Must read: Twitter, PacWest, oil, UK GDP, Richemont, THG

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS 

European markets have started the final session of the week in the green, with the FTSE 100 trading higher by more than a third of one percent. Beazley (LSE:BEZ) is the top gainer on the UK large-cap index after a strong quarterly trading statement.  

Elon Musk said he has found a new CEO for Twitter. Musk tweeted, “she will be starting in ~6 weeks!” The Wall Street Journal is suggesting that NBC Universal executive Linda Yaccarino could be primed for the role. 

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PacWest Bancorp (NASDAQ:PACW) shares plunged 22.7% on Thursday as concerns in the US mid-sized banking sector resurfaced after its deposits fell 9.5%, or $1.5 billion last week.

Oil is on track for its fourth weekly decline as the sluggish growth backdrop sparks nervousness about the strength of demand for crude going forward.

UK GDP 

UK GDP dropped by 0.3% in March month-on-month versus expectations for a flat reading, but grew 0.1% across the first quarter of the year. Compared to last year, growth increased by 0.3%, also falling short of forecasts for +0.4%. The Office for National Statistics said first quarter GDP remains 0.5% below its pre-pandemic levels, weighed down by ‘anecdotal evidence’ that industrial action impacted various industries in March. 

A 0.5% drop in the services sector offset strength in production and construction, driving March’s disappointing GDP print. The service sector weakness was driven by an ‘exceptionally wet March’ which negatively impacted retail sales, disappointing vehicle and motorcycle sales, and a series of strikes which hurt various industries.

While the UK has so far managed to avoid a technical recession, defined as two consecutive quarters of negative growth, March’s figures highlight the persistently sluggish economic growth backdrop. Sky-high inflation, negative real wage growth and general cost-of-living pressures are weighing on the consumer, and in turn the services industry which is typically a key growth engine for the UK economy. 

Today’s figures point to the importance of taming inflation, a daunting task facing the Bank of England and the government, in order to catalyse a revival in services and broader growth. 

The pound has come off its near one-year highs, but is trading modestly higher against the US dollar after the Bank of England raise interest rates again to 4.5% on Thursday.

RICHEMONT 

Richemont (SIX:CFR) reported full-year sales up 19% at actual exchange rates to 19.95 billion euros, an all-time high, with sales in the Asia-Pacific up 25% to 2.3 billion euros. Its all-important jewellery division saw sales up 16% to 13.4 billion euros. Annual profit from continuing operations soared 60% to a record high of 3.91 billion euros. The luxury goods giant is returning cash to shareholders by raising its annual dividend and buying back up to 10 million shares. 

While Richemont enjoyed sales growth across all regions, distribution channels and business areas, China was a particular bright spot thanks to the release of pent-up demand for luxury goods after the world’s second largest economy emerged from Covid. However, Chairman Johann Rupert warned that demand has been weakening in the United States since November. 

The group behind some of the world’s most sought-after luxury brands such as Cartier, Chloe and Van Cleef & Arpels, is echoing the recent strength of its rival LVMH (EURONEXT:MC), demonstrating the resilience of high-end consumers amid the macroeconomic headwinds. With many at the top end of the income spectrum amassing even greater wealth during Covid, and with China finally unwinding its anti-Covid lockdown measures, luxury giants have stood to benefit. 

Shares in Richemont have surged almost 8% in today’s trade, having already rallied more than 40% to yesterday’s close over the past twelve months. 

THG 

Shares in THG Ordinary Share (LSE:THG) are trading lower by more than 9% after Apollo confirmed it does not intend to make an offer for the London-listed e-commerce business. THG said the board has unanimously determined that it is not in the best interest of shareholders to seek an extension to the Apollo deadline. It has reiterated that it expected to achieve positive free cash flow next year. Last month, shares surged more than 40% in a single session following the announcement of Apollo’s potential buyout. 

Investors are clearly very disappointed by Apollo’s decision to walk away. They were hoping that a private equiyt acquisition would put an end to its disastrous chapter which has seen THG’s share price slide more than 90% since January 2021. The company behind brands like LookFantastic and MyProtein has struggled recently with high raw material costs, particularly for whey protein which has squeezed margins. It was also caught up in the broader ‘tech-wreck’ last year as the e-commerce pandemic-era boom faded and the punchbowl of cheap money was removed as central banks rushed to extinguish spiralling inflation. There are also macroeconomic pressures from a softening consumer and a weak economy creating significant uncertainty around its outlook.