Macro hard for Microsoft

Good Morning Voornaam,

Curious about what happened on the TreasuryONE webinar? Thankfully, the recording is available to you! We had a fantastic discussion on the major events of 2022 and the biggest themes of 2023, including a fantastic Q&A at the end. Find it here>>>

Richemont needs China

Asia Pacific is Richemont's most important region and sales went firmly in the wrong direction in the latest quarter. A reopening of China will help of course, as even luxury goods are impacted by lockdowns.

Another interesting local story yesterday was Steinhoff's sell-down of its stake in Pepco, the European retailer that has been growing nicely. The original plan was to sell a 6% stake, with investor interest being so great that Steinhoff actually increased the stake available for sale. The bankers did well here!

Other updates include Coronation's latest AUM, updated numbers on Capevin and Gordon's Gin from Distell and the successful adjournment of Nampak's meeting to vote on the proposed rights offer.

As always, you can get all the details in Ghost Bites>>>

Big tech lay offs

It wasn't hard to see this coming, sadly.

When covering tech stocks in Magic Markets Premium over the past year, we repeatedly pointed out that cost growth isn't sustainable in the context of revenue growth. With much of that pressure coming from staff costs, it was inevitable that layoffs would be happening at some stage.

Still, it's ugly when even Microsoft is cutting jobs - 10,000 of them, in fact!

This reduces Microsoft's headcount by less than 5%, so it's not a drastic cut, but rather a pruning of the tree. Real people get cut off the tree sadly, with the economic pain of Covid and the resultant rollercoaster ride at the Fed finally starting to bite. Some will have a soft landing in the US job market depending on their skills et, while global staff may not find it so easy to get another job.

The cuts at Microsoft will be in sales and marketing more than the engineering side of the business, which shows that CEO Satya Nadella will keep investing in product even if sales are slower. This makes sense. It doesn't bode well for businesses that rely on advertising spend at scale, like social media platforms. They aren't recession-proof at all!

There's also a lease consolidation underway, as firms continue to rationalise their office space. This leads to additional expenses in the short-term and significant savings over the long-term. Again, office property funds are not catching much of a break here.

At Amazon, 18,000 jobs are expected to be cut. Amazon is a far less efficient business than Microsoft, so that's probably nowhere near enough. I expect to see more job cuts across the tech industry as these companies repent fo r a ridiculous hiring spree over the past couple of years.

In banking, Goldman Sachs released shocking results. Earnings came in at $3.32 per share, around 40% lower than expectations. Revenue was in line with forecasts, but operating expenses were significantly higher and that broke the story at net profit level.

The trouble with Goldmans is that the bankers get rich before the shareholders do, something that has come sharply into focus in this quarterly result.

Soft US data

US PPI at 6.2% vs. an expectation of 6.8% drove the market towards riskier assets, with weaker-than-expected US retail sales in December also playing a role here. The dollar was lower against major peers, with even the battered rand managing to gain some ground to trade below R16.90.

The US 10-year yield fell to its lowest point since September, with the data suggesting that inflation could be starting to ease. Locally, CPI inflation printed in line with expectations and was lower for a third consecutive month.

In commodities, copper and Brent Crude both traded higher over optimism for global demand.

Don't miss out on the recording of the TreasuryONE webinar that we hosted yesterday. You can find it here>>>

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With that, I wish you an excellent Thursday!