Microsoft's Activision Deal Could Get a Reprieve
Microsoft has just four days left to defeat the various regulatory hurdles and ensure its $69 billion (£52 billion) takeover of gaming firm Activision Blizzard goes ahead. After 18 July either side is free to walk away from what would be the biggest transaction in the video gaming world's history. Earlier this week a deal was looking more likely after Britain’s Competition and Markets Authority postponed its legal action and re-opened talks with both companies. There also appeared to be a breakthrough in the US, where a judge rejected a request from American competition regulators to impose an injunction on the deal, which would also have scuppered the deadline. However, this ruling allowed for the Federal Trade Commission to appeal, and it has now asked a different court to apply a "temporary pause" on the merger. Either way, next week could see a conclusion to this long-running saga.
Hunt's Pension Reforms Are Happening (Probably)
Chancellor Jeremy Hunt is saying "g'day" to a series of pension reforms that will see the UK emulate the Australian pension system, which in recent years has delivered better returns for its savers. Hunt has got nine of the biggest workplace pension companies to agree to invest up to 5% of their assets in private equity, typically focusing on UK start-ups in the bioscience and fintech sectors. This, the government claims, should help boost people’s retirement pots – as well as unlocking billions of pounds of capital to invest in the UK economy. To facilitate this the government is now consulting on a raft of legislative changes to drive further consolidation in this sector. The government is hoping fewer, larger schemes, run by professional trustees, will be better able to manage higher risk and more complex private equity investments. This emulates the Australian super-sized "super" funds, which have invested invested in private equity, infrastructure and illiquid assets for years. The question is: do UK pension managers, who until now have largely ignored this sector, have the skillset to hunt out the most appropriate long-term investments within this asset class?
AI Regulation is Getting Stronger
When it's not busying itself with video game takeovers, the FTC is scrutinising ChatGPT over fears the OpenAI system oould generate false information. Overall it’s not been a good week for the chatbot, which also now faces new competition. Google launched its Open AI tool Bard in Europe this week, while Anthropic has launched its Claude 2 chatbot, which claims to offer a more ethical option (it operates using a list of safety principles drawn from sources that include the universal declaration of human rights). Claude 2 also boasts it has the capacity to summarise novel-sized blocks of text. But with no apparent sense of irony, a leading AI expert at the University of Surrey was quoted as saying this latest approach brings us "a bit closer to Isaac Asimov’s fictional law of robotics, in that it builds into the AI a principled response that makes it safer to use". Although it is a number of years since we read this particular book, we remember Asimov's three laws, which forbid robots from harming humans, require them to obey human orders; and finally to protect their own existence. Chaos often ensued. We think that was the point the novelist was making.
The US is Still Winning The Inflation Battle...
While inflation remains stubbornly high in the UK, it is slowing rapidly in the US, with stateside figures published this week showing prices rising at just 3% a year in June, the lowest level for two years. This is a significant decrease from the 4% price inflation recorded the month before, and less that the 3.3% forecast by a leading economist. Significantly, "core" inflation, which strips out more volatile food and energy prices, also fell back from 5.3% to 4.8% – again the opposite trend to that seen in the UK. Last week the Fed signalled it may raise rates again, after a brief pause on its record rate-rising run. And while most economists, including Morningstar’s chief economist Preston Caldwell, think it is likely July’s rate rise will go ahead, they are optimistic these more positive inflation figures show it is finally coming under control.
…While The UK Economy Flatlines
There is little sign the UK’s inflationary problems are under control, and gross domestic product (GDP) figures aren't helping. This week we learned the economy shrank by 0.1% in May, after previously showing a modest 0.2% growth in April. There was no growth over the three-month period to May, essentially meaning the economy has flatlined. The Bank of England (BoE) may be using interest rate rises a monetary defibrillator in a bid to control inflation, but it doesn’t seem to be having much effect on the stricken patient. Recession still looms large on the horizon.
Mortgage Repayments Are at Tipping Point
Mortgage rates reached a 15-year high this week, with data provider Moneyfacts reporting rates on two-year fixes had reached the ominous figure of 6.66%. This is a huge jump for those coming off fixed-rate deals who would otherwise have been able to secure rates of less than 2.5% seen just two years ago. Figures from BoE suggest that, on average, mortgage borrowers are looking at a £235 increase their monthly bills, with a million households facing £500 increases. To make matters worse, this 6.66% figure represents what may be called a "tipping point", where the interest charges on loans become significantly more than the repayment of outstanding capital. As a result, there is far less benefit in switching to an interest-only deal to reduce monthly repayments. Bank bosses told parliament this week they are yet to see a "material increase" in mortgage arrears, but that is now likely to change. Rather than be a sudden crisis, this could be more akin to a slow-motion car crash.
Buy-to-Lets Are on Shaky Foundations
Rising mortgage costs could potentially mean buy-to-let mortgages are also unaffordable, creating problems for many in the rental sector. The scale of the problem was spelled out in this week’s Financial Stability report from BoE. It pointed out that, by the end of 2025, landlords are likely to see average monthly repayments increasing by around £275. The BoE estimates that, if landlords absorb this cost themselves, the share of buy-to-let mortgages no longer meeting the 125% of rental cover rule would rise from 3% to 40%. 125% rental cover is the rule of thumb normally used to calculate eligbility for a buy-to-let loan, and dictates rental payments must cover 125% of the interest paid on loans. You may not feel huge sympathy towards landlords, but the fact remains a significant chunk will probably be forced to bump up already sky-high rents or sell up – causing already stretched supply to shrink further. The rest is obvious.
Tesla is Charging Into The UK's Energy Market
Would you buy your electricity from Elon Musk? His company Tesla is best known for making electric cars, but it also has a retail energy division that is now looking to "shake up" the UK market. The company is currently advertising for a head of operations, whose job description includes securing a supply licence for a "commercial launch of a retail electricity product in the UK". At the moment Tesla Electric operates only in Texas, where the company has its HQ. Bye bye Houston, hello Harlow.
Airport Chaos is Back
Passengers are more likely to face delays at London Gatwick than at any other airport in Europe – and that's before today's announcement that 1,000 workers at the airport are due to strike over the summer. European air traffic controllers are taking industrial action and EasyJet is cancelling 1,700 summer flights. Readers who have been fortuitous enough to book their summer getaway flight from other UK major airports may fare better. This data, compiled by the company that manages European airspace, found aircraft bound for Gatwick suffered a total of 4,326 minutes of delay over a seven-day period. This compares to just 410 minutes at Heathrow, 243 minutes at Stanstead and just four minutes of delay at Luton.
Tim Martin is on Manoeuvres
Cheap booze doesn’t mean you attract less-well-off drinkers. That's according to Wetherspoons chairman Tim Martin, who claims it is an "urban myth" the pub chain fails to bring in a wealthier clientele – pointing to a recent survey showing the average income of a 'Spoons customer was 7% above that of the average high street pub. That said, it must be pointed out this analysis doesn’t necessarily prove Wetherspoons drinkers have above-average incomes, as we don’t know the typical income of those drinking in pubs generally, compared to, say, those quaffing a bottle of Waitrose Chablis in their back garden. Martin is, as ever, in myth-busting mode, though, adding its competitively-priced food and drinks didn’t mean a drop off in product quality or services standards, evidenced by the fact that most of its of its pubs have Cask Marque accreditation and CAMRA listings. We await a Michelin star.
