Powell inspires relief rally

Macro & Overnight

Powell spent most of his speech discussing the labour supply shortage of c4m people who have withdrawn from the post-Covid economy. But the market focused on the prospects for a moderating pace of rate hikes.
“The time for moderating the pace of rate increases may come as soon as the December meeting.” The understandable sigh of relief reaction ignores the more prolonged rate plateau and the risk of 1970s supply-constrained double-peak inflation. Neither of which Powell ruled out. However, the Fed Chair gave a credible view that a path remains for a US soft landing. The question he might care to ask is, will it be transitory?

The response to the Powell speech included a further drop in the US DXY index, now with a 105 handle, or nearly 10% below its recent peak. This move represents a significant loosening of financial conditions for the rest of us. The relief rally may continue for a while.

UK Company News

Investment platform AJ Bell FY released results with revenue up 12%, earnings per share up 6% and customers increasing by 57,687 to 425,652. AJB’s margins should increase in FY23 as operational gearing outweighs the impact of inflation. Despite the known short-term headwinds, the long-term growth potential of the platform market remains significant. 

Digital Box, the owner of leading websites Entertainment Daily, The Daily Mash and The Tab, announced the acquisition of poke.co.uk. The Poke is a British satirical website which aims “to provide an antidote to the daily grind” and deliver fast-turnaround topical distractions. Staff handpick the funniest content on the web to enable its users to spend” time well wasted”. The Poke has over 3 million monthly sessions combined with The Daily Mash’s 3 million monthly sessions, which will establish the Digitalbox as the UK’s leading destination for online humour. Hooray! 

Alternative asset manager Foresight Group revealed a 41% increase in Assets under Management, helped by the significant acquisition of Australia-based Infrastructure Capital Group. The group enjoys 89% high-quality recurring revenues. It is a critical player in both European and Australian sustainable infrastructure, with continued strong demand for renewable energy investment. The company has considerable confidence for the year’s second half and beyond, expecting to deliver on its IPO promises.

Posh chocolatier Hotel Chocolat released decent FY results. Its active customer database increased by +15% to 2m, with purchase frequency up by 14%. HOTC is a business in transition, and the critical Velvetiser in-home hot chocolate system is established as a long-term category with higher lifetime values. The chairman and CFO are stepping down, further extenuating this company’s transition period. However, this founder-controlled brand has displayed strong capital allocation discipline by lowering international development risk and growing an alternative capex-light route to global expansion. With the five most significant annual gifting seasons yet to come in the current period, this year has a range of potential outcomes.  

Two profit warnings were revealed today, one from China and the other from the UK mortgage market.  

IT supplier Tribal Group‘s annual revenue will align with Board expectations, but EBITDA will be substantially below. Lower profits are due to changes to the scope and delays in implementing and delivering a Chinese university contract. 

Mortgage Advice Bureau (it does what it says on the tin) has issued an unscheduled trading update. “Written business in recent months has been 50% below expectations on the back of higher interest rates and the impact of the Mini-Budget. This is expected to result in a considerable impact in FY23e.” 

Prognosticator 

On This Day ...

… in 1990, British and French workers met in the middle of the Channel Tunnel under the English Channel. Taking more than five years to complete, with more than 13,000 workers from England and France collaborating to realise the vision, the tunnel has been named one of the seven wonders of the modern world. It cost £5bn (£15bn in today’s money) to build, and despite making £1bn of revenue for the first time last year, it almost certainly hasn’t made an economic return on investment.