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- EU CPI (Mar) – 21/04 – with the ECB starting to taper its asset purchase program, pressure is increasing for the central bank to outline a plan for raising rates as EU CPI hits new record highs at 7.5%. This is a huge jump on the 5.9% we saw in February and serves to highlight the challenges facing the European Central Bank. PPI prices are also trading at record highs and while core prices are lower when food and energy are stripped out at 3%, this is little comfort to EU consumers who need to eat and move about. Businesses are also struggling as they have to contend with the same challenges when it comes to economic output. EU CPI is expected to be confirmed at 7.5%.
- UK Retail Sales (Mar) – 22/04 – UK consumer spending saw a strong rebound in January, after the -0.4% slowdown seen in December. Not only did fuel sales recover, but we also saw a strong rebound in household goods and furniture, with high street sales showing a decent pickup, as 2022 got off to a decent start with a 1.9% rise. This slowed in February as retail sales slipped back by -0.3%. On the plus side, we saw non-food sales post a decent gain with clothing sales rising 13.2%, while fuel sales also rose as the relaxing of Plan B restrictions saw an uplift to travel. Online sales fell back as did food store sales as more people went out to bars and restaurants. On an annualized basis sales rose by 7%. The decline in February was a little surprising given that other retail sales measures have looked more resilient with BRC retail sales numbers for February looking strong. The picture for March is likely to remain equally as challenging especially with consumer confidence looking weak and at their lowest levels since November 2020. The latest BRC retail sales numbers for March showed that like-for-like sales declined -0.4% in a sign that consumers were already starting to hold back.
- France/Germany flash PMIs (Apr) – 21/04 – recent PMI numbers would appear to beg the question as how accurate the numbers are, when compared to the corresponding manufacturing and industrial production numbers and various business surveys, which have shown marked slowdowns in manufacturing, as well as services activity. In March we saw manufacturing activity for Germany slow to 56.9 from 58.4, and France to 54.7 from 57.2, still fairly decent numbers. Some have put this down to manufacturers restocking inventory in order to get ahead of sharp increases in prices in April, along with a similar pattern playing out on the services sector. This begs the question whether this can be sustained into April and given the further squeezes being seen in energy prices one has to question whether a decent Q1 performance can be sustained into Q2 as we look ahead to this week’s April flash PMIs.
- Germany IFO Business Climate – (Apr) – 20/04 – against a backdrop of rising costs and factory shutdowns, along with its key export markets of Russia being shut down, and the Chinese economy undergoing a self-induced covid-19 circuit break the most recent March German IFO survey was an absolute shocker. Economic activity in March cratered in the face of surging energy and producer prices, with the Institute claiming that sentiment in the German economy had collapsed, a trend that so far hasn’t been reflected in recent flash PMI numbers. Business climate fell to 90.8 and its lowest level since January 2021, while on the expectations index sentiment fell from 98.4 to 85.1, the biggest single-month fall since March 2020.
- Rio Tinto Q1 22 – 20/04 – has been one of the better performers on the FTSE100 so far this year, with the shares up over 20% year to date. At the end of last year Rio Tinto posted record profits of just over $21bn, a 116% increase on 2020, as well as announcing a huge total dividend of $10.40c a share, an 87% increase on last year. This shouldn’t really be a surprise given the big rises we’ve seen in commodity prices over the last 12 months with copper, iron ore and aluminium in huge demand. In terms of the outlook Rio expressed uncertainty about the outlook for iron ore pricing, along with higher production costs at its Pilbara operation, although the outlook for aluminum and copper was more positive due to their roles in the transition to renewables. The company is coming under pressure from investors to cut the level of indirect emissions after a number of investors expressed concerns about the levels at the recent AGM. In October last year the miner announced a $7.5bn plan to reduce emissions by 2030 without giving too much in the way of details. This pressure for details is expected to be ramped up in the coming months. A month ago, Rio cut all its ties with businesses in Russia, as it took over the remaining 20% stake in Queensland Alumina which it runs alongside Rusal.
- Meggitt Q1 22 – 21/04 – last year UK defence contractor Meggitt was in the news after US defence contractor Parker Hannifin made a £6.3bn bid for the business. Meggitt makes parts for civilian, as well as military aircraft, including the US F-35 fighter jet, with the US company’s move raising questions as to foreign involvement in UK companies that are involved in work that involve UK national security, where the work is done here in the UK. The deal appears to be currently being held up by conversations with the UK government over assurances on keeping jobs in the UK. Historically these types of pledges have proved to be largely worthless and while Meggitt shareholders may be in favour of the deal, there is also a chance it might get blocked by the Competition and Markets Authority (CMA), after the deal was referred by the business secretary in October last year. The investigation was completed at the end of last month with the findings sent to the government. We still don’t know what these findings are with the Cobham, Ultra Electronics deal also on Kwasi Kwarteng’s desk, although the EU has given the green light to the Meggitt deal. Given recent events in Ukraine and Russia’s invasion of it there is a decent chance that both deals could get chopped as governments weigh national security considerations more heavily. In its most recent numbers Meggitt announced that it had returned pre-tax profits of £31.3m, up from losses of £334m in 2020. Revenues fell to £1.49bn, with the company declining to offer guidance for the new financial year, due to still being under the provisions of the UK takeover code. Management said they expected the Parker Hannifin deal to complete by Q3 of this year.
- American Airlines Q1 22 – 21/04 – In Q4 American reported a loss of $931m as a result of the travel disruption over the quarter caused by the Omicron variant, as well as other travel related disruptions, pushing annual losses for 2021 to nearly $2bn. While this was still better than the $9bn loss seen in 2020 it speaks to the challenges still being faced by the travel and leisure sector as we slowly come out of the other side of Covid. For Q1 the outlook does look better, however total revenue is still expected to be over 20% lower compared to the levels it was pre-pandemic. For Q1, revenue is still expected to be down around 20% from pre-covid levels, with other airlines reporting this week like United expected to see similar challenges. Business travel which was a key revenue earner before the pandemic has struggled to recover anywhere close to the levels it was in 2019. Staff shortages have also been a problem with travel peaks stretching existing staff levels to breaking point as the airline looks to rehire staff it let go in the aftermath of the Covid lockdowns. Losses are expected to come in at $2.46c a share.
- Bank of America Q1 22- 18/04 – one of the main trends we saw at the end of last year for US banks was concerns over higher costs, and weaker investment bank revenues. In Bank of America’s case Q4 FICC trading revenue came in short at $1.57bn, well below $1.76bn forecasts. Total revenues came in at $22.06bn almost $2bn higher than a year ago, however the numbers were still below consensus. Profits came in at $0.82c a share, beating consensus of $0.77c a share, with the numbers being boosted by $489m of provisions coming back in. This was a familiar theme last year with bank profits being boosted by loan loss provisions being added back after hefty set asides in 2020. On expenses the bank was more upbeat, saying that while they increased in 2021, they expected them to remain steady through 2022. Since the shares have slipped back sharply, despite a significant increase in US yields since the end of last year. These declines are largely down to concerns over a slowdown in the US economy. Bank of America is one of the US’s largest retail banks, and with the increase in loan rates there is a concern that higher mortgage rates will weigh not only weigh on house prices, but will impact on business lending as well as personal loan demand. The latest US consumer credit numbers for February appear to suggest that this isn’t a problem yet, however if inflation remains persistent, we could see problems later in the year. Profits are expected to come in at $0.75c a share.
- Tesla Q1 22 – 20/04 – when Tesla reported in Q4 it drew down the curtain on a record year for the electric car company. The company posted a record annual profit of $5.5bn but warned that supply chain problems were likely to be a headwind moving into 2022. Since hitting February lows of $700 the shares have rebounded strongly, back above $1,000, however there is a risk that we could well start to slide back again. Q4 profits came in at $2.54c a share, on revenues of $17.72bn, beating expectations on both. Automotive margins remained steady, coming in at 30.6%, with the company delivering 308,600 cars during the quarter, most of which were Model 3 and Model Y, accounting for almost 297k. On an annual basis Tesla produced a total of 936,172 vehicles in 2021, with the hope that 2022 will push that total strongly above the 1m mark, to over 1.3m. For Q1 of this year the company announced earlier this month it had managed to deliver over 310k vehicles, which was another record, however it was below expectations largely down to supply chain disruptions which affected output levels. On the plus side the new plant in Germany has finally opened, albeit later than scheduled, but this should help Tesla boost its production levels as we look ahead to the rest of this year, against a backdrop of rising costs and chip shortages. Investors should also pay attention to any reduction in automotive margins as a result of increases in costs. Profits are expected to come in at $2.27c a share.
- Netflix Q1 22 – 19/04 – the slide in the Netflix share price since the $700 highs back in November last year has been incredibly painful for shareholders, with the shares more than halving. With interest rates set to rise investors are now becoming much more discerning about valuations, and with competition heating up from the likes of Disney+, Amazon Prime and Apple TV+ the slowing growth for subscriber numbers, amidst rising inflation levels is likely to mean consumers might look at cutting back on some of their streaming services. This means content is going to become more important, and is an area which Disney appears to be making good strides in with the addition of Star to its streaming platform. In Q4 Netflix saw a decent set of revenue and profit numbers, with $7.71bn, while profits beat expectations, coming in at $1.33c a share. On subscriber numbers, Netflix fell short of its own estimates of 8.5m, adding 8.28m, although it was above Wall Street forecasts of 8.13m, however its estimates for Q1 were disappointing. For Q1 Netflix said it expected to add 2.5m new subscribers against an expectation of 6.26m, while it also nudged its operating margin for the year down to between 19% to 20%. On revenues, the streaming company said it expects to see $7.9bn, and profits of $2.86c a share, both of which fell shy of what markets were hoping for, with forecasts of $8.12bn and $3.37c a share. Total subscribers at the end of Q4 came in at 221.8m, with the company now saying it expects to become free cash flow positive this year, slightly later that it hoped. For Netflix its international markets are likely to be key drivers for its growth numbers, as they were in 2021, when 90% of its subscriber adds coming from outside the US and Canada. This is an area which Netflix doesn’t appear to have given a great deal of thought to when it comes to hedging currency risk. In its Q4 investor letter Netflix said the stronger US dollar over the last six months of 2021 cost them roughly $1bn in revenue, which it said would be expected to knock 2% off its operating margins. This won’t have improved in Q1 given the gains we’ve seen in the US dollar so far this year. Profits are expected to come in at $2.91c a share.
15
2022-04
2022-04-15
The Week Ahead: UK retail sales, EU CPI, Netflix and Tesla results
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