Friday 17/01/25

• ENTRIES FOR THE “WATSON’S YEARLY COMPETITION” CLOSE ON MIDNIGHT THIS COMING SUNDAY! This competition is only open to paying current subscribers and there are various prizes. One of the prizes will be working with me in person at my office where you will be helping me to write Watson’s Daily for a day 😁. You can enter HERE…
• THE PODCAST STARTED AGAIN YESTERDAY! I’ll be recording one or two today with a couple of other specialists in their field. The weekly podcast with Ralph will return next week (although the plan is to do a “two-parter” on the themes for 2025 to start with). I hope to re-start the daily podcast as well after a bit of a hiatus and ongoing technical issues – so there’s more to come!
• HAVE YOU NOTICED THE NEW AUDIO FUNCTION? A number of you asked for this last year, so I’m pleased that it could be sorted! I tried it initially with AI and didn’t like it – so it’s me reading it out loud 😁. I hope that you find this new functionality useful! I just thought that AI doesn’t love this stuff like I do, so thought it would be better for a human to read it…

What the Israel-Hamas ceasefire means for the world (Financial Times, Gideon Rachman) is a great article that you really should read if you have access to it as it considers the implications of yesterday’s ceasefire talk. Looking at it from Israel’s point of view, Benjamin Netanyahu has transformed a tragedy to a strategic victory with Hamas and Hizbollah severely depleted. Iran’s missiles have pretty much bounced off Israel’s defences and Israel is now emerging as the superpower of the Middle East. However, Israel’s reputation has been badly damaged. Its offensive has resulted in a massive loss of life (about 46,000?) and Gaza has been levelled. Netanyahu now faces war crimes charges and is currently classified in the same legal bracket as Putin. International opinion polls show that “Younger Americans are more likely to sympathise with the Palestian people than the Israeli people” with around a third of adults under 30 siding with the Palestinians versus 14% for the Israelis. * SO WHAT? * Netanyahu probably cares more about support from the White House than he does for young Americans but America’s role in pushing for a ceasefire could come at a cost. The US is likely to want relations between Israel and Saudi Arabia to normalise – and it is generally believed that in order for that to happen, the Saudis will want a Palestinian state. Clearly, the situation remains fluid…

Meanwhile, China economy live: GDP rose 5% in 2024 (Financial Times, James Wilson, Orla Ryan, Eli Meixler, Gavin Huang, Haohsian Ko and William Sandlund) shows that, despite all the negative data we saw probably for the last six months of 2024, China has somehow magically managed to hit its full-year 5% growth target, coming in above economists’ forecasts of 4.9%. However, FirstFT: Chinese citizens unconvinced by official growth claims (Financial Times, Benjamin Wilhelm, Gordon Smith and Tee Zhuo) highlights scepticism about the veracity of these figures, with some saying that it feels more like a recession! * SO WHAT? * For as long as I can remember, investors treat data from the National Bureau of Statistic with lorryloads of salt.

Numbers pretty much always seem miraculously to hit official government targets which is why so many analysts and economists put so much effort into looking at micro indicators (traffic, pollution levels to gauge levels of economic activity etc.) in order to justify their theories. It would be more surprising if China did NOT hit its official targets!

Back home, UK economy grows less than expected as GDP rises 0.1% in November (The Times, Jack Barnett and Aubrey Allegretti) cites the latest release from the ONS which shows that our economy swung from a 0.1% contraction in the previous two months to a 0.1% expansion versus market expectations of a 0.2% expansion. This follows on from the unexpected drop in inflation in December which prompted the fastest fall in government borrowing costs in almost two years. Will this stagnation continue?? UK goods exports at lowest level for three years (The Times, Jack Barnett) would suggest that we’re not going to be saved by exports either as ONS figures showed that our trade deficit widened by £4bn in the quarter to November (from £6.38bn to £10.96bn), in our lowest value of goods exports in three years. Demand from European countries in the second half of last year has been slow. Everyone is now waiting to see what effects Trump’s policies will have on trade…

Meanwhile, English councils face tripling of audit fees to clear backlog (Financial Times, Ellesheva Kissin and Paul Caruana Galizia) shows that councils’ troubles are about to get even worse as Public Sector Audit Appointments (PSAA), the body that organises and sets the fees for local council audits, has decided to hike average prices by 230% for 2023-24 versus the previous year in order to hasten the clearing of a multiyear backlog! * SO WHAT? * This means that some councils could see their bills skyrocket by up to seven times! The struggling Woking Borough Council would see such a rise while Birmingham, Luton, Nottingham and Warrington are facing rises of between four and five times, according to FT analysis. Costs have risen because council audits are becoming increasingly complicated and because downward pressure on fees has made it less attractive for auditors to even bother with (which has made the problem worse).

Then in Pension funds dabble in crypto after massive bitcoin rally (Financial Times, Mary McDougall, Nikou Asgari and Alan Livsey) we see that pension funds around the world have been dipping their toes into the murky world of crypto investing in a sign that bitcoin in particular is becoming more mainstream. * SO WHAT? * Bitcoin more than doubled last year and some analysts reckon it could double again this year with crypto bros taking over the White House. The more crypto becomes mainstream, the more it is likely to rise as it continues to be seen largely as a fringe investment class. Thus far, they have tended to invest via ETFs. It seems that all the furore in the aftermath of the FTX collapse is firmly in the past now!

Then in oil news, BP to cut 4,700 jobs and 3,000 contractor roles to help save £1.6bn (The Guardian, Jillian Ambrose) highlights company plans to reduce its headcount by 5% as part of wider efforts to cut costs by at least $2bn by the end of 2026. Ouch. The company also unveiled a nasty-looking trading update for the final quarter of last year ahead of its full-year results next month.

In Apple loses smartphone crown in China as Vivo and Huawei outsell iPhone (Financial Times, William Langley) we see that Apple slipped to third biggest smartphone seller in China last year, behind two local heroes, as its smartphone shipments to China continue to fall. Apple will have to make sure that it navigates China’s regulatory environment successfully so that it can roll out impressive AI features that set it apart from its increasingly impressive Chinese counterparts.

In gaming, Nintendo Shares Slump After Switch Successor Announcement Underwhelms (Wall Street Journal, Kosaku Narioka) shows that the announcement of the successor of the Switch console – the Switch 2 – proved to be underwhelming because Nintendo didn’t give any details about the price, the launch date or any specifications. * SO WHAT? * Excitement had built in the run-up to the announcement so I guess the lack of detail p!ssed everyone off. All Nintendo said was that it will start selling its successor to the eight-year-old Switch console “later in 2025” and that it would provide more details in April. They said it would launch with some exclusive games (which is good, because you have to do that to stand any chance of success!).

In semiconductor news, TSMC can weather geopolitical tensions (Financial Times, Lex) suggests that TSMC’s powerful position at the centre of the global AI supply chain has helped to power its stellar Q4 performance where net profits rose by 57% and revenues by 39%. The company’s Taipei-listed shares have shot up by 90% over the last year and it continues to attract global interest. * SO WHAT? * There are a couple of elephants in the room in the form of the prospect of China invading Taiwan and America’s fixation on tech exports to China. In the short term, this could mean extra costs for TSMC who might have to spend more on compliance measures in the immediate future but in the longer term, sales to China could slow down thanks to the cumulative effect of all the restrictions. The thing is that this has been declining in recent years anyway whereas business going to America has been increasing, with Apple and Nvidia among some of their biggest clients. To give you an idea of scale. North America accounted for 65% of TSMC’s total net revenue in Q2 last year. For now, though, its outperformance is likely to continue…

In AI news, AI’s “relentless thirst for power” (Financial Times, Alexandra Scaggs) cites a piece of Barclays research which churns out some pretty interesting facts – that the majority of the world’s 11,000+ registered data centres are not yet involved in any kind of AI-related activity and that they currently account for just 1-1.5% of world electricity consumption (if you exclude usage for cryptocurrency)! Barclays Research suggests that annual demand to power data centres in the US could triple by 2030! The conclusion so far is that nuclear power is very much needed to power this boom…

Then in US targets China’s answer to OpenAI with trade blacklisting (Financial Times, Eleanor Olcott, Ryan McMorrow and Zijing Wu) we see that Washington has decided to blacklist Zhipu,

which is developing LLMs for AI. It said that Zhipu was helping Chinese military capabilities via its advances and its entry onto the “entity list” will mean that it will be banned from buying most US tech. Some say that this will strengthen Zhipu’s position domestically as the Chinese government will be more likely to give it a helping hand. There’s still plenty of scope for it to grow in China!

We see the latest in the ongoing TikTok drama in Donald Trump reportedly weighing up TikTok ban delay (The Guardian, Dan Milmo) which suggests that the incoming president is just going to kick the can down the road when he takes office via an executive order despite some questioning the legality of suspending a law that has been passed by Congress. It is rumoured that the delay could be 60 to 90 days. The incoming national security advisor, Mike Waltz, said on Fox News on Wednesday that “We’re going to find a way to preserve it but protect people’s data”. In the meantime, Americans flock to Chinese TikTok alternative RedNote: ‘We have the same struggles’ (The Guardian, Alaina Demopoulos) shows that the prospect of a TikTok ban has had an unintended consequence – Americans are flocking to Chinese social media app RedNote and powered it to #1 in US app stores on Tuesday! The app’s Chinese name, Xiaohongshu, translates to “little red book”, which is a reference to a book containing the favourite sayings of Chinese communist leader Mao Zedong. * SO WHAT? * The app is primarily a video-sharing platform, the look is similar to Instagram’s Explore page and although it was originally targeted at female users it has made a concerted effort over the last couple of years to appeal to males. It has a big emphasis on e-commerce and differs from TikTok in that it has a unified structure (ByteDance is the parent of TikTok, which is for markets outside China and Douyin, which is the name of the platform in China) so Chinese users can mix with users from around the world. For some Chinese, this can be the first time they’ve had the chance to interact with Americans online, particularly since Google, Facebook and WhatsApp are blocked and social media operates under very tight restrictions. Will this interaction last, though??

Then in Retail trading platform eToro files for US IPO and chases $5bn valuation (Financial Times, Ivan Levingston) we see that the retail trading platform has decided to go for a flotation in New York sometime this year. Its biggest market is the UK but it has decided to go stateside in order to access a broader range of investors than they’d get in the UK. The company’s valuation has plummeted since it first tried to go public via a SPAC in 2021, when it wanted a $10.4bn valuation. * SO WHAT? * I’ve said on many occasions before that the “exodus” of companies that we are seeing at the moment is quite often down to their business mix changing and becoming more US-focused. In eToro’s case, however, I think that they are heading stateside because they’ll no doubt get a higher valuation than they would have done in the UK and there’s just more coverage of this kind of company over there. It’s a real shame for the LSE as this could have added some much-needed street-cred.

In business trends, European carmakers call for ‘grand bargain’ with Donald Trump to avoid trade war (Financial Times, Kana Inagaki) highlights ongoing efforts by European carmakers to protect themselves against an expected onslaught from Chinese EV manufacturers who they fear will flood the market with cheap vehicles. They are now pushing for Brussels to come to an agreement with Trump rather than retaliate against his threatened tariffs. More than 20% of EU car exports go to the US. Interestingly, the European car industry body (Association des Constructeurs Européens d’Automobiles, aka the ACEA) is also calling for a de-escalation of hostilities with China after the EU imposed import tariffs of up to 45% on imports of Chinese EVs. They are in a right mess alright…

US defence industry braced for tech shake-up under Trump (Financial Times, Sylvia Pfeifer and Steff Chavez) shows that defence company execs are getting ready to do battle with Trump who, in his previous term, was not backwards in coming forwards in procurement decisions. His meddling with the Air Force One contract resulted in Boeing suffering heavy losses and there are concerns that he’ll be more inclined to put business the way of newer players to shake things up among the established defence hierarchy. Interestingly, shares in many US defence groups have underperformed the wider S&P500 index because there is uncertainty as to what he’s going to do. Separately, Silicon Valley defence start-up Shield AI hits $5bn valuation (Financial Times, Tabby Kinder) highlights a doubling of the valuation of the company that makes AI-powered software to power autonomous aircraft and drones in its latest funding round. * SO WHAT? * I’m sure that Trump will keep everyone on their toes, but with his big spending on defence and ongoing panic spending by governments around the world, I really would have thought that there will be enough business to go around.

In consumer trends, Luxury goods groups drive European stocks to highest level in a month (Financial Times, Mari Novik) shows that European stocks rose to their best level in a month in trading yesterday. This came courtesy of luxury goods stocks climbing after Richemont

announced quarterly sales that beat expectations, sending its share price up by 17%. * SO WHAT? * Luxury has been a bit of a mixed bag over the last year or so thanks to slowing sales (and expectations!) in China, so a bit of good news like this is bound to have an impact! We’ll need to see more from rivals, though, to ascertain whether this is a Richemont-specific thing or a industry-wide thing.

In the UK, Mortgage defaults surge for longest stretch since 2007 (Daily Telegraph, Eir Nolsoe) cites a survey by the Bank of England of lenders which shows that the length of the mortgage default crisis has now overtaken the financial crisis as defaults have been rising over the last two years! This is the longer period of concurrent increases since the survey began in 2007. * SO WHAT? * This just goes to show the ongoing pressure that families are still under and that we’re not out of the woods yet. Defaults could yet rise further as there are around 700,000 households that are scheduled to remortgage at higher rates in 2025.

In terms of spending habits, Dunelm hails ‘solid’ Christmas sales but higher wage costs cast shadow (The Times, Isabella Fish) shows that the homewares retailer reported a solid Q2 performance against a challenging economic backdrop as sofas, dining chairs and coffee tables sold particularly well. It also saw strong performance from click-and-collect sales. * SO WHAT? * Despite this, the share price fell on news that sales growth had slowed down versus previous quarters and the company highlights rising costs resulting from Reeves’s budget.

Then in Deliveroo profit forecast buoyed by higher orders (The Times, Jessica Newman) we see that Deliveroo has benefited from tie-ups with retailers as diverse as B&Q and Ann Summers that have rounded out its traditional takeaway offering, meaning that year end profits are expected to be at the top end of guidance. It certainly sounds like the company is going to deliver on expectations!

In a quick scoot around some of today’s other interesting stories, Citigroup racks up £1bn bill for Canary Wharf tower refit (Financial Times, Joshua Oliver and Ortenca Aliaj) shows that Citigroup’s decision to refit its existing building in Canary Wharf rather than knock it down and start again is going to cost it an extra £1bn, highlighting the escalating costs of refitting rather than starting again.

In residential property news, UK housebuilders predict sector growth on Labour planning reforms (Financial Times, Joshua Oliver and Harriet Agnew) sounds a positive note as big

housebuilders have praised the government’s overhaul of the planning system while Taylor Wimpey profits on track but costs expected to rise (The Times, Tom Saunders) shows that full year housing completions would come in towards the top end of guidance while profits would be in line with expectations. It did warn, though, that build costs would rise, although I think that the overall tone here was one of cautious optimism heading into 2025.

I have to say that I have always been transfixed by OK Go videos ever since I saw the classic treadmill video! Following that, the band just went on to do increasingly intricate videos like this (this has to be my favourite – the umbrellas 😲!) – and now they’ve released a new one! They don’t half push the boat out when they do these things 👍👍👍