Must read: the pound, Reckitt Benckiser, Standard Chartered, Heineken

Investors are digesting a raft of corporate earnings from the UK, continental Europe, and the US, while the pound continues its upward climb after Rishi Sunak took over as prime minister.

GLOBAL MARKETS

European markets are trading around the flatline as investors digest a raft of corporate earnings from the UK, continental Europe, and the US. WPP and Reckitt Benckiser are trading at the bottom of the FTSE 100 on the back of earnings releases, while housebuilders such as Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG) are outperforming on optimism towards the new Sunak government.

In the US, earnings across sectors appeared to confirm fears of a growth slowdown facing corporate America highlighting worries about a recession and further weakness for equity markets ahead. A disappointing update from Google’s parent company Alphabet (NASDAQ:GOOGL) highlighted the pressures facing the digital ad sector as the US economy begins to show signs of weakness, and also pointed to the stiff competition for eyeballs particularly among fickle social media users who are currently fixated on their latest obsession, TikTok.

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POUND STERLING

The pound is continuing its upward climb, rallying to a six-week highs, trading just shy of $1.15 after Rishi Sunak took over as prime minister. Part of sterling’s rally was driven by the US dollar’s depreciation, which slumped to a three-week low amid signs of a slowing economy stateside and corresponding expectations for less hawkish hikes from the Fed.

The Times is reporting that the fiscal statement scheduled for 31 October could be pushed back until after the Bank of England’s rate decision and turned into a full budget instead. The UK foreign secretary James Cleverly appeared to support the speculation, saying this morning that a short delay wouldn’t be a bad thing. Sterling is little changed in response to the media report, suggesting that the currency’s appreciation is more in response to US dollar weakness than to UK political developments.

RECKITT BENCKISER

Reckitt Benckiser (LSE:RKT) said full-year revenue would likely grow by 6%-8%, coming in towards the top end of its previous guidance for 5%-8%. The consumer goods giant reported third quarter net sales of £3.74 billion, up 7.4% and ahead of analysts’ forecasts for growth of 6.1%. However, sales volumes declined by 4.6% as macroeconomic headwinds dent demand. Offsetting this to some extent was a foreign exchange uplift, thanks to sterling’s recent weakness.

Reckitt has been dealing with the rising cost of everything from energy to wages and other input costs by increasing prices and passing on the additional cost burden to consumers. As a seller of essential items, Reckitt has strong pricing power that makes it relatively resilient to deal with the cost-of-living crisis that is squeezing household incomes. The biggest risk for Reckitt is if consumer start to trade down from its branded range including Dettol, Strepsils and Durex products towards unbranded cheaper alternatives instead. So long as it continues to invest in advertising and marketing and raise prices where necessary, then overall revenue should hold up, despite falling demand.

STANDARD CHARTERED

Standard Chartered (LSE:STAN) reported a 40% jump in third-quarter profit just after its rival HSBC Holdings (LSE:HSBA) suffered a corresponding 42% slide in earnings during the same period. Pre-tax profit hit $1.39 billion versus $996 million a year earlier and ahead of estimates for $1.05 billion. In terms of its outlook, the Asian-focused lender raised its full-year income growth forecast from 10% to 13%.

Standard Chartered scored an impressive quarterly performance, particularly against the backdrop of weakness in some recent US earnings as well as yesterday’s disappointment from HSBC. The lender’s robust update was underpinned by improved net interest margins thanks to the global shift towards higher interest rates as central banks attempt to get to grips with inflation. Strength in its transaction banking unit offset weakness in its wealth management division, with clients shying away from investing amid this year’s equity market volatility. StanChart is also less exposed to the slide in dealmaking with M&A and IPO activity falling off a cliff this year, which has been a major headwind for the Wall Street deal-centric lenders. Shares in Standard Chartered are up 20% so far this year, sharply outperforming the sector and the wider UK market.

HEINEKEN

Shares in Heineken NV (EURONEXT:HEIA) have fallen sharply after third-quarter beer sales rose by 8.9%, missing analysts’ expectations for 12%. Despite this, the brewer kept its full-year outlook unchanged. Heineken has been pursuing its ‘EverGreen’ strategy to future-proof its business following the pandemic crisis.

Heineken is battling against macroeconomic pressures from rising inflation, which is adding pressure on costs and squeezing margin potential. It had a tough time during the pandemic with supply outstripping demand amid lengthy lockdowns, which negatively impacting sales particularly in Asia. As fears of a global recession emerge, Heineken needs to shift its sales focus more towards supermarkets instead of restaurants and bars given that households are likely to eat and drink out less and less to deal with the cost-of-living crisis. At the other end of the income spectrum, Heineken should also focus on premiumisation, a major theme in the drinks industry as consumers preferences shift to drinking less but higher-quality alcohol instead. Premium, low-alcohol and Asia remain key growth drivers for the beer giant.