Thursday 09/02/23

1. In MARKETS, MACRO & OIL NEWS, US equities slide, investors pour money into China, MSCI reviews Adani Group, the FTSE100 hits an all-time high and the Istanbul stock exchange shuts while Turkey responds and Equinor reports massive profit
2. In TECH NEWS, Alphabet takes a massive hit and Microsoft is told to sell Call of Duty
3. In UK REAL ESTATE NEWS, we look at what’s behind the house price falls, the outlook and a ban on wood burners
4. In MISCELLANEOUS NEWS, Disney cuts headcount, Mattel’s earnings fall, Beyonce’s clothing line hits Adidas, Cazoo has to restructure and the City is to publish a review of financial services
5. AND FINALLY, I bring you an unusual place to stay and a weird pizza…

So US equities weaken, China confidence strengthens, MSCI downgrades Adani, Turkey responds and Equinor announces massive profits…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

In US equities slide as investors turn cautious on outlook for interest rates (Financial Times, Martha Muir and Jaren Kerr) we see that US equities fell yesterday after the Fed said that US interest rates would still need to rise to combat inflation despite last week’s unexpectedly strong US jobs report, causing the S&P 500 to end 1.1% lower.

I thought that Foreign investors start 2023 with record $21bn push into China stocks (Financial Times, Hudson Lockett and Katie Martin) was pretty interesting because it shows that investors have poured a record $21 billion into Chinese equities so far this year in response to robust economic data. Foreign buying of Shanghai and Shenzhen-listed shares through Hong Kong’s Stock Connect program has more than doubled the previous record from 2021! The positive economic data released after the lunar new year holiday has helped to reassure investors about China’s growth outlook and has driven the surge in foreign demand for China stocks. * SO WHAT? * I did say recently in Watson’s Daily that if China lifted its Covid restrictions there would be a major boom for the Chinese market but the caveat is that this would happen as long as there wasn’t another serious outbreak of Covid. The major potential “super-spreader” event of people travelling around the country over the lunar new year holiday seems to have – thus far – proceeded without a disastrous rise in deaths (as far as I know – but you just don’t know whether the figures reflect the true situation). There is danger to the downside here in terms of an outbreak and the continued fractious relationship between the US and China. They had looked like they were going in the right direction post-Davos, but the whole spy balloon thing torpedoed that for now. In the meantime, the US is continuing its clampdown on all things Tech to do with China.

Chinese tech group’s Nasdaq IPO signals revival for offshore listings (Financial Times, Nicholas Megaw) highlights the case of Hesai Technology, a Chinese sensor maker for cars, which has managed to raise $190m from investors in its IPO on the NASDAQ, making it the largest Chinese group to go public in the US since 2021. The $190m raised actually beat expectations and the listing gave it a valuation of around $2.4bn. * SO WHAT? * This is a potentially major development because Chinese company listings on US stock exchanges have become rather problematic over the last few years both from the Chinese side (authorities did not want to see a “brain drain”, especially in tech) and from the American side (they decided to stop overlooking the lack of financial disclosure from Chinese companies, particularly in the wake of what happened with Luckin Coffee, which was delisted after it was found guilty of accounting fraud). A particularly tricky thing happened back in 2021 when ride-hailer Didi Chuxing decided to list on the NYSE, which angered Chinese authorities who subsequently

📢 It’s Thursday, so it’s time for the one hour weekly Zoom call for SILVER and GOLD subscribers! Click HERE to access the joining details. *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• If you had £1m of cash that you had to invest right now – and you could only invest in stocks of one country, what would it be and why?
• Do you think it’s right for Meta Platforms to target younger users in its quest to be a major player in the metaverse? Why?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

made its life so difficult that it had to delist less than 12 months after its debut. Hesai is the first Chinese company to raise over $100m in the US since October 2021 and is the biggest tech group to float in New York since Didi! It’s also an important step for investment banks such as Goldman Sachs, Morgan Stanley and Credit Suisse who were able to underwrite their first deal since 2021, according to Dealogic. Signs for the future are looking good as the Nasdaq Golden Dragon Index that follows shares in US-listed Chinese companies has gone up by 66% since the end of October as sentiment has improved. Shein is, of course, one of the potential listings that is getting people excited – and that is expected to list sometime this year.

Global index provider MSCI reviews Adani Group weighting (Financial Times, Hudson Lockett) shows that MSCI has reviewed the free float of Adani Group stocks in light of Hindenburg Research’s recent report and subsequent share price movements and events and plans to announce changes to its weightings later today. MSCI believes that some investors in Adani Group should no longer be considered as free float based on its methodology. * SO WHAT? * The MSCI’s indices are followed by many investors around the world and a reduction in weightings in its indices will lead to outflows as investors reduce their holdings. This is because tracker funds in particular have to reflect what is in any given index and if those constituents change, the funds have to buy or sell their shareholdings accordingly.

FTSE 100 hits fresh all-time high as inflation and recession fears ease (The Guardian, Joanna Partridge) shows that the FTSE100 hit its highest ever level yesterday, rising almost 1% to peak at 7934.30 points. It came after the index had taken over four years to surpass its previous high in May 2018 and was no doubt bolstered by findings from the National Institute of Economic and Social Research which said that Britain would avoid recession this year! Investors have generally been emboldened by governments and centrals banks seemingly getting to grips with inflation – plus hopes of China being a driver of global growth once more after relaxing its zero-Covid policy.

Further to the devastating aftermath of the earthquake, Istanbul stock market shuts to prevent selloff after earthquake (The Guardian, Phillip Inman) highlights the fact that Turkey’s stock exchange was closed for the first time in 24 years due to panic among foreign investors following the damage and death toll from the country’s most powerful earthquake for the last 100 years. The Borsa Istanbul stock exchange decided to halt trading in equities, futures, and options markets after market-wide circuit breakers had halted trading twice. Erdoğan’s earthquake response a test for his leadership as elections loom (Financial Times, Adam Samson and Ayla Jean Yackley) focuses on the government’s response to the earthquake which will likely impact the election outcome in May, with analysts offering mixed views on whether it will hurt or improve Erdogan’s chances. His popularity was weakening prior to the disaster

In Europe, Equinor, Norway’s state oil and gas giant, reports record $28.7bn profit (The Times, Emily Gosden) shows that Norway’s state-owned oil and gas company posted a net profit of $28.7bn in 2022 – more than triple the $8.6 billion in the previous year! Equinor (which used to be known as Statoil) is the biggest supplier of gas to the UK, supplying about 30% of our oil and gas. * SO WHAT? * This is just the latest example of just how well oil and gas companies are doing right now! Environmental groups have already complained about the massive profits and are calling for bigger windfall taxes…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Alphabet takes a hit and Microsoft hits a big hurdle…

$120bn wiped off Google after Bard AI chatbot gives wrong answer (Daily Telegraph, Gareth Corfield) highlights a nightmare launch for Google’s new AI search assistant, Bard, which led to a $120bn loss in the parent company Alphabet’s market value after it gave an incorrect answer to a question featured in promotional material. * SO WHAT? * This raised concerns about the accuracy of search engines and AI-generated answers. Google said that it is launching its Trusted Tester program to improve the standard and accuracy of Bard’s responses, but clearly AI is not the finished article just yet.

Sell Call of Duty or we’ll block $69bn Activision takeover, Microsoft told (Daily Telegraph, Matthew Field) is the rather dramatic-sounding headline that shows that the UK’s Competition and Markets Authority (CMA) is threatening to block Microsoft’s $69bn merger with Activision Blizzard unless it sells the best performing game franchise in the deal, Call of Duty. * SO WHAT? * The CMA is concerned that Microsoft could incentivize making Call of Duty exclusive to its Xbox consoles, thereby limiting competition and potentially increasing prices for gamers. The decision could have a significant impact on Microsoft and is expected to be made in April. No doubt Sony in particular will be overjoyed at this! A final decision on this is expected to be reached in April.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

We take a look at the tricky UK property market and a ban on wood burners…

In UK house prices showing most widespread falls since 2009 (Financial Times, Daria Mosolova) we see that UK house prices saw their biggest overall fall since 2009 due to surging mortgage rates and receding buyer demand, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS). This survey follows the share of surveyors who report an increase or decrease in prices. It also reflected a decline in new buyer inquiries, which fell for the ninth month in a row.  Mortgage approvals in December were at their lowest since January 2009. * SO WHAT? * I think this is to be expected given what happened after last year’s disastrous Truss-Kwarteng mini-budget and it does reflect similar conclusions from Nationwide earlier this month. On the plus side, sentiment does seem to be improving for the rest of this year. Rents continue to be strong due to continued demand and a relative shortage of supply.

UK house sales outlook for 2023 remains ‘uncertain’, says Barratt (The Guardian, Joanna Partridge) shows that Barratt Developments, the largest UK housebuilder, reported an increase in new home sales in January but remained cautions about the outlook for 2023. There has been a “modest uplift” in sales, driven by more competitive mortgage rates for house buyers and expectations for lower energy costs and lower interest rates, but

the company warned that the recovery in sales may lose momentum, particularly for first-time buyers who continue to face high mortgage rates. Barratt Development’s outlook for the coming year hinges on how the housing market develops during the usually-busy spring sales season, but it expects to complete between 16,500 and 17,000 new homes in 2023. It certainly looks like a property market collapse has been avoided…

Wood burners in effect banned in new and refurbished homes in London (The Guardian, Damian Carrington) highlights a new initiative by London’s Mayor Sadiq Khan, who has banned the installation of wood burners in new and refurbished buildings in the city. The new planning guidance announced by Khan sets air pollution limits for home and office developments that cannot be met with the use of wood or other solid fuels. The guidance requires developers to take into consideration air quality and encourage the use of clean technologies such as solar panels, electric heat pumps, and electric vehicle charging. * SO WHAT? * I must say that I did not realise that wood burners emit more particle pollution than traffic in the UK, according to government statistics! It is also accounts for almost half the cancer risk that urban air pollution is responsible for. Even government-approved “eco” wood burners produce a staggering 450 times more pollution than gas heating 😱! It certainly sounds like it makes sense for London at the very least…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Disney cuts headcount, Mattel’s earnings weaken, Adidas is underwhelmed by Beyoncé, Cazoo has to restructure and the City is to publish a review…

In a quick scoot around some of today’s other interesting stories, Disney Plans to Cut 7,000 Jobs, $5.5 Billion in Costs (Wall Street Journal, Robbie Whelan) highlights Disney’s dramatic plans to cut 7,000 jobs and reduce expenses by $5.5 billion in a massive corporate restructuring. The company will give more power to content execs and focus on profitability. The restructuring is led by “old/new” CEO Robert Iger who is under pressure to make the streaming business profitable inject life into the share price, which has fallen more than 40% since early 2021. The majority of cuts will come from non-sports content spending and sales, general and admin. * SO WHAT? * This is a classic move of a new CEO (even though Iger had not long previously been Disney’s CEO!) and I think that the falling share price gave him the licence he needed to wield the axe and shape the company how he wanted to. Although a focus on profitability and not growth-at-all-costs is probably a decent enough road to go down, it will have to show quick results. I suspect that by taking dramatic action like this, Iger has definitely bought himself some time to turn things around…

Mattel Earnings Plunge as Sales Fell 22% in Holiday Period (Wall Street Journal, Kathryn Hardison) shows that toy maker famed for Barbie dolls and Hot Wheels cars announced a 22% drop in Q4 sales to $1.4bn, which led to a painful 93% decrease in profits to $16.1m. Despite enjoying double-digit sales growth in December, overall demand was lower than expected due to the current macroeconomic environment. CEO Ynon Kreiz stated that the company’s product is still in demand and the business fundamentals remain strong heading into 2023, but it will take the first half of the year to run down the inventory that it has built up. * SO WHAT? * TBH although many aspects of this don’t make for great reading, arch-rival Hasbro also saw consumers reining in spending. I guess the best they can do is to rein in any extraneous spending for now and hope for a hit product/hit products that will get consumers spending again!

Beyoncé’s Clothing Line With Adidas Suffers From Weak Sales (Wall Street Journal, Khadeeja Safdar) highlights the poor performance of Beyoncé’s fashion brand Ivy Park, which is in partnership with Adidas. Sales of Ivy Park decreased by over 50% to around $40 million in 2022, coming in below Adidas’s internal projections of $250 million in sales. * SO WHAT? * This means it’s coming in at just over $200m short of the company’s annual projections could result in Adidas abandoning or overhauling the arrangement, which is set to end after 2023. The weak sales of Ivy Park calls into question Adidas’s strategy of collaborating with celebrities such as Beyoncé, Pharrell Williams, and Kanye West. Ivy Park’s next release is set to go on sale this week, so I guess Adidas will be monitoring this closely. I guess it’s things like this that make you wonder whether virtual brand ambassadors are going to be the way to go in the future as they can change according to the market and won’t suddenly give you nasty surprises like, say, Kanye West.

Cazoo forced to restructure shares to avoid stock market delisting (Daily Telegraph, Howard Mustoe) shows that the online used car dealer, has announced a restructuring of its shares to avoid being delisted from the NYSE. It plans to consolidate investors’ shares, exchanging 20 for one (in what’s called a “reverse stock split”), in a bid to support its stock price by artificially inflating its share price. * SO WHAT? * Cazoo’s valuation has fallen by 98% since its listing in 2021, putting it at risk of being delisted due to the NYSE’s rule that a listed firm’s share price must not fall below $1 each. What a massive fall from grace! This is yet another example of a SPAC-backed IPO that went wrong!

Meanwhile, City of London to produce review of financial services reforms (Financial Times, Daniel Thomas) shows that the City of London Corporation has started a review of the financial services regulations in the UK to enhance the competitiveness of the financial centre. The corporation will concentrate on improving regulations for tech and innovation, sustainable finance, and competitiveness with other financial centres like New York. The review, co-chaired by Chris Hayward and Lord Mayor Nick Lyons, will aim to engage all political parties, industry and regulators, and focus on legislative and regulatory framework, tax reforms and talent retention. Nice! Let’s see what it comes out with!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

If you’ve got the cash and want to stay somewhere unusual, how about this: Museum turns room into giant ‘forest’ full of plants – and you can spend the night (The Mirror, Milo Boyd). Pretty amazing, no?? If your budget can’t stretch that far, however, maybe you’d prefer to try this rather unusual “fusion”: Restaurant unveils bizarre fish and chip pizza – complete with battered scraps (The Mirror, Julia Banim). Hmm. Not sure about this one! Did you know that today is National Pizza Day??