Wednesday 14/06/23

  1. In MACRO & MARKETS NEWS, China has a rate cut, US inflation slows, UK inflation proves stubborn and the Nikkei flies
  2. In M&A NEWS, Goldman and Morgan Stanley reckon dealflow will turn around as we see big pharma deal-making, Bunge buying Viterra, Zensho buys Snowfox and the Microsoft/Activision Blizzard drama continues
  3. In TECH NEWS, the UK government invests in AI, a French AI start-up attract ridiculous money, Insight Partners cuts its fund size and there’s an interesting revelation about Twitter in India
  4. In MISCELLANEOUS NEWS, we look at wage growth in the UK, why the UK jobs market is hot, how the Big Four accountancies should pay juniors more, Nio cutting prices, Ashtead knocking it out of the park and Bellway getting pessimistic
  5. AND FINALLY, I bring you a clever card trick…

1

MACRO & MARKETS NEWS

So China makes and interest rate cut, US inflation slows down, UK inflation is still problematic and the Nikkei booms…

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 rate cut signals possible stimulus for faltering economy (Financial Times, Joe Leahy and Hudson Lockett) highlights a surprise interest rate cut in China yesterday as well as new tax breaks for business in response to the economy showing signs of losing momentum. Credit growth figures for May came in significantly below forecasts and the weak property market continues to dampen consumer sentiment. China’s Q1 showed promising signs of a bounceback after Covid restrictions were eased – and although the services sector has remained strong, factory activity has been sluggish and construction continues to be a drag. Are these latest actions enough or will the government have to do more??

Inflation continues to be a topic at the front of many people’s minds and US prices rose 4% over the last year as Fed considers pause in rate hikes (The Guardian, Lauren Aratani) shows that inflation appears to be losing momentum in the US as inflation is now at its lowest rate since April 2021. The main reason for the slowdown was the calming of energy prices (down 11.7% over the last year) although, on the other hand, house price rises continued to be strong (up 8% over the same time period). The headline inflation rate has now fallen for the 11th month in a row but the core inflation figure, which strips out more volatile food and energy prices, is still high and has increased by 0.4% each month since March. Clearly, there is still work to do, but this slowdown has prompted talk of the Fed pausing any rate rise at the next meeting.

On the other hand, Inflation taking ‘lot longer’ than hoped to come down, Andrew Bailey says (Financial Times, Chris Giles, Delphine Strauss, George Steer and George Parker) shows how consistently useless governor Andrew Bailey and his chums at the Bank of England have been in a) spotting that inflation was going to be an issue in the first place (he batted off plenty of warnings – as did others at the ECB and Fed – that it was just a temporary blip 🤣) and b) doing anything about it when it hit. Bank of England: soaring gilt yields sharpen focus on forecasting errors (Financial Times, Lex) points out that the Bank has only just stopped using an outmoded forecasting model (which clearly hasn’t worked) and that the more consistently useless Bailey and the Bank are the more everyone’s going to ignore their forecasts. I think that we need a solid Bank of England in these current turbulent times and we just don’t have one. I think that if Bailey had been a Premiership football team manager he’d have been sacked long ago! Given the amount of experience Bailey has had I find it amazing how he has got it so wrong for so long. Surely it’s time for someone who is less pig-headed to have a go at the big job – and they’ll have a bit of a “free go” as we head into general election year next year. If the new person gets it wrong, they can blame it on the old regime and they may get another chance of a re-set after the general election – whoever wins.

Meanwhile, Nikkei’s bull run shows no sign of hitting the skids (The Times, Patrick Hosking) highlights the immense performance of Japan’s Nikkei index as it pushed through yesterday to its highest level for 33 years! Excitement about individual stocks like Toyota (which announced plans to roll out a new generation of battery-powered EVs) and SoftBank played their part, but it seems that retail and institutional investors alike have increasingly been viewing Japanese stocks as being good value. * SO WHAT? * Japan has been the graveyard of many a foreign institutional investor over the years with countless false dawns. This time, though, it seems that investors are mesmerised by a Japan that is growing, where perennial deflation has given way to mild inflation (3.5% currently – Andrew Bailey, are you watching??), where corporate governance is making marked improvements and where the economic recovery looks like it is broad-based.

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!

2

M&A NEWS

Goldman Sachs and Morgan Stanley reckon dealflow will bounce back – and there’s a lot going on…

Goldman Sachs and Morgan Stanley CEOs see ‘green shoots’ on Wall Street (Financial Times, Joshua Franklin) cites the CEOs of both investment banks as saying that there are early signs of a recovery in investment banking revenues after having gone through a very lean period and accompanying headcount reduction. When you see things like Big Pharma dealmaking recovers with $85bn M&A splurge (Financial Times, Jamie Smyth), which highlights M&A activity powered by cash made under Covid, and Bunge to Buy Viterra in $8.2 Billion Bet on North American Crops (Wall Street Journal, Patrick Thomas) which brings together a US grain trader and an oilseed processor and, on a smaller scale, Tokyo firm feasts on owner of Yo! Sushi (The Times, Dominic Walsh), which cites Zensho Holdings’ acquisition of Snowfox Group (the owner of Yo! Sushi) in a deal worth $621m – you can see why they think things might be changing. I thought the latter was interesting particularly in light of the recent acquisition of Fulham Shore (which owns Franco Manca and The Real Greek) by Japanese group Toridoll. It seems that Japanese companies are getting pretty interested in casual dining in the UK! In this instance, I am hoping that with Japanese owners perhaps the quality of food will improve at Yo! Sushi 🤣. I’m going to sound like a massive food snob here, but if you’ve had the real deal Yo! Sushi’s sushi is unfortunately quite embarrassing. It’s fun in its own right, but it’s nothing like the real deal!

Meanwhile, Microsoft is humbled by Britain and the US (Daily Telegraph, Ben Marlow) takes a look at the implications of the

FTC’s decision to do the same as the CMA in seeking to block the Microsoft/Activision Blizzard takeover and the seeming reversal of roles of the US and UK who are usually seen as being “pro-enterprise” and Europe who usually play the role of tech party-pooper-in-chief. Opponents to the acquisition say that the deal would give Microsoft too much power with control of the much-prized Call of Duty franchise slotting in nicely with its second biggest console in the market, its dominance in computer operating systems and its 70% share of the nascent cloud gaming market – not to mention Activision’s power in the mobile gaming market. However, Microsoft/Activision: devil of a fight leaves duo on horns of a dilemma (Financial Times, Lex) points out that supporters of the deal reject the argument that it will unfairly strengthen Microsoft’s console business by “forcing” customers to use their X Box consoles because they argue that gaming is moving to mobile anyway, which implies that consoles will be obsolete. Still, it concludes that investment banks and corporate America will hope that the acquisition will go through because this would chasten an administration that is trying to stifle the progress of Big Tech. * SO WHAT? * Although this is obviously a story about two companies I think that the outcome will have broad implications. If it goes through, then Big Tech has won again and will continue its march – and vindicate the European Commission’s decision to allow it. If it doesn’t, it will show that regulators have teeth after all and will make other potential wannabes think twice before doing something similar. I think it will also be a win for the CMA which is showing increasing amounts of feistiness now that it has broken free of its European shackles.

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!

3

TECH NEWS

There’s more AI craziness, Insight Partners cuts fund size and Twitter has an interesting India story to tell…

The AI frenzy continues in UK government to invest in film and TV AI special-effects research (The Guardian, Mark Sweney and Harriet Sherwood) as ministers have said that they would invest almost £150m, in research labs across the UK that are working on developing nextgen special effects using tech such as AI, as part of a wider initiative to empower the creative economy. Four-week-old AI start-up raises record €105m in European push (Financial Times, Tim Bradshaw and Leila Abboud) highlights just how stupid things are getting as three ex-Meta and Google AI researchers just raised €105m in Europe’s biggest ever seeding round – and they haven’t even got a product yet 🤣! This shows just how ridiculous things are getting, no?? All we need now is Tom Brady (ex-FTX fanboy) and Ronaldo (NFT fanboy) to start touting their own AI initiatives 🤣🤣🤣 to really signal the top of the market. I guess that investors are desperate to see a European answer to ChatGPT – and they are hoping that Mistral AI will be it! The company says that it will launch an LLM similar to the generative AI system that is behind ChatGPT early next year. Yah right. * SO WHAT? * I think that now is a good time to raise money as the frenzy seems to be gathering momentum – and threatened AI regulation is not there to pour cold water on all of this just yet. The proof will be in the execution, but I am highly sceptical as this is just three guys against the massive might of the likes of Microsoft and Google. David and Goliath this ain’t – it’s more like the amoeba vs the t-rex.

Meanwhile, Accenture’s $3bn venture puts AI front and centre (The Times, Helen Cahill) shows that the IT consulting firm said it will be investing a chunky sum of money into AI over the next three years to help its clients across 19 industries worldwide and hiring accordingly.

I thought that The Awkward Partnership Leading the AI Boom (Wall Street Journal, Tom Dotan and Deepa Seetharaman) was an interesting read because it highlights the differences between Microsoft and OpenAI, the hottest partnership in AI right now.

Microsoft now owns a 49% interest in OpenAI but keeps it at arm’s length, preferring to let it grow by itself with a guiding hand here and there (particularly in financing). There are conflicts between Microsoft’s own AI team and OpenAI’s because they are trying to do the same thing, but they insist that they are pushing each other to better things. I get the feeling that there is a lot more to come yet…

Meanwhile, Insight Partners cuts size of $20bn fund amid ‘great reset in tech’ (Financial Times, Tabby Kinder and George Hammond) reminds us that tech (outside AI) is having a tricky time as the New York-based venture capital tech-specialist has cut the $20bn target for its newest fund and said that it will slow down the rate of its deal-making as tech valuations continue to fall. * SO WHAT? * The fact that Insight is cutting the value of this fund from $20bn to $15bn is significant in that the company is seen as a bellwether for VCs and for tech investing. This comes after a huge boom in VC investing over the pandemic, but it has dropped off a cliff in the last six months. Tough times…

Although it’s probably a bit random, I thought I’d mention India threatened to shut Twitter down, co-founder Jack Dorsey says (The Guardian, Hannah Ellis-Petersen) because it provides what could be quite an interesting insight into the mind of India’s PM Modi. Basically, co-founder of Twitter Jack Dorsey said that the government had threatened to shut Twitter down if it didn’t obey orders to restrict accounts that criticised the government’s handling of farmer protests in 2021. The Indian government also threatened to raid employees if Twitter didn’t play ball. * SO WHAT? * Obviously, the Indian government has denied these claims, but it does call into question operations of foreign Big Tech in the country. It seems that, under Musk’s stewardship, Twitter has been less steadfast in its approach than it was under Twitter and has allowed a certain amount of censorship despite Musk himself claiming to be a “free speech absolutist”. I guess the thing is that the market potential is so huge in India that companies are willing to overlook such things as costs of doing business…

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!

4

MISCELLANEOUS NEWS

We look at UK employment, Nio’s decision to cut prices, Ashtead’s success and Bellway’s caution…

In a quick scoot around some of today’s other interesting stories, Wage growth sends government borrowing costs to a 15-year high (The Times, Patrick Hosking) cites stronger-than-expected wages growth data as being behind the surge in government borrowing costs which have hit their highest level since the 2008 banking crisis and Why is the UK labour market so hot? (Financial Times, Delphine Strauss) cites the shortage of suitable candidates as strengthening their bargaining positions (this is working particularly well in the public sector at the moment!) as a reason for strong wage growth although more people are coming back into the jobs market now but Big Four accounting firms urged to pay junior auditors more (Financial Times, Michael O’Dwyer) shows that one profession is remaining stubbornly tight on what it pays its employees – £32,000 a year for grads, which is about half what law firm trainees get. Average partner pay has exploded in recent years and Sir Jan du Plessis, chair of the Financial Reporting Council reckons that the juniors should get more. * SO WHAT? * I totally agree with Sir Jan as, in my time as a headhunter, I was constantly amazed at how comparatively little junior accountants get paid

versus the nightmare they have to go through when training and getting exams done at the same time. Maybe the firms don’t want to pay more because they know that a lot of the trainees will flee once qualified but if you want to get good grads – especially these days when students graduate with a lot of debt – surely you have to pay more, no?

Elsewhere, Nio: Chinese electric-car company enters race to lower prices and cut costs (Financial Times, Lex) shows that Nio is now having to embark on price cuts following rivals including Tesla and BYD slashing prices to boost sales volumes, Ashtead profits jump 30% as US manufacturing moves ‘onshore’ (Financial Times, Leke Oso Alabi) shows that the UK equipment rental group is benefiting from a boom in US construction activity (the US accounts for about 90% of Ashtead’s revenues!) and Bellway sees housing dip on horizon (The Times, Dominic Walsh) highlights the fact that one of Britain’s biggest housebuilders is pretty downbeat about the prospects for volume for the rest of this year, going into next year as well. That said, the company maintained full-year volume targets, so maybe it’s just being cautious. As I’ve said before, we are in the traditionally busy season for house buying so we’ll have to see whether rising mortgage rates and the higher cost-of-living are actually putting buyers off as part of a longer term trend.

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!

5

...AND FINALLY...

…in other news…

I love card tricks. This one is just sooooooo clever!

Watson's Daily is a hard-working start-up striving to help people get a better understanding of the business world. I would really appreciate your involvement in spreading the word and recommending it to your friends, colleagues, relatives etc. by clicking and sharing on the links below. Please help me to help you and I will throw in a small thank-you!

Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)