News & Insight • Weekly Newsletters

04 October 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

• Middle East tensions escalated with Israel invading Lebanon. Oil spiked on the news, sending it 10% higher on the week
• The US economy is proving to be more resolute than expected. In the closely watched release of September Non-Farm Payrolls the figure of 254,000 were much higher than the expected 140,000. The numbers in August (142,000) were bumped even higher to 159,000 and July (89,000) to 144,000
• New Japanese Prime Minister Ishiba has achieved the lowest approval rating ever after his first week in office. Having initially made negative comments regarding the nuclear power industry Mr Ishiba has apparently reversed his position
• French President Emmanuel Macron endorsed a temporary tax on the country’s largest companies, supporting the government’s strategy. The French government announced plans of €60bn in spending cuts and tax hikes next year in an effort to lower the budget deficit and increase investor confidence in the country – with French bonds yielding a similar figure to the Spanish (there is usually a gap). Just under €20bn would be generated by tax rises on wealthy individuals and large companies. Macron commented that “having an exceptional taxation on corporates is something which is well understood by large companies if this is for one year, given the level of effort which should be made”

COMPANY NEWS

• A typical ‘kitchen sinking’ from Nike before Elliot Hill takes the helm on 14^th October as it withdrew its full year guidance and cancelled its investor day in November. Shares were down 6.8% as revenue fell 10% to $11.6bn
• Tesco stock traded higher after their impressive results with operating profit at £1.65bn v £1.53bn expected – with a boost from the banking division. The disappointment at Booker and UK & Ireland was swerved by the rest of the business and management then upped guidance
• More car crashes in the automotive sector as Stellantis (Fiat, Citroen, Alfa Romeo, Jeep, Vauxhall, Maserati, Peugeot, Chrysler etc) and Aston Martin both warned on profits. Stellantis continue to lose market share and, in an effort to regain prominence, had cut prices which has led to big cash flow losses. Shares fell 15.5% as margins would be 5.5% to 7% rather than the originally announced 10%. It also said that free cash flow would be negative, from minus €5bn to €10bn, rather than the previously positive figure. Aston Martin plunged by 24% following the news that it would cut its planned production by around 1,000 cars for this year
• French companies are under pressure from their government to pay more tax (see Macro), and Orange seems to be feeling the squeeze from its competitor Bouygues who announced lower priced tariff plans
• Shares in Levi Strauss fell by 8% as revenue declined 1.2% to $757.2m vs $784.8m expected. The company also lowered its full year guidance, now seeing revenue growth of 1%, down from the prior guide of 1-3% growth
• Humana shares were in free fall after seeing a drop in its Medicare Advantage quality ratings. In an annual review by the Centers for Medicare & Medicaid Services, Humana’s quality ratings that drive bonus payments were cut dramatically with the number of members in highly rated plans generating extra revenue declining to around 25%, down from 94% in the last assessment
• Struggling leather handbag specialist, Mulberry rejected an opportune bid of £83m from Frasers Group (who already own 36.8% of the business)
• Rightmove closed down 7.7% after REA confirmed that it was stepping away from any potential acquisition

NO COAL THE GOAL

The last remaining coal plant in the UK closed its doors this week, marking the first time a G7 member has completely ended its reliance on coal. The first coal plant lit London’s streets in 1882, and coal went on to provide almost all the UK’s electricity for much of the 20^th century. Recent statistics suggest that it still made up 80% of the grid in the 1980’s and as much as 40% in 2012.

The American grid dropped from 56% coal-powered in 1985 to about 16% in 2023, per an MIT Technology Review analysis of information from Our World in Data.  Coal-burning among the 38 countries in the OECD has halved since peaking in 2007. Several smaller member-states, including Belgium, Austria, Sweden, and Portugal, already went coal-free in the past decade.

Meanwhile, Chelsea FC are anything but cole-free. Cole Palmer became the first player in Premier League history to score four goals before half-time vs. Brighton last Saturday.

RECESSION DEBATE

China passed the baton onto the US this week in macro as various economic data releases (JOLTS, ADP, and non-farm payrolls) all showed a resilient jobs market reminiscent of 2017-2019, while the survey data continues to put up false economic warnings fruitlessly seized upon by bears.

The Labor Department's Job Openings and Labor Turnover Survey, or “JOLTS” report, unexpectedly increased in August after two straight monthly decreases. Meanwhile, the ADP jobs report showed that privately owned businesses in the US added a higher-than-expected 143,000 new jobs in September. Finally, the non-farm payrolls report suggested that the US economy overall added 254,000 jobs in September (against 140,000 expected), while the country's unemployment rate slightly cooled down from 4.2% in August to 4.1% last month.

The usual slightly confusing messaging from the Bank of England. The pound fell earlier in the week after Governor Andrew Bailey told the Guardian newspaper that more good news on inflation could allow the central bank to be "a bit more activist" in its approach to rate cuts. Bailey also told the Guardian he was encouraged that cost of living pressures had not been as persistent as previously thought. Then on Friday the pound rallied a bit as Huw Pill, the Bank of England’s chief economist, warned against cutting interest rates “too far or too fast”.

No further news out of China which was closed all week for national holidays during what is called “Golden Week”. But the Hong Kong based Hang Seng index continue to tick upwards on the back of China’s massive stimulus package. 

THE WEEK IN HISTORY

• 1960: City commuters’ “favourite” The Drain is completed and starts transporting early risers from Waterloo to Bank
• 2008: President George Bush signs the TARP (Troubled Asset Relief Program) bill into law. The $700bn dollar bill provided an infusion of capital into the troubled banking system by purchasing subprime mortgages from banks

As at 4^th October 2024. Source: InFront