More records for the FTSE 100, even as President Trump dials up geopolitical risk

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. I’m Michael Huston and joining me once again is Pepperstone Senior Markets Tradergist Michael Brown. Good afternoon Michael, certainly got a lot to get through today.

Michael Brown (00:21)
Indeed, yeah, very good afternoon to you mate. It’s been another busy week. We’re only two weeks into 2026, but it feels like about two decades worth of stuff has already happened.

Michael Hewson (00:31)
Yeah, I mean, where to start with all of this? think, you know, Well, obviously, geopolitics is front and center. We’ve got Greenland now, the focus, following on from Venezuela last week or the first two weeks. President Trump turning his attention slightly more eastwards, shall we say. He’s also taken aim at the Fed as Mr. Trump.

Michael Brown (00:34)
Well was hoping you’d tell me to be honest.

Mm.

Michael Hewson (00:57)
and Jerome Powell with this Department of Justice subpoena and He’s also had a pop at US banks with a 10 % cap on credit card fees threat So I’m to be talking an awful lot about all of that what that means for markets markets Don’t seem overly concerned about it at the moment Judging by what we’ve seen thus far with the footsie record highs the S &P is rebounding again still below the record highs But but still looking reasonably buoyant

⁓ So, so yeah, I mean quite a bit to get through and that’s before we even start to talk about some of the data that we’ve seen out this week from the US, the UK and the earnings announcements.

Michael Brown (01:39)
Yeah, absolutely. I mean, must admit, obviously, the news of those Department of Justice subpoenas that the Fed broke, well, Sunday night, very early Monday morning here in London. And yeah, I certainly didn’t expect the market to have pretty much entirely moved past that and shrugged it off by where are we now, sort of early Thursday afternoon. It’s quite remarkable how quickly the market seems to have jumped from one narrative to another over the last four trading days or so, but also quite remarkable at the same time how

resilient and how robust risk assets have continued to be.

Michael Hewson (02:13)
Yeah, absolutely. Before we get to that, I’m to have to address some feedback we got from last week’s podcast from a listener who claims actually, yeah, that’s a good idea. Let’s do the risk warning first. Yeah, let’s do the risk warning first. Okay, so 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.

Michael Brown (02:24)
Well, should we do the risk warning first because otherwise we’ll get in even more trouble.

Michael Hewson (02:41)
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 degree of risk of losing money rapidly due to leverage. 71.9 % of retail investor accounts lose money when trading spreadbets and CFDs with this provider. Okay. Yeah, so.

Obviously before we get to the topics of the day and there are quite a few. So what I’ll actually do is I’ll probably go through the topics and then regular listens if they want to then skip ahead. They can while while we sort of deal with the with with the matter at hand. So obviously we’re going to look at what’s driving markets this week. So obviously Greenland Venezuela the DOJ subpoena.

Michael Brown (03:15)
Hmm.

That’s a good idea.

Michael Hewson (03:35)
What is Trump thinking? That sort of thing. We’ll talk about UK markets, highs for the FTSE 100, lower borrowing costs, Bank of England rate cuts, bets increase or maybe not given this morning’s GDP numbers for November. We’ll look at the earnings numbers from Whitbread, Persimmon, the house builder, Whitbread, Premier and owner, Whitbread, decent set of numbers. Hayes, second quarter numbers, the employment agency. Don’t paint a particularly pretty picture of the employment outlook.

US and US bank earnings as well under and then of course we’ll look ahead to next week and Netflix and UK unemployment UK CPI and what have you

So I think that’s probably a fairly decent summation of what we’re going to be talking about over the course of the next hour or so.

Michael Brown (04:26)
Yes, nice little running order for us.

Michael Hewson (04:27)
Yeah,

okay. So let’s get on to the feedback that we got from last week’s podcast. ⁓ Alistair claimed that we were clearly very wrong to claim that the US doesn’t need Venezuela in oil and that we demonstrated a clear lack of understanding of the situation in Venezuela. I have the email in question in front of me now and ⁓ he says, hopefully you wish you some clarification in the upcoming episode. Now, I’ve got to say,

One of the key goals of this podcast, think we can both agree, Michael, can’t we, that it’s to try and improve the quality of information on financial markets for our listeners. Yeah, exactly. And obviously then it’s incumbent upon us to make sure that the information that we impart is as accurate as it can be, essentially. And I’ve spent the last sort of 20 or so years talking about markets to

Michael Brown (05:05)
Yeah, and educate our listeners as well.

Michael Hewson (05:26)
media pretty much across the globe and I’ve always prided myself on basically making sure that everything that I try and impart is as accurate as possible. I do my research essentially and make sure that nothing I can be rebutted in any way shape or form and I’ve listened back to what we said last week. I’ve also looked at the article in question that the listener has pointed to.

from the 5th January by Gillian Ambrose in The Guardian who I had reason to speak to over the course of the past few years in my previous role at CMC Markets and who’s a very good journalist. And I’ve read the article in question and at no point does she suggest that the US needs Venezuelan oil. ⁓ Furthermore, ⁓

I’ve also talked to some good friends who worked or have worked in the oil market and he said essentially pretty much the same thing. Nothing that we said in that podcast last week was in any way factually incorrect. Thoughts Michael? mean have you listened to it back?

Michael Brown (06:39)
Yeah,

I stand by everything we said to be completely honest with you. I think, you know, there’s an argument as to whether the US wants Venezuelan oil. That’s a completely different story. But in terms of need, no, I don’t think they do. And it comes back to the point we were making around the different blends and the different types of crude oil and how Venezuelan crude is sour and extra heavy, which means in other words, it is very viscous. It’s very thick. It’s very difficult to get out of the ground. In fact, it’s so hard to get out of the ground that you need to put

Michael Hewson (06:47)
Mm. Yeah.

Michael Brown (07:09)
⁓ thinner ⁓ crude and usually naphtha into the reservoirs and the wells that you’re digging before you can get the Venezuelan crude out again. So yes, there is a lot of infrastructure that is geared up for that particular blend of crude, but it is still very expensive to produce. It’s very difficult to produce. That production process is very fragile. And the US has ample commodity resources of their own, whether that be oil or

Michael Hewson (07:19)
Hmm.

Michael Brown (07:38)
natural gas at this moment in time. yeah, I think there is, again, to reiterate the point we made last week, I think there is much more in play here than simply the Trump administration or people within the United States going, we want a few more barrels of oil.

Michael Hewson (07:54)
Yeah, and as we said at the time, it’s about the control of oil and denying China and Russia access to that oil rather than the fact that US refineries need it. And actually, was looking at the Guardian website and I found another article from a week later by Debbie Carlson, US frackers were already facing a global oil supply gut. Trump’s Venezuelan dream could make it worse. So essentially,

Michael Brown (08:04)
which is

This must be the most you’ve ever read The Guardian in your life.

Mm.

Michael Hewson (08:25)
Yes, US refineries can process Venezuelan oil subject to many variables, but do they need it? The US produces 13 million barrels a day. Further supply would push prices lower. If you look at breakeven levels for US fracas, we are already below $60 a barrel for WTI. So the last thing US refineries need is further erosion.

of their already very wafer thin margins. Furthermore, as you rightly said, American Shell feels pump light sweet crude that commands premium prices and processes very easily. Venezuela cannot export its primary product without imports. Now that sentence or that statement captures the fundamental fragility of the industry and those imports are subject to sanctions.

Michael Brown (08:56)
Mm-hmm.

Yeah, absolutely. just lastly on this is we’re not going to turn this into another Royal Market podcast.

Michael Hewson (09:26)
⁓ I I’ve written a whole piece on this, you know, and I’ve

spoken to our friend Ryan, who used to trade oil and knows… I may put a link to it because obviously I’ve spoken to Ryan about it and he’s essentially said that, you know, is, you know, the notion that Venezuela represents some kind of oil prize waiting to be seized reflects a fundamental misunderstanding of modern energy markets in Venezuelan geology. I consider Ryan to be an expert on the oil

Michael Brown (09:33)
Yeah, are you going to put that on your sub stack?

Well, there we go, I think that’s.

Michael Hewson (09:56)
market. And that for me, the United States, despite having appropriate refining capacity, faces sanctions constraints that limit purchases. We’ve had Darren Woods of Exxon Mobil saying that Venezuela is uninvestable. they wrote and they wrote and in 2007 they wrote off 17 billion dollars of assets when Hugo Chavez seized

Michael Brown (10:16)
Yeah, exactly.

Michael Hewson (10:26)
their production capacity.

Michael Brown (10:28)
Yeah, and obviously they made those comments in remarks in that big meeting of oil CEOs with President Trump last Friday, and Trump didn’t take it particularly well, effectively saying afterwards that he’s probably going to cut Exxon out of the whole thing. Well, I think he’s probably doing them a favor on that front, to be honest with you, because they’ve had their fingers burnt once or twice in that region before. And I think they’ll be very, very glad to stay out of it. yeah, I mean, what was interesting is the speed at which we’ve kind of moved on geopolitically from Venezuela to will Trump or won’t Trump?

Michael Hewson (10:54)
Yeah.

Michael Brown (10:57)
end up buying or somehow taking control of Greenland, plus all of these question marks over what’s going on in the Middle East with these protests in Iran and whether you’ll see any US military intervention there. geopolitical risk certainly isn’t going away anytime sooner.

Michael Hewson (11:00)
Hmm.

Hmm.

No, it’s not. you know, hopefully this will draw a line under the Venezuela thing. Because for me, I don’t think there’s anything that we need to apologize for. Maybe, maybe you have a different opinion to us, but essentially, that’s what makes the market, And as far as far as we’re concerned, we don’t, you know, we don’t resile from anything that we said in last week’s podcast.

Michael Brown (11:27)
No, not so, no, no, no,

Yeah, absolutely.

Michael Hewson (11:45)
Okay, so let’s move on. So on the basis of that, let’s go and talk about ⁓ President Trump because

Michael Brown (11:56)
Well he’s been a busy boy, hasn’t he?

Michael Hewson (11:57)
⁓ gosh, yes, give me strength. you know, I think the idea that, you know, you can’t question the president’s with respect to Venezuela and completely criticise his motives doesn’t necessarily mean you’re a fan of him. I’m not. And the way he’s behaving with respect to J-PAL, it’s mind boggling. The guy’s leaving in May.

So why is this happening? Why not just let him go, vacate the governorship, and potentially resign from his position as Fed governor? This will mean he’s not going to do that.

Michael Brown (12:32)
Yeah.

Yeah, and I think

Yeah, I agree. I think this is, so just for those listeners who are unaware, if you’ve been living under a rock for the last week or so, the Department of Justice sent some subpoenas to the Fed on Friday, last Friday, news broke over the weekend that this had happened. Ostensibly, this investigation is around the ongoing project to renovate a number of the Fed’s office buildings, including the Eccles building. That was built back in the 50s. It hasn’t really been renovated since. And as with every,

restoration of a historical building. have been quite a lot of cost overruns and it’s been very much delayed because that’s what happens with these things. ⁓ Fed Chair Powell testified on this and various other matters in front of Congress last summer and the Department of Justice, according to their subpoenas, are investigating whether Chair Powell misled Congress. Now I think it’s important that we make absolutely no mistake here and Powell said this himself.

This investigation has absolutely nothing to do with what color a building is being painted or how much some bricks cost. And it has absolutely everything to do with the administration trying to apply as much pressure and as much coercion as they can in order to get what they want out of the Fed, which is lower interest rates. As you rightly said, and I think it’s interesting that Powell came out swinging to this, and rightly so to defend himself, the problem

for the administration is going to be in their mind, what are now the unintended consequences, which are firstly, I think I’m with you, Chair Powell’s term expires as chair in May, he can stay as a governor until January 2028. I think he’s almost certain to now, I think he will view the independence of that institution as being under threat, and probably the best way to defend against that is to stay in your job. So I think he’s going to hang around, which obviously the Trump administration will not want.

Michael Hewson (14:33)
I would.

Michael Brown (14:42)
I think secondly, the bar for further rate cuts and a rate cut in January was not really on the cards after the jobs report that we had last week anyway. But the bar is probably nudged a little bit higher because the Fed don’t want to be seen to kind of acquiesce and give in to that political pressure. And I think thirdly, the Trump administration have really shot themselves in the foot because again, it’s pleasing to see that those guardrails are still there. A number of senators on both sides of the aisle in Congress.

have said that they will not be confirming any nominees to the Fed board unless and until these legal matters are resolved. So not only is it more likely that Powell stays around until January 2028, until they resolve these issues, it’s also going to be impossible for Trump to appoint his own man to the board, whether that be Kevin Hassett, Kevin Warsh, whoever. So they have massively overplayed their hand on this one.

And you’re absolutely right. It is four months today, the 15th of May, when Chair Powell’s term as chair expires. You could have waited four months, he’s gone, you get your own man in, you never have to worry about him ever again. Well now, you’ve actually made this problem 10 times worse for yourself.

Michael Hewson (15:46)
Yeah.

just beggars belief. I mean honestly I really don’t know what’s going through his mind. Sometimes playing the long game is the smart game and for me I must admit this has caught me you know complete I always I assumed that there was some sort of plan in place when it came to essentially

Michael Brown (16:08)
Hmm, very much so.

Michael Hewson (16:21)
getting the replacement for power rubber stamped. Now he’s made that process much more difficult. And he’s also got basically politicians on both sides of the political divide lining up, ⁓ you know, questioning the wisdom of so cravenly intervening and interfering in the functions of the US central bank. And I’m actually quite pleased to see that this

Michael Brown (16:46)
Yeah.

Michael Hewson (16:49)
you know, he’s being pushed back on and he should be, I mean he’s behaving like a great big man baby.

Michael Brown (16:50)
Mm.

Yeah, I think you’ve put it.

very, very well there. think I said on Monday morning, he’s behaving like a petulant child. I mean, that’s exactly what it is. And I think actually that may be one of the reasons why markets have been able to move past this relatively rapidly, because if you think about what protects the idea of Fed policy independence, where you’ve got the legislature, they are confirming nominees to the Federal Reserve Board. The mandate that the Fed is given is given to them by Congress, by lawmakers on Capitol Hill. And those lawmakers have

sat up and said, we do take this seriously. We are wanting to, and we see the importance of preserving that policy independence, which I think has sort of soothed some nerves among market participants. The other thing that you’ve got to think about in all of this is there is an ongoing Supreme Court case over whether or not President Trump has the legal ability to fire Fed Governor Lisa Cook over these allegations of mortgage fraud. Now, oral arguments in that case are due to begin on the 21st next Wednesday.

Again,

if you’re now going down the route of what is quite blatantly a political sham charge against Fed Chair Powell or investigation into Fed Chair Powell…

is probably the best defense that Lisa Cook’s attorneys are ever going to get given in their careers. So you’ve now increased the chances of her staying on the board, which again means that you’re shooting yourself in the foot. it’s certainly something that we need to keep a very, very close eye on because the erosion of policy independence, people say, are the independence the best thing? Well, it’s better than all the other alternatives. And to steal a line.

Michael Hewson (18:13)
Hmm.

Yeah, we’ve said this.

Michael Brown (18:34)
from Dario Perkins at TS Lombard, would you want Rachel Reeves setting interest rates? Absolutely not. That is why we need an independent central bank, whether it be in the UK, the US, wherever, in developed markets. For the time being, it looks like we’ve passed that sort of peak of uncertainty and, this is actually going to get eroded. But I think Trump’s going to be like a dog with a bone. I don’t think this is going to go away entirely anytime soon.

Michael Hewson (18:52)
Hmm.

No, it’s not likely to, but we’ve said before on this podcast that while there are certainly criticisms to be made about the current monetary policy setting environment, it’s the best that we have.

Michael Brown (19:14)
Yeah, and also the criticisms, and you and I have, have, and will continue to criticize central banks as we see fit. But the good thing about that is we are making those criticisms based on the evolution of the economy and what the data is telling us. Those criticisms and the actions of those central banks do not need to be taken based out of pure political opportunism. You know, we are arguing and debating inflation, labor markets, growth, et cetera, et cetera, not

Michael Hewson (19:19)
Yeah, absolutely.

Hmm.

Michael Brown (19:44)
Is it the right time to cut interest rates? yeah, definitely, because it’s six weeks before an election, so let’s juice things up a little bit. And I would much rather live in the world we currently live in than that counterfactual.

Michael Hewson (19:50)
Yeah.

Yeah. Okay, so basically watch this space and based on the US economic data that we’ve seen so far this week, Trump is now less likely to get his rate cut than he was, say, a week ago.

Michael Brown (20:07)
Yeah, I mean, I don’t think there’s going to be any particular urgency from the Fed. Obviously, we had a decent-ish jobs report for December that we got last Friday. ⁓ Inflation did come in a little bit softer than expected, 2.6 % on the core, 2.7 % on the headline. A lot of that is still skewed lower by the government shutdown, so we can’t read too much into that. ⁓

Michael Hewson (20:26)
retail sales.

Michael Brown (20:28)
Jobless claims are very low and retail sales are very solid. 11 out of the 13 categories experiencing month on month growth. So yeah, certainly nothing kind of screams the Fed need to cut in January in two and a half weeks time and I don’t think they will. You know, the path for the Fed funds rate is still lower. It’s just a question of when they deliver that next cut and there’s certainly not gonna be before March.

Michael Hewson (20:41)
Hmm.

And one last point, obviously on this, was that Neil Kashkari of the Minneapolis Fed came out today and basically said that irrespective of who’s Fed chair, he’s still got to convince the rest of the committee that a rate cut is the right place to go.

Michael Brown (21:05)
Yeah, and this

is what I would call the Stephen Myron problem.

which is, know, Steve Myron was appointed as a Fed governor just before the September FOMC, come in, really dovish, know, inflation is non-existent, the labor market’s weak, we’re 400 basis points and above neutral, blah, blah, blah. Fine, that’s your view. You are entitled to that view. You know, everyone is entitled to their view of the economy, but you are not going to be able to bring other officials along with you unless that is a clear and cogent and logical argument. And that is exactly the problem that the next Fed chair could have.

whereby actually, and this is something I’m sure we’ll discuss nearer the time, you could have a situation where the Fed chair is actually voting in the minority and voting for significant rate cuts that the remainder of the committee simply do not view as appropriate. And that leaves us in a whole world of different issues.

Michael Hewson (22:00)
But the issue remains the same, the Fed chair cannot carry the committee.

Michael Brown (22:04)
No, they are one of 12 votes and all of those 12 votes are equal whether you’re the chair or a governor or a regional president.

Michael Hewson (22:06)
Yeah, exactly that.

All right, let’s move on. There was an interesting story this week about Apple. You know, and it’s something that we’ve sort of talked about at great length, the lack of AI innovation when it comes to Apple’s products. They’ve just signed a deal with Alphabet to…

Michael Brown (22:21)
Mmm.

Yeah. And I think this, this is interesting because obviously,

you know, we’ve spoken at length about how Apple have been kind of lagging badly in terms of AI development. You know, this Apple intelligence just hasn’t really seemed to go anywhere. Meta, Microsoft, Google, with Gemini have just charged ahead. And I wouldn’t say that Apple have kind of thrown in the towel, but I think it’s kind of pragmatic decision where they’ve gone, actually, do you know what? We’re not going to be able to catch up if we try and do this on our own. We need to.

call in the cavalry so to speak and the cavalry is arriving in the shape of Gemini.

Michael Hewson (23:07)
They’re not joining the AI arms race. Essentially what they’re doing is they’re to leverage their offering of Gemini. And that’s obviously given Google’s or Alphabet’s share price another big lift on what has already been a very spectacular performance over the course of the last 12 months. And they’ve eschewed OpenAI’s chat GBT. And we all know that OpenAI’s chat GBT has many questions being asked about it, certainly in terms of…

Michael Brown (23:10)
Hmm.

Yeah.

Mm-hmm.

Michael Hewson (23:36)
return on investment, shall we say.

Michael Brown (23:38)
Yes, it absolutely does. think on the back of that rally, they may have dipped back below it, but Google did briefly trade with a four trillion dollar market, or Alphabet, I should say, did briefly trade with a four trillion dollar market cap for the first time earlier this week, becoming, think, the third or fourth company to do so. But yeah, it is interesting how, you know, that OpenAI and ChatGPT had that kind of first mover advantage at the back end of 2022. They were the first to market. They were kind of what

what got everyone hooked on AI. You know, I can type this into chat, GPT, et cetera, et cetera, et cetera. But now as time has gone on and, you know, we’re into effectively year four now of this AI boom for want of a better word or bubble, some people may call it, you know, actually our open AI losing their competitive advantage. know, Gemini are becoming more and more ⁓ influential, not only in terms of the corporate agreements that they’re doing, but you know, that the image generation from Gemini is second to none.

You speak to people working in the IT space and actually they are massive fans of Claude, which is obviously produced by Anthropic. ⁓ Competition is increasing considerably in the space. ⁓ And of course, although OpenAI are obviously a private company at this moment in time, there is some chatter they may IPO at some stage, ⁓ Microsoft, they’re a huge, huge investor in the firm. And in direct contrast to Alphabet, the Microsoft share price is not looking especially pretty at all.

Michael Hewson (25:02)
you

No, I mean, I think Alphabet are investing $90 billion in obviously their AI infrastructure. the thing is they’ve got the revenue to back it up. Yeah, open AI doesn’t.

Michael Brown (25:20)
Yeah, and that’s the key thing, isn’t it?

And that’s the key thing and I think we spoke about this last year and I think it’s going to become an increasing theme this year. Market participants are going to be a lot more selective around the AI theme and there are going to be increasing questions over not only where is this capital expenditure being funded from, you look at someone like Oracle where it’s basically all coming from debt and then compare that to Google where it’s coming from free cash flow and from sales, but also continued questions over when are we going to see a return on this investment? They are the two big

Michael Hewson (25:27)
Yeah.

Hmm.

Michael Brown (25:54)
big

issues that continue to dominate the space. ⁓ we obviously have mega cap earnings not next week but the week after, so we will keep a very, very close eye on what they have to say.

Michael Hewson (26:02)
Mm.

Yeah, and Meta ⁓ introducing more job cuts as well in the labs. Yeah, I think it’s 10 % cuts. Yeah, it’s not surprising when you consider that they’ve already posted $73 billion in losses in that particular division. decisions are now starting to be made when it comes to, well, you know, we can’t throw all this money.

Michael Brown (26:10)
in the Reality Labs unit, yeah.

I think it was, yeah, 10 % of that unit, yeah.

Mm.

Michael Hewson (26:34)
at the wall and hope some of it sticks, then Elf are starting to make hard decisions about what’s working and what isn’t.

Michael Brown (26:41)
Yeah, and

I think there’s going to be a fair few more of those decisions as we move through the next 12 months or so.

Michael Hewson (26:46)
Okay,

let’s move on to UK markets. Record highs for the FTSE 100, lower borrowing costs, Bank of England rate cut bets increase or not, but it’s not because of a strong economy, even if you take into account the fact that saw a fairly decent set of monthly GDP numbers for November, but those numbers and

Michael Brown (26:50)
Mm.

Michael Hewson (27:09)
I’ve said this on any number of occasions, monthly GDP numbers need to be taken with a little bit of salt because they can be notoriously spiky. But of course, we’ve got the usual suspects coming out now.

Michael Brown (27:18)
And that is exactly the case that we’ve seen this time around.

I can feel my blood pressure rising already. I need some pills or something.

Michael Hewson (27:28)
We got the users, yeah.

Okay, the UK economy expanded by 0.3 % in November and you got the users suspects basically saying, this is great, know, Rachel Reeves this, Rachel Reeves that. We even had a certain dragon earlier this week tweeting that the fact that the FTSE 100 ⁓ was at record highs was an endorsement somehow of Rachel Reeves. I mean, for God’s sake.

Michael Brown (27:44)
⁓ god, yeah.

Michael Hewson (27:57)
Give me strength. I mean, I think I’ve said this before and I said it again. One of the key goals of this podcast is to try and improve financial knowledge. But when you’ve got someone who really ought to know better coming up with that, I was going to say nonsense. That’s it. Coming up with that nonsense. It makes me despair because if someone like an entrepreneur from Dragon’s Den, I won’t name her, but

Michael Brown (28:08)
Mmm.

Nonsense. There we go.

Yeah.

Michael Hewson (28:28)
you you can guess who it is, comes up with that nonsense. Someone who wants to know better. It does make you to despair given the following that she has to display such a level ⁓ or such a lack of financial markets knowledge. And judging by the responses to that tweet, I don’t think she’ll be making that mistake again, but she did decide to double down on a couple of occasions. I mean, what is wrong with people?

Michael Brown (28:39)
Yeah.

Mm.

Well, quite a lot. actually just, we’ll go, I’ll go back to the GDP in a second, but

Michael Hewson (29:01)
Yeah, let’s do

it.

Michael Brown (29:03)
By and large, certainly in Europe more so than in the United States, domestic equity performance is not particularly good gauge of how the domestic economy is doing. The FTSE 100, 80 % of revenue comes from overseas. The CAC Caron in France, it’s a similar situation. The DAX is slightly different. But by and large, European markets are so heavily exposed to what’s going on in the international economy, you cannot go, the CAC is at a record high, it means France is booming. Or the FTSE is at a record high, it means the UK is booming.

those conclusions. Going back to the GDP numbers that we had this morning, yes the economy did grow by I think we probably should. We’ll clip that ⁓ as a little snippet.

Michael Hewson (29:38)
Maybe we should pin that. We need to pin that.

Michael Brown (29:45)
The economy did grow by zero spot three percent on a month on month basis in November. It is the first time that the economy has grown on a month on month basis since June, which I think says a lot in and of itself. And also, of course, you need to dig into the data because pretty much the only reason why the economy did grow in November is because Jaguar Land Rover resumed production after the cyber attack that dogged them during the autumn. think you told me a moment ago that I’ve got it here. Actually, car production was

up by 25.5 % on a month-on-month basis, which drove pretty much all of that upside. If you smooth the data out a little bit using a rolling three-month average, then the economy grew by 0.1%, just a tenth of a percent in the September to November period. As I put on the internet this morning, that is frankly a rounding error away from stagnation. And of course, as we’ll discuss in terms of the week ahead, because next week’s a busy one for the UK, risks to that growth outlook

tilt pretty firmly to the downside as well. So yeah, it’s one of those prints that on paper it looks good, it’s an upside surprise compared to consensus, but dig into the details, there is one factor driving pretty much all of it and actually the underlying story is nowhere near as rosy as that headline might imply.

Michael Hewson (31:04)
Yeah and you’ve also got to price in the fact that two months previously car production slumped by 29.5%. So that rebound of 25.5 % doesn’t reverse the decline that we saw when the whole plant and the operations were shut down completely.

Michael Brown (31:12)
Yes.

Yeah, you’re absolutely right on that one.

Michael Hewson (31:24)
So again, you cannot basically draw conclusions on the basis of one month’s data and I wish people would stop doing it. But ultimately I think while they continue to do it, I will continue to call them out on it. And I don’t care who, go on. You know, I’ve completely lost the thread of what I was gonna say, go on.

Michael Brown (31:32)
Okay.

And actually just, sorry go on, finish your point, go on.

Oh,

sorry. I was going to say that actually, yeah, we will do this on both sides. You know, if if we did, you know, when Jaguar Lambroving production first shut down and the economy contracted on a month on month basis, we all knew why it was, you know, we’re not sat there going, oh, it’s a damning indictment of the government of the day or whatever it may be. It’s just it’s a I can’t say the word statistical quirk.

Michael Hewson (31:48)
Yeah, absolutely. And do.

Michael Brown (32:08)
is what I was trying to say. And sadly, that is a fact of life. And that’s why it’s important to dig into the details, the data that we’re getting. But anyway, enough of that.

Michael Hewson (32:17)
But let’s obviously talk also, we saw a rebound in services as well. ⁓ And a large part of that was because ⁓ tax advisors ⁓ saw a big jump in accountants. I wonder why that would be in November.

Michael Brown (32:22)
Yes, that is true.

Yeah, that’s about the only growth industry at this point. Yeah, and then travel agents will be the next one. Home relocation services, international movers.

Michael Hewson (32:38)
tax advisors and accountants because head of the budget well there you go yeah and yeah construction though down

yeah construction though down 1.1 percent so you know build baby build well I don’t think that’s going particularly well but yeah

Michael Brown (32:56)
Well, I’m not sure it’s going at all at this point.

And if you look at the construction PMIs, that is just utter, I mean, if you ever want to depress yourself, go and read that of an evening. It’s not pretty at all. mean, the anecdotal commentary you’re getting from the construction space is basically things are as bad, if not worse than they were during the pandemic, which says it all about the dire state of that industry. you know, not only in terms of housing, but also in terms of just general infrastructure in the UK, we need a strong construction sector and it just is not happening at this

one.

Michael Hewson (33:27)
We do mate,

we do absolutely we do. ⁓ So you know obviously talk of all these new projects earlier this week from the government ⁓ which is all well and good but they don’t start till 2030 so again you know it’s smoke and mirrors, it’s aspirations, it’s not spades in the ground.

Michael Brown (33:46)
Yeah, and those spades will not be going into the ground for quite some time, you would have thought as well.

Michael Hewson (33:49)
assuming

they even do because 2030 this government is not likely to be in place.

Michael Brown (33:54)
No, and that’s a hell of a long way away and we all know that there is a risk of cancellation, but anyway.

Michael Hewson (33:56)
it is.

Hmm indeed.

⁓ Having said that, mean it’s not all doom and gloom in the construction sector. Persimmon posted its Q4 numbers earlier this week and despite a little bit of a drop-off in the wake of those numbers we’ve seen a fairly decent rebound today so they’re still very much in the uptrend they’ve been in since they posted their August lows and consequently I think the markets

Michael Brown (34:20)
Hmm.

Michael Hewson (34:26)
fairly optimistic about the outlook for when it comes to person and share price. We haven’t seen it drop below their December lows despite the big falls that we saw in the last couple of days. We’ve seen a rebound today. Completions are pretty healthy ⁓ as well as their average selling prices.

Michael Brown (34:48)
Yeah, and I think very much bucking the trend of that pessimism that we were just mentioning around the construction space. mean, you go through the figures from person and completions were ahead of where the market wanted them to be. The order book’s growing. Profit is expected to come in right at the top end of expectations and they expect profits to rise by somewhere between 20 and 30 billion, million, sorry, next year. So billion would be nice, wouldn’t it? Million with an let me get that right. Million ⁓ into 2026.

Michael Hewson (35:12)
It would be wouldn’t it? Yeah.

Michael Brown (35:18)
So yeah, things do seem to be moving in the right direction for the firm, which is definitely contrary to the broader sector, it must be said.

Michael Hewson (35:26)
Yeah, absolutely. you know, again, these numbers have to be treated on a quarter by quarter basis. I read this morning that credit card delinquencies are up, but obviously the lower borrowing costs that we’ve seen in UK gilt markets would suggest that home demand may start to pick up, assuming that obviously we see more rate cuts from the Bank of England later this year.

Michael Brown (35:52)
Yes, which I’m sure we’ll get onto in a bit when we start to talk about inflation and things like that.

Michael Hewson (35:54)
Yeah.

One sort of little concern was the operating margins were expected to come in at the lower end of their 14.2 % to 14.5 % range even as they upgraded their profit forecasts for 2026. something to, yeah, exactly, something to bear in mind, but certainly I think a fairly upbeat set of numbers from Persimmon, but we haven’t really pushed above the highs.

Michael Brown (36:12)
keeping an eye on.

Hmm.

Michael Hewson (36:24)
that we saw in the middle of 2025, we’ve come back below them. So that 14 pound level still remains a very, very key level when it comes to further gains for the person and share price. So it’s worth keeping an eye out for that. Also got a decent set of numbers from Whitbread, Premier Inn. We talked about a high bar for them, I think. ⁓

Michael Brown (36:38)
Indeed.

Yes.

Michael Hewson (36:49)
They posted some fairly decent numbers. Revenue per room up 3 % in the UK, up 7 % in Germany. guidance was also fairly positive as well.

Michael Brown (37:01)
Yeah, I think the guidance was probably the key point from the firm because obviously, know, one or two things that we’ve been looking very closely at are firstly, there’s been a lot of talk around business rates. What’s the hit from the changes to business rates going to be? Well, Whitbread have said that’s going to be…

Michael Hewson (37:14)
Well, we still don’t know that, we, because

they’re U-turning on that.

Michael Brown (37:18)
Well, they are U-turning on it, but having said that Whitbread have come out and said it’s the current way that there’s going to be structured, the hit is going to be less than they first thought. You would argue that if there is another U-turn, then the hit is going to be even lower than those new expectations, if that makes sense. So that’s a positive. And they’ve also increased their guidance around cost savings this year as well, which again, the market has taken as a positive too, along with that pretty resilient sales and revenue growth.

Michael Hewson (37:28)
Yeah.

Michael Brown (37:48)
you just mentioned.

Michael Hewson (37:49)
Yeah, in

the six weeks to the 8th of January total UK accommodation sales were up by 4%. I was part of that 4%.

Michael Brown (37:54)
well, there we go.

You’ve propped up the whole quarter, mate. Well done.

Michael Hewson (38:00)
While in Germany sales are up by 11%. So obviously, not in Germany, no, no, no, they did that themselves or by themselves. But it’s a much smaller notional market in Germany. It’s one, you know, the market’s in its infancy there. It’s a very much lower proportion of their overall revenue. But certainly I think what we’ve seen from Whitbread, fairly decent share price reaction from the lows back in December. Price is just below its 200 day moving average.

Michael Brown (38:04)
Were you part of that 11 % as well, or did they do that themselves?

Hmm.

Michael Hewson (38:30)
I’d like to see it get back above that.

Michael Brown (38:33)
Yeah,

and that could then really start to give it a bit of a kick higher, I think.

Michael Hewson (38:35)
Yeah,

kick our back to the levels that we saw back in October when it was above 32 pounds at the moment. It’s just around 28. So certainly could do with a little bit of a boost in the share price. So it does appear to suggest that companies are adapting to rising costs. They’re adapting to maintain their margins. But of course, the end result of that is what we’re to come to when we talk about next week.

Michael Brown (38:42)
you

Michael Hewson (39:04)
higher levels of unemployment.

Michael Brown (39:04)
Hmm.

Well, exactly. You know, there is only a finite amount of cash that goes round and yes, fine, you can adjust to those higher costs, but you either absorb them in the form of lower margins, which no one particularly wants to do. You pass them on in the form of higher prices, which results in inflation, or you trim your headcount or cut earnings ⁓ growth, which is again another factor that companies can, another lever, I should say, that companies can and are pulling. So yeah, there’s a degree of adaptation going on, but you would argue in an ideal world that you’d just rather

you didn’t have to adapt at all.

Michael Hewson (39:37)
Yeah. On the topic of unemployment or employment, let’s move on to Hayes second quarter numbers. If you thought things couldn’t get much worse for Hayes with the shares already at multi-year lows, you’d be wrong because they’ve fallen even more over the course of the last three days. ⁓ I mean, it’s not just here in the UK that labour markets are struggling, to be fair. ⁓ Germany saw the biggest fall with a 14 %

Michael Brown (39:46)
You think again.

Mm.

Michael Hewson (40:05)
fallen in like-for-like net fee performance. UK saw a 9 % decline. was total fees seeing a 10 % like-for-like decline, and permanent roles bore the brunt of that.

Michael Brown (40:19)
Yeah, and to be honest, mean, the report is…

pretty damn ugly, if we’re being completely frank. But I would also say it probably shouldn’t be a particular surprise to anyone. You know, we’ve spent months and months, if not years now talking, as you said, about the sluggish nature of the labor market here in the UK. You know, we’ve just come through, what is it now, 12 of the last 13 months, I think, where we’ve actually shed jobs on net here in the UK. Things are not much better in the Eurozone. We’re talking about no hiring and no firing in the States.

Michael Hewson (40:24)
Yeah.

Michael Brown (40:53)
people just hoarding the workers that they’ve got, not bringing on new staff. And then on top of all of that, you’ve got this whole issue of, well, actually, do we need people because can AI do the job instead, which is now another headwind for the recruitment sector to grapple with. yeah, I can’t say I’m especially ⁓ staggered or flabbergasted by the downbeat numbers that they’ve posted. What I would say is probably more worrying is you can’t really see any point that this actually materially starts.

Michael Hewson (40:55)
Mm.

Michael Brown (41:23)
to turn around.

Michael Hewson (41:25)
I

think that’s the worry and I’d like to be wrong. really would but You know Hayes went on to say expects to incur a 10 million pound restructuring charge in first half As well as looking to secure 15 million pound in further cost savings towards a target of 80 million by 2028 even with all of that Yeah

Michael Brown (41:29)
Yeah, so would I, to be clear.

Which is fine. And you can

restructure the problem that they’ve got is you can restructure the business as much as you like. If people aren’t recruiting, doesn’t matter what your structure looks like. You’re not going to make any fee income. know, all the restructure is doing is incurring costs that arguably you can’t afford.

Michael Hewson (42:02)
Well, exactly. And people aren’t going to basically hire for permanent roles. They’re going to hire for temp and contracting roles. And certainly in the contracting part of the business, that was performing slightly better. But even there, they saw an 8 % decline in net fee revenue. you know, for me, it’s going to be very, very difficult for these sorts of companies. obviously, there’s Robert Walters as well. It’s going to be very difficult for these companies to compete. ⁓

Michael Brown (42:08)
Yeah.

Yeah.

Yeah.

Michael Hewson (42:32)
at a time when ultimately the labour market shows increasing signs of shedding more jobs.

Michael Brown (42:40)
Yeah, no, I fully agree with you, mate. think, you know, you need to see signs of a sustained and sustainable turnaround in the labour market before you can be bullish on those names. And right now, sadly, we’re not seeing it. Hopefully we do, but my expectations are low.

Michael Hewson (42:54)
Okay, so let’s look at US banks. Pretty much across the board, a really decent set of numbers. You wouldn’t know it from the share price reaction and I suspect a large part of the reason for that is what Trump said at the weekend about credit card fees.

Michael Brown (42:58)
Yes.

Hmm.

Yep, I make you absolutely right. We probably don’t have time to go through all the individual results because we’ve to talk about the week ahead.

Michael Hewson (43:17)
We don’t, but I mean, there is a broad brush approach. They were all good.

Michael Brown (43:22)
Absolutely. They were all very, good. Trading revenue is very, very strong. Goldman equities trading revenue was a record quarter, beating their own Q2 record. And bear in mind what happened in Q2. That is absolutely staggering that they managed to beat that. You know, by and large, things have gone really, really well. The problem for the banks, and I’m going to take Goldman out of this here because they don’t have a credit card business, but the problem with the banks by and large is this idea from President Trump that has gathered quite a lot of traction that he wants a cap on credit card interest rates

at 10 % effective from I think it’s the 20th or the 21st of Jan for the next year. Obviously that is going to be very very problematic from the the bank’s perspective because one they make a lot of money in terms of credit card interest margins but two I think it’s going to be troubling from a macroeconomic perspective as well. It’s not entirely clear how or indeed if this is going to happen yet however the obvious response from the banks to this will simply be

to extend less credit because the banks will turn around and say, well, actually, we are not comfortable extending the same amount of credit to riskier borrowers, those with lower credit scores, if we can’t charge a higher interest rate in order to compensate for the risk of us lending that money to you. They will then pull credit lines. And as a result of that, you have a de facto monetary tightening, which is akin to the Fed hiking rates, essentially, because you’re contracting the supply

Michael Hewson (44:23)
Hmm.

Michael Brown (44:52)
credit and money in the system. So I totally understand why the Trump administration thought this is a good idea, it’s going to grab some headlines. But going back to what we’re saying around the issues with Fed Chair Powell and the DOJ, it’s the unintended consequences. Great. You’ve got your headline that says credit card interest rates are capped at 10%. And let’s be honest, no one’s going to cry for the banks over this one. But what they are probably going to cry about is when they go to the bank and then Bank of America or Citi turn around and go, your 10 grand

Michael Hewson (45:05)
Hmm. Yeah.

you

Michael Brown (45:21)
credit limit is now one grand and that’s going to be a problem and that is going to be a big problem.

Michael Hewson (45:23)
computer says no.

Hmm.

Yeah, it’s the old computer says no.

Michael Brown (45:31)
Yeah, exactly that. So we’ll see how that one shakes out. Obviously, if it does come to fruition, it’s going to be a pretty big structural headwind for the banks. And I agree, that’s the reason why we’ve seen them all come lower on the back of earnings. The figures themselves are great. And actually, if you didn’t have this credit card cap doing the rounds, then all the banks probably be up 5 or 10 % this week.

Michael Hewson (45:51)
Yeah,

mean, I’m looking at the lower than I mean, Bank of America posted lower than expected provision for credit losses. And I think that was pretty much similar in terms of Wells Fargo, I’m not sure, and maybe JP Morgan. ⁓

Michael Brown (46:06)
Well,

JP Morgan’s was slightly higher, but that was technical because they’ve taken on the Apple credit card. So that wasn’t really them being worried about anything. It’s just that they’ve expanded their business. Exactly.

Michael Hewson (46:18)
So you would do that anyway. ⁓

But I think…

I think it’s the right idea in terms of stopping banks from ripping people off. I just think 10 % is too low. I think maybe 20 % because all you’re going to do is you’re going to drive these people into the clutches of people like Klarna and the buy now pay later which I think is a bubble waiting to burst.

Michael Brown (46:30)
Hmm.

Yeah.

Yeah, and also it’s a considerably riskier way of borrowing than with the banks or with the credit card providers. And I fully agree with you. think, you know, it’s a rushed and ill thought through move with noble aims. Let’s just go back to the drawing board, get the bank CEOs around the table, get Congress involved and actually come up with a number that is kind of fair and agreeable to all sides of that equation, rather than going down this route, which is actually, as we’ve just discussed, probably going

Michael Hewson (46:50)
Yeah, exactly that.

Mm.

Michael Brown (47:15)
to have the opposite effect of the one you want.

Michael Hewson (47:17)
drive out the cowboys, because obviously there are cowboys

out there who charge exorbitant levels of interest rates. know, and yeah, you are. Okay, so let’s move on to next week. ⁓ Gosh, it’s a busy one. Okay, let’s quickly blast through these. We got UK wages and unemployment for November. We’ve got UK CPI for December, ⁓ the 20th and the 21st. Now, obviously the recent November numbers gave the Bank of England cover.

Michael Brown (47:23)
And you’re driving people towards them, sadly, by doing this.

Busy one. ⁓

Michael Hewson (47:47)
to cut rates to 3.75 % after the sharp slowdown to 3.2%. Bank of England Governor Andrew Bailey was the swing voter for that vote. What do we think is going to happen in December, Michael, for inflation?

Michael Brown (47:58)
Mm-hmm.

Well, I think it’s probably

going to be more of the same, just to continue to the gradual downward path of headline core and services prices.

But I don’t think it’s going to be enough of a move lower to force the bank into delivering another cut as soon as the February meeting. Of course, as you said, it was a 5-4 vote. Bailey was the swing voter. Bailey himself in December was talking about maybe slowing down the pace of policy easing. So I think you really need a very, very cool print indeed, low twos, which just isn’t going to happen to get the bank even thinking about a cut in February. So I guess the way

I will be looking at it is it’s more evidence. I think they’re so far behind the curve they can’t see the bloody thing.

Michael Hewson (48:45)
Do you think they’re behind the curve?

so you think that they should cut rates.

Michael Brown (48:53)
I think bank rate should be at three right now. We’ve got an economy that has not grown. ⁓ No, he’d say one. But no, in all seriousness, we’ve got an economy that, yeah, fine, we grew in November, but it’s mechanical. By and large, we’ve not had any proper economic growth since the summer. Inflation is now on a path back to the 2 % target, and it will probably get there in the middle of this year and stay around that level. Unemployment.

Michael Hewson (48:55)
Right now? What’s your name? Michael Trump?

You

So you’d put bank rate

below CPI.

Michael Brown (49:23)
I yeah, I’d be comfortable doing that. Because by the time, I’m not saying, well, I’m not saying you cut 75 basis points at one meeting. You can’t do that now. That looks ridiculous. So by the time you’ve cut 25 in, what would it be, February, March, and then April, you get bank rate to three inflations at two in April, or two and a half. So actually, you would still have a positive real bank rate. There’s my get out course. But just to add to that,

Michael Hewson (49:25)
But how would you explain that?

⁓ You nearly walked

into that one.

Michael Brown (49:54)
Inflation is on its way lower. I think the risks of persistence have decreased considerably because not only have you got unemployment at a post-COVID high, but also private sector earnings growth is barely at 3%. So I think the bank are massively making a policy area. But again, just an important point, I’m not on the MPC at risk of stating the obvious. What I think the bank should do doesn’t matter.

Michael Hewson (50:16)
We know that.

Michael Brown (50:20)
is what they will do that matters and what they will do that the pound and guilts are going to trade on the back of. We can all have our own views. Exactly. Yeah.

Michael Hewson (50:20)
Hmm.

and what the markets think they will do.

Because obviously if you look at other measures of inflation, we’re well above 4.

Michael Brown (50:34)
Yeah, well you can always find the…

Michael Hewson (50:37)
and public sector

wages.

Michael Brown (50:40)
Yeah, we’ve really haven’t got time to get into public sector wages. We’ll do that when we’ve got the data next week. We can have a rant about that.

Michael Hewson (50:43)
Okay, obviously

we’ve got wages and unemployment for November. So you’re expecting to see a little bit of a slowdown there and unemployment 5.1 or maybe even higher.

Michael Brown (50:57)
Well, yeah, think the risks are certainly to the upside towards unemployment continuing to rise. The number to watch is 5.3. That was the high that we saw in the pandemic. And sadly, I think we’re going to take that out this year and maybe even get to six, worryingly.

Michael Hewson (51:11)
Yeah,

well we didn’t have all that business eat out to help out and all of that back then. So there’ll be no buffer, there’ll be no cushion for businesses. We’ve also got UK retail sales for December. Could we see a rebound, Michael? I think based on some of the updates that we’ve seen from the big retailers, there’s a good chance that we might. Almost like a last hurrah. Basically people have taken the view that, ⁓ God.

Michael Brown (51:16)
Yeah, and the furlough

We do.

Michael Hewson (51:35)
It’s been so bloody miserable in October and November. We’re determined to enjoy Christmas and the New Year. So let’s just go out and splurge.

Michael Brown (51:43)
Yeah, I would be inclined to agree with you on that one. And I think the important takeaway for me from the retail earnings, and we discussed this in last week’s podcast, if people haven’t heard it, is it was quite a broad based increase in spending. was staples, but it was also discretionary items. You you think about how well Next did during the quarter, for example. ⁓ So, yeah, I think you could see, Premier Inn and Whitbread, as we just mentioned. ⁓ So, yeah, I think we could see a pretty decent print in December, or at least a positive print in December. We’ve got to take what we can get.

Michael Hewson (52:00)
Yeah. Premier in. Yeah.

Yeah, positive.

Michael Brown (52:13)
these days. But then that, as you say, is probably a bit of a last hurrah and then we’re in for a subdued start to the year. Obviously the other thing that could lift December is we were after the budget. So although the outcome of the budget wasn’t exactly positive, there’s some certainty around it at the very least.

Michael Hewson (52:24)
Hmm.

Okay let’s move on. of Japan. Is it the Bank of Japan next week? It was on a question mark on the calendar so I wasn’t sure whether or not they were actually going to do it and obviously we’ve now got the new Prime Minister potentially calling in an election.

Michael Brown (52:35)
It is.

Yes, well actually it’s funny you mentioned that because the Bank of Japan meet next Friday and they are going to keep rates unchanged. The DIET, which is the Japanese Parliament, also meets for the first time this year next Friday and is going to be dissolved immediately in order to call an election. So that is the main focus in Japan at this point. I think the BOJ are on the sidelines until the spring at the absolute earliest.

Michael Hewson (52:47)
It is next Friday. Okay.

even

with the weekend.

Michael Brown (53:10)
even with the week yen. I think the BOJ will want to see the results of the way Japan works, they have these big unionised negotiations in terms of wages every spring. I think the BOJ will want to see the results of that in terms of how much earnings are going to be growing by before they then decide whether or when to pull the trigger on another rate hike. The yen is weakening considerably. If they want to prop that up, that’s a decision for the Ministry of Finance to intervene monetarily that way, not for the BOJ.

Michael Hewson (53:39)
I think it’s worth keeping an eye on JGBs in terms of yield as well because we talked about that in the last podcast of last year about the potential risks that potential gains in JGB yields could cause a little bit of capital rotation into Japan and out of other other global bond markets.

Michael Brown (53:44)
Mm.

Yeah.

Yes, indeed.

Michael Hewson (54:01)
Okay, we’ve got Retails JD Sports Q4 numbers on the 21st. Seen a modest rebound in the share price there. They’ve been struggling a little bit because of the fact that the US operation, they’re having to absorb an awful lot of what I would call restructuring costs as they try and grow that US business and integrate it into their business model. We’ve seen a fairly decent rebound off the lows in November.

Michael Brown (54:24)
Yes.

Michael Hewson (54:30)
but it’s been fairly weak. ⁓ It’s a difficult one, I think this one, because we’re slap bang in the middle of the trading range we’ve been in since June.

Michael Brown (54:36)
Mm.

Yeah, it’s not a great one. I mean, you would say that sort of tailwinds from the broader retail space could be a bit of a boost, but again, they’ve got all of those restructuring costs to deal with. yeah, I don’t think the earnings is going to be enough of a catalyst to see us break out of that range. Let’s put it that way.

Michael Hewson (54:58)
JD Witherspoon second quarter numbers on the 21st of January. I was scratching my head in because the weakness in the Witherspoon share price belied the strong performance that we’ve been seeing pretty much since those July peaks. Someone must have heard me because we’ve bounced off 600p, we’re now at 760p and just below the highs that we saw in July and I think that’s essentially where it should be. The business is a strong one. ⁓ There’s been much discussion.

Michael Brown (55:14)
You

Michael Hewson (55:27)
about ⁓ business rates but despite all of the increases in costs that the hospitality sector has had to endure, Witherspoon’s has stood out like a beacon in a very very bleak landscape. 3.7 % increase in like-for-like sales in Q1, bar sales rising 5.7 and food 0.9. The big question is can they sustain that?

Michael Brown (55:42)
Mmm.

Michael Hewson (55:57)
going into Q2, obviously that’s the Christmas period, New Year period. I think they probably can.

Michael Brown (56:03)
I think they probably can as well. think they’re, we’ve said a number of times, they are a really, really solid business ⁓ and you would expect that those festive tailwinds are a decent helping hand to them as well.

Michael Hewson (56:12)
It’ll be interesting to see what Tim Martin has to say given post budget. He said he was cautious about the outlook given the recent budget. So it’ll be interesting to see what he has to say now. And it was interesting that earlier this month Tesco CEO Ken Murphy basically backed Tim Martin up when he said the business rates framework really needs to be rethought.

Michael Brown (56:20)
Yes.

And does. And Tim Martin is never backwards in coming forward. So I’m sure he’ll have some interesting comments on that front.

Michael Hewson (56:38)
Okay, so we’ve also got B European Retail. Their share price has been an absolute car crash of late, pretty much since that profit warning in November. Hasn’t really done an awful lot, but you’ve got to ask yourself, how much lower can it really go? It’s a budget retailer. It should do well in the current environment. The share price performance belies that fact.

Michael Brown (56:55)
Mm.

Yes, and the other thing with that is you’ve got to ask have they got all of the bad news out the way already by issuing that profit warning meaning that actually they could be doing a little bit of a cunning ploy whereby when they drop earnings they’re not as bad as the market’s expecting because they’ve already braced us for a hell of a lot of bad news.

Michael Hewson (57:18)
Finishing up, there’s only one real company, well there’s plenty of, I mean owning season is now underway in the US. The one I’ve picked out is Netflix. Now, fourth quarter numbers. Now, in October I posed the question to you, do you remember, have we hit peak Netflix? And I suggested we might have. And certainly the share price performance since then suggests that we have.

Michael Brown (57:24)
Mm.

Yes.

You did, yes.

Yeah, and I think you’re probably right with that one, to be honest. The share price has been very, very lackluster indeed. It does increasingly look as if they are struggling to expand their user base or their subscriber base. And of course, now the market has got to worry about how Netflix is going to find the cash to buy Warner Brothers’ discovery, which is another thing that the market’s obviously got sort of on its mind as well.

Michael Hewson (57:55)
Thank

Assuming the deal goes

ahead.

Michael Brown (58:09)
Well, yeah, assuming it goes through, ⁓ which obviously is yet to be seen. You’ve got Paramount’s guidance involved as well. ⁓ But yeah, it’s going be interesting to see what they say. The market, incidentally, is pricing, if you look at options, a pretty punchy move of about 8 % either up or down in the day following that earnings report. So going to be interesting to keep an eye on that one, I think.

Michael Hewson (58:30)
Right,

that’s due on the 20th. Let’s look at what they expect to see. $45.1 billion in four-year revenue at the top end of its forecast. raised its forecast for 20… On Cash Flow, the company raised its forecast for 2025 to $9 billion as well as maintaining the share buyback program. One thing is important to acknowledge here that with all this noise about Paramount, Skydance and everything else, there’s a $5 billion break fee.

in this deal with Warner Brothers Discovery if it doesn’t go ahead. So the risks here are very much of a price tag of $5 billion if this deal doesn’t go through. So the stakes are high.

Michael Brown (58:59)
Yes.

Yeah.

They are very high indeed. And I think market participants are going to be watching this report very, very closely indeed. Because not only are Netflix operating in an environment with increasing headwinds, as we just said, they’re also kind of bringing risk upon themselves with this &A business. So yeah, plenty of moving parts in that one.

Michael Hewson (59:31)
Q4 revenues are expected to come in just under 12 billion, helped by the return of Stranger Things, which I have to say was pretty good. I’ve got to say, I enjoyed it. Operating margins, though, are under pressure. They’re going to fall further to 23.9 % in Q4. So, you know, it’s going to be interesting in terms of how they finish the year, but also what their expectations are for fiscal year.

⁓ 2026. Okay, so that pretty much summarizes, I think, everything that we needed to talk about with respect to the podcast. We’ve come in pretty much on the hour. ⁓ So, yeah, watch this space and hopefully we’ll be able to ⁓ dissect all of the numbers, ⁓ unemployment, CPI, Netflix earnings and pretty much everything else, as well as any further Trump grenades.

Michael Brown (1:00:02)
Yes, indeed.

I so.

Michael Hewson (1:00:29)
This time same time same place next week, but once again, thanks a lot for your company Michael is always it’s been a Just like

Michael Brown (1:00:37)
See you next week. Bye bye.