Scottish Widows, Babcock, Whitbread, Oil Stocks, Rate Cuts & Boeing

Michael Hewson (00:00)
Hello and 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 Huston and joining me once again is Pepperstone’s Senior Market Strategist Michael Brown. Hello Michael, on a very warm June day.

Michael Brown (00:22)
Yeah, I was going to say, good afternoon to you mate, it’s an incredibly warm day here in the city and also a day where there seems to be a ridiculous amount of pollen in the air as well. So please forgive the fact that I sound like I’ve got a horrible cold.

Michael Hewson (00:34)
You and me both, mate. I mean, I’ve got my air filter sitting right next to me basically filtering the pollen out of the air. I’ve been on the antihistamines as well. Anyway, quite a bit to get through. think obviously central banks has been the focus today. Obviously, we’ve heard from Federal Reserve yesterday. We heard from the Bank of Japan earlier in the week. Also, the Swiss National Bank and the Norge Bank, who

price to some extent I think by cutting their benchmark rate and obviously the Bank of England. Before we get into that any initial thoughts about all of that?

Michael Brown (01:01)
Yes.

I mean, guess certainly no surprises from the FOMC, certainly no surprises from the BOE either. Some would argue the vote split, but the actual policy decision, bang in line with expectations. I guess the big takeaway is that the Norges Bank were sort of the last bastion of hawkishness in G10, and now they’ve thrown in the towel as well.

Michael Hewson (01:28)
Okay, well obviously we’ll get into that in more detail after the risk warning. But obviously, I think we also need to look at obviously what’s happened over the last week or so because in another quirk of timing on our podcast, merely hours after we finished and wrapped up last week, we had obviously the situation in the Middle East ramp up a little bit further with Israel deciding to take the fight to Iran and sending oil prices sharply higher. So again,

you know, big uncertainties there. And obviously that is going to be a topic for today. I’m going to talk about the City AM story out this morning about Scottish widows and another blow for the London Stock Exchange. And we’ll talk about that on the geopolitics front. There’s an interesting article on the Good Money website by Jackson Wong about whether or not it’s a good time to get back into oil stocks.

So we will talk about that as well. We’ll talk about Boeing. I’m actually surprised at how little of a hit the share price has taken in the aftermath of obviously that awful crash in India. Talked about central banks as well. And then we’ll look at the latest numbers from Whitbread, Ashton and AOL as well as looking ahead to next week’s numbers from Babcock, Halfords, Nike and FedEx.

we get through all of that. Swiss warning time. So here we go. 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 financial advice. Spread bets and CFDs are complex financial instruments.

and come with a high degree of risk of losing money rapidly due to leverage. 74.8 % of retail investor accounts lose money when trading spread bets and CFDs with this provider. Okay, so, you know, obviously, we talked about in the introduction, we talked about central banks, we talked about oil and gas prices, and we’ll come to them. But this story caught my eye this morning.

and was from City AM and it was about the decision by Scottish Widows to cut its allocation in UK equities from 12 % to 4%. Another big win for our beleaguered Chancellor of the Exchequer. Discuss.

Michael Brown (03:44)
Hmm.

Well, firstly, it’s obviously bad news. We know that it’s pretty obvious. It’s another I sort of semi joking said to you earlier on, there’s going to the fourth week running that we’ve had to have a bit of a rant and a moan about the dismal state of the London market. And this is just another damning indictment of that. But I guess what, you know, I kind of sat there and went, is it a surprise? Really?

I know that they are obviously a UK based firm, they’re going to have a bit of a domestic bias, but are we really surprised that firms who have a duty to act in the best interest of their investors and their insurance policyholders, et cetera, are wanting to go and seek a better return elsewhere? I think I would have been more surprised if the headline was, we’re going to keep our allocation at 12%, 13 % or whatever it was before.

Michael Hewson (04:41)
The take in the article is that it is a consequence of the refusal of Scottish widows to sign this voluntary mansion horse accord that not forces but suggests it might be wise for UK pensions to increase their allocation to UK equities and yet here we are Scottish widows are looking to cut

Michael Brown (04:57)
Hmm.

Michael Hewson (05:01)
their allocation of UK equities from 12 to 4 % by 2026. Now, they’re not a small pension fund, 72 billion pounds of UK assets. So why have they done that now? Is it so that when they’re forced to buy the treasury, they can then boost their equity allocation back up again? Yeah.

Michael Brown (05:07)
Yeah.

Go back to 12%. Yeah,

there could be an argument to say that that is what they’re doing, actually. That’s a very good point. But you mentioned the Mansion House Court or agreement or whatever it is. I think we discussed this at the time. The way to get people to invest in the UK is not to compel them by some sort of government edict. It’s to foster and create an environment which is receptive to funds, which is a market that is liquid. It is deep. It is performing well.

And frankly, that’s not what we have at the moment. And writing down orders from central government to say, you must invest in the London market when clearly there are better opportunities at the moment elsewhere, that’s simply not going to solve the problem.

Michael Hewson (06:03)
Yeah, I mean, you said that we’ve talked about this pretty much every week for about the last four weeks. But to my mind, I think we should continue to do so, to hammer it home. But this is very, very serious. You can’t force people to invest in areas of the market they don’t want to. What you can do, and we are starting to see some signs that perhaps the message is getting through. Hello, hello, McFly.

Michael Brown (06:11)
Yeah.

Yeah.

Michael Hewson (06:27)
we’re

finally getting there because I’m to go on to some of the certain potential U-turns that the government might be considering when it comes to energy policy. But we’ll talk about that later. But certainly I think this is one hobby horse or one particular hill that I will very well will die on.

Michael Brown (06:43)
no, absolutely, I’m fully with you on that and the drum that we’re beating on this one is getting worn out at this point because sadly every week there is another story and another little bit to this narrative and another cut in this death by a thousand cuts that we seem to be enduring at the minute.

Michael Hewson (06:59)
Yeah, there’s an interesting stat that I saw on that article. UK pension funds are down from 50 % UK equities to 4 % in the last 25 years. And maybe government should ask themselves why that is.

Michael Brown (07:12)
Yeah, no, I think you’re right. But also there’s also an argument to say, actually, you know, taking my back the London market cap off and putting my best interest of investors cap on, there’s an argument to say that actually, you know, obviously hindsight helps here, but they should probably have been doing this a decade ago in terms of what Scottish widows have announced today, given, you know, just sit there and pull up a chart of the FTSE and the S &P, the returns over the last 10 years. One has clearly vastly outpaced the other.

Michael Hewson (07:41)
Yeah. Okay, well, we’ve pretty much, I think, covered that and just reinforced the points that we’ve made over the last four weeks. So we’ll move on. And geopolitics is once again, I think, dominating in sentiment, particularly around energy markets, where we’ve seen crude oil prices rally quite strongly in the past few weeks and certainly in the past week or so. And obviously, that is going to complicate central banks inflation projections going forward.

Michael Brown (07:44)
You

Michael Hewson (08:04)
But Jackson Wong’s done a piece on the Good Money website talking about the potential for this to make or put oil and gas stocks back in vogue. So you’re talking BP, Shell, Exxon, Chevron and the like going forward. I think there’s a wider issue at stake here because obviously I think let’s talk about the Straits of Hormuz.

The fact is we have seen oil prices rally over 20 % from the lows that we saw in the aftermath of obviously the tariff liberation day. But they’re still not above the highs of this year. So I don’t think there’s any need to panic at the moment. I think the real concern comes if the Straits of Hormuz gets closed.

Michael Brown (08:33)
Yes.

Yeah, I think that’s I would fully agree with that. I think that’s very much the sort of way I’ve been framing it over the last week or so, as you alluded to earlier, with impeccable timing. This all kicked off about 12 hours after we finished recording last week. We really need to work on that level of jinx we seem to have developed. But more seriously, I think Mark has very quickly discounted the

exchanges that we continue to see between Israel and Iran, various targets being struck in both countries. think markets have adjusted to that very, very rapidly. And I think the focus now is a case of, as you said, do things escalate? By escalation, mean, does that encompass other nations or regions or actors being drawn into the conflict and it becomes wider? Does that encompass

as opposed to what we’re seeing at the moment, which is very much a case of a military operation targeting nuclear facilities. Does that list of targets broaden out to target things like energy export infrastructure? That’s something that will clearly concern the market. And then of course you do have that other sort of huge tail risk, which I think is a very low probability outcome of.

if there is a blockade of the straight of hall moves, then that’s clearly a major issue and Brent is probably north of a $100 a barrel in the blink of an eye. But I think for the time being, the market has probably priced an adequate degree of risk premium when you look at crude. And it’s really a case of now waiting and seeing what happens next. Clearly the situation is still very, very volatile, very unpredictable and very fluid.

Michael Hewson (10:14)
Yeah, I think the big risk is that the Iranian regime, if they feel that they’re cornered, ⁓ they may feel that ultimately they have nothing to lose. They haven’t got any friends in that area. If the US does decide to help the Israelis with the bunker busting bomb, that we could find ourselves in a situation which could see oil prices

Michael Brown (10:20)
Hmm.

Michael Hewson (10:38)
go sharply higher very very quickly and I think that’s the key tail risk for me if the uranium regime feels that it has no stop loss if you like no you know

Michael Brown (10:48)
Yeah, yeah, no,

I think you’re right. I think that that is that is the risk. If it gets to a point, I think this is why the language that a lot of nations, Israel, the US, everyone seems to be using is quite deliberate around there is no push for regime change. Because of course, as you rightly say, if the folk running Iran go, well, you know, the option is we’re ousted or

where else did, let’s try and cling on as long as we can. We’ve got nothing to lose. That’s when the risk of a significantly or significant escalation really becomes much more real.

Michael Hewson (11:24)
Yes, I think that’s important to bear in mind. And I think as we head into the weekend, I think that’s what all investors really do need to be aware of. If you’ve got any short term positions that you’re currently uncomfortable with, maybe it’s not a good idea to run them over the weekend, because generally that’s when flare ups tend to happen. And I think the US is expected to make some sort of decision on that over the course of the next few days. And obviously we’ve got

Michael Brown (11:32)
Hmm.

Yes.

Michael Hewson (11:49)
the weekend coming up so important to bear that in mind. mean okay so you know we’ll talk about I think we’ve pretty much covered that I think the key level for me is the 2025 highs for Brent which we saw in early January mid to early January if we move above them then obviously the picture for central banks will become that much more complicated.

Michael Brown (11:51)
Yeah.

Michael Hewson (12:11)
Having talked about inflation risks, risk of tariffs, Powell talked about that yesterday in his press conference. I think he’s very, very careful, wasn’t he? What was interesting though is they downgraded their growth forecasts, pushed up their unemployment forecasts and their inflation forecast.

Michael Brown (12:11)
Yeah.

Yes.

Yeah, interesting but unsurprising.

is the way I would probably frame that. To be honest, I think we all knew that the FOMC were going to be looking at a higher inflation profile and a shallower growth profile, at least in the short term, because that’s the impact that tariffs are likely to have on the economy and the associated uncertainty is likely to have on the economy. What I thought was much more interesting than that, and to be honest, we are scraping the barrel when it comes to trying to find highlights from the FOMC decision yesterday,

was the dot plot and not the fact that the median dot continues to point towards 50 basis points worth of cuts this year. What I thought was much more interesting was that despite that, seven of the 19 members on the FOMC actually penciled in no rate cuts at all.

this year. And I think that really the dispersion in views among policymakers really just speaks to how significant the uncertainty is. And essentially, the Fed have kind of turned around and gone, well, we’ve got about as little idea and as little certainty as anyone else. We’re just going to have to sit here on the sidelines and literally just wait and see what happens. if inflation isn’t a problem by September, maybe they turn a little bit more dovish. If inflation is still a problem then

they’re going to happily sit on the sidelines for a little bit longer. I really don’t think there’s a lot more that Powell and his colleagues can be doing at the moment, other than just reassuring everyone that when it is appropriate for them to act, they will act. And for the time being, both the economy and monetary policy are in a pretty good place.

Michael Hewson (14:01)
Well, it depends on who you choose to listen to, doesn’t it? mean, President Trump yesterday calling Chairman Powell a stupid person. think if there’s one, I think there are many re I think there are many reasons to criticize Powell. I being stupid isn’t one of them.

Michael Brown (14:03)
Well, that… ⁓

Yeah, that’s time I think.

Yeah, I also find it slightly amusing that, you know, and clearly just to clarify for any new listeners, the Fed are not going to pay the blindest bit of attention to what Trump is saying on rates and nor should they. But I do find it amusing how we seem to have gone from Powell should cut rates to Powell should cut rates 100 basis points to the Fed funds rate should be 250 basis points lower. I mean, at this point, Trump’s going to be sat there next week going, we should be going into negative territory or something stupid.

Michael Hewson (14:43)
Well, I suppose that’s one sign of inflation, isn’t it?

Michael Brown (14:46)
Well, exactly.

Michael Hewson (14:48)
Anyway, I mean, having said that, I mean, there are worrying signs for the US economy. Jobless claims yesterday, 245. Retail sales, surprise decline there. 0.9, I think, minus 0.9.

Michael Brown (15:00)
Yes,

although I would caveat that by saying that actually, although you’re right, minus zero spot 9 % of the headline metric, the control group sales number actually rose by zero spot 4 % and the big drag on retail sales was vehicle purchases. So I think the headline was a little bit more worrying than the data should actually, you know, it’s not a particularly concerning print in my mind, the underlying trend is still okay.

Michael Hewson (15:28)
Okay, so let’s segue into the UK, obviously the Bank of England this morning. No surprises really, I think there. The inflation numbers from earlier this week, again, not much of a surprise. I think what was more concerning for me was the fact that food price inflation was one of the bigger components of that inflation number. And I think for a central bank that wants to look at stock cutting rates, even though

we had a new descenter today. It means that we’re not really going to get anything much before August.

Michael Brown (15:57)
unless they’re to do an intermeeting cut. can’t get anything before August, let’s not go down that route again. But no, of course, we did have another dovish dissenter today, Deputy Governor Dave Ramston joining Dingra and Taylor, two of the external members, in a call for a 25 basis point rate cut. But again, really nothing by way of surprise from the BOE. They’re still sticking resolutely to this idea of gradual and careful policy.

Michael Hewson (16:00)
Well, yeah.

Michael Brown (16:24)
easing or steps back towards a more neutral rate. And we all know that that means one cut per quarter at a forecast meeting for all the time that that guidance remains in place. think that one of the interesting things for me, and again, we are scraping the barrel a bit on this one, was when you go into the minutes of the meeting, there did seem to be a little bit more concern about the degree of weakness and slack that’s beginning to emerge in the labor market. And I thought that was an interesting reference because

momentum in the labor market is clearly pointing towards a continued weakening as time goes on. And I wouldn’t be at all surprised if inflation does continue to come lower on some of the underlying metrics, ignoring things like energy prices, which are obviously going to push things higher in the short term. That could open the door to a more dovish stance from August onwards. But yes, certainly no surprises for the time being.

Michael Hewson (17:17)
Yeah, it’s saying 56 % of firms reported that the overall level of uncertainty facing their business was high or very high, the Bank of England said. And notably, well, apparently.

Michael Brown (17:26)
What does the other 44 % say?

Even higher than whatever high is.

Michael Hewson (17:32)
Maybe they were just ambivalent and really haven’t changed that much. It still looks pretty ropey. I was going to use another adjective there, but I thought, well, this is a family podcast. I don’t really want to use any four-letter words. They did say they don’t think that Trump’s tariffs are having any major impact on the economy. But then again, that’s because we didn’t impose any retaliatory tariffs.

Michael Brown (17:34)
You

Hmm.

Hahaha!

Yeah, exactly. mean, it’s pretty clear that Trump’s tariffs are potentially having an impact on the US economy. But as we discussed at the time, all of these countries running around talking about retaliatory tariffs, well, all they were going to do was shoot themselves in the foot. And again, as we said, that’s one of the few.

moves that the government have made that I think we’ve both agreed with, which is to say, actually, we are just going to sort of sit there and take it and go around the negotiating table, as opposed to compounding the potential damage. yeah, not overly surprised that the impact of that has been somewhat more limited.

Michael Hewson (18:26)
Okay so obviously with the next inflation report is also August so I think that’s potentially a good time. I think the market is now pricing an 85 % probability that will cut by 25.

Michael Brown (18:32)
Hmm.

Yes, I think

that’s about right. And of course, we do have quite a lot of data between now and the August meeting. We’ve got another round of inflation figures. We’ll get some, obviously, retail sales tomorrow. We’ll also get some jobs data. And I think the jobs data, as I alluded to a second ago, that will be important because it’s actually going to be May and June data. So it will be more figures showing the impact of those national insurance changes as well as that all begins to shake out. So yeah, there’s still a long way to

until the August MPC meeting, but I’d be very, surprised if we didn’t get a cut at that stage.

Michael Hewson (19:12)
We’ll also get complete visibility on the GDP data for Q2 as well, because obviously we saw that contraction in April. I mean, is this monthly GDP data fit for purpose, given the fact that the ONS is already facing a number of challenges on the data front? Is this one area that they could really, I think, just get rid of because of the fact that they are so volatile?

Michael Brown (19:16)
Yes, absolutely.

Yeah, no, I think they should. I think they should probably have got rid of it a long time ago. And this is something that Simon Gordon, Simon French, sorry, Pamela Gordon has been saying for a while, you know, the ONS are under resourced clearly, and also clearly struggling to produce accurate data. Why don’t you focus those limited resources on making the important data points accurate, things like the jobs data, the inflation figures and the quarterly national accounts and

essentially sack off things like monthly GDP, which no matter what country produces it, the economy is simply too volatile to actually discern a clear trend in month to month GDP numbers. It’s just a random number generator that creates far much more by way of noise than it does signal.

Michael Hewson (20:18)
So essentially, six of the important stuff and basically junk. I think we’re the only country that actually does monthly GDP data, aren’t we? So why do it?

Michael Brown (20:26)
I think Canada

might do it or did do it at one stage. I’m not sure whether they gave up on it, yeah, absolutely. It’s certainly not a common thing. And frankly, there are enough ways to gauge the performance of an economy on a month to month basis. Things like retail sales, the PMI numbers, all of the other sort of soft survey data that we get.

Michael Hewson (20:31)
I can see why.

Michael Brown (20:49)
I don’t think anyone is sat there going, I’d rather look at a month on month GDP print over all of that body of evidence. you know, it just seems superfluous, really.

Michael Hewson (20:57)
Yeah, okay. Well, that’s the central banks. essentially what in summing up, obviously, we’ve seen the SNB cut rates to zero. ⁓ I think they’re concerned about how the high value of the Swiss franc trying to, I think, offset currency inflows. But I would argue that if your rates are already close to zero anyway, I think another 25 basis point cut is neither here nor there.

Michael Brown (21:06)
Mm-hmm.

No.

Michael Hewson (21:20)
⁓

They’re not really interested in the return, they’re just interested in putting their money somewhere more stable.

Michael Brown (21:25)
Yeah, I think you’re absolutely right. And actually, I’m just pulling up the charts in front of me now. But I’m pretty sure that at least parts of the Swiss government debt curve are already negative anyway. So their moves really don’t make particularly much by way of significant difference. It’s a case of, as you alluded to, investors are looking for a return of their capital as opposed to a return on that capital. It’s a case of we’re worried more about safety than any particular profit that could be generated.

Michael Hewson (21:52)
Okay, especially given the fact that the Swiss franc is near 20 year highs against the dollar.

Michael Brown (21:57)
Yeah, I guess

the question with the SMB is, know, they’re at zero now. They can go to minus a quarter in September at their next meeting if they wanted to. Yeah, I think they went to minus half a percent, you know, back in the day. We know that’s not going to make much difference. So are they then more encouraged to actually start actively intervening in the frank a little bit more?

Michael Hewson (22:07)
But we’ve been we’ve been there before.

Yeah, I remember 10 years ago when they did that.

Michael Brown (22:22)
I was just thinking as I said that a few listeners are going to be having horrific flashbacks now I think.

Michael Hewson (22:28)
Yeah, I’m one of them. thought, what? Days after saying that they were going to defend the peg, suddenly pulled the rug out from underneath the markets. Yeah, I can’t forget that day in a hurry. moving, moving. So essentially, you know, rate cuts, yeah, whatever, Norwich Bank cut as well. But again, their rates are quite high anyway. So 25, was it 25 or 50? Yeah.

Michael Brown (22:34)
They weren’t. Yeah.

You

No, it was only 25 basis

points and it only takes them to four and a quarter percent. So they’ve still got a hell of a long way to go before they get back to the neutral.

Michael Hewson (22:55)
So that’s cosmetic.

Well, I think we’ve done central banks. So basically no prospect of a Fed rate cut. Actually, did I hear correctly that there was some did they get asked a question about potentially hiking rates?

Michael Brown (23:12)
I think so. mean, I’ll be honest, the press conference was one for the purists. So I did lose interest halfway through. But yeah, I do seem to recall someone did ask that around, you know, what are the conditions for you to raise rates because you’ve bumped up your inflation forecast. I’m just nonsense.

Michael Hewson (23:14)
I mean, really?

Yeah.

I do sometimes wonder if a lot of these journos come up with these questions on the hoof or whether or not they actually plan to ask them beforehand. It’ll be interesting to get inside that.

Michael Brown (23:35)
Yeah, I do. ⁓

I do feel for them a tiny little bit because you’ve got, you know, 15 of them who get asked a question. And frankly, we all know there’s only about three or four things that are really worth asking. So if you’re called 12th on that list, I mean, what do you ask? Chair Powell, what did you have for breakfast this morning? You you are sort of scraping the barrel at that point.

Michael Hewson (23:49)
Yeah.

or you frame a question slightly differently to the person before you, but it requires exactly the same response.

Michael Brown (24:03)
Yeah, exactly. I remember before COVID, this would have been then, they’re always used to same with the ECB, you always used to get to a point in the press conference where a journalist asks about climate change and how the central bank are worrying about that. That’s the point you know that you can switch off. No more news is being made in this press conference today.

Michael Hewson (24:20)
Okay so expect essentially a cut for another cut from well a cut from the Bank of England in August that’s what we’re looking for at the moment as with anybody else pretty much I think it’s probably it’s probably going to be the next might we get a move from the Fed in September?

Michael Brown (24:36)
I don’t think so. Well, yeah, exactly. And that is sneaking up on us bloody quickly as well. That’s only about three weeks away. But yeah, I struggle. I think December is still when we get the, excuse me, when we get the next cut and it will just be 25 basis points this year. But yeah, the risk to that is skewed to a dovish out turn, I think.

Michael Hewson (24:36)
It’s on July the 9th, I guess.

I mean, bond markets are behaving fairly well ⁓ on the back of this week’s meetings. Stock markets also holding up surprisingly well despite the deterioration of geopolitical outlook. Obviously, that could change over the weekend. But we have seen them a little bit softer, but certainly nothing to really, I think, be concerned about.

Michael Brown (25:01)
Hmm.

Yeah.

No, absolutely. And I think that goes back to what we were saying earlier on markets very quickly, discounted conflict, essentially, be it between Israel and Iran and have discounted that and moved on. And the bull case is still one around earnings remaining solid, the economy underlying growth is still solid, and the market is still banking on progress being made to

towards trade deals in some form. There was a little bit of reporting earlier in the week that went under the radar that the US is going to likely extend the pause on China tariffs from mid-August for another 90 days. So everything is still, that 9th July risk is looming, but everything is still pointing towards that peak of uncertainty and chaos being far behind us at this stage.

Michael Hewson (26:05)
So we’ll still be in the tariffs waiting room on July the 10th would imagine. Yeah.

Michael Brown (26:08)
I would imagine so, yes, that

can is almost certainly getting kicked down the road once again.

Michael Hewson (26:13)
Okay, let’s move on to Boeing. I’ve actually been surprised at how restrained the movement in the share price has been, but it’s certainly another problem that really beleaguered management don’t really need on top of obviously the 737 MAX 8. They’ve recently settled a lawsuit in respect of that, which cost them over a billion dollars. And now we’ve got concerns over the 787 Dreamliner. A BA plane returned to London on an India bound flight earlier this week.

Michael Brown (26:32)
Hmm.

Michael Hewson (26:41)
while a flight bound for New Delhi from Hong Kong was also turned around mid-flight. So does this speak to an inherent problem with the Dreamliner or is it an over an abundance of caution on the part of the airlines or symptomatic of a wider problem?

Michael Brown (26:55)
Yeah, I mean, think I would caveat that by first saying I am by no means an aviation expert whatsoever, but I think we can all probably agree that we would rather the pilots and the people in charge err on the side of caution as opposed to potentially taking unnecessary risks. I mean, I think it’s still far too early to say with any confidence what the precise cause of the crash in India was, but I certainly think from a purely financial markets perspective, the optics of all this are not good whatsoever.

particularly for a company like Boeing, which has already had a litany of issues, not only, excuse me, in terms of the 737 MAX, but also with its space program has been struggling. And this whole shenanigans with the new Air Force One that it’s made a complete pig’s ear of. If the market and if investors are looking at Boeing through a lens of effectively everything this company touches goes wrong.

Well, recent developments, it be factually proven or not, recent developments do sort tend to strengthen that case and it ends up with the market running away with itself.

Michael Hewson (27:57)
Yeah, I think it’s interesting that the share price reaction for General Electric, whose engines powered that particular plane, have seen a similar sort of hit to them. And I think there’s a school of thought here that suggests that while it may not be Boeing’s problem, it could actually become General Electric’s problem, depending on the findings.

Michael Brown (28:09)
Hmm.

Michael Hewson (28:20)
of the black box investigations.

Michael Brown (28:22)
Yeah, and of course it will take weeks if not months for the full findings of that investigation to become clear. But I think one outcome, as you say there, that the market is kind of beginning to mull over is the possibility that not only is it a general electric issue, but does that lead to remedial action having to be taken with regards to other engines of the same type that are flying around on other jets?

What impact does that have not only in terms of remedying the problem, if there is a problem, but also in terms of fresh orders? Because as we know, Rolls Royce is also an option on the 787. Now, that has not exactly been going well either, but there is competition there. And that’s something else that the market will be just beginning to have at the back of its mind, I think.

Michael Hewson (29:01)
Mm.

There’s a bit of a theme developing here because obviously we talked about Whiz Air last week and they had problems with their Pratt & Whitney engines. So you know it’s a real concern going forward. mean why all of a sudden are we getting problems with these engines?

Michael Brown (29:22)
Well, as I said, I’m not an aviation buff, but you know, is there some sort of issue more broadly in terms of manufacturing? You know, is too much trying to be done too quickly in too short a space of time, or is it purely just coincidence? And we’re just seeing a lot of this happen at the same time. I’m not qualified enough to know the definitive answer to that, but yeah, certainly wouldn’t just rule out the fact that it is pure chance that we’ve had three or four of these headlines in the space of three or four weeks.

Michael Hewson (29:50)
I mean, I have to say I’ve flown on a Dreamliner 787, not with any of the airlines just mentioned when we went to the States in January, February. And I got to say it was a very pleasant experience. I hasten to add, I don’t know what engines were flying that particular Dreamliner. I’m hoping it was the Rolls Royce ones. yeah, I mean, it’s certainly, I think, an interesting dynamic. And I have to say, given the fact that I’m going to the US in

Michael Brown (30:03)
Hahaha!

Michael Hewson (30:14)
in August I’m going to be paying much more attention to the type of plane I’ll be flying on.

Michael Brown (30:19)
Yes, I’m sure you will.

Michael Hewson (30:21)
Anyway, let’s move on to the earnings front. It’s been a fairly low key week, I think, in terms of earnings coming into the dusk of earnings season, if you like, the twilight. Yeah, we’ve had numbers from Premier Inn owner Whitbread this morning, and I’ve got to say they weren’t particularly great for the first quarter. ⁓ Like for like UK sales fell 3%. Smaller German business

Michael Brown (30:27)
Yeah, absolutely.

It’s that sort slack period, isn’t it, almost?

Hmm.

Michael Hewson (30:47)
improved but it’s such a small proportion of its revenue. Does that tell you anything about the UK consumer?

Michael Brown (30:53)
I think it could do. But also, if it does, it does somewhat buck the trend of some of the other consumer barometers that we’ve had. The retailers, for example, whether that be discretionary or staples, have all had very, very good starts to the year. So you could argue that there’s a bit of a read across there, but I would say that actually you sort of sit there and go, they are bucking the trend, does that mean that there’s something more

specific with Whitbread that’s the issue as opposed to a sort of general theme. If consumers spending and sentiment more broadly have been utterly dire, then yeah fine we can sort of brush it on the carpet and move on.

Michael Hewson (31:28)
Here’s the way I see it, Michael. People are staying at home. They’re not basically booking trips away. First quarter revenue for UK fell 5.4 % to £648.2 million. That’s quite a sizable fall. And also, there was a 16 % decline in food and beverage sales. So people are just paying for accommodation only.

Michael Brown (31:34)
Hmm.

Yeah.

Hmm.

Michael Hewson (31:52)
You know, maybe, you know, maybe there’s some, you know, sort of consumer dynamics taking place where people are preferring to stay at home, have barbecues and what have you because of the nice weather in the first quarter of this year and decided to forego, you know, these sort of weekend breaks, if you like. And I know some smart aleck is going to say, weekend break in a Premier and you’re having a laugh on you, but ultimately they’re still fairly cheap.

Michael Brown (32:02)
Yeah.

Yeah, and actually, I’ve certainly never had a problem with a Premier Inn. mean, it’s not a five star hotel, but you certainly know what you’re to get. It’s a comfortable bed and it’s usually a decent location. And if you’re on a weekend break, you’re not really going away to sit in a hotel room. You’re going to see whatever you’re going away for, whether it be a city or whatever. You just want somewhere nice to rest your head, so to speak.

Michael Hewson (32:21)
No, me neither.

No you’re not, exactly.

Exactly that. Ashtead, still on course to remove their primary listing.

Michael Brown (32:43)
god, sorry

to interrupt you there. Just going back to what we said earlier, we’ve got a new insult for Powell. Apparently he is, and I quote here from You Know Who, he is truly one of the dumbest and most destructive people in government and the Fed board is complicit.

I mean, where do you even begin? absolutely. Yeah, I’m sure we’re to get a cut right now that he’s tweeted that.

Michael Hewson (32:59)
That’s really going to make him do your bidding, isn’t it?

Yeah,

although, you know, I’m really, really worried about the president calling me dumb. what I’m going to do now is something even dumber. I’m going to cut rates. mean, that’s the sort of thing I hesitate to say. It’s the sort of thing you hear in a school playground.

Michael Brown (33:13)
Yeah.

it is. It is. It’s sort of school bully effectively that’s going on here. Anyway, sorry to interrupt you there. That just popped up on my phone here.

Michael Hewson (33:27)
No.

All right, well, we’re talking about Ashtead. When I looked at the numbers, I was actually surprised at how little business they do here in the UK. $907 million came from its UK operation out of revenue of $10.79 billion. So it’s North American operation, Canada and the US. So it’s not perhaps surprising that they’ve decided, why are we here?

Michael Brown (33:37)
Hmm.

Yeah.

Well, no, that’s exactly what I was going to say. We’ve, again, spoken at length about them moving their listing away from the London market. But the results really speak to why they’ve done that. There is, frankly, not much reason for them to be here when such a small proportion of their business is done in the country and also with all of the other litany of factors detracting from the London market. It’s not surprising.

Michael Hewson (34:16)
Yeah, mean, the shares are just off three year lows. well above, sorry, they’re well below the peaks they were in 2022, 2023. So why would you not think, well, perhaps we’ll get much more shareholder value for our buck if we basically list elsewhere?

Michael Brown (34:24)
Mm.

Yeah.

And I think they will.

Michael Hewson (34:36)
Yeah, I think you’re probably right. Certainly in terms of rental of industrial and manufacturing equipment, the US is a bigger market than say the UK, where it seems to me the government, it seems intent on hollowing out our manufacturing base. But that’s a story for when we’re to talk about the week ahead, because we’ve got PMIs next week. So I’ll come on to that. I’ll keep my powder dry on that one. A.O. World.

Michael Brown (34:56)
Yes.

Michael Hewson (34:59)
Appliances online, otherwise as they are known. Record adjusted profits on a like-for-like basis before tax of £45 million and yet the shares got absolutely spanked.

Michael Brown (35:02)
you

Thank you, Tadeco service!

Michael Hewson (35:12)
This was as a consequence of write-offs and intangibles relating to music magpie which pull profits down by £19.6 million. These are one-offs so they’re unlikely to be repeated. Their guidance is unchanged at between £40 and £50 million for 2026. Revenues were higher by 9%. I don’t think there’s really an awful lot to dislike about these numbers apart from the fact that perhaps pretty much all priced in and we have seen a little bit of little bit of a recovery today.

Michael Brown (35:22)
Yep.

Michael Hewson (35:38)
They’re no lower than they were at the lows from yesterday.

Michael Brown (35:45)
Yeah, I was going to say they’ve just sort of stabilized at or around those lows that we saw yesterday. And yeah, maybe it is just a case of it was all in the price in advance of the earnings. But as you said in your note, the other thing that they did was just reiterate their guidance. Maybe the market was looking for a little bit of an upgrade there. But in terms of the figures themselves, really not too much to moan about.

Michael Hewson (36:08)
I think they’re in a much better place than they were say two years ago when they were suffering quite a lot. And ultimately their chiefest competitor is Curry’s. So, and I have used appliances online when we were basically having our kitchen done. I think I ordered a fridge freezer. Got no complaints about it apart from the fact it’s a bit noisy.

Michael Brown (36:11)
Yeah.

And I’m not sure that’s their fault, mate, if I’m being completely honest.

Michael Hewson (36:28)
No, exactly,

Anyway, so that sort of wraps up, think, pretty much everything that we wanted to discuss for this week. I think looking ahead to next week, it’s a fairly light docket coming to month end as well. We’ve got final iteration of first quarter GDP out of the UK.

Michael Brown (36:42)
Yeah.

Oof.

What a treat that is for seven o’clock on a Monday morning or whatever.

Michael Hewson (36:49)
Yeah, would be do. ⁓

Flash PMIs for the UK and Europe and US personal income and spending slash PCE for May. Now, the one thing I like to say about the US numbers is that maybe there’s an abundance of caution amongst Fed policymakers because for the past four or five months, personal income has been much, stronger than personal spending, which suggests to me that the slowdown in retail sales

Michael Brown (37:11)
Hmm.

Michael Hewson (37:15)
is very much a process determined by the consumer through basically building up their savings in the event of an economic slowdown. It’s not indicative of a slowdown, it’s indicative of caution because of the uncertain backdrop that we’re seeing. Yeah. Yeah.

Michael Brown (37:31)
Yeah, consumers effectively building up a buffer, basically going,

I’m not sure what’s going to happen next. So I would rather have that cushion and not need it than not have the cushion and then potentially need it. I think that’s a very interesting one. In terms of the PCE inflation metrics, Chair Powell helpfully told us what they were going to be at his press conference last night with headline PCE expected at two spot three percent.

on a year on year basis in May and the core number expected to spot 6%. So again, it would be a four year low, but again, you sort of sit there and go, well, tariffs haven’t impacted the data yet. So it must go up at some point soon. And I think that’s very much in keeping with, well, certainly the CPI numbers that we had.

Michael Hewson (37:59)
That’s a four year low.

Michael Brown (38:14)
last week I think it was. Everything’s sort of blurring into one at this point. yeah, I don’t think either the income, the expenditure or the deflator numbers are going to really move the needle for the Fed. They’re on the sidelines.

Michael Hewson (38:26)
So first quarter GDP out of the UK 27th, not really expecting any changes to that 0.7. And I think really that’s gone.

Michael Brown (38:32)
No, although, well

I was going to say, and I said this about the US data earlier in the quarter, there’s maybe the potential for a bigger revision than we’d normally expect just because of how volatile everything was. with the ONS it could go anyway.

Michael Hewson (38:45)
put down.

Flip a coin then. Okay.

Michael Brown (38:48)
Yeah, but just given how volatile all of the

export flows were.

Michael Hewson (38:52)
Yeah, so with respect to the French, German and UK flash PMIs, again, these don’t paint a particularly pretty picture due on the 23rd to flash PMIs. Now, I want to talk a little bit about the flash PMIs out of the UK, given some of the news flow that we’ve heard over the past 24 hours with respect to net zero wind turbines and what have you.

Services proved to be fairly resilient in April and I was surprised by that 50.9. But it’s manufacturing that’s really been struggling. And is it really any surprise when UK manufacturing has the most expensive energy prices in Europe as a consequence of the government net zero policies, right? Here’s the kicker. Only this week, Wigan-based

Michael Brown (39:18)
Hmm.

Michael Hewson (39:35)
Electric Glass Fibre UK announced it was closing due to high energy costs and an inability to compete against Chinese imports. Do know what this company does, Michael?

Michael Brown (39:44)
Go on, I have a feeling you’re going to tell me what they do, Mr H.

Michael Hewson (39:48)
Blades for wind turbines, which we need for net zero. But because energy prices are so high and because of the government’s policies on net zero, they are not viable. They make components for wind turbines and electric cars, amongst other things. So essentially, this government’s drive towards net zero is driving renewables companies out of business.

Michael Brown (39:53)
UGH!

Michael Hewson (40:14)
Slow hand clap. Brilliant policy by our Clown-in-Chief, Ed Miliband. I could go further. Okay. I could go further. What else have we got? Another factor that investors might want to consider with respect to the oil price story is that Ed Miliband is now considering reversing the decision to ban new drilling in the North Sea after Rosebank and Jackdaw were blocked by legal action and which he supported.

Michael Brown (40:15)
That’s ⁓

⁓ God.

Michael Hewson (40:38)
So reality is coming home to bite our energy secretary in his behind.

Michael Brown (40:43)
Yes, I mean that’s all just beyond parody at this point isn’t it? I think that speaks for itself to be honest and if I say anything I’m probably going to get in trouble I fear. So I’m going to keep shtum.

Michael Hewson (40:54)
our resident clown in chief, Ed Miliband. Well, yeah, I suppose there’s a long, there’s a long story, but that I think that just speaks to the complete incoherence of UK energy policy at this point. Because ultimately, I think, you know, if you want to drive the transition to a much cleaner power system, you have to keep power prices as they are right now, lower. But

Michael Brown (40:56)
Well, which one?

Yeah.

Yeah, no,

you’re absolutely spot on. And the thing is, we all know this, and we all said this, but no one seems to be doing anything about it. So, yeah.

Michael Hewson (41:21)
We all know this.

In fact, they’re doubling down.

Anyway, so it’ll be interesting to see whether or not that story about Rosebank and Jackdaw is confirmed, because I think certainly I think in the context of certain energy providers like Equinor and Shell, who basically were really upset about the Rosebank and Jackdaw decision, which the previous government approved, by the way, it’ll be interesting to see whether or not they do pass legislation to allow those fields to go ahead. But I think the damage has already been done.

Michael Brown (41:37)
Yeah.

Yeah. No, I think you’re absolutely right. it’s, I know there’s a lot of talk about this in the media at the moment about the number of U-turns that are being done. But you’re absolutely right. You know, I think it’s a case of even if there is a U-turn now, we’ve missed the boat, essentially. You’re shutting the stable door after the horse has bolted.

Michael Hewson (41:51)
because of the delight.

You know, it’s like another story about, you know, an exodus of wealth out of the UK because of these very various non-dom inheritance tax changes. Again, I think that door has slammed shut. They have gone. And even if they do, if they do, if they do do a U-turn, be too little too late, because ultimately what it means is that they’ve destroyed trust.

Michael Brown (42:20)
Yeah. Yeah.

Yeah, the capital has gone, the trust has been destroyed, the credibility has been eroded, and that’s not going to come back anytime soon.

Michael Hewson (42:39)
Anyway, on a more optimistic note, we’ve got some fairly, hopefully positive earnings announcements due out next week. We’ve got full year numbers from Babcock, who are one of our energy, not energy providers, defense sector providers, and who we talked about in a previous podcast as potentially being a big beneficiary of the pivot towards defense. They got their full year numbers on the 25th, their shares.

Michael Brown (42:52)
fence.

Michael Hewson (43:05)
are now well above £10. When we talked about them, I think in April, March, they were around about £750. So a 30 % increase in the price of Babcock share price since then. again, geopolitics has shifted the narrative to stronger defence capabilities, supports the RAF through its HADES program. Anything you want to sort of talk about with respect to Babcock?

Michael Brown (43:11)
Yes.

Yeah.

Well, no, think it’s very much a case of, again, you know, we all know that defence spending is going to increase significantly. Well, it is increasing significantly. It will continue to increase. Although I would just say on that, actually, there was an interesting headline today. Apparently, Spain are looking to get in the way of and potentially block this 5 % of GDP defence spending target that NATO are trying to achieve. I think the actual line I saw was something along the lines of we

shouldn’t increase our spending, but everyone else should. Not sure that one’s going to fly, guys, given the way that Trump is operating. fundamentally, direction of travel remains towards increased investment in defense. And that should benefit Babcock and, frankly, the vast majority of other firms in that sector. And if it doesn’t, you’ve really got to ask questions about what the company in question will be doing.

Michael Hewson (44:16)
It does beg the question now how all of this was going to be paid for.

Michael Brown (44:19)
It does, but that’s not a problem that Babcock needs to worry about. That’s one for our esteemed ex Bank of England economist.

Michael Hewson (44:27)
Indeed and we always got Halfords four-year numbers for 2025. They’ve had a fairly decent share price performance over the course of the past few weeks. We had a big big jump in early April. It’s basically investors basically hopped on the bike and pedaled away but top end of guy.

Michael Brown (44:42)
Mm.

Sorry, even for you, mate, that was a bit strange, I think. ⁓

Michael Hewson (44:56)
That’s reaching. Yeah, it’s a bit forced that one. It does have

a dual business model of auto centers and obviously cycling. Seen a strong end to the year. So its shares have taken a fairly decent move higher. They’re at their highest levels since early 2024. So they’re around about 15 month highs. You have to question whether or not an awful lot of the good news is already priced in.

Michael Brown (45:19)
Yeah, I think the other thing with that is it will be, as we were alluding to earlier, a good barometer of retail sentiment and consumer spending a little bit more broadly as well.

Michael Hewson (45:29)
Yeah, certainly in terms of auto centers, but also in terms of cycling, think cycling makes up, I think it’s a pretty close split between the two actually. And they said that they are having to absorb higher costs of 23 million pounds as a result of the recent budget. Where have I heard that before?

Michael Brown (45:45)
Well, was going to say join the club. think every business in the country is is is on that on the same note.

Michael Hewson (45:52)
Okay, and then we’ve got well obviously with us markets closed today we’re going to finish off with FedEx and Nike and no i’m not going to be making any jokes about will it be able to deliver or anything like that so ⁓

Michael Brown (46:01)
I’ve actually

written that down next to the… just to remind me to make the pun.

Hahaha!

Michael Hewson (46:09)
So basically FedEx is saying they expect full year revenues to be flat. But I think what’s interesting for me is what will their guidance be ⁓ going forward? Because obviously it’s not just about moving stuff around the country, it’s also about companies moving freight ⁓ across the country. But again here, I think you could actually see a fairly strong quarter because I think

Michael Brown (46:14)
Yeah.

Yeah.

Yeah.

Michael Hewson (46:34)
front-running tariffs could have actually given the share price of the business a bit of a boost in the final quarter.

Michael Brown (46:40)
Yeah, no, I think you’re absolutely right. I’d be surprised if it didn’t, to be honest with you, given the sheer volume of front running that was going on. But again, they are one of those classic and delivery firms in general, one of those classic bellwether stocks in terms of how the broader economy is performing. So, yeah, I think it’s a case of their earnings are going to be skewed by all of that front running somewhat. The question is, how do they see the situation evolving as we move through

the coming quarters. Clearly if it is a very, very strong last three months, they’re probably not going to repeat that again in the following three months because all of those deliveries have been made. It’s now in inventories.

Michael Hewson (47:20)
And we’ll finish up with Nike. Can they reverse a, it’s been a steady decline quarter on quarter in revenues. think it’s pretty much the last, the few quarters we’ve seen declines of 10%, 8%, 9%. You know, what’s gonna arrest the decline in Nike revenues? Obviously they’ve got concerns about tariffs on imports from China and Mexico.

Michael Brown (47:29)
Hmm.

Michael Hewson (47:45)
but at some point you’ve got to think the shares are going to hit bottom. Did they hit bottom in March, April? We’ve seen a rebound since then, but overall the dynamics don’t look particularly positive for Nike.

Michael Brown (47:56)
No, it doesn’t look great, to be completely honest with you. And even though we did bottom out in that post-liberation day period over the last fortnight or so, we’ve been on the slide once more. So anyone who’s saying we have bottomed out may be getting a little bit nervous on that front. Again, as you say, revenue has been declining for quite some time anyway. Now they’ve got the issue of tariffs to deal with on top of that.

And if, as you were rightly saying earlier, we’re seeing US consumers perhaps looking to build up their savings as opposed to spending, are they going to be going out and buying all their Nike trainers and other sportswear? Potentially not. So it’s a business where there’s plenty of headwinds at this moment in time and little sign of them abating.

Michael Hewson (48:37)
know, Q3 revenue declined 9%, Q2 8%, Q1 10%, Q4 expecting a decline in the mid teens, 14 to 15%. I mean, worst quarter of the fiscal year. So that rather begs the question is how much worse can it get? Or are we due for a bit of a rebound? Again, we won’t we won’t know until after July the 9th.

Michael Brown (48:49)
Yeah.

Yeah.

Well…

I was going to say exactly that. We simply will not know because there and actually with in the case of Nike, we probably won’t know until till mid August because that’s when the China pause expires.

Michael Hewson (49:11)
All right, well, let’s I think, I think we’ve pretty much wrapped everything up that we wanted to talk about. Got any other things you might want to bring up that we haven’t covered? Being your bonnet.

Michael Brown (49:19)
No, I think

that’s everything to be honest with you apart from of course the…

standing warning around geopolitics and how fluid the situation is and particularly the fact that we are likely to see, I would imagine, fairly, if it hasn’t happened already of course with the US out today, but some notable squaring up of positions and perhaps some demand for havens such as gold as we move into the weekend. think market participants are going to be braced for potential escalation and subsequently for some potential gapping risk on Sunday night, Monday morning.

as well.

Michael Hewson (49:52)
I think it’s also important to mention that we are coming towards the end of the month, but also the end of the quarter.

Michael Brown (49:57)
Yeah, and the end of the half as well. Where the hell have six months gone? I do not know.

Michael Hewson (49:58)
Yeah, so you know, I

know I was just thinking last night when I was sitting up here doing my sort of prep for this podcast at nine thirty and it was still daylight outside and I’m thinking, is nice. I could see the sun, you know, the sky pink in the background thinking, you know, it’s just just nice to be able to sit in daylight at nine thirty at night.

Michael Brown (50:13)
Hmm.

Yeah, well

I don’t want to rain on your parade too much but after Sunday the days will be getting shorter again so enjoy it while it lasts.

Michael Hewson (50:26)
you had to say it didn’t you you just had to say it i was thinking it

i was thinking it but you had to say it

Michael Brown (50:33)
And on that note…

Michael Hewson (50:35)
And on that note, ladies

and gentlemen, on that bombshell, we’ll call it a day for this week. So once again, thanks very much for listening. Any comments or what have you, basically put them in the comments below and we’ll try and respond to them if appropriate. Anyway, that’s it. Thanks very much for this weekend. let’s speak to all same time, same place next week.

Michael Brown (50:38)
Hahaha!

Indeed.