Vodafone and Microsoft have announced a massive 10-year partnership to transform Vodafone’s customer experience using Microsoft’s AI and cloud services. Vodafone will invest $1.5 billion over 10 years in the strategic collaboration.

The partnership will provide highly personalised customer experiences across Vodafone’s platforms, leveraging generative AI and Microsoft’s Copilot. Vodafone aims to boost productivity and efficiency for employees through Copilot’s AI capabilities.

Microsoft intends to invest in and partner with Vodafone’s standalone global IoT platform, connecting 175 million devices worldwide. This opens opportunities for third-party developers on Azure through open APIs.

In Africa, Microsoft will help scale M-Pesa, already Africa’s largest fintech platform, and launch new cloud-native apps on Azure. A purpose-led program seeks to enrich 100 million African consumers and 1 million SMEs through digital literacy, skilling, and access to financial services.

For European enterprises, Vodafone will distribute Microsoft’s cloud-based services including Azure, security, and Teams Phone. This supports Vodafone’s goal to become Europe’s top platform for business.

Finally, Vodafone will modernise its data centres on Azure, improving responsiveness and operational efficiency. Virtual data centres will replace physical ones across Europe.

Despite outlining a raft of measures that should ultimately boost customer retention, investors may be disappointed by the muted reaction in Vodafone shares, which barely budged on Tuesday.

“Vodafone might have been hoping that news of a strategic partnership with Microsoft, involving the market’s hottest theme, AI, would have delivered more of a kicker to a moribund stock this morning,” said AJ Bell’s Russ Mould.

“The company is planning a significant outlay as it looks to use Microsoft’s generative AI technology to build out its ‘Internet of Things’ connectivity plan. It wants to develop new digital and financial services for small and medium sized businesses in Africa and Europe and revamp its data centre cloud strategy.

“As the benefits of the partnership come through, they may help to provide some forward momentum to a business which has been stuck in reverse for years.”

European equity markets were showing signs of fatigue amid the ‘will they, won’t they’ back and forth in expectations around whether major central banks will cut rates in the early months of 2024.

After a sharp rally in stocks based on expectations of US rate cuts as early as March 2024, several Fed officials have moved to dampen enthusiasm around lower borrowing costs, and famous investors have highlighted the risks to equities if the Fed doesn’t cut rates.

Markets initially shrugged these comments off, but with an ECB official joining the growing chorus of caution, European stocks fell yesterday and started Tuesday on the backfoot.

“The FTSE 100 slipped to a one-month low, dragged down by healthcare and financial stocks. Part of the problem is central banks constantly teasing the prospect of rate cuts but then refusing to commit, which is causing unease among investors. There are plenty of signs that inflation is coming down and this is fuelling the rate cut expectations on the market, yet central banks are being spectacularly stubborn,” said Russ Mould, investment director at AJ Bell.

“To stir the pot, UK wages grew at their slowest pace in almost a year, extending the view that inflationary pressures are easing. Data points like these don’t seem enough to put central banks on a different path and we’re facing the risk that the likes of the Bank of England and European Central Bank will act too late to avoid a sharp economic slowdown.

As Mould alludes to, there is a careful balance between acting to control inflation and pushing an economy into recession. The longer rates remain elevated, the risk of economic deterioration increases, risking fallout in stocks.

Ocado’s bumper Christmas

Over the past two years, Ocado has increasingly traded like a US technology share rather than a UK premium food retailer. Speculation that Amazon could swoop in for their solutions business demonstrates that the food retail business plays second fiddle in some investors’ minds.

That said, Tuesday saw Ocado shares jump after a strong performance in their retail partnership with Marks & Spencer.

“Ocado retail has delivered a robust end to its financial year. The instantly-recognisable delivery vans have been scurrying all over the country, delivering a higher volume of items than last year as the number of active customers brushes one million,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Keeping the top of the revenue funnel filled with more customers is crucial because shoppers are buying less per-shop on average. This could be a function of pressure on incomes. Price growth is also slowing as inflation comes off the boil, which is another reason volumes need to stay propped up overall.”

Ocado shares were over 3% higher at the time of writing.

Rightmove sinks

Rightmove was the FTSE 100’s big casualty on Tuesday after being downgraded by analysts at JP Morgan. Rightmove’s position as the most used and trusted property portal in the UK may be under threat from increased competition.

“Rightmove was the biggest faller on the FTSE 100 after a rating downgrade from JPMorgan, sliding 4%. US group CoStar recently bought property portal OnTheMarket to enter the UK market and that has raised fears among investors and analysts that Rightmove’s dominance could finally be challenged. CoStar is a big player in the States and has the muscle to really upset Rightmove’s long-standing market position,” Russ Mould said.

Ocado shares stormed higher on Tuesday after the premium online food retailer said it achieved record sales over the peak Christmas trading period for its joint venture with Marks and Spencer.

Ocado shares were over 7% higher at the time of writing on Tuesday.

Customers keen to secure Ocado delivery slots in the days running up to Christmas by booking earlier in the year helped drive a record performance throughout the festive period.

Strong Christmas sales will compound a 10.9% increase in sales during the 13-week Q4 2023 period to the end of November. Average orders during the period grew 6.3% to 407,000 per week and the average basket value increased 3.8%.

For the 52-week period to 26th November 2023, Ocado’s sales grew 7% to £2,357.5m as active basket sizes increased 2.7% in the full year.

Most importantly for investors, Ocado said they saw positive EBITDA for the unit in the full-year period.

“In what was a 2023 of mixed fortunes for Ocado, having said only in November it could take 3+ years for the online grocer to reach its potential, a very strong Q4 has seen them reach almost one million customers and grow revenue by 10.9%,” said Adam Vettese, analyst at eToro.

“In this current economic climate they have had to price match some of the big guns like Tesco to compete and with a very cash intensive business they are going to have to hope they can retain and grow this customer base further. With this being a joint venture with M&S, it could well be possible that consumers treated themselves to a luxury Christmas haul and may revert to the norm now they are feeling the January pinch.

“Ocado has said they will meet their forecast of returning to positive earnings for 2022/23 and given we are starting to see grocery inflation cool as well as improvements in order delivery they may well have more chance of shoppers sticking with the habits that saw them have such a successful festive period.”

The FTSE 100 was marginally weaker on Monday as investors assessed the current geopolitical landscape and attempted to draw conclusions from the recent raft of economic data, and implications for interest rates.

US cash equity and bond markets will be closed for Martin Luther King Day on Monday, and trading volumes are expected to be lower than usual.

“The focus is being trained on tense geopolitics, economic malaise and the impact of artificial intelligence on nations around the globe as leaders gather at the World Economic Forum in Davos,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Amid the uncertain economic outlook, the FTSE 100 is set to struggle for a sense of direction. It managed to gain small ground in early trade, before losing ground, with energy giants helped by the recent uplift in oil prices. Activity is expected to be lighter, given that exchanges in the US are largely closed for Martin Luther King Day.”

The FTSE 100 was down 0.35% at the time of writing.

Oil has been in focus since the UK and US launched air strikes on Houthi targets in Yemen last week amid concerns about wider escalation throughout the region.

“An escalation of tensions in the Red Sea amid US and UK strikes on Houthi rebels raises the prospect of renewed inflationary pressures as the resulting disruption to global shipping pushes up freight costs. Oil prices continued to bubble but are below the $80 per barrel levels reached last week,” said AJ Bell investment director Russ Mould.

“There was some positive news on inflation on Friday thanks to an unexpected contraction in producer price inflation in the US – so called factory gate prices are often a leading indicator for consumer prices so this offers some encouragement.

“There was mixed performance and messaging from US banks as the latest earnings season across the Atlantic got underway – with some signs of stress in consumer debt.”

Corporate updates

After a busy week for FTSE 100 corporate updates last week, Monday represented a break in play before Ocado, Rio Tinto and Experian report on Tuesday.

Ocado was the top faller on Monday as investors booked profits after a good run for the stock. Ocado was down over 5% at the time of writing.

On Monday, Crest Nicholson’s shares slumped on the news of the UK housebuilder slashing the company’s yearly profit forecast for the third time in six months.

This estimate has now been revised to £41 million.

The downward adjustment is attributed to increased costs linked to specific legacy projects and an extraordinary charge of £13 million related to a legal claim.

The new projection anticipates a full-year adjusted profit before tax of £41 million ($52.30 million), marking a deviation from the earlier expected range of £45 million to £50 million.

Crest Nicholson’s shares were down by almost 5% at the time of writing on Monday.

“While there may have been a break in the clouds looming over the housebuilding sector, the latest update from Crest Nicholson shows life remains tough,” said AJ Bell investment director Russ Mould.

Last October, Crest cautioned that a decline in sales and unresolved contract issues would result in 2023 profits at £50 million, a downgrade from the initial forecast of £74 million at the half-year mark.

And now, “higher costs on a delayed project in Surrey and a legal claim linked to a fire at an apartment building in 2021 contribute to the company’s warning on profit for 2023. Helping to salve the pain for shareholders is a more encouraging outlook, which is lent credibility by a Rightmove survey showing an increase in asking prices at the start of the year,” said Mould.

Following a challenging 2023 characterised by soaring inflation and increased interest rates, the UK housing market can be said to be set for a resurgence as mortgage rates begin to decline.

Nevertheless, concerns about the overall economic landscape may restrain any potential recovery.

Furthermore, although “the company is seeing some encouraging signs in terms of inquiries, that is yet to translate to customer behaviour, and the property market remains a fragile beast. There is hope, but as yet no guarantee, that the coming months will bring further reductions in mortgage costs as the Bank of England cuts rates,” said Russ Mould.

“If it is to be a beneficiary of any improvement in the outlook, Crest Nicholson must put operational issues behind it,” he added.