The Week Ahead: US Federal Reserve meeting, UK retail sales; Tesco, Boohoo results

Read our pick of the top stories to look out for this week (14-18 June), and view our key company earnings schedule.

Michael looks back at this week’s price action on equity and FX markets, and looks ahead to the upcoming Federal Reserve rate meeting, as well as the latest UK data from April for inflation and retail sales. He also looks at Tesco and Whitbread, and the key levels on currencies, indices and commodities.

Boohoo Q1 results

Tuesday: Boohoo’s last fiscal year was a year of two halves with the first half notable for a scandal around a supplier factory in Leicester which was operating below the required standards as set by UK Health and Safety, and was also paying below minimum wage levels. The company also saw their Nasty Gal and PrettyLittleThing brands dropped by ASOS, Next and Amazon.

In spite of the short-term brand damage, management appear to have drawn a line under some of these issues, and in March took the decision to drastically cut back on the number of suppliers it uses in its supply chain to 78, down from over 200, as it looked to shore up its battered reputation, and improve its oversight. To further reinforce its governance, the company announced that it would also be setting up a risk committee to oversee supply chain monitoring and compliance. 

Putting to one side the noise around the supply chain issues, the last 12 months saw the business increase the number of active customers to 18m, a rise of 28%, as well as post a 41% boost in revenues to £1.75bn. This translated into a 35% increase in profits before tax to £124.7m. 

Boohoo's guidance in May was cautious, with revenue growth expected to slow to 25%, below market expectations. This lowball number may well have been a way to temper expectations for shareholders ahead of the UK economy reopening, and shoppers going out to hit the high street again and do less online. The shares are currently languishing down near their lowest levels this year. 

UK ILO unemployment (April)

Tuesday: The pound has remained fairly well supported in recent weeks, as the number of people on furlough continues to reduce as the economy continues its reopening process, with this week’s April numbers set to mark a further decline for the UK ILO rate. In March, UK ILO unemployment slipped back to 4.8%, having been as high as 5.1% back in December. It is quite clear that the government furlough scheme is continuing to disguise the underlying effects of the pandemic, which means the very real effects on the UK labour market won’t start to be seen until Q3 at the earliest, as the scheme starts to wind down.

For now, the outlook remains positive, a trend that appears to be manifesting itself in the latest monthly jobless claims numbers which showed another fall in April to 7.2%. This trend of lower claims should continue in May as more businesses reopen, and the economy returns to a much higher level of economic activity. Despite the positivity as we head into the summer months, numbers could still go higher. A lot of jobs that were around over a year ago may not come back, and if next week’s June reopening date slips, then more businesses could fall by the wayside. The Bank of England has already indicated that it expects unemployment to rise, but not by as much as they thought in February when their projections were for a peak of 7.7%. This was adjusted lower at the last inflation report, to 5.2% for this year, and then down to 4.7% in the second quarter of 2022. 

US retail sales (May) 

Tuesday: After a weak end to 2020, US consumer spending has seen a fairly stop start rebound this year, with the significant amounts of fiscal stimulus, helping to drive a rebound in consumption. The first down payment in the form of a new $900bn stimulus plan came in January, prompting a big rebound in retail sales of 7.6%, a seven-month high, and while the February numbers saw a fall of 2.7%, the new stimulus payments that were signed off in March of $1.9trn saw consumer spending rise 10.7%, the best performance since April last year when the US came out of its first lockdown.

Unsurprisingly after such a strong March, the April numbers fell back sharply to 0%, missing consensus of a rise of 1.1%. Having seen the lower-than-expected job gains in the monthly payrolls numbers this comes across as pretty much in line with expectations, and with inflationary pressures rising we could see another weak figure when this week’s May figures are published. While the US is doing well on the vaccine rollout plans and the reopening of the economy, there still seems to be an overriding feeling of caution around consumer spending patterns which appears to be tempering retail sales. Higher fuel prices probably aren’t helping with an expectation of a decline of 0.4%. 

US Federal Reserve rate meeting

Wednesday: When the Federal Reserve last met in April, the central bank acknowledged the recent improvement in US economic data, but also reiterated that they remained a long way short of the type of outcome-based data needed to alter their current policy stance, nixing any prospect of a taper in the near term. Jay Powell’s response when asked one particular question was instructive, one bumper jobs report does not a policy change make, as the March jobs report added 916,000 new jobs to the economy. 

Since then, this figure has been revised lower to 770,000, while Powell also said that there were still over 8m more Americans who were out of a job than there were in February last year, and as such the Fed would need to see “substantial further progress” on its full employment goals, for any change in policy to be considered. 

This holds as true now as it did then. After two successive below par jobs reports in April and May, it is hard to make the case for any type of change in policy, let alone discussion of a taper. The Fed currently believes that the recent increase in inflationary pressures is likely to be transitory, and should fall back as the year progresses, and base effects fall away. For now, it would appear the Fed is on autopilot through the summer, and markets appear to be giving it the benefit of the doubt. It wouldn’t take much for this to change if the data starts to consistently surprise to the upside, which could well see yields spike back up again.

UK CPI (May)

Wednesday: One of the main concerns that has been worrying investors this year has been the potential for a sharp rise in inflationary pressures, and these concerns have become more amplified this year in the wake of supply chain, as well as Brexit related disruption, along with similarly big surges in US and Chinese inflation as well.

These concerns have served to push bond yields up from where they were at the beginning of this year, with a lot more talk about when central banks might look at paring back some of their monetary policy support measures. Rising factory gate and commodity prices have merely served to reinforce these concerns, and we are already starting to see early evidence of having to pay higher prices, notably in terms of higher air fares and other transport costs, however these appear to be merely a symptom of normalisation from the big falls we saw a year ago when the economy went into lockdown, and as such are unlikely to be repeated which means they are transitory in nature.

Food prices more generally haven’t been showing any signs of upward pressure which is probably the more important narrative. That’s not to say we won’t start to see sharp upward moves in headline CPI over the coming months. We’ve already started to see it in PPI which has been trending higher since the end of last year when it was at 0.2% and in April hit 9.9%. If this translates into a leading indicator for CPI, we could start to see a move towards 2% CPI in fairly short order. In April headline CPI jumped to 1.5, from 0.7%, while core prices rose to 1.3%. If the US experience last week is any guide, we could see further jumps in both of these numbers, towards the Bank of England mandated target of 2%.

Whitbread Q1 results

Thursday: When Premier Inn-owner Whitbread reported a full-year adjusted loss before tax of £635.1m at the end of April, shares slipped towards the bottom of the FTSE 100, hitting a three-month low in the middle of May. Since then, there's been a decent rebound. Full-year revenues for 2021 came in at £589.4m, a 71.5% decline from 2020, highlighting how crucial the next few months are likely to be for this hospitality business.

Last June’s successful completion of a £1bn rights issue, and a £550bn green bond three months ago, has managed to give management the flexibility ahead of the full reopening of its UK business last month on 17 May. Whitbread have also been expanding their hotel footprint in Germany, and while we can still expect to see underperformance here, the inability of UK holidaymakers to venture abroad ought to offer Premier Inn the perfect platform to have a good summer season. The company’s packaging of rooms on an individual basis, supplemented with the various meal deal combinations ought to offer a decent platform for a its more touristy locations to offset the low occupancy rates in city centres. Here, the guidance will be just as important as the numbers themselves.

Carnival Q2 results

Friday – TBC:  Like airlines, the cruise ship industry has had a torrid time over the last 12 months, with many false dawns around resumption of normal service. In April, Carnival reported a Q1 loss of $1.95bn, a slightly bigger loss than was expected. Despite this, management said that they have enough liquidity to get back to full operations fairly quickly, with bookings 90% higher in Q1 than they were in Q4 of last year. More encouragingly, bookings for 2022 are ahead of what was a very strong performance in 2019. The company is already hosting a number of UK cruises this summer with six Carnival brands expected to restart in a limited fashion by the summer.

Tesco Q1 results

Friday: Since Tesco reported its full-year numbers back in April, the shares have struggled to make progress. This seems a little surprising when you look at how well management have managed to scale up the business to deal with the challenges posed by the pandemic. Online sales were the biggest growth area, and a doubling of capacity to 1.5m slots per week while sales grew by 77%, helping to push annual sales up to £6.3bn, with home delivery accounting for 79% of online orders.

Management also took the decision to return £535m of business rates relief from the government, as well as forgoing future rates relief, despite the fact that its increase in costs in terms of recruiting extra staff and safeguarding measures came in much higher at £892m. This increase in costs translated into a decline in operating profits of 21.3% to £1.7bn, with full-year profits coming in at £825m, down from £1.03bn. This was still a decent performance when you consider that the likes of Booker which supplies pubs, restaurants and cinemas saw a 40.8% decline in sales, a statistic that is unlikely to be repeated now that the UK economy is on a reopening path.

In April, Tesco said it expected sales volumes to decline as lockdown restrictions ease, however to offset that, costs are also expected to decline as well. Q1's results will show whether that has translated into better margins, and if profits are heading back to last year's levels.

UK retail sales (May)

Friday: Retail sales have slowly been recovering since the -8.2% decline in January, largely as a result of the total lockdown imposed at the beginning of the year. Since then, we’ve seen a coiled spring rebound with a 2.2% rise in February and then a 5.1% rise in March, which was primarily driven by people shopping in garden and DIY centres, as we saw a 16% rise in household goods. 

March also saw a big rebound in clothing sales as consumers looked towards further easing measures in April, along with higher fuel sales as people started to move around more. The direction of travel for April retail sales was even better with a 9.2% rise in the wake of the 12 April easing measures, with the further relaxation in May likely to have come too late perhaps to show up in the May numbers.

Nonetheless, there may have been some forward bookings for hotel accommodation in the lead-up to the May reopening as consumers book time away over the half-term break. If the recent May services PMIs are any guide, it could have been a fairly robust month for consumer spending.

Index dividend schedule

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Selected company results

Company announcements are subject to change. All the events listed above were correct at the time of writing.