Tuesday 14/01/25

• Hello again and happy New Year! How are you doing?? Have you broken any New Year’s Resolutions yet 😅?? It’s great to be back again! Anyway, I have been busy over Twixtmas writing a LOT of content for you. It’ll be released over the coming days and weeks.
• THE PODCAST WILL START AGAIN VERY SOON. The weekly podcast with Ralph will return and I will be doing a monthly podcast with a compliance lawyer at an investment bank to give you very interesting insights on regulation matters and how they are actually affecting what’s going on right now. 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…
• I’VE PUBLISHED A “WATSON’S YEARLY COMPETITION”. This is only be open to paying current subscribers. 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…
• I WILL BE DOING A REVIEW OF 2024 AND THEMES TO LOOK OUT FOR IN 2025 TODAY AT 4.30pm. If you want to attend this, HERE is the link to sign up. I hope to see you there – this will be a good way to start the year!

US imposes export controls on chips for AI to counter China (Financial Times, Demetri Sevastopulo and Michael Acton) highlights additional export controls on high-end semiconductors to China (and a list of other countries) as part of a three-tier licensing system. The top tier will have no restrictions, the middle tier will have some restrictions in volumes and the third tier (which includes countries such as China, Iran, Russia and North Korea) will be banned for exports. The US semiconductor industry is pretty angry about this and the EU also voiced objections. Meanwhile, China exports beat forecasts as Donald Trump’s tariffs loom (The Times, Tom Saunders) shows how sanctions and restrictions failed to dampen China’s exports in December as manufacturers rushed shipments to beat expected higher tariffs when Trump takes office. Exports increased by 10.7% year-on-year versus market expectations of 7.3% and the 7.6% increase in exports during November. Trump has been calling for tariffs on all Chinese goods from anything between 10% and 60%, so you can see reason for the rush! Exports from China to the US increased by 15.6% year-on-year to hit their highest level since September 2022. It is also interesting to note that China’s exports to the ASEAN bloc increased by 18.9% to hit a record high which could imply that the country is already adjusting to potential fallout from the US and diversifying its trade flows. Over the course of last year, China’s trade surplus (the difference between what it exported and what it imported) hit a new record of almost $1tn (i.e. it exported $1tn more than it imported).

In AI set to fuel surge in new US gas power plants (Financial Times, Amanda Chu and Jamie Smyth) we see that energy consultancy firm Enverus reckons that the US will need to construct up to 80 new gas-fired power plants by 2030 in order to continue to meet the rising demand for energy from AI. * SO WHAT? * Trump is a fan of fossil fuels and if he goes ahead with building these things it could jeopardise the Biden administration’s climate targets. The fact of the matter is that AI needs data centres and data centres are power-hungry. I guess the reality is that power is going to have to come from many sources, particularly as it looks like demand is just going to keep going up…

Elsewhere, Mexico pledges to shrink trade deficit with China in nod to Donald Trump (Financial Times, Christine Murray and Ilya Gridneff) shows that President Sheinbaum announced “Plan Mexico” yesterday to boost domestic production in a number of sectors and shrink its trade deficit with China in what is being seen as an acknowledgement of the concerns voiced by the incoming Trump administration. The Americans have been saying that Mexico is essentially becoming a gateway for Chinese goods to slide into the US via the backdoor. Will this be enough to satisfy the incoming US regime or will they just see this as being largely style over substance??

In Europe, Spain proposes 100% tax on homes bought by non-EU residents (The Guardian, Ashifa Kassam) shows that Spain has announced plans to slap a massive tax of up to 100% on real estate being bought by non-residents from countries outside the EU (including the UK!) in an attempt to address the ongoing housing crisis. Although PM Sánchez emphasised that this was a wider problem (house prices have risen by 48% over the last ten years across Europe), he continues to face rising anger over housing costs that have been increasingly out of reach for its citizens. In a raft of measures designed to address the issues, Sánchez proposed the expansion of social housing, providing incentives to those who renovate and rent out empty properties at affordable prices and restricting seasonal rentals. * SO WHAT? * As things stand at the moment, this is a proposal and needs to approved by parliament and, given Sánchez’s government’s patchy record with passing legislation, it might not even see the light of day.  Still, it does reflect sentiment but I would say that the irony of what he’s just done is that he may well have created a price spike as foreigners accelerate any plans that they may have had to snap up properties there to beat such a massive tax!

Foot-and-mouth outbreak in Germany forces meat and dairy export ban (Financial Times, Michael Peel, Madeleine Speed and Anne-Sylvaine Chassany) highlights a serious problem for Germany as it has lost its foot-and-mouth free status under the World Organisation for Animal Health (WOAH) rules which mean that it won’t be able to export outside the EU. The diseases is not considered to be a threat among to humans but it is contagious and potentially fatal for livestock. * SO WHAT? * Germany just can’t catch a break at the moment can it! The country will be holding an election next month after the collapse of Sholz’s laughable coalition government. Germany hasn’t experienced an outbreak like this since 1988 and the last outbreak in Europe was in Bulgaria in 2011. This resulted in a cull of 1,372 wild and domestic animals and took six months to execute. One of the worst-ever outbreaks was in 2001 in the UK as this resulted in the mass cull of a staggering 6.5m animals.

Back home, Surrey councillors ask ministers to ‘write off’ Woking’s £1bn debt (The Guardian, Richard Partington) highlights appeals to write off this massive debt in order to facilitate a merger between the country’s 12 local authorities as part of plans to streamline services. The Times suggest in a report in December that if such council write-offs could be combined, taxpayers could potentially shoulder £43bn in debt!!! * SO WHAT? * If this happens, it will come at a cost. The fact that a council became so indebted  despite covering such an affluent area and could potentially get a slap on the wrist will irk other less affluent local councils and cause friction between Angela Rayner’s devolution agenda and Rachel Reeves’ remit to cap public spending.

In business trends, Goldman Sachs to deepen exposure to booming private credit industry (Financial Times, Stephen Gandel, Eric Platt and Ortenca Aliaj) we see that the infamous investment bank has announced plans to build a new unit to expand its financing business as competition with private credit funds ratchets up. The new division will be called Capital Solutions Group and will be made up of specialists in private equity, private credit and leveraged buyouts. * SO WHAT? * Private credit is a super-hot area at the moment, so it makes sense for Goldman to take it seriously (it is already a player in this area anyway). I always find Goldman Sachs fascinating in terms of its ability to jump on – and benefit from – trends from a relatively early stage (e.g. SPACs, political consultancy etc.), although it doesn’t always work (e.g. its foray into retail banking). What’s interesting here, IMO, is that if the private credit market suddenly faces regulation, Goldman Sachs’s banking credentials could prove to be very useful in attracting business away from companies that have a more specific focus in this area…

Private equity money flows into UK’s consumer law firms (Financial Times, Josh Gabert-Doyon) is an interesting article which highlights a trend of private equity buying into regional UK law firms as they look to consolidate a fragmented industry. The trend seems to be about investors buying up small practices and rolling them into bigger groups by using automation and technology to streamline their back-office functions in particular. According to Aquira, an M&A broker for law firms, PE investment into law firms and related businesses reached £534m in 2024. This upswing in interest in law firms seems to have followed on from the trend of PE firms consolidating the accountancy industry. * SO WHAT? * External investment in law firms in England and Wales was facilitated by the Legal Services Act which came into force in 2011, legislation that allowed law firms to accept outside investment or float on the stock market. PE and law firms don’t always mix well (ruthless focus on profitability and the “human” nature of certain aspects of law don’t always go hand-in-hand!), but if it works the return on investment can be massive.

In employment news, PageGroup warning brings hiring slump into focus (The Times, Jessica Newman) shows that the white-collar agency recruiter announced a profits warning due to ongoing deterioration in trading conditions in Europe. France and Germany were particularly difficult and “a high degree of macroeconomic and geopolitical uncertainty” hung over most of its markets. Sales in its European division account for over half of the company’s profits. * SO WHAT? * Hiring went bananas during the pandemic but the last few years have seen lean pickings as the global economic recovery lost momentum. PageGroup is experiencing pain more acutely than some rivals because it’s more exposed to permanent placements against an uncertain macroeconomic backdrop where employer nervousness is prompting more temp placements given the latter’s better flexibility. This warning comes just weeks after SThree – which is a recruiter that focuses on tech, engineering and life sciences – warned that the jobs downturn is expected to continue this year.

Fewer companies are hiring after budget raises staff costs (The Times, Kendall Field-Pellow) reinforces this view as a report by the British Chambers of Commerce shows that fewer companies are hiring as a result of the imminent rises in costs announced in last year’s Budget and West End retailers warn of job losses from rates rise (The Times, Isabella Fish and Alex Ralph) highlights another report, this time from the New West End Company, which shows that the imminent 20% rise in business rates will lead to shop closures and jobs losses. * SO WHAT? * Pressure on the government and the chancellor in particular is ratcheting up. Given that Starmer is currently backing up his chancellor I don’t see any of this changing. I think that the only way that retailers/hospitality/employers will get their way is for Reeves to roll back some of the policies announced in her Budget – like NICs – but that would be a huge admission of failure and may necessitate her standing down to be replaced by someone else. I can’t see that happening this early into the government’s term.

What is Starmer’s plan to turn Britain into an AI superpower? (Financial Times, Anna Gross, Tim Bradshaw and Rachel Millard) follows on from what I highlighted yesterday and goes into a bit more detail about his plan. The AI Opportunities Action Plan has been written by venture capitalist Matt Clifford and outlines 50 recommendations – that have all been approved by Starmer himself – designed to make Britain “one of the great AI superpowers” and an “AI maker” rather than an “AI taker”. This involves the use of health data, a new supercomputer and the creation of special “AI growth zones” that will have better access to power, among other things. * SO WHAT? * This is all very well, but  access to energy and computing power and the use of private data are going to be tricky hurdles to overcome. This will take a LOT of time and a LOT of money at a point when the country’s feeling a bit skint and companies are still reeling from the impact of the budget. Water shortage fears as Labour’s first AI growth zone sited close to new reservoir (The Guardian, Helena Horton) highlights practical issues for the proposed AI growth zones – that they could put pressure on local water supplies as data centres are thirsty for water (to cool down their servers!) as well as electricity.

Then in TikTok ban could create a valuable prize: users’ brain space (Financial Times, Lex) we see that although haters will see the platform as “a bottomless pit of cat videos and dance tutorials”, the fact is that it has 170m American users. Judges at the US Supreme Court are currently deciding whether or not to uphold a law that would force TikTok to shut down by January 19th unless its parent company, ByteDance, sells it off or shuts it down itself. Rather than a sudden disappearance, if the ban came into force, it could go “dark” in the US over time as

users stop getting app updates. * SO WHAT? * The main benefit for TikTok rivals would be the extra time that would be “available” to them as users would devote at least some of the 53bn user hours (in 2022) to alternative platforms like Meta, who stand to gain the most! This means more advertising revenues, so there is a lot at stake here!

*** NEWS JUST IN *** China Officials Internally Discuss Option of TikTok Sale to Musk (Wall Street Journal, Stu Woo) which shows that Chinese officials have had talks regarding what to do about the imminent US TikTok ban, including the option of allowing a trusted non-Chinese party such as Elon Musk to either invest in or take control of its US operations. Publicly, China has objected strongly to the threat of a US ban, saying that a forced sale would be “like robbery” but something is going to have to happen. * SO WHAT? * It’s funny because the Chinese government is not a fan of ByteDance/TikTok and never has been, but the whole situation has been turned into some kind of political football and become such an issue that we’ve now reached a point where TikTok really could be switched off in the US. Although ByteDance will ultimately be the one that has to decide its course of action, any decision will have to be run by the Chinese government because the country’s export controls necessitate government approval for the sale of domestically-developed algorithms to foreign entities. This algo is TikTok’s “secret sauce” and is the thing that the Americans wanted all along and if it is sold, it won’t be without a fight/will come at a cost.

In a quick scoot around some of today’s other interesting stories, GSK to buy US cancer drug firm IDRx for up to $1.15bn (The Guardian, Julia Kollewe) highlights a big acquisition for the UK’s second biggest drugmaker behind AstraZeneca that will enable it to address a “major gap in the current standard of care” in relation to gastrointestinal cancers while Moderna shares slide after sales guidance slashed (Financial Times, Hannah Kuchler and Oliver Barnes) brings our attention to a massive 22% drop in Moderna’s share price yesterday after the biotech company’s sales forecasts fell short of investor expectations. Sales of its Covid jabs continue to fall while it continues to invest in other inoculations…

In Class of 2025? The IPO hopefuls that could revive London (Financial Times, Nikou Asgari, Akila Quinio and Ivan Levingston) we take a look at which companies are going to list – and some that might list – on the London Stock Exchange after a very lean few years for flotations

(according to data from Dealogic, new companies listing in London raised the least amount of money ever in 2024 – that’s how bad the situation is!). Payments start-up Ebury, which is owned by Spanish bank Santander, is one such candidate; digital lender Zopa, which is backed by SoftBank, is also looking at a flotation after becoming profitable last year; credit-checking platform ClearScore is another; Parameta, which is the data business of British interdealer broker TP ICAP, is also looking at the possibility; PE-owned small business lender Shawbrook is considering London as a listing venue with a potential £2bn valuation, possibly in the first half of this year; Metlen Energy & Metals, which is based in Greece, filed paperwork about a month ago for a primary listing on the LSE; Air Baltic, the flag carrier of Latvia, is looking at London as an option and then, of course, there’s Shein. The whole IPO food chain will be crossing their fingers that at least some of these go ahead!

This guy sounds like a bit of a 🔔🔚and uses some fruity language, but apparently he does a decent cocktail 🍹🍸! I think it looks a bit stupid but it probably tastes pretty good!