Wednesday 18/12/24

• Have you seen the new audio version of Watson’s Daily yet? It’s at the top of the newsletter. A number of you have been asking for this, so here it is! I tried it with AI and didn’t like it – so it’s me that reads it out 😁. I hope that you find this new functionality useful!
• I will be publishing a “Watson’s Yearly Competition” on Monday 30th December. 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. I’ll release more details soon! Follow Watson’s Daily on Instagram for more…
• The last Watson’s Daily of this year will be published THIS FRIDAY 20TH DECEMBER. However, please keep checking into the website over the seasonal break as I will be uploading all sorts of content (including a new commercial awareness course)
• I will be doing a review of 2024 and themes to look out for in 2025 on Tuesday 14th January 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!

‘What choice do they have?’: America’s CEOs bend the knee to Donald Trump (Financial Times, James Politi and James Fontanella-Khan) highlights the sheer number of CEOs having to suck up to Donald Trump – whether they have been massive critics or not – ahead of his inauguration. CEOs of Netflix, OpenAI and Meta along with the likes of Jeff Bezos have expressed support verbally and/or via donations but they’ve just got to get over themselves and strap in for a wild ride under Trump for the next four years.

Meanwhile, Elon Musk’s attack on F-35s fuels debate over expensive fighter jets (Financial Times, Sylvia Pfeifer) shows that although Musk is not yet in charge of his new “DOGE” department, he’s already started to poke around in the US federal government’s finances and has homed in on the Pentagon’s expensive fleet of F-35 fighter jets. It seems that Musk is of the same opinion as Ed Harris’s character in Top Gun: Maverick – that the days of fighter pilots are numbered and that drones are the way forward. * SO WHAT? * The US Air Force is currently considering which company to select to make its new fighter jet in its Next Generation Air Dominance (NGAD) programme and it will be up to Trump’s administration on whether and how to proceed. The Ukraine war accelerated the development of drones but fighter jets are still more capable in combat situations and have longer range. Traditional defence companies like Lockheed Martin may suffer if more drones are used while companies like Auterion that develop software to enable swarms of autonomous drones to communicate with one another, could benefit. It seems to me that drones cannot take over completely (certainly with current technology) but defence

spending around the world is increasing as geopolitical tensions continue so I think that there will be enough defence spending money sloshing around for all to benefit (although not everyone seems to be benefiting to the same extent – see the stories about Chemring below!).

Meanwhile, U.S. Retail Sales Improved Last Month, Continuing Gains (Wall Street Journal, Matt Grossman) cites the latest data from the Commerce Department for November which showed that retail sales increased by 0.7% in November – up from 0.5% in October. * SO WHAT? * Will this put upward pressure on inflation and give the Fed reason to pause interest rate cuts? It’s not huge – and while we saw the other day that inflation rose in November, the market is still expecting another Fed rate cut. Maybe the Fed will cut this today and leave it for a bit to see whether Trump’s policies (especially the import taxes) really turn out to be as inflationary as everyone thinks they’ll be.

Back home, UK exporters suffer £27bn hit from Brexit (The Times, Mehreen Khan) cites research from the Centre for Economic Performance, a think-tank based at the London School of Economics, which shows that UK exporters took a massive £27bn hit in sales to the EU after Brexit with smaller firms being hit hardest. However, it was interesting to see that Brexit hit to UK trade less than predicted, says study (Financial Times, Peter Foster) picked up on the fact that the decline in trade was, “at least in the short run, smaller than forecasters expected”. Still, this is food for thought in the current talks to “reset” UK-Europe relations.

In UK pay growth leaps to 5.2%, reducing chances of interest rate cut (The Guardian, Phillip Inman) we see that the latest ONS figures showed a 5.2% acceleration in pay growth in October. This may factor into the thinking of Bank of England rate setters when they meet tomorrow in terms of making them less likely to cut interest rates because rising wages could lead to rising inflation.

Then in Poland auctions butter reserve as soaring prices spread to politics (Financial Times, Raphael Minder and Susannah Savage) we see that Poland is selling down 1,000 tonnes of its butter reserves to slow down/dent rising butter prices ahead of May’s presidential elections. A combination of more outbreaks of diseases in Europe and falling numbers of cows has led to butter prices in the EU rising by more 40% over the course of this year. * SO WHAT? * Although butter only takes up 0.6% of the average Polish consumer’s spending, it is a polarising issue particularly ahead of May’s presidential elections.

Nissan and Honda hold merger talks (Financial Times, Peter Campbell, James Fontanella-Khan, Harry Dempsey, Leo Lewis and David Keohane) is a very big story today! The two Japanese car making giants are looking at ways where they could combine to better compete in the EV onslaught from the Chinese. Interestingly, Nissan’s share price boomed by 23.7% while Honda’s weakened by just over 3% on the news. The two had already announced in March that they would get together to develop EVs. * SO WHAT? * OK – so this looks like a merger of necessity/desperation in the face of increased competition from China and the uncertainty of the impact of Trump tariffs. If a merger went ahead, the combined entity would be the world’s third biggest car maker behind Toyota and Volkswagen and it would have an enlarged US manufacturing footprint, which would be a good thing in the current climate. Honda and Nissan Say They Are Exploring Merger (Wall Street Journal, Peter Landers) emphasised that a final decision has not been reached and highlights the division of Japanese carmakers into two camps – one headed by Toyota, which has stakes in Subaru, Mazda and Suzuki while the other one brings together Honda, Nissan and Mitsubishi Motors. A Nissan-Honda combination would potentially involve a lot of job losses in overlapping areas but it had been suggested before by the Japanese government back in 2020.

Then in ‘A different animal’: inside Huawei’s nascent EV business (Financial Times, Edward White and Tina Hu) we see that the Chinese manufacturer more commonly known for its mobile

phones and telecoms equipment is getting involved in EVs and harbours ambitions to be a big supplier to the electric car industry. It wants to provide makers with hardware including telecoms gear, screens and infotainment systems as well as advanced driverless car system software and computer chips and has ambitions to become like a Chinese version of Bosch. It was clear that it did not want to make cars itself. * SO WHAT? * This is a major development and it is interesting that it has decided not to have a go at cars, like fellow mobile phone maker Xiaomi. I suspect that Huawei is going to be a huge threat to incumbents in this space given its expertise and firepower…

I thought that European carmakers increase petrol vehicle prices to boost EV take-up (Daily Telegraph, Matt Oliver) was worth mentioning as it’s a sign of the times! One of the main arguments against EVs is that they cost too much for the consumer – so while car makers have made efforts to get costs down, they now seem to be turning to another tactic – raising prices for petrol vehicles to make EV prices look slightly less expensive 🤣! * SO WHAT? * Over the last couple of months, Stellantis, VW and Renault have all increased prices for petrol models by hundreds of euros. Maybe this will work – but maybe it won’t and consumers just decide not to buy ANY vehicles. This might be good for car parts makers and maintenance businesses as older vehicles need upkeep, but I don’t think it’s going to lead to much shifting of units from the forecourt!

In UK looks at forcing greater transparency on AI training models (Financial Times, Daniel Thomas and Anna Gross) we see that, in a consultation announced yesterday, the UK government will give AI companies exemption to copyright laws that will allow them access to material for training purposes unless the rights holder objects under a “rights reservation” system. On the flipside, AI groups will have to be transparent about what data they use to train models so that rights holders can know when and how their content is being used. * SO WHAT? * This will be a definite boon to AI companies but a source of anger for creative industries because opting their work out of use in AI models is likely to be expensive, tricky to oversea and time-consuming. Having said that, getting data about what the tech companies are accessing will be useful for negotiating licensing deals. This sounds like an interesting attempt at finding a solution, but it doesn’t sound like it’s the finished article.

Microsoft acquires twice as many Nvidia AI chips as tech rivals (Financial Times, Tim Bradshaw and Stephen Morris) shows that Microsoft has been loading up big time on Nvidia’s most advanced chips and has bought double the amount of its nearest rivals in the US and China this year, according to research from Omdia! It has used the chips in its aggressive expansion of its data centre infrastructure. * SO WHAT? * Nvidia is still way ahead of rivals in terms of advanced chips but rival AMD has been making a lot of progress while the likes of Google, Amazon and Meta are among those who have been stepping up the manufacture of their own chips. I wonder whether, over time, we’re going to see Nvidia concentrating making the most advanced chips and leave the rest to make lower-level ones.

Taiwan in talks with Amazon’s Kuiper on satellite communications amid China fears (Financial Times, Kathrin Hille) is an interesting article which shows that the Taiwanese government is holding talks with Amazon’s Kuiper subsidiary about working together on satellite comms in order to make its internet infrastructure more robust versus a potential Chinese attack. The country’s tech minister said that the OneWeb network of French satellite operator Eutelsat that partnered with Taiwan’s Chunghwa Telecom last year isn’t good enough for its needs. * SO WHAT? * I think that this is great for Kuiper but a public humiliation for OneWeb, particularly as the minister referred to concerns over OneWeb’s finances leading them to seek out alternative suppliers. Will other OneWeb customers feel the same way?? EutelSat OneWeb strenuously denied being in any financial difficulties and that this was not causing a delay of the next generation of its constellation. 

Then in Databricks raises $10bn in the biggest US venture deal this year (Financial Times, George Hammond) we see that the AI and data analytics group has raised a ton of money in the biggest venture capital deal this year. * SO WHAT? * This is a particularly impressive sum but it just shows how VCs are changing their tactics by considering more mature start-ups at higher valuations. The idea is that this money will give the company more financial firepower to compete with the likes of OpenAI and Anthropic in the war for AI talent! A lot of the $10bn will help employees cash out their lucrative stock options in the start-up and pay their taxes when the options vest. The money that’s left over will be ploughed into “new AI products, acquisitions, and significant expansion of its international go-to market operations”. 

In a quick scoot around some of today’s other interesting stories, Chemring shares under fire despite defence group’s record orders (The Times, Robert Lea) shows that the British defence company saw its share price fall yesterday despite a bursting order book because it can’t seem to translate this into profits thanks to margin pressures! Defence bounty eludes the UK’s Chemring (Financial Times, Lex) says that the company has suffered thanks to production problems at its

Tennessee plant and low-margin legacy business. * SO WHAT? * If you’re a defence company that can’t make profits now when the whole world seems to be tooling up then surely there’s got to be something wrong with you! Still, you would have thought that the uptick in defence spending will go on long enough for the company to come out smelling of roses (eventually)!

Every considered the origins of imperial vs metric?? This takes a humorous look at what early conversations might have sounded like…