innovation

HP Q2 23 – 30/05 The last 2 quarters have seen the HP share price undergo a decent recovery in the wake of its full year results back in November when the PC and hardware manufacturer announced the loss of 6,000 jobs over 3 years, due to a slowdown in the PC and laptops market. HP hasn't been alone in this regard with Dell also announcing similar reductions in headcount. Revenues have been in decline over the last few quarters with weak PC demand very much a headwind.   At the end of its last fiscal year annual revenues slowed to $62.98bn, with consensus for 2023 for this to slow to $55.2bn. In Q4 revenues came in at $14.8bn and slowed to $13.8bn in Q1 of this year, while profits came in slightly ahead of expectations at $0.75c a share. For Q2 the company was slightly more optimistic given the lifting of lockdowns in China, keeping its fiscal year 2023 guidance of full year adj.   EPS expected to come in between $3.20 and $3.60c a share. For Q2 profits are expected to remain steady at $0.76c a share, although revenues are expected to plunge from $16.49bn a year ago to $13.04bn, with computers and notebooks still forecast to be a drag.

After a difficult previous year marked by market volatility and economic difficulties, the US stock market has experienced a strong recovery since the start of the new year. This recovery was driven by several key factors: the resilience of the technology sector, growth in the semiconductor industry driven by the development of AI, the expected pause in Fed rate hikes and the assessment of future rate cuts in late 2023 amid lower inflation.    The technology sector, which includes leading companies in innovation and digital transformation, has played a critical role in the market's resurgence. Industry giants such as Apple, Amazon, Microsoft and Alphabet have achieved significant stock price gains as they continue to innovate and provide products and services that meet changing consumer demands. The development of artificial intelligence technology has been a major catalyst for growth in the technology sector.   The semiconductor sector has also been one of the growth drivers of the markets. Companies such as Nvidia and AMD are experiencing strong demand for their advanced chipsets, which are vital for AI applications. The widespread adoption of AI technology across sectors has made semiconductor companies key drivers of innovation, contributing to their stock prices and overall market recovery.   The market was also supported by the expected decision of the Fed to pause its rate hikes. This pause in monetary policy tightening has helped to maintain the thesis of an end to the tightening cycle as early as H2 2023. 

Policy is still pointing at greater disclosure transparency and standardisation despite turbulence As mentioned above, transparent and standardised sustainability reporting is essential in assuring the credibility of an issuer’s ESG products, helping to boost investor confidence, and to drive the healthy growth of the global sustainable finance market. Policies and initiatives need to play a role here, and we are seeing more efforts ramped up in this area. In late June, the International Financial Reporting Standards Foundation’s International Sustainability Standards Board (ISSB) launched its sustainability and climate disclosure standards. The ISSB signals an important convergence of different reporting standards and frameworks such as the Taskforce on Climate-related Financial Disclosure (TCFD), offering companies an overarching framework. Already having support from G7 and G20 countries, the ISSB is expecting wide adoption over time.   The EU has a relatively more unified ESG policy environment, where disclosure requirements (Corporate Sustainability Reporting Directive, or CSRD), the sustainable activity classification system (Taxonomy) and the Green Bond Standard reinforce each other. Admittedly, complying with all the regulatory requirements can meet difficulties around necessary data and interpretation. And many of the bloc’s policies are still evolving, with the newly adopted European Sustainability Reporting Standards (ESRS) introducing more flexibility around ESG materiality and Scope 3 emissions disclosure. Still, the EU’s more established and complex ESG system can support smoother growth in sustainable finance issuance. In the US, although more than 30 states have passed or proposed anti-ESG investment bills, the Securities and Exchange Commission (SEC) is slowly advancing in mandating climate-related disclosure and aims to release the final proposed rules this October. The final rules will likely allow more flexibility – for instance, Scope 3 emissions data may no longer be required. Even if less strict relative to original plans, these rules will be revolutionary for the US market, facilitating a large step closer to European and other peers. In Asia, several economies already have their own guidelines and taxonomies, such as Japan’s green, social, and climate transition finance guidelines, China’s Green Bond Principles, South Korea’s Korea Green Taxonomy, etc. Yet Asia is more of a follower rather than a trend setter, and several jurisdictions have adopted the EU’s system, or the widely accepted international frameworks. The ISSB is likely to have a considerable impact on APAC – Singapore, for instance, has already proposed ISSB-aligned disclosure from listed companies starting in 2025. Nevertheless, we would expect more lenient local specifications in policy setting. For example, the Association of Southeast Asian Nations’ (ASEAN’s) taxonomy considers certain types of coal phase-out activities to be aligned.   What does this mean for investors and issuers? Quality issuance is the best strategy against uncertainty. As the sustainable finance market moves from the initial period of rapid growth to a maturing phase with more ESG disclosure mandates and scrutiny, it has become important for issuers to navigate through greenwashing risks by actively leveling up their sustainability credibility. Investors have started to and will increasingly favor quality issuers with ambitious long-term ESG targets, clear interim targets, rigorous progress reporting, as well as detailed disclosure of capital allocation from their sustainable finance products. Environmental, Social, and Governance aspects will all progress, but the urgency to reduce emissions and mitigate climate risks will remain a strong source of demand for sustainable financing. This can help promote innovation and facilitate the commercialization of nascent decarbonization technologies. We are in an era of adjustment and normalisation, but sustainable finance remains a crucial tool to provide financial support for sustainable activities. Therefore, we do see the market continuing to grow in the future.

Waiting for 'Agenda 2030' Structural reforms implemented in the early 2000s were mainly aimed at the labour market. This was known as ‘Agenda 2010’. Today, the German economy needs an ‘Agenda 2030’. Short-term fiscal stimulus can ease the pain but will do very little to regain international competitiveness and restructure the entire economy. What Germany needs is a full menu card with policy measures. These measures could be categorised into those boosting confidence and giving companies security and clarity, as well as supply-side improving measures. In the first category, think of an energy price cap for industry. Not for one winter but for several years. Such a measure should be accompanied by a clear schedule for the energy transition. This would prevent more companies from exiting Germany and producing elsewhere. Combined with fast depreciation rules of investments in digitalisation and renewable energies, this could safeguard the economy’s industrial backbone. With subsidies for sectors like artificial intelligence, batteries or hydropower, the government could support innovation. Finally, less bureaucracy, more investment into e-government and consequently faster public tenders and implementation of federal investments at the regional level would strengthen the supply side of the economy. It is a long list that can easily be extended and broadened. One thing, however, is clear: any overhaul of the economy will be almost impossible as long as fiscal austerity remains the dominant tune. The German economy is in for a longer period of stagnation. The new debate about the ‘sick of man Europe’ could finally increase the sense of urgency among decision-makers; more than a protracted period of de facto stagnation could.  

New products on the horizon: The company is undergoing an investment programme: it aims to implement the production of an autonomous heating system (ASG) which will consist of a PV installation, an integrated heat accumulation and distribution system in the building and an air-water heat pump. Sunex is also working on the use of hydrogen for smaller customers. It has applied for a subsidy to Polish state-owned vehicle NFOÅšiGW to develop the production of composite tanks for hydrogen. The solution will be based on the use of hydrogen as a store for energy generated by photovoltaics, then using this to supply buildings with heat (i.e. using a heat pump and electricity).

Norges Bank set to keep rates on hold amid lower energy prices Lower oil prices and growing anticipation of rate cuts from the global central banks have taken the pressure off Norway's central bank to hike rates one last time in December. We expect an on-hold decision but expect the bank's new rate projection to push back against expectations of imminent rate cuts in 2024. A hawkish hold should partly shield the krone.   Norges Bank promised a hike, but no longer needs to deliver Back in September, Norway’s central Bank signalled that a December rate hike was likely. By November, policymakers were watering down those promises and said that further progress on the inflation outlook could lead to a pause. We now think “no hike” is the most likely scenario next week, though it’s a close call. Market pricing is leaning this way too. Since the November meeting and the last forecasts produced in September, we’ve seen both a pronounced fall in oil prices and a big dovish repricing in global rate expectations. The former is assumed to weigh on oil investment and ultimately growth and the labour market. The latter removes one source of potential weakening pressure on the krone – or at least that’s true in theory. Norges Bank’s preferred trade-weighted exchange rate index is actually 4% weaker than assumed in the September forecasts. Still, the net effect of all of that should be a lower interest rate projection for coming months. Previously the projection saw rates peaking around 4.50% and staying there until the latter part of 2024. Assuming we don’t get a rate hike from Norges Bank on Thursday, we’d expect a lower peak rate in the projection and there’s a chance we also see a slightly earlier rate cut pencilled in. That said, we doubt policymakers will want to endorse the shift away from “higher for longer“ among investors over recent weeks. Ultimately though we do expect rate cuts next year and we think Norges Bank could end up following the Federal Reserve with easing, starting in the second quarter of next year   Norges Bank interest rate projections over time Still reasons to like NOK in the long-end Markets are pricing in around a 30% implied probability of a rate increase, meaning the risks are skewed to the upside for the Norwegian krone considering how close of a call this is set to be for policymakers. Our baseline is – as discussed – a hold, which should add a bit more pressure on the underperforming NOK, even though Norges Bank may well try to tame dovish speculation by signalling openness to more tightening if necessary. Ultimately, the impact on NOK should not be too material in the event of a hawkish hold, and the krone should quickly revert to being driven by external factors. Indeed, it’s been mostly external factors – namely the dollar recovery, worsening of the European economic outlook, softer oil prices – that have weighed on NOK of late. Domestically, the sustained pace of daily FX purchases in December (NOK 1.4bn) and dovish repricing have had a secondary but non-negligible influence. Expect CPI figures three days before the Norges Bank announcement to move NOK. Looking beyond the short-term underperformance, and despite a less hawkish Norges Bank, there is still a lot to like about NOK; it is deeply undervalued, has a relatively stable economic outlook, and good carry advantage. We continue to favour the krone against its oil peer the Canadian dollar, in 2024.