Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

October 25, 2022

China Crisis?

Overnight & Macro

Anything China related is getting battered. Xi’s re-election, although expected, has worried markets in the concentration of power among a small group of acolytes. The economy is growing below trend, the currency is trading at a low not seen since 2007, and now we have increased investor fears of tighter regulation and prolonged COVID restrictions. If we add to this concern regarding the domestic real estate and banking sectors and the growing impact of an ageing population, there is increasing evidence of a full-scale China crisis brewing. (The eponymous 1980’s new wave synth pop band is still doing UK tour dates). US-listed Chinese ADRs were pummelled overnight with double-digit declines among prominent tech names.

US PMI data evidenced a weaker US economy. However, the market latched onto this news as reason the Fed will pause rate hikes. The US $ remains strong.

Energy markets were weaker again, with oil drifting lower and natural gas for immediate delivery in Europe trading below zero. There is no more storage capacity as the weather remains warm and windy, and LNG carriers are moored off Cadiz, unable to offload their cargoes. Much depends on the nature of China energy demands in the next few months.

The UK got its third Prime Minister this year yesterday, but the bond market vigilantes have moved on. UK currency and gilt markets remained steady. With gilts yields back to the pre-Truss era and below other developed market benchmarks.

UK Company News

HSBC reported a decline in profit and revenue in the third quarter, but the bank continues to remain positive for the full-year.

Building material supplier Genuit, reported sharply lower  Q3 trading and now expects profit for the year to be at the lower end of analyst expectations.

Enterprise software supplier Active Ops reported trading in line with its expectations and on target to turn run rate EBITDA positive at the end of this current financial year.

Holiday provider On the Beach expects PBT performance to be in line with market expectations.

Online retailer and fulfilment provider THG stated that fourth quarter has started positively, and are well positioned to meet the significant uplift in demand anticipated during the cyber period. They have recently announced £156 million of newly negotiated debt, and there has been a spate of insider equity buying.

Hospitality provider Various Eateries is confident of delivering further progress in top line growth but lowered margin expectations as they struggle to push through price rises in excess of inflation.

Whitbread demonstrated strong Premier Inn performance and remains confident of current trends, expect decent  upgrades.

IT provider Softcat guided an in line outlook but  lower cash conversion. They continue to manage expectations well in a choppy market.

PROGnosticator

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