News & Insight • Weekly Newsletters

25 October 2024 | Charlie Todd | William Buckhurst

That Was The Week That Was

MACRO

• 10-year Treasury yields rose as investors fretted over the prospect of increased fiscal deficits, regardless of who wins the US Presidential election on 5^th November
• US economic data continues to be stronger than expected. The US preliminary Manufacturing PMI was 47.8 vs 47.5 expected and slightly higher than the prior month with the Services PMI of 55.3 broadly unchanged on the prior period and above consensus estimates, taking the Composite PMI to 54.3, above forecasts. The report noted that “demand has also strengthened, as signalled by new order inflows hitting the highest for nearly one and a half years, albeit with both output and sales growth limited to the services economy"
• There were several quotes as central bankers headed to the IMF forum. ECB President Christine Lagarde stated that the direction of travel for rates in Europe was clear, but the pace was still to be decided. She commented that disinflation was on the right track and that recent numbers were “relatively reassuring”

COMPANY NEWS

Tesla had been the worst performing ‘Magnificent 7’ stock this year, that was until this week when Elon Musk referred to “slight growth” and beat some analysts’ (albeit pessimistic) expectations. Shares jumped 22% and there was even a mention of flying cars…

L'Oreal reported sales that fell well short of expectations following a more serious than expected deterioration in the Chinese market as overall like for like sales rose just 3.4% against expectations of a 5.9% gain. Sales in North Asia, dominated by China, fell by 6.5%, worsening from a decline of 2.4% over the previous quarter

Ray-Ban maker EssilorLuxottica and Salvatore Ferragamao also reported weak China sales over the last quarter

But have we found the bottom in the luxury sector share price falls? Kering shares finished 2% higher despite reporting poor results with Gucci Chinese sales declining 25%. Hermes was the standout in this reporting season (as they have tended to be) with more sales growth (+11.3%)

Newmont shares were the worst performing stock in the S&P 500 on Thursday falling 14% after reporting results that disappointed investors who were looking for better cost performance and more benefit from the recent strong rise in the gold price

Sanofi confirmed it had entered into exclusive negations with CD&R on the sale of its consumer health business based on an enterprise value of around €16bn.

Coca Cola reported third quarter results with earnings and net operating revenue of above consensus estimates. Organic revenue growth in the quarter was 9% vs 6.3% expected with unit case volumes declining 1% compared to the 0.4% forecast growth as price/mix was +10%, better than consensus estimates. The company increased its revenue guidance, now seeing full year organic growth of 10% vs 9.9% expected while leaving EPS growth forecasts of 5-6% unchanged.

Arthur J Gallager delivered results in line with earnings expectations and another solid revenue performance with a rise of 13% driven by organic and acquisition growth

MINING MISTAKES

Brazil’s federal government reached a settlement with the mining companies responsible for a 2015 dam collapse that resulted in a massive environmental disaster due to the release of toxic chemicals and also killed 19 people. Under the agreement, Samarco — a joint venture of Brazilian mining giant Vale and Anglo-Australian firm BHP — will pay 132bn reais ($23bn) over 20 years.

We have mentioned the rising price of gold almost continuously recently, but it seems like Newmont Mining – the gold and copper mining company – can’t seem to get a grip of their costs that are rising by a similar amount. The results should have been better, and the analyst call was poor leading the shares 14% lower on the day.

BIG MAC AND COKE

One of most famous culinary combos in the US diet was under pressure this week after McDonald’s announced an e-coli outbreak potentially linked to its products. The Centre for Disease Control in the US stated that a severe E-coli outbreak was likely tied to onions served on McDonald’s quarter pounders that lead to dozens of people becoming ill in Colorado and Nebraska and killing one person. Although McDonald’s stated that it was taking “swift and decisive” action to control the outbreak, the shares fell and affected its food pairing partner.

Coca Cola had good results, but the shares drifted lower on the week. McDonald’s is Coca Cola’s largest customer and the two companies’ symbiotic relationship has existed for over 70 years. Although CEO James Quincey said that the McDonald’s E.coli outbreak would not hurt its sales.

THE WEEK IN HISTORY

• 1962 President John F Kennedy announces the quarantine of Cuba beginning the standoff and negotiations that became known as the Cuban Missile Crisis
• 1990 the digging of the Channel Tunnel is completed. The company behind it, Eurotunnel, issued shares at £3.50 per share in 1987. By mid-1989 the price had risen to £11.00 but, following delays and cost overruns, the company was almost bankrupt by 1995