Morning Note: Market news and an update from Salesforce.

Market News

A surprising jump in US consumer confidence and growing inflation expectations led to a bond sell-off as investors pared back bets for interest rate cuts. However, the Beige Book points to modest growth in the economy, while the Fed’s Raphael Bostic said many inflation measures are moving into target range and suggested the central bank may be in the position to cut rates in the fourth quarter.  The 10-year Treasury currently yields 4.60% and gold slipped to $2,330 an ounce.

The risk-off tone also fed through to equity markets in both the US last night – S&P 500 (-0.7%), Nasdaq (-0.6%) – and Asia this morning: Nikkei 225 (-1.3%); Hang Seng (1.5%); Shanghai Composite (-0.6%). The FTSE 100 is currently little changed at 8,181. Companies trading ex-dividend include AB Foods (0.78%); Centrica (1.90%); Intertek (1.53%); M&S (0.66%); Sage (0.66%); and Severn Trent (2.94%). BHP decided against making a firm offer for Anglo American.

In the UK, the 10-year Gilt rose to 4.40%, hovering near its highest level since November 2023. A Telegraph-Savanta opinion poll shows Labour are ahead by 17% points. Sterling trades at $1.2677 and €1.1750.

The European Commission will delay its decision on Chinese EV tariffs until after the European Parliament election, according to Reuters.

The oil price slipped to $83.16 a barrel. US crude inventories fell by 6.49m barrels last week, while gasoline supplies also decreased, API data showed. Saudi Arabia is set to start an Aramco share sale as soon as Sunday that may top $10bn, people familiar said. Book building will run through next Thursday, and informal interest from investors in the Middle East and Europe already exceeds that amount.

Source: Bloomberg

Company News

Last night, Salesforce released its results for the first quarter of its financial year to January 2025. Guidance for the current quarter was seen as a little underwhelming, potentially indicating that clients are scaling back spending as the possibility of higher-for-longer interest rates and elevated inflation prompts them to keep a tight leash on costs. In response, the shares were marked down by 16% in after-hours trading last night.

Salesforce is the world’s number one customer relationship management (CRM) platform with more than 150,000 customers. Its cloud-based CRM applications for sales, service, and marketing don’t require IT experts to set up or manage. The pandemic greatly accelerated the move by companies and governments to an all-digital world, where work happens wherever people are, whether they’re in the office, at home, or somewhere in between. The company also owns Slack Technologies, the enterprise communications platform. In its last financial year, to end January 2024, the group reported revenue of $35bn, up 11%, and an operating margin of 30.5%.

In the three months to 30 April 2024, revenue grew by 11% at constant currency to $9.13bn, a touch below the market forecast of $9.17bn. The majority of revenue was derived from Subscription & Support, which grew by 12% to $8.59bn. Professional Services and Other revenue fell by 9% to $548m.

By region, the Americas is the greatest source of revenue (66%), with growth of 11% in the quarter. Elsewhere Europe and Asia Pacific grew by 9% and 21% respectively.

The group discloses all future revenue under contract that has not yet been recognised as revenue, known as Remaining Performance Obligation. For the next 12 months, this now stands at $26.4bn, up 10% year-on-year.

The operating margin rose by 450 basis points to 32.1%, while EPS grew by 44% to 244c, versus the consensus forecast of 238c. Free cash flow grew by 43% to $6.1bn, while net cash stood at $8.2bn. At the beginning of the year, the company initiated a quarterly dividend of $0.40 per share. The company is also buying back its shares – during the latest quarter $2.2bn was repurchased, leaving an authorisation of $16.1bn.

The group reiterated its guidance for the financial year to end January 2025: revenue is expected to grow by 8%-9% to $37.7bn to $38.0bn. However, guidance for Subscription & Support revenue growth was cut to c.10% in constant currency (vs. ‘above 10%’ previously). Operating margin guidance has been maintained at 32.5%.

New guidance has been provided for the current quarter (i.e., the three months to 31 July 2024), with revenue expected to grow by 7%-8% to $9.20bn-$9.25bn. This is below the current market forecast of $9.37bn.

Source: Bloomberg