It’s the last Sunday before Christmas, and it’s been a BUSY week!
This will be my final Market Update of the year, with the next two Sundays falling on Christmas Day and New Year’s Day. However, if anything utterly ridiculous happens, I’ll ensure a post is scheduled to cover it. Fingers crossed things are calm!
There’s a lot to get through, so let’s jump right in.
Key Events
UK GDP Estimate for October 2022
On Monday, the GDP estimate was released for October. This estimate suggests a 1.5% rise in GDP compared to October last year, while the figure is up 0.5% on a month-over-month basis, compared to September.
While this sounds positive, there are two things to consider. Firstly, September saw a decline in GDP of 0.6%, which means that October’s rise of 0.5% does not even cover the ‘loss’ seen in September. Secondly, said decline in September was largely due to 10 days of mourning following the death of the Queen. So, by all accounts, September’s figures should have been ‘easy’ to beat, but this reading may suggest some real weakness in the economy.
To illustrate the point above, suppose you have £100. If this amount falls by 0.6%, you’d be left with £99.40. If we then increased £99.40 by 0.5%, you’d actually only have £99.90. You wouldn’t quite reach the initial £100 again!
US CPI (Inflation) Data for November 2022
On Tuesday, we got some great news regarding inflation in the US.
For November, expectations were that we would see a 7.3% year-over-year reading, with a 0.3% month-over-month reading. Note that for October, these came in at 7.7% YoY and 0.2% MoM.
Much to my (and probably everyone’s) surprise, the figure came in below expectations, with a 7.1% increase YoY, while the MoM figure came in at just 0.1%.
Core inflation (i.e., excluding energy and food) came in at 6% year-over-year. While this is still unacceptably high, it’s a positive move downwards.
This was a huge sigh of relief for many, showing that inflation is finally coming down consistently; October’s lower reading wasn’t a fluke.
UK CPI (Inflation) Data for November 2022
On Wednesday, we got the UK inflation data for November.
Expectations were for a reading of 10.9% year-over-year, which would be a slight reduction from October’s 11.1%.
Thankfully, we saw a better-than-expected decline, with inflation coming in at 10.7%.
Unfortunately, however, this isn’t all good news, as prices are still going up. The main culprits for November’s increase are housing and household service (gas, electric, etc), food and non-alcoholic beverages.
It’s worth noting that these figures aren’t the same for everyone, as it very much depends on what you’re buying. The ONS reported that, in general, the poorest 10% of households pay 12.1% more on average for their goods and services compared to last year. In contrast to this, the wealthiest 10% pay 9.4% more on average compared to last year.
US FOMC Meeting
The US FOMC meeting also concluded on Wednesday, giving us an insight into the US economy, including a decision regarding interest rates.
The Federal Reserve decided to raise interest rates by 0.50% following this meeting. This is less than the 0.75% increases from the previous four meetings, signalling a slowdown of rate hikes.
This brings the current Fed Funds Rate to 4.25%-4.50%. The expectation is that interest rates will continue rising, peaking at 5.25%-5.50% in 2023. Though, it’s worth noting that this estimate has been increases in every previous meeting, so we could see rates go even higher. Markets hadn’t priced this in and reacted negatively to the news.
The next FOMC meeting will conclude on 1st February 2023.
UK Bank of England Monetary Policy Committee Meeting
On Thursday, the Bank of England raised interest rates by 0.50%, bringing the base rate to 3.50%.
This decision was not unanimous, however. Only 6 out of 9 members voted for this outcome (i.e., 0.50% increase).
Two members actually voted to remain at 3.00%, meaning no hike at all, while one voted to increase rates by 0.75%.
Markets expect rates to peak at around 4.75% in mid-2023. Though, this is by no means a definitive figure. Both US and UK stocks fell on the combined news of the US and UK continuing to raise rates at an aggressive pace, despite signs of an economic slowdown and the looming risk of a recession.
Stock Market News
Earlier this week, Elon Musk sold over $3bn in shares, pushing the already battered stock price even lower.
Though it’s unknown why these shares were sold, it was likely done to provide Elon Musk with cash to pay for Twitter’s growing liabilities.
Some rumours are suggesting that Elon has chosen now to sell shares, because Tesla are seeing lower demand and their next quarterly earnings will miss estimates and drive the stock lower.
As things stand, nobody knows his reasoning. There’s a lot of noise around Tesla at the moment, but thus far the fundamentals don’t seem to have changed.
Adobe (ADBE) – Q4 Earnings
On Thursday, Adobe reported better-than-expected earnings, with revenue meeting expectations. Adobe also announced it will indeed be acquiring Figma in the next fiscal year, paying around $20,000m for the company. Unsurprisingly, the stock jumped 6% in after-hours trading.
Key Points:
- Revenue of $4,525m, up from $4,110 (+10.1%) a year ago
- Gross profit of $3,957m, up from $3,603m (+9.8%) a year ago
- Operating profit of $1,505m, essentially flat compared to $1,501m (+0.3%) a year ago
- Profit before tax of $1,517m
- Profit after tax of $1,176m
- Basic earnings per share of $2.53
- Guidance for the new year remains unchanged, despite the deteriorating macroeconomic conditions. Adobe expects to see a revenue increase of ~9%, or 13% on a constant currency basis. For the next quarter, revenues are expected to be $4,620 (midpoint)
- The company purchased around 5 million shares during the quarter
Next Week
Company Earnings Reports
Here’s a list of the companies reporting earnings next week:
- NIKE (NKE) – 20th December
Let me know your thoughts on this week’s events, in the comments!
