Why is AstraZeneca Listing in New York?

Michael Hewson
Hello, welcome to this week’s podcast brought to you by The Good Money Guide and our sponsors Pepperstone, who are a multi-regulated CFD broker providing trading services in forex stocks and commodities in multiple destinations. I’m Michael Houston and joining me again is Pepperstone Senior Market Strategist Michael Brown. Hello Michael.

Michael Brown (01:08)
Very good afternoon to you, mate. How you doing?

Michael Hewson (01:10)
Indeed, yeah, not bad, mate, not bad. Just about to get on the road and head up to Bonnie Scotland for a few days. But I don’t know about holiday. It’s the Mrs. birthday. So we’re going to visit the family anyway. Yeah, let’s get on. Let’s crack on. September, a good month for stock markets and pretty much October has continued in very much the same vein. New record highs for the

Michael Brown (01:18)
Another holiday.

Mm-hmm.

Michael Hewson (01:36)
above nine thousand.

400 maybe we will get that 10,000 by the end of the year. I doubt it, but you know We’re well on the way there certainly in terms of momentum obviously been driven by reports of the deal between well between Pfizer and the US administration ⁓ Which I think has prompted hopes that a similar deal will be forthcoming for the likes of Astra GSK and the rest of the sector

Michael Brown (02:03)
Yeah, and actually it is a sort of rare bit of positivity and good news for the sector, because obviously we’ve spoken at length on recent podcasts around how companies like Merck and AstraZeneca are imposing investments in the UK and how life sciences, which has been one of the real strong sectors of the economy, is potentially faltering. Well, this week has bucked that narrative a little.

Michael Hewson (02:28)
Yeah, and it’s good news. But before we crack into the detail and the fine print, let’s get the risk warning out of the way, shall we? So the information provided here, whether from a third party or not, isn’t to be considered as a recommendation or an offer to buy or sell, or the solicitation of an offer to buy or sell any security, financial product or instrument, or to participate in any particular trading strategy. We advise any readers, viewers or listeners of this content to seek their own advice.

Michael Brown (02:36)
Indeed.

Michael Hewson (02:54)
Spread bets and CFDs are complex instruments and come with a high degree of risk of losing money rapidly due to leverage. 73.7 % of retail investor accounts lose money when trading spread bets and CFDs with this provider. Okay, so ⁓ obviously while the prospect of a pharma deal is good news for the UK benchmark,

there was a bit of a string in the tail this week, wasn’t there, with AstraZeneca? You want to go into the fine details of that?

Michael Brown (03:20)
Well, not really

because I mean this is a ⁓ drum that we’ve been banging so many times over the last year or so around the sort of death of the London market or the decline of the London market whatever way you want to phrase it and

Michael Hewson (03:33)
But

tell us what AstraZeneca is planning on doing with the New York listing. OK.

Michael Brown (03:39)
I was getting to that. I was getting to

They are swapping out. They’ve got an ADR listed in New York, American Depository receipt, and they effectively want to change that to an outright direct listing of AstraZeneca stock in New York, which, let’s be honest, is the first step in what will end up with them moving their entire listing, or at least their primary listing to the New York Stock Exchange at some point in the future. Obviously, Pascal Sorio has spoken on many occasions about his

distaste for the UK, for the London market and also how they do most of their business in the US. So it really wouldn’t be a stretch to imagine that happening before too long.

Michael Hewson (04:17)
Yeah, I don’t think it’s a distaste for the London market. I just think it’s a distaste for the rules, regulations and essentially government ⁓ here in the UK. I mean, you you go back 20 or 30 years, you know, and the London market was pretty much the center of everything finance. Now it’s becoming almost a backwater. I mean, was that. Yeah. Yeah, go on. Expand.

Michael Brown (04:37)
Well, was going say the IPO numbers out this week.

Well, mean, London is now this year, think it’s the lowest volume of capital raised in IPOs in at least 35 years. We’re outside the top 20 in terms of global IPO markets. We’re even below the likes of Oman, which is technically a frontier market. Now, I must say I’ve got nothing against Oman. I’ve never been to the country. I’m sure it’s a very nice place, but it is frankly shameful, the city of London.

is now below a frontier market like Oman, an emerging market like Mexico in terms of the amount of capital that’s being raised here and in terms of the volume of new listings that we’re seeing. mean, it’s an absolutely shameful situation. And the more worrying thing is it’s only getting worse, not better.

Michael Hewson (05:25)
Yeah, there was a report in the FT earlier this week that the government is considering exempting shares of IPOs to stamp duty as well as other taxes. I mean, if that’s true, it’s a start, but it’s still a hell of a long way short of what’s needed.

Michael Brown (05:34)
Mmm.

Indeed, and I agree that would be a very, very good move and a long overdue move. And of course, this is something you discussed on that panel you were hosting at the Good Money Guides Summit a few weeks ago. The problem with the proposals as I see them is it will be sort of very time limited. You know, there will be a stamp duty holiday for say 12 or 24 months after they list. Well, make that permanent. Yeah, let’s just reduce stamp duty across the board. That’s how we really improve liquidity. Otherwise, you’re just effectively postponing.

the problem from occurring with those new listings.

Michael Hewson (06:10)
You need to encourage businesses to list here, not discourage them. And these sorts of taxes and petty regulations mean that people will just go elsewhere. mean, to compare and contrast, right? 2006, the UK IPO market raised over 200 billion pounds. 200 billion, you know, with a B. This year, it’s raised 190 million. I mean, that’s pitiful. It’s pitiful.

Michael Brown (06:34)
is pitiful, absolutely pitiful.

There’s really no other word for it. And also the speed of that decline as well, that’s less than 20 years ago. And it has quite literally fallen to, in the grand scheme of things, nothing. 190 million is nothing in terms of international finance and capital raising.

Michael Hewson (06:55)
even when you compare it to 2021, which is a really good year for IPOs, the decline has been pretty steep. And I think that the blame can be laid squarely at the door of Both in consecutive governments, whatever political persuasion you are. This is not a particular criticism at a particular government. It’s basically governments of all

Michael Brown (07:11)
and consecutive governments as well.

Michael Hewson (07:24)
or persuasions and hues and colours and what have you. And I’ve got utter contempt for pretty much all of them because I don’t think any of them really have a brain cell to rub together. ⁓

Michael Brown (07:34)
Although just to finish up on that point very quickly, just to counter with a little bit of good news, we

did have the BIS ⁓ FX turnover survey out this week, which pointed to the London market remaining at the forefront of FX trading and of interest rate swap trading. So there is some good news out there in terms of the Citi, but I agree in terms of the capital raising side of things, it’s disastrous.

Michael Hewson (07:57)
the FX market has always been strong given London’s position in the middle of the international timeline. It’s a time zone thing. You’ve got 24-hour trading in FX. So we get the end of Asia and we get the beginning of New York. So the liquidity pool is at its deepest during London and European trading hours. That’s not really a surprise. And I know that because I used to trade FX for really long time.

Michael Brown (08:00)
Yeah.

That’s the time zone thing ultimately, isn’t it?

Yeah, absolutely.

during

the war.

Michael Hewson (08:26)
During the war back in the war behave

behave Anyway, so we’ve seen record highs this week. I’m not only in the footsie but also in the S &P and The Nasdaq and US markets in general what government shut down what we worried about boys, you know, what’s going on here, mate?

Michael Brown (08:42)
Yes.

Well,

do you know what? I’m glad to see record highs. I spent the first part of week banging the drama of the government shutdown doesn’t really matter. There’s next to no material impacts. And finally, markets seem to have come around to my point of view. I think the thing that’s under, we get onto the shutdown a bit more depth in a bit, but the government in the US has shut down 20 times. This is the 21st shutdown in all of those 20 times, whether the shutdown has lasted a day, a week or a month.

Michael Hewson (08:55)
It doesn’t.

Michael Brown (09:12)
There has been a deal done to reopen the government and things have resumed as normal. Data that was delayed has been released in due course. It’s really a political pantomime that keeps all the political journalists busy and all the lobbyists in Washington DC nice and busy. But for market participants, it doesn’t really make any difference at all, I don’t think.

Michael Hewson (09:33)
Yeah, I think there’s also some froth, you know, there’s a lot of enthusiasm about this open AI evaluation. $500 billion, chipmakers adding $200 billion in this global frenzy on AI. So again, you’re getting the old bubble talk. But you’ve also got &A going on, Warren Buffett and, you know, the Occidental Petroleum stake and Tesla posting a surprise sales gain.

in its latest quarterly numbers. So, you know, I think it’s not just, you know, one item that’s, think, driving this move higher in US stocks. And I think there’s also a perception, given the weak ADP numbers that we saw earlier this week, that perhaps an October rate cut now is more likely than not.

Michael Brown (10:22)
Well, I think in October, rate cut is pretty much guaranteed. I swaps are pricing 24.8 basis points of cut. So basically fully pricing a rate cut now from the Fed in October. And I think that’s the case government shut down or not, frankly. know, the path of least resistance is still towards further easing from the Fed. The labor market is losing momentum. They’re going to look through inflationary pressures as a sort of one-time shift in the price level.

Michael Hewson (10:37)
Yeah.

Michael Brown (10:51)
And I think that’s why to a degree the market is somewhat insulated and cushioned from potentially negative developments or bad news because you have that looser monetary policy backdrop to kind of help things out. But just going back to your point about sort of market drivers, I’ve just pulled up here, obviously there’s 11 sectors in the S &P. All 11 of them are green year to date. Now, consumer staples are only up 2%, which is not really worth rising home about. But the rally has been

sort of broader than the headlines and the screaming from the sidelines would actually have you believe, think, this year.

Michael Hewson (11:26)
I consumer, the consumer staples, consumer staples. ⁓ but I mean, that’s really understandable, I think, given cost of living pressures and the fact that food inflation is rising, not only here in the UK, but also pretty much across the US and Europe as well, because obviously those EU inflation numbers earlier this week saw they came in as expected at 2.2%. But what was particularly notable was services inflation and food inflation is starting to rally again.

Michael Brown (11:30)
Yeah, Staples are the lag of this year.

Michael Hewson (11:55)
push higher.

Michael Brown (11:56)
Yeah, and that is of course a global phenomenon as you say. We’ve been dealing with food inflation north of 5 % here in the UK for some time now. But again, I think from a eurozone specific point of view, just reinforces the idea that the ECB have probably done and dusted with rate cuts for this site.

Michael Hewson (12:13)
Yeah, so it certainly feels that way. OK, so, you know, obviously it doesn’t matter that non-farm payrolls tomorrow have been delayed and weekly jobless claims have also been delayed. So the fact is the argument there is the visibility on what’s happening in the US labour market is much less than it would have been. That I call nonsense on.

Michael Brown (12:24)
That’s brilliant news.

Michael Hewson (12:42)
because for me, I think there’s plenty of indicators that you can use to get a feel for the US jobs market, ADP being one, but also the employment components of the ISM surveys, as well as the PMI surveys. And I think generally they tend to be more reliable than the BLS numbers.

Michael Brown (13:00)
Well, I think you’ve hit the nail on the head there. We’ve had plenty of of column inches taking up in recent months about how US economic data is unreliable. Yet those same columnists are now saying it’s the end of the world because we don’t have that data. Well, I’m sorry, you can’t have it both ways. You can’t be worried about the quality of it, but then be worried that we’re not getting it. I completely agree with you. One of the things about the economy now is we have so many indicators. This is arguably why in sort of normal times,

half the data we get doesn’t move markets because it’s just not important enough. It doesn’t tell us anything new. But the benefit of that is there’s a lot of redundancy. And as you say, if we don’t get an inflation report or if we don’t get a set of labor market data, there’s three or four other proxies we can look at to build a picture of what’s going on. And I think that’s why markets aren’t overly bothered about this, the shutdown itself, and also why it probably won’t materially impact what the Fed are going to be doing. I think…

they’re in the same boat as everyone else where they can get a clear enough idea of the economy without some of these key data points that we usually rely on.

Michael Hewson (14:05)
I think the unknown quantity here is obviously ⁓ the US president. ⁓ There’s been some chatter that he might use this as perfect excuse to fire loads of government employees who he feels that really don’t really add too much to the overall equation. to my mind, it wouldn’t be a bad idea if they did that here. sorry, I’m going to get into trouble for that remark. But I think

there is certainly scope to cut down on waste, not only in the US government, but here in the UK as well.

Michael Brown (14:41)
Yeah, and I think you’re absolutely right. That would also help to reduce government spending to a significant degree. But in any case, it’s questionable the degree to which that is a genuine threat or plan, or is it just a sort of bargaining chip that President Trump is trying to use to get this sorted sooner rather than later. With him, you can never be quite sure, to be honest.

Michael Hewson (15:04)
No, indeed. ⁓ You know, be that as it may, we’ve seen some strong gains this week. Good start to October and what generally tends to be a pretty choppy month for October. I can remember October’s in years gone by that have been a veritable roller coaster when it comes to ups as well as downs. So I think what we’ve seen in September and pretty much since May, you know, the old sell in May and go away. Well, I think that one I think we can bury for

Michael Brown (15:23)
Mm.

Michael Hewson (15:34)
eternity I think because it will certainly not have worked in recent times. So if you’re not invested basically you’re running the risk of missing out.

Michael Brown (15:40)
Yeah.

Well, absolutely. And of course, you mentioned seasonality. think the risk going into October is really the back half of the month once Q3 earnings season gets underway on Wall Street. That’s when things could potentially get a little bit more rocky and into the start of November. But also in terms of seasonal trends, we started September with seemingly every man and his dog saying, it’s the worst month of the year for equities. The S &P always ends September lower, blah, blah, blah, blah, blah. But we actually ended up up about 3%.

in September. if that’s the worst month of the year for the S &P, game on into the end of the year, I think, for the Bulls.

Michael Hewson (16:22)
feels that way. And certainly I think in terms of early indications for third quarter earnings, Tesla’s delivery numbers speak to the potential for a positive surprise. The US GDP numbers for the second quarter, positive surprise. ⁓ Always assuming that. ⁓

Michael Brown (16:40)
And we’re tracking a

similar rate for Q3 as well. If you look at the Atlanta Fed GDP now cost and things like that, we’re at 3.7%, 3.8%, 3.9 % in terms of growth in the third quarter as well.

Michael Hewson (16:44)
Yeah.

Yeah, yeah, which is when I was in the States.

Michael Brown (16:59)
Well, there we go. Now we know who Trump can say thank you to.

Michael Hewson (17:01)
Now we know. he

can drop me an email. He can send me a post on Truth Social. Anyway, let’s move on. We had UK economic data this week. There wasn’t really too much of a surprise in any of it. Second quarter GDP reconfirmed at 0.3%. I was a little bit surprised that I thought there would be a downgrade given those revisions to UK retail sales. But the fact is it was largely unchanged. But again,

Michael Brown (17:07)
You

Michael Hewson (17:31)
The numbers were largely driven by the public sector, which saw a 1.2 % increase in government spending. And as we’ve said in previous podcasts, that’s simply not sustainable, unless you’re getting the tax revenues in to support it. And that is certainly, I don’t think, the case, because otherwise we wouldn’t be needing another budget in November.

Michael Brown (17:49)
Well, quite. And I think the way I would frame that Q2 GDP growth is one, as unsustainable and unaffordable, as you said, you it’s all propped up by government spending that we can’t actually pay for. And the second is probably as good as it’s going to get this year. You you think about the headwinds that are facing the economy. Q3 may be OK, but certainly Q4, I think the uncertainty in the run up to the budget is just going to act as a ⁓ major drag on investment and business decisions as we move through.

to the 26th of November, and then of course into the holiday period over Christmas, it’s going to be a case of, well, what’s the fallout from the budget? What policies are announced? And do they pose a hit to growth as well? And the answer is probably yes, sadly.

Michael Hewson (18:29)
Yeah,

business investment declined by 1.1%. It’s disappointing, but it was still an improvement on the 4 % decline that was seen in the initial numbers. One thing that I did take away from that was the rising economic uncertainty was weighing on confidence. Household savings, that ratio increased to 10.7 % from 10.5 % in Q1. So it suggested to me that consumers are reigning back on spending.

and building up some form of financial buffer or what they can do in the face of essentially rising costs. Spending in bars and restaurants saw a 0.1 % decline during the quarter. Well, I can’t imagine that’s gonna get any easier heading into Q3 and Q4.

Michael Brown (19:14)
No, no.

No, and I know we’re going to talk about them in a moment, but I’m pretty sure on the Tesco earnings call earlier, there was a comment along those lines as well, where there’s been an increasing trend towards dining in as opposed to dining out. And that’s been a trend that’s been going on for quite some time in the UK economy now. And I don’t think it’s going to reverse any time soon.

Michael Hewson (19:35)
Yes, been a common theme this reporting season. It’s been one of retailers essentially warning of subdued consumer confidence. Next JD Sports, John Lewis, know, Kingfisher. They’ve all sounded the alarm with respect to what they expect to see in the second half of the year. OK, so let’s let’s move on to the results this week. Yeah, no, but we have we have actually seen some fairly decent numbers this week.

Michael Brown (19:58)
on that optimistic note.

Michael Hewson (20:04)
Despite all the economic prevailing doom and gloom, there is still a lot to be fairly optimistic about. The problem, as has always been the case, I think, is the political narrative or the shaping of the political narrative, not only ⁓ out of Westminster, but the frustration that you’re seeing with respect to… Everyone knows what the problems are. And everyone also knows how to…

Michael Brown (20:05)
Yes, we have actually, that’s true.

Hmm.

Michael Hewson (20:34)
what the solutions are. The sad reality is we have a government who’s unwilling or unable to grasp the nettle and acknowledge the fact that you need to cut spending, not raise taxes. And unfortunately we’re not there yet. But anyway.

Michael Brown (20:50)
Yeah, and I think we’re a long way off that, but we

still have eight weeks until the budget, so we can’t do well out every week, otherwise we’ll have nothing to say by the time it comes around.

Michael Hewson (20:57)
No, no,

indeed. mean, so we had Greg’s results this week, the bakery Greg’s welcome news for shareholders and improvement in total sales in the third quarter of 6.1 percent total years total sales year to date 6.7 percent. So that was certainly an improvement on the profit warning that we saw at the end of I think it was middle of July. I think it was July, wasn’t it?

Michael Brown (21:25)
I think it was.

I think you’re right.

Michael Hewson (21:27)
In the wake of the hot weather so we saw a big jump on When those numbers were released earlier this week. We’ve given back a lot of that already I noticed in the past couple of days You know the I think the thing for me is that they’re still opening Loads of new shops. Obviously, they’re closing the less economically viable one

But I think there’s still this perception that maybe they need to rein back the store openings. ⁓

Michael Brown (22:00)
Yeah, I

think there’s probably three things I would pick out that the market’s of slightly concerned about. One is that expansion plans. it too much too quickly? Would it be more prudent to, yes, fine, expand, but do so at a slower pace and in a bit more of a controlled fashion? The second is that the rebound in sales that we saw, I we discussed this last week, I’m sure, was almost mechanical in nature. And what I mean by that is it was very, very hot.

during June and July, nobody’s buying Greg’s goods in a heatwave. There then wasn’t a heatwave in August and September and people do buy Greg’s goods again. So you almost expected a rebound to a certain degree. And then I think the other point that’s just worth picking out is that like for like sales, while they are still growing, they’re growing at a slower pace than what we’ve seen year to date. And I think again, that just leads when you add that to the expansion plans, of market participants going, well, hang on a moment.

Michael Hewson (22:53)
Hmm.

Michael Brown (22:59)
you’re fine, you’re expanding the business, but you’re not actually growing what you’ve already got, which is a little bit of a red flag, I think.

Michael Hewson (23:07)
Yeah, that’s a very good point. make sales growth, like for like sales growth, is one and a half percent in Q3 compared to the total sales, which was 6.1%. So, you know, that’s a big spread. ⁓ Nonetheless, ⁓ they’ve acknowledged that the changes to national insurance have cost the business an extra 20 million pound. And that means they’ll have to increase some of their prices by around

Michael Brown (23:20)
Big spread. Yeah.

Michael Hewson (23:36)
5 % so again that’s going to be a red flag for the Bank of England because if Gregg’s is increasing prices 5 % one of two things can happen people will stop buying Gregg’s and inflation will remain high

Michael Brown (23:55)
Yes, exactly. And of course, this is not something that’s going to be unique to Gregg’s. All businesses across the land are facing higher costs as a result of those national insurance changes. yeah, it’s only going to keep underpinning those price pressures that we know the Bank of England are very, very worried about indeed.

Michael Hewson (24:15)
brings me on to Tesco.

Michael Brown (24:17)
very nicely.

Michael Hewson (24:19)
Indeed. And they again, a very solid set of numbers from Tesco’s this morning. Their share price is up three and a half percent after an initial dip on the numbers earlier this morning. But looking across the group again, they’ve highlighted the fact that additional costs of £235 million in terms of NIC, National Insurance Contributions.

plus plus 90 million quid with respect to new packaging rules which started this month

Michael Brown (24:57)
I must admit,

I didn’t actually know there were any new packaging rules until I read the headlines from their results this morning. thought, what the hell is this? More cost on the business.

Michael Hewson (25:04)
It’s all it’s all it’s all retailers. Yeah,

it’s all retailers basically have to adopt new packaging rules I think something to do with green transition or something or some nonsense like that But yeah, I mean aside from that They also raised their guidance for underlying operating profit As well as increasing the dividend by 12 % So all in all they’re managing their cost pressures. Well, the shares are up

Michael Brown (25:22)
Yes.

Michael Hewson (25:34)
And despite the tough environment, they still expect to do reasonably well. Though I think it was quite notable that the head of Tesco’s did say to the Chancellor, leave it out in November, leave us alone. I’m paraphrasing slightly, but…

Michael Brown (25:48)
Yeah, and I think he

speaks for pretty much any business owner or chief executive or MD or whatever they may be across the country. Businesses have been squeezed and squeezed and squeezed. If you need to raise revenue, you are going to have to go somewhere else at this point. Otherwise, these businesses are just not going to, they’re going to either have to pass more costs on or they will end up.

going to the wall. But in terms of Tesco in particular, as you said, very, very solid set of results. In terms of market share as well, that’s up to 28.4 % now. And they’re also in the run to the start of September. That is still the fastest growing UK grocery brand. So there’s really not a lot to dislike about the figures.

Michael Hewson (26:35)
Yeah, cost of sales went up by over a billion pounds for the first half of this year compared to the same period last year. So obviously part and parcel of that was obviously the NIC contributions and obviously the additional costs with respect to packaging. I mean, that’s quite a sizable increase. ⁓ yeah, so that’s Tesco’s decent like for like sales increases in UK, Republic of Ireland and Booker. So it wasn’t really a weak spot in the numbers at all.

Michael Brown (26:50)
Yes.

Michael Hewson (27:05)
which does surprise me that the shares initially dropped when the market opened. But hey, it is what it is. They are now higher and probably one of the best performers on the day. So that’s Tesco’s Nike results put some welcome news from Nike this week. I really surprised by that, I guess, because certainly some of the early indications would appear to suggest that the worst of their problems are behind them.

when it comes to supply chain issues, tariffs are a concern. They did mention that in their numbers. But overall, revenues were better and profits were better than expected, even though they were below what they were a year ago.

Michael Brown (27:33)
Mm.

Well, not just below what they were a year ago, net profit was down 30 % from where it was a year ago, which is quite a chunky decline. But as you said, it was almost double where consensus had expected it. So I think this is almost a classic case of the market and analysts having become far too pessimistic on the stock. And then the earnings have come out and actually proved the market wrong. As you said, it’s a little bit tough to call a definitive turnaround here, but it does seem as if the

the worst might be behind the foot.

Michael Hewson (28:22)
Yeah, I’m looking at the Nike chart and there does appear to be a decent trend line coming in from the lows back in April and the $80 level was also the highs back in July and back in August. So I think if we can crack on through $80, we could well see a quick run up to $100. Let’s not forget where we came from on this particular share.

Michael Brown (28:33)
Mm.

Michael Hewson (28:49)
back in 2021 we were up 170, $175 so it’s fallen a hell of a long way.

Michael Brown (28:54)
Yeah.

absolutely. mean, we’re still down, you know, on a 12 month basis, we’re down by seven or 8 % even. And of course, you know, well off those peaks that we saw historically. So yeah, if that can crack those levels to the upside, then it could really run.

Michael Hewson (29:09)
Yeah, I mean they expect the tariff hit to be about one and a half billion dollars, which was slightly more than expected. But nonetheless, I think the markets have shrugged that off and I think they want to try and take that higher. We also had latest mortgage approvals out this week as well as Taylor Wimpey’s latest numbers. Taylor Wimpey in line, Q3 trading update, expectations of home completions reaffirmed and expected operating profit of 442 million.

They say they expect to grow completions by 14,000 a year in the medium term Well, good luck with that because I tell you what they’re not even trending at 10k at the moment. So That’s a 40 % increase. I’d like to see how they’re do that in the current environment But you know, at least they’re optimistic I guess Yeah So so that that’s pretty much Taylor Wimpy which sort of brings us on to Next week, I think So

Michael Brown (29:52)
Magic, presumably.

Indeed. And one thing we won’t

be getting next week is much US data because of course we would expect the government shutdown to roll on well at this point you’d imagine for at least the first chunk of next week because the earliest a vote can be to get things open again is is Monday and that’s looking a bit remote as a possibility at this point.

Michael Hewson (30:22)
We should be getting fed minutes. ⁓ Okay, we’ll get those. Are they really going to tell us anything? We’ve had so much fed speak over the course of the past, since the meeting. I’m not really sure what these can add to the overall sum of knowledge when it comes to raid expectations in October. They’re going to be pretty stale, aren’t they?

Michael Brown (30:25)
We will get those. We will get those.

Yeah.

Well, they are going to be stale. mean, to a certain degree, the minutes are always stale, but this time more than anything, because of course, we’ve not only heard from every member of the FOMC countless times since the September decision, we’ve also had, as we keep huffing on about, government shutdown since that September decision. And in any case, money markets are fully pricing a 25 basis point cut at the end of October. So, you know, I really don’t think the minutes are going to tell us anything that we didn’t already know.

The base case is still that they deliver that 25-bit cut at the end of the month and that Steve Moran votes for at least a 50, if not a 75 basis point move, given his rather fanciful estimates of where the neutral rate lies. But frankly, don’t think, the Fed are not going to spring a surprise yet. think if they’re, the next question for the Fed is they’re embarking on these risk management cuts. How many of the cuts do you need to manage the risk that you see? Is it?

two and you stop after October? Is it three and you stop after December or is it more and you continue to ease into 2026? But that conversation is not going to happen now. That conversation is going to happen at the end of the year. And in any case, we’re going to get a new chair, which could completely change the ball game on that front anyway.

Michael Hewson (32:05)
we heard from Waller.

Michael Brown (32:08)
Sorry? ⁓ No, he did speak this week, but it was on payments infrastructure or something. So he hasn’t made any comments on monetary policy, which is unusual, actually. I think he’s probably the only one who hasn’t.

Michael Hewson (32:09)
Have we heard from Walla?

Yeah.

That’s interesting then. I think that’s because I said to you last week, where’s Wally? Where’s Waller? Yeah, yeah, yeah, yeah. Where’s Waller? So we’re still waiting to hear because obviously he was along with Bowman, one of the key protagonists for a quarter basis point rate cut in July. And obviously he went against the, he went against the consensus. Now we’ve heard from Bowman, but we haven’t heard from Waller. Now.

Michael Brown (32:26)
Not Wally, he’s one of few who speaks sense.

Michael Hewson (32:49)
If you think that he’s going to be in favour of a breakout, why won’t he say so? Why is he not more vocal or has he just hasn’t had the opportunity?

Michael Brown (32:54)
What?

Well, may not have had the opportunity. think it is interesting that he has been somewhat quiet. What’s also interesting is that Mickey Bowman seems to have come out as very much one of the most dovish members of the committee, probably after Stephen Moran at this point, because she seems very, very worried indeed about the labor market, talking about the risk that the Fed fall behind the curve, et cetera, et cetera. So I suppose there’s a risk that she may dissent in favor of a 50 basis point cut next time out as well. But I think that’s a relatively low.

probability in terms of the outcome coming to fruition.

Michael Hewson (33:33)
Okay, so on earnings, let’s move this discussion on. There’s not really that much to get excited about next week, I think, simply because we’re starting to head it into the beginning of Q4 earnings season. I think, when does that start? Middle of October?

Michael Brown (33:41)
Hmm.

Well JP

Morgan sort of marked the unofficial start and that’s on the 14th of October so we’re only a week and a bit away from… ⁓

Michael Hewson (33:53)
Over, yeah.

So it’s almost coming to the dying embers of the previous earnings season before we start to the beginning of the next one. I mean, it’s like a, you know, it’s like a hamster wheel, isn’t it? Anyway, ⁓ OK, let’s I think this is a good one because this gives us an insight into the UK labour market and more and probably labour market or global labour markets in general. That’s the first quarter numbers from Hayes. John, the 10th of October.

Michael Brown (34:00)
Yes. Relentless, isn’t it?

Hahaha!

Michael Hewson (34:27)
Now you look at the Hayes share price and I think you’d probably be reaching for the spirits bottle if you’re a Hayes shareholder because they’ve not really been doing very well, drifting to the lowest level since 2008 in the past few weeks. Well, sometimes I can be subtle. Not very often, but so.

Michael Brown (34:43)
Yeah, that was sort master of understatement from you there, I think.

Occasionally.

Michael Hewson (34:57)
As a reminder in its end of year numbers, net fees decreased by 11 % to 972.4 million and they described the current slowdown as the great hesitation in those numbers three months ago. Not much is going to change between now and November is it when it comes to employers. yeah, so cutting costs, they’ve been cutting costs.

Michael Brown (35:17)
No, absolutely nothing’s going to change.

Michael Hewson (35:26)
I think the bigger question is whether all of this pessimism is priced into the Hayes share price and whether we might be due a rebound

because I’m looking at it and I’m thinking how much lower can this share price go?

Michael Brown (35:39)
Yeah, it does beg the question, doesn’t it? Because as you say, we are trading right on that sort 55 P mark that we hit basically during the GFC was the last time we tried at that level. Yeah, I think that is really the only reason why we may see the stock turn around, to be completely honest with you. I certainly don’t think we’re going to see this sort of miraculous turnaround based on the UK economy suddenly going gangbusters because as we’ve discussed at some length, now we’re in this sort of run up to the budget.

Nobody is going to be hiring en masse until we have some clarity around what Rachel Reeves is going to be doing. And that’s clearly going to act as a headwind for recruiters and for Hayes. So yeah, I think it’s purely a question of has the market gone a little bit OTT with the pessimism? If it has, then you could see a bit of a rebound, but I think you’ve got to assume that that rebound will be relatively limited in nature.

Michael Hewson (36:33)
One of the things that took away from the previous numbers, and regular listeners will know this, is that contracting momentum, contracting fees were only down 7 % while the permanent side of the business saw a 17 % decline. So maybe there’s an element that if you’re a business, you’ll hire a contractor in the short term because ultimately it’s easier and it’s cheaper.

Michael Brown (36:52)
Yes.

Yeah, that’s a very good point.

Michael Hewson (36:59)
Imperial brands, fourth quarter, GDP, fourth quarter, fourth quarter numbers. I’ve got GDP on the brain. One of the better performers this year on the FTSE 100. More than doubled from their lows since October 2023. These sort of SIN brands, if you want to, for want of a better word, Imperial brands, British American tobacco.

Michael Brown (37:05)
Hahaha

Michael Hewson (37:21)
They’ve managed to see off concerns about increased regulation on smoking, bans, vapes and what have you. And generally have been on a fairly decent run in the past two or three years. But at some point they’ve got to start delivering on NGP net revenue. And that’s next generation. If you’re wondering, it’s new products, vaping products, vape. Yeah, essentially. Yeah. So.

Michael Brown (37:45)
Yeah, things that aren’t cigarettes is the easy way to think about that basically.

Michael Hewson (37:51)
They did raise the dividend by 78.5 % in the last set of numbers. So that’s a fairly chunky increase. I think the big thing for me is does this run have more to go or are you at risk of rolling over?

It’s really struggling to get through £32.

Michael Brown (38:09)
Yeah, and I think this is very much a sort of for the market, it’s almost a show me story where you’ve been promising this for quite some time now. Are you actually going to be able to deliver what you say you’re going to deliver? Yeah, you say we’ve been struggling to get through 32 quid. We have right now as we speak, we’re actually testing the, I’ve got my crayons out. You’re influencing me now, mate. I don’t know what’s going on. Well, I was going to say the 50 day moving average as well. And if we break below that, that could…

Michael Hewson (38:30)
September lows mate.

Yeah that’s it.

Michael Brown (38:37)
spell some further downside. yeah, I think for the stock, it’s very much a case of the market needs more than just rhetoric and words at this point. needs figures to back.

Michael Hewson (38:48)
Yeah, momentum is fading. What you’re seeing is you’re not seeing new highs. It wasn’t able to take out the highs in May or September or October. So that’s 32 pounds. If we don’t see a significant improvement in the numbers next week, then we could well see and move back towards the 200 day moving average, which will be the July lows there or thereabouts. So keep an eye on that, ladies and gentlemen. That could be right for a little bit of a move lower. ⁓ Constellation.

Michael Brown (39:06)
Yes.

Which now we’ve

said that probably means it’s going to rally.

Michael Hewson (39:19)
course it will. It’s called the reverse indicator. ⁓ Okay, ⁓ US markets. Constellation Brands, PepsiCo and Levi Strauss. ⁓ Constellation Brands. Now, this is going to make uncomfortable reading for Warren Buffett because since he bought that stake in them, the shares have gone one way and I’ll give you a clue. It’s not up.

Michael Brown (39:21)
you

Mm.

Yeah.

It’s not looking like one of his shrewder investment decisions. Let’s put it that way.

Michael Hewson (39:49)
No, no, no,

I think I mean basically the cost of higher aluminium tariffs lower demand for its products Q2 Q1 revenue of 2.5 billion dollars and lower profits. So essentially they’re feeling the effects of tariffs and obviously increased costs of materials and what have you so ⁓ You know, can that continue will that continue or we see a bit of a rebound?

Michael Brown (40:14)
I don’t-

Yeah, and also in terms of beer specifically, they do seem to have lost quite a lot of market share in the US recently as well, almost since Buffett bought into the company. So that’s another headwind that they need to grapple with in addition to everything that you mentioned.

Michael Hewson (40:32)
But that’s probably because of higher prices. If you’ve got to put your prices up to basically absorb the cost of higher aluminium prices, then essentially people, know, the US beer market is, you know, sort of diverse enough for people to just to swap to another brand.

Michael Brown (40:34)
Yeah.

Yeah, well most of them are horrible anyway, so…

Michael Hewson (40:50)
Well, that is very true. must have been American.

With all due respect to my American friends, your beer is horrible. OK. Yeah, exactly. Then we got PepsiCo. So obviously everyone knows about PepsiCo, Pepsi Cola, but they also make Walker’s crisps. And again, relatively modest quarter for the share price there. ⁓ Edged a little bit higher in the wake of its Q2 numbers, but

Michael Brown (40:57)
Yeah, unless it’s imported, you don’t want it.

Michael Hewson (41:20)
it started to slip back a little bit and net sales up 1 % in Q2. Food volumes though were lower by 1.5 % and was flat for drinks. So again, this is another brand that’s feeling the pressure or brands. I think what’s happening here is a classic sign of consumers buying supermarket owned brand stuff and shunning

Michael Brown (41:41)
Yeah.

Michael Hewson (41:49)
the more established brands.

Michael Brown (41:50)
branded product.

Yeah. And I think the other thing with PepsiCo, just looking at the stock I’ve just got in front of me now, it’s basically gone nowhere since the summer, since sort of mid July, we’ve just been flatlining effectively. yeah, it will be interesting to see that that points on market share and consumer choice, because, you know, I think there is a point in that. I think that does hold water. And certainly, if we’re looking at higher food prices, as we discussed earlier,

Naturally, consumers are going be going, well, do I need Walker’s crisps or can I just get away with Costco crisps, whatever it may be? More thought goes into those decisions.

Michael Hewson (42:23)
Yeah, exactly. Well,

it does. mean, even I find that I’m looking at the pennies when it comes to whether or not I pay £2.50 for this particular item or £1.90. Now, I’m going to pay £1.90 because if it’s a supermarket owned brand rather than pay the £2.50 because when you pro rattle that across several products, that’s a significant saving.

Michael Brown (42:52)
Yeah, absolutely. And I think a lot of people are probably doing a similar thing to yourself.

Michael Hewson (42:57)
Finishing up Levi Strauss. ⁓ That’s gone gangbusters since April. I mean, what has happened there? I think everyone was expecting a tariff impact, but I think the strength of the brand has allowed it to, I think, mitigate an awful lot of that by virtue of fact that their customers have absorbed…

easy for me to say, a lot of the price rises that we’ve had to implement.

Michael Brown (43:31)
Yeah.

Yeah, I think you’re absolutely right. you know, I mean, we all, I’m literally sat here in a pair of Levi’s right now. They’re about the only thing I ever wear these days, but we all know the quality of the brand. Well, I think I might be at this point. Yeah, you’re, you’re popping up U.S. retail sales. I’m propping up the gene market. But yeah, I think you’re absolutely right. You know, the quality and the reputation of the brand has meant that, you know, consumers are happy to pay those higher prices for

Michael Hewson (43:39)
I didn’t.

You’re keeping him afloat, mate.

A pair of dockers.

Michael Brown (44:01)
the product that is on offer. frankly, I don’t think there are that many brands who are able to take advantage of that sort of reputation. you know, as you say, I mean, they’ve been going absolutely gangbusters. Just looking here, the low that we saw just after Liberation Day was about $12. They’ve doubled since then. And it looks like there’s absolutely no stopping them. They’ve had a number of broker upgrades as well, which obviously helps.

So yeah, would expect the, well as long as earnings are okay, that rally has legs to roll on.

Michael Hewson (44:32)
In Q2 revenue came in at $1.45 billion and that was well above $1.37 That was the expectation. So there was a significant improvement there and profits were a lot higher as well. Now for Q3, Levi say they expect sales to increase by 3, between 3 and 4 percent. And for earnings per share to increase to 29 cents per share, up from the 22 cents a share that we saw in Q2.

So it’s a fairly high bar, I would suggest.

Michael Brown (45:03)
It is a high

bar, although I agree it’s a high bar in terms of growth, although I would also suggest that if that’s the guidance the firm has issued, they’re relatively comfortable that they can meet that. Otherwise you wouldn’t issue the guidance. The tradition is you massage expectations lower and beat. You don’t over promise and under deliver. You do it the other way around.

Michael Hewson (45:14)
Hmm.

Well, that’s normally what happens, but some retailers have got that wrong in the past. Target being a case in point. Upgrading their guidance one quarter and then having to downgrade it the next quarter. And me thinking at the time, are you sure you want to do that? Are you sure you want to raise your guidance? know, but they did it and they’ve been paying. Yeah, I’ve been paying the price ever since. So that’s pretty much it, I think, in terms of the earnings for next week. It’s a fairly quiet week, touch wood.

Michael Brown (45:29)
That’s very true.

Well, if they had their time again.

Michael Hewson (45:52)
Not

Michael Brown (45:53)
Don’t use that word. Don’t use that word.

Michael Hewson (45:55)
much in the way of macro. ⁓ I think the only thing that ⁓ we have to consider is obviously ⁓ how quickly this government shutdown will get resumed. But I don’t think overall it’s going to affect overall sentiment when it comes to the stock market. But famous last words, I guess we’ll have to wait and see.

Michael Brown (46:19)
Yeah, I would agree with that. The only other point I would make just in terms of the week ahead is if the government shutdown does come to an end, it is all resolved, then at some point we will look for when, for example, the Bureau of Labor Statistics will release the September jobs report. Yeah, that will be published at some point when the department is funded again. Of course, as soon as we know that, we can talk about it in more depth. But right now it is on pause, as is pretty much everything else.

Michael Hewson (46:46)
is crazy because they have the numbers they already have the numbers

Michael Brown (46:50)
They will have the numbers. The problem is they have a grand total of one person working in the department at the moment, which is the Deputy Commissioner, because the Commissioner has been fired, ⁓ as we all know about. So yeah, I don’t know the Deputy’s name, but I would not want to be in their position pressing the button on a non-farm payrolls number with no one to help me out if it goes wrong.

Michael Hewson (47:02)
Yeah.

If you press a button, what can possibly go wrong?

Michael Brown (47:15)
Don’t say that. On that

note…

Michael Hewson (47:21)
It’s not the big red button there. Anyway, all right guys. Well, thank you once again, Michael. We’ll pick this up next week. ⁓ I’ll be in Scotland then, but we’ll pick this up next week and hopefully we’ll have more information about how much longer the US government is going to be shut down for. Until then, have a great week and speak to you all next week.

Michael Brown (47:29)
Pleasure.

Bye for now.