Market news and an update from Croda.
Market News
Oil jumped more than 5% after Hamas’s surprise attack on Israel raised fears of a wider conflict. Investors shunned risky assets such as stocks and instead bought gold (now $1,851 an ounce), bonds, and the dollar. Brent touched $89 a barrel (before falling back to $87) as traders braced for a potential escalation that may trigger a supply shock. This morning in Asia, markets were mixed: Nikkei 225 (closed); Hang Seng (+0.6%); Shanghai Composite (-0.5%). The S&P/ASX All Ordinaries Gold Index rose by 5.2%. The S&P Futures are currently predicting a 0.6% decline at the US open this afternoon. The FTSE 100 is little changed at 7,504. BP and Shell are up 3%.
Michelle Bowman said rates will probably need to increase further to return inflation to the Fed’s 2% goal quickly. The central bank governor said inflation remains “too high” and renewed her warning that elevated energy prices may reverse some progress. This came after Friday’s employment data that showed a rise in nonfarm payrolls of 336k, vs. 170k forecast. The unemployment rate of 3.8% was slightly above the 3.7% expected.
Labour is considering plans to borrow to invest in British industry, people familiar said. Bolstering the UK’s lacklustre investment will become a centrepiece of the party’s manifesto as it seeks to pitch itself as the party that can achieve economic growth. Sterling trades at $1.2179 and €1.1558.
Metro Bank clinched a £925m financing package, a deal that will impose a 40% haircut on some bondholders and see Colombian financier Jaime Gilinski take a controlling interest.
Global airline capacity is finally poised to surpass pre-pandemic levels, according to aviation analytics firm Cirium. The four lost years have left the sector weakened and understaffed. Industry profit will be less than 40% of 2019’s level this year, according to IATA. Business travel still hasn’t fully recovered, and Chinese citizens have been hesitant to embark on expensive overseas trips.
Source: Bloomberg
Company News
Croda International has this morning issued an unscheduled third quarter trading update and downgraded its profit expectation for the full year (for the second time this year). In response, the shares have fallen by 6% in early trading.
Croda generates annual sales of over £2bn from high performance ingredients and technologies. Its products are found in pharmaceuticals, sun protection creams, and agricultural products. The company’s portfolio has been repositioned to align with emerging megatrends such as the move to sustainable ingredients and the increased use of biologics.
However, during the three months to end September, customers continued to reduce their ingredient inventories in consumer care, crop, and industrial end markets, due to a combination of destocking and a weaker demand environment. This has continued to depress sales volumes and the group’s overall performance for the period was therefore weaker than originally anticipated.
In the Consumer Care business, volumes in the Beauty Care business were lower than expected in July and August with North America not recovering from quarter two. Beauty Care volumes have, however, improved in September and Croda expects the recovery to continue through the remainder of the year, albeit now from a lower base. Second half operating profit margin is expected to be lower than the first half year due to the negative leverage impact of low volumes and adverse business mix. Home Care sales are improving sequentially, and positive price/mix continues to offset low volumes in Beauty Actives.
In Life Sciences, sales have weakened further in Crop Protection and improvement is now expected to commence in the first half of next year. Seed Enhancement continues to perform well with incremental future opportunities being driven by regulatory change. The Pharma business continues to make progress with its industry-leading position in biologics delivery and recent partnerships helping to further strengthen its pipeline of opportunities. Industrial Specialties continues to be adversely affected by weak industrial demand globally and is not expected to be profitable in the second half of the year.
As a result of these factors, and with no indications of a significant rebound to come in the fourth quarter, Croda now expects full-year adjusted profit before tax to be between £300m and £320m, almost 20% below the previous guidance of £370m-£400m.
Several cost measures have been implemented since June this year to protect profitability which should leave the group well positioned to rebound when the macro environment improves. Capital discipline is also being maintained by managing down inventory and challenging non-committed, non-safety-critical capex projects, whilst striking a balance with continuing to invest in future growth.
Source: Bloomberg