Home » Market Report – Tech-pressure reaches fever pitch and UK banks ride the interest rate wave
Mounting pressure on tech sees Nasdaq shed 178 points
NatWest continues to benefit from higher interest rates
Oil price set for weekly climb, despite slipping slightly
Elon Musk closes $44bn Twitter takeover
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:
“Disappointing results from Amazon and Apple have piled further pressure on the tech-laden Nasdaq composite, which shed 178 points in the last trading session. The wider concerns from last night’s results point to a weakening economy, which although we’ve been warned about, still have the ability to spook the market when we see the tangible effects. The world’s largest retailer took investors by surprise last night with an utterly bleak outlook for sales, while profits could do a disappearing act because of fierce competition and soaring inflation. Over at Apple, while there was an overall beat on sales, iPhone revenue didn’t live up to expectations, in another sign that the consumer base is now seriously compromised. That said, a revenue beat is still a beat, and keeping customers flocking to Apple’s products at the rate they are is pretty impressive.
UK banking high street staple, NatWest, continues to benefit from higher interest rates, with net interest income jumping close to £800m compared to last year. This helpful tide will also carry the group through the next financial year. At the same time, costs are now expected to rise as it too can’t escape from the powers of inflation. While interest rates are on the rise, they are still low by historic standards, which stops profits from totalling taking off for the banks. NatWest is doing what it can to stoke growth in non-interest-rate related areas too, with a 12 month freeze in SME fees in its Commercial & Institutional arm. Ultimately, while the bank is in a reasonable position for now, we are expecting an arduous downturn in the economy by the middle of next year, which will rock the boat, regardless of the interest rate and market landscape.
Once again, a tightening supply outlook is expected to see Brent crude oil end the week higher overall, even though it is sliding towards $96 a barrel. The price has been buoyed by record US exports and a sharp downwards turn in the dollar, even as fuel inventories reached seasonal lows in the area. It can’t be forgotten that OPEC+ plans to significantly trim production from November, meaning an elevated oil price is more likely to stay as we head into Christmas. That is not what struggling households preparing for the festive season need.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
“The about turn is complete, with Elon Musk claiming to have freed Twitter by closing the deal even though he spent months flapping his trapped wings, trying to flee from the purchase.
The rollercoaster track he’s taken Twitter shareholders on has ended in a last scream of exhilaration for those who clung on for the ride. While the price of $54.20 a share is still below the heady heights of above $77 reached in the pandemic rush for tech in March 2021, it’s well above the $32 the company was being traded at a year later, just weeks before Musk slapped his generous offer on the table.
With tech valuations tumbling everywhere you turn, $44 billion is an eye-watering price to pay for the platform, which is why there is so much surprise that the deal finally went through, especially following the twists and turn of the legal fight as Mr Musk tried to back out.
Team Musk clearly believed the chances of the court ruling in his favour were slim, but his bout of buyer’s remorse may have damaged the company he will end up owning. He was relentless in his focus on the number of fake bots on the platform. This is an important metric considered to be key for future revenue streams via paid advertising or for subscriptions on the site, and his scrutiny of Twitter’s figures over the last six months is likely to prompt questions from potential advertising partners.
Mr Musk has indicated in his latest publicity stunt that he wants to throw the kitchen sink at Twitter to attract new users. But he is going to face a huge challenge of maintaining and building revenue, given that the controversial opinions he appears to want to give more of a free rein to in this ‘global town hall’ are often unpalatable to advertisers. He has indicated in the past that he saw introducing more subscription models as the way forward, but the risk is today’s regular users may find the platform turning into a social media boxing ring, which doesn’t bode well for long term retention and recruitment of more moderate Twitter fans.”