Wednesday 14/12/22

1. In MACRO, ENERGY & CRYPTO NEWS, US inflation eases, the Bank of England urges caution and we look at what’s behind the strikes while fusion advances, Turkey sorts the logjam and SBF is charged
2. In BANKS, FINTECH & PRO SERVICES NEWS, Danske Bank pays a massive penalty, Checkout.com gets a reality check, KPMG reports strong revenues and advisory firms anticipate more insolvency work
3. In TECH NEWS, China fights back against the US while Apple and Instagram announce new features
4. In MISCELLANEOUS NEWS, Tesla investors get antsy, VW sees waning EV demand, retailers seek the high street and Canary Wharf plans for a lab tower
5. AND FINALLY, I bring you some exciting things about Satsumas…

So US inflation slows, the Bank of England cautions, we look at what’s behind the strikes, nuclear fusion advances, Turkey solves the logjam and SBF gets charged…

📢 I’m going to be doing my annual P/Review on Thursday 5th January where I will roundup the news of the year in 2022 and then outline predictions for themes in 2023. In order to attend that, you need to register HERE. The idea is that this will set you up for the year by putting everything into context for you and giving you a heads-up of what to expect in the coming year! This will be backed up by publication of Watson’s Yearly, which is the more detailed written version of the presentation that also contains a roundup of every G20 country and how my predictions from the previous edition performed! There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so if you’d like a spot, please sign up!

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:

Cost of living continues to rise but inflation appears to be slowing (The Guardian, Dominic Rushe) cites the latest inflation figure from the US Bureau of Labor Statistics which show that the rate of inflation appears to be slowing. The annualised rise fell short of expectations thanks to falling gas prices but the cost of living continues to rise. Fall in US inflation pushes pound to highest level since June (Daily Telegraph, Tom Rees) highlights the resulting boost for the pound, which is now almost 20% higher than it was versus the dollar in the immediate aftermath of the mini-Budget, and Markets and bonds on the rise after US inflation begins to slow (The Times, Callum Jones) highlights other reactions including bond yields, which fell, and markets, which rose. It certainly looks like the big hikes imposed by the Fed to combat inflation are starting to take effect.

In the UK, Bank of England warns Sunak over City deregulation drive (Financial Times, Laura Noonan) shows that Andrew Bailey warned Sunak not to go too far with the proposed “deregulation” of the City as many of the rules put in place – particularly in the aftermath of the financial crash of 2008 – are still relevant. Separately, Rising mortgage costs will spark landlords’ exodus, warns Bank (Daily Telegraph, Tom Rees) cites Bailey this time warning that rising mortgage costs will result in an exodus of landlords, further fuelling house price weakness (more people selling = downward pressure on prices) and rises in rent (because the number of rental properties on the market shrinks). * SO WHAT? * Bailey may well be right about not going too crazy on the “bonfire of regulations” but TBH it looks to me like the “Edinburgh Reforms” are pretty mild anyway! The landlord thing IS a problem, though, as rising rents will cause (and are already causing) huge difficulties for renters – and this will put further upward pressure on living costs and inflation. It may well be that the government will have to put some sort of incentive scheme in place for private landlords in particular otherwise more and more people will just be priced out of the rental market.

Given that the UK seems to be on strike at the moment, I thought I’d bring your attention to a few articles that give a bit of an insight! On the one hand, you have Public sector wages rise by just 2.7% in a year as strikes loom (The Guardian, Phillip Inman) which cites the latest data from the Office for National Statistics which show that public sector wages rose by just 2.7% in the year to October – way lower than the headline rate of inflation – versus private sector workers who enjoyed a 6.9% pay rise and then on the other hand you have Private sector pay is finally catching up with the bloated public sector (The Times, Jeremy Warner) which argues that if you go back further, the public sector has been better paid than the private sector, particularly when the very generous pensions are taken into account. It also points out that giving everyone a double-digit pay rise will prolong inflation because people will spend more. RMT worried strike will collapse, says Network Rail (Daily Telegraph, Oliver Gill) sounds like the head of Network Rail is just💩-stirring as he tries to sow the seeds of doubt, saying that the Mick Lynch, general secretary of the RMT “is worried that strikes won’t hold for 10 days” but I’d advise you to read Can the UK government afford to increase public sector pay (Financial Times, Delphine Strauss) in full if you can as it does a really good breakdown of whether or not the government has the capacity to satisfy the public sector’s pay demands. In short, though, it is sceptical about Jeremy Hunt’s claims that raising public sector wages in line with inflation would cost taxpayers £28bn (which equates to around £1,000 per household and assumes a rise of 11% in 2023-4), as the government has already factored in pay deals of 4-5% – which means that the actual cost to the government would be more like £10bn given that some workers would pay some of this back in taxes. Another thing to consider is that although the generous pension provision for public sector workers means that they are getting better paid than workers in the private sector, this is scant consolation to workers who are in the middle of a cost of living crisis right now! * SO WHAT? * Overall, then, it looks like the government could afford to pay workers a rise in line with inflation but that it would come at the cost of having to impose higher taxes and enduring a prolonged period of higher inflation. At the end of the day, there are strong arguments to support the view that a strong and well-paid public sector brings benefits to the wider economy in the form of more medical staff to tackle long waiting lists, more teachers to help pupils catch up on learning they lost over Covid etc. but we’ll just have to see whether the government caves.

Elsewhere, How US scientists moved one step closer to dream of fusion power (Financial Times, Tom Wilson) highlights a major breakthrough in nuclear fusion technology as US scientists have achieved energy gain in a fusion reaction for the first time, bringing us slightly closer to seeing nuclear fusion becoming a reality. * SO WHAT? * Although it is still years off being able to provide us with an abundant source of zero carbon power without fossil fuels, an advance like this could help to attract funding that WOULD be able to bring the timetable forward.

Then in Insurance dispute blocking oil tankers in Turkish waters resolved (Financial Times, Ian Smith, Tom Wilson and Ayla Jean Yackley) we see that the build-up of oil tankers off the coast of Turkey that occurred when the Western price cap on Russian oil came in has now eased significantly as proof of insurance was accepted. * SO WHAT? * This now appears to have been a storm in a teacup, but maybe it’s Erdogan’s way of reminding Putin that the Turkish Straits remains one of the busiest shipping lanes in the world and that it can make like difficult for Russia if it wants to!

And in crypo news, FTX ‘one of biggest ever frauds’ (The Times, Katie Prescott) cites a New York prosecutor describing the collapse of FTX as “one of the biggest financial frauds in US history” as the US Department of Justice charged Sam Bankman-Fried, founder and former chief of FTX, on eight counts (something I mentioned yesterday) while Sam Bankman-Fried: fraud charges tarnish whole crypto sector (Financial Times, Lex) observes that SBF’s downfall is taking the whole crypto sector with it, particularly as he portrayed himself as the one “straight shooter in the crypto Wild West”, making you wonder what the others are like! Weirdly, bitcoin is now strengthening!

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!

Danske takes a massive hit, Checkout.com gets a reality check, KPMG rakes it in and pro-services brace for next year…

Danske Bank to pay $2bn penalty for defrauding US banks (Financial Times, Stefania Palma and Richard Milne) shows that Denmark’s biggest bank has pleaded guilty to defrauding US banks and will pay an epically large $2bn penalty to atone for one of the biggest money-laundering scandals ever! Around $1.2bn will go to the US, $672m will go to Danish authorities and $178m will go to the US SEC as a civil penalty. This is the biggest forfeiture imposed by the US DoJ on a financial institution as a proportion of its market cap. Basically, it allowed “high-risk customers” access to the US financial system via its branch in Estonia. * SO WHAT? * This is an absolute nightmare for the bank, BUT given that this has been hanging over it for quite some time now, this could draw a line under the whole thing and allow the bank to plan for the future.

Checkout.com valuation slashed to $11bn amid global downturn (Daily Telegraph, Gareth Corfield) highlights the current situation of fintech payments start-up Checkout.com that was valued at $40bn in January but that is now worth 75% less, according to the latest external assessment. The company processes payments for brands including Netflix, Pizza Hut and Sony while Checkout.com: Victorian values shrink, leaving investors unamused (Financial Times, Lex) observes that rivals such as Klarna, Stripe, PayPal and Affirm have all suffered from the tech sell-off and increasing

investor focus on profitability over growth. * SO WHAT? * It certainly seems to me that investors are now much keener to see profits sooner as economies tighten around the world. Promises of future growth just won’t cut it any more (which is probably why SPACs have virtually disappeared!).

Elsewhere, KPMG full-year revenues rise 8% to almost $35bn (Financial Times, Michael O’Dwyer and Stephen Foley) shows that the Big Four accountancy unveiled an 8% increase in sales thanks to its advisory unit helping with deals and tech consulting. KPMG is not aiming to separate its accountancy and consulting businesses (as per EY). * SO WHAT? * Given how well these big accountants are doing (albeit KPMG’s revenues rose more slowly than its Big Four rivals), you do wonder what they are going to do with all that money. PwC is using it to poach EY partners who are facing uncertainty at the moment and Deloitte has, in the past, bought law firm Kemp Little as it has sought to become a one-stop professional services shop! It will be interesting to see where the money goes now as we face ongoing economic difficulties.

Then in Tackling rising insolvencies is a win for advisory firms (The Times, Helen Cahill) we see that companies like FRP Advisory and Begbies Traynor look likely to benefit from corporate misery as they predict increasing revenues after Christmas as the recession continues to kick in. Exec Chairman of Begbies Traynor, Ric Traynor, reckons that the number of companies insolvencies could overtake those that occurred in the aftermath of the financial crisis. He reckons that there will be two waves of failures. The first wave will consist of companies that are already struggling and the second will kick in as the recession goes on for longer.

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!

China fights back while Apple and Insta offer new features…

China hits back at US chip sanctions with WTO dispute (Financial Times, Edward White, Demetri Sevastopulo and Eleanor Olcott) shows that China has decided to push back against wide-ranging US export controls on chips imposed in October by filing a dispute with the World Trade Organisation. It wants to defend its “legitimate rights and interests” and this is the first stage in a WTO mediation process. This comes only days after there was a landmark ruling where the WTO panel ruled against Washington and backed Beijing. In this case, it decided that Trump’s 2018 tariffs on steel and aluminium from China and other countries were not justified as a way to protect America’s national security.

Meanwhile, Apple launches satellite SOS service for iPhone customers (Daily Telegraph, Matthew Field) highlights a new “Emergency SOS” via satellite service that went live yesterday in the UK for iPhone 14 smartphones. The tech connects customers to the nearest satellite, sending out a distress signal that will tell responders if they are lost or injured, even if they don’t have phone

or data coverage. Dialling 999 will prompt users to try to connect to a satellite and the iPhone will send a text message to a safety team employed by Apple who will ask questions via text. The service will use satellites from Goldstar. iPhone users can test this feature out without alerting emergency services by going into “settings” and “try demo”. * SO WHAT? * Sounds like a good feature to me!

Then in Instagram challenges BeReal and adds Notes short-message feature (Wall Street Journal, Cordilia James) we see that Meta Platforms is at it again with a copy of popular apps as it replicates the BeReal thing where you get a daily notification to snap and share unfiltered photos using the back and front camera lenses with its “Candid Stories” feature. It’s being tested in South Africa at the moment, but it’s not clear when it will be rolled out globally. Then there’s Notes, which is a friend-focused status updating feature that will appear at the top of the inbox. * SO WHAT? * IG needs to introduce new features to keep existing users interested and from straying onto other platforms! It’ll be interesting to see how successful these features are when they are rolled out everywhere!

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!

Tesla investors complain, VW notices an EV slowdown, retail seeks out the high street and Canary Wharf wants a lab tower…

In a quick scoot around other interesting stories today, Tesla investors voice concern over Elon Musk’s focus on Twitter (Wall Street Journal, Meghan Bobrowsky) investors in Tesla are getting increasingly anxious about Musk seemingly spending more time on Twitter than he is doing on Tesla at the moment but then again VW electric car sales ‘off track’ as costs soar (Daily Telegraph, Matthew Field) shows that it’s probably not just a Tesla suffering as the car giant reported that demand for EVs has fallen in Europe. If you’ve got rising electricity prices, shrinking household budgets and no appetite to buy big ticket discretionary items, what do you expect?!?

Twilight of the megastore as even DIY goes local (Daily Telegraph, Daniel Woolfson) is a really interesting article that looks at the current trend of big stores coming to high streets in smaller formats. B&Q and Ikea are now joining the likes of Tesco Express

and Sainsbury’s Local in order to cash in on spending by time-poor customers and falling levels of car ownership amid a cost of living crisis, meaning that fewer people get into a car to go shopping at the big stores. * SO WHAT? * This is an interesting article that does a really good potted history of how this trend has grown – but my conclusion is that some will survive while others will die. IMO, it will all depend on how well they are positioned and whether they can provide other services in addition to the retail element (e.g. online order pick-up etc.).

Then in Canary Wharf plans tower block laboratory as office demand sinks (Financial Times, George Hammond) we see that Canary Wharf Group has just submitted plans for a massive “vertical” life sciences campus in a bid to broaden the area’s focus from financial services as demand for office space weakens. It would be among Europe’s biggest laboratories and could cost £500m to develop. * SO WHAT? * Given that the current vacancy rate in Canary Wharf is now around 15% – the highest in London – action clearly needs to be taken. Sounds interesting, no?

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…

Did you know why a satsuma is called a satsuma? They are named after a province in Japan which is famous for growing them (although it’s unclear whether the fruit itself originates from China or Japan). So if you went up to a Japanese person and asked them for a Satsuma, it would be like asking them for a Yorkshire Dales 🤣 – and they would look at you funny. I was always taught by my mum to peel them in a flower shape so the whole thing stays together (some people here think I’m a bit weird for doing it this way) but here is another method: The cool way to peel a mandarin, according to a Japanese grandma (SoraNews24, Oona McGee). You heard it here, folks! It’s nothing but adrenaline rush after adrenaline rush here at Watson’s Daily, eh?!?