Friday 17/04/26

Israel agrees to halt its war with Hizbollah in Lebanon (Financial Times, Raya Jalabi, James Shotter, Neri Zilber and Steff Chávez) heralds progress in the Middle East as a 10-day ceasefire deal was agreed and leaders from both sides will thrash things out in the White House in what would be the first ever talks between the two countries. Middle East war as it happened: Donald Trump says next round of US-Iran talks could happen over weekend (Financial Times, Madeleine Wright, Philip Georgiadis, Zehra Munir and Alexandra White) highlights Trump’s latest prediction on war talks, but I’ll believe it when I see it.

Meanwhile Trump administration urges US oil bosses to increase drilling (Financial Times, Jamie Smyth, Andrew England and Myles McCormick) highlights the impetus coming from the White House to get American drillers to increase production and Britain to ramp up North Sea drilling, says Reeves (Daily Telegraph, Jonathan Leake and Szu Ping Chan) shows that the chancellor is looking to speed up plans to “exploit” the basin’s oil and gas as quickly as possible in order to stop utility bills getting out of control. Does this signal a softening of the government’s stance not to issue new licenses to explore new fields in the North Sea??

Europe has only six weeks’ supply of jet fuel left owing to Iran war, says energy chief (The Guardian, Jasper Jolly) cites the head of the IEA’s warning about the consequences of the Iran war and $3bn wiped off Europe’s major airlines as carriers ground flights (The Times, Robert Lea) shows that the cancellations are already starting – Lufthansa said that it was withdrawing 27 CityLine aircraft from service because of rising fuel costs. Investors also got freaked out about EasyJet’s statement yesterday morning that losses were going to deepen because of the fuel price spike while other airlines, including Virgin Atlantic, also warned of consequences. Interestingly, Rolls-Royce shares were sold off yesterday, along with the airlines, because most of its income stream is revenue based on the flying hours of engines sold to its customers.

In markets news, S&P 500 hits record high as markets surge back from Iran shock (Financial Times, Emily Herbert and Ian Smith) shows that the index hit a record high thanks to strong corporate earnings and investor optimism about an Iran peace deal. While the S&P 500 has risen

by over 10% from its lowest point in the war, tech shares in the S&P shot up by over 15% in that time and Nvidia by 19%! It is also worth noting that investors have put over $111bn into US equity funds over the last month while European and Asian funds have seen net outflows. The most recent survey by Bank of America shows that global fund managers are increasing their allocations to US assets and tech whilst cutting exposure to Japanese and Eurozone assets. * SO WHAT? * Thus far, it does seem that US corporate earnings have been particularly strong. That being said, I’d argue that US banks in particular are going to be doing well for a while because they thrive in higher interest rate environments and benefit from trading revenues in volatile markets. Tech is still surfing the AI wave but supply chains are going to snarl up if the Strait of Hormuz stays closed, so I’d say this is on shakier ground. There are lots of other areas, though, that are surely going to suffer from Iran war repercussions – like consumer goods, retail, anything to do with discretionary spending. We’ll just have to wait and see.

Back home, Britain’s stock market eclipsed by Taiwan on AI boom (Daily Telegraph, Tom Saunders) highlights the fact that the total value of all Taiwan-listed companies hit $4.41tn on Wednesday this week, overtaking the value of the UK market at $4.09tn. This has happened courtesy of the AI boom that’s powering chipmaker TSMC in particular. TSMC accounts for almost 40% of the entire value of Taiwan’s market! It announced a 35% rise in quarterly revenues this week. * SO WHAT? * This is just the latest example of how the once-mighty British market is now being overtaken. Twenty years ago, the UK’s value was double that of Canada’s and triple India’s – but we have been overtaken by both in the last few years. Mind you, British energy and mining stocks have been doing well from Iran war-fuelled higher prices.

Then in UK economy showed surprise 0.5% growth before Iran war (The Guardian, Heather Stewart) we see that the latest ONS data shows that the economy was picking up momentum – but then the war happened. The much-bigger-than-expected jump in GDP growth was powered by strong performances by both the services and manufacturing sectors, but they’re probably going to take a battering from the war in the next release.

Shares at world’s biggest chocolate maker Barry Callebaut plunge as cocoa prices collapse (Financial Times, Susannah Savage) shows that the Swiss chocolate maker had to cut its profit forecast thanks to falling cocoa prices, overcapacity and supply disruptions. The main issue here is that the company buys cocoa months in advance but sells chocolate at current market prices. This has the unfortunate consequence of meaning that when prices fall sharply, the company has to sell at a loss because it bought the cocoa at higher prices and is forced to sell at lower prices, hence the warning. The share price fell 15%. It was also hit by weak demand that meant it couldn’t offset lower prices with higher volumes. * SO WHAT? * Falling cocoa prices have yet to filter through to high street chocolate prices, which are still up by about 10% versus a year ago. On the plus side for Barry Callebaut, it said that it expected volumes to recover in the second half of the year. The other longer term cloud on the horizon, though, is the effect of everyone being on weight-loss drugs that suppress appetite for naughty snacks.

PepsiCo warns that Iran war might push up prices (Financial Times, Gregory Meyer) shows that the US food giant is softening us all up for some price rises as it used its quarterly statement yesterday, where it reported a 2% increase in sales volumes, to warn that the cost of its food and drinks might have to increase as a result of disruption caused by the Iran war. I expect more consumer goods companies to say similar things…

In the world of luxury, Kering CEO De Meo aims to double profitability in turnaround push (Financial Times, Adrienne Klasa) shows that the company’s CEO came out swinging yesterday

by announcing a plan to rebuild profitability and reduce its reliance on Gucci. The plan, called ReconKering (see what they did there), will run until 2030 with a view to getting operating margins back to above at least 22% in the medium term, its historical average. Operating margins have slumped to almost half that level since 2023 as Gucci has underperformed. * SO WHAT? * Gucci is Kering’s biggest brand and accounts for about half of Kering’s revenue and two-thirds of its operating profit. The new plan involves lots of store close downs and the boosting of other brands in its portfolio like Balenciaga and Bottega Veneta. The idea is to bolster Bottega Veneta’s “high luxury” status and tap into Balenciaga’s popularity with Gen Z customers (presumably with the help of a bit of Harry Potter magic 🤣). The question is whether all this will be enough as there was a feeling among investors that a lot of the actions in his plan were already priced in.

Hermès bumps up against luxury’s scarcity paradox (Financial Times, Lex) follows on from what I said yesterday about the company’s disappointing performance. Hermès has, thus far, managed to walk the tightrope between exclusivity and maximising the number of customers very successfully but it seems that its increasing appeal to the more “aspirationally” wealthy has tripped it up. It is this section of its clientele who are more likely to be adversely affected by an uncertain economic backdrop, hence the company’s results falling short of expectations.

In a quick scoot around some of today’s other interesting stories, EU to relax merger rules in bid to create ‘European champions’ (Financial Times, Barbara Moens) shows that the European Commission is planning the biggest relaxation of its rules on corporate mergers since the 2000s in order to take on the Chinese and Americans with European “champions”. The guidelines will be broadened and are designed to encourage “pro-competitive mergers that allow European players to grow and accelerate innovation and have the scale to be relevant players”. * SO WHAT? * I guess this was inevitable given the chaos of the last few years and the increasing pressure of global competition. The guidelines are still being discussed but we can see the direction of travel!

In IPO news, Autoglass owner Belron prepares €30bn Amsterdam IPO (Financial Times, Ivan Levingston, Ashley Armstrong and Arash Massoudi) shows that the car glass repair group is edging forward to an Amsterdam flotation at a chunky valuation that would make it one of Europe’s biggest listings of the last few years! Belron is the world’s biggest car windscreen replacement and repairs business. Details are yet to be finalised but this is where things stand at the moment.

Meanwhile, in case you missed it, Shoe brand’s shares soar as it reinvents itself as AI provider (Daily Telegraph, Tom Haynes) shows that the woolly shoe maker Allbirds has decided to ditch its

origins and become an AI provider. It will provide cloud computing capacity and focus on “AI compute infrastructure”. It was founded in 2015, had loads of celeb fans and then floated on the NASDAQ in 2021 reaching a peak of $27 per share on its debut. Since then, its share price has all but evaporated – it fell by 99% in recent years – but it sold its IP and other assets for $39m, to American Exchange Group which will keep selling products under the Allbirds brand. The new entity will continue life as NewBird AI. Its share price went from $3 pre-announcement to over $10! Allbirds is turning into an AI compute provider, because of course it is (Financial Times, Alphaville) suggests that this is all a bit ridiculous – an opinion with which I concur!

Then in Elon Musk’s companies buy one in five Tesla Cybertrucks sold (The Times, Simon Freeman) we see that 20% of Tesla’s Cybertrucks were bought by other companies within Elon Musk’s business empire during Q4 last year, according to research by S&P Global Mobility. The report said that, without these purchases, Cybertruck registrations over Q4 would have more than halved! Wow!

I am sorry to say that I did not get 100% in this quiz. What about you??