Tuesday 17/10/23

1. In MACRO & OIL NEWS, China tries to boost its economy, UK inflation is expected to fall although the Bank of England says it hasn’t finished yet and Shell hits record highs on the back of the war
2. In SOCIAL MEDIA & STREAMER NEWS, social media goes rogue on the Israel-Hamas war, LinkedIn plans to make layoffs and Netflix pushes more new initiatives
3. In RETAIL & LEISURE NEWS, M&S prepares for a decent Christmas, Frasers tops up, Sytner profits and Whitbread feels confident
4. In MISCELLANEOUS NEWS, Charles Schwab moves in the right direction, Binance stops taking on new British customers, Rolls-Royce announces white-collar job cuts and UK law firms feel the squeeze
5. AND FINALLY, I bring you a fun-looking waterslide…

So China tries a new stimulus, UK inflation looks set to weaken further (but the Bank of England remains cautious) and Shell’s shares hit a record high…

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China gives its economy a monster cash boost (The Times, Max Kendix) shows that China’s central bank yesterday pumped a whopping £33bn into the financial system in an effort to boost the anaemic post-pandemic recovery. It did this via a “medium-term lending facility” to Chinese commercial banks. * SO WHAT? * This is a positive move, but as I keep saying, it seems to be that the

Chinese government is taking a piecemeal approach to stimulating the economy by fiddling with various interest rates here and there rather than going for a “big bang” option of announcing a package of stimulus measures. I keep going on about this because I think that a major advantage of a “big bang” option is that you are potentially hitting a number of sectors at the same time. The government would also be making a statement of intent and giving everyone more of a psychological boost because it reflects a more defined direction that everyone can get behind. Measures that the Chinese government have taken so far are decent enough – but just taken individually I think they have less impact. For the moment, investors are nervous about Q3 GDP figures that are due out tomorrow.

Back home, UK inflation expected to fall to 6.5% in September (The Guardian, Phillip Inman) cites the conclusions of a Refinitiv poll of economists showing that they believe that the September inflation figure will fall to 6.5%, easing off from 6.7% in August, when the ONS releases the official number this week. It would have been a sharper drop, but a sudden jump in oil prices took the edge off. This is still way above the official Bank of England target of 2%, but at least it would be going in the right direction. That said, Bank of England has more ‘work to do’ to control inflation, says chief economist (The Guardian, Larry Elliott) shows that it’s too early for everyone to “crack open the Bolly” just yet as the Bank’s chief economist pointed out that early signs of a downward trend in inflation is not enough to declare victory in the battle with inflation. Clearly he’s just giving the Bank wiggle room so that if they do happen to increase interest rates again in the near future, they will say that they warned us all!

Then in Shell shares hit record high as Israel-Hamas war drives up oil price (The Guardian, Tom Ambrose) we see that the oil major’s share price hit new levels on the outbreak of the Israel-Hamas war. Brent crude prices have increased by 7% since the start of the war and Shell’s share price has risen by 6.5% over the same period. The oil price is rising because of heightening concerns that oil production in the whole region is going to be affected. This implies that there will be less oil available which means that prices will go up, assuming that demand remains the same or increases.

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!

Social media goes rogue, LinkedIn announces more cuts and Netflix tries different avenues…

In Israel conflict lets loose a deluge of falsehoods on social media (Financial Times, Hannah Murphy) we see that the Israel-Hamas war is spawning a huge amount of false information designed to shock and manipulate. X, Telegram and TikTok all faced criticism from regulators for their inaction in stopping it but while some posts and videos are blatantly false, some of them are in a grey area which sound believable. * SO WHAT? * It seems that conditions are ripe for the spread of misinformation as, over time, guardrails on these platforms have been lowered, moderator numbers have been cut, the issues at hand are extremely visceral and many have a vested interest. People want information fast and they want it to validate their views, which means that information spreads even faster than it normally does. If you add to that mix the algorithms which push the most provocative content, it is not surprising that things are getting out of control. I got the feeling in the last few months that the pendulum was swinging back in favour of the tech companies who are facing regulatory scrutiny – but I now think that the momentum is very much more likely to move back in favour of the regulators as they will now be able to adopt the high moral ground with something very real that exposes social media platforms’ weak oversight. Hopefully they will be able to cut through the bluster and lobbying about “free speech” and hold these massive companies to account.

Then in LinkedIn to cut 668 jobs in second round of layoffs this year (The Guardian, Reuters) we see that the platform announced yesterday that it would be reducing headcount across its engineering, talent and finance teams in the second round of cuts so far this year. This represents about 3% of the total headcount and adds to the 141,516 employees in the tech sector who lost their jobs in the first half of the year. Slowdowns in both of their

main revenue-generating streams – ad sales and subscriptions for search professionals – have hit hard. * SO WHAT? * This is pretty brutal, but I guess this is what they have to do if the revenues just aren’t there.

Meanwhile, in streaming, Netflix Will Lead Streamers Into Uncharted Territory (Wall Street Journal, Dan Gallagher) shows that the company is expected to post better revenues that its rivals when it reports its Q3 results this week and would be the only video streaming company to be in profit! Disney, Warner Bros, Discovery, Paramount and Comcast are all expected to post losses as they continue to burn cash. That said, all of them are soon going to be facing the same hurdle – lack of content due to the recent writers’ and actors’ strikes. With that in mind, ‘Wait, Netflix Has Games?’ Streaming Giant Plans New Videogames Based on Its Hit Shows (Wall Street Journal, Jessica Toonkel, Sarah E. Needleman and Sara Krouse) shows that Netflix is continuing to look at additional revenue streams as it is going to further its push into videogames and create more titles based on popular Netflix movies and TV shows. Thus far is has focused on mobile games but it is looking at expanding this into games that can be streamed on TV or PCs. Mobile games based on “Squid Game” and “Wednesday” are going to be released over the next few months with talks about additional ones based on “Extraction” and “Black Mirror”. * SO WHAT? * First of all, it’s impressive to see that Netflix is managing to make money at the moment – but it’s also good to see that it’s trying to squeeze the most out of its assets (although you wonder why they haven’t really done this before!). There was recent news about it making more from merch based on its popular franchises (and future franchises) and this latest thing about games makes strategic sense IMO, although I would say that it needs to make sure that this isn’t a loss-leader! At the moment, its games don’t generate revenues but clearly there is a lot of scope for upside here – particularly for its newer games.

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!

M&S prepares for Christmas, Frasers tops up its shareholdings, Sytner benefits from rising prices and Whitbread’s confidence increases…

In Marks & Spencer braces for a bumper Christmas (The Times, Isabella Fish) we see that M&S is recruiting 40% more temp staff for the busy Christmas period than it did last year across the UK. * SO WHAT? * This would imply that it’s either a) going down fighting in the quest for Christmas glory or b) that it is confident that consumers will put the cost-of-living problems aside and enjoy the Christmas period. Momentum seems to be with the retailing stalwart at the moment – it returned to the FTSE100 last month – and food rival Sainsbury’s is also hiring more seasonal workers than it did last year, which implies that it also has high expectations for the end of the year.

Elsewhere, Frasers tops up stakes in Asos and Boohoo (The Times, Isabella Fish) shows that Frasers Group has upped its

stakes in the two online apparel retailers to 22.8% and 15.1% respectively without giving any more detail as to what it plans to do with them and Rising price of cars drives bumper profits at Sytner (The Times, Robert Lea) shows that Britain’s biggest motor dealer posted another year of record profits thanks to drivers still being eager to pay premium prices for new and used cars thanks at least in part to a shortage of supply. The profits would have been higher had there not been rising energy and staff costs to contend with! Amazingly, profits at Sytner are now more than double what they were pre-pandemic!

Then in Whitbread signals return of buyback (The Times, Dominic Walsh) we see that the company is on the verge of launching a £300m share buyback when it announces a strong first half performance in its results tomorrow. The company that owns Premier Inn continues to generate free cashflow and there is speculation that it could sell off 250 of its Beefeater and Brewers Fayre restaurants. It sounds like things are going pretty well here!

Want to engage with myself and the team at Wats12on’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Charles Schwab has more to do, Binance pulls back, Rolls-Royce announces cuts and UK law firms are in a rut…

In a quick scoot around some of today’s other interesting stories, Charles Schwab: the fog is lifting on deposit outflows but not on earnings (Financial Times, Lex) shows that the brokerage has been through a tough time what with deposit outflows, unrealised losses on its securities portfolio and rising interest rates. The good news yesterday about the deposit outflow slowing down helped investor sentiment towards the company but things are likely to take a while yet to see a sustainable upward trend as the company still has to deal with higher funding costs and pay down expensive loans it took out from the Federal Home Loan Bank.

Elsewhere in finance, Binance stops taking on British customers (Daily Telegraph, Eir Nolsøe) shows that the world’s biggest crypto exchange has taken drastic action following the tightening of regulations by the FCA. Last week, the UK financial regulator announced some of the world’s toughest standards on how companies can promote crypto assets and Binance stopped accepting new UK customers less than one hour after the new rules took effect! It looks like this is going to scupper any ambitions that Binance had of expanding over here!

Then in St James’s Place overhauls fee structure after regulatory pressure (Financial Times, Harriet Agnew and Oliver Ralph) we see that the UK’s biggest wealth manager is going to conduct a major overhaul of its fee structure after pressure from regulators. Until now, it has faced criticism for its opaque and expensive charging structure for financial advice and massive penalties for early withdrawals. It promised to make fees transparent – which prompted a 20% sell-off of the company’s shares! * SO WHAT? * At the moment, St James’s Place has an “all-inclusive” fee, but investors reckon that once the fee structure is made more transparent the chances are that clients might feel that they are

being overcharged and take their money elsewhere. This could make things rather interesting, I think! And if St James’ Place has to do this, others will have to follow suit. If everyone ends up having to cut charges, I suspect that there could be more consolidation in what is still a pretty fragmented industry.

Then in Rolls-Royce to cut up to 2,500 jobs in bid to streamline group (Financial Times, Sylvia Pfeifer) we see that the company is planning on shedding a ton of jobs as part of a global restructuring programme aimed at streamlining its operations and boosting returns. * SO WHAT? * It was only a matter of time before the somewhat bombastic Tufan Erginbilgic, who became CEO in January, announced something like this as he kicked off his reign by describing the company as a “burning platform”. TBH, I think that his predecessor Warren East did a lot of the heavy lifting before Erginbilgic arrived after himself carrying out a major overhaul of the business and getting the company through the pandemic and beyond. That being said, Erginbilgic has already had a senior management shake-up, cut spending in non-core projects and renegotiated sales and maintenance contracts with customers. He has no doubt also benefited from the rebound in international air travel and quick results from his early actions.

Following on from yesterday’s article about the fall in billable hours for law firms, UK law firms: caught red-handed by staff cost inflation (Financial Times, Lex) observes that the lack of deal flow is bad for law firms (although larger ones can arguably survive this better than smaller ones because of their broad client base) and that that their rising wage bills to attract/retain lawyers has also hit them hard. As I said yesterday, the advent of AI could potentially reduce workloads for junior lawyers – but that could also reduce potential revenues as hours worked may go down. This will no doubt reignite debate on whether the days of the billable hour are numbered…

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’m a fan of waterslides! Are you? This one looks like a lot of fun!