FTSE slips after corporate disappointments, NatWest disappoints with margin reduction, Apple and Amazon hit by supply chain issues and Facebook becomes Meta

“Underwhelming corporate news on both sides of the Atlantic saw the FTSE 100 get off to a sluggish start on Friday,” says AJ Bell Investment Director Russ Mould.

“For now investors appear to have shrugged off a long list of concerns taking in Chinese property, inflation, Covid, a fully blown supply chain crisis and an increase in interest rates, largely climbing this wall of worry in recent weeks.

“The next key test of the market’s mountaineering skills could come next Wednesday as the US Federal Reserve is widely expected to begin tapering its financial stimulus and the Bank of England potentially looking to raise rates.

“Those with memories of the taper tantrum sparked by former Fed chair Ben Bernanke’s decision to start scaling back support for the economy in 2013 may be eyeing the first date with some trepidation.

“However, the Fed has done a better job this time of trailing its move well in advance so investors can’t claim they weren’t forewarned.”

NatWest

“We’re at another turning point for the UK banks with the prospect of an imminent interest rate hike.

“Current profit figures are being flattered by the release of provisions for Covid-related bad debts. This is old news. What matters now is growing net interest margins, which is the difference between what a bank receives from interest on loans and the interest it pays out on savings deposits.

“In a growing interest rate environment, banks in theory should be able to increase their net interest margins and therefore boost earnings.

“Next week could potentially see the Bank of England start to raise interest rates in the UK or failing that we could see it happen in December. Rates are expected to go from 0.1% to 1% by next May, and potentially 1.25% by the end of 2021.

“With this prospect firmly in the headlights, NatWest has somewhat disappointed the market by announcing a reduction in its third quarter net interest margin. That’s been blamed on the non-repeat of the tax variable lease repricing gain in Q2 2021 in its commercial banking arm.

“This situation puts pressure on the bank to start charging more for its lending products and it has wasted no time in doing so, lifting its fixed-rate mortgage deals immediately after the Budget earlier this week. In fact, the bank has been making changes to rates for the past few months as well as making some of its mortgage-related cashback deals less generous.

“There is a difficult balancing act as the mortgage market has been incredibly competitive during a period of incredibly low interest rates and NatWest will have to make sure it doesn’t increase its rates to the extent that borrowers can find better deals elsewhere.

“The outlook for higher rates may suit NatWest and its banking peers, but challenges are mounting for families and businesses. Higher mortgage costs for those on variable rate deals, and more expensive mortgages for new deals, add to financial pressures including a sharp rise in energy bills and greater cost of buying food.

“Greater borrowing costs will also weigh on companies just at a time when so many businesses still have considerable pandemic-related debts to pay off. Therefore, NatWest is not going to see an easy ride as we move into 2022.”

US Tech/Media Stocks: Amazon, Apple, Facebook

“It was a tumultuous night across the pond for the US technology sector as Amazon and Apple proved that, for all their resources, they’re not immune to global supply chain challenges and Facebook, sorry Meta, unveiled a controversial name change.

“Meta – a term more often employed by pretentious film students discussing a knowingly self-referential movie – is being employed by Mark Zuckerberg’s charge to reflect its move into an apparent brave new future where we’ll all be interacting over the metaverse with virtual reality headsets.

“Given this future and, Meta or Facebook’s part in it, remains a long way from coming to fruition perhaps a better name would have been hubris.

“Whether this rebranding will be any more successful than Google’s switch to Alphabet back in 2015, which still requires explanation to people six years on, remains to be seen.

“For now, Facebook remains a collection of social media platforms so perhaps a new group name which emphasised communication would have been more appropriate.

“Cynical observers may note that the change to Meta comes at a time when brand Facebook is being damaged by criticism from regulators and internal whistleblowers over privacy issues and the potential harms experienced by users.

“When two of the most efficiently run and well-resourced firms in the world are having trouble dealing with shortages then it is little wonder the rest of the corporate world is struggling.

“Apple faces the frustration that there’s no lack of demand for its products, it simply can’t source the microchips required to power them. This is despite it probably having better access than other businesses through its longstanding relationships with suppliers in Asia.

“Costs look set to be a challenge too and it will hope it can pass some of these on to customers by leaning on the strength of its brands.

“Amazon’s problems are arguably even more acute as it faces the challenge of hiring enough workers in a tight labour market, potentially driving wage inflation, as well as sourcing the goods we all want to buy and sticking to its extremely tight delivery schedules.

“This is involving significant outlays and is a reminder that while its cloud computing platform is the higher quality part of the business, the more visible retail arm remains central to its fortunes.”

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