- Salesforce, American cloud-based software company, set to invest $4bn in UK business
- US GDP grew 2% in the first quarter, significantly higher than expected
- Nike shares shed 4.4% on disappointing end to the year
- Listed water companies sustain their recent declines as Thames Water issue leads to wider questions
- Overall, FTSE100 kicks off the end of the week 23 points higher despite weak economic data
- Brent crude looks to end the month higher at $74.5 a barrel
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“US cloud giant, Salesforce, which is a customer relationship management platform, helping with all things marketing, sales, commerce, service and IT, has said it will invest $4bn in its UK business over five years. The UK is already an important market for the group but the news will be seen as a triumph for those in policy-making decisions here, who are desperately trying to stoke interest in the UK as a high-growth and tech-friendly arena. Salesforce’s ambitions in the region are said to include driving innovation and growing the customer base – with broader details thin on the ground. While the announcement itself doesn’t fix the broader PR issues the UK faces when it comes to tech, it’s a step in the right direction. This comes as news arises that UK merger and acquisition (M&A) activity has dropped to a seven-year low. These deals are an important lubricant in the wheels of the city, and volumes have been hampered by higher interest rates, which has made borrowing more expensive and therefore more difficult to encourage the highly leveraged deals favoured by private equities. This is a dynamic that’s been felt globally, but the rate of deal decline has been worse in the UK than the broader trajectory, as a particularly heavy economic and political backdrop hampers external appetites.
The US economy is doing better than expected, despite the sharp rise in interest rates. GDP was up 2% in the first quarter, on an annual basis, compared to revised expectations of 1.3%. The rate of growth still represents a slowdown, but the important fact is that it seems consumers have more momentum left than first thought, and this may have an impact on the Federal Reserve’s next interest rate decision. There’s a very thin margin for US policymakers, with damaging inflation on one side and a deep recession on the other – finding the solution without giving rise to either scenario is an unenviable task. Expectations that the Federal Reserve will need to increase rates again has seen yields on US Treasury bonds reach the highest levels in over three months.
Nike shares have fallen 4.4% in after-hours trading after an underwhelming set of fourth quarter results. Earnings per share have fallen 27%, despite a 5% increase in revenue as margins came under pressure as the retailer had to spend more to generate sales in its important markets, as well as higher logistics costs. Sales increases were helped along by China and the easing of restrictions in the year. Attention will now turn to how quickly the apparel giant can fix its inventory problem, with inventory levels running 23% higher than in 2021. Some critics say the group was too slow to react to softening spending in the sector, and shifting those excess items will be priority in the quest for margin stability – while protecting the brand in the process and avoiding excess markdowns.
The likes of Severn Trent, United Utilities and Pennon have failed to recover the dips seen earlier in the week, as the Thames Water issue rumbles on. The crisis has raised questions about the level of investment needed to underpin growth in the wider sector, as well as environmental improvements. The challenges being tackled by Thames could also reignite concerns about nationalisation from more bearish corners of the market. While the declines from the listed companies certainly haven’t been very dramatic by most standards, they’ve caused an element of shock because of the steady-Eddie nature of utilities in normal times. Broader contagion from Thames should be limited – the listed names carry a lot less debt for one thing, which is the biggest problem facing Thames.
Overall, the FTSE 100 has followed the US higher on the back of the strong economic data across the pond, despite the UK economy barely eking out growth in the first quarter. Growth was 0.1%, in-line with city expectations and according the ONS. The construction industry was the strongest performer over the period. The FTSE 100 opened up 23 points, taking the index 0.6% higher over the month as a whole.
Brent crude is set to end the month higher at over $74 a barrel, as tightening global supply seemed to outweigh demand concern. A drop in US inventory levels has been a key driver in recent gains.”
