News & Insight • Weekly Newsletters

11 October 2024 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

• China’s CPI (consumer price index) was up 0.4% year on year in September, lower than the forecast 0.6% gain, putting more pressure on the Chinese authorities to inject more stimulus measures. There was a Ministry of Finance meeting over the weekend which stated there would be more spending, but detail on quantum was left out
• The US CPI reaction was rather muted as it came in at 2.4% year on year, slightly higher than expected. This led market participants to shift their expectations more towards a 0.25% rate cut at the next Fed meeting
• The Japanese snap election is due on the 27^th October and the position on nuclear power seems to be a major talking point following the U-turn by the prime minister. The newly appointed industry minister announced the renewal and expansion of the use of nuclear power
• As we tick the days down to the UK Budget (30^th October) rumours are circulating. The most recent being the rise of National Insurance contributions from employers (contrasting against employee contributions which would do against the new government’s pledge not to tax working people)

COMPANY NEWS

There are some companies that are a brilliant barometer of economies. Fastenal, which produces fasteners - one of its biggest revenue generators - alongside other products such as protective wear and communication equipment, posted a third-quarter profit that marginally surpassed analysts' estimates as its daily sales rate rose 1.9%

Things are not going well at Boeing. They walked away from union talks this week and had their debt earmarked for a downgrade to junk. As a result of this they will cut 17,000 jobs (about 10% of the workforce) and delay delivery of its 777X jet. Uncertainty surrounding the aviation sector was also to blame for the profit warning at Senior, the fuselage manufacturer – sending shares 15% lower

 The US Department of Justice confirmed it is looking to break up Google owner Alphabet as part of its antitrust case against the tech giant, after it believes the company is operating an illegal monopoly

GSK shares headed higher after the company agreed to settle the majority of its Zantac litigation. It agreed to pay as much as $2.2bn to resolve around 80,000 US court cases alleging that the drug was contaminated with a suspected carcinogen – and that by settling the case they didn’t have to admit guilt

Rio Tinto said that they wouldn’t get into the M&A competition recently but have spectacularly gone back on their word by agreeing to buy Arcadium Lithium for $6.7bn in cash and would pay $5.85 per share, a 90% premium

Kering is Gucci, and the latter hasn’t been performing very well. It announced that former LVMH executive Stefano Cantino would become the new CEO, replacing Jean Francois Palus, who had been appointed on a temporary basis last year

Interesting news from over the North Sea as Equinor acquired a stake worth as much as $2.5bn in Orsted, the wind energy company, with the deal equating to a 10% stake

TRUST ISSUES

A US federal judge ruled that Google must make it easier for developers of mobile-app stores to compete on phones and tablets that use the company’s Android software.

The injunction issued on Monday is the result of Google losing an antitrust case—brought by “Fortnite” developer Epic Games—during a jury trial last December. Epic, which operates its own app store, argued that Google used its power over Android to take excess profits from app developers through its Play Store. Google has said it plans to appeal the ruling.

Monday's order is the latest legal blow suffered by Google in recent years on competition grounds. In August, US District Judge Amit Mehta sided with the US Department of Justice, which accused the company of operating an illegal monopoly in online search. Last month, District Judge Leonie Brinkema finished hearing arguments over similar government allegations that Google dominates the advertising technology market.

EUROPEAN VROOM (EV) DOOM

Using cheap Russian gas to manufacture and then distribute to China used to be very easy for European car producers. This has changed. We have mentioned the flurry of profit warnings – Stellantis, BMW, Mercedes etc – and data released recently showed that sales in China for European automakers declined sharply last quarter. Data indicated that sales of BMWs and Minis recorded their sharpest declines in over four years, falling 30% in the third quarter in China, compared to falls of less than 5% in the first two quarters of the year as Mercedes deliveries declined 13% due to weak demand for higher priced models. The data also showed that EVs and plug in hybrids rose to over 50% of car sales in China, as government incentives boosted domestic demand.

This was clear when looking at Porsche’s (which is a subsidiary of VW) Q3 sales as they fell to the lowest figure for this period in 10 years. Sales for the electric Taycan model dropped by 47%, due to the lack of demand for electric vehicles (EVs) in Europe and the US. From January to September this year, the company delivered 43,280 vehicles in China, which was a fall of 29% from the first nine months of 2023. Porsche delivered 61,471 vehicles in North America, which was also 5% less than the same period last year. It wasn’t all bad news as CityAM reported that Porsche sales in the UK helped the luxury car maker’s UK revenue accelerate to almost £1.92bn, up from the £1.34bn it achieved in 2022. Its pre-tax profit jumped from £24.4m to £44.6m over the same period as the number of cars sold rose from 17,940 to 23,495.

THE WEEK IN HISTORY

1957: The Soviet Union takes the world by surprise as it launches Sputnik-1. The world's first artificial satellite was about the size of a beach ball, about 23 inches in diameter and weighing less than 190 pounds

1982: The Dow Jones Industrial Average closes above 1,000 for the first time in nearly a decade, finally recovering from the brutal 1973-1974 bear market. This was one of four periods since 1900 where the US stock market has given a negative 10-year return

As at 11^th October 2024. Source: InFront