News & Insight • Weekly Newsletters

17 January 2025 | Charlie Todd | William Buckhurst

That Was The Week That Was

MACRO

China’s GDP growth hit exactly the 5% target as the economy recovered remarkably. The country’s trade data also beat expectations with exports rising by over 10% and imports gaining 1% giving an overall trade surplus of $104bn, better than expected. There is a sense that Chinese data is now less bad than expected with several industries trading off their lows – see the luxury sector (Richemont) for details.

The Yen rallied strongly against international currencies in advanced of the first Bank of Japan meeting of 2025 which takes place on the 23^rd and 24^th, and where rates are forecast to go up from 0.25% to 0.5%, with many analysts expecting another move to 0.75% in the Summer. Deputy Governor Ryozo Himino spoke to business leaders in Yokohama stating, “the board will discuss whether to raise interest rates next week and reach a decision, based on the economic and price projections laid out in our quarterly outlook report.”

UK economic data continues to be poor and November GDP growth was 0.1% vs 0.2% expected the economy having marked time over the quarter and it is still smaller than it was in June. Industrial and Manufacturing numbers were muted with further deterioration in Chemicals. The ONS stated that “services grew a little, with wholesaling, pubs & restaurants and IT companies all doing well, partially offset by falls in accountancy and business rental & leasing.” With Sterling falling and international earnings therefore being exaggerated the UK’s leading stock index hit all-time highs.

COMPANY NEWS

Banks always get US reporting season under way and earnings all came in better than predicted. Stand out results were Citigroup, Morgan Stanley, and Goldman Sachs. Most mentioned that consumer spending had stayed healthy, and that inflation may persist for some time. Morgan Stanley said their M&A pipeline was the largest in seven years. Other comments worth noting were that Wells Fargo suggested loan growth remains very weak, Citigroup announced a $20bn share buyback, whilst assets in the wealth and asset management division at Goldman rose to a record $3.1 trillion

Richemont shares rose 16.4% after quarterly results with overall sales of €6.15bn well above consensus estimates. Jewellery and watch sales were better than forecast as most geographies outperformed. Most importantly for the sector APAC (Asia Pacific which includes China) sales only declined 7% versus 16% forecast. Richemont’s results boosted the entire sector with LVMH, Moncler, Burberry, and Hermes also rising between 5-10%

Schlumberger, the oil services group, announced brilliant results, beating across most metrics announcing a buy back and an increased dividend

BP told a similar tale to others in the sector as Oil Production came in lower than expected but announced 4,700 job cuts (5% of its workforce)

Toyota is one of the main exporters on the Japanese market and was negatively impacted by the strength of the yen. Their subsidiary Hino has agreed to pay a fine of over $1bn having pleaded guilty to charges of manipulating emissions data in the US

Taiwan Semiconductor announced strong results but more importantly provided a capex guide of $38-$42bn, above the $35bn expected, leading to a rally for semiconductor equipment sector stocks

JD Sports fell after a trading statement. The company stated that it now expects profit before tax of £915-£935m, down from £995m due to sales in UK and US

Eli Lilly shares also fell after providing guidance at the JP Morgan Health Care conference that sales from its main drugs would be below consensus. Management had anticipated faster growth, but inventory is now low

Ocado finished 9.5% higher after issuing its Christmas trading update, increasing retail sales 17.5% to £715.8m

It was reported that some Nvidia clients were delaying orders or looking to buy older generation AI chips

TIKTOK BLOCK

A law that will effectively ban TikTok in the US is set to go into effect after a failed bid to save it in the Supreme Court. However the Biden administration reportedly said it will defer enforcement of the law to President-elect Donald Trump, who's also signalled a willingness to save the app.

In advance of the news, China suggested it would consider selling the US business of TikTok. While officials would prefer it remain under the ownership of ByteDance, they were evaluating the possible option of selling the US business to Elon Musk. Meta and Snap both fell in reaction whilst Tesla fell 1.7% and the market anticipated more distractions for Mr Musk. (Meta also announced that they planned to cut another 5% of their staff).

For readers information, Scottish Mortgage has a 2.8% position in Bytedance Ltd which owns TikTok.

MERGERS & ACQUISITIONS

As mentioned above, Morgan Stanley said their M&A pipeline was the largest in seven years and in this section, we list how busy these investment banking divisions are: 

After the banks giving the US economy continued praise it was no surprise that construction equipment lessor, United Rentals had decided to spend and agreed to acquire H&E Equipment Services. The deal for $92 per share in cash, giving the business a value of around $4.8bn, was more than double H&E’s trading price. Even though they are paying in cash United Rentals noted that it would not impact its current dividend. It is now up to rivals, Ashtead (who are UK listed but moving to the US) to show their hand but most thought it unlikely due to the deal premium and its M&A focus being on non-construction.

One rumour that caught our attention was an unsubstantiated media report that Rio Tinto (£80bn market cap) might tie up with Glencore (£46bn). According to a report on Bloomberg, they have been discussing a combination, which would rank as the largest ever mining deal. Apparently, the companies held early-stage talks and it is not known if the discussions are still alive…

THE WEEK IN HISTORY

1825: Ezra Daggett and Thomas Kensett obtain a patent for the preservation process used to store food in tin cans.

1911: The first aircraft landing on a ship's flight deck was performed by American pilot Eugene Ely on the battleship Pennsylvania in San Francisco Bay paving the way forward for Aircraft carriers.

As at 17^th January 2025. Source: InFront