Generate’s Investment Specialist Greg Smith was on Newstalk ZB with Heather du Plessis-Allan on Monday, discussing the implications of Netflix’s mammoth US$82 billion bid for Warner Bros Discovery, and whether it will rewrite the script for the global movie industry. He also looks at whether a read on the Fed’s preferred inflation measure impacts this week’s rate cut decision. On the subject of inflation, he also covers the good news story in global food prices which continue to fall.
Listen here or read the transcript below:
And Greg Smith of Generate is with us. Hello, Greg.
Hello Heather.
OK, so finally we've got this Netflix Warner Brothers deal announced. What do you reckon? I mean, is this going to get over the line?
God, it's Showtime, isn't it? And you know, I think the regulators are going to have this sort of work cut out, but what have we got? They're buying them for 72 billion. They beat out rivals Comcast and Paramount. The movie studio had actually put itself up for sale. So what do they get? The Harry Potter and Game of Thrones and all those amazing franchises. They also get HBO Max, a streaming service, and that's going to be pretty interesting one for regulators. It'll take Netflix’s total subscribers to 450 million worldwide.
There's a few things to get this over the line. They reckon they can squeeze out 2 to 3 billion in cost savings. Not surprisingly, unions, they're not happy. Writers Guild, they want the merger blocked. They reckon they'll destroy jobs. Cinema owners, of course, they're worried, too. They think it's an unprecedented threat to theatres. I mean, we've had that anyway, haven't we? But yeah Netflix, they're trying to calm the farm.
They're promising that Warner Brothers films are still going to hit the cinemas and the studio can still keep selling shows to other broadcasters. But yeah, I think there's a few big questions here, particularly monopoly concerns here, that we've got the number one streamer swallowing a major rival and a top studio. So yeah, what's it going to mean for consumers? Do we only get more choice but pay higher prices? The Trump administration, that weighed in as well. They've said that they've got healthy scepticism towards the deal. So yeah, it's not a sure thing that just gets over the line.
Obviously implications for us in New Zealand as well. We don't have HBO Max as such, but we do get that content if you're a Sky TV subscriber. So that deal expires next year. It'll be interesting to see how Netflix reacts. You know, will they keep things as they are? Will they bring that sort of content in house as well? So time will tell in any case, in looking at what the investor reaction, Warner Brother shares are up 6%, Netflix 3% lower. Perhaps on the short term concern that it’s overpaid.
In any event, this could change the entire script for the industry here Heather.
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Yeah, it is fascinating stuff. Listen talk me through the inflation and what you reckon the Fed’s going to do in the US.
Yeah, looks like they’re going to cut 87% probability now, according to markets. It's a dramatic jump from a few weeks ago. So we had their favourite inflation gauge out on Friday. This is the personal consumption expenditures index at the headline level moved up to 2.8%. That's the highest since April. But in terms of what they actually care about, that's core PCE that cooled to 2.8% as well. And that was lower than the markets expected. Month on month it was .3% for headline, .2% for core. So energy was the big mover. Stripping that out, things weren't looking so bad. Last major inflation read before Wednesday’s meeting. So a rate cut looks locked in.
Also it seems all is well with US consumers, I suppose having weathered the storm of higher rates pretty well. So the report showed that personal consumption outlays, they rose 70 billion, income rose .4%.
And there's also another release which showed that confidence is lifting. So University of Michigan sentiment index that came in better than expected. I suppose the government shutdown that ending probably helped also lower inflation expectations. Lowest levels level since January. 4.1% on a one-year view, 3.2% on a five-year outlook. So those pesky tariffs have yet to have an impact on prices in the way many had feared and that's a tick in the box for the Fed Heather. So yeah, rate cut Wednesday, but the looks.
Good stuff. Food prices headed down in the right direction, yeah?
Yeah, talking inflation, obviously we've been worried about food prices for a long time. Globally, they fell again in November, according to the UN's Food and Agriculture Organisation. So 1.2% lower than October. Massive 22% below its March 22 peak after the Ukraine invasion. So almost everything fell, dairy, meat, sugar, vegetable oils. Only cereals are up. Sugar down 6%. That's the lowest since late 2020, thanks to strong harvests in Brazil, India and Thailand.
We know that dairy prices have been softening. Yes, they fell 3.1%. That's the 5th consecutive fall. So strong milk production here and in the EU, meat prices, they edged down .8%. Vegetable oils lower, cereals they did rise. But breakfast lovers shouldn't fret too much. We've got a huge wheat crop in Argentina and Aussie’s on track for its second largest wheat harvest as well. So, yeah, better weather, improved supply chains and rising production, that's driving down global food inflation in the big harvests, of course, they're helping. Cereals are perking up a little bit, but we've got other commodities, of course, like copper that's still pretty strong. Remind us the story that inflation isn't uniformly downwards, but looking pretty good.
All right, give us the numbers.
So the Dow was up .2 percent 47954. S & P 500 up .2 percent 6870. NASDAQ up .3 percent 23578. So investors liked those inflation numbers.
FTSE that was down .8% in the UK, the Nikkei down 1.1%. ASX 200 up .2%. NZX 50 we were down .2 percent 13483. Gold that was down 10 dollars 4197 an ounce. Oil up $0.41, 60.08. And the currency markets 57.8. against the US was the Kiwi, that was up slightly. 87 even against Aussie that was down .2%. British pound 43.3 up slightly. Japanese yen 86.7, that was up .4%.
This week Heather locally, we've got visitor arrivals, got some manufacturing data for November and card spending. We've got AGMs Hallensteins, Westpac and Fonterra. Offshore, China trade data, US job openings and we've got the RBA right decision as well as the Fed. Earnings, we've got plenty of big tech names coming out, Oracle, Adobe and Broadcom.
Good stuff, Greg. Thanks very much. Enjoy the rest of your day. That's Greg Smith of Generate.