In this edition of Lens on Markets, we look at how Alphabet Q1 beats on AI driven cloud surge
Market Performance
South African Market Summary
The JSE All Share index declined 0.47% to close at 113,865.92 points, while the Top 40 fell 0.55% to 105,999.50 points. Sappi faces increased regulatory scrutiny following the European Commission’s decision to investigate its proposed €1.42 billion graphic paper joint venture with UPM-Kymmene Corporation. The probe centres on potential competition concerns, including pricing risks, and may require concessions such as asset disposals to secure approval. The transaction aims to combine UPM’s communication papers unit with Sappi’s European graphic paper operations, targeting efficiencies in a structurally challenged market characterised by declining demand, excess capacity and elevated energy costs, while broader South African manufacturing continues to reflect structural weakness.
European Market Summary
European equities declined to a three-week low, with the STOXX Europe 600 falling 0.6% to close at 602.96 points, as mixed corporate earnings and macroeconomic data highlighted the growing economic impact of the Iran conflict. German inflation accelerated in April, driven by higher energy prices, while eurozone economic sentiment weakened to a three-and-a-half-year low, signalling deteriorating growth conditions. Investor focus now shifts to the upcoming European Central Bank policy decision, where rates are expected to remain unchanged, with guidance key amid the inflation-growth trade-off. In the UK, automotive production declined 8.2% year-on-year in March, reflecting ongoing supply constraints and weaker export demand.
US Market Summary
Wall Street traded erratically as investors balanced surging oil prices, monetary policy uncertainty and late-session earnings releases. The Federal Reserve held rates steady in a notably divided decision—its most split since 1992—highlighting policy uncertainty amid rising energy-driven inflation risks linked to Middle East tensions. Chair Jerome Powell indicated continuity in leadership despite speculation around the end of the current policy cycle. Policymakers are navigating a complex backdrop of resilient economic data, with core capital goods orders rising 3.3% in March, signalling firm corporate investment. Meanwhile, engagement between the White House and energy majors, including Chevron, underscores efforts to stabilise oil markets. Trading volumes remained below recent averages, reflecting cautious positioning.
Asian Market Summary
Asia-Pacific markets traded mostly lower, tracking overnight weakness on Wall Street as oil prices extended gains amid a U.S. blockade of Iranian ports, while the Federal Reserve held interest rates steady. In China, manufacturing activity expanded for a second consecutive month, with the official PMI easing slightly to 50.3 (March: 50.4) but remaining in expansionary territory and exceeding expectations, supported by front-loaded export demand. However, elevated energy costs linked to the Middle East conflict pose downside risks to the sustainability of this momentum. In Japan, weaker-than-expected factory output highlights mounting pressure on the economy, complicating policy normalisation for the Bank of Japan.
Commodity Market Summary
Gold prices rebounded from a one-month low, although gains were limited as elevated oil prices reinforced inflation concerns and the prospect of higher-for-longer interest rates. Oil extended its rally amid persistent supply disruption risks linked to the ongoing U.S.–Israeli conflict with Iran, including restrictions on shipping through the Strait of Hormuz, a critical global energy chokepoint. The geopolitical backdrop continues to drive volatility, with the OPEC+ expected to consider a modest output increase of around 188,000 barrels per day. However, supply-side risks remain skewed to the upside, particularly following the United Arab Emirates decision to exit the producer group, limiting near-term price relief.
Currency Market Summary
The South African rand weakened sharply as investors positioned ahead of the Federal Reserve policy decision, with geopolitical risks from the Iran conflict compounding pressure. The US dollar firmed, with the dollar index holding near a two-week high at 98.852, supported by a more hawkish policy stance. The Fed’s 8–4 decision to keep rates unchanged marked its most divided outcome since 1992, with dissenting officials pushing back against easing bias. Markets have since repriced the rate outlook, largely removing expectations for cuts in 2026 and assigning a rising probability of future hikes, reinforcing yield support for the dollar and sustaining pressure on emerging market currencies, including the rand.
Domestic Company News
Astral Foods Limited (ARL) +1.41%
Astral Foods expects a substantial recovery in interim earnings for the six months ended 31 March 2026, signalling a sharp turnaround from the prior comparable period. The group anticipates EPS to increase between 375% and 395% to 2,242–2,336 cents, while HEPS is forecast to rise between 450% and 470% to 2,250–2,331 cents, compared with 472 cents and 409 cents respectively in 1H2025. The upgrade reflects improved operating conditions outlined in its March trading update, pointing to a normalisation from a weak base. The company noted that the figures remain unaudited, with formal results expected to be released on or about 18 May 2026.
Primary Health Properties PLC (PHP) +0.67%
Primary Health Properties reported a strong start to FY2026, driven by improving rental growth and continued execution of post-Assura integration objectives. Organic rental income increased by £3 million from 199 rent reviews, reflecting c.6% growth and 3.4% on an annualised basis, with broad-based performance across UK primary care, private hospitals and Ireland. The group has delivered £7.8 million (87%) of targeted cost synergies and is progressing initiatives to reduce leverage towards its 40–50% target range. A new private hospital vehicle is expected to be announced by summer 2026 to support balance sheet optimisation. The annualised rent roll stands at £345 million, while disciplined development and a progressive dividend policy remain intact.
Sappi Limited (SAP) +2.40%
Sappi confirmed that the European Commission has initiated a Phase II merger control investigation into its proposed European graphic paper joint venture with UPM-Kymmene Corporation, following the initial Phase I review. The escalation reflects the need for a more detailed regulatory assessment and is a standard part of the approval process for complex transactions. The proposed JV, first announced in December 2025, remains subject to customary regulatory approvals. Sappi indicated that it is cooperating fully with the Commission and engaging constructively to address identified concerns, while maintaining confidence in the strategic rationale and long-term value potential of the transaction.
Global Company News
Alphabet Inc. (GOOGL) +0.04%
Alphabet delivered a strong first-quarter performance, with revenue rising 22% to $109.9 billion, exceeding expectations, driven by exceptional momentum in Google Cloud. Cloud revenue surged 63% to $20 billion, marking its fastest growth since segment disclosure began, as enterprise demand for generative AI accelerated. Operating income in the cloud unit tripled to $6.6 billion, highlighting improved profitability after years of investment. Management signalled continued aggressive capital deployment, raising FY capex guidance to $180–$190 billion to support capacity expansion amid a $460 billion backlog. Strategic monetisation of proprietary TPU chips and expanding AI partnerships underpin a broader addressable market. While earnings were boosted by investment gains, underlying performance reinforces AI as a key structural growth driver.
Microsoft Corporation (MSFT) -1.12%
Microsoft signalled continued strength in its cloud business, forecasting Azure revenue growth of 39–40% in the fiscal fourth quarter, ahead of market expectations, following 40% growth in the third quarter. The outlook reinforces sustained enterprise demand for AI-driven cloud services, although adoption of Copilot remains gradual relative to its broader user base. Management announced aggressive capital expenditure plans of $190 billion for 2026, significantly above expectations, reflecting ongoing investment in AI infrastructure amid capacity constraints and rising chip costs. Strategic adjustments to its OpenAI partnership and broader ecosystem expansion aim to maintain competitiveness, although intensifying rivalry from peers highlights execution risks despite a strong $37 billion AI revenue run rate.
Amazon.com Inc. (AMZN) +1.29%
Amazon delivered a strong first-quarter performance, with AWS revenue rising 28% to $37.6 billion, ahead of expectations, supported by robust enterprise demand for AI-driven cloud services. Group revenue increased to $181.5 billion, while advertising revenue grew 24% to $17.2 billion, highlighting continued diversification. Management reaffirmed plans for approximately $200 billion in AI-related capital expenditure, underscoring an aggressive infrastructure build-out, with monetisation expected from 2027. Strategic partnerships with OpenAI and Anthropic strengthen its positioning in the AI ecosystem. Despite elevated investment, guidance remains constructive, with second-quarter revenue and operating income expected above consensus, supporting confidence in near-term execution and medium-term returns.
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Research Team