Morning Note: Market news and an update from Medtronic.

Market News

European officials are said to be planning to send British and French troops to Ukraine under a peace agreement. Switzerland said it would grant Vladimir Putin immunity from arrest as part of its proposal to host peace talks. Putin “agreed to begin the next phase of the peace process,” which would be a meeting with Volodymyr Zelenskiy, White House Press Secretary Karoline Leavitt said.

Jerome Powell’s final Jackson Hole appearance as Fed chair offers a chance to push back against expectations for significantly lower interest rates. 10-year Treasuries currently yield 4.31%, while gold trades at $3,324 an ounce. Brent Crude rose above $66 a barrel, trimming some of the losses from the prior session, after industry data pointed to a larger-than-expected draw in US crude inventories.

US equities fell last night – S&P 500 (-0.6%); Nasdaq (-1.5%) – with a sharp sell-off in large-cap technology shares dragging markets lower and futures indicating further losses. In Asia this morning, equities were mixed: Nikkei 225 (-1.5%); Hang Seng (+0.2%); Shanghai Composite (+1.0%). The FTSE 100 is currently little changed at 9,182.

Sterling strengthened to $1.3510 and €1.1595 as UK inflation hit its highest in 18 months. July CPI of 3.8% once again leaves Britan with the biggest price growth problem amongst the world’s big rich economies. As well as the rise in the headline rate, inflation in services sector – which is watched closely by the Bank of England – accelerated to 5.0% from 4.7% a month earlier. Economists polled by Reuters had mostly expected rates of 3.7% and 4.8% respectively. RPI rose by 4.8%. The data will reinforce the MPC’s cautious approach to cutting interest rates.

Rachel Reeves plans to tax high-value homes to plug fiscal black hole The chancellor may use the autumn budget to end the tax exemption under plans that will be seen as a ‘mansion tax’. While the threshold is the subject of live discussion in the Treasury, officials believe it could raise significant sums of money. A threshold of £1.5m would hit around 120,000 homeowners who are higher-rate taxpayers with capital gains tax bills of £199,973.

Source: Bloomberg

Company News

Yesterday afternoon, Medtronic released results for the three months to 25 July 2025, the first quarter of its financial year to end-April 2026. The figures were slightly ahead of market expectations and the company nudged up its guidance for full-year earnings. Separately, the company has added two new directors after Elliott became a big shareholder. However, the stock was down 3% in US trading hours.

Medtronic is one the largest medical device companies in the world, with products to treat 70 health conditions, including cardiac devices, cranial and spine robotics, insulin pumps, surgical tools, and patient monitoring systems. 

During the latest quarter, revenue increased by 4.8% on an organic basis to $8.5bn. This was the 11th straight quarter of mid-single-digit growth and just above the market expectation ($8.4bn). Growth was broad-based, with multiple franchises delivering good performance.

By region, US revenue rose by 3.5% in organic terms to $4.2bn, while non-US market revenue was up 6.1% to $4.4bn.

The business is split into four ‘portfolios’: Cardiovascular (37% of revenue); Neuroscience (29%); Medical Surgical (25%); and Diabetes (8%). During the quarter:

·       Cardiovascular revenue grew by 7.0% in organic terms, with a high-single digit increase in Cardiac Rhythm & Heart Failure, mid-single digit increase in Structural Heart & Aortic, and low-single digit increase Coronary & Peripheral Vascular.

·       Neuroscience grew by 3.1% in organic terms, with a high single-digit increase in Neuromodulation and mid-single digit increase in Cranial & Spinal Technologies, offset by a low-single digit decrease in Specialty Therapies.

·       Medical Surgical rose by 2.4%, with a low-single digit increases in both Surgical & Endoscopy and Acute Care & Monitoring.

·       Diabetes revenue grew by 7.9% in organic terms as the company enters a new innovation cycle.

As part of its ongoing portfolio management strategy, Medtronic is in the process of separating its Diabetes business into a new standalone public company. The separation is expected to be completed within 15 months through a series of capital markets transactions, with a preferred path of an initial public offering (IPO) and subsequent split-off.

The company is seeing ongoing benefits of its COGS efficiency efforts, although the gross margin fell by 90 basis points at constant currency (CC) to 65.1%. The operating margin fell by 50 basis points at CC to 23.6%, while EPS rose by 2% to $1.26, above the market forecast of $1.23.

The group is undertaking the largest planned R&D increase in its history to accelerate long-term growth and capitalise on a long list of opportunities. There have been around 130 new product approvals in the last 12 months. Cardiac Ablation Solutions revenue increased nearly 50%, including 72% in the US, on strength of pulsed field ablation (PFA) products.

Free cash flow rose by 25% to $584m. The company remains committed to returning a minimum of 50% of free cash flow to shareholders, primarily through dividends and share repurchases. The company is a constituent of the S&P 500 Dividend Aristocrats Index, having increased its payout for 48 consecutive years. The latest annual payment is expected to be $2.84 per share, equating to a yield of 3.4%. During the latest quarter, the company also bought back $123m of its shares.

Guidance for the financial year to end-April 2026 reflects increasing revenue growth contribution from key growth drivers, and increased investment to support their growth, leading to leveraged operating profit growth. Organic revenue is still expected to grow by c. 5%, while adjusted EPS is now expected to be $5.60-$5.66 (vs. $5.50-$5.60 previously). The 1.4% increase EPS range is due the outperformance in Q1 and an improved tariff impact assumption.

Source: Bloomberg