Market Prognosis

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

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October 6, 2022

Shell warns but guns, alcohol and tobacco are ok

Macro & Overnight

US equity markets were broadly steady but a bit lower. Twitter’s share price weakened. The Musk offer included the caveat of being subject to raising $13bn of debt. Things have materially changed in the debt market since April. This could yet be a sticking point.

UK gilts yields ticked up as the BoE stepped away from support, only buying £22m of gilts yesterday. The battle for yield curve control continues. Pressures remain in the system as authorities search for a longer-term solution to the UK’s pension fund liquidity issues. Amidst all this, Liz Truss has backed down from the idea of going after the BoE. She seems to have realised that you can only afford to make enemies of so many people.

The gold price continues to rise as the $ weakens. A barometer of faith in the global financial system.

Meanwhile, the oil price remains firm as OPEC+ incurred the wrath of the Biden administration for supporting Putin’s revenue ahead of its war on inflation. The Saudi response remains that they support the oil price to encourage investment in a secure oil supply for the world. This debate between the deaf continues. Meanwhile, the Brent crude price has risen nearly $10 (12%) in the last week.

UK Companies

The leading UK company news is from Shell, highlighting the complexity of managing integrated oil and gas in volatile markets. Shell is now guiding towards lower-than-expected natural gas and oil refining margins for the quarter.

Imperial Brands issued inline results and guidance and launched a share buyback programme. Diageo will also reiterate unchanged guidance at its AGM today. Seemingly tobacco and alcohol both remain income inelastic.

It also appears that the UK building materials suppliers are performing better than feared so far in this downturn. One of last year’s IPO flops, Victoria Plumbing, revealed better than previously downgraded estimates. Meanwhile, air filtration specialist Volution (Vent Axia owner) produced solid results and has upgraded guidance.

Finally, defence supplier Chemring delivered good results and reiterated previously elevated guidance. Unfortunately for us all, these are better times for defence companies.

PROGnosticator

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Any prices quoted in our research are as at the previous day’s close.