Markets static ahead of UK rate decision, Airbnb tumbles on Q2 outlook, Arm sold off on soft outlook and ITV hit by writers’ strike delays

“It’s common to see markets freeze ahead of an interest rate decision and that’s exactly what’s happened in the UK,” says Russ Mould, Investment Director at AJ Bell.

“While the Bank of England isn’t expected to cut or raise rates, investors are waiting nervously for the accompanying commentary and vote split as that could provide clues as to what could happen next. With such a big event on the horizon, it’s only natural that investors sit on their hands until they get the information.

“As things stand, markets are expecting the ECB to cut first, potentially in June, with the Bank of England either following close behind in the same month or in August. Even when we get the first cut, there is no guarantee that will trigger a massive rally in the equity market. By then, the market will have found something new to fret about, most likely when we’ll get the second, third or fourth cut and common sense suggests that investors simply need to be patient.

“Sadly, the market doesn’t work like that – it’s all about anticipating what might happen next, so investors will continue to be locked into their guessing game and that means ongoing volatility.

“The FTSE 100 was flat at 8,352 while other key markets in Europe were also fairly muted. HSBC trading without the right to its special dividend acted as a drag on the UK market and offset gains from other banking stocks.

“Among the mid-caps, energy and healthcare took the top slots while basic materials went into reverse. It looks like the battle for Hipgnosis Songs Fund won’t be having another encore as Concord said it would not raise its $1.25 per share offer, leaving Blackstone the champion with a $1.30 per share bid.”

AirBnb

“Generating nearly double the level of earnings forecast by the market should, in theory, have been a recipe for one almighty rally in Airbnb shares. Unfortunately, Airbnb’s results gave the market a bite worse than bed bugs.

“The critters were found in the outlook statement with second quarter revenue guidance failing to strike a chord. Easter happening in March rather than April has effectively pulled forward seasonal demand into the first quarter, while foreign exchange issues also cast a dark cloud.

“The Easter issue not only removes a traditional second quarter sales catalyst but also hits margins in the period because Airbnb won’t benefit from the traditional boost in prices that normally happens in early April. Throw in some one-off payment processing issues and higher marketing expenses and it’s clear that Airbnb’s head is spinning.

“The market is very short-term in nature and investors find it hard to look beyond the next quarter, hence why Airbnb’s share price has taken a tumble in pre-market trading.

“Strategically, the business looks focused on the right things. It is trying to make the concept of hosting more mainstream, improving the service for hosts and guests, and investing in less mature markets. It is also exploring the world of experiences where guests can stay in places like the last remaining Blockbuster shop, Ted Lasso’s favourite pub and Prince’s Purple Rain house.

“This kind of innovation is clever, certainly from a marketing perspective, and shows that Airbnb is constantly thinking on its feet about ways to broaden its sources of revenue.”

Arm

“Investors are ready to seize on any hint of disappointment in company outlooks and annual revenue guidance from chip designer Arm Holdings, which was just a touch on the soft side, saw the stock get a bashing in pre-market trading.

“Valuations and expectations are often pitched high in the States, particularly for a firm like Arm which has exposure to the all-conquering AI theme and this means the margin for error is extremely thin.

“What looks like a relative dose of conservatism on Arm’s part may pay off over time – any short-term pain will be worth it if it helps reinforce the company’s credibility and earns it a reputation for under-promising and over-delivering.

“Arm’s model of licensing its designs and collecting royalties on them allows it to generate high margins and grow without employing lots of extra capital, but it does come with a slight catch in that the timing of licensing deals can be unpredictable. The company is seeing a genuine uplift in revenue from AI-driven demand – with its V9 chip designs licensed for use in smartphones and data centres and artificial intelligence chips used in large language models.

“Vast amounts of computing power are required to underpin the AI revolution and if Arm can continue to demonstrate it is at the forefront of this effort, then any disappointment over its latest cautious outlook could prove short-lived.”

ITV

“Facing a structural decline in traditional TV viewership and advertising, ITV is diversified in two areas. One of these – streaming and digital advertising – contributed strongly to its first-quarter performance, but the other – the ITV Studios production arm – detracted.

“Given this was largely thanks to an event which was completely outside of ITV’s control – the long-running US writers’ strike which eventually concluded last autumn – it is understandable that it is being given the benefit of the doubt by investors. That might change if the promised recovery in the second half of the year doesn’t come through.

“The company’s digital strategy looks to be delivering. ITVX got a negative reception when it was first announced a little over two years ago but the platform is attracting users and advertising at an impressive rate, helping to make up for declining traditional ads.

“The Euros football tournament this summer will provide the usual kicker to advertising spend and ITV is looking to become a more streamlined and focused operation. For example, it is taking out costs and sold its Britbox International joint venture earlier this year.

“It’s a long road back for ITV to the share price highs achieved in the mid-2010s, after a previous turnaround under Adam Crozier, but there is evidence of genuine progress.”

These articles are for information purposes only and are not a personal recommendation or advice.