Most Recent Audio: 03 February 2023

David Fuller and Eoin Treacy's Free (Abbreviated)
Comment of the Day

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February 03 2023

Commentary by Eoin Treacy

February 03 2023

Commentary by Eoin Treacy

Shell Isn't Looking for Big Deals as Debt Shrinks, Profits Soar

This article from Bloomberg may be of interest to subscribers. Here it is in full: 

Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders. 

That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.

The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.

Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”

Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth. 

There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.

Eoin Treacy's view

Berkshire purchased a chunk of Occidental Petroleum in December 2022 for $10 billion. That reflected a conscious decision to boost exposure to the conventional energy sector. Meanwhile, energy majors have been shy about increasing exposure and have instead become much more conservative. The majority of their spending has been either been in onshore domestic US production. They have also been open to high probability overseas exposure with close access to major markets like Exxon’s Brunei/Malaysia production. 

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February 03 2023

Commentary by Eoin Treacy

Email of the day on scanning for prospective funds

I hope you are well, and not too cold. In London.

I am interested to invest in some US FUNDS. Is there any way of assessing/culling the Funds by 1 year, 5 year Performance. As you know you have large list.

Eoin Treacy's view

Thank you for this topical question. The wonders of the online market means neither Sarah or I still live in London. She is in the environs of Manchester and I live in Dallas Texas which has been covered in ice for the last three days. My daughters have had a great time enjoying their snow days but went back to school today.

The easiest way to slim down the list would be to create a section in your Favourites. Then you can use the Performance Filter to rank them by performance intervals. Here is a video detailing how to do that. 

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February 03 2023

Commentary by Eoin Treacy

Apple Rebounds as Investors Look Past Sluggish Holiday Quarter

This article from Bloomberg may be of interest. Here is a section: 

Revenue fell 5.5% to $117.2 billion in the December quarter, Apple’s biggest sales period of the year, coming in well short of the average Wall Street estimate of $121.1 billion. It was Apple’s first quarterly decline since 2019 and the first time the company has missed analysts’ holiday sales projections since 2015. 

The iPhone and Mac were particular weak spots for Apple last quarter, dragged down by a broader slump afflicting mobile devices and computers. The Covid restrictions in China added to Apple’s woes, making it harder to ship enough of the most popular versions of the iPhone. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the holiday quarter.

Eoin Treacy's view

Apple predictably reported lower sales for the fourth quarter. It is a highly cyclical business because most people only buy new phones every few years. The 1000 charge cycling of lithium-ion batteries translates into a 3-year sales cycle for phones. 

The surge of cash donated to consumers during the pandemic boosted initial iPhone purchases and coincided with the peak of the existing renewal cycle in 2021. That carried over into sales in 2022 but that momentum will be more difficult to sustain in coming quarters as monetary conditions tighten around the world.

That negative outlook was priced in over the last four months as Apple declined back to test the region of the 1000-dat MA. Investors are now pricing in the potential that future sales will return to the outsized growth. I remain sceptical that will be the case but a clear downward dynamic will be required to check momentum beyond a pause to unwind the short-term overbought condition.

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February 03 2023

Commentary by Eoin Treacy

Dollar Soars After Jobs Surprise Reignites Higher Rates Bets

This article from Bloomberg may be of interest. Here is a section: 

A broad gauge of dollar strength jumped after the jobless rate in the US hit a 53-year low as traders amped up bets on a higher policy rate.

The Bloomberg Dollar Spot Index extended gains for its biggest two-day climb in four months after data highlighted the resilience of the labor market and another report showed resurgence in consumer demand, suggesting even more tightening may be in store from the Federal Reserve. 

The greenback gained as much as 1.2%, climbing against all of its peers in the Group of 10, with the Japanese yen, the Australian dollar and New Zealand dollar falling the most. 

“The headline number for nonfarms was shocking, and the US dollar is clearly reacting to that,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce. “We still have plenty of data to comb through before the picture is complete.”

Eoin Treacy's view

The simple logic is you cannot have a recession without unemployment rising. That suggests the Federal Reserve is under no pressure to cut rates and may even continue to raise them. That lent considerable support to the Dollar Index and it is working on a large upside weekly key reversal which marks a lot of at least near-term significance. 

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February 03 2023

Commentary by Eoin Treacy