Morning Note: Market news and updates from Alphabet (Google) and Constellation Brands.

Market News

Bond markets continued to react negatively to ongoing macroeconomic, fiscal, and geopolitical concerns. The yield on the 30-year Treasury briefly went above the 5% level. JGBs joined a slump, with the 30-year yields rising 8 bps to 3.28%. Longer-dated German bond futures slipped for a fifth straight session, while 30-year UK gilt yields rose to a 1998 high. Gold benefitted from the flight to safety, hitting a new high of $3,535 an ounce.

Scott Bessent will start interviewing candidates on Friday to replace Jerome Powell, with 11 contenders in the running, the WSJ reported. Donald Trump said he’ll seek an expedited Supreme Court ruling to overturn a federal court decision that struck down many of his tariffs as illegal. He also ruled out reducing doubled duties on Indian goods.

Trump took aim at Xi Jinping as the Chinese president hosted foreign leaders at a major military parade in Beijing. “Please give my warmest regards to Vladimir Putin, and Kim Jong Un, as you conspire against The United States of America,” Trump said on Truth Social.

France’s finance minister told the FT the government would have to compromise on plans to cut the budget deficit even if the PM is toppled in next week’s no-confidence vote.

Higher bond yields weighed on equities. In the US, major indices fell last night – S&P 500 (-0.7%); Nasdaq (-0.8%). However, Alphabet rose 7% post-market after Google received a favourable judge’s ruling (see below). Apple also gained as it will continue to get more than $20bn annually for default search rights. In Asia this morning, equities slipped: Nikkei 225 (-1.0%); Hang Seng (-0.6%); Shanghai Composite (-1.1%). The FTSE 100 is currently 0.2% higher at 9,135 while Sterling trades at $1.3375 and €1.1495.

Source: Bloomberg

Company News

Last night, Alphabet received a favourable ruling in its online search monopoly case, with the outcome falling well short of the potential remedies feared by the market. The news sent the shares up 7% in after-hours trading.

Alphabet is the public holding company for Google, one of the world’s most recognised and widely used brands. In addition to the core search engine, the group owns digital video platform YouTube, Google Cloud, web browser Chrome, mobile operating system Android, Gmail, Google Maps, AI personal assistant Gemini, Fitbit, autonomous driving company Waymo, drone delivery company Wing, among others.

The group has a strong track record of innovation, leaving it well placed to capitalise on a wide variety of technological themes, such as digital media, e-commerce, video advertising, the cloud, the internet of things, driverless cars, and AI.

The company has seven products with more than two billion users each and another eight with more than 500m users, most of which we believe are far from being fully monetised. The group’s structure allows it to own a portfolio of businesses with different time horizons, while its broad offering provides customer stickiness and a competitive edge. Capital allocation is spread across internal R&D, accretive M&A, and massive shareholder returns.

Political and regulatory headwinds remain elevated. Most important is the ongoing DOJ anti-trust Search lawsuit.

Last year, a US Federal judge ruled that Google acted illegally to maintain a monopoly in search. The anti-trust lawsuit challenged the company’s commercial agreements with search distribution partners Apple, Android OEMs, and other web browsers to be pre-installed as the default search engine.

In addition to a fine, there were a number of potential behavioural remedies including:

-          The company must sell its Chrome browser to a buyer approved by the US government and should not be allowed to re-enter the browser market for five years.

-          Google may elect to fully divest Android to a buyer approved by the US government. If Google chooses to retain control of Android but fails to comply with presented remedies, the government may petition the court to order the divesture of Android.

-          Google should be prohibited from making payments to third parties to make Google the default general search engine in their products, including ending exclusive agreements with third parties such as Apple.

-          The company must share data and search results with rivals to end its monopoly on online search.

-          The company may also be forced to unwind its AI partnership with Anthropic.

However, yesterday’s ruling outlined a set of less onerous requirements on the company:

·       Google will not have to sell its Chrome browser.

·       Google can keep its Android operating system which, together with Chrome, helps drive its market-dominating online ads business.

·       Google is barred from entering into exclusive agreements that would prohibit device makers from preinstalling rival products on new devices.

·       Apple and other device and browser makers can maintain revenue sharing agreements with Google, although they can only be for up to a one-year term.

·       Google must share information with competitors to remedy its online search monopoly and to boost competition in online search. However, the scope is less onerous than the DOJ had requested.

The judge stated that the outcome considered the potential impact on consumers and the rise of AI-driven rivals. Google has said it will appeal, meaning it could take years before it is required to act on the ruling. US regulators say they are now considering their next steps. The case is widely expected to end up in the Supreme Court.

Source: Bloomberg

Yesterday lunchtime Constellation Brands released an unscheduled update in which it downgraded its outlook for its financial year ending 28 February 2026 as a result of soft consumer demand driven by tariff-related price hikes and economic uncertainty. At the mid-point, the rate of sales decline has been raised by 450 basis points and the EPS forecast has been cut by 10%. The US-listed shares were marked down by 7% following the update.

Constellation Brands is a leading international producer and marketer of beer, wine, and spirits, with a portfolio of higher-end brands including Corona, Modelo, and Robert Mondavi. Part of the group’s strategy is to supplement organic growth with bolt-on acquisitions, and to focus on premium, margin accretive, growth opportunities.

Yesterday’s statement highlighted that the group continues to navigate a challenging macroeconomic environment that has dampened consumer demand and led to more volatile consumer purchasing behaviour since the company results on 1 July.

Over the last several months, high-end beer buy rates decelerated sequentially, as both trip frequency and spend per trip declined. Notably, high-end beer buy rate declines for Hispanic consumers were more pronounced than general market declines, which has an outsized impact on the group’s beer business compared to the broader beer category. Despite this, in July the company grew volume share in 49 of 50 states, and in Circana channels the beer business remained the top dollar share gainer in the total US beer category with a 0.4 percentage point increase.

Looking to the group’s second quarter (to end August 2025), the company expects inventory rebalancing at the distributor level to reflect softer consumer trends, and to occur earlier than is typical for its beer business. As a result, Constellation expects the change in shipments to trail the change in depletions in the quarter by 6.0 to 7.0 points, and for shipment volume to generally align with depletion volume for the second half of the fiscal year.

The company has cut its forecast for the year to end-February 2026. Organic net sales are now expected to decline by between 4% and 6%, versus the previous expectation for an outcome between a decline of 2% and growth of 1%.

Beer net sales are now expected to fall by between 2% and 4%, versus growth of between 0%-3%. Beer operating income is now expected to fall by between 7% and 9%, versus growth of 0%-2%. Wine & spirits guidance is unchanged: sales to fall by 17%-20%, with operating income down 97%-100%.

The guidance for comparable EPS has been cut from $12.60-$12.90 to $11.30-$11.60 (down from $13.78 in FY2025), with the target for free cash flow cut from $1.5bn-$1.6bn to $1.3bn-$1.4bn.

Source: Bloomberg