News & Insight • Weekly Newsletters

27 September 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

The Red Dragon has woken up. The Chinese central bank unveiled a broad package of monetary stimulus measures which included cutting short term interest rates while also announcing plans to reducing bank restrictions (lowest capital ratios levels since 2018). It was the first time both measures were unveiled at the same time since 2015. Authorities also announced property sector support which included lowering borrowing costs on $5.3tn worth of mortgages. It was also announced that the Central Bank would provide $113bn of liquidity support for stocks in the form of a stabilisation fund.

The US personal consumption expenditures price index fell to 2.2% in August, lower than expected (2.3%) – with core up slightly to 2.7%. The market reacted by pricing in a further 0.5% rate cut at the next meeting in November.

European data continues to be poor as Manufacturing PMI was 44.8 vs 45.7 expected and down on the prior month with a Services PMI of 50.5 below consensus estimates and the prior period, taking the Composite PMI to 48.9. The Olympic bump in France has been firmly forgotten.

Shigeru Ishiba, a 67-year-old veteran MP, was confirmed as Japan’s new Prime Minister. He favours higher interest rates.

Gas prices may be rising globally, however the price for oil dropped dramatically this week following a FT report that Saudi Arabia was withdrawing from its $100/barrel price target as it wants to increase its market share.

COMPANY NEWS

A sellers’ market at Rightmove as the company says it will start talking to REA Group (Australian conglomerate led by Rupert Murdoch) after the latter made an increased third cash and share bid for £6bn on Monday (rejected) which was then upped to £6.2bn on Friday.

Halma is probably one of the best UK compounders and results were typical, with further progress made in the first half of the year, good sales growth combined with a higher margin leaving full year guidance unchanged.

The UK’s Compass is the number one player in the catering sector; however rumours were circling that Sodexo and Aramark – the number two and three in the market – were potentially looking at merging.

Mecedes Benz became the latest European automotive manufacturer to cut guidance as it now expected full year return on sales of 7.5-8.5%, down from the prior guide of 10-11%. VW followed suit, announcing another downgrade to guidance.

Visa has been one of the best performing companies in the US market but their debit card dominance was rumoured to be being called into question by the Department of Justice. Allegations include that Visa made exclusive agreements to hinder the expansion of competing card networks and thwarted efforts by tech companies to enter the market.

The luxury sector performed very well this week – please see Chinese Takeaway later – but shares in Swatch got a bigger boost after it was reported that CEO Nick Hayek was considering taking the business private.

Shares in FanDuel, Betfair and Paddy Power owner, Flutter Entertainment, went higher after a positive update as they continue to reap the benefits of legalised gambling in America. The company announced that it expected to generate annual revenue growth of 14% to $21billion in 2027 whilst announcing a new $5billion share buyback programme (over the next 3-4 years). Management commented that they expected the US sports and online casino market to reach $63billion at maturity, up over 50% on its prior forecasts, with the wider industry expected to reach $368billion by 2030.

AI CORNER

Mixed news in the sector as Accenture and Micron results offset further legal issues with former darling, Super Micro Computer, after it was confirmed that US regulators had opened an investigation that appeared to be connected to a former employee around accounting violations.

Accenture’s revenue rose 2.6% to $16.41bn, in line with consensus estimates with revenue expected to grow 3-6% (3% would be from acquisitions). The highlight was the growth in Generative AI sales which had grown to $900m from $100m a year ago.

Shares in Micron finished significantly higher as results beat expectations across the board. Revenue rose 93% to $7.75bn, gross margins in the quarter were 36.5% vs 34.7% and revenue guidance of $8.5-$8.9bn again was above consensus. Management commented that they were entering fiscal 2025 in the best competitive position in the company’s history.

CHINESE TAKEAWAYS

Following the stimulus news mentioned earlier, stocks with exposure to the Chinese economy rallied strongly – these were mainly luxury goods companies that have relied on the Chinese consumer in the past but also mining stocks as investors cheered the incentives declared by the ruling party of the second largest economy.

Over the week European luxury stocks such as LVMH, L’Oreal, Estee Lauder rose 14.4%, 7.5%, and 8.7% respectively. Admittedly after this bump they have still fallen 4.1%, 9.9%, and 31.7% this year. Even Japanese beauty company Shiseido rose 11.3% this week to only be 9.8% down year to date.

Mining stocks such as Rio Tinto (mainly iron ore) and Freeport McMoran (copper) returned 5.1% and 5.5% whilst UK listed Burberry (22%), Prudential (11%) and Fidelity China Special Situations (21%) didn’t do too badly either!

The Hang Seng (Hong Kong) had its best week in 15 years – up 12.8% – however more impressively the CSI 300 index (Shanghai/Shenzhen) rose 15.7%, which was the largest weekly gain since November 2008.

THE WEEK IN HISTORY

1873: The Times reported that “Wall Street was the liveliest place in New York” as the early days of what is known as the Financial Panic of 1873 took hold. The New York Stock Exchange was forced to suspend trading for the first time in its history and the crash precipitated a depression that lasted for six years

2015: Volkswagen admits it has 11m cars worldwide fitted with devices to fake emissions