Friday 17/03/23

1. In MACRO & COMMODITIES NEWS, the ECB raises rates, Macron aims to force through pension reforms, criticisms of Hunt’s Budget come through, Argentina looks forward and the palm oil dispute highlights differences
2. In FINANCIALS NEWS, First Republic gets rescued, Credit Suisse faces a tricky future and payments providers get scrutinised
3. In TECH NEWS, Microsoft mixes AI into its software suite, we look at ChatGPT-4 and how it would help the NHS, China’s AI bot fails to impress, TikTok continues to feel the pressure and is banned from government mobiles while Google Glass recedes again
4. In INDIVIDUAL COMPANY NEWS, Deliveroo aims for profit, Rentokil booms and John Lewis scraps the bonus
5. AND FINALLY, I bring you an intriguing way of making money with AI…

So the ECB raises rates anyway, Macron uses force, Budget criticisms surface, Argentinian opportunities emerge and the palm-oil dispute highlights differences…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

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:

ECB raises interest rates despite market turmoil (The Times, Mehreen Khan) highlights yesterday’s decision by the ECB to raise interest rates – by a chunky 0.5% to 3% – despite what’s going on with banks at the moment, saying that had faith in its robustness. It’ll be interesting to see what happens when the Fed and the Bank of England decide interest rates next week. Prior to the weekend banking collapse, a 0.5% (aka “50bps”) rise for the ECB had been pretty much nailed on but the banking wobble made everyone wonder whether that would be suspended – but clearly it wasn’t in the end!

Macron uses special powers to force through plan to raise pension age (The Guardian, Angelique Chrisafis) highlights President Macron’s use of controversial constitutional powers to force a rise in the pension age from 62 to 64 (among other unpopular reforms) in order to avoid a parliamentary vote (and likely loss). This did not go down well and there were protests of different magnitudes both within and outside parliament – some of which included loud singing! * SO WHAT? * I suspect there will be more strikes and protests to come given the way in which this all happened. There may well be a vote of no confidence in the government as well if the opposition can get its act together and co-ordinate. The government argues that raising the retirement age (which will actually bring it into line with its European neighbours),

axing privileges given to some sector workers and tightening conditions to get a full pension are all needed to stem the build up of massive deficits.

Jeremy Hunt battling to justify pensions giveaway to the top 1% (The Guardian, Richard Partington, Phillip Inman and Kiran Stacey) highlights criticisms of yesterday’s Budget from the Institute for Fiscal Studies and Resolution Foundation think-tanks. They both doubt that the pensions giveaway to the top 1% of earners will work in getting more senior doctors to remain in the workforce and Labour leader Keir Starmer went as far to say that he would reverse this immediately for high earners but limit it to doctors only. The Office for Budget Responsibility (OBR), which is the government’s independent economic forecaster, reckoned that the change could add 15,000 workers but the IFS was not so sure about that, saying that it was optimistic and would effectively cost £100,000 a job. Childcare tax trap means parents are better off with £34,000 pay cut (Daily Telegraph, Melissa Lawford) also pokes holes in the childcare promise as well – and that some parents will be caught out by their collective earnings. * SO WHAT? * As I said yesterday, no Budget ever pleases everyone and it is Labour’s job to criticise whatever Hunt came out with. In my experience, the only time Budgets are actually more generous is just before elections because they want people to vote for them!

Hyperinflation Argentina is ready to bloom (Financial Times, Michael Stott) follows on from the story earlier this week that Argentina’s inflation had broken through 100% and contends that there could be a bright future in its agribusiness, energy, mining and digital services sector – as long as you look past the immediate issues of potential hyperinflation or economic collapse. The opening of a shale gas field in Patagonia is scheduled to pump gas to the Buenos Aires region this year, which will be followed by exports to Brazil and Chile and could mean that the country goes from being in an energy trade deficit of $5bn a year to a surplus of $15bn! Another potential area to get excited about is lithium deposits in the north of the country – JP Morgan estimates that Argentina will be the world’s third biggest producer of lithium in the world by 2030! * SO WHAT? * It sounds like Argentina has some concrete things to get excited about but a lot will depend on what the next regime is like because the current one, led by President Alberto Fernández, is too unpopular to win again. The new government is due to take office in December.

Rich nations are not looking good in the palm-oil dispute (Financial Times, Alan Beattie) follows on from that story earlier this week that the UK is about to lift import tariffs on Malaysian palm oil in order to enter into the CPTPP. Palm oil is controversial as it is hugely prevalent (the WWF reckons it is in about 50% of all rich-world supermarket packaged products) but comes at a huge environmental cost of deforestation. This article makes the very interesting point that although the intention behind the tariffs are good, they don’t sufficiently differentiate between the destructive and sustainable producers within each country which means that the producers aren’t incentivised to do the right thing. From the Malaysian and Indonesian point of view, Europe is just displaying typical colonial behaviour and perhaps protecting their own oilseeds producers. The debate and lawsuits rage on…

Hyperinflation Argentina is ready to bloom (Financial Times, Michael Stott) 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!

More bank rescues occur and payments providers are targeted…

Consortium of Wall Street investment banks rescue First Republic (The Times, Patrick Hosking and Ben Martin) shows that JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley got together to rescue the troubled First Republic Bank via a $30bn bailout put together by The ‘three Js’ who put together a rescue deal for First Republic (Financial Times, Brooke Masters, Ortenca Aliaj and James Politi), which refers to US Treasury Secretary Janet Yellen, JP Morgan Chase chief Jamie Dimon and Fed chair Jay Powell who got all the banks together to bolster confidence in the financial system. * SO WHAT? * Basically, when SVB failed, investors started to think who else could suffer the same fate – and First Republic looked like the next candidate. Panic took hold and swift action had to be taken otherwise ALL banks – whether or not they were in trouble – would have suffered a disastrous sell-off as investors took flight. Deposit outflows from First Republic appear to have slowed down but this collaborative action – which does not involve taxpayers’ money – was widely praised as a solid solution to what could have become disastrous.

Over in Europe, ‘An untenable equity story’: what’s next for Credit Suisse? (Financial Times, Owen Walker) shows that, despite the Swiss central bank stumping up a $54bn lifeline to keep the embattled Credit Suisse alive, the bank’s share price was still down 11% last night versus the previous day. The problem is that the

perception is clearly that investors think that Credit Suisse’s business model isn’t profitable and one large shareholder said that although the central bank’s intervention relieved pressure in the short term, it looks likely that more dramatic changes will have to be made to Credit Suisse to get it to thrive. * SO WHAT? * Current management say they want to go ahead with a restructuring plan that will separate out the lossmaking investment banking arm and its domestic, wealth and asset management business but it doesn’t sound like this is convincing many at the moment. Another possibility could be for rival UBS to buy it – but if that happened there might be antitrust issues although CS is in such a bad position that regulators might overlook it. An even more drastic option could involve the central bank guaranteeing deposits and effectively nationalise the business – but that seems to be the least likely option at this stage given the potential impact this would have on Swiss taxpayers.

Then in Payments providers targeted with crackdown to prevent fresh crisis (Daily Telegraph, Simon Foy) we see that the FCA is threatening to shut down “shadow banks” (which provide deposit and transfer services without a banking licence, e.g. Revolut) unless safeguards are in place to protect customers’ money. * SO WHAT? * This has obviously been prompted by recent events and the FCA sent a letter to almost 300 chief execs, ordering them to bolster their financial reserves and crack down on potential money laundering. This doesn’t happen very often – but then again neither does mass panic in the banking sector!

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!

Microsoft adds AI, we look at chatbot developments, more pressure for TikTok and Google Glass recedes again…

Microsoft to add AI co-pilot to its Office software suite (Financial Times, Patrick McGee and Madhumita Murgia) shows that Microsoft is continuing to integrate AI into its suite of productivity tools as it tries to beat others to be at the cutting edge. It introduced a “co-pilot” that will sit within Word, Excel and PowerPoint etc. to help business customer speed up the creation of documents. The new features will be rolled out “in the months ahead”. This sounds great, but I think it’s a bit early yet to see how useful this will actually be.

What is ChatGPT-4 and how is it different to the first one? (Daily Telegraph, Ed Cumming) talks about what’s new with the latest version of ChatGPT. It can understand pictures, explain humour, is more ethical, can write code for games, is even better at passing exams and can write better poetry than its predecessors. The next challenge for ChatGPT? To save the NHS (Daily Telegraph, Harry de Quetteville) points to AI’s potential use in diagnosis, more efficient data analysis without the expense that would have to be incurred by a brand new system and help with clinical trials by putting forward candidates for new drugs or play a role in showing how new trials should be run.

Against this backdrop, Chinese ChatGPT rival from search engine firm Baidu fails to impress (The Guardian, Rhoda Kwan) highlights yesterday’s unveiling of Baidu’s AI-powered chatbot, Ernie Bot, which appeared to underwhelm (particularly compared to the huge excitement created by ChatGPT). The Chinese search engine company saw its share price fall by 10% after the unveiling as it only showed pre-recorded material. * SO WHAT? * OK, so it’s not as good as ChatGPT, but every Chinese player is jumping on the bandwagon and developing their own chatbots. I suspect that the main thing that will hold Chinese bots back is censorship – not to mention the US restrictions on chip sales. A lot of money will no doubt be thrown at this, though!

Meanwhile, TikTok CEO’s Message to Washington: A Sale Won’t Solve Security Concerns (Wall Street Journal, Stu Woo) shows that TikTok is pushing back against Washington’s stance that TikTok is a potential security threat by saying that separating it out from its Chinese owners will not offer any better protection than that which it has already suggested. TikTok’s solution is to get American partner Oracle to store US user data. As things stand at the moment, Biden’s administration has threatened to ban TikTok if its Chinese owners don’t sell their stakes.

Over here, UK bans TikTok from government mobile phones (The Guardian, Dan Sabbagh) shows that the UK government is going to follow the same course of action as its American and European cousins by banning the app from ministers’ and civil servants’ phones “with immediate effect”. MPs and peers ask information commissioner to investigate TikTok (The Guardian, Dan Sabbagh and Dan Milmo) goes even further as a cross-party group of MPs is pushing for an investigation into whether TikTok’s handling of personal information breaches UK law – and if it does, it may have to be shut down in the UK. * SO WHAT? * I’ve said before that government bans are one thing – but if COMPANIES start banning it, this will become a major problem for TikTok and its owner ByteDance. I can easily imagine companies that deal with sensitive information in areas like healthcare, insurance, engineering etc. will see government bans and decide to act in a similar fashion. Surely this presents a massive potential boost to Meta (because of Instagram) – but maybe an opportunity for Twitter to bring Vine back (which it bought over a decade ago!) with some extras?!?

Then in Google Glass Is Going Away, Again (Wall Street Journal, Alyssa Lukpat) we see that Google Glass is dying a second death after its latest version of Glass (the Glass Enterprise Edition) has been withdrawn from sale after failing to gain traction. Google said in a statement yesterday that it was still working on other AR products. No more “Glass-holes” 🤣!

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!

Deliveroo is hopeful, Rentokil booms and John Lewis’s woes continue…

In a quick scoot around some of today’s other interesting stories, Deliveroo says it is on road to profit after racking up £300m loss (The Times, Tom Howard) announced a loss of almost £300m last year but is confident that it is on track to profitability, although it does have some concerns for the macroeconomic outlook.

Rentokil flies higher after climate boost for insects (The Times, Simon Freeman) shows that the pest-control-to-hygiene company has benefited from the return to offices and higher demand for pest control. It is also doing a good job of assimilating US rival Terminix, whose acquisition completed in October, and stands to benefit by $200m of resultant cost savings.

Then in John Lewis scraps staff bonus and warns of job cuts after £234m loss (The Guardian, Sarah Butler) we see that the company won’t be paying out a bonus this year and warned of more headcount reductions, blaming higher costs. This will be just the second time since 1953 that the company has not paid out a bonus. * SO WHAT? * Dame Sharon White insists on frittering money away on new ventures such as financial services and home building – but I STILL can’t see what she’s doing about the core businesses! OK so she hired some new bloke as CEO but I don’t think he’s going to be the solution either as he doesn’t know retail – and he just has a history of buying and selling off businesses. Surely this company needs someone who KNOWS retail!!!

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…

Given I’ve been banging on about AI a lot recently, I thought that you might find this interesting (and possibly lucrative!): Man tasks AI bot with making ‘as much money as possible’ and it goes very well (The Mirror, John Bett). Wow!