Written by: Susannah Streeter | Hargreaves Lansdown
- FTSE 100 opens lower, after Wall Street sank into the red on US economic worries
- Fragile First Republic Bank in focus after shares dived 48% with regulators on standby
- Standard Chartered reported a pre-tax profit of $1.8bn, beating market expectations of $1.4bn.
- Microsoft and Alphabet beat expectations, but US consumer confidence falls with more workers worried about jobs
- More price hikes from Reckitt Benckiser helps company beat sales estimates
- New CBI boss faces an uphill battle to repair business organisation’s tattered reputation
Realisation is dawning that more ominous clouds are gathering over the US economy, causing fresh nervousness for investors. Despite some better-than-expected results from the first of the big tech crowd to report, the darkening picture of consumer confidence has increased concerns about lower spending ahead. The worry mill is continuing to grind about the banking crisis, with First Republic Bank looking fragile after its shares collapsed to a record low. The regulatory cavalry is likely to be on standby to step in unless more funding can be raised from the large white knight lenders. Concerns about the raft of problems piling up for the global economy is keeping pressure on oil prices. Brent crude is hovering around $81 a barrel, down 7% from its highs earlier in the month as lower demand for energy is forecast amid ever tightening financial conditions.
Given the turmoil we’ve seen in the banking sector over recent weeks, even in the last 24 hours with First Republic’s woes so front of minds, it’s a breath of fresh air to see Standard Chartered surpass earnings expectations and post a pretty upbeat outlook. Higher interest rates continue to act as a headwind for profits, but arguably more important in the current climate was the robust customer deposit numbers and a credit impairment charge of just $26m, well below market expectations. This was a resilient set of results that should help to quell some of the fears that issues are systemic throughout the sector. Takeover rumors still feel fresh, and it’s certainly possible there’ll be more chatter to come. Still, the huge footprint means any deal would be riddled with regulatory hurdles, which could ultimately put off potential buyers from going all in.
Alphabet and Microsoft beat estimates, with ad spending holding up resiliently for Google’s owner. Both giants have benefited from an uplift in business for their cloud computing arms, as companies ringfence spending to ensure they are in fighting form to meet the demands of the AI revolution. Microsoft is bounding ahead, particularly given the integrated potential of its other services. However, sales of personal computers declined 9% year on year, indicating it’s ever tougher to sell big ticket items, particularly products companies and consumers splashed out on during the pandemic. Shoppers are set to tighten purse strings even further, according to the US Conference Board Consumer Confidence Index, which shows sentiment had dropped to the lowest level since July. With Americans becoming a lot more pessimistic about how the jobs market will look in 6 months’ time, spending plans are being scaled back especially in terms of house moves, big ticket items like cars and appliances and also holidays. However, a brighter perspective is emerging in Europe, with German consumers becoming more optimistic about the horizon ahead. The easing of the energy crisis and the slow march downwards of inflation will be helping lift the mood, but it remains subdued compared to pre-pandemic times and the banking crisis continues to play on minds of investors.
Companies are continuing to hike the prices of goods, with the maker of Durex and Dettol beating sales expectations as consumers pay more at the tills. Reckitt Benckiser has cleaned up by successfully passing on price hikes to those customers who are still stocking up on its products, lured by their strong brand power. Although volumes had declined, sales growth of 7.9% was stronger than forecast, enabling the company to absorb higher prices Investors will be hoping the appointment of Kris Licht as CEO designate, who’ll succeed Nicandro Durante next week, will help the company add extra polish to sales. A raft of new product innovations is planned to try to stop shoppers drifting away to cheaper brands.
The new boss of the CBI faces an uphill battle to repair the business group’s tattered reputation amid serious allegations of sexual misconduct. Rain Newton Smith, the former chief economist, is returning from a short stint at Barclays. She is likely to be highly respected internally but there are questions over whether she can really be an effective new broom to sweep away bad practice given her long career at the organisation. With businesses either cancelling or suspending their membership in droves, the CBI is facing a looming cash flow crisis with fees set to decline significantly. It’s increasingly clear that the organisation will have to be dramatically shaken up and scaled back, for any chance of long-term survival.
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