International
Apple Pares Much Of Drop During Earnings Call
Apple Pares Much Of Drop During Earnings Call
Update 6:00pm: Apple has staged a remarkable reversal after hours, and erased almost the entire…

Update 6:00pm: Apple has staged a remarkable reversal after hours, and erased almost the entire loss after the company said that it expects a 5% impact from FX rates in Q2, and also expects iPhone revenue growth to accelerate in Q2. CEO Tim Cook was also asked whether the move to higher ASPs for the iPhone is sustainable in light of the sharp decline in sales, and whether this will continue in a worsening economy. Cook said the 14 Pro and 14 Pro Max did extremely well until the supply-chain constraints. He says this is definitely a “strong Pro cycle” and credits the new features in the device. He says he’s happy that Apple is now shipping to the demand.
Tim Cook also said that AI is critical to Apple and mentions features like crash-and-fall detection and the use of AI in features like EKG on the Apple Watch. He says AI will effect everything the company does, including all products and services.
Apple is quite bullish on India and other emerging markets, with CEO Tim Cook saying the company will soon open its first retail stores in India. He also said Apple saw marked improvement in China in December (versus November) after another round of Covid re-openings.
As Bloomberg notes, the company also stuck to a line that revenue and sales of individual product categories would have been higher if not for supply-chain constraints and issues stemming from the macroeconomic environment.
* * *
With both Amazon and Google sliding after reporting disappointing earnings and mixed guidance, it was all up to the world's biggest company, AAPL, to provide some hail mary for the tech earnings season which for better or worse is concentrated in a one hour stretch this afternoon. Alas, it was not meant to be and after missing on the top and bottom line, AAPL has joined the parade of selling and tumbled after hours due to numbers which the market was clearly not impressed with.
- EPS $1.88 vs. $2.10 y/y, missing estimate $1.94
- Gross margin $50.33 billion, -7.2% y/y, missing estimate $52.03 billion
- Revenue $117.15 billion, -5.5% y/y, missing estimate $121.14 billion
- Products revenue $96.39 billion, -7.7% y/y, missing estimate $98.98 billion
- IPhone revenue $65.78 billion, -8.2% y/y, missing estimate $68.3 billion
- Mac revenue $7.74 billion, -29% y/y, missing estimate $9.72 billion
- IPad revenue $9.40 billion, +30% y/y, beating estimate $7.78 billion
- Wearables, home and accessories $13.48 billion, -8.3% y/y, missing estimate $15.32 billion
- Service revenue $20.77 billion, +6.4% y/y, beating estimate $20.47 billion
- Greater China rev. $23.91 billion, -7.3% y/y, beating estimate $21.8 billion
- Cash and cash equivalents $20.54 billion, -45% y/y, estimate $29.91 billion
And here is AAPL's diluted EPS in context: needless to say, could have been better.
Commenting on the quarter, Tim Cook said that “during the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”
CFO Luca Maester chimed in: “our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop. We continued to invest in our long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to our shareholders during the quarter. The strength of our ecosystem, unmatched customer loyalty, and record sales spurred our active installed base of devices to a new all-time high. This quarter capped another record-breaking year for Apple, with revenue growing over $28 billion and operating cash flow up $18 billion versus last year.”
Going back to the results, Apple missed consensus revenue in most product categories, with the exception of iPads, to wit:
- IPhone revenue $65.78 billion, missing estimate $68.3 billion
- Mac revenue $7.74 billion, missing estimate $9.72 billion
- Wearables, home and accessories $13.48 billion, missing estimate $15.32 billion
- IPad revenue $9.40 billion, beating estimate $7.78 billion
Of note: Apple recorded its first decline in iPhone revenue since the third quarter of 2020; yet in context, the 8% drop was still less than the 20% decrease reported by Samsung. Other major smartphone providers that have yet to report are expecting to see double-digit losses. Ironically, Apple may have fared comparatively well on smartphone revenue.
The silver lining: service revenue $20.77 billion, +6.4% y/y, beating estimates of $20.47 billion...
... and rose 6.5% Y/Y, an improvement from last quarter's 5.0%
One other place where investors were pleasantly surprised was China sales, which at $23.91 billion, beat the estimate of $21.8 billion by more than $2 billion.
None of that changes the fact that AAPL's sales by region were uniformly negative across the board.
And another potential problem: AAPL's gross cash continues to slide, dropping to $165 billion, the lowest since June 2014...
... while cash net of debt rebounded modestly from $49 billion to $54 billion, just above a 12 year low with the company having spent hundreds of billions on stock buybacks. Let's hope that Apple doesn't actually need to use that cash.
Commenting on the results, Bloomberg writes that the results show that Apple hasn’t been able to dodge the tech slowdown afflicting many of its competitors. Demand for smartphones and computers has slumped in the past year, and Covid-19 restrictions in China added to Apple’s woes during the holiday sales period. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the first quarter.
In response to these disappointing earnings, the stock predictably slumped as much as 4% before recouping some losses, although even with the drop it is back to where it was... yesterday.
International
Canadian dollar edges higher as retail sales rebound
Canada retail sales climb 2% The Canadian dollar has posted losses on Friday. In the European session, USD/CAD is trading at 1.3446, down 0.28%. Canada’s…

- Canada retail sales climb 2%
The Canadian dollar has posted losses on Friday. In the European session, USD/CAD is trading at 1.3446, down 0.28%.
Canada’s retail sales jump
Canada’s retail sales rebounded in impressive fashion on Friday. Retail sales in July jumped 2% y/y, following a -0.6% reading in June and beating the 0.5% consensus estimate. On a monthly basis, retail sales rose 0.3%, up from 0.1% in June but shy of the consensus estimate of 0.4%. The good news was tempered by the August estimate, which stands at -0.3% m/m and would be the first decline since March. The Canadian dollar showed little reaction to the retail sales release.
The Bank of Canada doesn’t meet again until October 25th and policy makers will have plenty of data to monitor in the meantime. The BoC has been walking a tightrope that will be familiar to most central banks, that of trying to balance the risks of over and under-tightening. The difficulty in finding the right balance was highlighted in the BoC summary of deliberations of the policy meeting earlier this month.
The BoC decided to hold the benchmark rate at 5.0% after concluding that earlier rate hikes were having an effect and slowing economic growth. The summary indicated that policy makers were concerned that a pause might send the wrong message that rate cuts might be on the way. With inflation still above the BOC’s target, the central bank is not looking at rate cuts and stressed at the September meeting that rate hikes were still on the table and that inflation remained too high.
.
USD/CAD Technical
- USD/CAD is testing resistance at 1.3468. The next resistance line is 1.3553
- 1.3408 and 1.3323 are the next support lines
International
Quantitative Tightening Is Not Biggest Threat To Global Yields
Quantitative Tightening Is Not Biggest Threat To Global Yields
Authored by Simon White, Bloomberg macro strategist,
The Bank of England’s…

Authored by Simon White, Bloomberg macro strategist,
The Bank of England’s quantitative tightening program shows that unwinding central-bank bond portfolios, even with outright sales, need not be disruptive for markets. The greater risk for US and global yields comes from positive stock-bond correlations driving risk premia wider.
The BOE has been a pioneer and a thought leader in QT. While the Fed and ECB have only allowed bonds to run off naturally to help achieve their balance-sheet contraction goals, the BOE has sold gilts outright in addition to allowing bonds to mature.
So far, it has not led to any significant market disruption. This enabled the BOE Thursday to increase the pace of reduction in the Asset Purchase Facility (APF) from £80 billion last year to £100 billion over the coming 12 months from October (while holding Bank Rate steady). As colleague Ven Ram also noted, the schedule of maturing bonds next year allowed the bank to keep gilts sales unchanged from last year while increasing the total amount of the APF’s decrease.
The QT watchwords from the bank are “gradual and predictable.” If gilt sales are conducted in such a way, then market disruption should be minimized. The chart below shows the BOE’s own assessment of the impact of bond sales on the market.
The BOE estimates that of the ~40 bps of term-premium increase since the MPC voted to begin QT in February 2022, about 10-15 bps comes from QT specifically – small in comparison to the overall rise in yields since that time.
QT or bond sales, though, are not the most critical risk facing bond prices in the current cycle. Rising and now positive stock-bond correlations threaten to lead to a structural rise in bond risk premium, and lower prices. The correlation is now positive in the US, Japan, and the UK.
In a positive stock-bond correlation world, bonds lose their portfolio-hedge and recession-hedge capabilities, and thus become less sought after. The penny has not fully dropped yet, but the negative term premium for bonds is increasing, and is prone to rising much higher as they become less desirable.
Yields of developed market countries are biased structurally higher, but QT is unlikely to be the culprit. Instead, it allows central banks to reload their capacity for a future time when they may need to restart quantitative easing, in order to stabilize the market from sharply rising term premia.
International
What happens if a university goes bust?
Universities face growing costs but no prospect of increased funding.

Governments face difficult choices when industries fail. They can stand by while private businesses collapse and see the resulting loss of jobs and revenue. Or they can step in and use public money to prop up these firms.
The Scottish government intervened in 2019 to rescue Ferguson Marine, the last shipbuilding firm on the river Clyde, but faces ongoing controversy on whether it broke state aid rules in doing so. And, of course, the global financial crisis of 2008 saw the UK government intervening to rescue banks such as RBS that were seen as “too big to fail”.
A similar financial crisis may be looming in higher education, a sector worth billions each year to the UK economy and a source of great national pride.
The UK boasts the second-largest collection of Nobel laureates and four of the world’s top-20 universities. But all is not well in higher education.
Financial woes
The most recent data from the Higher Education Statistics Agency for the financial year ending in 2022 shows that (excluding pension adjustments, which can skew accounts for particular years) 24% of UK universities reported a deficit.
The Russell Group, which represents an elite group of research-intensive universities, claims it faces an average shortfall of £2,500 on every home undergraduate taught, and that this could grow to £5,000 by 2029-2030.
The outgoing vice-chancellor of Sheffield Hallam University, Sir Chris Husbands, recently suggested that calls to increase fee levels could be perceived as being tone deaf. Faced with their core undergraduate activities being unprofitable, universities have diversified their income by recruiting more international students, despite UK immigration policy limiting their ability to do so.
With no immediate prospect of increased funding either from government or through increased fee levels for domestic students, such restrictions on international recruitment together with damaging rhetoric from the government about so-called “rip-off degrees” means it is no longer unthinkable that a UK university might fail.
To consider what might happen if a university went out of business, we can look at what transpires when other businesses – such as banks – go bust.

Of the brand names that collapsed during the 2008 global financial crisis, few will remember the Heritable Bank. It held 22,000 accounts, making it comparable to the number of students at a mid-size university.
The cost to UK taxpayers of rescuing the Heritable Bank was £500m. The government, via the Financial Services Compensation Scheme, paid compensation to Heritable’s customers and, while some of these monies were recouped, the upfront costs were significant and the endgame did not see all of the cost recovered.
Part of the solution when Heritable failed was that another provider, ING, took on its customers. Were a university to become insolvent, thousands of students would find themselves marooned part-way through a degree programme, with no obvious route to complete it. There is no guarantee that another university would want to absorb a collection of “new” students, especially at fee levels that are already acknowledged to be below the break-even point.
Consequences for students
Even if a neighbouring university was given incentives to step in by the government, there would be practical issues to consider. Despite a potential merger under consideration in Australia, there is little history of mergers between universities in the UK.
The government could step in to avert a crisis. However, compared with the crisis in financial services in 2008, there is no equivalent compensation scheme in place and the public finances are in poorer health. In combination, this means there is no certainty of a government rescue package – and there may be a real reluctance to interfere in the market.
Almost inevitably, a series of messy class action lawsuits would result, with students seeking recompense for fees paid, perhaps over multiple years, that did not result in the qualification advertised. Worse, the shockwaves felt in one university could easily rock confidence in others. Future students might become more interested in the annual financial reports of a prospective university than its traditional prospectus.
Pulling down communities
Beyond the students, there would be significant economic consequences for the region, town or city concerned. Universities are typically large employers, sometimes the biggest in the area, and often refer to themselves as “anchor institutions” – central to the local economic ecosystem in the same way that a household-name retailer might be key to the viability of a shopping mall.
Yet anchors can also drag. In the case of a university failure, the potential for large numbers of high-skilled roles to disappear would be matched by a set of economic ripples that would be felt more widely.
This could range from housing, hospitality and retail being starved of income, to these and many other sectors suffering a shortage of a part-time, flexible workers. There are 142 members of Universities UK, and the 130 universities operating in England are estimated to contribute £95bn to the economy each year. Somewhere between £0.5bn and £1bn is a reasonable estimate of the amount attributable to any one university.
Finally, there would be political consequences. Electorates, of course, comprise many current, past and future students. Accusations would follow that jobs, qualifications and potential futures had been squandered.
The university sector is not immune to the kind of industrial or technological revolutions that have swept through other industries. But neither is it a purely commercial sector. Some of our policymakers and regulators might regard a university failure as an indication that the market is working. If so, they should be careful what they wish for.
Robert MacIntosh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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