Early Morning Call: UK narrowly avoids recession but shows no Q4 growth

Equity market overview

Equity market performance was mixed overnight in the APAC region, following a negative session in the US. Hong Kong’s Hang Seng was the worst performer.

In China, consumer price index (CPI) rose 2.1% in January year-on-year (YoY), up on the 1.8% annual gain seen in December, but just shy of the 2.2% increase expected by economists. CPI was boosted by a seasonal surge in spending over the Lunar New Year festival, with airfares, movie tickets, and travel prices up 20.3%, 10.7% and 9.3% respectively.

China's January factory gate prices fell more than economists expected. The producer price index (PPI) was down 0.8% on a year earlier, extending the 0.7% drop the prior month and faster than the 0.5% fall.

Britain's economy showed zero growth in the final three months of 2022, which means it narrowly avoided falling into the technical definition of a recession. Fourth quarter (Q4) GDP growth rate was flat compared to Q3, in line with expectations.

Earnings

Lyft shares dropped over 30% in extended hours, after posting a surprise loss in Q4 and forecast current-quarter profit far below Wall Street targets. Lyft reported adjusted EBITDA of $126.7 million, above analysts' forecasts, but after setting aside $375 million for increasing insurance reserves, the group posted a loss of 74 cents per share, to be compared with earnings per share (EPS) expectations of 15 cents.

In an interview, the group's president John Zimmer said they wanted to strengthen their insurance reserve to prevent that type of volatility going forward. Active riders rose 8.7% to 20.36 million for the fourth quarter, Lyft said, above the FactSet estimate of 20.30 million.

As for the current quarter, Lyft forecast adjusted EBITDA of between $5 million and $15 million. The average analyst target was $81.1 million. Lyft also forecast revenue of about $975 million, below analyst estimates of $1.09 billion.

On an adjusted basis, PayPal earned $1.24 per share in Q4, beating analyst estimates of $1.20 per share. Revenue rose 9% to $7.4 billion, broadly in line with expectations. In terms of guidance, PayPal said it expects full-year (FY) adjusted profit of roughly $4.87 on a per share basis. Analysts on average had expected $4.75 per share.

The group said it will not provide a forecast for full-year revenue growth. Profit expectations are above Wall Street’s estimates but Paypal warns that macroeconomic pressures have begun to hurt American consumers, particularly those in the lower income bracket. Note that Chief Executive Dan Schulman announced he will retire at the end of 2023.

Commodities

Oil prices this morning are down, but still heading for weekly gains after a fortnight of losses.

Last week, the Baker Hughes total rig count fell by 12 to 759, at its lowest since the end of July 2022. The number of oil rigs in operation fell by 10 to 599.

Precious metals are set for another week of declines. Gold saw a second week of losses, while silver and platinum are on track to record a fourth and fifth week of losses respectively. Silver trades at a 10-week low, platinum at a three-month low.

NY Orange Juice was meanwhile by far the best performer this week, for a second week running, now trading above $2.50 per pound.