Watson’s Weekly 22-03-2025

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE COLOURED HIGHLIGHT REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

IN SOME OF THE MAIN THEMES OF THE WEEK…

• ON UKRAINE – Putin and Trump had a chat this week and Putin ordered a limited ceasefire for 30 days. He used this pause to allow western investors to sell some Russian shares and touted the attraction of investing in Russia for American companies if/when the war ends. European military powers are now working on a 5-10 year plan to replace the US in NATO but in the short term, PM Starmer is trying to get the “coalition of the willing” to talk about air and sea defence as well as getting boots on the ground. The US aired the possibility of taking control of Ukraine’s nuclear power plants but President Zelenskyy only really wants him to take control of the one that’s currently occupied by the Russians, Zaporizhzhia, which used to provide 20% of the country’s power pre-invasion. The idea is that American presence there would act as a deterrent to potentially hostile forces.
• IN GAZA – Israel resumed attacks by launching “extensive strikes” in Gaza which resulted in hundreds of casualties. Netanyahu said the strike was in response to Hamas’s “repeated refusal to release our hostages”. So much for peace…

IN OTHER MACRO NEWS…

• IN THE US – Investors are getting increasingly nervous about the negative effect of Trump’s economic policies and made their “biggest ever” cut to US equity holdings in March and made the biggest shift to European stocks since 1999. The Fed cut US growth forecasts and kept interest rates unchanged because of economic uncertainties and the OECD cut GDP growth forecasts for 12 of the G20 members for the same reason. Trump signed an executive order to block law firm Perkins Coie from working with the US government because it had acted against him in the past, Supreme Court Justice John Roberts made a rare statement to push back on Trump’s attack on American judges (Trump said one of them should be impeached) and some Gallup polls said that less than a third of under-30s in the US now trust the government. Musk is having a tough time at the moment as he had to halt Cybertruck deliveries because metal panels are falling off and Starlink users are leaving the service because of his political involvement. European countries are now looking to use other providers where they can because America can no longer be relied upon (certainly under this administration anyway!).
• IN CANADA – an election has been called for April 28th. Since Mark Carney became PM, a swift election has been expected as he will want to take advantage of the momentum he’s enjoyed so far. His Liberal party had been lagging behind until he took over from Trudeau but he is now just ahead of the Conservatives.
• IN ASIA – China unveiled a plan to “vigorously boost” weak consumption but didn’t give that much detail although data points on retail sales, factory output and new homes prices were all positive, so it would seem that things are potentially moving in the right direction. Meanwhile, the Bank of Japan decided to leave interest rates on hold at 0.5% due to the “high uncertainties” faced by Japan’s economy thanks to expected tariffs from the US.
• IN EUROPE – the European Commission is is launching an investigation into the aluminium market to protect the bloc’s aluminium industry from imports that were destined for the US but are now ending up in Europe. Germany’s parliament approved incoming chancellor Merz’s €1bn spending plan and this was subsequently approved by the country’s upper house on Friday. Turkey detained 37 dissidents and is looking for another 224 as President Erdoğan gets back to his old tricks of suppressing any critics.
• IN THE UK – UK manufacturing output fell in Q1 for the first time since 2016 and  88% of upper-tier local authorities are set to increase council tax by the maximum permissible amount, 4.99%, for the third year in a row. Council leaders say this is necessary after over a decade of funding cuts. In her wider mission to cut red tape, the chancellor is making moves to restrict the CMA’s scope for investigating mergers to facilitate economic growth, the Treasury is launching a review of the Financial Ombudsman Service and UK regulators are going to face twice-yearly reviews to ensure they are doing all they can to be “growth-friendly” and it looks like Reeves is going to slash public spending in her Spring Statement next week and not raise taxes. Meanwhile, the basket of goods used to determine inflation got its yearly revamp this week – VR headsets, yoga mats and pool sliders are in while local newspaper ads and oven-ready gammon joints are out.

IN DEFENCE NEWS…

• Trump’s recent actions have caused such a stir that even Switzerland is talking about a closer relationship with NATO (although he’s stopped short of expressing a wish to become a member). This in itself is shocking.
• Asian defence stocks hit record highs on Europe’s imminent rearmament, missile maker MBDA is seeing more interest from EU militaries seeking out non-US weapons but British company Qinetic had a disappointing trading update thanks to costs relating to its US defence business.
• The EU said that the US, UK and Turkey would be excluded from a €150bn rearmament fund unless they sign defence agreements with the bloc.

IN ENERGY NEWS…

• Green energy stocks in the S&P Global Clean Energy Transition Index have lost five years of gains as political support has just evaporated in the face of other priorities.

IN COMMODITIES NEWS…

• Gold breached $3,000 per troy ounce for the first time as nervous investors buy “safe” assets in the face of Trump-prompted uncertainty.

IN MARKETS NEWS…

• Global markets continued to weaken due to uncertainty prompted by Trump’s policies.
• Retail investors seem to be embarking on another meme-quest as retail investors are attacking hedge fund shorts in the defence sector. Reddit appears to be the forum of choice once more for would-be hedge-fund hunters…

IN BUSINESS TRENDS…

• Foreign management consultants are going to feel the pressure in Saudi Arabia as Riyadh is looking more closely at how it’s spending its money, particularly as the oil price has been weakening and the costs for its various massive projects are growing all the time.
• Revenues at US law firm Kirkland & Ellis hit impressive highs, echoing similar news last week  at Latham & Watkins, thanks to all the dealmaking in 2024. You do wonder whether all the Trump shenanigans are going to dampen the hype and expectation that had been building up about the flood of IPOs for this year. In the UK, A&O Shearman has now officially warned junior lawyers that their bonuses could at least partly depend on their office attendance record. RTO is most definitely back!
• EY announced a restructuring of its legal business that will involve a narrowing of focus on corporate law, company secretarial, tax litigation and immigration. TBH, this isn’t necessarily a “let’s-get-out-of-law” thing for all accountancy firms – EY has had a lot to deal with since the failure of its proposed splitting of the business into audit and consulting.
• The chief of Lloyd’s of London warned that US protectionism will mean higher insurance prices for longer across many lines of business.

IN CONSUMER TRENDS…

• US consumers are cutting spending and going to shops less. Research from RetailNext says footfall is dropping while the University of Michigan’s consumer sentiment index reflected a third consecutive month of decline.
• UK consumers are seeing wage growth stabilising, but it’s still quite tight out there as the higher minimum wage kicks in and the employment mix is changing.
• IN PROPERTY – there are more properties on the market now and the number buy-to-let firms is mushrooming as smaller landlords are registering themselves as companies to avoid paying higher rates of tax. First-time buyers are having to move further out of London because prices are getting crazier and as house prices outpace prices for flats, one-bed flats are getting increasingly out of reach for key workers across half of England.

IN EMPLOYMENT TRENDS…

• US companies continue to ditch references to DEI from their annual reports as they try to stay onside with Trump. Out of the 400 top companies in the S&P Index, 90% of those that have filed an annual report since Trump got elected have cut references to DEI to at least some degree.
• It seems that France’s job market is at a tipping point and many believe it will get worse from here. Corporate bankruptcies are on the up and lay-offs at major companies are occurring with more frequency.
• The Resolution Foundation think tank reckons that the recent 0.5% fall in employment over the year to January is of a magnitude “only seen during a recession”. I think there will be a few difficult months to come while the higher NICs and minimum wage kick in but it’s worth reminding ourselves that employment numbers (well, the ones coming from the ONS at least) are dodgy anyway because they’ve had to change the way they gather the numbers.

IN TECH NEWS…

• Google’s parent Alphabet is in talks to buy cyber-security group Wiz for $30bn, although some say that the price is high. Still, Wiz owners managed to get themselves a 10% break clause (this is massive – it’s normally 2-3%!), reflecting the high risk of this deal not going ahead for regulatory reasons.
• The European Commission has accused US tech companies Google and Apple of breaching rules in the Digital Markets Act, which means that they could be fined 10% of worldwide revenues. The Americans are not going to take this lying down…

IN AI NEWS…

• Chinese tech giant Baidu released two new AI models, one of which delivered “performance on a par with DeepSeek R1 at only half the price” and has “stronger understanding, planning, reflection and evolution capabilities”. Chinese tech companies seem to be flooding the market with powerful AI models and relying on the open source approach to catch-up with the closed-source models. If they reach parity in terms of utility, it will be much harder for closed-source models to monetise…
• Anthropic said that it would focus on business users to get more revenues – and its B2B business is now growing at twice the rate of its B2C business.
• Microsoft has joined up with Swiss start-up Inait to simulate brain reasoning, which means that AI can learn from real world experiences rather than just picking up on correlations in historic data.

IN CHIP NEWS…

• Softbank just expanded its AI portfolio by buying chip start-up Ampere Computing for $6.5bn. Ampere makes processors for cloud computing and data centre applications based on Arm’s technology.
• Nvidia unveiled a new generation of chip (the Vera Rubin superchip) and announced a partnership with GM to integrate AI into its cars, factories and robots. Nvidia also committed to spending around half a trillion dollars on chips and other electronics manufactured in the US over the next four years.
• Japanese semiconductor materials group JX Advanced Metals made its market debut in Japan’s biggest IPO since 2018 and raised $3bn.

IN OTHER TECH NEWS…

• X saw its valuation return to $44bn again in its latest funding round, the valuation that Musk bought it at back in 2022. Its valuation had dipped to a low of $10bn last year as advertisers ditched it. Its turnaround has coincided with Musk’s elevation to Trump’s chief BFF 😂.
• Data centre operator CoreWeave is looking to raise up to $2.7bn in an IPO in what could be the biggest US tech listing so far this year.

IN MEDIA NEWS…

• Spotify’s focus on profitability is paying off. It paid out record royalties last year but royalties as a percentage of overall revenues are falling because Spotify has been getting better at diversifying its revenue streams.
• French music streamer Deezer broke even for the first time ever. It now wants to launch new tech to provide a more personalised experience.
• Ofcom is looking to start enforcing new rules for social media groups, search engines and messaging apps as the Online Safety Act will be kicking in from next week.

IN RETAIL NEWS…

• Fast fashion retailer Forever 21 filed for bankruptcy in the US. A casualty from the onslaught of Shein and Temu…
• Ikea announced that it would be opening its Oxford Street store from 1st May. This is all part of the effort to move away from its out-of-town big box model. This opening has been hugely delayed but its arrival may help attract other tenants.
• Asda started a price war, hitting the share prices of Tesco, Sainsbury’s and M&S. Is the decision to cut prices just a sticking-plaster-over-a-gaping-wound solution for Asda losing its way for the last few years?? IMO it has lost its identity and needs to get one PDQ otherwise Aldi and Lidl will continue to steamroller it.

IN CONSUMER GOODS NEWS…

• Nike announced a Q4 sales drop as it continued to try and clear its inventory. A turnaround is in progress under a new CEO…

• IN TESLA NEWS – staff at the company’s German plant demanded better working conditions, 46,000 Cybertrucks were recalled because they were falling apart and Musk declared attacks on Tesla cars “violent terrorism”. Apparently, the Cybertruck has become the world’s most hated car.
• BYD unveiled new tech that can provide 400km of range in just five minutes, sending its share price to an all-time high! This underlines Chinese car makers’ technical superiority and puts huge amounts of pressure on everyone else to catch up…
• Audi announced that it would be cutting about 8% of its workforce by 2029 as it adapts to electrification. This is part of a broader push to save €1bn a year in costs…

• IN FINANCIALS – crypto exchange Kraken is on the verge of buying US retail futures trading platform NinjaTrader for $1.5bn as part of a broader effort to diversify its user base and the number of asset classes it offers. Deutsche Bank announced that it’d axe 2,000 jobs in its retail division in an ongoing effort to cut costs, Prudential’s profit was held back by a slowdown in China and M&G announced some robust results as previous cost-cutting is now bearing fruit.
• FedEx cut its outlook despite higher profits because of economic uncertainty.
• Heathrow Airport had to close due to a fire in a nearby electrical substation. Needless to say, this caused huge amounts of chaos…

For me, my favourite video this week was this interpretation of a children’s classic bedtime story!