Watson’s Weekly 31-05-2025

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…

• Things are getting testy again between Washington and Moscow as the latter dismissed Trump’s recent accusation of Putin being “crazy”. In the meantime, nothing’s getting done and Putin keeps pushing.

IN TRADE…

• The EU sounded like it was seeking out a quick trade deal with the US and Trump indicated that, indeed, progress was being made. However, a spanner was thrown in the works by the US Court of International Trade which ruled that the “liberation day” tariffs were illegal! This could mean that trade partners will be more inclined to drag out negotiations but then, just one day later, the US Court of Appeals gave the government a temporary reprieve to decide whether or not this decision should still stand. While the appeal is going on, taxes can still be collected.
• The UK is on the verge of signing a £1.6bn trade deal with the Gulf states, but this has been criticised by human rights groups and others. The PM’s unlikely to take notice, though, as his priority will be to do trade deals.

TRUMP vs EDUCATION/THE WORLD…

• IN TRUMP vs EDUCATION – Trump threatened to take away $3bn in grants from Harvard and give the money to trade schools in the US instead. He then promised to used “every tool” to crack down on international students and then US secretary of state Marco Rubio said that he would be revoking the visas of Chinese students “including those with connections to the Chinese Communist party or studying in critical fields”. In response, French business schools are looking to fast-track any students who have been caught up in all of this.
• IN TRUMP vs THE WORLD – Trump said that he would offer “Golden Dome” protection to Canada for free if it agreed to become America’s 51st state, or else it should pay $61bn.

IN INDIVIDUAL COUNTRY NEWS…

• IN THE US – the Fed is going to hold off on implementing further interest rate cuts until the impact from Trump’s tariffs becomes clearer despite increasing pressure from Trump to cut them. Meanwhile, the US economy shrank by 0.2% in Q1, its first contraction since 2022. There will surely be more pain to come…then we heard that Musk was stepping down from the Trump administration and a lot of DOGE’s work will now shift to the White House Office of Management and Budget. In the meantime, Musk will return to running his companies. As the week wore on, there were increasing concerns about a foreign tax provision in last week’s budget bill that could choke off investment in the US just at a time when foreign investors are already getting a bit nervy about US assets.
• IN GERMANY – the government is considering the implementation of a 10% digital tax on Big Tech, but then you would have thought that the foreign tax provision I just mentioned above is just the sort of instrument that could neutralise such a move.
• IN THE UK – the UK economy will be hit by Trump tariffs, according to the IMF and it recommended that chancellor Reeves change her fiscal rules to avoid emergency spending cuts. In the meantime, the Bank of England is facing a dilemma over what to do about interest rates given that salaries rose by 9% in April, the highest rate for almost three years! The implication here is that if wages rise, people spend more and inflation goes up. The Bank wants inflation to go down and because it has been calming down, it has cut interest rates. If inflation starts to turn up because of higher wages, the Bank will have to at least delay any further cuts – and it may have to increase interest rates again if inflation looks like it’ll be rising on an ongoing basis.

IN MARKETS NEWS…

• Citadel Securities saw its profits jump by a whopping 70% thanks to trading revenues as volatile markets gave traders lots of opportunities to make money.
• The UK listings drought will continue until investors believe that companies are listing for the right reasons, according to investment manager Baillie Gifford.

IN OIL NEWS…

• US oil company chiefs reckon that the US shale boom is over despite Trump’s exhortations to “drill baby drill” because tariffs have pushed costs up while OPEC’s production increase has put downward pressure on oil prices.

IN CRYPTO NEWS…

• Bitcoin continued to surge and it turns out that more listed companies are buying it. JD Vance continued to big it up at a conference in Las Vegas, adding that the administration would establish “pro-innovation” rules for digital assets.
• Trump Media & Technology Group (TMTG) announced that it’s looking to raise $2.5bn to plough into crypto including bitcoin in order to build a “bitcoin treasury” that will help to make the US the “crypto capital of the world”.

IN BUSINESS NEWS…

• UK business confidence jumped in May, according to the latest Lloyds Bank business barometer, bouncing back from a big decline in April. Maybe the shock of “Awful April” is subsiding.

IN EMPLOYMENT NEWS…

• The war for talent between Wall Street banks and private equity firms is intensifying and they are taking increasingly extreme measures to get the juniors they want.
• Meanwhile, McKinsey has cut 10% of its headcount over the last 18 months as it strives for profitability. Clearly the deal flow pipeline needs to free up a bit as it’s not the only professional services company that over-employed over the last few years.
• Firms seem to be rebranding DEI/EDI roles and strategies so they don’t fall foul of the current zeitgeist.
• 10% of UK civil service jobs are facing the chop as part of a “brutal” public spending review that chancellor Reeves wants to complete by the beginning of next week.

IN CONSUMER NEWS…

• American consumers are getting more confident, according to figures from the Conference Board, but then again their pessimism has powered the performance of warehouse clubs like Costco, Sam’s Club and BJ’s Wholesale Club because they are worried about higher prices.
• British consumers are experiencing the fourth consecutive month of food price inflation, according to the latest data from the BRC. Coupled with other things like higher utility bills introduced last month, we can see that the pressure on the UK consumer is not letting up!
• IN TOURISM – American and British travellers are increasingly seeking out domestic destinations to holiday while travellers from tariff-hit countries like Japan, Canada, Mexico and Germany to US have fallen markedly.
• IN RESIDENTIAL PROPERTY – European homeowners are facing rising mortgage costs heading into 2030 as fixed rate mortgages taken out in the days of near-zero interest rates expire. Back in the UK, Zoopla stats say that homeowners are selling for 4.5% below the asking price on average while UK house sales are the strongest they’ve been since the “race for space” back in 2021.

• IN THE US – Costco is front-loading orders (particularly of seasonal goods like garden furniture etc) and shifting the sourcing of its private-label products to the regions where they are sold in order to minimise the impact of tariffs. Meanwhile, Abercrombie & Fitch and Gap are having a bit of a revival after years of being in the wilderness.
• IN THE UK – Shein looks like it’s going to ditch a London float for a Hong Kong one, which TBH is probably going to be best for all concerned (apart from the London Stock Exchange, of course). In supermarkets, Asda continued to lose market share as it looks like Allan Leighton has lost his magic touch. A complete root and branch redo is needed IMO and he’s just tinkering around at the edges.

IN AI NEWS…

• Musk’s xAI announced a $300m deal with Telegram’s founder Pavel Durov to distribute xAI’s Grok chatbot to Telegraph’s 1 billion users in a one-year deal. Telegram will own a chunk of xAI as part of the agreement and the deal represents the first major expansion for the AI group into a new social media platform outside X.
• The New York Times announced its first AI deal with Amazon to use its content to train Amazon’s AI models, for an undisclosed amount.
• The data centres that power AI models continue to be highly reliant on lithium-ion batteries – the supply chain of which is very much controlled by the Chinese. Alternative options that are being developed include organic flow batteries and sodium ion batteries.
• IN TERMS OF AI USAGE – there were calls in a report by the Ada Lovelace Institute to do something about “significant gaps and fragmentation across biometrics governance” regarding the use of AI in facial recognition. Regulation is surely needed as one observer said that “we’re in a situation where we’ve got analogue laws in a digital age”. Meanwhile, there is increasing scrutiny from the client side about whether law firms’ use of AI is going to result in lower bills given that law firms tend to charge by the hour. Will this result in a complete change of the traditional business model not just for law firms but also for other professions that charge for their services in this way?

IN CHIP NEWS…

• Nvidia’s business has been booming in Q1 despite restrictions on its China prospects but Chinese companies are having to come to terms with tightening access to Nvidia’s chips, relying increasingly on the capabilities of domestic producers.

IN HARDWARE NEWS…

• SpaceX’s Starship rocket failed to deploy satellites and exploded on re-entry to the earth’s atmosphere. On a positive note, Ofcom is going to grant new temporary spectrum licences to Starlink to boost frequencies and therefore expand network capacity.
• HP said that it would be raising prices and shifting more production out of China in response to Trump’s tariffs.

IN SOFTWARE NEWS…

• Trump just ordered US chip software suppliers to stop selling to China in his latest attempt at slowing China’s tech progress. This follows restrictions announced in April that affected the export of Nvidia’s China-specific AI chips.

• BYD cut prices of its its EVs in China by a whopping 20%, putting pressure on all of its domestic rivals – and Tesla. This move is potentially going to establish a new baseline of what EVs should actually cost. Meanwhile, Tesla sales fell by 49% across Europe in April.
• Volvo announced a headcount reduction of 15% at its head office as part of a plan to cut $1.9bn in costs.
• Trump’s tariffs have powered used car sales in the US to new heights, leading to the average price of 50 of the best-selling cars in the US increasing every week for the past two months to almost $29,000, according to data from Cox Automotive. This compares to the average price of $48,000 for a new car – so you can see why demand is so hot!
• GM abandoned plans to invest $300m into EV motor production and put $888m into the production of its latest V-8 engines instead. What a reversal!
• Toyota announced attempts to catch up with rivals on in-car software with a system called Arene. This is all part of a broader effort to get a piece of the action in autonomous driving. I’m not too optimistic here because although Japanese makers are great at manufacturing, they are not so hot on software.

• IN BUILDING/CONSTRUCTION – Grosvenor’s profits boomed thanks to rising rents at offices, flats and shops in Mayfair. Occupancy rates at its properties increased to 97% in a steady recovery from the 90% in the aftermath of the pandemic. Meanwhile, government ministers are looking at plans to ease rules for small builders so that they can bid to develop new sites across England. Proposals would exempt smaller housebuilders from some onerous environmental controls and the safety levy.
• IN FINANCIALS – the chancellor remains dead set on making stodgy British pension funds buy into British assets and will force them to invest in them in new pensions legislation later this year. In banks news, Starling’s profits fell by a quarter thanks to its handling of the government-backed Bounce Back Loan (BBL) scheme that came about during lockdown.
• Roche extended trials of a promising antibiotic that attacks superbugs. If it is successful, it’ll be the first of a new class of antibiotic that can kill superbugs.
• Salesforce raised its full-year sales outlook thanks to a strong performance. It said that its investments in AI are gaining momentum.
• KFC plans a £1.5bn restaurant upgrade in the UK in its 60th birthday year. It’s planning on broadening its footprint and upgrading its existing outlets.

This is a bit naughty of me but my actual favourite video this week was this one that I should have included on Friday’s note! DEFINITELY put the sound on! If you watch it, I think that you will be able understand my decision…