figures have been called into question because the ONS has had to change the way they collect the data as the number of respondents has fallen sharply (from 40% pre-Covid to just 14% now!), rendering their accuracy somewhat doubtful. Inaccurate data is clearly going to make interest rate decisions by the Bank of England very difficult…
IN CONSUMER TRENDS…
- Tesco reckons that customers are going to “party” at home this Christmas (although, isn’t that supposed to happen every Christmas??) but online retailer Asos had to delay the publication of its results as it’s already showing signs of strain (there was also a report from the CBI which showed that online retail sales have fallen at their sharpest pace ever this month) and research suggests that households are going to be facing higher energy bills next year.
IN RETAIL, CONSUMER GOODS & LEISURE NEWS...
IN RETAIL NEWS…
- Luxury seems to be slowing down as Hermès experienced slowing sales growth in Q3, Kering fell short of its sales forecasts and Moncler also experienced a sales growth slowdown (although maybe they’ll do better in this coming quarter as they are more known for winterwear). Even Porsche buyers are having to rein things in, particularly in China. It’ll be interesting to see whether there’s any slowdown at other luxury marques. The luxury segment has been pretty robust thus far as those further up the socio-economic scale have been more insulated from the cost-of-living crisis because the amount they spend on “basics” is much lower as a percentage of their disposable income. However, even they have limits it seems!
- IN APPAREL – Boohoo is now facing a £100m class action to get compensation for shareholders who lost money after allegations were made back in 2020 that it used forced labour in its factories. Ouch! Still, that didn’t put Mike Ashley off as he topped up his shareholding in Boohoo and Asos (he’s been building up his holdings in both for a while now).
- Amazon beat market forecasts for Q3 revenues – mainly thanks to great performance by AWS, its cloud-computing business – but it also benefited from cost-cutting measures.
- Heineken suffered from poor summer beer sales in the UK, but they were weak across Europe as well. That said, it managed to gain market share in over half of its markets and it’s sticking with its year-end forecasts.
- Unilever put in a decent performance thanks to people buying more personal care products as more of them go into the office, but their LatAm business also did well. Rival Reckitt Benckiser put in a weaker-than-expected performance but sounded confident about the business going forward, announcing an ambitious £1bn share buyback.
- Toymaker Mattel put in a strong performance in Q3 as the “Barbie” movie helped power it out of its sales slump.
- Sofa seller ScS received a £100m bid from Italian furniture chain Poltronesofà to take it private. This is part of the latter’s plans to expand in Europe.
IN LEISURE…
- Heathrow reckons it’ll break even after experiencing a summer boom and although things are looking OK at the moment, its high debt levels will continue to be painful if interest rates stay higher for longer.
- Cruise ship operator Carnival faces big legal problems as it is being forced to compensate a cruise passenger who caught Covid by an Aussie judge who said the company had been “negligent” in the way it had handled the outbreak. Could this open the floodgates of compensation – not just within the cruise industry, but in other industries as well??
- Pizza Express’s owner is rumoured to be considering making a bid for Wagamama owner TRG, which has already received a bid from US private equity firm Apollo.
IN AUTOMOTIVE-RELATED NEWS...
IN EV NEWS…
- The International Energy Agency said in its World Energy Outlook report that China could power a tenfold increase in demand for EVs which means that peak demand for fossil fuels will happen in the next seven years.
- Ford has decided to delay its proposed $12bn investment in EVs, citing sluggish consumer demand and pricing pressure from rivals. Meanwhile, it made a profit in Q3 but revised its guidance for the full year because of the UAW strikes.
- Stellantis has moved to buy a 20% stake in Zhejiang Leapmotor Technology, a Chinese EV start-up, for about $1.6bn. It’s probably hoping that Leapmotor will become the next BYD and/or help them in some way with reducing production costs.
- Mercedes described the EV market as “brutal” for manufacturers as the competition from cheap models coming from China is increasing.
ELSEWHERE…
- Harley-Davidson saw Q3 profits drop sharply due to customers suffering with higher borrowing costs and inflation.
- Online used car retailer Cazoo is really tanking now as sales have halved year-on-year. The NYSE is threatening to delist it unless things improve pronto. This is a shining example of a massive SPAC-backed failure!
- GM’s driverless unit Cruise got its permits suspended by the DMV in California saying that its vehicles weren’t safe for public operation! This is clearly a massive blow and a huge step back for driverless taxis.
IN FINANCIALS NEWS...
IN US BANKS NEWS…
- Goldman Sachs launched the Goldman Sachs Global Institute that will analyse and advise clients on geopolitics and disruption from the rise of AI. This kind of business already exists but I’m sure that this one will be a great way of harnessing Goldman’s expertise given its incredible network.
IN EUROPEAN BANKS NEWS…
- BNP Paribas had a mixed set of Q3 results. Quarterly revenues came in above expectations but trading was disappointing.
- Deutsche Bank actually announced a solid set of Q3 results that came in above expectations as annual revenues hit their highest level for seven years! It was helped by the high interest rate environment.
- Santander reported a strong Q3, again thanks to the high interest rates. Although it looks like rates have now peaked, it is still confident of getting growth from its LatAm business.
IN UK BANKS NEWS…
- Barclays reported a steep drop in Q3 profits and cut its UK growth outlook. It sounds like there are cost cuts to come…
- Lloyds Banking Group saw its Q3 profits coming in above market expectations as a result of the high interest rate environment.
- Standard Chartered had to put aside $1bn to cover its losses from the ailing Chinese property sector.
- The banker bonus cap, where bankers were limited to getting a bonus of “just” double their salary, is going to be scrapped. Many are up in arms about this, but I think the reality of it is that this is going to be used by many banks as an excuse to cut staff numbers and bring down the wage bill. It is likely that working in investment banks will be much more interesting for foreign nationals wanting to work here as a result of this…
ELSEWHERE…
- The cross-border payments fintech CAB Payments saw its share price collapse after posting a profit warning and cut its full-year revenue forecast. It got even worse the following day as rival Worldline also announced its own profit warning thanks to a combination of weak demand and rising instances of cybercrime. A slowdown in demand and fierce competition in the space from the likes of Block, Strip and Adyen is putting downward pressure on prices.
- PwC announced its latest numbers which showed that its revenue growth was lagging that of its competitors. The global chair did say, however, that it was in investment mode at the moment and that the benefits will filter through in the coming years.
IN TECH NEWS...
IN AI NEWS…
- The Frontier Model Forum (the group made up of Microsoft, OpenAI, Google and Anthropic) appointed a new director who comes from the Brookings Institution think-tank. The FMF is to be a non-profit industry body funded by membership fees.
- That said, there are still rumblings as Google DeepMind’s British chief exec warned about the dangers of AI while publisher Bloomsbury also appealed for ministers to act quickly to protect the industry from AI.
- Microsoft saw sales jump as a result of strong AI demand and the cloud business that underpins it. It is clearly reaping the benefits of early investment into AI.
IN CHIP NEWS…
- The US ordered Nvidia to stop exporting AI chips to China – with immediate effect. The previous deadline was mid-November. This move comes ahead of trade talks due to be held in the US when President Xi visits next month.
- Intel reckons that PC demand is on the verge of recovery as chip inventories that had been built up in the aftermath of the pandemic have been falling for the last few months. It also has plans to make chips for use in AI, so that could also be a tailwind…
IN SOCIAL MEDIA NEWS…
- Meta had some good and bad news. The good news is that its Q3 turned out to be its most profitable quarter in years. The bad news is that Meta is being sued by 33 states over claims that Instagram usage endangers youth mental health. This could be bad if it loses.
- Snap returned to growth after suffering in the last two quarters thanks to improvements in its ad platform.
- Spotify managed to get back into profit in Q3 thanks to the implementation of recent price rises and cost cutting.
BANTER
I know this was staged, but it still made me laugh – so my favourite “alternative” video from this week was this one of the inappropriate DJ at an office party 🤣!