News & Insight • Weekly Newsletters

17 May 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

• A slightly softer US CPI release lowered fixed income yields and helped risk assets. Core prices gained 0.3% in April, raising hopes that inflation may be on the wane
• The UK March unemployment rate rose slightly to 4.3%. Data also showed that job vacancies declined below 900,000 for the first time in around three years with inactivity rising to 9.38m, up 104,000 on the prior quarter while 22,000 working days were lost to strike action in March, the lowest since April 2022
• Bank of England Chief Economist Huw Pill indicated a potential rate cut by the Bank of England over the summer, stating that a cut was on the table as Bank of France Governor François Villeroy de Galhau stated that it was very probable that the ECB would lower rates in June
• Chinese real estate stocks rebounded, and general sentiment was boosted by rumours that the Chinese government would authorise local governments to purchase unsold houses
• Copper, uranium and silver rallied strongly

COMPANY NEWS

• Siemens reported second quarter results as revenue was slightly below estimates across all three business units with better than forecast profitability in the Smart Infrastructure division. The company left headline full year guidance unchanged while increasing guidance for Smart Infrastructure and cutting forecasts for Digital Industries. Management commented that destocking by customers of Digital Industries’ automation business was now likely to continue into the second half
• SONY, the Japanese conglomerate, had a mixed set of results with PS5 results slightly missing but music continuing to sing a merry tune
• Future and Watches of Switzerland, who are both listed in the UK and have had their recent troubles, had decent results and shares traded materially higher
• Alibaba announced their Q4 earnings with revenue increasing 7% year over year; however, earnings and net income disappointed. In contrast, fellow Chinese stocks, Tencent, Baidu and com all beat earnings predictions
• Home Depot had in-line results and left its full year guidance unchanged, with comparable store sales forecasts to decline around 1% and EPS forecast to grow around 1% as management commented that the quarter was impacted by a delayed start to the spring and continued softness in certain larger discretionary projects
• Cisco are cheaply rated compared to their peers and had another set of poor results but on the positive side they beat (very low) expectations
• The retail machine that is Walmart had very good Q1 results with earnings per share $0.60 vs $0.53 expected with revenue rising 6% to $161.51bn, slightly above consensus estimates. Management commented that results were not inflation driven and they were seeing higher income customers trade down to Walmart
• John Deere reported second quarter results which were slightly underwhelming. Net income declined 17% to $2.37bn vs $2.16bn expected. However, the company cut its full year guidance, as management commented that they were “proactively managing our production and inventory levels to adapt to demand changes and position the business for the future”
• Brave Bison, the media company, tried to buy rival, The Mission Group, with the bid being rebuffed
• BT’s results were better than expected – please see The Short Squeeze below

THE SHORT SQUEEZE

Not to be confused by an over enthusiastic cuddle with something that is vertically challenged, this financial term has resurfaced on the back of US investor Roaring Kitty and results from BT – probably the only time these two have been put in the same sentence!

A ‘short’ is where an investor believes that the price of an investment is too high and therefore stakes that the price will fall. They borrow (for a fee) the holding from someone else, sell it, and then hope that they can then repurchase it for less in the future. If the shares rise this position becomes more painful for the shorter as they have to buy back and return the holding at a higher price – hence ‘short squeeze’.

Roaring Kitty has tended to target companies where there is a large percentage of stock out on loan and announced they had come out of retirement by posting an image of a man leaning forwards to his computer – sending previous targets like Gamestop (which were still being shorted) materially higher.

In the same vein, BT’s CEO, Allison Kirby announced she “loves to squeeze the shorts” as results came in better than expected and then boosted the dividend sending shares up 17%. It was reported that there were approximately £300m of shares short on the eve of the results.

THIS WEEK IN HISTORY

1801: William Hammond, chairman of the Committee of Managers, laid the first foundation stone for the new London Stock Exchange building

1949: The UK’s Labour Party formally votes to expel two MPs – Konni Zilliacus and Leslie Solley – after they voiced their opposition to the establishment of the North Atlantic Treaty which would go on to create NATO

MARKET DATA

As at 17^th May 2024. Source: InFront

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