Markets ignore the Fed’s loaded weapon
Macro & Overnight
Markets continue only to see good news in 2023.
The US $ weakened, and yields declined on a CPI print broadly aligned with expectations.
Investors move back into risk assets ignoring the Fed’s warnings that they have a loaded weapon and are prepared to use it.
Oil prices continue to firm despite worse-than-expected inventory data. China’s reopening and economic stimulus measures are considered more significant factors than stock build in North America.
Data also showed the sharpest decline in China’s exports in three years (-10% year on year), further evidence of the need for a speedy reopening.
Elsewhere in Asia, Japan’s yields are blowing out again, and the currency has recovered further against a weakening $. Japan re-entering the real world of rising rates is vulnerable to financial dislocation. Something to keep a close eye on.
UK Company News
Chip developer Alphawave updated on an expanded customer base and a strong Q4. It remains confident in the outlook for the business and reiterated guidance at the midpoint of the current range.
Sofa seller DFS reported that its critical winter sale trading period started well, but the consumer outlook remains hard to predict. Profit delivery will be second-half weighted.
Commercial LED lighting supplier Dialight updated that revenue was significantly below expectations in December, the month it traditionally generates a significant proportion of its profit. It said it would focus on working capital reduction in 2023.
Low-cost housebuilder Gleeson completed the sale of 4% fewer homes than in the same period last year. This reflected the weaker market and considerably higher mortgage costs. Despite this, selling prices have remained stable. Gleeson Land continues to see strong demand for high-quality consented land from housebuilders looking beyond the current broader uncertainty in the housing market. It continues to secure land that meets strict hurdle rates whilst tightly managing working capital on land purchases and new build sites until there is greater clarity on the market’s recovery.
Logistics provider Wincanton continued to trade in line with expectations, with revenue growth of 5.5% and an increasing pipeline of new business opportunities. Despite the volatility and headwinds in the external environment, its diversified customer base continues to offer resilience, and it expects to report profits in line with market expectations.
Asset manager Premier Miton showed net asset inflow. There were some quite material differences across asset classes, equity funds saw outflows worse than expected, but fixed income saw inflows much better than expected. This an interesting anecdote of greater investor appetite for bonds in a world of structurally higher rates.
The recently suspended beauty products supplier Revolution Beauty updated on the result of the independent investigation into its collapse. The report focused on related party transactions and inconsistencies in working capital management. It concluded that several material adjustments to the FY22 results are required. In particular, those concerning inventory provisioning and revenue recognition. The new Board believes that Revolution’s commercial and product proposition for consumers, and relationships with its customers and suppliers, remain robust. It remains confident in the long-term prospects of the business. However, the shares are likely to remain suspended for some time.
NB Prices are as at the previous day’s close.
This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations. Opinions contained in this communication represent those of the research department of PERL at the time of publication. PERL does not undertake to provide updates to any opinions or views expressed in this document. PERL does not hold any positions in the securities mentioned in this email. However, PERL’s directors, officers, employees and contractors may have a position in, and PERL or its affiliates may perform services or solicit business from, any of the companies or related securities mentioned in this document.