News & Insight • Weekly Newsletters

20 September 2024 | William Buckhurst | Charlie Todd

MACRO

The Federal Reserve cut interest rates by 50bps, the first cut since 2020 sending the Dollar lower against the basket of international currencies and precious metals. Gold hit a new all-time high of $2,600/oz.

US retail sales unexpectedly rose in August as a decline in receipts at auto dealerships was more than offset by strength in online purchases, suggesting that the economy remained on solid footing through much of the third quarter.

The Atlanta Fed raised its third-quarter GDP growth estimate to a 3.0% annualized rate from a 2.5% pace after the retails sales data. The economy grew at a 3.0% pace in the second quarter.

The Bank of England decided to keep its rates the same at the latest committee meeting (with only one member wanting a 0.25% cut). UK retail sales rose by a stronger-than-expected 1% in August and growth in July was revised up.

After their rate hike in July was a contributing factor to the market turmoil in early August, the Bank of Japan left their policy rate unchanged, in line with expectations. Their statement warned of “high uncertainties surrounding Japan’s economic activity and prices” and said that “it is necessary to pay due attention to developments in financial and foreign exchange markets”.

COMPANY NEWS

Sometimes it is best to keep it in the family. Following Surrey County Cricket Club’s third consecutive championship win – first since Yorkshire 56 years ago – manager Alec Stewart (son of Micky Stewart, who also managed Surrey) is retiring at the top. In a similar vein Simon Wolfson, CEO of Next (and son of Lord Wolfson, a previous chairman) is doing a stellar job. The company upped its annual profit outlook for the second time in less than two months, thanks to surging sales overseas and a rebound in UK trading over recent weeks.  Next reported a 7.1% jump in underlying pre-tax profits to £452m for the first half as total group sales lifted 8%.

Nike announced that Elliott Hill, a Nike ‘lifer’, will become the new CEO as its turnaround efforts increase. He will focus on product innovation, marketing, and rebuilding wholesale partnerships — areas that suffered under previous leadership resulting in material under-performance in profitability and returns.

Two great compounders of the US market, Thermo Fisher and Union Pacific had their Capital Markets Days. Thermo stated that it expected to generate organic revenue growth of 7-9% and EPS (earnings per share) growth in the mid-teens over the long term as it served attractive end markets of $235bn. Union Pacific stated that it sees annual EPS growth to be roughly 10% with pricing dollars to be accretive to its operating ratio starting in 2025 alongside a $4-5bn share buy back.

Not the best week for Novo Nordisk after the company stated that its drug Ozempic was “very likely” to be one of the next drugs targeted for a price cut in negotiations with the US government’s Medicare programme. It also reported underwhelming phase 2 data on weight loss candidate monlunabant.

Intel announced a new partnership with Amazon while also confirming earlier reports around receiving military chip grant funding. Rumours were also circling that Qualcomm were looking at buying the $93bn business.

Shares in Accenture finished 4.8% lower yesterday after it was reported that the company was set to delay the bulk of its promotions by six months due to its outlook.

FedEx shares fell by 15% as it warned on the economic outlook for its business as customers are prepared to wait longer for packages to arrive (rather than express!).

FRUIT STALL

OpenAI is releasing a new artificial intelligence model known internally as “Strawberry” that can perform some human-like reasoning tasks, as it looks to stay at the top of a crowded market of rivals. This follows in the footsteps of a number of fruit-based monikers, not least the short-lived BlackBerry, the French telecommunications giant, Orange which looks to have finally got over its lumpy capital expenditure, and the now fairly elusive Raspberry PI. Oh, and there is one other technology company named after a fruit, with a chunk missing out of it that remains a core constituent of the American market…

NUCLEAR REACTION

The Uranium demand/supply dynamic is particularly tight and recent misses in guidance from Kazatomprom (supplier of 40% of the worlds production) have not helped matters.

However, nuclear related stocks have had a quiet summer but woke up this week as Microsoft announced that Constellation Energy will reopen the Three Mile Island nuclear power plant in Pennsylvania to provide power for their data centre expansion plans.

Large technology companies that own data centres have been finding it difficult to find locations that offer the quantity of carbon free power that they require – geothermal power in Iceland being one hotspot – and this latest message adds to the renaissance of nuclear message.

Joe Dominguez stated that “the decision here is the most powerful symbol of the rebirth of nuclear power as a clean and reliable energy source”.

THE WEEK IN HISTORY

2001: US markets reopen for the first time after the 9/11 attacks. Trading opened with a moment of silence followed by a singing of “God Bless America”. The Dow Jones closes the day down 684 points, at the time the largest 1-day point decline in history

2008: AIG is bailed out with an $85bn loan from the Federal Reserve in return for an 80% stake

As at 20^th September 2024. Source: InFront