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1) UK wages/unemployment (Feb) – 12/04 – the cost-of-living squeeze is no better illustrated than in the gap between wage growth which saw an increase of 4.8%, in January, including bonuses and 3.8% excluding them. On the plus side, this trend of higher wages is set to rise in the coming months, however it won’t even come close to matching the impact of rising prices in the shops, even when the various pay increases announced by various retailers recently. The change in NI insurance thresholds from July will help in the longer term, but as far as the here and now, upward pressure on wages is likely to increase in the coming months, helped by rising vacancies which rose to a new record high of 1.3m for the three months to January. Unemployment also fell back to 3.9% in January and is expected to fall back to its pre-pandemic lows of 3.8%, when this week’s February numbers are released.
2) UK CPI (Mar) – 13/04 – the picture for UK CPI looks set to get even worse for March, even as February CPI rose to a new 30 year high of 6.2%, up from 5.5% in January, while core prices rose by 5.2%. The picture on the retail prices index is even darker, rising to 8.2%, from 7.8%, while the latest set of input prices rose to 14.7%, thus increasing the odds of a double figure print for headline CPI as we head into Q2. In further signs that inflation is becoming more embedded we’re also seeing significant increases in prices away from food and energy. Clothing and footwear prices are up 8.8% year on year, furniture and household goods are up 9.2%, and that’s before we get the various tax rises that are due in the April numbers. These problems aren’t unique to the UK either with March inflation in the EU jumping to 7.5% from 5.9%. This is a huge jump in the space of a single month, and if replicated here could see UK inflation rise by a similar amount, although some of the rise could be mitigated by the better energy mix the UK economy has. Nonetheless, expectations for this week’s CPI are expected to see a rise to 6.7% and potentially closer to 7%, with the very real possibility we could see a test of the 1991 peaks of 8.3% by the middle of the summer. The RPI inflation measure could even retest the 1990 peaks of 10.4% in the next two to three months.
3) US CPI (Mar) – 12/04 – having seen the Federal Reserve pull the trigger on its first interest rate rise since 2018, much has been made of the timeline of how big the next few rate increases are likely to be with the odds increasing of more than one 50bps rate rise occurring in the coming months. The US labour market has continued to go from strength to strength with an unemployment rate of 3.6% and wages growth at 5.6%. In February US CPI jumped to a new 40 year high of 7.9%, while core prices rose by 6.4%. Any prospect that these price pressures might be slowing were hit by the recent sharp rise in prices paid numbers from the ISM manufacturing survey which saw a big jump in March and is expected to translate into a move to 8.4% for March CPI. With US PPI prices still showing little signs of slowing this week’s CPI numbers look set to seal the deal on a 50bps rate move at the Federal Reserve’s May meeting, a move that bond markets already appear to be discounting. The more important indicator is likely to be the direction of travel for PPI which is already at 10% and is expected to go higher to 10.6%, although the gains being seen here have been more incremental in recent months compared to the big jumps we saw at the end of last year, which are now feeding into the recent CPI numbers.
4) Bank of Canada rate decision – 13/04 – it was a little surprising that the Bank of Canada saw fit to defer a rate rise at its March meeting give that in January the central bank warned that inflation was likely to be higher than forecast, through most of this year, and for a good part of next. The fact they didn’t says more about their timidity than anything else especially with CPI at 30-year highs, and the labour market holding up well. With the Fed having raised rates themselves the BoC now has more cover to do the same thing, however they may well come to rue their timidity, and while we can expect to see a 25bps rate rise this week to 0.75%, there is the possibility of a 50bps move to 1% given Friday’s payrolls report and that the Fed is likely to go much harder in May.
5) ECB rate decision – 14/04 – when the ECB met in March, we saw the first signs of real concern that several members on the governing council were having a wobble when it comes to the outlook for inflation. The decision signalled it would be tapering its asset purchase program steadily over the summer, with a view to ending it in Q3. This was a little unexpected as was the ECB removing the language that rates could be lower than they currently are. This move appears to open the central bank’s options with respect to potentially raising rates by the end of this year, although it doesn’t mean that they will, and given the language in its recent minutes there still seems to be a degree of complacency amongst some members of how serious the current situation is. This hawkish pivot merely serves to underline what a bind the European Central Bank finds itself in. With the latest March CPI number surging to a new record high of 7.5% from 5.9% this anxiety is likely to increase further, even if core prices still remain low at 3%. The move higher in prices is even more painful for countries like Poland, Estonia and Lithuania where inflation is well above 10%. While it is easy to ignore the likes of these Baltic states the cries of anguish are now being felt in the bigger Northern European economies like Germany where the numbers are now well above 7% and at post-unification record highs. This is likely to present an enormous challenge for the ECB with an inflation target of 2% that they are missing by a mile, and rising bond yields which are likely to hurt the most vulnerable members the most. Italy is a particular problem in that it can least afford higher borrowing costs at the same time as seeing the biggest rises in annual PPI, which are currently in excess of 41%. The ECB doesn’t appear to have the luxury of doing nothing, even if it wanted to, which means that at some point rate rises could well be coming as soon as Q3.
6) China Trade (Mar) – 13/04 – China’s February trade data showed that export growth was fairly resilient, although it still slowed, rising 16.3% compared to a year earlier, and down from 29.9% in December. Imports were also subdued, rising 15.5%, and down from 19.5% in December. This weakness suggests that higher prices and supply chain disruptions are continuing to have an effect, while various covid restrictions are likely to remain a brake on demand. This looks set to continue in March with lockdowns being imposed across a number of Chinese cities in an attempt to stem the rise in Covid cases. Some industry has remained open in covid secure settings however output is likely to remain limited while oil demand is also likely to fall back as a result of the various restrictions. Exports are set to rise 14%, down from 20.9% in February while imports are expected to fall back from 19.5% to 7%. A set of poor March numbers will prompt speculation of further loosening of monetary policy by the PBOC in the coming weeks.
7) Tesco FY 22 – 13/04 – over the past 12 months Tesco share price has been on a slow march higher, after slipping to its lowest levels since 2016 in February 2021 in the wake of its share consolidation and £5bn payout to shareholders. In January the share slipped back despite another set of solid numbers and raising its guidance for this year. As a result of the outperformance in Q3, Tesco said expectations for adjusted retail operating profits, which were revised up in the H1 numbers to between £2.5bn and £2.6bn, are now expected to come in slightly above that number. Over the last 12 months Tesco has managed to grow its market share to 27.9%, from 27.3% as it consolidated its position, ahead of Sainsbury’s and Asda, as Q3 group sales rose by 2.4% on a like for like basis compared to a year ago. UK retail, unlike most of its peers, saw an increase of 0.2%, and though this was below expectations of 0.6%, this is still impressive when compared to the tough comparatives of last year, and on a 2-year basis this was higher by 6.9%. Its Ireland operation proved to be the laggard in Q3 with a 3.3% decline year on year, although on a two-year basis, sales were up by 7.8%. Its Booker operation stood out with an in excess of 16% increase in sales on both a 1- and 2-year basis, as the reopening of restaurants, cinemas, and bars, and catering helped to boost the numbers, despite the disruption of December, and could also be a key contributor in Q4 as the UK’s number one food retailer reinforces its position at the top of the UK food chain. As we look ahead to this week’s full year numbers, costs are likely to be a key focus, as is the outlook which is likely to be a big challenge in the face of competition for staff, rising supply chain costs, and the squeeze on consumer incomes which is likely to squeeze supermarket margins. Tesco has already announced a 5.5% increase in pay for its staff, and looks set to increase this further, while fuel costs are also likely to add a big chunk to its cost base for its delivery operation.
8) easyJet Q2 22 – 12/04 – easyJet’s share price hit its lowest levels since November 2020 in early March over concerns that surging oil prices and rising prices in the wake of the Russian invasion of Ukraine would deter overseas travel. The big sell off from the February peaks at 727p to the March lows at 417.5p has only been partially reversed with the shares back to where they were at the start of this year. In January, when the airline posted its Q1 numbers, revenues came in at £805m, well above most consensus estimates, with losses almost halving from this time a year ago, coming in at £213m. The number of aircraft in service was 251, above the 152 a year ago, with almost 11.9m passengers carried. The load factor dropped off sharply in December to 67% from 81% in November, however as far as the outlook is concerned this should have improved in Q2, although the recent absenteeism disruption caused by Covid infections could well have had an impact. Fuel costs are 60% hedged at $504 per metric tonne, compared to the current price which is much higher, with the airline saying that Q4 capacity on sale is close to 2019 levels, with an expectation that the current quarter would come in above 67% of 2019 levels.
9) JPMorgan Chase Q1 22 – 13/04 – JPMorgan Chase share price hit record highs back in October last year, and was back within touching distance of those peaks when the bank released its Q4 numbers back in January, however the shares slumped sharply in the wake of those numbers mainly due to concern over rising costs and subdued loan demand. It’s been an increasing concern amongst investors for some weeks now that rising costs as well as rising prices could well impact bank trading revenues and profits in the coming months. JPMorgan’s Q4 numbers served to reinforce those concerns, despite another decent quarter. Revenues came in at $30.35bn beating expectations of $30bn, while profits came in at $3.33c a share, with the bank releasing another $1.8bn of reserves. In terms of the overall business, FICC sales and trading revenue came in below expectations at $3.33bn, as did equities and sales trading, which saw $1.95bn. Investment banking performed better with $3.21bn, which was pretty much in line with expectations, however the big item for investors was a big increase in costs to $17.9bn, a rise of 11%, pushing the total expenses number for the year to $71bn. The bank has put this increase down to an increase in compensation costs as it looks to hang onto its staff. On the retail side the banks’ lending operations have seen declines in home lending and personal credit. It would appear higher rates have prompted a 26% fall in home lending revenue to $1.1bn, with credit card and auto loan demand revenues falling 9% to $5bn. It is these numbers which appear to be on a downward path, as well as the fact that profits won’t be boosted by the adding back of loan loss provisions which has prompted a reassessment of US bank share price valuations more broadly. In total for the whole of 2021, JPMorgan made a profit of $48.3bn, a number which they will do well to match for 2022, especially given that any exposure to Russia is expected to see losses of $1bn.
10) Citigroup Q1 22 – 14/04 – Citigroup has seen some of the biggest falls in recent months when it comes to a retreat off its 2021 peaks, with the shares down over 30% since last June, with the shares close to 18-month lows. CEO Jane Fraser, who took over in March 2021 has had one of the harder tasks for bank CEOs over the last 12 months managing a bank that is in the midst of a significant re-organisation, while trying to keep shareholders happy. The bank's Q4 numbers were a mixed bag. with FICC Sales and Trading, and equities sales and trading revenue falling short of expectations at $2.54bn and $785m respectively. Investment banking and advisory have performed better, coming in at $1.85bn and $571m, helping to push total revenues above expectations to just above $17bn. The retail business also saw a big decline in revenue, with revenue falling to $1.3bn in services, while mortgage lending fell back too. Costs also came in higher than expected partly due to taking a $1.2bn charge on its South Korean operations, although profits came in better than expected at $1.99c a share. Given the banks position as one of the bigger US domestic lenders it, along with Wells Fargo is one of the key barometers of the US housing market, with this week’s Q1 numbers likely to paint a troubling picture given where current US mortgage rates are right now, and are expected to go in the months ahead. Investors will also be looking to progress on the business split which was announced in January, and which appears to have caused concern that Fraser is overcomplicating the task of reorganising the bank. A new unit called Legacy Franchises is set to be created and which will be all the business units they are looking to get out of. The rest of the business is set to be split into two divisions, Personal banking and Institutional banking. Personal banking looks set to be split into US personal banking, and global wealth management, while the institutional side will include investment banking, markets and services. Profits are expected to come in at $1.71c a share, however look for an increase in costs as the restructuring gets under way, while we could also see losses as a result of any Russia exposure.
11) Goldman Sachs Q1 22 – 14/04 – despite a record year Goldman Sachs share price has slipped back from the record highs seen back in November, falling over 20% to its lowest level since March last year, earlier this year. The main Q4 headlines saw net revenues come in at $12.64bn and EPS of $10.81c a share. The EPS number was down from Q3, as well as the same quarter a year ago, with the bank pointing to an increase in headcount of 8% in 2021, which has helped contribute to an increase in operating expenses. Q4 trading revenue came in short at $3.99bn, below expectations of $4.27bn, as did equities and sales trading which came in at $2.12bn, well short of forecasts of $2.47bn, and also below 2020 levels. The Investment banking division turned in a record quarter with revenues of $3.8bn, however concerns over the outlook for 2022 appear to be behind the recent declines, as the one-off pandemic effects subside and investors start to mull the prospect of tighter margins, and the uncertainties that multiple rate increases, and surging inflationary pressure put on the prospects for all of their business divisions. Q1 profits are expected to come in at $9.46c a share. As with other US banks, Goldmans does have exposure to Russia which could also impact on profits.
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