Wednesday 10/01/24

1. In EMPLOYMENT TRENDS NEWS, Eurozone unemployment hits a record low, BlackRock cuts staff, Duolingo replaces employees with AI, Hays has a profit warning and we see why the labour market is likely to get worse
2. In TECH NEWS, the EU looks into the Microsoft/OpenAI relationship, Ofcom hires ex-Big Tech, Samsung signals a turnaround and Sony prepares to abandon a big deal
3. In INVESTMENT & CRYPTO NEWS, ESG fund launches drop while crypto and fintech groups get fined, Bitcoin scammers hack the SEC and HMRC goes after crypto investors
4. In MISCELLANEOUS NEWS, VW loses out in China, Pirelli shares jump, dating apps test customers, Boeing’s troubles persist, Hewlett Packard Enterprise makes an offer for Juniper Networks, GSK makes an offer for Aiolos Bio and the Post Office scandal has repercussions
5. AND FINALLY, I bring you some baking tips…

So Eurozone unemployment goes lower, BlackRock makes cuts, Duolingo replaces translators, Hays has a profit warning and the jobs market looks likely to get worse…

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Eurozone unemployment returns to record low of 6.4% (Financial Times, Martin Arnold) highlights the continued strength of Europe’s labour market as the November figure reflects its stubborn robustness. This is likely to make the ECB more cautious about lowering the interest rate too early because this could stoke further wage growth which would, in turn, fuel prolonged inflation. It has already pushed back investor expectations of imminent interest rate cuts. It was interesting to see that a lot of companies have been hoarding labour and keeping on more employees than they actually need, hoping for an economic rebound – but this seems unsustainable under current circumstances.

Meanwhile, BlackRock cuts 600 staff as asset managers defend profit margins (Financial Times, Brooke Masters) highlights the world’s biggest asset manager’s decision to reduce headcount by 3% and allocate resources to faster-growing areas including tech,

ETFs and private markets. It is the latest player in the asset management industry to make cuts – Charles Schwab, Invesco and Manulife have all announced layoffs and restructuring over the last few months.

Elsewhere, Duolingo swaps 10pc of translators with AI (Daily Telegraph, Matthew Field) shows that the language learning app with over 500m registered users has ditched a load of their translators who previously wrote and checked translations for the app and replaced them with AI! This particular cull will hit contractors and not full time employees – but I suspect that the latter may be next. * SO WHAT? * This is another example of where AI will be replacing jobs done up until now by humans. In a chilling report from the Department of Education last year, jobs including consultants, accountants, lawyers, teachers, PR, psychologists and HR were all deemed to be vulnerable to the influx of more AI tools.

Then in Hays issues profit warning amid hiring slowdown (The Times, Tom Howard) we see that the recruitment agency announced that half-year profits would be almost 20% shy of previous forecasts due to the downturn in the jobs market. It seems that the recruitment bonanza of the last few years has come to an end as clients have become increasingly reluctant to hire amid tricky economic conditions. It is worth noting that Hays saw fees down 15% year-on-year in December when December is usually a decent month. Permanent hiring was particularly disappointing. * SO WHAT? * Recruitment agencies, especially big ones like Hays, are notoriously quick to hire and fire (generally they pay mediocre basic salaries and incentivise staff with the promise of bonuses) so I guess that all of them will use Hays’s actions as an excuse to do a bit of pruning themselves. That being said, they can hire quickly as well (it doesn’t take long to get new recruiters up to speed) so we also need to be alert to when they start hiring again. I would have thought that once temp hires start to fall and permanent hires rise a turnaround will then be in the offing. However, for now, Jobs market downturn is only just beginning (Daily Telegraph, Tim Wallace and Chris Price) suggests that the downturn thus far has been broad and that it has been driven largely by higher-for-longer interest rates (bluntly put, higher interest rates = higher cost of borrowing = more expensive for companies to expand = slowdown in hiring). Given that interest rates still have a long way to fall from current levels, it looks likely that the jobs market is only going to get worse before it gets better. I thought that Tony Wilson, director of the Institute for Employment Studies, made a very interesting comment when he pointed out that public sector employment has been pretty strong and the state workforce is now at the same size it was in 2012, undoing over 50% of the cuts made since then, whereas hiring in the private sector has pretty much ground to a halt. If this is the case then the labour market may actually be in an even worse state than the headline numbers would suggest.

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!

The EU looks into Microsoft/OpenAI, Ofcom hires ex-Big Tech, Samsung heralds a turnaround and Sony prepares to walk away from a big deal…

EU examines Microsoft’s ties to OpenAI (Financial Times, Henry Foy, Madhumita Murgia and Tim Bradshaw) shows that the EU’s competition regulator, the European Commission, is going to look into whether Microsoft’s massive investment in OpenAI falls foul of the EU Merger Regulation. US and UK competition regulators are already looking into Microsoft’s $13bn investment while the EC’s move is just a preliminary step. * SO WHAT? * I think that this is going to be pretty tricky. Firstly, the tie-up has been extremely beneficial to both parties and, going into election year, Biden is not going to want to have his home-grown AI champions stifled as that wouldn’t be a good look for voters. Also, Microsoft doesn’t actually own a stake in OpenAI per se – its agreement is such that its investment gives it an entitlement to a capped share of the profits. It’ll be interesting to see what the conclusions of the regulators will be but I wouldn’t have thought there’s all that much they can do about it.

Meanwhile, Ofcom poaches Big Tech staff in push to enforce new internet curbs (Financial Times, Cristina Criddle) shows that our regulator has been hiring staff from Big Tech companies (like Meta, Microsoft and Google) in the UK to help enforce the Online Safety Act, one of the world’s strictest new regulatory regimes for the internet, which came into force in October. Ofcom has put together a team of almost 350 people who will be looking at online safety and it is looking to hire an additional 100 this year. The new act (the “OSA”) gives Ofcom powers to make platforms accountable for any illegal material and ensure the protection of children online. When enforcement fully kicks in over the next two years, Ofcom will be able to fine companies who breach the rules up to 10% of annual global turnover and pursue criminal charges against individuals. * SO WHAT? * The regulator is going to be up against it as it will most definitely be the David fighting the massive Goliath of tech companies with incredibly deep pockets and battle-hardened teams of lawyers. Still, I guess you’ve got to start somewhere! In the meantime, Instagram and Facebook will hide more harmful content from teenagers (The Guardian, Blake Montgomery) shows that Meta said yesterday that it would hide

more sensitive content from teenagers on its platforms following increasing pressure from regulators to protect kids. The pressure intensified recently following testimony in the US Senate by former Meta employee Arturo Bejar, who alleged that Meta failed to act despite being aware that content on its platforms harmed teenagers.

In tech hardware news, Samsung earnings signal chip sector turnaround in 2024 (Financial Times, Song Jung-a) highlighted a huge drop in operating profit in Q4 despite a rebound in chip prices (which is something I mentioned in yesterday’s Watson’s Daily). However, some analysts think that this signals the bottom of the cycle from which the semiconductor industry will start to recover thanks to rising demand from high-performance semiconductors. However, AI chip boom is a bust for Samsung’s earnings (Financial Times, Lex) points out Samsung’s weaknesses versus peers such as TSMC (which has been doing really well from chip contract manufacturing) and SK Hynix (which benefited from churning out the HBM3 products which are critical for Nvidia’s latest accelerators) is notable and means that its high valuation relative to them is looking unjustified. * SO WHAT? * It sounds like Samsung just isn’t moving quickly enough at the moment and that the likes of TSMC and SK Hynix have been able to benefit more from the AI bandwagon. It’ll be interesting to hear next month what their plans will be to close this gap…

Meanwhile, Sony ready to abandon $10bn Zee deal that would create Indian media powerhouse (Financial Times, Christopher Grimes, Kana Inagaki, David Keohane and Benjamin Parkin) shows that Sony is prepared to walk away from a proposed merger between its Indian business and media behemoth Zee Entertainment. By all accounts, Sony still wants to go ahead with the merger that won approval from Indian regulators in August after it was initially announced in late 2021 but it is getting increasingly frustrated with delays from Zee’s side for various reasons. In the meantime, its financials have been getting worse, giving Sony more reason to get cold feet. If the merger goes ahead, Sony will have a 53% stake in the enlarged entity. The drama continues…

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!

ESG fund launches fizzle out and crypto dodginess continues…

Further to what I said yesterday, Launches of ESG funds plummet as investors pull back (Financial Times, Will Schmitt) shows that launches of ESG funds have fallen dramatically in the last six months as they continue to lose favour among investors. Only six ESG funds launched in the second half of last year versus 55 in the first half and versus the average of around 100 between 2020 and 2022, according to data from Morningstar Direct. It is also interesting to note that ESG labels have been removed from some fund names. One reason for this behaviour is that the SEC revised its rules for funds in September saying that funds had to have at least 80% of their assets invested according to the name of the fund, giving fund managers at least two years to fall in line. It certainly looks like greenwashing is on the way out! Well, at least until ESG becomes flavour of the month again…

There were some interesting stories about the dodginess of crypto today in Crypto and fintech groups fined $5.8bn in global crackdown on illicit money (Financial Times, Laura Noonan and Alan Smith) which showed that crypto and fintech groups racked up more fines for lax controls than the entire traditional financial system last year as global regulators cracked down on dodgy money flows. They paid out $5.8bn in fines versus the $835m paid out by traditional financial services groups last year!

Meanwhile, Wall St watchdog in Bitcoin hack (Daily Telegraph, Alex Singleton) shows that the US SEC’s X account got hacked yesterday which helped bump the price of bitcoin up by 2% but then came back down to earth when the SEC’s chairman Gary Gensler announced that the message that was sent out was a fake. The market is currently waiting for a decision from the SEC about whether to approve Bitcoin ETFs. * SO WHAT? * Approval of such ETFs, which would enable investors to get exposure to bitcoin without actually having to buy bitcoin itself, would be a major step forward for the cryptocurrency as it would bring it out of the shadows and into the masses!

Then in Revenue targets crypto traders to check they pay tax on profits (The Times, Patrick Hosking) we see that over 8,000 buyers of cryptocurrencies who are suspected of failing to pay tax are being pursued by the HMRC regarding their crypto holdings over the last two tax years. Some of them may genuinely be unaware that their crypto trading has attracted capital gains tax – or potentially income tax – if they are judged to be traders. Given crypto’s massive boom over the last year, clawing back tax from crypto traders is likely to have climbed up HMRC’s list of priorities!

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!

VW loses ground in China, Pirelli shares jump, dating apps get more expensive, Boeing’s troubles continue, Hewlett Packard Enterprise makes a massive offer for Juniper Networks, GSK makes an offer for Aiolos Bio and the Post Office scandal causes huge outcry…

In a quick scoot around some of today’s other interesting stories, Volkswagen fails to win ground in China (Financial Times, Edward White and Patricia Nilsson) shows that VW is making no inroads in the world’s biggest car market as it announced yesterday that, despite pouring €5bn into China last year alone, its sales rose by just 1.6% last year. It recorded 23% growth in the EV market – which sounds quite good until you realise that the average growth in this market was 36%. In other car-related news, Pirelli shares jump after Italian investors boost stake in tyremaker (Financial Times, Silvia Scioilli Borrelli) shows that the Italian tyre-maker’s share price got a 4% boost yesterday after investment firm MTP said that it would raise its stake from 14% to 20%. MTP is the investment company owned by Pirelli’s previous chief exec Macro Tronchetti Provera, who stepped down last summer. There has been a tussle between Chinese shareholders and the Italian government who don’t want the company to fall under Chinese control.

Elsewhere, Dating apps test just how much users will pay for love (Financial Times, Euan Healy) takes a look at dating apps and how they are evolving to make more money from users by introducing different tiers of service and other perks. Consumers spent over $5bn globally on dating apps according to app market researchers data.ai. Match Group is a $9.9bn company that owns 45 dating brands, including Tinder and Hinge, jacked up prices and introduced new subscription levels last year in the hope that it can revitalise a slowdown in revenue growth. * SO WHAT? * You can’t blame the companies for wanting to make money from the user base! They aren’t charities, after all! Some people will like the idea of being in a “pool” of people who are serious enough about meeting other partners to pay for it whereas others will argue that it’s not fair to have to pay for this kind of thing. I guess there is a balance to be had between the “freemium” model of different tiers of membership (which seems to be the preferred way currently) and advertising (which seems to be less prevalent).

United and Alaska Airlines find loose parts on Boeing 737 Maxes (Financial Times, Claire Bushey and Sylvia Pfeifer) shows that problems for Boeing might be getting worse as loose parts have now been found on grounded 737 Maxes while Lack of aircraft will hit our profits, says Ryanair boss O’Leary (The Times) shows that Ryanair’s chief exec warned that his company’s profits could get dented as a result although Ryanair can ride out Boeing’s mid-flight drama (Financial Times, Lex) contends that Ryanair will still be OK because European short-haul fares are likely to remain buoyant as capacity has been hit by various recalls and new plane delivery delays.

There were some interesting stories in M&A today – Hewlett Packard Enterprise to Buy Juniper Networks For $14 Billion (Wall Street Journal, Will Feuer) highlights a big deal that will merge two legacy network operations companies while GSK agrees $1.4bn deal to buy asthma drugmaker Aiolos Bio (The Times, Alex Ralph) highlights GSK’s purchase of a respiratory drugs specialist – a key area for GSK – which will give it access to an asthma treatment that is in Phase II clinical trials.

However, I thought I’d include Can the UK exonerate all sub-postmasters with a single law? (Financial Times, Rafe Uddin and Alistair Gray) as the Post Office scandal continues to grip the nation. At the moment, UK ministers are looking at whether they can somehow execute a blanket exoneration for hundreds of sub-postmasters who were wrongly convicted in one of the biggest miscarriages of justice in modern British history. Campaigners are pushing for the move but some top lawyers are questioning how such a measure could be implemented. They also argue that it could undermine the independence of the judiciary and set a precedent for other convictions (although, would this really be such a bad thing?). This article does a brilliant job of chronicling the story so far and what actions can be taken but, as things stand at the moment, ministers are talking about swapping the Post Office out of the appeals process to be replaced by the Crown Prosecution Service to speed things up. The drama continues…

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…

Maybe you are trying to be virtuous after an indulgent festive season – but if you’re not (or if you are still OK with baking 😁) here are some very useful baking tips! Bakerrrrsss…..BAKE!