Tuesday 28/03/23

1. In MACRO NEWS, Russia and China retaliate against the West, Hungary gets behind Finland’s NATO application, Netanyahu delays judicial reforms, Binance is threatened with a trading ban and the Treasury shelves plans for an NFT
2. In TECH NEWS, the US edges closer to a TikTok ban, Twitter looks optimistic and we look deeper into the impact of AI while Google’s answer to ChatGPT disappoints
3. In BANKING NEWS, First Citizens buys most of SVB while money gets pulled from European banks – fast
4. In MISCELLANEOUS NEWS, UK retailers get more optimistic, consumers face higher food prices, wages in Japan look up, Iger outlines a plan for cuts and Air India puts in a massive order for planes
5. AND FINALLY, I bring you a cat with a “Scouse” accent…

So China and Russia retaliate, Hungary changes tack, Netanyahu delays, Binance is threatened and the Treasury shelves plans for an NFT…

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:

It seems that Russia and China are now retaliating against Western pressure in different ways. Western groups leaving Russia face obligatory donation to Moscow (Financial Times, Polina Ivanova and Anastasia Stognei) says that a ruling was passed yesterday that will force every western company that tries to leave Russia to make a direct donation to the Russian state. Prior to this, companies heading to the exit had to either make a “voluntary contribution” to Russia’s state budget (10% of the value of the sale of their business) or agree to proceeds from the sale being deferred by several years. Many companies opted for the 10% tax and left because a deferred payment was much more uncertain. The new rules now mean that companies have no choice. * SO WHAT? * This is going to make exiting Russia even more unpalatable than it already is for many. It is interesting to note that, of the 1400 foreign companies that have legal entities in Russia with revenues of $5m or more, only 206 have fully exited their Russian divisions, according to stats from the KSE Institute. There will be no getting around the fact that by leaving Russia, they will be funding the war chest – but they will also be doing that if they stay!

Meanwhile, China to slash foreign researchers’ access to academic database (Financial Times, Pak Yiu) shows that China is getting its own back on the west by shutting down access to China’s biggest academic database, the China National Knowledge Infrastructure (CNKI), which will make research into the country more difficult. The database gives access to academics and students to 95% of China’s academic journals going back to 1915 and the CNKI is the only way to access this information remotely. The action was taken to comply with “measures of data cross-border transfer assessment and relevant laws”. * SO WHAT? * It seems that the flow of China-related information has been narrowing over the last few years and it is feared that there will be more censorship of research in areas like science and technology. It really does seem to me that China is continuing to cut itself off from the world (a consequence of ongoing China sanctions), which does not bode well for Taiwan in the next few years IMO…

📢 JUST A REMINDER FOR YOU! I will be reviewing the business and financial markets news of March with Jake Schogger of the Commercial Law Academy TOMORROW, so if you want to watch/listen in, you need to register HERE. Hopefully see you there!

In an interesting turn of events, Hungary approves Finland’s Nato membership in westward pivot (Financial Times, Marton Dunai and Richard Milne) shows that the PM, who is usually pro-Russia, has decided to ratify Finland’s NATO membership – although it has not approved Sweden’s attempt. Hungary relies heavily on Russian gas and still has links with Russian institutions but it seems that the government is trying to wean itself off.

Benjamin Netanyahu delays judicial reforms after day of turmoil (Financial Times, James Shotter) highlights major uproar and protest in Israel against an overhaul of its judiciary resulting in the veteran PM deciding to postpone it. The proposals have divided a nation and caused its biggest political crisis for more than a decade. The proposed changes will give the government and its allies more say over the appointment of judges and curtail the top court’s ability to reject legislation. At the moment, you have a very right wing government and an activist left wing judiciary. Investors and allies alike have been freaked out by what former PM Ehud Barak described as the “most severe” crisis since Israel was founded in 1948!

Meanwhile, in the world of crypto, Binance threatened with US trading ban after alleged terror payments (Daily Telegraph, Matthew Field, Chris Price and Adam Mawardi) shows that the Commodity Future Trading Commission (CFTC) is threatening the world’s biggest crypto exchange with a US trading ban for allegedly hosting accounts that are linked to Hamas and Russian criminals! Regulators say it attempted to circumvent regulations that are in place to prevent money laundering. * SO WHAT? * The regulator is looking for permanent trading and registration bans against Binance in the US as well as an injunction that would block Binance and its executives from the control or direction of trading. This is serious stuff and the evidence looks pretty damning! Their compliance looks pretty shocking…

Then in Treasury abandons plans for NFT (Daily Telegraph, Adam Mawardi), we see that plans for the Royal Mint to create its own NFT have been shelved and will be kept “under review”. There had been hopes that the creation of an NFT, which was to have featured collectible digital artwork, would attract a new audience and give customers the opportunity to buy digital assets in a secure and trusted way.

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!

TikTok pressure intensifies, Twitter’s valuation looks optimistic and we look at the impact of AI…

US moves forward plan to ban TikTok as AOC joins protests supporting app (The Guardian, Kari Paul) shows that the battle is hotting up as Alexandria Ocasio-Cortez has now weighed in on the side of TikTokers, but it seems that things continue to head towards a ban.

Following on from what I said yesterday about Elon Musk offering Twitter stock options, Twitter: at $20bn, the social media company is overvalued (Financial Times, Lex) contends that despite a heavy valuation discount to what Musk bought it for ($44bn!), the implied current valuation of $20bn still looks highly optimistic, particularly if you use the same metrics as Snap. When you consider that he is being pressured by the EU to hire more moderators to protect users whilst at the same time trying to cut costs, it does make a $20bn valuation – let alone the $250bn “blue sky” valuation – look rather stretched! He needs to announce some kind of roadmap – quickly!

Generative AI set to affect 300mn jobs across major economies (Financial Times, Delphine Strauss) cites research by Goldman Sachs which suggests that generative AI systems along the lines of

ChatGPT could kick off a productivity boom that will boost GDP by 7% over a ten-year period – but it would also prompt huge changes in the labour market, putting 300m workers out of a job as it estimates that about two-thirds of jobs in the US and Europe could be replaced at least in part by some degree of AI automation. * SO WHAT? * This is interesting and gives grounds for debate but clearly we are in the very early stages here. I think that, as time rolls on, we will better understand what it does well and what it’s really not that good at!

Meanwhile in the real world, Google crisis grows as its ChatGPT competitor flops (Daily Telegraph, Matthew Field) shows that Google is scrambling desperately to catch up with the success of OpenAI’s ChatGPT and although it is still at pains to say that its offering, Bard, is absolutely not search, it is thought that it is only a matter of time before it is integrated. It seems to be lagging ChatGPT at the moment – for instance, it doesn’t offer up external links in the answers it gives like ChatGPT does – and Google is facing increased pressure from investors about this as competition intensifies all the time. Microsoft continues to pull away thanks to its foresight in investing heavily in OpenAI…

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!

SVB gets a buyer and money gets pulled from European banks…

Money pulled from eurozone banks at record rate in February (Financial Times, Martin Arnold) cites the latest data from the ECB which shows that depositors have withdrawn €214bn from eurozone banks over the last five months – with a new record being hit in February. The fall in deposits started a few months after the ECB started raising rates last summer. Banks in the eurozone have been dragging their feet in passing on higher interest rates to depositors and some customers have switched to longer term savings accounts that offer higher rates. I would have thought that cash withdrawals rise even further this month due to the banking turmoil denting consumer confidence.

Meanwhile, First Citizens Acquires Much of Failed Silicon Valley Bank (Wall Street Journal, Andrew Ackerman) shows that one of America’s biggest regional banks, First Citizens Bancshares, is buying the vast majority of SVB just over two weeks after the

latter’s collapse. Interestingly, shares of First Citizens jumped by over 40% on the news when trading opened yesterday as other regional banks – including First Republic, PacWest and Western Alliance – also went higher. SVB/FDIC: favours for saviours ensure rescues ensue (Financial Times, Lex) suggests that the shares may have gone higher than that if investors really are convinced that the drama is now over in banking, but for now a mixture of official guarantees and rock bottom prices for what were – until recently – quality assets is the order of the day. * SO WHAT? * I think it is a buyers’ market now in banking and those who survived may be able to get a transformational deal-of-the-century for peanuts (relatively) with some nice guarantees thrown in to protect any downside. Investors still need to be convinced, though, that the storm has now passed. I wonder whether central banks, at their next meetings, will put a show on of confidence and hike interest rates by a chunky amount to send out the message that everything’s OK. 

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!

UK retailers get more positive, consumers face higher food prices, wages in Japan look like they’re trending up, Wreck-it Bob unveils a plan and Air India puts in a massive plane order…

In a quick scoot around some of today’s other interesting stories, Optimism is rising as retailers bounce back (The Times, Tom Howard) cites the latest report from the CBI which says that retailers are getting more upbeat about the near-term trading outlook for the first time since last September! It turns out that shops have generally done better than some analysts had predicted with a decent number reporting that sales had been pretty good for the time of year. It was also interesting to note that internet sales continue to fall although they are expected to bounce back again in April.

On the other side of the equation, Food prices inflation up to new high (The Times, Tom Howard and Mehreen Khan) cites the latest findings from the BRC which show that average food prices rose by 8.9% versus this time last year – the biggest rise in annual inflation ever recorded by the BRC! This was higher than the 8.4% rise in February, but you wonder whether this is as a result of the “salad hangover”. * SO WHAT? * Given that the recent surprise rise in inflation was said to be due to food price rises, this wasn’t particularly surprising. Hopefully, domestic harvests will kick in and prices will calm down again. The Bank of England is expecting a sharp fall in headline inflation this year. Let’s hope it is right!

Elsewhere, There are signs wages in Japan are finally on the rise (Financial Times, Kana Inagaki) shows that there are signs that Japanese workers will see wage rises, which will finally prompt inflation in a country that has been a predominantly deflationary environment for the last thirty years! Companies like Toyota and Fast Retailing (owner of Uniqlo) are changing their pay structures to be more meritocratic rather than being based on seniority and

the job market is getting much more liquid than it has been in the past as workers are less likely to be satisfied with staying in a system that is underpaying them. * SO WHAT? * This all sounds positive but at the moment it looks like the change will only take place at big corporations while SMEs get left behind. The thing is that SMEs employ at least 70% of Japan’s workers, so the environment may get trickier from now. Even if there is a shake-up to the status quo, maybe that might not be a bad thing for the long-term.

Then in Walt Disney’s Bob Iger sets out timeline for 7,000 job cuts (Financial Times, Christopher Grimes) we see that “new again” CEO Bob Iger has set out his stall and will start the process of culling 7,000 jobs, according to a staff memo yesterday. Most of it will kick off in April and is a part of overall plans to streamline the business. The cuts are expected to be made across the business although hourly park workers are not expected to be affected but this is going to be the biggest cull since 2019 when Disney bought 21st Century Fox. Not so much the magic kingdom as the tragic one for now…

Meanwhile, Air India looks to Britain with $80bn aircraft order (The Times, Robert Lea) highlights a massive order of Airbus and Boeing planes from Air India that will benefit Heathrow (more frequent direct flights to Delhi and Mumbai) and Gatwick (which caters to other cities), among other related businesses. If everything goes to plan Air India’s fleet will be biggest than Emirates, British Airways and Singapore Airlines. Wow! * SO WHAT? * This is amazing news for Boeing and Airbus – and it comes not long after Riyadh Air, the newly-launched Saudi Arabian airline, put in an order to Boeing worth £30bn! I would have thought that when aircraft leasing companies like AerCap sort out their legal wrangles with insurers they may get another boost – but that won’t be for a while yet. In the depths of the pandemic, who would have thought it?!?

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 have to say, as a dog person, I was not aware that cats had accents but according to Woman claims cat has a ‘Scouse’ accent – and very Liverpudlian meow (The Mirror, Danielle Kate Wroe), they do! What do you think?