Happy Bank Holiday weekend!
It’s been a chaotic week, so whether you like the Coronation or not, the 3-day weekend (for those who aren’t working it of course) is much needed.
Anyway, rather than babble on, let’s dive right in.
Key Events
US FOMC Meeting
On Wednesday, the US Federal Reserve announced its latest decision regarding interest rates.
As was pretty much universally expected, there was a unanimous vote by all members to raise interest rates by 0.25%. This brings the Fed Funds Rate to between 5.00% and 5.25%.
Along with this, the Fed’s language changed somewhat. While they reiterated their determination to bring inflation down to the 2% target, they also hinted that this will be the final interest rate hike. This paves the way to a ‘pause’ in June’s meeting; assuming April’s CPI data continues to show a downwards trend.
UK Local Elections
On Thursday, the UK held local elections, where around two thirds of all councils had seats up for grabs.
While local elections might not have an immediate impact on the economy, huge swings in political opinion could spell massive economic change in the future.
In this instance, a monumental swing occurred! Here’s a quick summary of the number of seats each party now control.
This suggests a Labour, or Labour/Liberal Democrat coalition could occur in the 2024 General Election, which would result in a potentially big shift in fiscal policy.
It’ll be interesting to see how the next two years unfold.
Stock Market News
Company Job Cuts Continue
The never-ending layoffs seem to be here to stay. Here are just a few from this week:
- Shopify – Plans to reduce its workforce by around 20%, or around 2,000 employees
- Unity – Plans to reduce its workforce by 8%, or around 600 employees
- Morgan Stanley – Plans to reduce its workforce by about another further 3.5%, or around 3,000 employees
Lloyds Banking Group (LLOY) – Q1 Earnings
Another positive quarter for Lloyds Banking Group, beating expectations and continuing to benefit from the high interest rate environment. Additionally, bad debts remains low, showing consumers remain resilient – at least, for now.
That being said, the stock was hit following earnings. This is likely due to fears of a recession, a weakening consumer, and expected lower profit margins due to passing on more interest.
Key Points:
- Revenue of £4,652m, up from £4,033m (+15.3%) a year ago, but flat from the previous quarter
- Profit before tax of £2,260m, compared to £1,544m a year ago
- Profit after tax of £1,641m, compared to £1,145m a year ago
- Basic earnings per share of 2.3p
- Guidance reaffirmed for the year
- Net interest margin for the quarter was 3.22%, compared to the 2.68% a year ago. Though, this is expected to fall again in the coming quarters, even despite possible further interest rate hikes
- The amount of both loans and mortgages on book remain steady compared to previous quarters, not yet showing signs of significant weakness
- Deposits also remained steady; while falling slightly, it was nominal, even though customers can get much higher interest elsewhere
Etsy (ETSY) – Q1 Earnings
While Etsy beat analysts’ expectations on both revenue and earnings, the company provided muted guidance, with revenue expected to fall compared to the first quarter. While this isn’t entirely surprising due to a weakening consumer, the stock saw a sharp decline after rallying initially. Investors are clearly concerned for Etsy’s future growth.
Key Points:
- Revenue of $641m, up from $579m (+10.6%) a year ago
- Gross profit of $445, up from $406m (+9.6%) a year ago
- Operating profit of $78m, down from $84m (7.3%) a year ago
- Profit before tax of $81m, compared to $86m a year ago
- Profit after tax of $75m, compared to $86m a year ago
- Basic earnings per share of $0.60
- Revenue guidance for Q2 of between $590m and $640m, below Q1 levels
- Active sellers increased 3.8% year-over-year, while active buyers increased just 0.4%. GMS fell to $3,101m, compared to $3,252m a year ago. These reemphasise the slowdown in consumer spending
Apple (AAPL) – Q1 (Fiscal Q2 2023) Earnings
A bit of a mixed quarter for Apple. Despite beating analysts’ expectations on both revenue and earnings, the company did report declining revenue for the second quarter in a row. This is in part due to the collapse in sales across the PC market, affecting Mac sales, as well as a weakening consumer, impacting iPad sales.
However, iPhone sales grew slightly, and services continued to grow at a reasonable pace when taking into account the poor macroeconomic environment. It’ll be interesting to see how Apple fare over the coming quarters.
Key Points:
- Revenue of $94,836m, down from $97,278m (-2.5%) a year ago
- iPhone revenue rose to $51,334m, up 1.5% year-over-year
- Services revenue rose to $20,907m, up 5.5% year-over-year
- Mac revenue fell to $7,168m, down 31.3% year-over-year
- iPad revenue fell to $6,670m, down 12.8% year-over-year
- Wearables, home and accessory revenue fell to $8,757m, down 0.6% year-over-year
- Gross profit of $41,976m, down from $42,559m (-1.4%) a year ago
- Operating profit of $28,318m, down from $29,979m (-5.5%) a year ago
- Profit before tax of $28,382m, compared to $30,139m a year ago
- Profit after tax of $24,160m, compared to $25,010m a year ago
- Basic earnings per share of $1.53
- Dividend of $0.24 per share, to be paid on 18th May 2023
- No formal guidance provided
Coinbase (COIN) – Q1 Earnings
A very positive report from Coinbase this quarter, who blew both revenue and earnigns expectations out of the water. While revenues were down year-over-year, they improved significantly compared to the previous two quarters. Though, it’s worth noting that a large portion of this revenue increase is solely due to increased interest rates, bumping up interest income substantially. That being said, the company is making good progress at reducing its cost structure, potentially trending back to profitability. Coinbase still hold plenty of cash, so should be well positioned to traverse this crypto winter.
Key Points:
- Revenue of $773m, down from $1,166m (-33.8%) a year ago
- Operating loss of ($124m), improved from an operating loss of ($554m) a year ago
- Loss before tax of ($166m), compared to ($609m) a year ago
- Loss after tax of ($79m), compared to ($430m) a year ago
- Basic loss per share of ($0.34)
- No specific revenue guidance for Q2, but Coinbase expects that its subscription and services revenue will come in at around $300m, down from $362m this quarter
- The crypto market remains volatile, but transactional volume has flattened, ending the rapid fall in volumes over previous quarters. Whether this remains flat, or better yet, begins to increase again, is yet to be seen
Next Week
US CPI (Inflation) Data For April 2023
On Wednesday, we’ll get the newest US inflation data. At the time of me writing this, the current consensus is that:
Headline inflation is expected to remain flat year-over-year, at 5.0%. Month-over-month, the headline reading is expected to be 0.4% (4.8% annualised).
Core CPI (excluding food and energy) is expected to fall slightly year-over-year, to 5.5%. This is compared to 5.6% in March 2023. Month-over-month, core CPI is expected to stay flat, at 0.4% (4.8% annualised).
If the actual figures come in at, or above these levels, then we are likely to see a sharp drop in the stock market, as this would indicate inflation isn’t falling as quickly as the Fed would like. In fact, it could increase fears of even more interest rate hikes. If, however, the CPI figures come in better than expected, and inflation continues to trend downwards, it’s possible a rally could ensue.
UK Bank of England Monetary Policy Committee Meeting
On Thursday, we’ll get the latest interest rate decision from the Bank of England. It’s widely expected that we’ll see another 0.25% rate hike. This would bring the base rate to 4.50%.
Many analysts believe this will be the final interest rate increase, but I’m not personally sure about this. I suspect we may well reach the 5.00% seen in the US if inflation doesn’t begin to trend downwards. Time will tell, however; nothing is certain.
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- Palantir Technologies (PLTR) – 8th May
- PayPal (PYPL) – 8th May
- Walt Disney (DIS) – 10th May
Let me know your thoughts on this week’s events, in the comments below!
