US Nonfarm Payrolls, US PCE, EU CPI, AG Barr, Walgreens Boots earnings

US non-farm payrolls – 01/04 – The most recent US payrolls report was by all accounts a fairly decent one, although the number was of lesser importance given that we already knew that the Fed was going to raise rates come what may when they met in March. Nonetheless the headline number smashed expectations of 415k, coming in at 678k, while January was revised modestly higher to 481k. During that same week the ADP payrolls report saw a huge revision from -301k to 509k, an 810k swing from negative to positive, altering the picture for the US labour market substantially. The unemployment rate also fell back, slipping to 3.8%, while in an extremely encouraging development the participation rate rose to 62.3%, its highest level since March 2020, when we were at 62.7%. This trend needs to continue if we are to get back to the 63.4% level we saw in February 2020. The only cloud on an otherwise positive report in February was a slide in the average hourly earnings data from 5.5% to 5.1%, which at a time of rising inflation is probably not what you want to see if you are concerned about the rising cost of living. This week’s payrolls report for March is expected to another strong month for hiring patterns. Vacancy levels still remain high at over 10m jobs, while weekly jobless claims remain close to 50-year lows. As such expectations for this week’s payrolls report are for another 450k jobs to be added, while ADP is forecast to see another 400k jobs. The unemployment rate is forecast to fall to 3.7%, and average hourly earnings to move higher, up from 5.1% and back towards 5.5%.

US Consumer Confidence (Mar) – 29/03 – US consumer confidence has been on a downward track for several months now; however, it’s not been particularly reliable indicator of consumer spending patterns. The last two months have seen a sizeable rebound in US retail sales yet little of that has been reflected in consumer confidence surveys, while forward inflation expectations have gone up. Quite simply while US consumers may be spending more, their concerns about the economy are rising due to surging energy prices. In February we saw consumer confidence slide back to 110.5 from 111.10 and is expected to fall further to 107.80 in March, on the back of continued sharp rises in energy and food prices.

US Core PCE Deflator (Feb) – 30/03 – As expected we saw the Federal Reserve raise rates by 25bps at their March meeting, however some people on the FOMC like St. Louis Fed President James Bullard wanted to go faster and harder when it comes to tightening monetary policy. In a recent post on the St. Louis Fed website Bullard argued that the Fed funds rate needed to be at 3% by year end due to core PCE being over 4% higher than the Feds target rate of 2%. While he is probably in a minority on this point the Fed has indicated it wants to see another 6 rate rises this year, and that at least one of these is likely to be a 50bps move, probably in May. A strong core PCE is likely to increase the odds of this happening. In January we saw the PCE Deflator rise from 5.8% to 6.1%, while core PCE rose to 5.2% from 4.9%. This weeks February numbers are expected to see a further increase in underlying prices with PCE Deflator set to rise to 6.4% and PCE Core Deflator to rise to 5.5%.

US Q4 GDP final – 30/03 – The most recent revision to US Q4 GDP saw the US economy bounce back strongly after a fairly disappointing Q3. A rebound in hiring has certainly helped, as well as a strong recovery in both manufacturing and services activity, despite the end of the year Omicron disruption, which saw weekly jobless claims rise sharply. It appears that US companies used Q4 as an opportunity to front run potential problems around supply chain shortages and disruption, by ordering early and front running demand and rebuilding their stock ahead of the Thanksgiving and Christmas period. As such we can expect to see this week’s final iteration of Q4 GDP to get revised higher again, from 7% to 7.1%, despite weak personal consumption rates.

Global Manufacturing PMIs (Mar) – 01/04 – After a weak finish to 2021 economic activity in Germany picked up in the first two months of this year, with both manufacturing and services activity performing well. This doesn’t chime with some of the industrial production and factory gate prices, which has been weak, and with input costs surging since the end of last year, one has to question how reliable some of this latest PMI data actually is. The latest factory gate prices for February showed a record rise of 25.9% year on year, while the same measure in Italy hit 41%. This direction of travel is expected to continue for German, as well as French factory gate prices, and is likely to prompt shutdowns in some of Germany’s key industries, whose key export markets are in China, as well as Russia. The recent flash PMI reports from Germany and France have seen manufacturing and services activity slow. Expectations for March are for Germany manufacturing to come in at 57.6, France is expected to slip back to 54.8, from 57.2. Spain and Italy PMIs are also expected to see a slowdown in manufacturing activity.

EU Flash CPI (Mar) – 01/04 – The most recent EU CPI numbers saw prices rise to a new record high of 5.8% in February, although on a core basis prices are still subdued at 2.7%. The weak nature of core prices does appear to offer the ECB slightly more wriggle room when it comes monetary policy, although there is a larger quorum of ECB policymakers calling for tighter policy sooner rather than later. That said with input prices surging across the board, and rising in excess of 25% in Germany and Italy according to recent data, this week is set to see EU CPI surge above 6% with expectations of a move to 6.3% and a new record high. Core prices will also start to play catch up as inflation starts to become more embedded, with expectations of a move to 3.1%. This continued inflationary surge will make it increasingly difficult for the ECB to push back on the prospect of rate hikes later this year, and is likely to put increasing upward pressure on borrowing costs for the more highly indebted parts of the EU area like Italy.

AG Barr – FY21 – 29/03 – In its previous financial year Irn Bru maker AG Barr saw profits before tax fall to £32.8m with revenues also lower at £227m, as the closure of pubs hit sales, however there is the hope that the reopening of pubs and hospitality over the summer will see a decent uplift as the UK economy returns to normal, and mark a significant improvement on its fortunes for the new financial year. In its most recent trading update back in February the company said that trading for the year was expected to be well above last year at £267m, and was ahead of the guidance given in Q3, while profits before tax are expected to come in at around £41m. The revenue levels are also above the levels seen in 2019 pre-pandemic, yet the shares have made little if any progress over the last 12 months, with the shares only modestly higher. Operating margins have also improved and are expected to increase from 14.8% to 15.6%, despite higher levels of commodity price inflation which might impact on profits going forward.

Bellway H1 22 – 29/03 – The housing market has been going great guns over the last 12 months, unlike the share prices of UK housebuilders, which have struggled to make meaningful gains. Bellway’s share price is one of those that has seen its share price slide back over the course of the last year or so. At its most recent trading update Bellway reported that underlying demand was strong with reservation rates up by 5.8% to 202 per week, with cancellation rates running at 13%, while help to buy fell to 18% of total reservations, a sharp reduction on the 41% seen in 2021. H1 revenue is expected to rise by 3% to £1.77bn, with H1 completions rising to 5,694 from 5,656, on an underlying operating margin of 18%. The order book had a total of 6,628 homes with a value of £1.94bn, with average selling prices expected to rise by 2.8%. Bellway is expected to say that its on course to increase output by 10% this financial year, with further growth in 2023 to around 12,200 homes.

Walgreens Boots Q2 22 – 31/03 – The US drugs retailer, who also own Boots in the UK, has been at the forefront of the US vaccine rollout. During Q4 Walgreens administered 13.5m vaccine, helped by a $5.2bn investment in VillageMD, a primary care company that is opening clinics inside Walgreens stores. This investment appears to be part of a strategy to transform itself into a health care company, as opposed to a pharmacy in a manner that can see doctors write out prescriptions on the premises. When Walgreens reported its Q1 numbers its shares slipped back despite beating expectations on revenues and profits. Revenues came in at $33.9bn and profits came in at $1.68c a share, with the company raising its forecasts for the year, as people got booster jabs, as well as buying test kits. The number of vaccinations in the quarter rose to 15.6m, however the company warned that costs were also rising, with wages up about $120m, as the competition for workers increased. Its Boots business also a decent improvement in sales, a rise of 16.3%, with online driving the bulk of that improvement. There has been chatter in recent months the Walgreens is looking to offload its Boots business in a deal that could be worth as much as £7bn, with some private equity buyers said to be interested, including US asset manager Apollo Global Management. As a key part of the UK’s health infrastructure and with 2,200 branches, expect any possible deal to attract the interest of the government as part of its own health strategy, given that any buyout could result in store closures. Profits are expected to come in at $1.34c a share.

Micron Technology Q2 22 – 29/03 – Since Micron released its Q1 numbers the shares have slipped back, despite a decent set of numbers. Profits in Q1 came in at $2.16c a share, on revenues of $7.69bn, and a rise of 33% from the same quarter a year before. Dynamic Random Access Memory (D-RAM) sales accounted for 73% of total sales in the quarter, which isn’t too surprising since D-RAM is the most commonly type of memory used in PCs. In terms of its guidance for Q2 the company said it expects to see revenues of $7.5bn, with gross margins expected to be at 46%, and operating expenses of $975m. Micron cited as risks tightness in supply chains, although it did expect to see an improvement, however this was before events in eastern Europe, and the Russian invasion of Ukraine, which may well pose a further challenge. Profits are expected to come in at $1.95c a share.