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 4, 2023

Spirent warns again

Macro & Overnight

Just as higher oil prices reached mainstream awareness, they have fallen 6% in the last few days.

Financial conditions continue to tighten. Higher bond yields (US 10 yr pushing 5%) mean the dollar is rising relentlessly, with the DXY at 107, now +7% since mid-July.

R0W economies are under increasing pressure as dollar-denominated debt repayments increase. The world is short of dollars.

Spending plans are under review. HS2 is not an isolated case.

Critically, this set-up will ultimately impact the US economy and make a soft landing more tricky.

We get the US PMI data later today and the non-farm payroll data on Friday.

The problem is that if/when policy rates are lowered, investors will ask what do you know we don’t?

UK Company News

Spirent, the network and device test and assurance provider, updated for Q3, saying its largest customers are delaying their expenditure and technology investments. The anticipated rebound in September has yet to happen, and it has reduced its outlook for the near term. The strong pick-up in orders from China did not materialise as the Chinese Government reduced its spending plans, and the general economic landscape there deteriorated. The impact of negative operating leverage will “very materially” affect operating profits. 

The Spirent warning is the second this year. The shares have fallen by two-thirds YTD. However, it is a strong business in the specialist network and device testing field for telcos and internet infrastructure players. 5G roll-out delays and hyper scaler attention focused on AI development rather than networking hardware have disrupted Spirent end customer order patterns. Interestingly, tucked away in its announcement today, it mentioned the direct-to-device satellite market being beneficial to them. The opportunity for SpaceX’s Starlink to disrupt the global network market by putting the internet into low earth orbit must also play on the minds of those deploying capital to ground-based networks like 5G. A successful Starship launch should make any telco CEO nervous. 

Prognosticator  

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