We are now two weeks into the second quarter already, which means earnings season is about to kick off. As always, I’ll do my best to cover the most important and interesting companies. For now, though, things have remained reasonably quiet.
Here’s a rundown of this week’s events, and how it might impact your portfolio.
Key Events
US CPI (Inflation) Data for March 2023
On Wednesday, US inflation data for March was released.
Expectations for headline CPI were for a 5.2% year-over-year reading, along with a 5.6% Core CPI reading. Month-over-month, headline CPI was expected to be 0.2%, with Core CPI rising 0.4%.
Year-over-year, headline CPI for March came in at 5.0%, down from 6.0% in February and 0.2% lower than expected. Month-over-month, inflation rose by just 0.1% (1.2% annualised), again, lower than expectations.
Headline Core CPI came in at 5.6%, slightly above February’s 5.5%, but meeting expectations. Month-over-month, Core CPI came in at 0.4%, as expected.
Unfortunately, while the main inflation reading is coming down, largely due to plummeting energy prices, the Core reading (excluding energy and food) remains high. This suggests that, while goods inflation is showing signs of slowing, services and shelter costs are continuing to rise. This isn’t necessarily all bad news, though. Shelter costs are a lagging figure, and ‘real’ shelter data has shown a significant slowdown, even decreases, across the board. Once these reductions show up in the CPI report, the Core reading should begin to fall quickly.
One thing to note: with the OPEC+ decision to decrease oil production, headline inflation will almost definitely be impacted in April’s CPI report. Brent Oil, for example, now sits at $86 per barrel, around 10% higher than on 31st March 2023.
UK GDP for February 2023
On Thursday, we received the February 2023 GDP estimate from the Office for National Statistics (ONS).
Expectations were that the economy would grow slightly, by 0.1%. Unfortunately, however, the economy stayed flat for the month, showing no growth. This also means there was no contraction; a silver lining of sorts.
The ONS claims that this GDP miss was in part due to the teacher strikes in February. While this will have had a small impact on the educational sector, it would have barely moved the needle. Even if 0.1% growth was achieved, it would still imply a significant – and concerning – slowdown of the economy.
As it currently stands, regardless of any strikes, the UK is on course to be the poorest performer on a GDP-growth basis, of all G7 countries.
Stock Market News
Boeing (BA) – 737 MAX Deliveries Halted
On Friday, Boeing announced it would be halting deliveries of some 737 MAX planes. The company claims the half is due to quality-related issues regarding components received by one of its suppliers, Spirit AeroSystems (SPR).
At a time where airlines are desperate for faster delivery times to increase their fleet sizes, this will no doubt cause some tensions in the aerospace industry. Ryanair, for example, was expecting to receive 24 Boeing 737 plans in the next 2-3 months. To make matters worse, the 737 MAX is infamous due to several fatal faults/crashes in 2018/2019. There’s a lot of pressure on Boeing to ensure these planes are as safe as possible.
Unsurprisingly, Boeing saw its share price slump ~5%, while Spirit AeroSystems saw their share value fall ~20%.
Tesla (TSLA) & Elon Musk – New Model 3, Twitter News, X.ai
As always, there’s plenty of Tesla & Elon Musk news.
First off, Tesla has unveiled a new company-car-only version of its Model 3 vehicles. These will only available through B2B channels from June 2023. The vehicle is a (cheaper) variant of the Model 3, labelled the “Model Long-Range Rear-Wheel Drive”. However, this business-only edition increases range even further, to almost 400 miles on one charge despite costing less. Additionally, it’ll come as-standard with features such as: remote management, Autopilot, Automatic Emergency Braking and Lane Departure Avoidance.
On Elon Musk, it’s been announced that he has renamed Twitter “X Corp”, and placed the company under a new holding company, “X Holdings”. While the company will still be the Twitter we’re all used to for the time being, this is Elon Musk’s first step to creating an ‘everything app’. Otherwise known as the “X App”. I suspect that, eventually, SpaceX will also belong to X Holdings.
On that note, it was also announced this week that Elon Musk will be building a new company (another pet project to frustrate Tesla investors with). Known and filed as “X.ai”, this company will focus on artificial intelligence, with the objective of rivalling OpenAI’s ChatGPT platform. While this will disgruntle many Tesla investors who believed Tesla will be the leader in AI technology, I personally think it’s a positive separation. With X.ai working on generalised AI, Tesla can focus on its main goal; full-self-driving.
JPMorgan Chase (JPM) – Q1 Earnings
On Friday, JPMorgan reported both revenues and earnings that beat analyst expectations. This is largely thanks to the increased net interest income, due to higher interest rates. The company’s deposits don’t seem to have been impacted by the recent banking failures, which is a positive sign that confidence in larger banks remains high. The stock rose ~7% on this report, the largest boost on earnings day in over 20 years, according to Bespoke Investment Group.
Key Points:
- Revenue of $38,349m, up from $30,717m (+24.8%) a year ago
- Non-interest revenue of $17,638m, up from $16,845m, (+4.7%) a year ago
- Net interest revenue of $20,711m, up from $13,872m (+49.3%) a year ago
- Profit before tax and credit provision of $18,242m, compared to $11,526m a year ago
- Profit after tax of $12,622m, compared to $8,282m a year ago
- Basic earnings per share of $4.11
- Dividend of $1.00 per share announced, to be paid on 30th April 2023
- Guidance for net interest revenue increased to $81,000m for the year, up from $74,000m previously
- Provision for credit losses for the quarter totalled $2,275m; much higher than in ‘normal’ years, signalling the expectation of a weakening consumer. Though, the company did state that the economy and businesses still seem “healthy” on the whole
- Despite huge outflows from depositors following the recent banking failures, JPM has seen a surge of inflows and new customers towards the end of the quarter, mitigating said outflows
Next Week
UK CPI (Inflation) Data For March 2023
On Wednesday, UK CPI data will be released for March 2023.
As it currently stands, expectations are that year-over-year headline CPI will come in at 9.8%, lower than February’s 10.4%. This would be the first month since August 2021 where inflation dips under 10.0%. Month-over-month, CPI is expected to fall to 0.5% (6.0% annualised), from February’s 1.1%.
Year-over-year, Core CPI is expected to come in at 6.0%, down from 6.2% in February. Month-over-month, expectations are for a 0.6% read (7.2% annualised), down from 1.2% in February.
Company Earnings
Here’s a list of the company earnings I’ll be covering next week (subject to change):
- Netflix (NFLX) – 18th April
- Tesla (TSLA) – 19th April
Let me know your thoughts on this week’s events, in the comments below!
