Is AI diversification, helping to boost the FTSE100 and Nikkei 225 to new record highs?

Michael Hewson (00:00)
Hello and 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. I’m Michael Hewson and joining me once again is Pepperstone’s Senior Market Strategist Michael Brown. Good afternoon Michael.

Michael Brown (00:18)
Indeed, yeah, very good afternoon to you mate. It’s been ⁓ another intriguing week, hasn’t it, that we can get our teeth into.

Michael Hewson (00:25)
Yeah, certainly plenty to get our heads around. mean, obviously gold and silver prices have settled down a bit. So that’s good news, even though they did drop to $64 silver prices dropped to $64 in the aftermath of our little conversation last week, but they bounced back modestly. Record highs for the FTSE 100 again, record highs for the Nikkei 225 on the back of the landslide win for Sunai Takeiichi in the Japanese election.

bit of a mere reaction to that, which is a little bit surprising, given the fact that bond markets are freaking out in the lead up to that. And an alphabet currency bond issue, which is gonna be interesting topic to get our head around. Along with the US jobs report, ⁓ UK GDP, whole host of other stuff. So maybe I should do the risk warning and then we can really get cracking, I suppose. Okay.

Michael Brown (01:20)
I think that’s a cracking idea.

Michael Hewson (01:23)
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with this provider. ⁓ Yes, I mean, quite a bit to get through. And as before, we even start to talk about the earnings numbers that we saw this week from the likes of BP, Barclays, NatWest, Unilever, and obviously Amazon as well. quite a bit to get through. let’s start. I think this let’s start with a broad brush approach. We’ve got plenty of time to talk about the UK economy. I’m trying to get my

Michael Brown (02:07)
Yeah.

I’d quite like

to avoid that for as long as we can given the state of the data this morning.

Michael Hewson (02:21)
Well, I would

like to having sort of digested some of the nonsense and gaslighting that’s come from the Prime Minister and the Chancellor of the Exchequer this morning because ultimately I just anyway. So gold and silver prices, they’ve settled down. Is the panic over there?

Michael Brown (02:33)
Yeah.

Well, mean, yeah, they have settled down. I said earlier in the week, I think it speaks volumes about how the market has traded recently when, you know, silver can still be jumping around five or six percent in a day and no one really even seems to bat an eyelid. But you’re right. It seems as if those precipitous declines that we saw a couple of weeks ago have sort of started to bottom out a little bit. I think gold is proving a little bit more resilient than silver. Certainly, volatility in gold has fallen a lot more than it has in silver, which arguably you’d expect. That’s the traditional

dynamics that we see playing out in the metal space. And I think this really feeds into something that we discussed probably two or three weeks ago now in the aftermath of these big declines that we saw on that Friday afternoon. You almost want metals to become boring again. You want that period of consolidation. You want that proof that the speculative frenzy has come to an end, that all of the stretched positions have been cleared out. And that then sort of clears the path for a more durable rally and probably a slower rally as we

Michael Hewson (03:28)
Yeah.

Michael Brown (03:43)
look forward and I think that’s kind of the situation that we’re seeing play out.

Michael Hewson (03:48)
Yeah, and obviously I think people are getting a slightly less stressed about AI now and I think that’s probably also helping on the margins. And on that topic, ⁓ the hyperscalers, if you like, Amazon, Alphabet. Now Amazon posted some fairly decent numbers last Friday, well last Thursday night, ⁓ but it was the CapEx number that really freaked an awful lot of people out. The numbers themselves are really, really solid, but it’s the CapEx.

pretty much the same way that Alphabet’s capex numbers freaked the market out. I think between all of them it’s about 650 billion dollars in infrastructure spend and now Alphabet are talking about doing a corporate bond issuance in multiple currencies including a 100 year bond of 1 billion pounds. What’s that all about?

Michael Brown (04:37)
Yes.

Well, there’s a lot to unpack there. think the first thing is this reaction to capital expenditure guidance has been really interesting because we’ve gone from this world where, you know, two or three years ago, it was basically a case of the more money you’re going to spend on AI, the higher your stock price is going to go. And now it’s very much the opposite where participants are questioning how it’s going to be funded and when we’re going to see a return on that expenditure. I think in terms of the alphabet situation with that debt issuance, I think that raises a couple of

of interesting points. The first is, you know, they’re saying that they’re diverse, they’re doing a Swiss franc bond as well to try and broaden the investor pool. Well, I think there probably is an argument on that front. The more mathematical point though is that they clearly think it’s going to be cheaper to borrow in sterling than it is to borrow in dollars over the next however many years, obviously, you know.

Michael Hewson (05:31)
100 years.

Michael Brown (05:32)
Well, 100 and in.

But I think perhaps the more interesting point, and this is something we touched on on WhatsApp during the week, is what does this mean for governments? Because Alphabet are issuing debt, Apple have issued debt.

you know, all these large corporates who are ultimately sort of akin to sovereigns. know, Google issued, or Alphabet, I should say, issued their dollar bonds at 90 basis points over the comparable treasury. That’s a very, very tight spread for a corporate to be issuing debt. At what point do investors turn around and say, actually, do you know what, rather than buying gilts, I’d rather buy Alphabet sterling debt? Because if it was a choice of Alphabet looking after ⁓ stewarding things, or Rachel Reeves, well, I think I know who I’d give my cash to.

Michael Hewson (06:00)
Hmm.

Michael Brown (06:14)
See.

Michael Hewson (06:15)
Yeah, I mean, I think the difference there is Rachel Reeves is unlikely to be lasting that much longer. Whereas the big question is, is Alphabet going to be around in 100 years time? And I know what you’re going to say. mean, basically, it’s easily tradable and you can trade in and out of it. And it’s probably a more liquid market, perhaps. But I think the fact that we’re even having this discussion at a time when bond issuance for governments is probably at record levels, it’s certainly a discussion that it’s going to make

Michael Brown (06:19)
well.

Michael Hewson (06:44)
the demand for debt, corporate debt or government debt, much more competitive.

Michael Brown (06:52)
Yeah, absolutely. And then you get to that question of, well, crowding out, as we would call it. Are there enough investors to soak up everything that is being issued, whether it be on the corporate front, whether we’re on the government front, et cetera, et cetera.

Michael Hewson (06:56)
Yeah.

Yeah, I think that’s the main concern because at the end of last year, we talked about the risk, not only of the record amount of issuance that was being planned by governments, but there’s also the fact that Japanese government bonds now actually are showing a fairly decent yield relative to what they were even two or three years ago, let alone 20 or 30 years ago. So again, there’s probably going to be more demand for Japanese debt as well.

Michael Brown (07:20)
Mm.

Yeah.

Yeah, that’s definitely a factor to consider. mean, you know, it speaks volumes about Japan when you’re talking about, you know, the 30 year JGB or the 40 year JGB yield hitting a record high. And we’re still at, you know, what was it, two and a half, three percent or wherever they are. I haven’t got them in front of me at the moment. But we are now seeing those those yields go positive on a real basis, an inflation adjusted basis, which is something worth bearing in mind. But you mentioned Japan. I think what’s been interesting this week is the fact that we’ve seen stability.

in JGBs, we’ve seen stability and actually gains in the value of the yen, and we’ve seen gains for the Nikkei as well, as you alluded to in the sort of introduction there. One, that’s a dynamic you don’t often see in a similar way to the pound and the FTSE having an inverse relationship. The Nikkei and the yen typically display the same characteristics, but it seems like the start of this, you know, almost a buy Japan trade is coming into the market after Takeiichi’s thumping election win.

Michael Hewson (08:04)
Hmm.

Yeah,

I mean, that’s what struck me about that is a fairly benign bond market reaction and she’s got a landslide. It’s not as if she’s got in by the skin of her teeth. She’s got a working majority and since April last year, the Nikkei has almost doubled.

Michael Brown (08:39)
Hmm.

Yeah, it’s, you know, a face ripping rally if ever you’ve seen one.

Michael Hewson (08:55)
I mean it was 30,

what was the low? 32,000, 32,500, 57,500.

Michael Brown (09:00)
Where are we now? 56?

Yeah, there you go. ⁓ with Takaichi, it’s not only a working majority, it’s a super majority. And that’s not me branding it. That basically means that the LDP, which is her party, control two thirds of the seats in the lower house of the Diet, which means that they can essentially override anything that the upper house does. They have a sort of veto on that, which again clears the way for Takaichi to essentially do whatever the hell she wants. And one of those plans is quite a lot of fiscal

stimulus chiefly centering around tweaking or suspending temporarily the sales tax that’s levied on food.

Michael Hewson (09:42)
And no stopping the FTSE 100 either. 10,000 opened this morning in London. A new record high. I’m sure the government will be straight out of the blocks claiming credit for that again.

Michael Brown (09:44)
No, absolutely not.

Well, no, probably tomorrow morning when they read about it in the FT, they won’t know yet. Bit mean of me, but it’s probably true. But the market is continuing to trade well, you know, and I think one of the things that we’ve seen over the last few weeks is

Michael Hewson (09:58)
Oh, that’s true. Yeah, well…

Another &A today.

Michael Brown (10:12)
Yes, we can come on to that in a second. ⁓ Big &A actually. But I think one of the things we’ve seen more broadly over the last couple of weeks is this cooling and enthusiasm around US tech and around AI and a rotation into value and into cyclical stocks. And the FTSE is packed full of those names. So when you’re in a market where European and rest of the world equities are outperforming the US and those sectors are outperforming tech and communication services, it’s a really, powerful mix to help lift the FTSE.

to those new levels.

Michael Hewson (10:43)
Yeah, I

mean it’s interesting actually that looking at Amazon and Alphabet share price, haven’t really gone below, to start again, they haven’t really traded below the lows they hit in the aftermath of those announcements of their earnings numbers. I got there in the end.

Michael Brown (10:57)
No. The market’s had that shock and then it sort of moved on. It hasn’t been

a ⁓ continued decline.

Michael Hewson (11:05)
No, I mean, it’s sort of tracking back to those lows, but at the moment we haven’t really taken them out yet. So it’ll be interesting to see whether we do. ⁓ Okay. Yeah, the &A, yes. Another UK company gets snapped up by a ⁓ US company.

Michael Brown (11:16)
Yes. Do we want to do the &A that you mentioned?

Yes, Schroders.

And they are what, up 20 % today? I think they were at the open. I don’t know whether they’ve paired some of that since. as you say, it’s another example of US firms coming across the Atlantic, hunting for value, hunting for firms that they believe are trading cheap and snapping them up on the cheap. And we’ve seen countless examples of that over the years.

Michael Hewson (11:32)
Yeah, I think so.

At this rate there’ll be no one left in the FTSE 100. Well, yeah.

Michael Brown (11:50)
Well, you joke, but you know, Should

we call it the footsie, like 10? Is that where we’re gonna have to go with this?

Michael Hewson (11:57)
⁓

it was, I can remember back in the day it was the Fitzy 30.

Michael Brown (12:01)
Uncle Albert has arrived.

Michael Hewson (12:02)
You

I was going to actually

drop the f-bomb then but I suddenly realised we were recording. Anyway, moving on. The US jobs report. The US jobs report.

Michael Brown (12:13)
Yes, well I tell you what,

I dropped an F-bomb when that crossed because it was considerably better than expected. 130,000 jobs added in January, unemployment down to four-spot three percent, participation up to 62.5 percent. But tell me Mr. Hewson, why is it not as good as those headline metrics would imply?

Michael Hewson (12:18)
Mm.

you asking me? ⁓ well, I’ll tell you why, because most of those jobs gains have come from, ⁓ nursing and healthcare. And that suggests to me, and it’s a huge elephant in the room, that the US population is getting sicker, older. ⁓ and as a consequence of that, that must pose risks to future productivity, even AI concerns aside.

Michael Brown (12:54)
Mm-hmm.

Michael Hewson (13:03)
And also we also saw downward revisions to the 2025 numbers, a quite big downward revision.

Michael Brown (13:11)
Yeah, was 800 or 1000 wasn’t it, think. And it was another 800 or 900,000 the year before. Yeah.

Michael Hewson (13:13)
8.62.

Yeah was, yeah. So two years

in a row the BLS has overstated US jobs growth by nearly 3 million.

Michael Brown (13:24)
Yeah, absolutely. But I think your point around the concentration of hiring. Go and get your abacus while I do this.

Michael Hewson (13:28)
Well, two million. Sorry, my mess is crap. Sorry about that. Yeah, sorry.

Michael Brown (13:36)
But I do think that point around the sectoral split of job gains is really important because actually the BLS split out employment into 11 relatively broad sectors of the US economy. Five of them experienced a month on month decline in employment in January. And I’ve never been a huge fan of, you know, taking a number and then taking bits out of that number to tell a story. You you you you joke often around inflation, you core inflation. People still got to buy food and they’ve still got to

Michael Hewson (13:46)
Hmm.

Michael Brown (14:06)
by energy. But I think this is a reasonable case where we can do that because the healthcare sector is not cyclical. You employment in the healthcare sector does not really depend on what the broader economy is doing. It’s not sensitive to interest rates. It’s not sensitive to international developments. It’s essentially mechanical. You know, people are getting older, people are getting sicker. We need more people to work in as nurses, as doctors, etc, etc. And actually, when you do that, when

you take private sector jobs and you take healthcare away, the private sector actually shed almost 300,000 jobs in 2025. You know, that is not what I would call a particularly robust labour market.

Michael Hewson (14:49)
know,

I suppose at least it’s positive, but you know, silver linings, right? Or slim pickings.

Michael Brown (14:54)
Yeah, I mean, well,

exactly. And I think that the issue is, you know, if you’re looking at the Fed, for example, they’re going to have been reassured by the report, you would imagine, certainly with unemployment coming down. you

Michael Hewson (15:06)
and the participation

rate going up. ⁓

Michael Brown (15:07)
and participation up, so unemployment’s come down, more

people employed, more people coming into the labor force to find a job. But I think the problem is you’re running the labor market effectively on a knife edge where 50 % of sectors are not hiring anyone in January. It’s not gonna take a lot for that to tip to 70, 80, 90 % not hiring, and then you’ve got a real mess on your hands.

Michael Hewson (15:22)
Mm.

Unfortunately, it’s a bit of a mixed message for President Trump because it makes a ⁓ much rate cut much less likely. ⁓

Michael Brown (15:36)
Yeah, I think the market’s down about 5 % now from 20

previously. yeah, that is very much off the cards, I think.

Michael Hewson (15:43)
and

obviously today’s weekly jobless claims numbers were slightly worse than expected 227 I mean what are expecting 223

Michael Brown (15:52)
Yeah, and think anything in the sort 200 to 230-ish range is kind of okay, isn’t it? Yeah.

Michael Hewson (15:58)
I think that’s in the ballpark. Yeah. And

the continuing claims 1.86 million. yeah, no, indeed. Okay. Girdge Alloyne’s, Girdge Alloyne’s UK GDP. We grew by 1%, not 1%, 0.1%. Obviously then prompting the usual gaslighting from Rachel Reeves.

Michael Brown (16:03)
Yeah, and nothing to worry about on that front either, I don’t think.

Are we going to do it? Are we going to bite the bullet?

⁓ no.

whoa

Michael Hewson (16:28)
Here it goes, I’ll read it out so you don’t have to. Thanks to the choices we have made, we’ve seen six interest rate cuts since the election.

Inflation is falling faster than predicted and ours is fastest growing G7 economy in Europe. The government has the right economic plan to build a stronger and more secure economy. Sure, yeah, if your plan is to deliver a higher unemployment and lower growth then it’s going swimmingly Rachel. We still have the highest inflation in the G7 and are on course for the weakest decade of growth since the 1920s. Good job!

Michael Brown (17:00)
Yeah, I mean, probably the most surprising thing about that is that the government actually have a plan for growth, given that this is the same, well, she says they do, but this is of course the same Rachel Reeves who delivered a budget last November that contained a grand total of zero measures aimed at boosting economic growth. And that’s not me, that’s the OBR’s assessment of things. I mean, frankly, it’s…

Michael Hewson (17:05)
Do they?

Michael Brown (17:21)
a sort of farcical situation, not only in terms of the reaction to the figures, but also the figures themselves. You the economy growing by zero spot 1 % on a quarter on quarter basis, that’s a rounding error away from stagnation. Let’s be completely honest with you. And actually the details of the report are even more concerning because the only…

Michael Hewson (17:25)
Mm.

Mmm.

Yeah, I mean, for the purposes

of balance here, right, because I think it’s very easy to basically stick the stiletto into Rachel, the economy did grow at 1.3 % in 2025. But it’s not about that number. It’s about the slowdown that we’ve seen in Q3 and Q4. And obviously, we’ve seen a pickup in January. The big question is whether that’s sustainable. But certainly, as you said, when you dig under the hood and look into the numbers, it’s grim. And now you’ve got this

Michael Brown (17:56)
and Q4. Yeah.

Hmm.

Michael Hewson (18:09)
internecine warfare going on within the Labour Party as to who is going to replace Keir Starmer. Now Angela Rayner has now just broken ranks to criticise the very budget that she voted for and supported in November by basically saying that the Labour Party is doing an awful lot of damage to business in terms of regulation, minimum wage, business rates and what have you.

Michael Brown (18:15)
Yeah.

Michael Hewson (18:36)
I mean my head exploded when I heard that because I just thought to myself the utter hypocrisy of that statement. Her employment rights bill, if it goes through, is part of the problem. If you really mean what you say, bin it off.

Michael Brown (18:38)
Yeah.

Well, this is exactly it. this is, again, what makes the situation worse. As you said, yeah, the survey numbers in January have been relatively promising. And we get a lot more January data next week, including retail sales and CPI, which we’ll come on to later on in the podcast. unemployment, that’s for December, The issue is that risks to the outlook do quite clearly continue to tilt to the downside. Obviously, as you said, with the employment rights bill, you’ve now got

Michael Hewson (19:02)
and unemployment.

Yeah. Yeah.

Michael Brown (19:17)
A ridiculous amount of political uncertainty coming from Westminster after what happened on Monday. think Keir Starmer is, well, I was going to say on borrowed time. think he’s slightly beyond borrowed time at this point. The government are in sort of complete inertia now. Nothing’s going to happen until after May, at which point there’s going to be a leadership election. You know, there’s not a lot of good news, is there, if we’re being completely honest?

Michael Hewson (19:29)
Ahem.

Okay, so let’s look at the sectors. so services. Services sector was flat. And that’s, yeah, exactly.

Michael Brown (19:43)
There’s certainly no good news there, I can tell you that. Yeah, and that’s 80 % of the economy. So

you’ve got four fifths of the economy that is just not doing anything in the last three months of the year.

Michael Hewson (19:56)
And when you break that down, the biggest decline in services came in professional, scientific and technical activities, which fell 1.1%. Now, those are the areas that you really want to grow if you want to increase tax revenues. What you do not want to grow is public sector.

Michael Brown (20:17)
So what are we growing?

Michael Hewson (20:20)
We’re growing the public sector, healthcare, support services and what have you. Construction activity, fell off a cliff down 2.1%. Yeah, mean, in services travel agencies and tour operators did well. Well, yeah, I’m not surprised everyone wants to go on holiday and leave the country. Construction output, repair and maintenance down 1.5%.

Michael Brown (20:21)
course we are. Yeah.

Yeah.

Yeah, exactly.

Michael Hewson (20:47)
New work down 2.6%. Housing activity for New York was down 3.6%. The roads are falling apart and houses that are being built are not being built in sufficient scale to meet the government’s one and half million target. So, you know, if you’ve got a policy for growth, it’s clearly not working in the key sectors that you want it to work in.

Michael Brown (21:10)
No, and just to add on to that and round out the bad news, business investment was down 3 % on the quarter as well.

Michael Hewson (21:16)
Yeah, well, we all know

why that was, don’t we, because of the November budget.

Michael Brown (21:20)
Yeah, exactly. ⁓ You know, so yeah, there are there is not a lot of optimism to be found in that GDP data. you know, it’s not a new thing. If we’re being completely honest, I said to you just before we were about to record this, the economy has only grown by more than half of one percent in three of the last 15 quarters. That is frankly shameful. No matter which administration has been in power, which political party has had control of Westminster at the time. That is just an utter

damning indictment of how the UK economy is going nowhere effectively.

Michael Hewson (21:56)
And we know why Michael don’t we because I said if any of you follow me on X and he said Twitter then but still Twitter to me I tweeted a chart from the ONS today basically on the trajectory of project trajectory the inflation rate by product and service of prices since 2000 energy prices electric gas and other fuels peaks at just over 500 percent

Michael Brown (22:04)
same thing. ⁓

Mm.

Mm.

Michael Hewson (22:24)
in 2022, they’re still about 360 % above those levels. Is it any wonder that people are struggling with the cost of living? And is it any wonder that businesses here are struggling and yet somehow they’re touting a small decrease in energy bills as a game changer in April? Well, excuse me for not being grateful.

Michael Brown (22:47)
Well,

exactly. mean, 150 quid or whatever it is, it’ll be drop in the ocean if it even amounts to that much, I think. And you’re absolutely right. You know, we know the reasons why growth is sluggish. Energy prices, red tape, et cetera, et cetera, et cetera, uncertainty from the political perspective. But no one seems to want to do anything to address them. So, you you kind of look forward and you go, yeah, maybe the PMIs are looking up. Maybe retail sales will be all right next week. And that December bounce continued into the new year. But is there anything really structural that’s going to kick

growth into a higher gear? No, not at all.

Michael Hewson (23:20)
What’s

the long term plan? mean, essentially, we’re being, know, the Department of Energy is sort of binding us into long term contracts of energy per megawatt hour of over 100 quid. I mean…

Michael Brown (23:22)
Well, I don’t think there is one.

Yeah, so you can

give away as much cash to consumers as you want in these energy bill tweaks and someone’s got to pay them at some point. That’s just how it works.

Michael Hewson (23:39)
you’re locking in price increases for years. Yeah. And

you’ve got a diminishing tax base.

Michael Brown (23:48)
Yes, and that’s only going to diminish even further the longer that this goes on.

Michael Hewson (23:53)
Yes, sadly we’ve got another two or three years of this. moving on. All Rachel, because their fortunes are tied together. If he goes, she will probably straight out the door soon after him.

Michael Brown (23:57)
although probably not with care.

Alright, do ya?

Yeah.

Absolutely. She’s probably the only person hoping he keeps his job.

Michael Hewson (24:12)
Well, I think there was there was a piece in the FT the other week Janane Ganesh wrote We should be hoping that Keir Starmer stays in place And I think that’s the problem the Labour Party are faced with right now There isn’t a particularly long candidate list or someone prepared to jump into You know jump into his shoes Certainly not before May anyway

Michael Brown (24:22)
Yeah.

No.

No.

Well, no, no one would want to, given how badly that’s likely to go. And I think that’s why you saw the cabinet sort of rallying round Stammer on Monday, because they’re sort of going, well, actually, do you know what? If we are going to have this terrible May local election result, I’d much rather the current chap owns it and then I can take over and sort of ride to the rescue, as opposed to the first thing I do as Labour leader is preside over one of the worst local election results you’re probably ever going to see for the party. It’s a bit of a no brainer, really, isn’t it?

Michael Hewson (24:58)
Yeah.

Yeah, indeed. Anyway, let’s move on to something more optimistic and UK companies are still doing very well indeed. We’ve seen numbers from Barclays this week, really solid numbers. CEO got a pay rise. Lucky him, which means he’ll pay a lot more tax on that. Unfortunately, those won’t be the headlines. The headlines will be Greedy Banker. And I didn’t mispronounce that.

Michael Brown (25:09)
Yes.

him.

Yeah.

Michael Hewson (25:30)
AstraZeneca’s four-year numbers Unilever’s four-year numbers We’ve got we’ve got I’m gonna cover the NatWest story because it’s their earnings tomorrow but an interesting development with NatWest and I must admit the share price reaction there was a little inexplicable and we’ll talk about that in a minute, but let’s start with BP and get and give ourselves

Michael Brown (25:41)
Yes.

Yeah.

Michael Hewson (25:58)
give ourselves a pat on the back because finally, they’ve actually bought back.

Michael Brown (26:05)
Yes, they have indeed. to be, do you know what, to be honest with you, I’m actually quite surprised that they’ve done it because I know we spoke about this before and we were sort of working on the assumption that it might be the first thing that Meg O’Neill does when she takes over. But it seems that actually, I think so as well. I think there’s definitely been a bit of a wink and a nudge and a bit of persuasion going on there. Absolutely.

Michael Hewson (26:11)
Mmm. Yeah.

I still see her fingerprints on this.

do this before

I get in seat because that way then I can just pick it up and run with it.

Michael Brown (26:32)
Yeah,

free up some capital for me and let me have free rein to do what I want. But I think we’ve said on numerous occasions that frankly, the buyback was not the best or most efficient use of cash for BP. And they have finally woken up to that and realized the same thing. Yes, the stock did fall in reaction to that, but we’ve already recovered it. So the market took that knee-jerk lower, as you would expect. We’re already above the levels we were trading at before the earnings came out earlier in the week.

on Tuesday when that came out and actually the earnings themselves were pretty solid. Yeah and we’ve seen it on so many occasions recently you know well NatWest is another one that we can talk about in a second HSBC when they they did it with the for the acquisition of Hang Seng Bank you know that’s just the natural way that markets react to these things it’s not something worth panicking about.

Michael Hewson (27:04)
We said that would happen. We said that would happen, didn’t we?

Meh.

I mean, hopefully this is the shape of things to come with new management unafraid to take difficult but necessary decisions to turn around a business that ultimately has been poorly run for years under the stewardship of previous CEOs Bernard Looney and Maureen Alkencloss. And hopefully this will draw a line under it. And the Looney years, the Looney Tunes years are behind them.

Michael Brown (27:48)
Yeah,

which are very aptly named to be completely honest with you, aren’t they?

Michael Hewson (27:51)
Indeed, mean the company

did still slide to a $3.4 billion loss in Q4 which pretty much wiped out its annual profits.

Michael Brown (27:59)
Yeah, although a

lot of that will have come because crew prices fell so much at the back end of last year, which certainly isn’t going to be helping.

Michael Hewson (28:07)
Yeah, mean, that’s because they’re operating on a break even price of $76 a barrel. I mean, I can remember when BP was operating on a break even price of around 60. So that gives you an indication of how much, you know, how much the business’s margins have been eroded.

Michael Brown (28:22)
Yeah, and actually, again, as you say, you know, the buyback’s gone, they are looking to cut costs, they are offloading non-performing parts of the business. Hopefully, you would expect that will enable them to widen those margins and get back down to a lower break-even price because, you know, Brent is barely trading above 70 at this point.

Michael Hewson (28:40)
Indeed. mean, the net debt number is down to $22.18 billion. That was down to the proceeds of the divestments. They’ve been agreed this year, $3.6 billion. So it’s going in the right direction. So there’s a good chance that they could meet that $14 to $18 billion target by the end of 2027. Now, I’m certainly more optimistic that they could hit it now than I was three months ago, or even a week ago.

Michael Brown (28:46)
Mm-hmm.

Yeah.

Yeah.

Yeah, or two days ago actually before the earnings numbers.

Michael Hewson (29:10)
Yeah. Anyway,

I posted I posted a note on that on my sub stack. So I won’t go into any more detail on that. If you want to read it is their MCH market insights. AstraZeneca decent set of numbers. Again, not really too much to get excited about their their share prices hit a new record high today. ⁓ Despite the fact that their guidance was pretty unremarkable. ⁓

Michael Brown (29:20)
we go.

Yes, it has indeed.

Michael Hewson (29:40)
total revenue to increase by mid to high single digit percentage.

Michael Brown (29:44)
Yeah, I mean they sort of pretty much bang in line with what we expected and the guidance was okay, not great, but it was clearly good enough that the market has sought to cheer it, well, today, certainly as we trade at those record highs that you mentioned.

Michael Hewson (29:49)
Yeah.

today. Yeah, we’ve

cracked on to around about 15,000. So that’s fairly decent by any stretch of the imagination.

Michael Brown (30:07)
And of course, that’s going to be giving

a nice lift to the footsie at large as well.

Michael Hewson (30:11)
Yeah,

because obviously AstraZeneca is one of the biggest companies. Let’s see.

Michael Brown (30:15)
Yeah, so there’s MVP and Shell rotating around the top, isn’t it?

Michael Hewson (30:18)
Yeah,

HSBC, you said that, didn’t you? Unilever, bit of a strange reaction to that one. It’s down 1%, but it opened at highest level since September last year. So a little bit of a strange one for that one. Opened at five months highs, slid back. Sales growth 3.5%, turnover $50.5 billion, down 3.8%.

Michael Brown (30:21)
Yes, that’s right.

Mm.

Michael Hewson (30:46)
currency weighted terms. That’s not surprising, I guess, with the euro being as high as it is over the last 12 months. mean, the euro is up about 20 percent, it? 15, 20 percent year on year. and yeah, the disposal of the ice cream businesses improve their margins.

Michael Brown (30:46)
Mmm.

Something like that, yeah.

Yeah, exactly that. mean, guess the only sort of blot on the copybook there is the CEO didn’t sound especially upbeat into some of the commentary that he made in the call talking about how there had been a softening in market conditions. And he was saying that conditions on the whole are relatively subdued. So maybe that’s caused a little bit of that reversal in the share price today. actually the results themselves were pretty much fine, I think.

Michael Hewson (31:30)
Yeah, and Barclays, again, decent set of numbers, annual profit before tax up 13.1%. Increase the dividend. ⁓ Why do they do this? Share buybacks. Just pay a bigger dividend, for crying out loud.

Michael Brown (31:34)
Hmm.

⁓ Can

we make Barks the next target? We’ve succeeded with BP. Venkat, we’re coming for you,

Michael Hewson (31:51)
Yeah, yeah.

Why do you need to do a buyback? I mean it’s just a, you know, it’s just a fiddle. It’s an accounting fiddle to boost EPS.

Michael Brown (32:02)
Effectively it is, isn’t it? We all know that, they know that. The way you return capital to shareholders is through dividends, we all know that. As you say, it just gives you a tailwind, an artificial tailwind to your earnings per share.

Michael Hewson (32:09)
Yeah, exactly.

Yeah, exactly, because it just reduces the number of shares an issue. the guidance was fairly positive as well. Group net interest income target of 13.5 billion pounds, which is pretty punchy given the fact that it was 12.8 this last fiscal year.

Michael Brown (32:19)
Yeah, exactly that.

Mmm.

Yeah, exactly that. But I think it sort of fits the broader trend of bank earnings, which have been on balance very, very positive. Well, on both sides of the Atlantic, we’ve earning season has been a real boon for the big banks.

Michael Hewson (32:52)
But that’s unusual, I think, because if you’re looking at a era of lower rates, usually the risk is to net interest income, and these are getting revised higher.

Michael Brown (33:01)
Yeah,

yeah, it is an interesting dynamic, actually. And, you know, I guess this speaks to and it actually brings us quite nicely on to what we’re to say about talk about in terms of NatWest. There’s a lot more diversification in banks at this point, you know, whether it be in terms of trading, obviously trading revenues have been propping things up on Wall Street for a while, or wealth management businesses.

Michael Hewson (33:11)
Mmm.

Indeed, which does bring us on to NatWest because obviously we’ve had the Niveen taken over Schroders today, which I think is a bank and a wealth manager. I’m struggling with the reaction to the NatWest acquisition. mean, maybe there’s a case for saying that they’re paying too much the wealth. Yeah, Evelyn Partners acquisition, exactly, which was announced over the weekend. ⁓ £2.7 billion.

Michael Brown (33:40)
This is the Evelyn Partners acquisition for those unaware.

Yes.

Michael Hewson (33:50)
Announcing a $750 million share buyback for Q4, but they’re suspending further buybacks for the next fiscal year with an intention to restart them in 2027 now Putting aside the buyback suspension They’re still paying a buyback for Q4 and we’ll hear more about that tomorrow or Friday Whenever you happen to listen to this but I don’t see why buying a wealth manager is

Michael Brown (34:08)
Mm.

Yeah.

Yes.

Michael Hewson (34:20)
a bad thing in the long term.

Michael Brown (34:22)
No.

Nor do I, to be completely honest with you. I think it’s actually a very good move for, I was going say for Lloyds for a second then, they bought Schroder. But for Nat West, that’s who we’re talking about.

Michael Hewson (34:34)
showed his investment.

Michael Brown (34:35)
Yes, you’re absolutely

right. I think it shows that they’re trying to diversify their business and diversify their revenue streams Lloyd’s as I just sort of slipped up on did the same thing We’ve seen it in the US to great success with Morgan Stanley in particular That’s one of the reasons why they are going gangbusters in terms of their performance because they’ve got such a huge wealth management arm So I’m perplexed at the reaction that we’ve seen in the share price was trading about 700 P

a week or so ago and now trading down towards the 600 pence mark. The only thing, and you sort of touched on this a second ago, that I’m thinking is, are participants worried that they’ve paid up too much? Because there was a bit of a bidding war going on for Evelyn Partners. There were a number of suitors for the company. Sky News were covering it very closely, Mark Kleinman. So is there a risk that NatWest have paid potentially an inflated price for the business? Possibly. But is this something that over the longer run is going to

Michael Hewson (35:25)
Hmm.

Michael Brown (35:35)
be a ⁓ boost to Nat West’s performance, I would argue it is.

Michael Hewson (35:40)
I would say

so too, mean they’re doubling their assets under management. So, no exactly, I mean basically you’re paying £2.7 billion for over £500 billion worth of assets under management if my maths is correct. I mean, you think it is or it isn’t? So, you know, for me yes you’re to get a new jerk reaction lower, but… ⁓

Michael Brown (35:43)
Yeah. Which isn’t too shabby, is it? Let’s be honest. Yeah.

I think it is.

I think it is. I think it is.

Michael Hewson (36:08)
⁓ I honestly don’t really see the downside ⁓ on this in the longer term.

Michael Brown (36:12)
No, nor do I.

Yeah, I think it’s a clever acquisition. And also just going back to that point around competition, one of the suitors that was involved was Barclays. So, you know, clearly, actually, this is almost received common wisdom in the banking sector that actually wealth management is a decent way to diversify your revenues. Otherwise, they wouldn’t all be queuing up to try and buy the firm. So I agree with you. I think in the longer run that it will be a positive for the business. And actually, you know, this dip is probably a buying opportunity. I would be looking at it.

Michael Hewson (36:23)
Hmm.

Yeah, I I read somewhere that some analysts suggest that returns for investors will now be less attractive from the &A than keeping the buybacks. And I’m calling BS on that.

Michael Brown (36:54)
Yeah, mean, what would you rather a buyback or something that actually makes you revenue?

Michael Hewson (36:57)
Yeah, exactly. And I think that’s always been my argument. If you want to return capital to shareholders, management can either increase the dividend, which is the most elegant way of doing it, or invest in the business. Buybacks, to my mind, are an inefficient use of spare cash for a management that really lack ideas and are just looking to basically boost the EPS.

Michael Brown (37:07)
Yep.

Yeah, exactly.

Yeah.

I agree, it’s the max of a company that’s out of ideas. We’ve got effectively a cash pile, we don’t know what to do with it, we’re just going to go buy our own stock. Well, why don’t you innovate a little bit more and actually try something that will boost the business. But we could be on our soapbox about this one all day if we’re not careful.

Michael Hewson (37:34)
Show some imagination

for crying out loud. McDonald’s fourth quarter numbers hit record highs, fairly decent set of numbers show that growth in pretty much all of their markets and they’re still planning on growing their businesses not only in the US but also internationally.

Michael Brown (37:54)
Yes, absolutely. A good set of results. So the one thing I would pick up on that is that they made a big mention of their, and you’ve mentioned this as well actually, of their value meals. You know, which I don’t think anyone’s going to McDonald’s for a Michelin star meal or for a date or anything like that. But the fact that the lower end of the menu is increasingly popular is just a little bit of a sort of one of those amber warning lights that just flashes and makes you think as to the health of the consumer more broadly. But as for the rest of the report, all pretty decent.

Michael Hewson (37:58)
Hmm.

Yeah.

Yeah, 15 % discount on its combo range. ⁓ let’s move on to…

Michael Brown (38:25)
There you go. You sound like you’ve

got first-hand experience. Birthday dinner with Mrs. Hewson. What a lucky lady she is.

Michael Hewson (38:30)
actually have. ⁓ Usually on my long trips up to Scotland I usually swing in… No, more

elegant than that. The only time we go to Ronnie Max’s or Macky D’s is when we’re going to and from Scotland in the car and we’ll just pull over and grab a burger and a juice or something. Anyway, let’s do the week ahead. indeed. ⁓ Fed minutes, fed minutes.

Michael Brown (38:53)
Should we do the week ahead?

busy one.

Michael Hewson (38:59)
Meh, not really that well. We’ve got lot of UK data out. We’ve got wages and unemployment for December on the 17th, CPI on the 18th, and retail sales on the 20th for January, along with fourth quarter US GDP, ⁓ and some numbers from BAE Systems and Walmart.

Michael Brown (39:01)
Yeah.

Yeah.

Correct. Where do you want to start? UK?

Michael Hewson (39:23)
then we might as well go back, circle back to the UK.

Michael Brown (39:26)
Yeah,

why not? Because actually I think next week is going to be a really, really important one for the next BOE meeting. ⁓

Michael Hewson (39:32)
Yes, indeed.

Michael Brown (39:33)
because certainly on the inflation front this is actually the only inflation print that we will be getting prior to the March MPC meeting. The February inflation data weirdly is actually due a week after that March Bank of England decision so someone’s cocked that one up. We are expecting to see quite a big decline in inflation in January. The Bank of England, we don’t have any sell-side forecast yet, but the Bank of England see headline CPI coming down to two spot nine percent from the three spot four that we saw in December and they see certain

Michael Hewson (39:49)
Yeah.

Michael Brown (40:03)
services inflation coming down to four spot one percent, which is down from the four and a half, I think it was in December over the festive period. But also, of course, recall that we did have a number of one off factors that were pushing that December number higher. We had all of the alcohol and tobacco duty changes in the budget, which came in and skewed the December figure to the upside. We also had a 30 odd percent month on month rise in airfares, which would have added to the upside as well. So you will see a degree of a mechanical

Michael Hewson (40:10)
Hmm.

this.

Michael Brown (40:33)
rolling over in prices. There’s also a few sort of structural factors that kick in at the start of January, energy, water bills, et cetera. I would be looking at this to basically say if it is at or below the two spot 9 % that the Bank of England have penciled in, then they’ll probably cut in March. If it’s slightly above that, then they will probably wait until April. I think it’s as simple as that at this point.

Michael Hewson (40:35)
Hmm.

Do you think that we’re going to see 2 % by the spring of this year?

Michael Brown (41:01)
Inflation or bank rate? Because after the growth figures this morning, it’s a bit of a close run thing. ⁓

Michael Hewson (41:04)
inflation. Don’t be… don’t.

Well, yeah, I suppose, yeah. mean, the Bank

of England is saying that they expect, along with the reductions in energy bills, bank inflation, CPI inflation will be 2 % by spring of 2026. That seems highly ambitious.

Michael Brown (41:25)
think there’s a case for it, mainly because you’ve got a lot of… Well, all right, go on. I’ll put my neck on the line. Yeah, we hit 2 % by the end of the spring. When is end… When is meat rheological spring? Can someone just do a Stuart’s inquiry on that to see what I’ve set myself up for?

Michael Hewson (41:28)
That’s not what I asked.

Really?

Well, I always thought it was

when the clocks went forward.

Michael Brown (41:43)
well, that’s next month. So I’m going to. Right. If we assume spring is like May, then yeah, I think we probably will. ⁓ Again, it will be largely mechanical that, we get those measures that we mentioned in the budget. Energy prices come lower. Train fares come lower, etc. A lot of regulated prices will fall. ⁓ And there’s a favorable base effect as well. So I think we will get it. I appreciate it doesn’t particularly look likely at the moment when we’re sat here with a three spot, four percent print.

Michael Hewson (41:44)
Yeah.

Mm.

Michael Brown (42:13)
December and saying we’re going to lose 140 bips off the headline in six months but I think we probably will and that opens the door to further cuts after the next one which you know I would say probably still comes in March but could be April.

Michael Hewson (42:27)
even with wage growth trending at north of 3 % because I’m just wanting to talk about wages and unemployment as well which comes the day before.

Michael Brown (42:31)
Yes, because…

Well, the important thing with wage growth is the public-private split because private sector earnings growth is about 3.5%, which is…

a little maybe a little bit above what you’d say is target consistent but it’s close enough. Public sector earnings growth is at 8 % which is frankly insane. Now the ONS have said that there’s one-off factors around you know people getting pay rises at different times this year compared to last and that that should fall out of the data soon. Well I bloody well hope it does because that’s sort of a divergence is simply not a sustainable way to run your economy.

Michael Hewson (43:12)
Play Rises?

Michael Brown (43:14)
Yeah, maybe you and I need to go on strike and we’ll get a pay rise.

Michael Hewson (43:19)
Yeah, that’d

be nice, wouldn’t it? ⁓

Michael Brown (43:21)
Yeah, but I think

the jobs data is just going to be more of the same, isn’t it? Unemployment is at five spot 1 % and rising. Payrolls have fallen for four months in a row, and they’re probably going to fall again in January. And earnings growth is, again, we just discussed that sort of public-private split is what to focus on there. I’m not entirely sure the data is going to be overly instructive, if I’m being completely honest with you.

Michael Hewson (43:25)
Mm.

What

do you think about PAYE? PAYE payrolls fell by 43,000 in December, which is the fourth successive monthly decline. Do you think this will continue in the January numbers? Because obviously we’ve got unemployment for the three months to December, but we also have the claim. Yeah, this is the claims data and the payrolls data for January.

Michael Brown (43:54)
Mmm.

Yes, and this is slightly more timely.

Mmm.

Whoa.

Yes, I mean, I think everything points to that continuing because we’ve discussed at length that, you know, a lot of ⁓ this is a result of government policy. You’ve made it more expensive to hire people. think the minimum way, I think it was John Steepak at Bloomberg pointed this out during the week at some point, if it’s not him, he’s getting the credit anyway. The minimum wage in this country is now two thirds of the median wage. It’s utterly ridiculous. It was John, there we go. Thank you, John. ⁓

Michael Hewson (44:27)
Hmm.

It was John. Yeah.

Michael Brown (44:38)
more expensive to hire people, we’ve made it riskier to hire people because you know they’ve got all these employment rights on day one and long probation, shorter probation, you can’t get rid of people etc etc etc and economic momentum is as weak as you could possibly imagine it as we just discussed in those growth numbers so you know without wanting to be all doom and gloom what is the catalyst for hiring to suddenly turn around?

Michael Hewson (45:00)
Well, I was just seeing between 2024 and 2026, the annual cost of employing a full time minimum wage worker will rise by over well, around by around three and a half thousand pounds a year.

Michael Brown (45:13)
Yeah, so you’ve got a greater cost and then if it doesn’t work out you can’t get rid of them.

Michael Hewson (45:17)
Yeah, yeah and obviously the input

Michael Brown (45:19)
But I tried to have

that debate with Tris Osborne MP this week and it went about as well as you might expect.

Michael Hewson (45:23)
It’s

not a debate because basically he’s just talking. And the impact on younger workers is even worse. For 18 to 20 year olds the cost is projected to increase by over £4,000 over the same period. And you really wonder why people won’t take a chance on young people.

Michael Brown (45:29)
Yeah.

Yeah.

And that’s actually a real…

Yeah, and that’s a real issue when you think about more structural factors that are changing the labor force. We talk, and I’m no expert in AI, but we all kind of know, or it’s a bit of a given at this point, that AI is going to likely take a lot of the grunt work. It’s going to do the donkey work. It’s going to do the stuff that young workers, you and I, when we started in the city, well, a number of years ago in some cases, ⁓ would have done, because that’s what you do. That’s how you learn the ropes. And if those jobs simply don’t exist, then it’s going to be much harder

for youngsters to break into the labour market and that’s before you even consider the fact that it costs businesses more to hire them etc etc so yeah we really are sort of shooting ourselves in the foot on that one.

Michael Hewson (46:14)
Hmm.

I would never have got that part-time job at Waitrose back in the day if under the current environment. The John Lewis Partnership would not have taken on anywhere near as many Saturday staff as they used to do. And those Saturday staff were basically used to give their full-time staff the weekend off.

Michael Brown (46:44)
Yeah, exactly. So it actually helps all around.

Michael Hewson (46:46)
Yeah.

Michael Brown (46:46)
Speaking

of that, retail sales on Friday for January, obviously we had a decent number in December rising by zero spot 4 % on a month on month basis. That clearly came after an utterly grim October and November, so hold your horses a little bit. There has been a little bit of chatter around January and whether we could also see another rise in January because people have been, not because of any optimism, but because people have been waiting for the sales, which doesn’t fill me with particular confidence.

Michael Hewson (46:48)
Yeah.

Mm. Mm.

Mm.

No, but also booking the summer holidays. I mean, have you seen the number of advertisements on the TV for holidays, cruises, trips away and what have you? It’s crazy. It’s almost as if these companies are itching to people to basically dip into their pocket. ⁓ I succumbed.

Michael Brown (47:17)
Yeah.

it’s ridiculous.

Mm.

Yeah. Well, there we go. Some advertising guru somewhere is very pleased to hear that, I’m sure.

Michael Hewson (47:36)
I succumbed. But yeah, mean, what?

But

why would you not? It’s a few days away from the psychodrama that’s UK politics.

Michael Brown (47:47)
Yeah.

Well, yeah, exactly. I mean,

it’d be nice to book a few years away from that, but we can’t have all we can’t all have everything. But yeah, the retail sales numbers going to be worth worth watching closely, I think.

Michael Hewson (48:00)
And anecdotally, some of the retailers have shown some fairly decent updates. think there was a was a Nielsen survey for ⁓ the UK supermarkets that showed that like for like sales were fairly decent for the likes of Tesco’s and Sainsbury’s. anyway, moving on, US fourth quarter GDP. How much did the US government shutdown impact the US economy in the final quarter of last year? That’s a rhetorical question.

Michael Brown (48:19)
Yes.

Yeah, I think that’s going be a very, very interesting…

Well, the general rule of thumb is about 0.1 % of GDP per week. So you’re looking at what the shutdown was seven, eight weeks long, you’re looking at about a percent or so of GDP. Interestingly, though, if you look at a lot of the models that are put out in terms of trying to forecast GDP, the Atlanta Fed, for example, they believe that the economy would have grown by four spot two percent on an annualized quarter on quarter basis in Q4.

Michael Hewson (48:54)
relative to 4.4

in Q3.

Michael Brown (48:57)
which seems ridiculously high to me. You know, especially if you then go actually four spot two, but you’ve got to add, you know, 120 odd basis points on top of that. You’re talking about 5 % growth, effectively. I mean, maybe that will happen, but I can’t help but thinking that model is, shall we put it politely, a little ambitious.

Michael Hewson (48:59)
That’s… it is, yeah. Okay.

Maybe, but having looked at the retail sales numbers for the last quarter of Q4, maybe they aren’t because there was some resilience in the December retail sales numbers and obviously we’ve got January retail sales next week through the US.

Michael Brown (49:31)
Yes.

We do indeed. that’s going to be worth watching closely. But I think the GDP numbers are, of course, somewhat stale at this point. They’re coming out on the 20th of February referencing a quarter that ended eight weeks prior. So I’m not sure there’s much by way of implications from a Fed perspective. I think there will be plenty of implications from a what will Trump post on truth social perspective. Because if it’s anything semi-decent, then it’s going to be the biggest and beautiful and best GDP number anyone’s ever seen, of course.

Michael Hewson (49:39)
Mmm.

you

Yeah. Defense sector next week, we’ve got BAE Systems four year numbers, spent a lot of the last 12 months trading between 1600 and the recent record highs of 2100. It’s sort of stuck in the middle of that. Did that rally into the start of this year was obviously coincided with all that stuff about Greenland and what have you and increased defense spending. BAE is one of those systems, one of those companies that only reports twice a year.

Michael Brown (50:06)
Mm-hmm.

Yes.

Michael Hewson (50:31)
So it’d be interesting to see what its order book looks like. ⁓ How much has it grown? And what are they gonna do about buybacks?

Michael Brown (50:31)
Yeah.

Yeah, well we’re back to that again, aren’t we? Yeah, I mean, I think it is going to be interesting to see what the audiobook…

Michael Hewson (50:47)
Yeah.

Michael Brown (50:53)
is looking like you would expect that to have grown fairly significantly given that some of the things have been announced recently in terms of the combat vehicles with Denmark etc etc. I think the defense sector is naturally in terms of market movement is going to be tied to geopolitical developments and headlines very very closely. I would argue that that’s probably the wrong way to look at it. know whether there is and obviously we hope there is some sort of peace deal in Ukraine or whether there is an escalation in the Middle East which of course we hope doesn’t.

happen. Fundamentally we are looking at over the next five to ten years an era of secularly higher defense spending particularly in Europe and that is not going to change no matter how many wars are finished or started over that period. You know we are looking at greater investment into navies and armies and air forces across the continent and that is going to act as a very very strong tailwind for BAE systems and for their competitors.

Michael Hewson (51:48)
I can

remember back in 2022 when Russia invaded Ukraine and I said to somebody, I can’t remember who it was now, well I’ll be piling into companies like BAE Systems and all the defense contractors and they were at record highs at the time, the share price, and they laughed at me. They laughed at me. And that was when the share price was 700p.

Michael Brown (51:54)
Mm.

Yeah.

And we’re now at what, 2000? Something like that.

Michael Hewson (52:21)
But 1,935 No, it wasn’t no no basically yeah, it’s 20 quid so it’s gone from 7 pound to 20 pound in in that time So yeah, okay. Who’s who’s having the last laugh now?

Michael Brown (52:24)
That wasn’t a bad guess for someone who doesn’t have a screen in front of them.

Yeah.

Well, you, if you could remember you, if you could remember you were speaking to you could go and ring them up, but you know, nevermind.

Michael Hewson (52:41)
I can’t remember. I’m not going to do that.

I mean it just seems such an obvious trade. you know I suppose it goes back to this idea that well the share price is at record highs. It’s a bit risky, it’s a bit expensive. Looks bloody cheap now doesn’t it? ⁓

Michael Brown (52:59)
Well,

and also, you know, as the great man Chris Weston often says, record highs tend to be get more record highs because that’s the way the momentum is going.

Michael Hewson (53:05)
Exactly.

Finally, we’ve got, and this should give us also another decent insight into the US economy over the last quarter, we’ve got Walmart’s four year numbers and fourth quarter numbers and they’re trading at record highs once again today. So certainly the bar is high and it’s interesting though because in the Q3 numbers, the share price fell back to its 200 day moving average. But since then, it’s just gone one way, it’s taken off.

Michael Brown (53:20)
Mmm.

Yeah, exactly that. I do think we need to flag that there is the potential for a few headwinds to emerge in the queue for earnings. I Walmart were probably one of the firms that would have been hardest hit as a result of the government shutdown and all the various benefits that were paused stemming from that, which took up basically 50 % of the fourth quarter. And as you say, the bar is probably relatively high in terms of expectations as we come in at a record high. But they have been performing very, very well over the last year or so, much better than their competitors.

Michael Hewson (53:41)
Yeah.

Michael Brown (54:05)
the likes of Target as we’ve discussed on numerous occasions on the podcast and ⁓ you know really you kind of look at it you go I’m not entirely sure there’s anything to derail that so now they’re going to report absolutely terrible numbers fall all the way back down to the 200 day moving average etc etc etc

Michael Hewson (54:08)
Hmm

I mean, ⁓

It’s they’re

a long way away from that. They’re 30 % away from that as we speak, which is a long way. But I mean, when they raised their guidance for the year back in Q3, four-unit sales to increase between 4.8 and 5.1%, EPS forecast now looking at $2.63, comparable US sales were up by 4.5 % and on e-commerce there was a 27 % increase across all its brand.

Michael Brown (54:27)
Yeah, I’m being slightly amusing or trying to be.

Michael Hewson (54:52)
So for me, they’ve really got to beat and raise.

Michael Brown (54:58)
Yes, I think that’s exactly the way to be framing it. Beat on the figures, raise your guidance, and it should raise the stock price.

Michael Hewson (55:05)
But

I mean, are, they’re sort of in a market of one because you look at Target, you look at Home Depot, you look at Lowe’s, their recent Q3 updates weren’t great. So it’s not necessarily horses for courses. Anyway, that’s pretty much it for this week. ⁓ We’ve got one more and then we may be going on to a hiatus for a bit. ⁓ But we’ll cross that bridge.

Michael Brown (55:10)
Hmm.

No, not at all.

It is indeed.

And then you are on holiday.

Michael Hewson (55:34)
when I get back, but hopefully we’ll be able to continue these. Let us know if you want us to continue these, because I certainly do, these are a lot of fun. I’ve enjoyed them, and I hope to continue to do them. Anyway, that’s it for this week. Thanks very much for listening, and we’ll speak to you all same time, same place next week.

Michael Brown (55:43)
Indeed.

See you later.