Our head of investment rounds up the morning's big news.
European markets have opened lower, with US futures pointing to a softer open as markets digest a slew of corporate news and the testimony from Federal Reserve Chair Jay Powell. The FTSE 100 is leading the declines across Europe, with miners like Rio Tinto Registered Shares (LSE:RIO) languishing near the bottom of the basket following a drop in the Shanghai Composite and the Hang Seng overnight.
China’s inflation rate fell to 1% in February from 2.1% in January, reaching the lowest reading since February 2022. Producer prices fell 1.4%, accelerating from a 0.8% drop in the previous month to mark the fifth straight monthly of deflation. Despite the release of pent-up demand post the unwind of Beijing’s strict anti-Covid measures, the inflation reading suggests that the economic outlook remains uncertain. However, with price pressures under control, this could embolden the authorities to carry out further stimulus as a way to boost demand.
RICS UK HOUSE PRICES
The RICS UK residential market survey, which measures the gap between the percentage of respondents seeing house prices rise or fall, dropped to -48 in February versus -46 in January, hitting the weakest level since April 2009 during the global financial crisis. However, this was slightly better than expectations for -49. 70% of more expensive properties over £500,000 sold for less than their asking prices. The new buyer enquiries balance rose from -45 to -29 but still logged its tenth consecutive monthly drop in demand. There has also been a fall in the number of new properties appearing on the market, with supply at the lowest level since records began in 1978.
Although there are some green shoots of optimism emerging with a less-than-expected fall in the key house price balance and a shrinking negative reading on new buyer enquiries, the housing market is still slowing, with expectations for prices to fall further this year as the macroeconomic headwinds weigh. The market has been grappling with rising mortgage rates, the cost-of-living crisis, a softening consumer, sluggish economic growth and falling real wages. The economic uncertainty with the revival of inflation post-pandemic and the war in Ukraine, has resulted in many would-be buyers holding off in anticipation that the mortgage rates and house prices will fall further this year.
Shares in Silvergate Capital Corp Class A (NYSE:SI) plunged 43.79% after-hours, extending a drop of 7.8% during yesterday’s session stateside. The cryptocurrency-centred lender announced plans to wind down in the wake of the collapse of crypto exchange FTX. $8 billion of deposits were pulled from Silvergate resulting in a $1 billion fourth quarter net loss amid a ‘crisis of confidence’ among investors about the potential ripple effect from FTX’s high profile demise. This year the bank had been trying to improve its financial position by cutting 40% of its workforce or around 200 jobs. However, Silvergate has failed to restore financial stability, now opting for voluntary liquidation instead.
Aside from the FTX scandal, crypto-focused businesses like Silvergate have been caught up in the volatility across the crypto complex lately with bitcoin shedding nearly 65% of its market value last year. Although cryptos started to recover in January, February was more challenging with bitcoin retreating from its recent highs.
Entain (LSE:ENT) reported underlying core earnings of £993 million up from £881.7 million year-on-year and ahead of forecasts for £975 million. The owner of Ladbrokes and Coral among other brands reported active customers up 7% during the year while its net gaming revenue (NGR) grew by 18%. However, online NGR fell by 1% year-on-year and it flagged regulatory pressures, weighing on shares today. BetMGM, its joint venture with MGM resorts has been growing market shares and remains on track to target profitability in the second half this year.
A busy sporting calendar last year with the FIFA World Cup in particular, aided the British gambling company to achieve a forecast-topping bottom line result. However, the emergence from Covid and the resumption of economic normalcy weighed on online sales with customers spending less time glued to their devices. Another overhang has been from the increasingly strict regulatory landscape, with Entain having to absorb significant changes to regulation in its major markets.
London listed big data firm WANdisco (LSE:WAND) said following investigations undertaken by the CFO and CEO it has found ‘potentially fraudulent irregularities with regard to receive purchase orders and related revenue and bookings.’ The Board now expects that full-year 2022 revenue could be a low as $9 million versus $24 million as previously reported and the company has ‘no confidence’ in its announced bookings.
These potentially fraudulent irregularities represented by one senior sale employee could be a financial disaster for WANdisco. It has already highlighted that sales could be less than half of its prior expectation and its financial outlook has been questioned. At the request of the company, shares trading on AIM have been temporarily suspended while an investigation with external legal and professional advisers is underway.
After an impressive share price performance since the start of the year, up 43%, this black swan event has the potential to sharply derail its bullish trajectory and result in a significant negative rerating to the stock’s valuation, depending on the outcome of the findings.
Just this week, shares hit a 12-month high after it announced plans for an additional listing in the United States, adding to the debate about whether a growing number of businesses are opting for a New York listing over a London equivalent. Whether this latest development stands in the way of its plans for a dual listing is yet to be seen.
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