TEAM Asset Management’s global weekly market review for week commencing 23rd October. TEAM Asset Management is a Jersey-based independent asset management company of AIM-listed parent, TEAM plc (LON:TEAM).
UK banks reported their third quarter outcomes which have had many investors scurrying for the exit. NatWest Group was the standout with its shares falling 15% on the day of its announcement. It guided its annual net interest income margin lower for 2023 as depositors are now being rewarded with more interest.
A calculated decision to ‘cross swords’ with Nigel Farage (closing his account allegedly for political reasons) has also spectacularly backfired with acknowledged and serious shortcomings in the management of the affair. The UK Government still holds a 39% stake in NatWest and a near 31% decline of its share price year to date is awful news for the taxpayer.
Turning to the major and most influential of markets, the US is seeing October as the third consecutive month in a row of losses in the blue-chip S&P500 index. Since the year high on 31 July, the index has fallen over 10% and is now properly in correction territory.
Importantly, advance estimates of third quarter Gross Domestic Product showed annualised growth of 4.9% – the brightest expansion for two years, indicating the resilience of the US economy. However, what investors fear on top of nervousness about Ukraine and Israel/Hamas is that growth of this magnitude will keep inflation higher and potentially result in yet more rate rises from the Federal Reserve. Investors are therefore keen to look for alternatives, such as Gold which has again pushed through $2,000 – a rise of 10% so far in 2023.
Initial corporate results for the third quarter this year have been positive, although with a much greater degree of caution in forward guidance that has resulted in some significant downward share moves. Alphabet (Google) was a good example; its shares fell nearly 10% on the day of its results as investors fretted about Google Cloud revenues which rose 21.7% but sequentially was 6 to 7% below the previous quarter!
Amazon later soothed nerves with better-than-expected numbers amid stable Web Service trends and margin outperformance. Finally, Microsoft beat on all key divisions and its shares were the best behaved in a group where the bar was set very high. This week sees nearly 30% of US constituents of the S&P500 Index reporting which will clarify the market thinking on the third quarter outcome. Apple is probably the most important with their declaration at 9pm (after hours) on Thursday.
Other market moving events to look out for this week include the US Federal Reserve interest rate decision this evening, although the market is discounting no change in rates for the second consecutive meeting.
The Bank of England (BoE) Monetary Policy Committee meet tomorrow with the announcement due at lunchtime. Again, money market operations suggest no change, although observers will be interested to hear Governor Andrew Bailey’s views when reporting to the market. Finally, the US October employment report is due out on Friday lunchtime and analysts are expecting a net consensus job gain of 172K and steady unemployment levels of 3.8%. If the former was to surprise on the upside (like last month!) it could persuade the Federal Reserve to keep rate rises on the agenda and that could depress markets further. It appears not a time to take too many chances despite the oversold nature of equity markets.
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