The Lettuce Won

Weekly Briefs
24 Oct 2022
6 min read
The Lettuce Won

This week saw Foxconn announcing some big ambitions, Netflix reporting a return to growth, and the US president approving more oil sales from the US Strategic Petroleum Reserve. But truth be told, Britain dominated the headlines again all week. The country’s new finance minister ripped up most of what was left of the government’s controversial economic plan. The Bank of England came out denying a report that’s delaying the sale of its bond holdings. New data showed UK inflation returning to a 40-year high in September. And finally, Liz Truss announced that she’s resigning as the UK’s prime minister. Seven days before that happened, the Daily Star began a live-streamed race to see if Truss can outlast an iceberg lettuce with a 10-day shelf life. Verdict: the lettuce won.


On Monday, the new British finance minister – Jeremy Hunt – ripped up most of what was left of prime minister Liz Truss’s controversial economic program that had spooked markets and sent the country’s currency and bonds into freefall. Hunt announced that the government is scrapping its previously announced tax cuts and cutting back support for energy bills from April, in an effort to restore order to the UK’s public finances. But with Truss’s “growth plan” out of the window, the risk of a recession is growing for the UK. In fact, Britain’s recovery from the pandemic is severely lagging behind its G7 peers.

The UK is the only G7 economy yet to fully recover from the pandemic. Source: OECDstat

Despite the U-turn, the bond market volatility unleashed by Truss’s failed economic plan lingers on till today, and the drama has yet to fade away. For example, the FT ran a report on Tuesday saying that the Bank of England (BoE) is delaying the sale of billions of pounds of government bonds in a bid to foster greater stability in the gilt (i.e. British government bond) markets. The BoE had already delayed the start of its sale of £838 billion of gilts (bought under its quantitative easing program) from October 6 to the end of this month. And according to the FT, the central bank was expected to bow to investor pressure for a further pause until the gilt market becomes calmer. But that same afternoon, the BoE came out denying the FT report in a move that sent UK bonds falling again.

The yield on the 10-year UK government bond rose after the BoE denied a report that it's delaying selling off its gilt holdings. Source: Bloomberg

New data out the next day showed UK inflation returned to double digits in September, with consumer prices increasing by a more-than-expected 10.1%. That’s an acceleration from the 9.9% recorded in August and matches the 40-year high reached in July. One of the main culprits was food prices, which increased by 14.8% from a year ago. On a month-on-month basis, consumer prices increased by 0.5% in September. All in all, the figures leave inflation well above the BoE’s 2% target, adding pressure on the central bank to lift interest rates significantly next month. In fact, traders are currently betting that the BoE will hike rates by a full percentage point at its 3-Nov meeting. While that’ll help cool inflation somewhat, the danger is that consumer prices accelerate again early next year after the government loosens its support for household energy bills.

UK inflation accelerated again to a 40-year high. Source: Bloomberg

Finally, just to make sure Britain ended the week on a dramatic note, Liz Truss announced on Thursday that she’s resigning as the UK’s prime minister. Considering the economic and market turmoil her government had unleashed over the past few weeks, investors welcomed the resignation with open arms: they sent the pound and UK stocks and bonds higher after the news. A new prime minister is expected to be in place by 28-October.


Foxconn – the world’s largest contract electronics manufacturer (think iPhone, iPad, Kindle, Xbox, and more) – announced big plans this week. After conquering the consumer electronics market (the firm manufactures around 40-45% of all consumer electronics sold worldwide), Foxconn is going after the EV market. It aims to manufacture nearly half of all EVs sold globally in the long term, the firm said on Tuesday, as it introduced two new prototype EVs for sale by branded automakers. To be clear, Foxconn is aiming to build clients’ EVs from the chassis up, but has no plans to sell vehicles under its own brand. It hopes to gain a 5% share of the global EV market by 2025, which will be worth about $31 billion in revenues.

EV sales are growing all over the world, and Foxconn wants to tap into that growth and create a new revenue stream after conquering the consumer electronics market. Source: IEA

Moving on, Big Tech’s earnings kicked off this week with Netflix reporting its latest results on Tuesday evening. After losing subscribers during the first half of the year, the streaming giant returned to growth last quarter, adding 2.4 million customers and exceeding its own projections as well as analysts’ forecasts of 1 million. That helped it push up its revenue and profit to both tidily beat analysts’ expectations too. Netflix grew in all regions of the world and said that it expects to sign up another 4.5 million subscribers globally this quarter. That was good enough to convince investors to brush off the company’s worse-than-expected profit outlook on the back of the strong dollar: they sent its shares up 14% after the news. But for context, the stock is still down more than 50% for the year.

Netflix forecasts an acceleration in customer additions this quarter. Source: Bloomberg

While investors have long judged Netflix based on the number of subscribers it adds every quarter, the company is trying to get them to consider more traditional financial metrics like revenue and operating income – especially as customer growth matures in its major markets. The firm plans to increase revenue by introducing an ad-supported version of the streaming service in November and charging for password sharing next year. With these two potential new sources of revenue, the firm said it will no longer provide subscriber forecasts to investors. Finally, in a jab at its rivals, Netflix said that its competitors are investing heavily to drive subscribers and engagement and they’re all losing money as a result, with combined 2022 operating losses well over $10 billion (Netflix’s estimate). In contrast, Netflix is expected to make $5 to $6 billion in operating profit this year.


On Wednesday, US president Joe Biden approved the sale of 15 million barrels of oil from the US Strategic Petroleum Reserve in December. Although the president insisted that the move was “not politically motivated at all”, it probably is a bid to ease high gasoline prices that have become a liability for Democrats in next month’s midterm elections. After all, at just under $4 per gallon, gasoline prices are almost 60% higher than when Biden took office in January 2021. The sale of a further 15 million barrels by the end of the year would complete the release of the 180 million barrels Biden committed to inject into the market back in March.

The average cost of a gallon of gasoline in the US is nearing $4 again. Source: Bloomberg

Next week

Earnings season continues with full investor focus on Big Tech: Alphabet (Google), Microsoft, Amazon, Meta Platforms (Facebook), and Apple are all scheduled to report results next week. These tech giants collectively represent a huge chunk of the US stock market’s value, so their earnings updates will have big implications on the wider market. They’ll be joined by social media firms Twitter and Pinterest. On the economic front, we have preliminary PMI data from the US, UK, and eurozone on Monday, and the US’s third-quarter GDP report on Thursday. Also on Thursday, we have the European Central Bank meeting (traders are betting on a 75 basis point hike).

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The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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