News & Insight • Weekly Newsletters

01 November 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

UK bond yields rose as investors worried over additional debt in chancellor Rachel Reeves’ maiden budget.

SIPPs (and other forms of pension assets) now fall into the inheritance tax regime, while business assets and agricultural land over £1m will attract an IHT rate of 20%. Changes to the tax rules affecting AIM-listed companies were more favourable than expected (50% reduction in IHT rather than removing the whole advantage), resulting in AIM shares rising.

There was some further relief that the CGT rate for higher-rate tax payers will “only” go up to 24% (from 20%).

Trump and Harris continued to battle it out ahead of Tuesdays election as US jobs number came in lighter than expected.

After two years of US citizens felling pretty gloomy about the state of the economy (despite some very resilient economic data releases) the US consumer finally showed signs of optimism as the consumer-confidence index surged to 108.7 in October from a revised 99.2 reading in the prior month – the biggest increase since March 2021.

Germany's inflation rate, as measured by the Consumer Price Index (CPI), rose to 2% year-on-year in October 2024, up from 1.6% in September 2024.

The Bank of Japan held interest rates steady amid signs of modest GDP growth.

COMPANY NEWS

Apple reported quarterly revenue of $94.9bn, up 6% year-on-year, but gave cautious guidance for the crucial Christmas quarter. And Meta revenues and earnings topped expectations but forecast that AI spending would accelerate into next year.

AMD shares fell on the week on disappointing AI chip sales, whilst Super Micro Computer amended its debt structure with both news stories dragging down shares of Nvidia among other chipmaking peers. Intel, however, bucked the trend by printing results that were better than expected as the turnaround shows some life.

Bristol Myers Squibb beat expectations, driven by strong sales of established drugs like blood thinner Eliquis and cancer treatment Revlimid. Amgen also reported solid results with total quarterly revenue of $8.5bn (+23% year-on-year), and profits were materially above consensus.

Eli Lilly has been one of the best performing shares of recent times but shares fell as sales missed expectations.

Keyence, the automation specialists, announced a 16% increase in its dividend as it reported a continuation of its strong performance and earnings above expectations.

Estee Lauder closed down 21% after reporting results, removing guidance and cutting the dividend. Q1 net sales of $3.36bn were in line with consensus estimates but organic sales in the quarter declined 5% vs 4.1%  expected. The company gave guidance that was well below expectations while withdrawing its full year outlook, citing uncertainty in China. Electronic manufacturer, Philips, also warned on Chinese profits (guiding to 1.5% from 5%) sending shares lower.

Uber’s shares fell after a decent journey as ride numbers came in lower than the market wanted.

Reckitt Benckiser shares surged after a US jury rejected claims against its infant formula division.

Boeing look to have ended the strike action by reaching a tentative deal with the unions which included a 38% pay rise and $12,000 signing bonus.

Berkshire Hathaway’s cash pile has grown to $325.2bn due to further sales (including 100m Apple shares!) in the quarter.

CLOUD SPEND

All three major data centre spenders reported this week:

Microsoft shares were a little weak despite annual revenue growth of 16% and significantly higher profits. They even guided to Azure (cloud) annual growth of 31%-32% next quarter. Capital expenditure, predominantly on AI, was $20bn – and the markets needs to gain some confidence that all this spend will produce a decent economic return

Alphabet shares rose as they reported sales ahead of expectations (total revenue of $86.4bn for the quarter which grew 15.1% when compared to the same quarter last year). Google Cloud revenue was $11.4bn which has grown 35% year-on-year

Amazon shares also rose as they grew revenues 11% year-on-year. Within that, Amazon’s cloud business (AWS), which is the largest cloud company, grew revenues by 19%, and the considerable cash flow is starting to come through

THINGS CAN ONLY GET DEBTER

UK government bond yields rose to around 4.5%, their highest in over a year, as a series of government bodies and other think-tanks suggested that the chancellor’s “tax and spend” budget will not raise as much tax as she expects. The Office for Budget Responsibility (OBR) have suggested that the net effect of the employer’s National Insurance (NI) increase is much less than it appears because it results in lower pay and hence lower income tax and employee NI. If you knock-off another c. £6bn for compensating public sector employers and Ms. Reeves’ anticipated £25bn annual tax take could fall to around £10bn.

Perhaps more worryingly is the fact that the extra spending revealed by the chancellor could give only a short-term lift to the economy. Assessing Rachel Reeves’ policies, the OBR said the economy would expand at the same rate as predicted in March by the end of the parliament, despite a £70bn-a-year rise in spending.

In rough terms, the new government will pump up public spending by around £70bn a year over the next five years and borrow an extra £142bn to help pay for it – meanwhile ending up with a slightly smaller economy at the end of the decade than the OBR was originally forecasting.

Bond yields have risen - the UK spread over German Bunds is now at a similar level to that reached in the aftermath of Kwasi Kwarteng’s disastrous mini-budget in 2022.

THE WEEK IN HISTORY

1976: Ronald Wayne sold his 10% stake in Apple for $800. Today it would be worth around $343bn

2012: the New York Stock Exchange shuts down for Hurricane Sandy. The market would remain closed the next day as well, making it the first time in 124 years that weather had led to a two-day shutdown of the New York Stock Exchange

As at 1^st November 2024. Source: InFront