News & Insight • Weekly Newsletters

10 November 2023 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

• Commentators are now suggesting economies have landed when the argument used to be whether it would be a soft or hard landing. Is the debate now around the speed of taxiing?
• Speaking at an IMF conference on Thursday, the Chairman of the Federal Reserve, Jerome Powell, stated that the Fed would continue to move carefully but would raise rates further if needed. Powell noted that “if it becomes appropriate to tighten policy further, we will not hesitate to do so” and that “we will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”
• UK GDP growth for the third quarter came in at zero which was slightly better than the market had been expecting
• China slipped back into deflation as official data showed that prices were down 0.2% on the same month last year

COMPANY NEWS

• Diageo shares tumbled as they released an unscheduled trading statement lowering guidance particularly in Latin America and the Caribbean
• The renaissance of Marks & Spencer continued after reporting half year results and announcing its intention to reinstate its dividend. Management commented that profit would be weighted toward the first half of the year while noting that market conditions might worsen
• Watches of Switzerland introduced a new “Long Range Plan” where it aimed to more than double sales and profits over the next few years. Management also commented that they expected the new Rolex Certified Pre-Owned programme to deliver sales CAGR of more than 35% and 25% in the US and UK
• Berkshire Hathaway reported results over the weekend. Q3 operating income increased by 7.1%, more than expected, with Insurance Underwriting operating income rising to $2.42bn. The results showed that Berkshire’s cash balance had increased to an all-time high of $157bn
• The foreign exchange benefits for Japanese exporters were highlighted this week by Sony, who missed analyst expectations but will benefit from the Yen weakness
• Zimmer Biomet had in line results. Quarterly revenue rose 5% year over year in constant currency, and was characterized by respectable 6% growth in the US
• Richemont released a statement showing a slowdown in volumes as tougher economic conditions start to bite
• UBS continue to try to conceal the benefits of the Credit Suisse deal as their quarterly earnings were $800m vs $200m expected, with total revenue of $11.70bn - above consensus estimates. Management commented that they had managed headcount down and that they remained on track to deliver on their plans
• ARM shares are now trading below their IPO price after announcing their first results since relisting. Revenue and earnings were better than expected but guidance was disappointing, and they also revealed a $500m cost for coming to the market
• Shiseido results were not good. Results and guidance were poor as the company struggles with the slow speed of the reopening of the Chinese economy
• Flutter Entertainment issued a trading update that disappointed the markets even though the majority of the business continued to grow, but guidance reflected “very customer friendly results” in Sports in September and October. Its competitor, Draftkings, on the other hand, surpassed expectations as revenue and earnings came in better than expected
• Warner Bros Discovery had very disappointing third quarter results. DTC (direct to consumer) revenue was $2.44bn vs $2.48bn expected with subscribers declining 700k. Management commented that the timing of a recovery was difficult to predict while Barbie was the highest grossing film for them ever. In the same sector, Disney announced that it had hired Hugh Johnston from Pepsi as its new CFO (and potentially Bob Iger’s successor) and had results that were better than expected
• Air Products disappointed as industrial gas sales in all regions were below expectations. This was highlighted by its Louisiana project now requiring a further $2.5bn due to project cost inflation
• Ryanair’s profit increased 59% y/y to €2.18bn for the first half of the year while the company also announced a maiden ordinary dividend. Management commented they planned to return around 25% of prior year profits by dividend whilst they also saw the potential for specials and buybacks. On a slight tangent there was another Irish winner this week as Denis O’Regan became the first jockey to ride a winner at every active jumps track in Britain and Ireland. Congratulations!

WE (DON’T) WORK

As predicted, WeWork filed for bankruptcy this week. Directly related to this, SoftBank announced a US$6.2bn loss last quarter, which included a US$1.6bn write-down of WeWork.  Given that Masayoshi Son, Softbank’s founder, invested over US$16bn in the firm (including US$1.5bn of fees to Goldman Sachs and other lenders) it is perhaps unsurprising that he has described this particular investment as “a stain on my life.”

A KING’S RANSOM

In June 2022, GCHQ declared Lockbit to be ‘almost certainly the most deployed ransomware strain in the UK’ Having targeted the Royal Mail earlier this year, it transpired this week that both Allen & Overy and China’s ICBC (considered the world’s biggest financial institution) have suffered attacks from this Russian-speaking ransomware syndicate. This week, the bank was unable to settle trades, and to limit market disruption, according to the New York Times they “put the details for trade settlements on a USB drive, and had a messenger deliver it to clients so they could close out the transactions”

THIS WEEK IN HISTORY

1919: This week marks the peak of the post-World War One relief rally in stocks. From this week onwards, world equities would almost half over the next two years, finally bottoming out in August 1921. It took the global economy a couple of years to “reset”, but the subsequent economic boom that started in the early 1920’s would be one of the largest in history until the Great Depression of 1929

1983: Microsoft launches Windows. The original Windows software cost $99 and came with notepad, calendar, clock, cardfile, terminal application, file manager, a game of Reversi, Windows Write, and Windows Paint. It took a computer 15 seconds to switch between programs

MARKET DATA

As at 10^th November 2023. Source: InFront

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