Our head of investment rounds up the morning's big news.
The FTSE 100 has snapped its winning streak, trading back below 7,900 after UK inflation came in hotter than anticipated for March. Broader European markets are also trading lower with the DAX in Germany under pressure. Earnings continue to take centre stage in the United States with Tesla Inc (NASDAQ:TSLA) and Morgan Stanley (NYSE:MS) in focus today.
The consumer price index rose by 10.1% in the 12 months to March, slowing from 10.4% in February but surpassing analysts’ expectations for a reading of 9.8%. While price pressures eased for motor fuels, clothing, restaurants, and hotels, but upward effects remain from food and drinks, recreation and culture. Food and non-alcoholic drinks inflation rose from 18.2% in February to 19.2% in March, the highest level in 45 years, driven by bread and cereals inflation which hit a record high.
Core inflation which strips out the more volatile components like energy, food, alcohol, and tobacco rose by 6.2% year-on-year, also ahead of expectations for 6%.
Although there have been growing expectations for a dovish pause from the Bank of England in May, today’s hotter-than-expected inflation data with price pressures stuck above 10%, could tip the balance towards another 25-basis point increase at its next decision meeting.
Netflix (NASDAQ:NFLX) reported first-quarter earnings per share of $2.88 on revenues of $8.16 billion, broadly in line with analysts’ expectations. However the streaming giant added 1.75 million new subscribers in the quarter, falling short of analysts’ expectations.
Netflix is clamping down on password sharing by offering a new paid sharing option in 12 countries in February but has delayed a broader rollout. It is planning to release new password guidance in the next few months, however the specifics are still unknown. Netflix said over 100 million households share accounts or 43% of its global users. While Netflix hopes that its crackdown will boost revenue, there is a major risk that subscribers could abandon the platform altogether. This time last year, Netflix announced its first subscriber loss in a decade. In November, to combat the softening consumer backdrop, Netflix unveiled a more price competitive ad-supported monthly subscription for $6.99.
Netflix had a horrible 2022, with shares dropping by more than 50% and its market cap slashed in half to $123 billion. Shares have since been regaining ground, up over 13% year-to-date, but recovering much more slowly than Meta Platforms Inc Class A (NASDAQ:META) and Tesla which are both up over 70%. Netflix shares slumped after-hours at first on the weak subscriber numbers, but shares recovered most initial lost ground.
The sluggish global growth backdrop, intense competition in the streaming wars, and the risk of fleeing subscribers amid the clampdown on password sharing are among the key headwinds for Netflix going forward. As always content in king, and with Netflix cutting its content spend by more than $1 billion in the first quarter there is also a risk that it could struggle to churn out the blockbuster hits that would keep subscribers coming back.
Heineken NV (EURONEXT:HEIA) overall group revenue increased by 8.9% to 6.38 billion euros, beating consensus estimates helping to lift shares. Quarterly net profit fell to 403 million euros versus 417 million euros year-on-year.
However, it reported first-quarter beer volumes down 3%, falling short of analysts’ expectations for a drop of 1.9%. The world’s second-largest brewer saw weakness in the Asia Pacific as well as in the Middle East and Africa with notable declines in Nigeria and Vietnam. Premium beer volumes fell by 5.7% driven by declines in Vietnam and stopping sales in Russia. However, Brazil and China remained bright spots which enjoyed particularly strong growth.
Heineken kept its full-year outlook unchanged for profit to grew by the mid-to high single digits despite the ‘volatile and uncertain’ economic environment.
Shares in Heineken have enjoyed a strong year so far in 2023, rallying by more than 13% with positivity coming through today as investors digest the mixed report. While macroeconomic headwinds are negatively impacting the consumer, Heineken still managed to top consensus in terms of sales and maintained its outlook, highlighting the defensive and resilient nature of consumer demand for beer.
Shares in National Express Group (LSE:NEX) are trading higher by over 5% after it kept its full-year outlook unchanged. First-quarter revenue hit £774.4 million, up 25% year-on-year thanks to a strong recovery in UK coach and German rail. UK revenue grew by 27% in the first quarter and North America revenue grew by 21%.
However, the quarter was negatively impacted by the UK bus driver strikes. It said the most significant trading periods for the US School Bus and UK and Spain coach operations still lie ahead. National Express has been implementing a productivity improvement and cost reduction programme that aims to deliver benefits in the second half of the year.
In March, annual revenue surpassed pre-pandemic levels for the first time and its UK business was profitable thanks to strong demand for coaches amid the rail strikes. Year-to-date, shares have underperformed the wider market, shedding nearly 10% and are down nearly 50% over a one-year period.
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