Thursday 15/06/23

1. In BIG PICTURE NEWS, China ponders a stimulus, the US Fed leaves rates on hold, the UK economy grows but Hunt says interest rates will still go up as HSBC jacks up mortgage rates amid a mortgage crisis, Sweden blames Beyoncé for inflation, WE Soda pulls out of an LSE IPO, the Naira collapses and Shell walks back climate commitments
2. In TECH NEWS, Brussels clamps down on Google, AI regulations get closer, TSB appeals to Meta and music companies sue Twitter
3. In LEADING INDICATOR TRENDS, M&C Saatchi warns and Robert Walters falters
4. In INDIVIDUAL COMPANY NEWS, Vodafone and CK Hutchison agree a UK mobile merger and Safestore muddles through
5. AND FINALLY, I bring you experiences on a diving board…

So China aims to stimulate, US rates get left unchanged, the UK’s economy grows, Hunt warns of more high rates as we hit a mortgage crisis, Sweden blames Beyoncé, WE Soda withdraws, the Naira collapses and Shell goes all oily…

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:

China readies for stimulus as economic recovery founders (Financial Times, Thomas Hale, Cheng Leng and Joe Leahy) shows that Chinese state planners are gearing up to jolt the sputtering economy back to life with stimulus measures that would come in addition to the interest rate cut I mentioned yesterday. Some believe that there could be a relaxation of restrictions on buying property, increased infrastructure spending and more lending by banks but there’s a balance to be had between stimulating and keeping inflation in check. We’ll find out more today!

Meanwhile, Fed pauses its rate rises in battle against US inflation (Daily Telegraph, Eir Nolsøe) shows that the Fed decided to leave interest rates unchanged although it left the door open to two more interest rate rises, with official year-end expectations revised up from 5.1% to 5.6%. Fed chief Jay Powell said that inflation had calmed down a bit but not by enough for him to call the peak, which is why he left himself some wiggle room with the year-end upward revision. The tight labour market remains a concern inflation-wise…

Then in UK economy returns to growth driven by consumer spending (Financial Times, Valentina Romei) we see that official ONS data showed yesterday that the UK economy bounced back in April thanks to the increase in consumer spending and fewer strikes but a cloud of uncertainty regarding higher interest rates continues to limit upside. GDP grew by a wafer-thin 0.2% between March and April, which reversed some of the contraction over the previous month, but Hunt warns there is no alternative to more rate pain (Daily Telegraph, Melissa Lawford, Chris Price and Tim Wallace) shows that we’re not out of the woods yet and Rishi Sunak under pressure as HSBC raises mortgage rates for second time in a week (Financial Times, James Pickford, Siddharth Venkataramakrishnan, Jim Pickard and Joshua Oliver) highlights the dramatic, yet not entirely unsurprising, move by HSBC to raise mortgage rates for the second time in just one week in response to concerns that interest rates will go higher. You would have thought that other banks are likely to follow suit…and UK faces worst mortgage crisis since the 1980s – but the stakes are higher (Daily Telegraph, Ruby Hinchcliffe) makes for decidedly un-cheery reading as experts say that high interest rates are now more dangerous than they were back in the eighties because borrowers nowadays borrow double the amount they did back then which

means that 56% of people’s incomes will go on mortgage repayments, a jump from 49% earlier this year, which will be bad for the economy as consumer spending will come under even more pressure. Back in 1989, the peak amount that was spent on your mortgage was a whopping 60%! * SO WHAT? * The problem is that house price growth has run ahead of wage growth since the last financial crash, which has meant that people have needed to borrow more just to get on the housing ladder in the first place. Other pressures including higher inflation and lower tax relief are also making the situation worse for borrowers – and they have been borrowing up to 4.5 times their income now versus up to two times their income back in the eighties. Tough times – and it doesn’t look like they are going to get easier any time soon.

Then in, Beyoncé blamed for stubbornly high Swedish inflation (Financial Times, Richard Milne) shows that economists at Danske Bank reckon that Queen Bee’s decision to kick off her world tour (her first tour in seven years – hence the demand frenzy) in Stockholm in May resulted in a sharp rise in local hotel prices that then led to inflation being higher than had been expected. Now she’s taken her Renaissance tour elsewhere, the effects are expected to die down 😱! But then again, Bruce Springsteen is going to be in concert in Gothenburg at the end of June – so there could be another bump!

In other big picture news, Blow to London Stock Exchange as WE Soda scraps flotation plan (The Times, Robert Lea) shows that the world’s largest producer of soda ash suddenly ditched plans for a £6bn flotation on the LSE because of “extreme investor caution”, which is basically code for investors told them where to get off when the company paraded a bloated valuation in front of them 🤣. Still, the LSE could have done with a deal like this to boost their pretty much non-existent IPO pipeline.

Elsewhere, End to Nigeria currency peg causes biggest fall in naira’s history (Financial Times, Aanu Adeoye, David Pilling and Jonathan Wheatley) shows that Nigeria ditched its currency peg (which hasn’t yet been confirmed by Nigeria’s investment bank) and allowed its currency to float freely, resulting in the naira’s biggest one-day drop in history! The official exchange rate fell by 23% from the previous day, its biggest fall since 2016, but traders say that it actually fell by 40% – its biggest fall in history! * SO WHAT? * It is thought that abandoning the currency peg will unlock investment from foreign investors who have been put off by the country’s complex forex management that made taking money out of the country needlessly difficult. If this free-floating currency is a thing, then it will mark a return to economic orthodoxy after the end of eight years of Muhammadu Buhari’s presidency that was punctuated by his interventionalist tendencies.

Then in Oil giant Shell defies climate change critics to ramp up fossil fuel production (Daily Telegraph, Matt Oliver) we see that Shell has decided to focus more on making profits from fossil fuels rather than renewables, pay a 15% higher dividend and make at least $5bn-worth of share buy-backs in the second half of this year! * SO WHAT? * Its refusal to invest last year’s profits into greener projects has irked some investors as it downplayed the importance of renewables but let’s face it, it’s an oil company and it wants to close the valuation gap between itself and its more highly-rated US peers.

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!

Brussels focuses on Google, AI regulations get closer, TSB appeals to Meta and the music industry takes Twitter on…

Brussels ramps up Google antitrust case with break-up threat (Financial Times, Javier Espinoza and Hannah Murphy) shows that Brussels has accused Google of abusing its powerful position in the advertising tech sector and that the only way this could be remedied would be by forcing it to sell off a part of its business (probably its publisher ad server, DoubleClick for Publishers and its ad exchange, AdX). Google has until September to respond to the preliminary charges.* SO WHAT? * This is a big deal because it would be the first time that the European Commission has ordered a break-up of the tech giant after years of fining it billions of euros for various breaches. Although the ad tech business forms only a small part of Google’s business, it signals a definite tightening of approach by the EU regulators – but this is also backed by their opposite numbers on the other side of the Atlantic. Google/EC: regulators’ current zeal is a function of past failures (Financial Times, Lex) suggests that the current regulators’ eagerness to punish is driven by their inaction in the past that could have prevented this current state of affairs.

EU moves closer to passing one of world’s first laws governing AI (The Guardian, Lisa O’Carroll) shows that the EU is on the verge of passing one of the world’s first laws on AI after the European parliament just approved draft legislation – known as the “AI act” that includes a blanket ban on police use of live facial recognition tech in public places but also covers automated medical diagnoses, drone usage, deepfake videos and bots such as ChatGPT. * SO WHAT? * Details now need to be debated among MEPs before the draft becomes law – but they are at least going in the right direction. I thought that it was interesting to note that European commissioner Thierry Breton said that, rather than pausing to gather thoughts (presumably he was referencing the various open letters that recently appealed for a pause for breath) on AI, “it is about acting fast and taking responsibility”. Couldn’t agree more, Tel. There’s so much to debate to be had on the use of 

biometrics, emotional recognition and creator copyright among many other things. The EU is aiming to agree on the law by year end, but it wouldn’t come into force until 2026 at the earliest, meaning that everyone would have to sign up to some kind of voluntary agreement in the meantime.

TSB urges Facebook and Instagram owner to better protect users from fraud (The Guardian, Jess Clark) shows that British bank TSB has published research which forecasts that fraud on Facebook, Instagram and WhatsApp will cost victims £250m this year, putting further pressure on parent company Meta to take action on scams. It has suggested measures include implementing a secure payment method on Facebook Marketplace, banning unregulated firms in the UK using Meta’s platforms to push financial products and investments, promising to investigate and remove fraudulent content within 24 hours, better filters to exclude “obviously fraudulent” posts and prompting WhatsApp users to check the contact is genuine when they are contacted by new numbers. * SO WHAT? * Meta wheeled out the usual excuses that they aren’t the only platforms targeted and that they already have anti-scam measures in place but surely the fact of the matter is that putting all these measures in place will cost money – and that it doesn’t want to do that unless it absolutely has to! Still, it seems that the overall tone of regulators around the world is that these giant platforms have had their way for so long and it is now time for them to take responsibility for the damage they have caused – and could still cause.

Then in Music Companies Sue Twitter for More Than $250 Million in Damages Over Alleged Copyright Violations (Wall Street Journal, Anne Steele and Alexa Corse) we see that the National Music Publishers’ Association is suing Twitter for alleged copyright infringement saying that the platform is benefiting from using songs that it hasn’t paid for. Notably, Twitter is one of the only social media platforms that hasn’t signed licensing agreements for the use of music on its service. NMPA is seeing over $250m in damages spanning 1,700 songs! This sounds like it’s going to get VERY expensive!

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!

It’s not looking good as M&C Saatchi has a tough time and Robert Walters has a profit warning…

As many regular readers of Watson’s Daily will know, I am always banging on about advertising being seen as a leading economic indicator (i.e. tells you what’s going to happen to the economy before it happens) so when I saw M&C Saatchi warns of tough trading (Financial Times, Daniel Thomas), I thought the worst! Shares in the ad agency fell by almost 20% in trading yesterday after it warned that revenues will be lower in 2023 thanks to a tricky start to the year. It may be that the advertising slowdown was due to particular weakness in Australia and Asia but although the company is more confident about the second half of the year, overall revenues for 2023 would come in lower than had been

expected. On the plus side, the company did say that it was benefiting from its breadth of businesses – consultancy continued to be a strong performer, for instance.

Then in Profit warning at Robert Walters as job fears linger (The Times, Tom Howard) we see that the recruitment agency announced a profit warning thanks to a slowdown in the jobs market. It said that profits would be much lower than they had expected for the end of the year as the recruitment market staged a reversal after the hiring frenzy of the last few years. * SO WHAT? * Activity has suffered as candidates have become more hesitant to leave their current roles and companies have been delaying new hires as they worry about macroeconomic conditions. The company’s share price fell by 13.7% in trading yesterday, but it also dragged down its rivals like Pagegroup and Hays as investors concluded that the same pressures would affect them all. 

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!

Vodafone and CK Hutchison agree on a merger and Safestore looks safe…

In a quick scoot around some of today’s other interesting stories, Vodafone and CK Hutchison agree UK mobile merger (Financial Times, Daniel Thomas, Eri Sugiura and Chan Ho-him) shows that the two telcos want to merge and leapfrog EE as the UK’s biggest mobile group by merging Vodafone’s domestic business with CK Hutchison’s Three UK with Vodafone owning 51% of the enlarged group. That said, Vodafone: sceptical CMA will check if adding Three equals 5G (Financial Times, Lex) suggests that the CMA is highly likely to do a thorough investigation, which will take time, and that it is strategically a bit meh although it may improve 5G rollout in the UK.

Then in Investments pummel profits, but Safestore’s future looks secure (The Times, Helen Cahill) we see that although Safestore’s profits fell sharply as it made less money on its investment properties, it saw revenues climb thanks to strong demand from renters and homeowners. It has been expanding its property portfolio and continues to do so. I guess if people have too much “stuff” in their abodes and can’t move out because they can’t afford to, storage is the next best option.

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…

I saw this YouTube short on what the view’s like from a 20m diving platform, which reminded me of the classic Mr Bean moment when he went diving at his local swimming pool. I would definitely be more like Mr Bean! If you’ve never seen this bit of Mr Bean, seriously, do yourself a favour and watch it – the man’s a genius!!!