A week of two halves after Trump announces a Greenland deal

Michael Hewson (00:00)
Hello, welcome to this week’s podcast brought to you by The Good Money Guide and our sponsors Pepperstone, who are a multi-regulated CFD broker providing trading services in forex stocks and commodities in multiple destinations. My name is Michael Hewson and joining me once again is Pepperstone’s Senior Market Strategist, Michael Brown. Good morning, Michael.

Michael Brown (00:17)
Very good morning to you mate, and very happy Friday as well. Quite a week it’s been.

Michael Hewson (00:22)
Yeah, been a week or two halves, hasn’t it really? I think you had the declines Monday, Tuesday. We’ve seen a bit of a rebound, not quite filled the gap on the S &P from the Friday close. But it’s been our friend, President Trump, and the announcements around Greenland that have promoted an awful lot of the volatility. But also we’ve got events in Japan that also spooking bond markets a little bit.

Michael Brown (00:24)
Yes.

Yeah, absolutely. Quite a lot of moving parts this week. Obviously the tariff threats. We’ve survived another trade war. This one lasted about two days, if we’re being generous. But yeah, a few other things going on. The rates volatility in Japan and also the continued run higher in precious metals. Gold is within touching distance of 5,000 bucks an ounce and silver within spitting distance of 100 bucks an ounce. So plenty to get our teeth into, I think.

Michael Hewson (01:13)
Indeed. Anyway, let’s do the risk warning and then we can get into the nitty gritty. Okay, the information provided here, whether from a third party or not, isn’t to be considered as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any security financial product or instrument or to participate in any particular trading strategy. We advise any readers, viewers or listeners of this content to seek their own advice. Spreadbets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.9 %

Michael Brown (01:17)
Yes.

Michael Hewson (01:42)
Retail investor accounts lose money when trading spread bets and CFDs with this provider. Okay, so we’ve seen the familiar playbook from President Trump this week and yet once again, everyone falls for it. Thank you for playing.

Michael Brown (01:55)
Yeah,

exactly that. I you know, I’ve mentioned this a number of times during the week and written a number of notes on it. And it’s exactly that. Escalate to de-escalate. That is how President Trump works. And I’m not going to sit here and endorse it as a negotiating strategy. It’s probably not one that I would use. But we should be wise to this by now. know, Trump adopts a maximalist position, throws out some threats to accompany that, to try and focus minds on the other side of the table.

And the net effect of that is yes, it creates the hysteria and the hyperbole, but it means that a deal is done in shorter order than it otherwise would have been because minds are so much more focused and there is a deadline on the cards. you know, at this point, it’s getting ridiculous that people are falling for it every time.

Michael Hewson (02:43)
I think the problem is that he’s burning up any goodwill or any remaining goodwill that people might have towards the US as a reliable trading partner, if you like. And I think that’s the worry.

Michael Brown (02:57)
Yeah, and I think that’s

a really interesting point. And actually, as you said, it has been a week of two halves. know, equity is coming lower at the start of the week before rebounding. Treasury is selling off before rallying. What’s interesting is the one asset that hasn’t had this sort of Lazarus-like recovery is the dollar. The dollar index this morning trading pretty much at its lowest levels of the week. We have not seen any sort of real demand coming back into the dollar. And I think that speaks to your point around, you know,

Are we starting to see increasingly participants sort of confidence in the United States and the orthodoxy of the United States being shaken and has it been shaken too much that it’s not going to come back?

Michael Hewson (03:40)
Well, I think we have seen some evidence of that. Now, there was a story circulating earlier this week and I know I’m sort of recycling something that you and Ryan have spoken about extensively, but I still think it merits a mention because we had this story circulating. Yeah, exactly that. it’s European investors could divest their holdings in US treasuries in retaliation for the the belligerent behavior of the US. Now, I mean, we’ve heard this we’ve heard this narrative before and with respect to China.

Michael Brown (03:51)
Yeah, because it’s ridiculous.

Michael Hewson (04:10)
And ultimately it would be the ultimate act of self-harm.

Michael Brown (04:16)
Absolutely. It’s the sort of economic equivalent of shooting yourself in the foot. mean, there’s two main issues with this. One is that it’s actually unworkable because, certainly in contrast to China, the vast majority of European holdings of US debt are privately held. Or they just happen to be in Europe, but not held by Europeans. mean, for example, I think Belgium is the third or fourth highest holder of treasuries in Europe.

But that’s just because that’s where all the clearinghouses are. That’s not because Belgian funds love treasuries. So that’s the first problem. You couldn’t actually do it. The second issue is even if you did try and do it and you were successful in doing it, you’d create such a ridiculous degree of volatility in global bond markets that you’d tighten financial conditions to a significant extent. You’d also have to bring all of those dollars back home. So you’d probably send the euro to about 150, but in turn killing any export market that you might have left.

I think anyone who’s claiming that this is a good idea, I it sounds great as a headline, know, Europe can weaponize eight trillion dollars worth of treasuries. In reality, one, it can’t happen and two, if it did, then the ones who come off worse are actually the sellers.

Michael Hewson (05:27)
Yeah, there was an article in The Telegraph and actually it’s still there on their business page. Trump has backed off over Greenland. Was it the threat of Europe’s economic super weapon? ⁓ please, give me a break. mean, yeah, I’ve got a super weapon and I’m going to use it and shoot myself in the face with it.

Michael Brown (05:36)
No. Because it’s not a super weapon. It’s a super weapon that might be pointed at themselves.

It’s bonkers, but I think actually it just reflects the degree of hysteria and hyperbole that we saw this week where people are pulling out these frankly ludicrous ideas and narratives because effectively the threat of a tariff has just seemingly completely boggled their minds.

Michael Hewson (06:08)
Yeah, I mean, there are other ways of dealing with this and this is what China is doing. It’s basically not as heavy a buyer of US treasuries as it has been. And ultimately, if you look at China’s treasury holdings over the course of the past five or 10 years, they’re at the lowest they’ve been for quite some time. So they’re not active sellers, but they’re also not active buyers. And I think in the long term, that’s the brisk that the US is running.

Michael Brown (06:15)
Mm.

Yeah, and you’re

Yeah, and I would agree with that. And I think that that is the way that you could see this pan out where participation in new issues decreases. But this whole idea of a fire sale is just quite frankly ludicrous.

Michael Hewson (06:49)
Yeah. Okay, so let’s move on to another topic because to be quite honest, there’s no point in basically, you know, sort of over-exaggerating this. It’s never going to happen. And ⁓ ultimately, I think in terms of the economic impact, it may be that people don’t buy as much US debt as they would have if there’d been a different approach from the US administration. ⁓ And I think that’s a longer term story rather than a short term story.

Michael Brown (07:20)
Yeah, I would agree with that.

Michael Hewson (07:21)
Okay,

volatility in Japanese bond markets is starting to keep a little bit of investors slightly edgy. We’ve seen yields spike higher. They’ve retreated a little bit from their peaks and consequently we’ve had some talk of rate checking from the Bank of Japan. I was interested to overhear your conversation with Brian on that topic and as an Axe trader of dollar yen

Michael Brown (07:32)
Hmm.

Michael Hewson (07:51)
Yeah, I have something to add. And ultimately, it’s not about so much the rate check itself. You’ve only got to see that light flash on your board from the central bank, and you ain’t going to be long of dollar yen. You’re going to hit the first available bid that you hit, and they won’t be the only bank that you’re, yeah, and you won’t be the only bank that they’re calling. So even the fact of that light flashing on your dealer board,

Michael Brown (08:05)
Mm.

Yeah, because you know what’s coming next.

Michael Hewson (08:19)
is enough to get you to hit dollar yen hard and it’ll just get lower mechanically.

Michael Brown (08:24)
Yeah, which is exactly what we saw this morning. Dollar yen going from 159.20 down to about 157.20. And I think it’s a warning sign from the Ministry of Finance that they are concerned about the weakness that we’ve seen in the yen, that they are watching things very, very closely. And as you sort of alluded to, from a trading perspective, it completely changes the risk reward. Because now you’re saying, they’re going, why would I want to be short of the yen?

when we’ve already weakened to levels that might be consistent with intervention anyway, and the Ministry of Finance are sniffing around quite a lot, and there’s a chance that this could gap four, five, six big figures lower in the blink of an eye, it completely changes the balance. So you’ve got volatility in the currency. You’ve also got volatility in the bond market because you had the prime minister formally launching the election campaign this week. She was talking about how

they’re going to end the era of excessively restrictive fiscal policy, which is about as close to a red rag to a bull in terms of a bond market sell off as you can get, I think, which is why you saw that big sell off there. And it was interesting that, you know, the 40 year JGB yield was up, I think 30 basis points on Tuesday. That had quite a significant spillover into other government bond markets as well, which I thought was interesting.

Michael Hewson (09:46)
Hmm.

Michael Brown (09:49)
Also goes back to that point about trying to sell down treasury holdings and weaponize those. Well, where do you think your bond yields are going if treasury yields go through the roof? And I’ll give you a clue, it ain’t down.

Michael Hewson (09:54)
Hmm.

Yeah, indeed. I mean, one of the things I have noticed also with the Bank of Japan, it’s not so much about the level of dollar yen that prompts any intervention. It’s the speed. And if you look at where it was in October, it was below 150 and it’s now closing on 160. Now the record high is 161. So I think you’ll find that when we get back up to 159, which was the highest earlier this month, we could well go through that. So

Michael Brown (10:12)
Yes.

Michael Hewson (10:29)
The 161 level is the level I would target. If you’re looking at the trend on dollar yen at the moment, we’re still making higher lows, we’re still making higher highs. So until or in such times as we take out that 161 level, I think that if the Bank of Japan comes in again, it won’t be until it’s above the levels it was at the previous rate check, if they remain true to form.

Michael Brown (10:54)
Yeah,

yeah, I would agree with that. ⁓ It will be a new high before they come in, but we will see what happens. Trying to predict them is never easy, shall we say.

Michael Hewson (11:07)
Indeed Michael.

Michael Hewson (11:08)
Yeah, so moving on from the dollar yen You mentioned yields of pop-tire We’ve noticed that not only as you say in Japanese bond markets It’s had an a similar effect here in the uk as well as the us where we’ve seen uk five-year gil yields jump from one year lows 3.81 percent to 3.95 percent so Certainly not good news on that front three-week highs

Michael Brown (11:31)
Mm.

Michael Hewson (11:37)
Which brings us onto UK markets. It’s seen a lot of data this week.

Michael Brown (11:41)
Yes, but it’s been a hell of a busy week here in the UK. I mean, it sort of started with data that didn’t really tell us anything new in terms of the labor market, which is continuing to weaken. then today, Friday, we’ve had a solid December retail sales number as we flagged, given the strong retail earnings, but probably more. Well, you’re either ahead of us, mate, or you’re behind clearly, aren’t you?

Michael Hewson (11:59)
So why did no one else flag that?

I mean for me it’s a mechanical rebound after the doom and gloom leading up to the budget. For me it makes perfect sense.

Michael Brown (12:12)
Yeah.

Well, I think that’s exactly what it is.

It’s that mechanical rebound before potentially consumers then start to considerably tighten their belts into the new year. But we also had really strong PMIs, the services and the composite PMI numbers, both at 21 month highs in January. And I’m not entirely sure where that’s come from, if I’m being completely honest.

Michael Hewson (12:28)
Mmm.

Surprise me.

3

2 1 labour MPs yeah

Michael Brown (12:38)
Let’s stress it’s nothing to do with them. They’re going to claim victory for it, but there’s absolutely nothing to do with them. let’s be serious for a second. It is good news. If that is borne out in the hard data as well, then that is potentially a sign that the downside risks to the economy maybe aren’t quite coming through as we expected them to. But let’s just hold any excitement on that for the time being.

Michael Hewson (12:43)
Of course they are.

Hmm. Hmm.

Hmm.

Well you say that but I looked at the unemployment figures and there’s nothing in them to suggest that you know the situation isn’t likely to get worse. PAYE payrolls fell by 43,000 in December. Four successes, yeah, four months running.

Michael Brown (13:18)
Four months running, that’s fallen now. Yeah. And

also that, sorry, that 40K was the biggest one month drop in PAYE payroll since November of 2020. And that was just around the time of the second lockdown, I think it was at that point, which is hardly a time that we really want to be harkening back to in terms of comparing things.

Michael Hewson (13:39)
No indeed, and UK inflation came in slightly hotter than expected as well. So, ⁓ you still think the Bank of England should be cutting rates in February?

Michael Brown (13:47)
Well, I think they should, but I don’t think they will. I think the inflation numbers are horrifically skewed. One of the big contributors to that was airfares, which rose by 30 % on the month. And that’s simply because the ONS decided that it would be a good move to do that survey in the week before Christmas, when of course airfares are going to be going through the roof. I think, in terms of what the Bank of England will do, there’s nothing in here to force them into a cut.

Michael Hewson (13:58)
Mmm.

Hmm.

Michael Brown (14:16)
the February meeting, although I would note that headline services and food inflation were all below the forecast that they put out in November. I think the BOE are going to wait until March until they get a little bit more data because the combination of the base effect and the disinflationary policies from the budget, things like freezing rail fares and all that kind of stuff, money off energy bills, that is going to drag inflation back towards that 2 %

Michael Hewson (14:30)
Hmm.

Michael Brown (14:43)
target in the spring and you know it’s just a question of do the Bank of England actually want to see CPI print with a two handle before they pull the trigger on a cut or are they happy to go before that?

Michael Hewson (14:51)
Hmm.

Yeah, I mean, I was looking at food inflation and that rose to 4.5 % from 4.2%. And in particular, we saw increases in the cost of staples like milk and butter. Well, everybody needs those. And it always amuses me when economists say, well, if you strip out volatile elements like tobacco, food and energy, then inflation was actually lower at 3.2%. As if people have a bloody choice about whether or not they buy, I mean, it’s just nonsense, they’re clowns.

Michael Brown (15:06)
Hmm.

No, I didn’t.

I understand where you’re coming from, but I’m going to stick up for the economist community here. And the reason why it’s useful to take that sort of stuff out is, as you say, we all have to buy. We all have to buy bread, whatever. But having said that, from a monetary policy perspective, the price of butter or the price of eggs is not particularly useful in determining where interest rates should be. Eggs is a classic example in the United States. Sorry?

Michael Hewson (15:42)
Yeah, well it is if you have a household budget.

It is if you have a household budget, because they ain’t going to come down.

Michael Brown (15:49)
Well,

well, yeah, true. No, you are right. But you know, these are not rate sensitive purchases. They’re staples. They have to be bought. I think the bigger implication of food prices, and this is why the Bank of England paid close attention to them, is the potential for that to feed through into consumer inflation expectations. Because, you know, people know, and we spoke about this on the podcast before, my weekly shop on average cost me 100 quid, let’s say.

Michael Hewson (15:58)
Hmm. Yeah.

Michael Brown (16:18)
know, if all of a sudden your weekly shop is costing you 120 quid, you’re going to notice that and you’re likely to then have a perception that prices are rising at a relatively rapid rate, which then of course has potential implications for wage negotiations and all the rest of it. So that’s where it can be of importance. But you know, don’t think anyone, well, I would hope no one on the NPC is going bread’s expensive this month to let Stan Pat. But with this law, wouldn’t rule it out.

Michael Hewson (16:44)
No, don’t

know, but you know, I’m playing devil’s advocate to a certain extent. But I do think that sometimes people forget the fact that there are real world consequences of high inflation that aren’t reflected in the numbers in the headline CPI numbers. And ultimately, you can’t eat CDs, you can’t eat, you know, Apple iPad minis and stuff like that. And not not anyone and not everyone can afford them for a start. So

Michael Brown (17:07)
No, that is very true.

Michael Hewson (17:12)
You know, I get it, but I also think there needs to be a little bit of common sense brought into play when it comes to economists taking their heads out of their bloody spreadsheets.

Michael Brown (17:24)
But now tell us how you really feel.

Michael Hewson (17:28)
Anyway, so yeah, we’ve I mean we’ve had positive data this week obviously retail sales is a welcome rebound

Michael Brown (17:33)
The

actually the borrowing figures were a bit better than expected to incidentally. mean, they’re still very high at 11 spot 7 billion in terms of the deficit, but we got to take anything we can.

Michael Hewson (17:36)
Yeah, but, you know, I mean, I-

People were

complaining about the fact that more wasn’t made of it. But you were basically benchmarking them against 18.7 billion in December last year, which was the highest since COVID, December 2020, when lockdown measures were in place. Well, that’s hardly a cause for celebration. It’s still the highest since COVID. Well, second highest since COVID.

Michael Brown (18:02)
Hmm. No, you’re right. I think we.

Michael Hewson (18:08)
So please, you look at 2023, look at 2022, and you look at 2021, they’re still higher than them.

Michael Brown (18:09)
Yeah.

Yeah, and I think it’s important, know, when you compare it relative to recent history, we are still not in a particularly great position at all. You know, we’re talking about inflation remaining north of 3%. We’re talking about unemployment still north of 5%. That’s its highest since the back in 2020, early 2021 as well. You know, it’s things are, I would frame it as not as bad as we thought they might be is probably the way to look at it.

Michael Hewson (18:33)
Yeah

Yeah, but I mean, as I say, it’s still way too high. And then of course you’ve got the, and then you’ve got the January numbers and it’ll be interesting to see how much of a surplus there is.

Michael Brown (18:47)
Hmm, absolutely.

Yeah, and just let’s just get that out there now. There will be a surplus in January, almost certainly, because people pay their taxes in January. Let’s just head off anyone running around saying that, you know, that’s an example of exemplary economic stewardship because the budget’s back in surplus. It’s just noise. It happens every year.

Michael Hewson (19:11)
It does. mean, and the thing is, bigger the bigger the surplus, the better. But one of the things I have noticed, I’m just going to try and find, look at government and look at my numbers for public sector borrowing. Here we go. Let’s look at the graph over the last 10 years for January. And you can see the January numbers. January 2025, we had a surplus of 14.5 billion. In January 24, 15.2.

January 23, 9.55 billion. And then in January 2022, 12.8 billion. And then January, yeah. And then January 2020, 9 billion. So we didn’t have a surplus in 2021. I wonder why that was. It’s because of COVID.

Michael Brown (19:51)
It sticks out like a sore thumb on the chart, doesn’t it?

Yeah, I wonder.

Well, exactly. And we’re spending now as if we are still providing all the fiscal stimulus we were during the pandemic, which we are absolutely not. And as we’ve said on numerous occasions, the problem for the UK and actually the problem across developed markets, it’s not a revenue problem. We’re raising enough revenue, the tax burden is at highest level ever. It’s a spending problem. That’s the side of the ledger that we need to look at.

Michael Hewson (20:23)
Spending too much.

Yeah. Okay, so as I say, UK markets, gilt’s slightly higher. The economic numbers, slightly better than expected, but I don’t think it’s gonna move the dial for a Bank of England February rate cut. I think as you rightly said, they’re gonna have to wait till March because of that spike in the inflation numbers. Okay, let’s move on to earnings. ⁓

Michael Brown (20:51)
Yes, we are well into the

swing of earnings season now, aren’t we?

Michael Hewson (20:54)
We are.

Netflix.

I’m not sure quite what to make of these because they were okay but the market didn’t seem to like them that much.

Michael Brown (21:06)
Yeah, it’s a strange one, isn’t it? Because the guidance they issued was pretty strong. The figures themselves were pretty decent. I just think the market’s having a hard time buying into Netflix when there is so much risk around the stock. And of course, the obvious risk that we refer to is the acquisition of Warner Brothers Discovery, which is now going to be an all cash deal. They’ve had to suspend the buyback to get the cash to complete that deal, which I’m not entirely sure.

Michael Hewson (21:12)
Hmm.

Michael Brown (21:34)
the market is overly comfortable with. And there’s a lot of antitrust and competition concerns around it as well. you kind of, you’ve got these two opposing factors where on the one hand, you’ve got a company that is doing pretty well. And, you know, we’ve spoken about peak Netflix, maybe we’re not there yet. But on the other hand, the same company that is doing well is bringing upon itself a hell of a lot of regulatory risk, is this deal going to get approved? And by extension,

financial risk because there is a pretty chunky break fee if this deal doesn’t get approved. I think it’s going to be tough for the stock to considerably and convincingly recover until the Warner Brothers discovery deal is wrapped up or there’s at least some more clarity on that front, no matter what they report, frankly.

Michael Hewson (22:21)
Yeah, and I think that’s the issue. I think that really is the issue. We didn’t drop below $80. We found a bit of a base around there, which is also round about the lows of last year. So I think we’re at a key juncture for the Netflix share price. We’ve been in a gradual decline since those peaks back in June, July, where we were above $130. We’re now back at just above $80. You know, as I say, the numbers look okay.

There’s, think, on a revenue level, I don’t think there’s much to be concerned about. But I would actually say that they were a little bit on the cautious side when it came to revenue, because Q1 revenue, they’re only looking to take $12.15 billion. Well, that’s not much higher than what they took in in Q4.

Michael Brown (23:10)
Yeah, it’s

only 100 million hours.

Michael Hewson (23:13)
but yeah it’s marginal and usually you’d see Netflix raise their guidance quite considerably, particularly when it comes to Q1 because that’s when the margins generally tend to be higher.

Michael Brown (23:20)
Yeah.

Yeah. Yeah, so that’s another reason for caution, I guess, as well as all of the risk associated with the deal, isn’t it?

Michael Hewson (23:32)
Yeah, but as I say, I 325 million subscribers, they’re still the number one by distance. And as you rightly say, I think the negative share price reaction, the suspension of the share buyback. Personally, I would prefer that than loading up on debt to fund the acquisition. So for me, I think that seems eminently sensible, given that there is a $5 billion break clause. And it’s unlikely to be resolved quickly.

Michael Brown (23:49)
Yeah, absolutely.

Michael Hewson (24:02)
this deal because you’ve still got Paramount on the sidelines ⁓ making an awful lot of noise. ⁓ Larry Ellison, I think it’s Larry Ellison isn’t it?

Michael Brown (24:08)
Yeah, and that’s not going to go away, it?

⁓

well, yeah, it’s a weird one because it’s, it’s David Ellison who is running Paramount Skydance, but it’s his dad Larry who’s put the money up. So yeah, it’s a strange one.

Michael Hewson (24:15)
David Ellison. That’s it. Yeah, that’s it. Yeah. Yeah.

Hmm, yeah. Okay, so let’s move to the UK. JD Sports, JD Witherspoon, B European Retail.

Yeah, looking at B European retail, the shares haven’t really moved out of the range they’ve been in. They’re down 5 % today, and I’m not really sure why, but they haven’t actually taken out the lows post that profit warning back in October, November. In fact, they’ve done pretty little in the three months since then, despite the fact that the numbers on the face of it don’t look that bad, although they did modestly downgrade their EBITDA.

Michael Brown (25:03)
Yeah, which again, as you say, was very modest. They reported a very good December. And again, that feeds into the narrative we were talking about moments ago, where people are having that sort of last splurge, that last hurrah before the Christmas period. I guess the question then is, what are we looking like into the early part of next year? There’s one argument that says if consumers tighten their belts, then that’s going to hit retail and discretionary retail quite hard. There’s another that says actually a company like B ⁓

Michael Hewson (25:16)
Hmm.

Michael Brown (25:33)
potentially stands to benefit because they’re operating at the discount end of the market. So, you know, I don’t think the market’s quite buying into the latter thesis just yet. Let’s put it that way.

Michael Hewson (25:37)
Yeah.

Yeah, well I think they remain unconvinced and the share price, I think the share price movement since that profit warning would suggest that it’s just been trading in a narrow band as I think investors try and make up their mind whether or not it’s time to pile back in again. Chady, weatherspun, issue a profit warning.

Michael Brown (25:59)
Yeah, not

exactly pretty, is it what they’re reporting there?

Michael Hewson (26:03)
No, we say that, but I mean, look at their sales numbers, their Christmas sales numbers. They were really strong. Bar sales up. Yeah, it is. mean, as I say, Tim Martin, cost pressures in H1 were higher by 45 million pound. Well, aggregate that over the course of the rest of the year and you’re looking at nearly 100 million quid in extra costs. And that’s essentially why Tim Martin said that profits were expected to be slightly below 2025 levels. But I hardly think that…

Michael Brown (26:10)
Cost is their problem though, isn’t it?

Yeah.

Michael Hewson (26:31)
merits the sort of decline that we’ve seen in the share price since then. Having said that, we’ve only really given up half the gains that we saw since the lows back in October, November. So it’ll be interesting to see how that plays out.

Michael Brown (26:42)
Yeah,

yeah, you would expect potentially that to bottom out relatively soon. I think that the one issue they have or what many but you know, the cost pressures that they’re facing are coming on multiple counts. ⁓ Yeah, whether it be rising energy prices, ⁓ wages, obviously with the minimum wage going up, business rates, of course, as well, ⁓ you’re still waiting for something on business rates, actually, it doesn’t seem like we’ve got anything concrete on

Michael Hewson (26:55)
Mmm.

Michael Brown (27:08)
front yet. yeah maybe that will provide them with with a little bit of relief if it can you know relieve some of that that cost burden potentially.

Michael Hewson (27:16)
I mean pubs, the backbone. I think they’re the backbone. I think of, I think rural life, if you like. They’re the glue. They’re the glue that sort of holds communities together in the more rural areas of the UK. And for me, just don’t get this war on small businesses, on pubs and hospitality and retail. I just don’t get it. It suggests to me that ultimately,

Michael Brown (27:22)
Buh-bye!

Hmm

Michael Hewson (27:44)
You’ve got a political class who haven’t got a scooby-doo about community, about the sorts of things that bind people together.

Michael Brown (27:54)
Yeah, I mean, we could have this debate all day, but you’re absolutely right. And I think it stems from the fact that a lot of the people making these decisions, whether they be politicians or civil servants within the Treasury, have never really done a job and certainly probably never run a business, which means they don’t have that experience of, how do you adapt to cost pressures? How do you deal with that? What does that do to your profitability, et cetera, et cetera? Yeah, it’s all well and good reading about that in a textbook, but

is very different doing that in reality. And I think that’s why we see the short sighted nature of the decisions that being made at the moment.

Michael Hewson (28:30)
But it’s not so much the fact, it’s the fact they just don’t listen. And it just winds me up that you’ve got the Conservatives on the other side saying, we’ll this, we’ll do that. Well, you had 14 years to do it, so why didn’t you? And it makes me think it’s hard to despise them more than I already do.

Michael Brown (28:33)
Well, there is that as well.

Mm. Yeah.

Yeah, it’s a problem on all sides, isn’t it? That’s issue. But anyway.

Michael Hewson (28:52)
It is yeah

JD Sports a decent couple of days for JD Sports share price ⁓ Better than expected performance in q4 certainly wasn’t down to the European or UK operations looking at the numbers on that United States or North America saw an increase of 1.5 percent ⁓ But Europe and UK what a complete car crash

their light for light sales figures are 3.4 % decline in Europe and 5.3 % decline in the UK. On an annual basis, a 4 % decline on a light for light basis in the UK. So it’s very much a bipolar picture. I think JD Sports purchase of Hibbert is likely to be their saving grace because certainly you’re looking at the rest of the business and it looks really weak.

Michael Brown (29:36)
Yeah.

Well, I was just going to make that point. they hadn’t bought Hibbert, then the business would be on its knees, you would think. mean, sales falling by 3.5 and 5%, it’s pretty grim. And there’s not particularly much sign of that turning around either. So it really is the US side of that business that’s bailing them out and keeping them afloat. well, for their sake, you’ve got to hope that that outperformance state side continues, because otherwise they could be in real dire straits.

Michael Hewson (29:53)
Hmm.

Yeah, I mean they said they expect to meet full year profit expectations, so at least that’s something. I think the bigger question going forward is what their next fiscal year is going to look like when it comes to guidance. As I say, we’ve seen a decent rebound in the share price, but we haven’t taken out the highs that we saw earlier this month in January at around about 87p and the highs that we saw in December. And the 200 day moving average as well, so it’s decent.

Michael Brown (30:26)
Yeah.

Yeah, there’s a few levels

to watch.

Michael Hewson (30:43)
There’s a two, there’s a decent resistance just above where we are at the moment. ⁓ Okay, so that’s pretty much this week. Some topics out of the way. Let’s move on to next week. We got, we have, yes, we’ve got fourth quarter earnings from Lloyds Bank, Lloyds Banking Group, EasyJet, first quarter numbers. And then we got Microsoft, Tesla, Meta,

Michael Brown (30:58)
Busy one coming up, isn’t it?

Michael Hewson (31:13)
Apple but before we talk about that let’s talk about the Fed

Michael Brown (31:18)
Yes, well, I don’t think this is going to have to be a particularly long conversation because actually the monetary policy side of things for the Fed is relatively straightforward. It is a sideshow, frankly. I mean, you know, let’s just cover that off. The FOMC will hold the target range for the Fed funds rate steady at the January meeting. There is no real expectation for any

Michael Hewson (31:23)
No.

It’s a bit of a sideshow.

Michael Brown (31:41)
adjustments at this point. Of course, they delivered three consecutive rate cuts at the back end of last year. And I think they’re now adopting a kind of wait and see approach of let’s see how those cuts have impacted the labor market, whether they’ve provided some support. And if the data deteriorates further, then of course they will cut again. And you would expect further cuts through the course of this year. As you rightly alluded to, the issue with the Fed at the moment

is other things, whether that be the Department of Justice sending subpoenas to Fed Chair Powell, whether that be this week, of course, we had the first hearings in Governor Cook’s case against her dismissal in the Supreme Court. ⁓ And then we still don’t know who Powell’s successor is going to be. Trump is claiming that he’s picked someone and that there’s only one name in his mind, but he hasn’t told us who that is. And he doesn’t, hasn’t actually set a date for telling us when he’s going to tell us when that’s going to be. So

Michael Hewson (32:13)
Mmm. Yeah.

Michael Brown (32:36)
There’s a lot of moving parts in the background, for at least 90 minutes on Wednesday night, we can focus on monetary policy. And I think it’ll be a bit boring, to be honest.

Michael Hewson (32:38)
Hmm.

But we do know who it won’t be. If what Trump said the other day is any indication he’s going to keep Kevin Hassek where he is.

Michael Brown (32:53)
Yes, which I thought was interesting because obviously Hassett was very much seen as the front runner for the Fed chair role. You know, he’s been kind of Trump’s sort of right-hand economic man for getting on for a decade, if not longer now. So it, well, the betting markets or the prediction markets now have it between former Fed Governor Kevin Warsh and BlackRock CIO of fixed income Rick Reader.

I don’t know who it’s going to be, whether it’s going be one of those two, or whether it’s going to be a complete dark horse that no one’s talking about. ⁓ But I guess, again, it’s, know, classic Trump. It’s this made-for-TV, apprentice-style showdown to decide who runs the world’s most important central bank. I mean, it’s bonkers when you put it like that, frankly.

Michael Hewson (33:38)
What’s your thoughts on Rick Reader?

Michael Brown (33:40)
I think you do a very good job. I think you do a very good job. This is the problem. And I think the issue with whoever gets the job, whether it be Rita, whether it be Warsh, whether it be someone else, is they’re unnaturally… I think you’d want it. I think anyone would want it, even with the circumstances, because it’s the most prestigious job you’re to get. However, having said that, think whoever does get the job…

Michael Hewson (33:41)
If he’s allowed to.

Would he want it?

Michael Brown (34:08)
naturally there will be significant questions around their credibility because you would assume, and I haven’t been to the White House and I wasn’t involved in the interviews, but you would assume that during those interviews there have been questions around are you going to cut rates? How low are you going to cut rates? Where do you think rates should be right now? And let’s be honest, if you’re in the final three, you’re probably going to have given very, very dovish answers to those questions.

I actually think the issue of Fed independence is going to worsen this year because right now, Powell is there running the Fed. Trump, yes, he nominated him, but he claims that he’s gone off the rails and all the rest of it. Once Trump puts his own man in at the helm of the Fed and still doesn’t get the rate cuts that he wants because no one’s going to deliver 300 bits of cuts in one meeting, that’s not going to happen unless there’s some sort of crisis.

That is then a bigger issue because Trump will be going, well, hang on, you told me three months ago you’re to do this and now you’re doing something differently. What the hell happens then? think, you know, all bets are off.

Michael Hewson (35:15)
But I mean, you and I can see that coming because ultimately Trump’s attitude towards the Fed is so belligerent and so aggressive, the policymakers currently in situ will be less inclined to cut rates because they won’t want to be seen to be kowtowing to political pressure. So he’s actually making life more difficult for the incoming Fed chairman than if he was playing the long game and being slightly cuter in his approach.

So what he’s doing is currently, I think, very self-defeating because any new chairman will have to take the committee with them.

Michael Brown (35:54)
Yeah, and they’re not going to be able to do it if they simply walk in and go, we should cut rates because the president wants us to.

Michael Hewson (36:00)
Yeah, because that ain’t gonna happen.

Michael Brown (36:02)
No, absolutely not.

Michael Hewson (36:05)
Okay, let’s move on. Lloyds Banking Group. Fourth quarter numbers. They’ve now managed to hold above a pound. Their Q3 numbers weren’t particularly great, but that was basically because they set another £800 million in October towards the black horse finance and that particular issue, that various legacy issue, that’s now gone. I mean…

Michael Brown (36:15)
Yes.

Michael Hewson (36:33)
I’ve listened to a lot of people on Lloyds and there are some people who think that it’s potentially toppy now, a little bit overvalued. I would disagree. I’m thinking of one person in particular who I won’t name, but he knows who he is. I think he went short of Lloyds recently. I think the acquisition of Schroder’s, the wealth management business will go from strength to strength.

Michael Brown (36:46)
Yeah.

Michael Hewson (37:02)
and ultimately the retail business, which has still got very healthy net interest margins, may trade sideways. It’s still a very profitable bank. And for me, think the likelihood is it’s likely to get more profitable. Obviously, government intervention, taxes and what have you, windfall taxes aside, I think it’s in a fairly decent position and it’s got momentum on its side.

Michael Brown (37:28)
Yeah, I would actually agree with you on that one. think fundamentally it is a very well performing bank. Momentum clearly tilts to the upside. I think the Schroder’s acquisition is interesting because this is a play, a ploy that we’ve seen a number of US banks do where Morgan Stanley, example, wealth management is now one of, if not the biggest revenue generator for Morgan Stanley.

and it’s less cyclical than the retail and the consumer side of the business. So it’s a really nice way to smooth out your revenue and your profitability over a period of time. And I do think that now that a lot of these legacy issues are starting to be solved, I’m not saying we’re going to trade to two pounds tomorrow, but you would expect that further gains are on the cards.

Michael Hewson (38:10)
god no, no no.

I mean on a percentage basis since October, yes, it’s made some decent gains. It’s up 20 % since then. So you would expect a period of consolidation around these sorts of levels. But over the course of the next 12 months, I would be very surprised if we move much below 95p. ⁓

Michael Brown (38:31)
But also, know, consolidation is very different from a dramatic turnaround. And just because something has gone up a lot in a short space of time, it doesn’t mean it’s automatically going to come down again. That’s not a that’s not a trading thesis that’s grounded in any logical reality.

Michael Hewson (38:41)
No, exactly. No.

No, indeed. So as I say, I’m still fairly optimistic on Lloyd’s prospects. We’ve seen some decent share price gains over the course of last 12 to 18 months. I don’t expect many of those to unwind, barring obviously, barring a black swan. Which, ⁓

Michael Brown (39:04)
Yeah, or a black horse in this case.

Michael Hewson (39:10)
If I had my yellow card now I’d be brandishing it.

Michael Brown (39:14)
I you, I haven’t written

that down, I haven’t prepared it, that was off the cuff just before you get any suspicions.

Michael Hewson (39:21)
Okay, easy jet. This is a bit of a strange one because Q4, sorry, Q1. So they posted a fairly decent set of annual numbers recently. There was a bit of volatility in October when the airline was subject to some bid speculation, which prompted a spike in the share price. It’s managed to hold on to…

some of those gains, but it’s traded pretty much sideways. ⁓ Always the first half of the year is always one of those years that it tends to be loss making for EasyJet. And it’s the second half, tend to make their money. Now, I look at EasyJet and I look at the fact that the share price is now 480p and pre-COVID, it was around about 12 pounds. And I think people are looking at it and saying,

⁓ okay, easy jets cheap because it’s nowhere near its pre covid levels Yes, that’s true But it’s also a very simplistic way of looking at it because as I highlighted in my sub stack There’s a lot more shares an issue now because of the various fundraising fundraising measures That easy jet implemented to basically stay in business

Michael Brown (40:47)
Yeah, exactly.

Michael Hewson (40:48)
over

the COVID period. So we’ve got 750 million shares in issue compared to around 400 million at the end of 2019.

Michael Brown (40:58)
You basically doubled it.

Michael Hewson (40:59)
Yeah, you know 90 % more. having said that, I would still argue that share price of easyJet is still too low relative to where it should be compared to its pre-COVID levels, even accounting for the extra shares in issue, because if you actually look at the dividend, the dividend it’s paying now is lower than the dividend it was paying back in 2020. If you take all those extra shares in issue into account. So there is scope.

Michael Brown (41:22)
Yeah. Yeah. Yeah, yeah, yeah.

Michael Hewson (41:29)
for the shares to be higher, but is there scope for someone to basically take over the airline? I’m not sure.

Michael Brown (41:38)
No, I’m not sure either. And I think it’s a sort of perennial talking point, isn’t it? Is someone going to buy EasyJet? You’ve got to think where’s that buyer going to come from? Because there has been a lot of consolidation in the European aviation sector in recent years, really since the pandemic. The problem is you’re kind of at a point where that consolidation has almost gone as far as it can go, because you’ve got Air France KLM, massive group.

Michael Hewson (41:43)
Mmm. Mmm.

Michael Brown (42:07)
Lufthansa and all of the Austrian and Swiss airlines. You’ve got IAG, of course, with British Airways and with Iberia, et cetera. Who’s going to buy EasyJet? Where do they fit into that mix? They’re also a very, very different business model from a lot of those other airlines that we mentioned. So yeah, I’m not sure the acquisition is as much of a bull case as people might think it is.

Michael Hewson (42:32)
I mean, on guidance for 2026, obviously the key growth areas are obviously the holidays business. I mean, they’re projecting that to grow quite considerably over the course of the next three or four years. They expect to achieve profits of £450 million by 2030. So there’s certainly a huge amount of growth potential there. On the outlook, bookings for Q1, 81 % sold, with Q2, 26 % sold and

holiday business is to grow by another 15 % in full year 26. So from a base of 3.1 million customers. So there’s plenty of reasons to be optimistic. But if you look at the share price, it’s not really done an awful lot over the course of the past three to six months. You know, got a base around about 450, 450p, got a top around about 520. So, and we’re more or less slap bang in the middle of that around about 480, 490 right now.

Michael Brown (43:29)
Yeah, we’re just trading that range for the time being, we?

Michael Hewson (43:31)
We are. So is there potential more upside? I think there is, but obviously you have to be cautious because as with any business like airlines, it’s very susceptible to obviously disposable consumer.

Michael Brown (43:49)
Yes, especially the holiday side of the business.

Michael Hewson (43:52)
Yeah, absolutely. So we’re in a bit of a no man’s land at the moment. So I’m a little bit undecided on this, but certainly I think there’s potential for it to go higher. Certainly the business that, know, the fact that they’ve sold 81 % of their bookings in Q1 is a good thing. And really it’s a question of how much of that Q2 has improved and what their profit projections will be for the next four year.

Michael Brown (44:11)
Yeah, absolutely.

Michael Hewson (44:20)
Certainly in terms they are now making profits so long may that continue Right now, let’s get now. Let’s go to the mega caps sure we start with well. It doesn’t really matter who we start with ⁓ Because we’ve got Tesla Microsoft and Meta all on the 28th and Apple on the 29th and Let’s start with Elon shall we? Get a line out of the way We’re not far off record highs for Tesla share price, and I got my

Michael Brown (44:21)
Yes.

Indeed. We’ll the mega caps.

Go on then.

Michael Hewson (44:50)
I’ve to admit I’m struggling with the idea of that.

Michael Brown (44:53)
Yeah, so am I because you know the the Q4 delivery numbers were not especially great. The Q4 production numbers were not especially great and we know that competition in the EV space is heating up massively. I’m not entirely convinced that it should be trading at a record high either if I’m being completely frank.

Michael Hewson (45:07)
Hmm.

Yeah, we hit a record high on Boxing Day. Around about $500. We’re now around about $450. Yeah, $450. I mean, obviously, automotive still makes up the bulk of its revenues. Yes, the energy business is doing better and will probably continue to do better. But…

For me, the fact that think deliveries were down in Q4 was as a direct result, pulled forward in Q3. ⁓ because of that regulatory credit, that 7,500 regularly credit that expired for Q3. when they outlined their outlook at their last set of earnings, they were really woolly. And I don’t expect them to be any more precise than they were back.

Michael Brown (45:48)
Yes, it would have been,

Michael Hewson (46:10)
when they announced their previous set of numbers. Because how can they be?

Michael Brown (46:14)
Yeah.

Well, I don’t think they can is the is the very short answer to that. And I think the biggest issue or the biggest potential risk for Tesla stock. This is a longer one run that we’ll look at some point during the year, I’m sure, is the SpaceX IPO.

Michael Hewson (46:34)
Yeah, actually that’s an interesting one.

Michael Brown (46:34)
because I think a lot

of people are, you you mentioned, you sort of touched on it, you know, these other ancillary services are a small part of Tesla’s business. There’s parts of, there’s other things that are probably accounted for in the Tesla stock that aren’t part of Tesla’s business at all, which is all the other stuff that Elon Musk is doing. It’s just that Tesla is a listed way of getting exposure to the stuff he’s getting up to. And he uses it that way as well. you know, that’s the way he raises funds for a lot of things.

Michael Hewson (46:50)
Hmm.

Hmm.

Michael Brown (47:01)
And

as soon as you’ve got another listed venture, that’s actually, you know, certainly if you talk about it from a narrative point of view, building rockets is a lot sexier than building electric cars. I think it’s a risk.

Michael Hewson (47:13)
Yeah.

When is the SpaceX IPO? Do we know?

Michael Brown (47:18)
We do not know. think they’ve hired some banks for it. It’s likely to be at some point this year, I think.

Michael Hewson (47:23)
that be an interesting one to keep an eye on because obviously it’ll then be down to a question of what will Musk’s primary focus be.

Michael Brown (47:33)
Yeah, which is a question I think people have long been asking themselves, but there we are.

Michael Hewson (47:36)
Yeah,

but I think the fact that he moved away from Doge, whatever it was, the middle of the line, back to the business has helped that Tesla surge in the share price. The big question now will be with the SpaceX IPO, where will his attention be primarily focused? And I’ve got to say it won’t be on Tesla. He’ll want to make sure that SpaceX IPO raises as much money as possible and gets the best valuation as possible. So for me, I think that’s a clear risk.

Michael Brown (47:41)
Hmm. And back to the businesses.

Absolutely.

Yeah,

Michael Hewson (48:05)
his focus won’t be on Tesla.

Michael Brown (48:05)
I would agree. Yeah, and he’s going to be spread too thin and his focus is going to pivot massively to making sure that that IPO goes well. But we can discuss that as and when it happens, I guess.

Michael Hewson (48:15)
Indeed. All right, let’s talk Microsoft. Might as well start with, and their share price performance has been pretty dire since those peaks back in October. We were at 500, just shy of $560. We’ve just hit a low of 440 earlier this week. And the 50 day moving average has just crossed below the 200 day moving average, though that’s not as significant as you might think.

Michael Brown (48:43)
gonna say please don’t go down the whole death cross route with me.

Michael Hewson (48:46)
Because, because the 200-day moving average is doing that and the 50-day is doing that. So the 200-day is still pointing higher. So that’s not as significant as perhaps people would suggest it might be. So I don’t read too much into that. But having said that, I think the questions around AI and returns have caused that sell-off. And that’s not a problem that’s gonna go away.

Michael Brown (49:14)
No, and I think the other trigger for that sell-off is, certainly in terms of AI, you need to think about Microsoft through the lens of open AI, because they’ve got a huge part of the firm. So you’ve got the questions around the return on investment from all of the hyperscalers, which is one issue, and how firms are actually going to use this to generate all these cost savings and revenue increases that they’ve been talking about. But then you’ve also got the fact that competition is really heating up.

And I think one thing that’s really interesting is to look at how the Microsoft stock price has diverged from the Google or Alphabet share price over the last kind of three to six months, because since Gemini launched at the back end of last year in Q4, Google has just printed high, record high, record high, record high, record high, whereas Microsoft has been making lower highs and lower lows almost the entire time.

Michael Hewson (49:49)
Mmm.

Michael Brown (50:08)
And think the message the market’s sending on that front is pretty clear, to be honest.

Michael Hewson (50:12)
Yes, it’s not a positive one. I think that 440 level is going to be quite key in the wake of these announcements. I mean, is there is there an assessment of how much volatility there might be in the wake of the earnings numbers? I know you said it was.

Michael Brown (50:19)
Mm.

You what, there is.

It’s almost like we rehearsed this. 4 and 3 quarter percent is what options are implying at the moment.

Michael Hewson (50:32)
Okay, I think there’s another question here that I think needs to be asked. I think the recent outages at various cloud providers have raised the question as to in amongst all this AI spend, is Microsoft or the likes of Microsoft and Amazon neglecting their current infrastructure?

Michael Brown (50:50)
⁓ That is a very good point. don’t think anyone is really asking that, are they?

Michael Hewson (50:54)
No, I haven’t heard anyone ask it, but I’m asking it because for me, you know, you can invest as much money as you like in AI, but if you neglect your existing infrastructure, then you’re storing up problems for yourself and those. Yeah.

Michael Brown (50:56)
Hmm.

You’ve gone, we’re all focused on this shiny new thing over here,

but what about the thing people actually use us for?

Michael Hewson (51:13)
Exactly and big big businesses use you for Amazon as you’re you know, there’s a web services as you’re the outages there are unacceptable and I think what it has highlighted is how much Businesses now rely on these cloud services and really how resilient and hack proof are they?

Michael Brown (51:35)
Yeah. And, you know, as we rely more and more and more on these services over time, those questions are going to grow bigger and bigger and bigger.

Michael Hewson (51:42)
and they need to be addressed and these companies need to be held to account because they are responsible for banking services, they’re responsible for airports, everything, everything. And we also as investors and analysts need to ask questions of businesses. Why are you placing so much stock and putting all your eggs in one basket when it comes to cloud services provider? What are your disaster recovery procedures?

Michael Brown (51:46)
Yes, absolutely.

Yeah, everything, literally everything. Yeah.

Yeah, the concentration risk is huge.

Michael Hewson (52:12)
Yeah,

yeah it is. And you know, I asked that question back in the end of last year when these things happened and it’s all gone quiet. Until the next one. And then these questions will then get asked again.

Michael Brown (52:22)
Hmm, funny that. Yeah.

And probably not get answered.

Michael Hewson (52:28)
No, indeed. So what’s it going to take? You know, a catastrophic event? People dying as a consequence? No, indeed. But I mean, that’s what always happens, isn’t it? You know, these things happen as a warning shot. People say, yeah, yeah, we’ll do something about it. It gets parked because something else takes over and then something awful happens. Anyway. Meta platforms. Facebook, ⁓ Instagram, WhatsApp. Again.

Michael Brown (52:31)
Well, which we obviously hope doesn’t happen, but.

Yeah, yeah, no, I think you’re right.

Michael Hewson (52:57)
seen some weakness from the peaks back in August and September, found a bit of support around about $590. Again, we’ve seen cost cutting. And again, people are asking questions, how much money are you going to throw at this stuff? And it’s not just AI, it’s Reality Labs as well. $73 billion they’ve lost over the course of the past few years on Reality Labs. They’re cutting that business back. And to be quite honest, I think the Reality Labs has been a bit of a car crash.

Michael Brown (53:26)
Well, I think it has. mean, you said there’s 70 billion dollars. They’ve been better off just taking that outside and setting fire to it because what have they actually got to show for that? I can’t think of anything, you know, and I think.

Michael Hewson (53:33)
Mm.

or nothing.

some fancy glasses,

fancy VR glasses which nobody wants.

Michael Brown (53:43)
Yeah, exactly. you know, that has been a complete nut to car crash. But again, it goes back to those points we were making previously, where, you know, investors are taking a much more discerning view as to the AI thing. You know, we have we are now a long way away from those days where a company spending more money on AI is automatically a bullish catalyst for the stock. And it’s now a case of where is the money coming from? Why are you spending it? And what are you getting from it? Which is

Ultimately, the questions we probably should have been asking all along. But for a company like Meta that’s been throwing cash around like it’s going out of fashion, naturally, as the investor assessment of the theme changes, he’s going to pose a headwind to them.

Michael Hewson (54:23)
Yeah, I for Q4 they expect revenue to come in between 56 and 59 billion dollars with four-year expenses to come in between, well, around about 117 billion dollars. But I think the biggest concern I have here is that the way they’re raising this money, they’re not funding it from their existing revenues, they’re funding it from a six-part bond sale. And I think that more than anything is something that’s a bit of a red flag for me.

Michael Brown (54:32)
Hmm.

I would agree and we see similar with companies like Oracle. You know, there’s a lot of debt financing going on now, which is not necessarily a bad thing, but certainly in something as experimental as this, where we really don’t know what the payback is going to be. The fact that it’s not being funded out of revenues, I would agree. is a bit of a little amber warning light, should we say.

Michael Hewson (54:52)
Hmm.

Hmm,

I think that’s probably why we’ve seen Alphabet’s share price outperform because they are funding it out of existing revenues and not through complicated bond structures Okay, so that’s Meta on the 28th three are all on the 28th of January so it’ll be interesting to see how they pan out and what that means for the the Nasdaq just Maybe it’ll get buried in a whole plethora of bad news perhaps. I don’t know anyway Apple and Apple

Michael Brown (55:15)
they’re doing it the right way. Yeah.

Yeah, just after the Fed. Whose bright idea was that?

You

Michael Hewson (55:37)
appear to have been playing the long game and not by design perhaps but they’ve just signed a deal with Alphabet. ⁓

Michael Brown (55:42)
Hmm.

Yeah, which I guess you could

sort of frame it as admitting defeat or you could frame it as actually a pragmatic decision because they have been lagging behind badly with AI and this is probably the only way they’re going to catch up.

Michael Hewson (55:58)
Hmm.

Yeah, I mean they’ve outsourced this particular issue. I said in my note, they’ve outsourced this particular issue to use Gemini to augment Siri and power some iPhone features instead of going with OpenAI’s chat GBT. So perhaps that’s one of the reasons for the decline in the Microsoft share price because Apple did decide to sign the deal with OpenAI. But at least they then don’t have to go to the expense of spending more money on Siri.

Michael Brown (56:21)
Yes.

Michael Hewson (56:31)
because ultimately they’re never gonna be able to play catch up now.

Michael Brown (56:31)
Mm.

No, they’re too far behind the curve and they’ve been behind the curve for too long. That is the only way they can do things. But yeah, it’s going be an interesting report because obviously it’s covering the festive period, which is pivotal for Apple and also the iPhone and all the rest of it. I still have those same, well, sorry, one last thing on that. China demand will be in focus as it always is. I still have the same questions about Apple as we’ve had for a number of years now. Where’s the innovation?

Michael Hewson (56:46)
Hmm.

Hmm.

Yeah.

Michael Brown (57:04)
There just isn’t any, you know? yeah, I’m sorry, was an iPhone, whatever it is, the new one on my desk, but it’s realistically the same as the one I got rid of. It’s just got a better battery in it. You know, there’s no real, you know, yeah, or a newer battery. We’re not making giant leaps forwards like we were five, 10 years ago.

Michael Hewson (57:16)
Hmm. Or newer battery.

Yeah, no, indeed. mean, Q1 revenue growth of 10 to 12%. iPhone sales expected to see double digit growth due to strong holiday sales demand. A key risk is likely to be supply constraints on some iPhone 16 and 17 models. So yeah, I mean, that generally tends to be their best quarter. It’s their first quarter, Q1. So it’d be interesting to see whether or not the pullback we’ve seen since the beginning of December starts to reverse. We are above the 200 day moving average, so I think any dips.

Michael Brown (57:44)
Yes.

Michael Hewson (57:55)
towards $230, likely to be fairly well supportive, although we are now in a modest downtrend from the peaks back in December. So, we will see what happens. Okay, well on that note, we’ll wrap this one up and we’ll cover all the numbers and see how good or bad they were, same time, same place next week. All right, mate, cheers, bye.

Michael Brown (58:07)
We’ll see what happens.

Indeed. See you then. Bye for now.