Wednesday 05/02/25

Every time I start reading the newspapers these days I think “What has Trump done this time?!?” – don’t you?? Well today, Donald Trump says US will ‘take over’ Gaza Strip (Financial Times, Felicia Schwartz, Steff Chavez, Neri Zilber and Andrew England) shows that the president seems to be intent on following up on his recent vague suggestion of a “clean out” and reiterating the possibility that the US could “take over” the Gaza Strip and force 2.2m Palestinians to leave the enclave permanently to resettle in countries such as Egypt and Jordan. He said that it could be redeveloped to be “the Riviera of the Middle East” and “something that the entire Middle East can be very proud of”. * SO WHAT? * As usual, Trump is running roughshod over local sensibilities and ignoring decades of history in his simplistic solution. Arabs are likely to see this as echoing what happened in 1948 when Palestinians were forced from their homes while Israel was being founded and refer to that period as the Nakba (aka “catastrophe”). Call me pessimistic but I think that it’s unlikely this is going to end well because it will be unpopular with both Palestinians and most countries in the region, it’ll rattle international relations more generally as it will show that Americans are prepared to “invade” other countries and it’ll cost a huge amount of money (and I imagine that if it gets too much, there’s a massive danger that Trump will pull out all of his resources overnight leaving everyone else carrying the can). I imagine that this Trumpian intervention is probably the equivalent of a “free pass” for Netanyahu because if it goes well he’ll take the credit for being part of this development but if it goes badly he can blame Trump. I find it tricky sometimes to minimise the politics in Watson’s Daily – because this is, after all, a newsletter with an emphasis on  COMMERCIAL news – but it is unavoidable in this case (although, TBH, I could say a lot more!). Although it is possible that this could bring some stability back to the region (if it is handled properly) I would have thought that this is more likely to stir up trouble, increase anti-American feeling and probably push countries further towards China and Russia.

Right. Now for some tariff talk! Donald Trump’s 72 hours of tariff chaos signals high-stakes second term (Financial Times, Aime Williams, James Politi, Michael Stott, Christine Murray, Ilya Gridneff and Joshua Oliver) considers what’s gone on so far with Trump tariffs. It all started off with threats made against Canada and Mexico – who got a month’s reprieve due to knee-jerk reactions from the respective leaders – and the 10% tax slapped on Chinese imports (which earned no such respite). It sounds like there is more of this to come from his very aggressive trade advisors! Trump’s crackdown on trade loophole to hit Shein and Temu — and help Amazon (Financial Times, William Langley and Rafe Uddin) highlights the president’s latest crackdown – this time he shut down the “de minimis” rules which allowed shipments under $800 to avoid taxes. US customs agents will now have to check and formally clear the contents of every package posted from China, which will slow shipments and hike up costs for companies. More than 50% of de minimis shipments into the US come from China, with an average value of around $50. U.S. Postal Service Suspends Shipments of China Parcels (Wall Street Journal, Esther Fund and Hanna Miao) shows that the Postal Service will now stop accepting parcels from China and Hong Kong until further notice, although letters would still be OK. Shipments by UPS, FedEx and DHL will still be OK because they operate their own flights from China. Fun facts: since Congress raised the threshold in 2016 from $200, the number of packages using the exemption has ballooned and both Shein and Temu accounted for almost a third of de minimis shipments, according to a report published in 2023. ‘I can’t order 100 pieces of junk for $15?’: How Trump’s tariff will hit fast-fashion devotees (The Guardian, Aliaina Demopoulos) highlights what this means “on the ground” – that those who love ordering cr💩p on cheap Chinese websites are going to have a bit of a shock. Interestingly, though, it’s possible that these tariffs will actually be beneficial to fast fashion because their goods will still be way cheaper than all the other stuff that’s on the market! * SO WHAT? * Regarding the impact of these moves, Hedge funds bet Trump trade war will spark global recession (Daily Telegraph, Louis Goss) shows that hedge funds have been dumping stocks that might be vulnerable to an economic slump, according to data from Goldman Sachs. Also No one will be more pleased about Trump’s tariff wars than Xi Jinping (Daily Telegraph, Jeremy Warner) shows that although China is the target of these

tariffs, Trump’s actions will alienate the US from many countries – including allies – because he’s shown that America can no longer be depended upon. This could ultimately lead to weakening influence of the US as countries take actions to wean themselves off it. That may well work for America in the short term because it will be able to maximise its current leverage but if these actions galvanise other countries to work together to reduce its influence this could turn into a massive own-goal that will be difficult to reverse. If, for instance, the UK and Europe decide to sway towards China then this could neutralise a Russian threat and give the US proper opposition. Does the US really want that?? In the meantime, China unveils US tariffs and Google investigation in response to Trump levies (The Guardian, Callum Jones, Helen Davidson, Amy Hawkins and Philip Wen) shows that China responded to Trump’s moves by announcing an anti-trust investigation of Google as well as the imposition of 15% tariffs on coal and LNG and 10% on crude, farm equipment, large-displacement vehicle and pickup truck imports from the US. It also announced export controls on a number of critical minerals like tungsten, tellurium, ruthenium, molybdenum and ruthenium-related items.

How the world’s richest man laid waste to the US government (The Guardian, Nick Robins-Early) is an interesting article that shows what Elon Musk has done so far since he’s become Trump’s BFF. His $250m injection of cash into the president’s re-election campaign increasingly looks like it has been money well spent as he is now firmly in the heart of the administration. His “Department Of Government Efficiency” (DOGE) has now gained unrestricted access to the computer systems of a number of major government agencies and is already working to shut down the US Agency for International Development (USAid), the biggest provider of humanitarian aid in the world. He described this over the weekend as “feeding USAid into the wood chipper” and is already targeting other agencies. * SO WHAT? * Let’s not forget here that Musk is unelected and that his actions thus far have caused chaos because they have come suddenly and without transparency. They have already meant that humanitarian organisations that rely on US funding have had to suspend operations and let staff go while government employees have been locked out of their offices. The fact that Musk is classed as a “special government employee” means that his is able to get around financial disclosures and a public vetting process, essentially giving him a free hand to do what he wants with impunity. Opposition to him will be punished by “legal action against anyone who impedes your work or threatens your people”, courtesy of the federal prosecutor for Washington DC. Musk certainly takes the saying “You can’t make an omelette without breaking eggs” to a whole new level! It’s early days yet, but I think that the longer Musk is in the inner circle, the harder it will be to kick him out as he could become a formidable opponent – even to Trump. Even if he can’t become president because of his nationality, he could certainly become a very powerful potential kingmaker.

Back in the UK, OBR to slash growth forecasts in blow for Rachel Reeves (Daily Telegraph, Szu Ping Chan) shows that the ructions caused by the chancellor’s Budget are now being taken into account by the OBR who last night presented Reeves with its figures ahead of the Spring Statement on March 26th. Given the results of recent surveys this is all hardly surprising!

Britain braces for flood of cheap Chinese cars as trade war spreads (Daily Telegraph, Melissa Lawford) is a really interesting article which suggests that although we might not get attacked by Trump’s new tax regime as much as some of the countries around us, the impact of it will still be felt here. * SO WHAT? * Basically, product made by these countries is going to have to go somewhere – and at least some of that is going to come here, which means that our own producers are likely to be undercut. You would have thought that this means we’re going to be flooded with Chinese and German cars but then again Trump could try to force us to get behind his anti-China push (the UK is one of the few places in the West where China can sell its EVs). I think that this trade war is only just heating up!

In Alphabet shares sink after cloud growth stalls and spending surges (Financial Times, Stephen Morris) we see that investors expressed disappointment about growth in Google’s cloud business, which fell short of expectations. The unit runs Google’s data centres and although it posted a 30% rise in revenues, it didn’t hit the 35% growth rate of the previous three months. Also, the company said that it would be spending more than the market had been expecting on data centres this year although Google goes heavy on investment but light on detail (Financial Times, Lex) bemoans the lack of detail on what kind of servers and data centres, where they would be or who supplied them! There were also questions asked about whether the increasing use of chatbots had impacted the company’s search business, but for the moment, it seems that the answer is “no” because search-linked revenue rose by 12% in Q4 versus the same period last year.   * SO WHAT? * The disappointment with cloud performance reflected what happened with Microsoft a week ago. FWIW, I think that the DeepSeek shock will embolden investors to look more closely at what their money is actually getting them now when they throw vast sums at tech. Given how many eyes are looking at everything to do with AI at the moment, it may be useful for these tech companies to give the market more guidance in order to lessen the shock of something like this.

Elsewhere, Microsoft poaches DeepMind staff behind AI podcasting feature (Financial Times, Melissa Heikkila) shows that Microsoft’s AI head, Mustafa Suleyman has poached three former colleagues at Google DeepMind, two of whom had been working on its podcast-generating feature – “Audio overviews”, which forms part of Google’s AI research tool NotebookLM (I’ve had a play with this and it’s FREAKY! However, I would say that it sounds AMAZING initially but when you listen to it properly there are a few things that aren’t quite right). This feature lets you feed

the AI with written material which is then turned into a conversational podcast! The other one Suleyman poached specialises in developing vision capabilities which enable AI to analyse what it “sees”. Suleyman left Google in 2022, became a venture investor and then founded AI start-up Inflection which then sort of moved across to Microsoft last year (it wasn’t an official “takeover” as such but a lot of staff from Inflection transferred across). * SO WHAT? * As I have said before, investors are going to be keen to see bang for their investment buck and creating popular – and monetisable – features using AI will be very popular. I suspect that there will be a war for talent like this as everyone and their dog will be looking for people who can create AI magic! Yay for the humans (for now, anyway)!

AI ‘godfather’ predicts another revolution in the tech in next five years (The Guardian, Dan Milmo) is an interesting article which highlights thoughts from Meta’s Yann LeCun, who reckons that there will be a further AI revolution by the end of this decade whilst also saying that current systems can’t cope with creating domestic robots and fully autonomous cars. He said that AI currently excels at “manipulating language” but still can’t understand the physical world, an important threshold to cross. Another AI “godfather” Yoshua Bengio added that more progress will be needed to make the tech safe and called for next week’s global AI summit in Paris to address this issue.

Elsewhere, Spotify reports first annual profit as premium subscriber numbers surge (Financial Times, Marianna Giusti) highlights a historic moment for the streamer as it announced its first annual profit after over 16 years of existence! This was thanks to a record growth in the number of premium subscribers and cost reductions. At last 😅!

In a quick scoot around some of today’s other interesting stories, in automotives, Honda and Nissan’s $58bn merger close to collapse (Financial Times, Harry Dempsey, David Keohane and Kana Inagaki) shows that Honda thew a spanner in the works of the proposed merger by proposing to turn Nissan into a fully owned subsidiary, which Nissan is unlikely to accept while Ferrari to unveil its first EV this year as it reports strong rise in profits (Financial Times, Kana Inagaki) shows that the Italian car manufacturer announced plans to unveil its first EV in October whilst also announcing a big rise in quarterly profits. The profits came thanks to customers spending a ton on personalisation options but the company remained mysterious on the electric car. Let’s hope it has a longer range than its “hybrid” SF90 with its quite frankly astounding 16 miles🤣.

Then in consumer goods, Diageo scraps medium-term guidance amid tariffs and uncertainty (The Times, Jessica Newman) shows that the beverages group decided to ditch mid-term guidance because of uncertainties about the whole tariff thing and ongoing weakness in the spirits market while Diageo offers investors little reason to break their sobriety (Financial Times, Lex) said that the tariff uncertainties probably gave the company a useful excuse to abandon targets that were looking pretty tricky anyway.

Meanwhile, Barbie maker Mattel warns it could raise prices to mitigate tariffs (Financial Times, Gregory Meyer) shows that the toymaker is also trying to manage expectations down as a result of the likelihood of incoming tariffs in Mexico and China (although its Q4 results were actually pretty good) and Estée Lauder doubles job cuts to 7,000 as sales slow in China (The Times, Isabella Fish) highlights the latest consumer goods company to cite a sales slowdown in China as a reason to change tack. This signals a doubling of previous job cut plans and was announced along with disappointing Q2 numbers and a downbeat outlook.

In financials, Citigroup commits to hybrid working, bucking Wall Street trend (The Guardian, Julia Kollewe) shows that Citigroup’s boss is sticking with the current model where most employees are allowed to work remotely for two days a week. * SO WHAT? * This is interesting because its rivals seem to be going fully to five-days-a-week. The cynic in me says that they are only doing this because they’re probably not offering their staff more money and using this as a “perk” instead (but that’s just a personal theory!)…

Then in UBS is European banking’s loneliest mountaineer (Financial Times, Lex) we see that UBS now has ambitions to close the gap to its US rivals rather than judge itself versus its European competition. Its annual results were strong but its share price still suffered. * SO WHAT? * It seems that UBS is at a funny in-betweeny stage at the moment where it’s way better than its European rivals but has a much lower rating than its transatlantic rivals. Improving its wealth management margins would be a good way to close the gap but this is going to take time…

Elsewhere, Crest Nicholson reports loss before tax of £143.7m for the year (The Times, Helen Cahill) shows that the travails of the FTSE250 housebuilder just aren’t going away as it warned investors yesterday that it is getting close to breaching banking covenants unless things don’t improve in the coming months. It also warned that it is not confident about being able to continue as a solvent business. This is not sounding good…

For some of you this might be a bit too wholesome but honestly, the look on a child’s face when they get a puppy is absolutely priceless! I wouldn’t advocate this for Christmas because having a dog really is a lifetime (and absolutely life-enhancing!) commitment that requires serious consideration. However, the years of joy, heroic welcomes every time you enter the room however your day has gone and comedy moments are sooooooooo worth it 😊🐕!