Interactive Investor

Must read: UK consumer confidence, Cineworld, Netflix

24th February 2023 08:57

by Victoria Scholar from interactive investor

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The FTSE 100 has reversed some of yesterday’s decline, says head of investment Victoria Scholar, who rounds up the morning's big news.

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GLOBAL MARKETS

European markets have opened higher amid a slew of key economic data in Europe and the US.

At 11am, the UK will hold a minute’s silence to mark the one-year anniversary of the war in Ukraine.

Germany’s economy grew by 0.9% in the final quarter of 2022 year-on-year, falling short of estimates for 1.1% and the weakest print in seven quarters. Quarter-on-quarter Europe’s largest economy shrank by 0.4%, below expectations for a reading of -0.2% and the first negative reading in almost two years.

Overnight in Asia, Japan’s annual inflation rate rose to 4.3% in January versus 4% in December, the highest reading since 1981 driven by imported commodity prices and a weaker yen. The incoming governor of the Bank of Japan Kazuo Ueda suggested the central bank would stick to its loose monetary policy saying, ‘the BOJ’s current policy is a necessary, appropriate means to achieve 2% inflation.’

After US equities closed high on Thursday, futures on Wall Street are pointing to a softer open at lunchtime as investor await a key gauge of US inflation closely watched by the Fed, the PCE price index.

UK GFK CONSUMER CONFIDENCE

The UK Gfk consumer confidence index increased to -38 in February from -45 in January, sharply outpacing expectations for a reading of -43. This was the biggest month-on-month rise in nearly two years with sentiment hitting the highest level since April 2022. Nonetheless the reading is still languishing in negative territory and 12 points below its reading from February 2022 amid the cost-of-living crisis, lacklustre growth, and rampant inflation. But consumers were more willing to purchase bigger items and reported an improvement in their personal finances.

Not dissimilar to the inflation picture, consumer confidence has a long way to go to restore more normal levels, but the latest reading points to an encouraging trajectory with sentiment starting to shift away from near all-time lows. With the UK narrowly staving off a recession, financial markets picking up, inflation starting to ease and interest rates approaching their peak, there are incipient signs of hope for the UK consumer.

CINEWORLD

Cineworld (LSE:CINE) said it expects to emerge from Chapter 11 in the first half of the year. The cinema chain said it has received non-binding proposals from a number of potential counterparties for some or all of its business, but no decision has been made as to whether or not it will pursue a sale. For shareholders, Cineworld said it does not believe there will be sufficient creditor support for a plan that contemplates any recovery for equity interests.

While the embattled cinema chain looks set to come out of bankruptcy proceedings this year, its shareholders are likely to suffer with little chance of a deal to salvage its equity interests. Last month Cineworld denied media speculation that it had been in discussions over the sale of some of its assets to AMC.

Cineworld had an extremely tough time during the pandemic. Covid meant that cinemas were closed for many months, Hollywood was unable to churn out hits and consumer preferences shifted towards streaming instead which has caused lasting damage for ticket demand even after movie theatres reopened. On top of that, Sky for example now releases new blockbusters around the same time as the cinemas, again reducing the incentive to leave the house and organise a cinema trip. Plus, Cineworld also had problems of its own with its £700 million damages bill for abandoning its takeover of Cineplex.

The stock is down over 98% over five years and 90% over the past year, extending losses in today’s session.

NETFLIX

Netflix (NASDAQ:NFLX) is reducing its prices in a number of countries in a bid to bolster demand amid the backdrop of weak global growth. According to The Wall Street Journal, the streaming service is offering discounts in some parts of the Middle East, sub-Saharan Africa, Latin America, and Asia.

In January, Netflix delivered fourth-quarter subscriber numbers which sharply outpaced expectations, partly thanks to its cheaper ad-supported subscription service as well as successful releases including the Harry and Meghan docuseries. The streaming platform which has been facing stiff competition from Disney+ and other players, has acted nimbly to tackle the macroeconomic challenges from a softening consumer and slowing growth.

In response to its drop in subscriber numbers last year, Netflix has been cutting jobs, cutting prices, and adapting its business model to remain relevant during the cost-of-living crisis. Given that streaming is an easy to cut, non-essential spend, Netflix’s strategy has paid off, helping the TV and movie platform to remain relevant at a time when consumer budgets are feeling the pinch.

After a torrid first half of 2022, shares in Netflix have been regaining ground, rallying more than 40% over the last six months. But the stock has been under pressure since the January peak shedding over 10% in the last 30 days as January’s risk-on sentiment across equities fades.

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