FirstFT: Hedge funds lose $6bn betting against cruise lines and hotels

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Hedge funds have lost more than $6bn this year betting against cruise lines and hotels after underestimating the resilience of US consumers.

Cruise lines Royal Caribbean and Carnival are two of the 10 most heavily shorted companies in the S&P 500 but have confounded short sellers’ expectations by more than doubling in value so far this year.

Short sellers — typically hedge funds — aim to make money by selling borrowed stock and buying it back at a lower price when the shares decline. The sharp rally in cruise lines and other holiday accommodations, however, has left them sitting on $6.4bn of mark-to-market losses, according to data from S3 Partners.

Carnival, Royal Caribbean and smaller rival Norwegian accounted for $2.9bn of the losses. Large short positions in Airbnb, which has rallied 70 per cent year to date, and Booking.com, which is up 44 per cent, have also inflicted big losses.

Many US investors started the year expecting an impending recession, encouraging them to avoid sectors that would be exposed to a downturn in consumer spending.

However, economic growth has remained resilient in the face of higher interest rates, boosting confidence about the chances of a “soft landing” — bringing down inflation without causing a recession.

Here’s what else I’m keeping tabs on today:

• Economic data: US jobs figures are expected to show growth has fallen to its lowest level since 2020, with the labour market slowly cooling after almost 18 months of interest rate rises.

• Saudi-led Ukraine talks: Dozens of countries will take part in a conference hosted by the kingdom to sway developing countries to support Kyiv’s demands for Russia to withdraw troops.

• Results: AP Møller-Maersk, Capita, Commerzbank, Crédit Agricole, Dufry, Royal London, Swiss Re and WPP report.

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. The number of paying subscribers of Apple’s digital services has crossed 1bn worldwide, helping to lift profits by 2.3 per cent year on year last quarter. But while services revenue reached a record high, sales of iPhones, Macs and iPads fell, showing some headwinds remained in the hardware division. Here’s more from yesterday’s results.

2. Exclusive: China’s deal activity in the US has dropped to its lowest level in almost two decades, totalling just $221mn so far this year compared with $3.4bn amassed by this time last year. Here’s how geopolitical tensions are weighing on cross-border financial activity.

3. KKR is in advanced talks with Paramount to buy Simon & Schuster for more than $1.6bn, lower than the $2.2bn agreed by Penguin Random House before merger plans between the two US book publishers were blocked by regulators last year. Read the full story.

4. Donald Trump has pleaded not guilty and blasted “the most evil and heinous abuse of power” during his first court appearance in the latest criminal case brought against him. Prosecutors accuse the former US president of attempting to overturn the results of the 2020 election. Here’s what happened at yesterday’s arraignment — Trump’s third this year.

5. Banks that blacklist customers over political beliefs should be hit with heavy fines, said Jeremy Hunt. The UK chancellor told Britain’s financial regulator to launch an urgent review to find out the scale of “de-banking” and said the practice, exposed by former Brexit party leader Nigel Farage’s spat with elite bank Coutts, was “a threat to your right to express your opinions”.

News in-depth

After the sharpest tightening in monetary policy for 35 years, UK interest rates may finally be close to a peak. That was the message from Bank of England governor Andrew Bailey yesterday, as he set out forecasts for inflation to inch back to the central bank’s target against a backdrop of near-stagnant economic growth.

We’re also reading . . . 

Chart of the day

After a sensible quarter-percentage-point rise, how the Bank of England proceeds on interest rates matters greatly, writes the Financial Times editorial board. But part of the problem is that it is difficult to get a clear handle on how much previous increases are squeezing the economy, and the central bank has admitted it isn’t leaning much on its own internal model.

Take a break from the news

Here are our six films to watch this week, including Paris Memories, a drama by Alice Winocour about recovering erased memories following the trauma of the terrorist attacks in and around the Bataclan concert hall in November 2015.

Additional contributions by Benjamin Wilhelm and Gordon Smith