optimistic

The results for the first quarter of 2023 are in line with preliminary estimates and we assess them as weak. Revenues amounted to PLN 6.7 million, of which revenues from games generated PLN 5.8 million (the remaining part of revenues was generated for own needs). This is a decrease of 14.9% y/y and 0.6% q/q.   These values confirm that the pandemic boom in game sales is coming to an end. At the level of results, Vivid Games also disappointed, with an operating profit of just PLN 64k (decrease by 5.2% y/y), while the net loss amounted to minus PLN 17k (a year earlier the net profit was PLN 50k). On the other hand, preliminary estimates for April are optimistic. Monthly revenue from games increased to PLN 2.14 million (an increase of 8.1% m/m), and the net result was positive and amounted to PLN 0.32 million. This means a significant improvement compared to March and the entire first quarter of 2023.   However, the April’s enthusiasm related to the improvement of profitability was quickly brought down in May, when the Company received information about the suspension of financing the project from the National Center for Research and Development for a total amount of PLN 6.4 million (of which PLN 3.9 million was subsidized). The reasons for the suspension are unknown, while the consequences are clearly negative. In addition to the lack of the cofinancing amount in the category of other operating income, the Company will not receive cash in the assumed time (or at all), which worsens its liquidity.   Finally, we lower our valuation to PLN 0.90 (from PLN 1.05) per 1 share at the end of 2023, which results from a lower valuation both using the DCF and comparative method.    

Italy: Confidence data points to a mixed economic outlook June's confidence data paints a mixed picture for Italy's economy, with consumers increasingly upbeat and businesses remaining less optimistic. We're hopeful for continued growth in the second quarter, but expect some softening off the back of weaker net exports.   An upbeat outlook from consumers The most striking element of June's data came from consumers. We had anticipated an improvement there, but not such a drastic development. The breakdown shows a marked improvement in both economic and personal climates which extends to expectation components. On the back of a slowly improving inflation backdrop, we believe the very reason for consumer optimism lies primarily with the resilience of the labour market.   The unemployment expectation component of the survey slowed markedly in June. When matching this with the decline in the current opportunity to save sub-index, we sense that the compression in the Italian saving ratio is still in place, with a possible positive bearing on private consumption.   Manufacturing confidence softens On the business front, confidence unsurprisingly declined again among manufacturers, with the lowest levels recorded since January 2021. Here, the decline in orders coupled with a small increase in inventories led to the fourth decline in a row in the production expectation component. Softer demand in key export destination countries such as Germany is apparently taking its toll – and it doesn't seem as though the domestic component linked to the flow of investment activated by the recovery and resilience of European funds is able to compensate. Interestingly, the consumer goods segment seems less affected.   Construction confidence rebound The only business sector that saw a positive reading was construction. With a three-point rebound, the index is back up close to historical highs, propelled by the residential building component. The tailwind of generous tax incentives for energy-efficient renovations is still at play, suggesting the backlog was so significant that the reduction of the incentives introduced at the beginning of the year has not yet resulted in an obstacle to supply.   Services only softly down, with tourism surprisingly weak The small decline in services confidence resulted from an increase in the transport, storage and communication components, as well as a surprising decline in tourism services. The latter comes after two months of continued strength and has been driven by recent developments in both current affairs and a sharp fall in orders. It also flashes warning signals for the incoming tourism season.   Second quarter set for positive but softening GDP growth All in all, today’s confidence data release suggests that conditions are still there for a positive second quarter. We're hopeful for continued strength in consumption, which proved surprisingly strong in the first quarter. On the investment front, the construction component still appears able to provide some push. Net exports, however, look set to remain a drag on quarterly growth. We aren't expecting another repeat of the first quarter’s 0.6% growth, but should still see a positive reading for the second quarter.

Fed signals three rate cuts in 2024 ECB and BoE to announce decisions shortly Dow hits record highs after the Fed The most hotly anticipated central bank meeting of the year did not disappoint on Wednesday, with the Fed potentially delivering this year’s Santa rally. I don’t think many will have expected the Fed to go as far as it did in forecasting three rate cuts next year only three months after suggesting the tightening cycle is not over. But clearly, it’s not just investors that have been impressed with the data we’ve seen so far in the fourth quarter and now they’re getting more carried away than before. There’s been a lot of debate in recent weeks about whether investors are getting ahead of themselves, too optimistic about how quickly the Fed will cut rates but the message from the central bank is that is not the case. And in typical fashion, investors have now gone further, pricing in six rate cuts next year starting in March. That’s also forced investors to reassess whether they’re in fact too pessimistic with other central banks too, with the ECB now expected to cut rates by 150 basis points over the next 12 months and the BoE between 100 and 125 basis points. Both now have a lot to live up to today and Christine Lagarde, in particular, may not be thanking her US counterparts for whipping investors up into a frenzy right before their announcement and press conference. A repeat performance from the ECB could leave investors going into the end of the year in a much more festive mood.   New record highs in the Dow Markets got an early festive treat from the Fed, with the Dow hitting fresh record highs on the back of the Fed announcement almost two years after it last achieved that feat. US30 Daily Source – OANDA Now that it’s in uncharted territory, momentum indicators will be much more useful as we don’t have past levels to look to. And we are seeing some sign of exhaustion occurring in the MACD histogram, although not yet in the moving averages or stochastic.    

Eurozone PMIs show very tentative signs of bottoming out The eurozone economy continues to trend around 0% growth and there are no signs of any imminent recovery. Price pressures are still increasing for the service sector, which provides another argument for the ECB not to hike before June. How you read today’s PMI release for the eurozone reveals whether you’re an optimist or a pessimist. The increase from 47.6 to 47.9 in the composite PMI for January cautiously shows signs of bottoming out but also still indicates contraction. We also note that France and Germany saw declining PMIs, making the increase dependent on the smaller markets. Manufacturing price pressures remain moderate despite the Red Sea disruptions, but the service sector indicates another acceleration in input costs. To us, this shows that the eurozone economy remains in broad stagnation and that risks to inflation are not small enough to expect an ECB rate cut before June. The eurozone continues to be plagued by falling demand for goods and services, although new orders did fall at a slower pace than in recent months. Current production and activity were weaker than in recent months, though, suggesting that January started with contracting output still. The slowing pace of contracting orders does suggest that there is a bottoming out happening though. Whether this is enough to show positive GDP growth in the first quareter depends on February and March. In any case, GDP growth is so close to zero that we still qualify the current environment as broad stagnation anyway. The PMI continues to show some concern around inflation. Even though demand remains lacklustre, services cost pressures are on the rise again due to higher wage costs which are being transferred to consumers. Cost pressures on the goods side remain low despite Red Sea disruptions as energy prices trend lower and demand overall remains weak. This also means that goods inflation continues to trend down according to the survey. So, despite Red Sea problems prominently featuring in the news, inflation concerns currently stem more from services than goods, interestingly. For the ECB, enough worries about inflation not trending down to 2% quickly still remain. We think that makes a first cut before June unlikely.