Morning Note: Market news and an update from Ryanair.

Market News

Treasury yields fell on Friday – the 10-year is currently 4.25% – as the market brushed off Fed Chair Powell’s warning that interest rates could still rise above their current level. Some traders see a cut in rates as soon as March, and current market expectations call for at least 1.25 percentage points of easing next year, a trend that would seem to clear a path for lower yields and an extended rally. Overnight, gold rose to a record high of $2,125 an ounce as traders piled in on bets the US Federal will cut rates early next year. The price has since fallen back to $2,064. However, given the recent weakness of the dollar, the gold price in sterling terms (£1,630) is someway off its high.

This morning in Asia, equity markets kicked off the week on a negative note: Nikkei 225 (-0.6%); Hang Seng (-1.1%); Shanghai Composite (-0.3%). The S&P 500 futures are currently predicting a 0.3% decline at the open this afternoon, while the FTSE 100 is currently trading 0.4% lower at 7,509.

Rishi Sunak linked spending cuts and tax reductions for the first time, making clear the UK government hoped to pay for further tax cuts by controlling its outlays on state services and welfare. Meanwhile Keir Starmer, Jeremy Hunt, Bank of England officials and economists will speak today to launch a report on the UK’s relative decline in productivity. Sterling currently trades at $1.2668 and €1.1651.

The oil price moved lower to $78 a barrel, as the market fails to shake off its supply-side gloom. According to RBC, Crude will probably remain volatile, and potentially directionless, until the market sees clear data on the group’s voluntary output cuts.

Evergrande’s liquidation hearing in Hong Kong was adjourned to 29 January, giving the troubled developer more time to strike a restructuring deal with investors. A group of offshore creditors wants its debt to be swapped for controlling stakes in the firm and two units, people familiar said.

Source: Bloomberg

Company News

Ryanair Holdings has this morning released its November traffic stats and in response the share price is little changed in early trading.

Ryanair is Europe’s largest airline group, is the parent company of Buzz, Lauda, Malta Air, Ryanair, and Ryanair UK. The company carries up to 183.5m guests p.a. on over 3,000 daily flights from 92 bases. It connects almost 230 airports in 36 countries on a fleet of 565 aircraft. Events over the last few years highlight that many of the factors driving profitability in the airline industry are outside the group’s control. However, the company believes it is better placed to cope with industry issues – Ryanair has significantly lower costs per passenger than its rivals and this advantage is expected to improve as the group takes delivery of new efficient aircraft. With 385 Boeing 737s on order, the group is aiming to grow passenger traffic to 300m p.a. by 2034.

The other trend the group has highlighted is ongoing consolidation in the European airline industry, with the takeover of ITA (Italy) and the sale of TAP (Portugal) and SAS (Scandinavia) already underway. 

This morning, Ryanair has released traffic figures for November. During the month, the company operated over 66,400 flights. Over 960 flights were cancelled due to Israel/Gaza conflict.

Passenger numbers grew by 4% to 11.7m. On a 12-month rolling basis, the company carried 180.8 passengers, up 14%. Load factor – the industry measure of available seating capacity that has been filled with passengers – remained stable at 92%. On a 12-month rolling basis, the load factor rose by three percentage points to 94%.

The company undertaking fuel hedging to smooth out cost volatility. It fuel requirements for the financial year to March 2024 are almost 85% hedged at $89a barrel, while its FY25 hedging has increased to just over 50% at $79 a barrel.

Ryanair has one of the strongest balance sheets in the industry. At its last balance sheet date (30 September 2023), net cash stood at €0.84bn. In addition, all the group's owned Boeing 737 fleet (534 aircraft) are unencumbered, which significantly widens its cost advantage over competitor airlines who are heavily exposed to rising interest rates and rising aircraft lease costs. 

The company recently resumed dividend payments and now has a policy to return approximately 25% of prior-year profit after tax by way of ordinary dividends, with surplus cash being returned through special dividends and/or share buybacks.

Source: Bloomberg