Friday 31/01/25

US economy grew at 2.3% rate in fourth quarter (Financial Times, Claire Jones) highlights a weaker-than-expected rate of growth for the US economy, coming just a day after the Fed decided to keep rates on hold due to the ongoing strength of the economy. Consumer spending was the biggest growth driver in Q4, but government expenditure also helped to boost the number while a drop in investment proved to be a drag on the overall performance. * SO WHAT? * The general opinion is that the US economy will continue to grow faster than economies in Europe, Canada and Japan but some economists are concerned that a Trump tariff-powered trade war could eat into at least some of the expected gains.

Hedge fund Elliott warns White House is inflating crypto bubble that ‘could wreak havoc’ (Financial Times, Costas Mourselas) highlights a warning from the hedge fund Elliott Management that the Trump administration’s pro-crypto stance has prompted a speculative investment frenzy that could cause “havoc” when prices collapse. It also warned that excessive support of cryptocurrency could actually jeopardise the dollar’s position as the world’s reserve currency. * SO WHAT? * I would definitely agree with this. The problem is that when investors pile in purely because everyone else is, you’re always going to have bubble-danger. The theory that crypto bros who are now in charge of the White House could potentially underpin the performance of crypto is compelling, but the fact of the matter is that there’s zero protection for crypto investors and those White House crypto bros will be just fine if everything collapses. “Normal” people won’t.

Then in China builds huge new wartime military command centre in Beijing (Financial Times, Demetri Sevastopulo, Joe Leahy, Ryan McMorrow, Kathrin Hille and Chris Cook) we see that China is building a humungous military complex in Beijing that US intelligence reckons will be ten times bigger than the Pentagon and be the world’s biggest military command centre. The People’s

Liberation Army is also developing new weapons and projects whilst also boosting its nuclear weapons arsenal ahead of the PLA’s centenary in 2027. Taiwan’s not going to like the sound of this…

Nearer home, European Central Bank cuts interest rates after eurozone growth stalls (The Guardian, Phillip Inman) shows that the ECB has cut interest rates by 0.25% to 2.75% – something that had been widely expected – as we also heard that Eurozone growth lost momentum in the final quarter of last year. * SO WHAT? * At the moment, the market reckons that interest rates will fall by another 1% over the course of the coming year. That being said, ECB president Lagarde said that she expects that global economic risks “remain tilted to the downside” and is wary that ongoing geopolitical tensions could push inflation higher.

Back home, Business confidence falls to lowest level in over a year (The Times, Jack Barnett) cites the Lloyds Bank business barometer which fell to its lowest level in over a year this month as businesses continued to digest the impact of the Budget. Pessimism was most acute among retailers and hospitality companies who are clearly going to be more affected by the changes because of the rising minimum wage and impact of the increased NICs. On the flipside to this, confidence in future trading prospects improved. Will businesses be able to weather this storm??

Then in Gold price hits record high on looming US tariff fears (Financial Times, Leslie Hook) we see that the gold price hit a record high yesterday as investors filled their boots on concerns about the impact of impending US import tariffs on Canada and Mexico. There have been fears that the tariffs could also apply to gold, which has historically not attracted import taxes. Gold prices have also increased because of the weakening dollar as gold is priced in dollars, so that means investors can buy more of it.

OpenAI targets $300bn valuation in SoftBank-led funding round (Financial Times, George Hammond) shows that OpenAI’s eagerness to raise money remains undiminished by this week’s DeepSeek shenanigans as engages in its latest massive funding round. SoftBank is obviously going to chuck in a load of wonga as well as everyone else. * SO WHAT? * If this latest round goes to plan, OpenAI’s valuation will skyrocket from an already punchy $157bn (its implied valuation at its last round in October) to $300bn. For now it seems that investors are sticking with the belief that bigger is better and AI just needs more money thrown at it. Interestingly, this new valuation will bring it closer to SpaceX’s valuation of $350bn.

In chip news, Intel sales slide as chipmaker pursues turnaround strategy (Financial Times, Tabby Kinder) shows that the company posted weaker sales and a net loss in Q4 as it remains deep in turnaround mode. It’s still looking for a new CEO to replace its previous CEO Pat Gelsinger who had to leave after mounting investor pressure got too much. As if that wasn’t depressing enough, Intel also announced a disappointing set of forecasts for Q1 of 2025 so there wasn’t all that much to cheer about!

Samsung Expects Limited Earnings Growth Amid Chip Woes (Wall Street Journal, Kwanwoo Jun) also sounded a downbeat note as it expects limited earnings growth in the current quarter despite reporting above-expectations net profit for Q4. Profitability at its core semiconductor business continues to worsen.

Then in Microsoft sheds $200bn in market value after cloud sales disappoint (Financial Times, Rafe Uddin) we see that although it beat analyst expectations for revenue and net income for

the December quarter, its cloud division fell just short of market expectations. Its cloud division is now the company’s biggest revenue driver but it is suffering from capacity constraints that are expected to continue this year. * SO WHAT? * The share price fell because I guess all eyes are on the cloud division, despite the broader picture being positive. The DeepSeek thing earlier this week can’t have helped sentiment either, so I guess that investors used this as an excuse to sell down.

Elsewhere, Apple beats income forecast but iPhone sales stall in China (The Times, Louisa Clarence-Smith) shows that Apple underwhelmed in iPhone sales for Q1, mainly thanks to a disappointing China performance. Fortunately, its services division (which includes the App store, Apple Music and Apple TV) put in a decent performance. * SO WHAT? * This was a bit of a blow because investors had been hoping that Apple’s handset sales would have been boosted by the new AI features in its latest model. It continues to face its perennial problem of convincing existing users to upgrade to the latest phone!

Apple and Meta battle for hearts, minds, thumbs and eyes (Financial Times, Lex) is an interesting article which compares and contrasts the way that both companies have earned their money until now and what could lie ahead in the future. Originally, Apple sold physical product while Facebook/Meta didn’t, but after years of pouring money into VR headsets it seems that Meta is now finding some traction with its connected Ray-Bans. * SO WHAT? * There is a general expectation that eyewear could become the default medium through which people access the internet so given that Meta has a decent product and Apple hasn’t, there is a risk here that Apple could miss the boat big time if it doesn’t have anything to offer in this category.

Rabanne Owner Puig Brands Posts Higher Sales Amid Fragrance Boom (Wall Street Journal, Andrea Figueras) shows that Spanish luxury group Puig Brands, which owns brands including Rabanne and Jean Paul Gaultier, announced a growth in sales for Q4 thanks to strength in its fragrance division and an uptick in momentum in North America. Its full year results are due out on February 27th. * SO WHAT? * This provides yet further evidence of a recovery in luxury and the potential of gathering momentum in the US!

Then in Mulberry turns focus from China to UK in pursuit of sales (The Times, Isabella Fish) we see that the struggling British luxury group has decided to scale back its focus on China and concentrate on getting its offering right in the UK and US. Investors sold the shares on news that it posted a disappointing sales performance over the festive period. * SO WHAT? * The company is going to put more emphasis on customer personalisation and cut operating costs. We’ll just have to wait to see how this goes!

Then in John Lewis warns over profits after disappointing Christmas (Daily Telegraph, Hannah Boland) we see that the partnership told staff that it had not met sales and profit expectations in the crucial festive period, adding that it could miss its full year targets as a result. It blamed “lower consumer confidence and weaker than expected market confidence” for hitting performance both at John Lewis and Waitrose. Clearly turnaround efforts of its new top

leadership crew need more time to kick in…

H&M misses quarterly sales forecasts (The Times, Isabella Fish) shows that the Swedish fashion retailer fell short of quarterly sales forecasts and warned of weaker demand. * SO WHAT? * It’s been folding its Monki brand into Weekday to streamline the business, accelerating store closures more generally and boosting its marketing efforts. However, it’s still falling short of arch-rival Inditex so investors will no doubt be impatient to see meaningful improvement.

Homebase owes unsecured creditors more than £650m (The Times, Isabella Fish) shows the extent of Homebase’s woes as more details emerged of its downfall. It collapsed into administration last year owing over £650m to creditors including AO World, Halford and the Hut when Teneo became administrators in November. You do wonder whether we’re going to see more of this kind of thing given the ongoing impact of Reeve’s Budget..

In travel, Wizz Air warns on profits as engine problems keep planes grounded (The Times, Robert Lea) highlights disappointing performance as it suffered from ongoing repercussions from troubles with its faulty Pratt & Whitney engines. The situation isn’t going to be made any better by production issues at Airbus, which has delayed aircraft deliveries. Ouch.

In a quick scoot around some of today’s other interesting stories, Deutsche Bank profits collapse as German economy reels (Daily Telegraph, Louis Goss) shows that Germany’s biggest lender announced a massive 92% drop in profits against the backdrop of a broader economy in turmoil. Its answer? To cut jobs. It sounds like retail banking is particularly tricky at the moment. The Great Deutsche Bank turnaround still has a long way to go by the sounds of it!

In St James’s Place assets hit all-time high as turnaround bears fruit (The Times, Ben Martin) we see that Britain’s biggest wealth manager is showing signs of a turnaround after a difficult 2024 as net fund inflows exceeded market expectations. It seems to be going in the right

direction anyway!

Amazon Raises Its Ad Spending on Elon Musk’s X, in Major Reversal (Wall Street Journal, Dana Mattioli, Suzanne Vranica and Jessica Toonkel) is an interesting article which shows that Amazon is planning to boost ad spending on X a year after pulling a lot of its advertising over a year ago when it expressed concerns about hate speech on the platform. I guess this is an example of tech bros taking care of each other in the new administration because Bezos and Musk haven’t always seen eye-to-eye.

I’m 100% with this guy on his thoughts on pasta!