US earnings season sours

Macro & Overnight

The Q3 earnings season is turning sour. The TINA view of equities 12 months ago is moving to the appreciation that there is a viable alternative when bond yields are moving to 5% and inflation has peaked. In this scenario the equity risk premium will rise as the earnings outlook deteriorates.

US equities had a volatile session, but deteriorating Q3 updates led the market lower overall. Lowlights included poor results and guidance from Boeing, Ford, and Meta. Real estate bellwether Zillow announced 300 staff layoffs pointing to a deterioration in the US housing market. On a brighter note, Intel spin-out Mobile Eye traded up 38% on its first trading day.

Elon Musk indicated he would complete the acquisition of Twitter tomorrow. He released a video of him entering Twitter’s HQ carrying the kitchen sink he intends to throw at them. Several large lenders are on the hook for $13bn of debt finance on terms agreed at a time when credit conditions were easier. We will , naturally, be able to watch this miniseries unfold on Twitter.

In Europe, troubled investment bank Credit Suisse has launched a $4bn Saudi-backed fundraising and restructuring, which will involve the loss of 9 000 jobs over the next three years.

US yields are moving up while UK yields continue to ease. $ easier and £ stronger.

There were no significant changes in oil and gas prices, but concern over China’s near-term growth trajectory is proving to be a headwind for the oil price.

Natural gas remains a supply chain in chaos, as many LNG tankers moored off Cadiz play cat and mouse with Europe’s energy companies and governments. Effectively this marooned fleet is supplying temporary excess LNG storage capacity for a continent currently enjoying mild and windy autumn weather. The day rate for an LNG carrier is currently $180 000 if you can find one. So each week costs an additional $1.2m per vessel or over $60m for the fleet. A week’s delay could mean a difference of $35m of revenue for one cargo or an incremental $1.75bn for the fleet. This is a market operating on a knife edge.

UK Company News

UK results and updates today featured positives for oil and gas, mixed news from lenders and continued inflation-beating performances from branded consumer staples suppliers.

Cash is gushing at Shell, where profits were lower Q on Q, but still the second-best ever quarterly results. They announced a return of a further $4bn (£3.4bn) to shareholders via buyback and a 15% increase in its fourth quarter dividend. Over the year, Shell has returned over $18bn to its equity owners. A move not unnoticed by governments keen for new revenue sources.

Despite paying their shareholders oil services company Hunting noted continued strong momentum for new investment projects in the global oil and gas industry. Hunting reported that all operating segments and product lines improved performance. Its key fracking equipment arm sees new international opportunities, particularly in South America.

Lloyds Bank recorded an expected increase in net interest margin. However, results were clouded by rising impairment charges.

Specialist lender Secure Trust Bank reported similar improved lending margins but that management was taking prudent pre-emptive action to slow lending growth and focus on operational efficiency and tighter credit criteria, given the current macroeconomic environment.

Unilever continues the theme of FMCG beats (in this case, on both volumes and price) and raises guidance.

VC holders are to Sell 31.7m Shares in chip designer Alphawave via a placing.

Estate agent Foxtons performed ahead of expectations noting the strength of the lettings and financial services offerings and a sales strategy focusing on growing share.

Consumer and business franchise operator Franchise Brands, is confident of exceeding current consensus market expectations for the full year as the recent Filta business delivers new growth opportunities.

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