ARM debut lifts hope for IPO market, oil price pressure increases

by | Sep 15, 2023

  • ARM Holdings rise 25% in first day of trading, lifting hopes for equity markets
  • Oil tears past $90 a barrel helping FTSE 100 
  • ECB raises interest rates 
  • China Industrial Output Growth is better than expected following Beijing stimulus 
  • Lidl’s British stores swing to a loss, after lowering prices and spending on expansion

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown

“ARM’s trading debut hasn’t disappointed, with the shares trading up a blockbuster 25%. The chip designer, which essentially creates and licenses the blueprints for tech-heavy chips, was seen as a guinea pig to test the choppy market waters. The huge enthusiasm around trading suggests there is still very much still appetite for high-growth names, and there’s growing hope that the IPO market will now become more buoyant next year. IPO activity is a strong indicator of overall sentiment – people rarely come to market when things are highly uncertain. The timing of the IPO is a clear signal that owner Softbank, which still owns 90% of ARM, wanted to capitalise on the AI wave. In the nearer term, the group will be sensitive to downturns in smartphone and consumer electronics. Last year’s revenue stagnation has been stomached but a protracted period of sluggishness is unlikely to be taken well. 

Oil has shot past $90, with Brent crude trading above $94 a barrel. The symbolically important $100 mark is now being considered once more. This is a difficult development, with fuel accounting for a significant portion of overall inflation. The triggers behind the increase stem from fears that global consumption will outweigh production, with the International Energy Agency predicting a significant supply shortfall in the coming months. OPEC+ leaders Saudi Arabia and Russia are squeezing supply at a time when top consumers the US and China are seeing robust consumer demand. The higher oil price is helping to prop up the FTSE 100, with the index relying heavily on commodities and the black stuff. 

The ECB has signalled it’s in a position to hold interest rate increases after hiking by 25 basis points yesterday. This clarity has the ability to boost markets, despite the technical ramifications of increasing rates. The latest change to rates could weaken Europe’s economic recovery efforts, and the potency of any damage on that front will be watched very closely. 

China’s industrial output growth has beaten estimates, with production rising 4.5% in August – up from 3.7% in July. The flurry of activity has been triggered by higher manufacturing and mining activity, after support and stimulus from Beijing appear to be having the desired effect. A short, sharp economic recovery in China would help underpin confidence globally. As an export destination for 40 countries, and the largest consumer of commodities in the world, its economic fortunes are closely intertwined with others. There are of course some hurdles still to clear, including a creaking real estate market and record unemployment, but this first step should be taken as a positive sign. 

Bargain supermarket favourite, Lidl, has seen its British business swing to a loss. The group reported a full-year pre-tax loss of £75.9m, compared to profits of £41.1m last year. Lidl has seen an impressive increase in sales as consumers flock to make their money work harder for them, but substantial expansion efforts, rising costs and investing in pricing means profit has proved elusive. This serves as a cautionary tale for the entire sector – the impact of keeping prices in an attractive bracket in today’s landscape is a very fast way to send margins the wrong way.”

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