News & Insight • Weekly Newsletters

13 September 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

A week is a long time in politics, but the same can be said for economics. On Wednesday, US August CPI data was a 0.2% increase since July (in line) and 2.5% since last year, also in line with consensus estimates. Data showed that shelter inflation increased to 0.5%, the highest since the start of the year and “the main factor” for the overall advance in inflation. Markets reduced the odds of a 50bps rate cut at the Fed meeting next week and are now pricing in 29bps of cuts. However, by the end of the week the 50bp rate cut rhetoric was back. As expected, the ECB confirmed that it would reduce rates by 25bps, bringing the main deposit rate facility to 3.5%. It also called the cut as “another step in moderating the degree of monetary policy restriction” and “would keep policy rates sufficiently restrictive for as long as necessary” to bring inflation back to 2%.

With the uncertainty in both the Euro and Dollar it has been interesting to note the strength of Sterling since the UK election. In the same vein, Gold again hit all-time highs ($2,586/lb)

COMPANY NEWS

More merger and acquisition activity in London as Centamin, the precious metal miner in Egypt, was approached by AngloGold Ashanti for £1.9bn.

Campbell Soup, the 155-year-old company and one of the most famous names in the US corporate world – perhaps due to Andy Warhol imagery – has decided to drop soup from its name as the company becomes more diverse.

The stock market is still trying to work out AI winners and losers. This week we had an answer – Oracle is a winner and Adobe is a loser. Oracle closed up 11.4% after reporting results that were better than expected with adjusted revenue rising to $13.31bn. Cloud Infrastructure revenue growth was 46% vs 45.7% expected with Cloud revenue growth of 22% in line with consensus as remaining performance obligations ended the quarter at $99bn, up 52% on the prior year. Adobe’s shares fell 10% due to poor guidance as the potential profits from AI will take longer to materialise.

Shares in Moderna, the vaccine maker, dropped 17% as it pushed back its cash break-even goal by two years as it delayed the timeline for developing several key products and predicted 2025 sales below its forecast for the current year, sending its shares closer to a four-year low. It also cut its research and development budget.

We have mentioned the struggles in the liquor sector and therefore it will have been no surprise that a mixers company had a poor update. Fevertree closed down 11.6% after reporting first half results as revenue of £172.9m was below consensus estimates. Gross margins of 35.9% were below forecasts.

Under Armour, the sportswear brand, had a poor update and shares fell, highlighting more pressure in the sector

Rentokil Initial, the pest control company, is struggling to integrate its US purchase of Terminix and released a carbon copy profit warning from a year ago. The shares fell 20.1% as the company stated that it now sees full year adjusted  operating margins of around 15.5% vs the 16.2% expected with North American margins expected to be 17.2%, also below consensus estimates as organic growth was now forecast to be 1% in the second half.

DRIVE THROUGH

We have mentioned regularly the future for European car manufacturers is looking fragile due to the continued increased in competition from China. Shares in BMW finished 11.2% lower after cutting its guidance, stating that it now sees its automotive earnings margin of 6-7%, down from prior guidance of 8-10% and below the 8.4% expected. The company commented that it saw ongoing muted demand in China that was affecting sales volumes and that full year auto segment deliveries were now expected to decline slightly compared to the prior year vs the increase previously expected.

VW closed down 3.4% after announcing that it would terminate its German job security agreement at the end of this year and would also terminate several wage agreements as it looks to cut costs.

MAIN STREET BANKING

It’s not as though the market wasn’t warned! CEO Jamie Dimon has continuously stated that the market was on the optimistic side when looking at his bank’s (JP Morgan) metrics. The market woke up this week as shares in the bank fell 5.2% after President Daniel Pinto stated that current 2025 net interest income and expense estimates were too optimistic given interest rate expectations. Pinto also noted that investment banking fees could rise 15% in Q3 with markets revenue rising 2%, both below estimates.

Across Wall St, Goldman Sachs finished 4.4% lower after stating that it expected trading revenues to be down 10% in the third quarter from last year. Morgan Stanley’s Co-President Dan Simkowitz stated at the same conference that revenue from the merger advisory and IPO businesses would remain below historical averages while net interest income in the wealth division would decline again in Q3.

In Europe we have been told there should be mergers happening for some time and finally it looks like there might be some action after it was announced that UniCredit had taken a 9% stake in Commerzbank. It was reported that UniCredit acquired a 4.5% stake from the German government so it should get regulatory approval.

THE WEEK IN HISTORY

1896:  Reputedly the first ever car race, staged over 5 miles in Cranston, Rhode Island, was won by an electric car. Seven cars entered the race. Along with the winner made by Riker Electric, there were five internal-combustion cars and one other battery-powered machine, this one built by the Electric Carriage and Wagon Company

2008: Bank of America confirmed it would pay $29 a share to acquire Merrill Lynch, which was a 70% premium on its closing price, but a third of what it was worth a year ago

As at 13^th September 2024. Source: InFront