Delta Air Lines stock price has done well this year, and is hovering near its all-time high of $67.45 as the aviation industry continues to recover. It has risen by over 57% this year, outperforming the S&P 500 and Nasdaq 100 indices that have jumped by less than 30%.
Why Delta Air Lines stock is soaring
Delta Air Lines shares are soaring, in sync with what is happening in the aviation sector. In Europe, IAG is one of the best-performing stocks as it soared by over 106% this year.
Similarly, in Australia, the Qantas share price has soared to a record high this year as demand rose and as the company boosted its reputation among customers and investors.
In the US, United Airlines stock has soared by over 150% this year, while American Airlines has risen by 94% from the lowest point this year. The closely-watched US Global Jets ETF (JETS) has risen to $26, up by 57% from its lowest point this year.
Delta Air Lines, the biggest company in the industry, is the envy of all companies because of its size and profitability.
Its net profit margin stands at 7.7%, while United Air Lines and American Air Lines have margins of 4.9% and 0.51%, respectively. Ryanair, the biggest company in the United States, is the only other major airline with better margins.
Its margins are higher because of investments in premium travel, which is doing well. Indeed, the management expects that its premium ticket revenue will exceed main cabin sales by 2027
Delta Air Lines has a strong market share in the United States, where it commands a 17% market share. It is followed by other companies like Southwest, American, United, Alaska, and JetBlue.
The company’s top competitive advantage is that it has bases across the country and that SkyMiles, its loyalty program has become a major part in its business. It has over 120 million customers. Data shows that the value of the miles earned stood at over $3.4 billion.
DAL business is doing well
The most recent financial results showed that its business was doing well as its revenue growth continued. Its operating revenue rose to $15.7 billion, while its operating income rose to $1.4 billion.
Analysts are hopeful that Delta Air Lines will continue doing well this year. The average revenue estimate is that it will make over $14.6 billion this quarter, bringing the annual figure to $60.7 billion. It will then make $61.6 billion next year.
The biggest challenge that Delta is facing is that airfares are not growing this year because of the waning demand. Also, it is facing challenges related to Boeing, the giant airline manufacturer. Delta Air Lines is also seeing intense competition from United Air Lines, whose turnaround is accelerating.
The daily chart shows that the DAL stock price has done well this year. It remains above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the company has formed a bullish flag pattern, a popular continuation sign.
This pattern is made up of a long vertical line and a rectangle pattern. In most periods, this pattern results in a bullish continuation.
Therefore, the stock will likely continue rising, with the next point to watch being at $70, which is about 10% above the current level. A drop below the lower side of the flag at $62 will invalidate the bullish view.
The IAG share price has been in a strong trajectory this year, moving to its highest level since March 2020. Most recently, the stock has risen in the last six consecutive weeks, making it one of the best-performing companies in London. It has risen by over 220% from its lowest point in 2022.
IAG business is booming
IAG, the parent company of firms like British Airways, Iberia, LEVEL, and Aer Lingus, is doing well this year. It has become the second-best-performing company in the aviation industry after United Airlines.
This growth mirrors that of other airlines. United Air Lines stock has jumped by over 150% this year, while Qantas and Delta Air Lines are up by double digits this year.
The stock surged after its business continued to fire on all cylinders as evidenced by the rising load factor.
IAG’s business is doing well. The most recent financial results showed that its revenue rose to €24 billion in the first nine months of the year. That was big increase from the €22.2 billion a year earlier.
IAG’s profit after tax continued doing well, rising to €2.3 billion, while its basic earnings per share rose to 47.6 cents. These numbers meant that the company was seeing elevated demand across all its divisions, a trend that will continue.
IAG’s main advantage is that its top airlines have a good market share in key markets. For example, British Airways continues doing well in the transatlantic route, which is one of the most profitable. The North Atlantic route accounted for about 31.7% of the total ASK, followed by Europe and Latin America.
The return to profitability has pushed IAG to restart paying dividends. It paid an interim dividend of about €0.03 on September 9, and the management expects to continue making these payments in the future. Also, it has started repurchasing shares, with an ongoing €350 million plan.
IAG has also worked to improve its balance sheet. It ended the last quarter with over €16 billion in borrowings and €9.8 billion in cash and cash equivalents. It had €6.8 billion in cash and €16 billion in borrowings a year earlier.
IAG share price has also benefited from the relatively stable fuel prices. According to IATA, the average jet fuel price stands at $239, down by 22% from a year earlier. The cheapest prices are in North America, followed by Europe Asia, and Oceania.
However, the company has also faced some challenges. For example, the company will continue paying higher salaries, following a negotiated deal in 2023. The deal called for a 13% wage increase in a 18% month period.
Turning to the weekly chart, we see that the IAG stock price has done well in the past few months. It has recently crossed the important resistance at 220p, the highest swing in March 2021.
The stock has moved above the 50% Fibonacci Retracement level and formed a golden cross pattern. This pattern forms when the 50-week and 200-week Exponential Moving Averages (EMA) cross each other.
The MACD and the Relative Strength Index (RSI) show that the stock has momentum as the latter has moved to the overbought level.
Therefore, the stock will likely continue rising as bulls target the next key level at 310p, the 61.8% retracement point. In the long term, the stock may jump to 450p. A drop below the key support at 200p will invalidate the bullish view.
The HSBC share price is firing on all cylinders and is hovering at its all-time high as the company’s turnaround measures continue. It has risen in the last five consecutive weeks and moved to a record high of 755p.
HSBC turnaround continues
HSBC, the biggest European bank, has been in a prolonged turnaround approach as the management aims to boost profitability and boost efficiency.
The most important measures in this period has been its decision to exit key markets that were less profitable. Its goal has been to solidify its presence in Asia and in Europe.
It exited the US market by selling its business to Citizen Bank. It did that by selling 90 branches and retaining the rest in a bid to target wealthy clients.
The company then sold its Canadian business to RBC and its French business to Credit Commercial de France. Most recently, the company exited its South African and Argentinian businesses. It also sold its German private banking business to BNP Paribas. There are rising odds that it will continue exiting other countries.
At the same time, the company has made several acquisitions to boost its market share in the remaining locations. For example, it recently acquired Citigroup’s Chinese retail wealth business. It also bought UK’s branch of Silicon Valley Bank as the company collapsed.
The management has done more actions to boost its efficiency. It recently announced a strategic decision to comhine its commercial and investment banking divisions as part of Georges Elhedery’s push to eliminate overlapping roles and lower expenses.
In a report on Thursday, Bloomberg said that it is aiming to cut at least $3 billion in costs during the ongoing restructuring. These huge sums represent about 10% of its operating expenses
HSBC’s actions come at a difficult time for the company. For one, China, a country it is seeking to gain market share in, is slowing and struggling to hit its 5% growth target. As a result, officials have unveiled a $1.4 trillion stimulus package aimed at stabilizing local administrations.
The reality, however, is that China’s key sectors like in real estate and the stock market are struggling, which is affecting its potential wealthy clients. It was also forced to book losses as customers default.
The most recent financial results showed that its profit before tax rose to $8.5 billion in the third quarter, a $0.8 billion rise. This growth was mostly because of its weath and personal banking division. Profit after tax rose to $6.7 billion and the company announced a $3 billion buyback.
HSBC’s revenue rose by 5% to $17 billion, even as the net interest income (NII) dropped by $1.6 billion. NII will likely continue falling as interest rates in key countries drop.
The weekly chart shows that the HSBC stock price has been in a strong uptrend in the past few years. It rose from the pandemic low of 220p to 755p today. This rally has mirrored that of other top European banks like Unicredit and UBS.
HSBC has formed an ascending channel, and is now a few points below its upper side. Also, it has remained above the 50-week and 25-week Exponential Moving Averages, while oscillators like the Relative Strength Index (RSI) and the MACD have continued rising.
Therefore, using trend-following principles, the path of the least resistance for the stock is bullish. The next point to watch will be at 800p, which is the upper side of the ascending channel. The alternative scenario is where it retreats and retests the lower side of the rising channel.
Small-cap stocks have enjoyed a stellar 2024, with the S&P 600 index soaring more than 14% year-to-date, driven by optimism surrounding President-elect Donald Trump’s fiscal policies.
This performance marked a significant milestone for the index, which recently closed at a record high of 1,544.
Small-caps benefited from their exposure to economically sensitive sectors such as financials and consumer discretionary, alongside limited reliance on technology compared to the S&P 500.
Trump’s proposed fiscal spending, estimated to inject tens of billions of dollars annually into the economy, fuelled investor enthusiasm.
The index, comprising companies with an average market capitalization of $3 billion, also stood to gain from expected tax cuts favouring domestic production.
Record inflows signal saturation
Net inflows into US small-cap funds have reached a record $30 billion this year, tripling last year’s figures, according to Bank of America.
However, history suggests this momentum may not sustain, as every year since 2010 that followed a record inflow to small-caps has subsequently experienced a net outflow.
This pattern indicates potential limitations for further investment into the asset class.
Dennis DeBusschere of 22V Research has cautioned against expecting further valuation gains in the near term.
“We don’t have another catalyst, near term, to justify a continued rerating higher in small caps…into year-end,” he noted.
This puts the onus on small-caps to deliver earnings growth that meets or exceeds expectations, a challenge given that current valuations already price in significant optimism.
Six small-cap stocks that could be resilient performers
To identify small-caps poised for sustained growth, analysts at Barron’s have focused on companies with strong earnings momentum and manageable valuations.
A recent screen of S&P 600 constituents by the publication highlighted 23 stocks meeting these criteria, including Steven Madden, Tripadvisor, Enova International, Allegiant Travel, LiveRamp Holdings, and Mr. Cooper Group.
Steven Madden, with a market cap of $3.2 billion, has consistently outperformed earnings expectations in seven of the past eight quarters.
The fashion brand anticipates mid-teens percentage growth in international sales, particularly in Europe, where it is gaining market share.
Analysts project the company’s revenue to grow by over 5% annually through 2026, with earnings per share (EPS) rising 12% annually, assuming stable product costs and marketing expenses.
Tripadvisor, valued at $2 billion, also stands out.
Despite competition from giants like Booking Holdings and Expedia Group, the company has achieved steady sales growth since 2020.
It derives revenue from hotel and airline advertising as well as restaurant reservations, supported by innovations like an artificial intelligence-powered assistant on its platform.
Analysts forecast annual revenue growth of nearly 7%, with adjusted EPS climbing 14% through 2026, thanks to improving margins and disciplined spending.
Illegal cryptocurrency mining has become a significant issue in Paraguay, prompting concern among energy regulators.
According to the National Electricity Administration (ANDE), this illegal activity is primarily responsible for rising electrical losses, which have now surpassed 28%.
As the popularity of cryptocurrencies grows, so does the impact of unregulated mining techniques that deplete critical energy supplies.
Scope of electricity losses
Recent figures from the CEARE-BID consultancy for October 2024 demonstrate the significant impact of illegal mining on the national energy system.
It suggests that these operations involve major theft of electricity, which contributes significantly to the increased trend in overall energy losses.
According to ANDE data, these losses have increased from 26.2% to a stunning 28.5% in a relatively short period.
This worrying increase forced the Paraguayan government to develop a comprehensive management strategy to address the widespread issue of energy losses, particularly those caused by illegal mining activities.
The government’s “Master Plan for the Management and Control of Electrical Losses in Distribution” establishes a strategic framework for the period 2025-2034.
The paper distils substantial technical and operational research into concrete strategies and actions for addressing both technical and non-technical losses in the Sistema Interconectado Nacional (SIN).
A closer look at the data
The analysis exposes a disturbing trend in Paraguay’s energy loss statistics. Up to 2020, overall losses were consistent at roughly 26%.
However, large rises have occurred since 2021, reaching a peak of 28.5% in 2023.
These losses have severely impacted six departments: Canindeyú, Central, Alto Paraná, Itapúa, San Pedro, and Caaguazú.
These locations are now crucial to the government’s short-term measures for combating non-technical losses, according to a February 2024 research conducted by Ergon Energy and the World Bank.
According to the research, technical transmission losses account for 5.1% of total electricity losses.
The remaining 23.4% represents distribution losses, which are evenly divided between technical and non-technical losses.
Notably, it is projected that 11.7% of overall losses are commercial, which can be managed by proper governance and regulation.
Industry responses to rising tariffs
Paraguay’s Mining and Crypto Assets Chamber has raised concerns about prospective hikes in electricity rates.
They warn that any increase in energy costs will harm the already stressed cryptocurrency mining business.
According to a report by Cointelegraph in Spanish, the industry is concerned and advocates for a balanced approach that recognizes both the necessity for regulation and the economic benefits of cryptocurrency mining.
The Paraguayan government’s efforts to manage energy losses related to illegal mining involve not only investigating the methods of energy theft but also re-evaluating energy distribution and consumption patterns to develop a more effective system.
However, it is unclear how these measures will affect the cryptocurrency mining landscape and its stakeholders in Paraguay.
What’s ahead for Paraguay?
As Paraguay navigates the complexity of energy management while dealing with the obstacles provided by illegal cryptocurrency mining, the outcomes of the proposed plans will be vital to the country’s energy future.
Balancing the growing demand for clean, dependable energy with the demands of a changing digital economy will necessitate creative regulatory measures and collaborative involvement among government, industry, and communities.
Paraguay is at a critical juncture where proactive efforts are required to reduce energy losses, safeguard valuable resources, and build a sustainable environment for both traditional users and the expanding cryptocurrency sector.
The future years will undoubtedly impact the landscape of energy management in the country, particularly as Paraguay strives to retake control of its electrical networks and ensure that all sectors prosper within the confines of legality and efficiency.
In a troubling economic development, Brazil’s annual inflation rate increased to 4.87% in November, the highest rate in 14 months.
The gain from 4.76% in October exceeded market forecasts of a small increase to 4.85%.
Rising consumer prices, higher government spending, and shifting inflation expectations point to a complicated economic situation that might have a considerable impact on Brazilian households in the coming months.
Key inflation drivers
The current inflation surge is mostly due to higher pricing in critical sectors such as food, beverages, transportation, and personal expenditure.
Food and beverage costs increased substantially by 7.63%, up from 6.65% the previous month, demonstrating that everyday necessities are getting increasingly expensive for many Brazilians.
Transportation prices increased by 3.11%, up from 2.48% in October.
These industries are crucial because they directly affect household finances and consumer mood.
Analysts believe that these increases are impacted by several causes, including global supply chain interruptions, domestic manufacturing issues, and higher transportation costs as gasoline prices rise.
The recent increase in inflation reflects deeper economic pressures that Brazil must navigate as it seeks stability and prosperity.
Role of government spending
Increased government spending has been a major driver of rising inflation rates. To promote the economy, particularly in the aftermath of the Covid-19 pandemic, the Brazilian government has implemented measures to increase household consumption.
While such methods have helped the country’s Gross Domestic Product (GDP) in recent quarters, they also raise concerns about long-run inflationary pressures.
Government spending on infrastructure, welfare programs, and direct financial aid to families has created a ripple effect, increasing demand for products and services.
The issue ahead is to strike a balance between these fiscal methods and the inflationary concerns they pose.
Central bank officials have warned that when consumer expectations of higher costs become ingrained, businesses may attempt to raise prices ahead of time, fueling inflation even more.
Sectoral analysis: what is driving price increases?
A closer look at certain industries gives vital information about the inflation situation.
The increase in food and beverage prices has been particularly disturbing.
Poor harvests, higher logistics expenses, and shifting consumption patterns have all contributed to this problem.
The 7.63% increase indicates continued challenges in the agriculture sector, creating food insecurity for many Brazilians.
Transportation, another critical sector, increased by 3.11%, driven mostly by fuel prices and supply chain weaknesses.
In contrast, housing and utility inflation rates fell to 4%, down from 6.12% previously.
This decline could be attributable to stabilization in energy costs and property markets, which provides some relief to consumers.
It implies a mixed economic reality in which some sectors are under great pressure while others are having a period of calm.
Brazil’s inflation rate rose to a one-year high in October
Brazil’s annual inflation rate jumped to 4.76% in October 2024, the most in a year, up from 4.42% in September and estimates of 4.72%.
Food and beverage prices increased by 6.65% versus 5.86%, as did housing and utilities (6.12% versus 4.58%).
In contrast, transportation inflation fell (2.48% versus 3.22%).
The CPI rose 0.56% from the previous month, the largest increase since February and generally in line with predictions.
The highest increasing pressure came from the cost of housing (1.49%), namely domestic electricity (4.74%), and food and beverages (1.06%), mainly meat (5.81%).
Inflation continued in October much higher than the central bank’s 3% target, above the highest tolerance limit of 4.5%. after a severe drought that pushed up crop and energy prices.
Meanwhile, a weaker real, robust economic activity and expectations of expansionary fiscal policy also contributed to rising inflationary pressures. In response, the central bank implemented two rate hikes this year.
Outlook: navigating the future of inflation in Brazil
As Brazil confronts these economic issues, the central bank’s position becomes critical.
Monitoring inflation expectations and changing monetary policy will be critical to managing public sentiment and consumer behaviour.
The continuing inflationary trend jeopardizes not only individual households but also overall economic stability.
Finally, the recent increase in Brazil’s inflation rate to 4.87% reflects a complicated combination of rising prices in vital sectors, aggressive government expenditure, and altering consumer expectations.
As policymakers attempt to negotiate this scenario, the coming months will be critical in defining Brazil’s economic future, with possible consequences for both consumers and businesses.
To maintain stability and create long-term growth, these issues must be effectively managed.
Alphabet Inc. shares (GOOG) surged 6.3% Tuesday, marking the biggest jump since October, following the announcement of a significant quantum computing milestone.
The Google parent introduced the Willow quantum chip, claiming it could solve problems in just five minutes that would take supercomputers 10 septillion years.
This breakthrough underscores Google’s decade-long commitment to quantum computing, a journey initiated by CEO Sundar Pichai in 2012 with the establishment of Google Quantum AI.
The announcement propelled Alphabet shares to their highest level since July, building on a 25% rally from a September low. By 11:10 am, GMT+5, the stock had given up some of the gains and was trading higher by 3.8%.
Why is the Willow quantum chip a breakthrough?
While introducing Willow on X, Pichai described it as a breakthrough “that can reduce errors exponentially as we scale up using more qubits, cracking a 30-year challenge in the field”.
Willow achieved a groundbreaking milestone, completing a standard benchmark computation in less than five minutes—a task that would take today’s fastest supercomputers an astonishing 10 septillion years (10²⁵), a timespan far surpassing the age of the universe.
The program aims to harness the principles of quantum mechanics to drive scientific progress and tackle global challenges.
The announcement elicited a succinct but striking response from Tesla CEO Elon Musk, who shared his amazement with a single word, “wow,” on the social media platform X, emphasizing the magnitude of Google’s achievement in the quantum realm.
While Alphabet has not disclosed immediate applications for this breakthrough, analysts have praised it as a pivotal step toward the commercialization of quantum computing.
Colin Sebastian, an analyst at Baird, noted that while widespread adoption of quantum technology is still years away, Willow highlights Alphabet’s technological leadership.
Bloomberg Intelligence added that quantum advancements could enhance AI training and inferencing while solidifying Alphabet’s chip advantage over other tech giants.
Small quantum stocks ride the wave
The ripple effects of Alphabet’s announcement extended to other quantum-related stocks.
Rigetti Computing soared 29%, while D-Wave Quantum and IonQ gained 6.7% and 5.4%, respectively, in Tuesday’s trading.
Rigetti has experienced a remarkable 600% surge since September, demonstrating the growing investor interest in quantum technology.
Options traders also showed heightened interest in Alphabet, with over 400,000 call options traded by mid-morning, nearly five times the volume of put options.
This spike underscores optimism about Alphabet’s potential to leverage quantum computing innovations for long-term growth.
Challenges and opportunities ahead
Despite the enthusiasm, Alphabet faces hurdles, especially including antitrust lawsuits.
Additionally, the potential US ban on TikTok in 2025 could offer limited upside for Alphabet’s YouTube platform.
Analysts estimate that every 10% of TikTok’s reallocated user engagement could add $921 million in YouTube revenue, though profitability gains would be modest due to lower margins.
As Alphabet approaches the year-end, its stock has gained about 32%, narrowly outperforming S&P 500 which has grown by close to 28% during the same period.
However, it continues to lag behind most “Magnificent Seven” tech giants barring Microsoft and Apple, signalling that while quantum breakthroughs are promising, broader challenges still loom.
These include Experian, Diploma, PageGroup, Rentokil, JTC, XPS Pensions, and Renew Holdings.
Other than XPS, all of these companies are listed in the United States as well.
Within these names, the investment firm is most bullish on PageGroup PLC (LON: PAGE) that it expects will hit £55 next year.
Deutsche’s price target translates to about a 50% upside in shares of the recruitment company from current levels.
Why is Deutsche Bank positive on PageGroup stock?
Deutsche Bank is uber bullish on PageGroup as it’s a cyclical stock.
What that means is PAGE will likely recover sharply once economic activity takes off. Shares of the London-listed firm have lost about 25% over the past eight months.
The investment firm recommends buying PageGroup stock at the current discount because it has “a presence in the permanent recruitment market.”
Deutsche analysts see significant potential in PAGE for “strong positive earnings momentum when recruitment markets improve,” as per their research note on Tuesday.
“While most markets were sequentially stable, we experienced softer activity and trading in a number of European countries, including France and Germany,” the company told investors at the time.
PAGE took a 19% hit to gross profit in its largest market (Germany) and a 16% hit to gross profit in its second-largest market (16%) in the third quarter.
Nonetheless, PageGroup shares currently pay a lucrative dividend yield of 4.43% that makes it worth owning for the long term, as per the Deutsche Bank analysts.
Deutsche Bank is also bullish on Diploma stock
Diploma PLC (LON: DPLM) shares have already rallied more than 30% since the start of 2024.
Still, experts at Deutsche Bank continue to see this supply chain and distribution stock as a “top compounder, well placed for 2025.”
The investment firm expects DPLM to maintain its operating margin at a solid 21% next year as it has a high-quality “portfolio of decentralised businesses that increasingly serve structurally growing markets.”
Deutsche likes Diploma stock as it relies predominantly on the US for production and, therefore, may prove to be resilient against a potential increase in tariffs under the Trump administration.
The bank recently raised its price target on DPLM to £51 that indicates potential for another 15% increase from current levels.
Much like PageGroup, Diploma is also a dividend-paying stock.
While its yield at 1.31% is significantly modest compared to PAGE, it, nonetheless, is attractive for those interested in generating passive income over the long term.
In a troubling economic development, Brazil’s annual inflation rate increased to 4.87% in November, the highest rate in 14 months.
The gain from 4.76% in October exceeded market forecasts of a small increase to 4.85%.
Rising consumer prices, higher government spending, and shifting inflation expectations point to a complicated economic situation that might have a considerable impact on Brazilian households in the coming months.
Key inflation drivers
The current inflation surge is mostly due to higher pricing in critical sectors such as food, beverages, transportation, and personal expenditure.
Food and beverage costs increased substantially by 7.63%, up from 6.65% the previous month, demonstrating that everyday necessities are getting increasingly expensive for many Brazilians.
Transportation prices increased by 3.11%, up from 2.48% in October.
These industries are crucial because they directly affect household finances and consumer mood.
Analysts believe that these increases are impacted by several causes, including global supply chain interruptions, domestic manufacturing issues, and higher transportation costs as gasoline prices rise.
The recent increase in inflation reflects deeper economic pressures that Brazil must navigate as it seeks stability and prosperity.
Role of government spending
Increased government spending has been a major driver of rising inflation rates. To promote the economy, particularly in the aftermath of the Covid-19 pandemic, the Brazilian government has implemented measures to increase household consumption.
While such methods have helped the country’s Gross Domestic Product (GDP) in recent quarters, they also raise concerns about long-run inflationary pressures.
Government spending on infrastructure, welfare programs, and direct financial aid to families has created a ripple effect, increasing demand for products and services.
The issue ahead is to strike a balance between these fiscal methods and the inflationary concerns they pose.
Central bank officials have warned that when consumer expectations of higher costs become ingrained, businesses may attempt to raise prices ahead of time, fueling inflation even more.
Sectoral analysis: what is driving price increases?
A closer look at certain industries gives vital information about the inflation situation.
The increase in food and beverage prices has been particularly disturbing.
Poor harvests, higher logistics expenses, and shifting consumption patterns have all contributed to this problem.
The 7.63% increase indicates continued challenges in the agriculture sector, creating food insecurity for many Brazilians.
Transportation, another critical sector, increased by 3.11%, driven mostly by fuel prices and supply chain weaknesses.
In contrast, housing and utility inflation rates fell to 4%, down from 6.12% previously.
This decline could be attributable to stabilization in energy costs and property markets, which provides some relief to consumers.
It implies a mixed economic reality in which some sectors are under great pressure while others are having a period of calm.
Brazil’s inflation rate rose to a one-year high in October
Brazil’s annual inflation rate jumped to 4.76% in October 2024, the most in a year, up from 4.42% in September and estimates of 4.72%.
Food and beverage prices increased by 6.65% versus 5.86%, as did housing and utilities (6.12% versus 4.58%).
In contrast, transportation inflation fell (2.48% versus 3.22%).
The CPI rose 0.56% from the previous month, the largest increase since February and generally in line with predictions.
The highest increasing pressure came from the cost of housing (1.49%), namely domestic electricity (4.74%), and food and beverages (1.06%), mainly meat (5.81%).
Inflation continued in October much higher than the central bank’s 3% target, above the highest tolerance limit of 4.5%. after a severe drought that pushed up crop and energy prices.
Meanwhile, a weaker real, robust economic activity and expectations of expansionary fiscal policy also contributed to rising inflationary pressures. In response, the central bank implemented two rate hikes this year.
Outlook: navigating the future of inflation in Brazil
As Brazil confronts these economic issues, the central bank’s position becomes critical.
Monitoring inflation expectations and changing monetary policy will be critical to managing public sentiment and consumer behaviour.
The continuing inflationary trend jeopardizes not only individual households but also overall economic stability.
Finally, the recent increase in Brazil’s inflation rate to 4.87% reflects a complicated combination of rising prices in vital sectors, aggressive government expenditure, and altering consumer expectations.
As policymakers attempt to negotiate this scenario, the coming months will be critical in defining Brazil’s economic future, with possible consequences for both consumers and businesses.
To maintain stability and create long-term growth, these issues must be effectively managed.
The UK stock market faces another significant setback as Ashtead, a prominent member of the FTSE 100 and one of London’s most valuable listed companies, announces its intention to move its primary listing to New York.
With this decision, Ashtead has joined the list of some major corporations seeking higher valuations and deeper investor pools across the Atlantic, further challenging London’s position as a global financial hub.
Ashtead, a global leader in construction equipment rental with a market capitalization of £28 billion, generates nearly all its profits in North America through its Sunbelt Rentals brand.
The company’s board concluded that the US offers a “natural long-term listing venue” due to its dominance in the firm’s revenue streams, operational footprint, and investor interest.
CEO Brendan Horgan emphasized that a New York listing would enhance liquidity and make Ashtead more appealing to US institutional investors.
Despite this shift, Ashtead plans to maintain a secondary listing on the London Stock Exchange (LSE).
However, the move means it will lose its place in the FTSE 100, an index synonymous with Britain’s corporate elite.
UK companies flock to US exchanges
Ashtead is not alone in its pursuit of a US listing.
Over the past few years, several high-profile UK companies have shifted their primary listings to the US or are actively considering the move:
Flutter Entertainment, the owner of Paddy Power has moved its primary listing to New York, in a dual listing aimed at boosting its presence in the US market.
CRH, the building materials giant relocated its listing earlier this year, citing valuation advantages.
Ferguson (formerly Wolseley), the plumbing and heating group made the switch in 2022, with a notable boost in valuation following the move.
In an April interview with Bloomberg, Shell CEO Wael Sawan indicated that the company was “open to all options” to address the valuation disparity between Shell and its US competitors, Chevron and ExxonMobil.
Among the possibilities, he acknowledged a potential shift of Shell’s primary listing from London to the US
By July, however, Sawan clarified that no immediate plans were underway to relocate the company’s listing.
Instead, Shell’s focus was on enhancing shareholder value by increasing stock buybacks, a strategy aimed at boosting the company’s share price while maintaining its current listing base.
Outside of UK, another European energy giant TotalEnergies has expressed interest in a potential US listing, driven by challenges in securing capital within Europe due to climate change policies.
Valuation disparities drive the exodus
The allure of US markets is largely tied to significant valuation disparities between companies listed in London and those in New York.
Analysis by JPMorgan Chase & Co. reveals that firms shifting their listings to the US often achieve higher valuations and narrow their discount gap with American peers.
For instance, CRH and Ferguson have seen their market valuations align more closely with those of US-listed competitors since making the move.
Over the past three years, US-listed companies have demonstrated robust financial performance, with earnings growing at an annualized rate of 3.4%.
Revenues for these companies have risen even more significantly, at 6.5% annually, highlighting increased sales activity that has driven profit growth.
Number of companies trading monthly on the London Stock Exchange (LSE) from January 2015 to May 2024, Source: Statista
In contrast, British-listed companies have faced a challenging period, with earnings declining at an average rate of 9.5% annually over the same timeframe.
While revenues have grown modestly at 2.5% per year, the decline in earnings suggests that rising costs or heightened reinvestment levels are eroding profit margins.
Significantly, the US stock market is trading at a price-to-earnings (PE) ratio of 33.3x, notably above its three-year average PE of 27.1x, while the UK stock market is trading at a PE ratio of 20.1x, significantly above its three-year average of 14.5x, but widely lagging behind the US.
This valuation gap has placed pressure on UK-listed companies to explore alternative markets that better reflect their true worth.
US appeal: a thriving equity ecosystem
The robust growth of the US equity market is another significant pull factor.
The NYSE and Nasdaq provide access to a vast pool of capital and cater to high-growth industries like technology and artificial intelligence.
This dynamic ecosystem offers opportunities for both long-term value creation and speculative trading, appealing to a broad spectrum of investors.
Short-selling activity, higher trading volumes, and a culture of innovation have also made US markets more attractive.
In contrast, the UK market’s preference for long-term investment strategies has sometimes resulted in slower growth and lower returns.
Historically, the FTSE 100 has provided resilience during economic turbulence.
However, its performance over the past five years—up just 13% compared to the Dow Jones’ 58% gain—highlights its growing struggles.
Jack Kessler, a columnist at the Evening Standard, noted that US markets are “simply so much more lucrative,” making it increasingly difficult for UK companies to resist the switch.
The trend also raises questions about the long-term viability of the UK as a destination for international businesses.
How has Brexit played a role?
Brexit has also played a role in diminishing the UK’s appeal as a listing destination.
The political and economic uncertainty surrounding the UK’s exit from the EU has deterred foreign investors and encouraged companies with strong European operations to consider alternative markets.
The UK government and regulators have attempted to stem the tide of departing companies with reforms aimed at revitalizing the LSE.
The Financial Conduct Authority (FCA) introduced its most extensive overhaul of listing rules in decades earlier this year, simplifying requirements to make London more competitive.
Additionally, the “Edinburgh reforms” launched in 2022 sought to modernize the financial services sector.
However, critics argue that these measures have yet to yield significant results.
What could be the potential solutions to retain listings in UK?
Dr. Rama Prasad Kanungo of UCL Global Business School for Health has outlined several strategic reforms to bolster the competitiveness of the London Stock Exchange (LSE).
One critical suggestion is implementing mechanisms for trading multiple classes of shares, a practice prevalent in the US that allows founders to maintain control of their companies while still raising capital.
In contrast, the UK market has been slow to adopt such structures, potentially limiting its appeal to innovative and founder-led businesses.
Dr. Kanungo also recommends revisiting the treatment of delisted shares, proposing that the LSE introduce options for these shares to transition to over-the-counter trading, similar to provisions offered by the NYSE and Nasdaq.
This approach would enhance flexibility and reduce transaction costs for investors.
Moreover, he emphasizes the need to simplify administrative procedures and address pay disparities between UK and US executives.
In the UK, shareholders play a decisive role in executive remuneration, compared to the advisory function of their US counterparts.
Addressing these issues could help LSE attract and retain global firms while enhancing its competitiveness against rival exchanges.
