Daily market update: Apple, Amazon, Sainsbury’s, NatWest

The FTSE 100 tested new record highs on Friday morning as investors continue to climb the wall of worry and sentiment improves.

The rebound in tech powered by Microsoft’s extremely well-received numbers has helped lift the broader market mood, helping investors to put concerns about the Iran conflict and its continuing impact on ice for now.

Miners were higher in London, with the UK market also boosted by some positive corporate updates.

Housebuilder Taylor Wimpey slumped as the company downgraded construction guidance, reported a hit to margins and slashed capital returns to shareholders, offering the latest reminder that this sector is on shaky foundations.

Apple

This wouldn’t have been the way CEO Tim Cook would have wanted to sign off as Apple warns of a significant hit from rising costs in its supply chain.

The splurge in AI spending elsewhere is rapidly driving up prices for the memory chips and other components used in its devices.

Apple recently topped $5 trillion in market value and reclaimed the mantle of the world’s largest company, partly thanks to its decision to remain on the sidelines of the AI arms race, which is consuming the cash flow of many of its large technology peers.

Investors are reflecting that Apple’s more cautious approach to AI might prove to be a smart and calculated move rather than something which would see the business left behind.

This latest update has undone some of the recent momentum, although there were underlying bright spots in these quarterly numbers.

Reports of the demise of growth for the iPhone have been greatly exaggerated several times over its lifespan and the increase in sales here is marked, suggesting recently launched models have really resonated with consumers.

More disappointing was the Chinese performance – although there were still improvements here after a difficult period – and slower than anticipated services growth.

Services are a particularly lucrative avenue for the business, built on the huge installed base of Apple products around the world, and investors will be watching closely to see if this underperformance is a one-off or the start of a trend.

When hardware chief John Ternus steps up to the top job to replace Cook in September he will face a growing list of challenges. One thing in his favour is Apple’s now unrivalled financial strength as its free cash flow now dwarfs that of its free-spending rivals.

Amazon

Having struggled to go anywhere fast over the last 12 months, Amazon’s shares roared into life after the announcement of its latest quarterly earnings.

For all of the prominence of its large e-commerce operations, it is the AWS cloud computing arm which is the real engine of growth and the fastest expansion for this part of the business in 18 quarters has clearly caught the attention of investors.

Improved margins for the cloud business, hinting at a tangible reward from Amazon’s heavy AI spending, and the successful expansion of Amazon’s own custom AI chips are also items in the win column.

Growth in advertising, particularly in its Prime Video platform, and strong e-commerce sales were other plus points and these helped the market swallow news of further increases in AI-related capital expenditure.

While free cash flow is turning negative and the sums involved are eyewatering, hints that this spending might be beginning to pay off were enough to keep shareholders on board.

Sainsbury’s 

Shoppers often head to Argos looking for cut-price deals and it looks like Sainsbury’s is having to cut one of its own to jettison the general merchandise business.

Having tried to sell last year to Chinese e-commerce group JD, a deal now looks likely to go through as it agrees a £120 million price tag with Swift Partners – a new venture backed by experienced UK retail executives.

As a reminder Sainsbury’s bought Argos’ parent Home Retail Group for some £1.4 billion nearly 10 years ago as it sought to diversify out of groceries.

As often seems to be the case with UK supermarkets, Sainsbury’s has cycled between trying to cover lots of different areas and a focus on the core activity of selling food and essentials to households. Right now, there is a pronounced swing to the latter.

Argos’ weak and inconsistent sales have been an impediment to the business and the price agreed with Swift Partners reflects that. The market reaction indicates investors are relieved the situation has been resolved.

NatWest

Life as a fully privatised entity continues to suit NatWest as it beats consensus forecasts for the fifth time since the government sold its remaining stake last May.

The company’s ability to consistently outmatch expectations has undoubtedly been helped by an environment in which interest rates have stayed higher for longer, but the business has also benefited from its own strategic initiatives.

These include a big push into wealth management, intended to reduce its reliance on fluctuating interest rates. A move which has been bolstered by the acquisition of Evelyn Partners.

Alongside a meaningful restructuring, NatWest is deploying AI to bring down costs and this has enabled an eye-catching increase to full-year guidance.

The decision to pull forward a planned buyback to next February is a signal of management’s confidence, bolstered by the fact bad debts remain under control despite a tricky economic backdrop. 

International Consolidated Airlines

The turbulence from the Iran conflict has undoubtedly clipped the wings of British Airways owner International Consolidated Airlines as the company ditches any plans for growth this year.

Airlines face not only the impact of soaring fuel costs but also the impact of geopolitical tensions and cost of living pressures on holidaymakers’ appetite to book a week or two in the sun.

Not only is the outlook for the rest of the year substantially worse but the numbers for the second quarter itself are disappointing. The business is doing what it can to mitigate rising costs, through hedging, increased fares and cost controls.

However, the longer the fighting in the Middle East continues without any clear sign of a diplomatic breakthrough the greater the pressures on the airline are likely to become.