Read our pick of the top stories to look out for in the week commencing 24 January 2022, and view our key company earnings schedule.
OUR TOP THREE EVENTS FOR 24-28 JANUARY 2022:
US Federal Reserve rate meeting – Wednesday
In December the US Federal Reserve announced plans to speed up the pace at which it cuts its monthly asset purchases, bringing its pandemic-era emergency quantitative easing programme to an end in March, a few months earlier than originally envisaged. Starting in January, the speed of tapering will increase from $15bn to $30bn a month, as the Fed adopts a more hawkish outlook in its efforts to tackle rising prices – US inflation, as measured by the consumer price index (CPI), soared to 7% in December, an almost 40-year high. Fed officials also outlined their expectations for three interest rate hikes in 2022, and a further three in 2023. However, the tone of the Fed’s statement and chairman Jay Powell’s press conference still suggested that they regard the current high levels of inflation as transitory, a word not used explicitly but alluded to in references to supply and demand imbalances and the reopening of the economy. That said, the shift towards a more hawkish attitude showed that the Fed was alive to the risk of higher prices and would be ready to act if necessary.
In January the story has moved on, with the publication of the minutes from the Fed’s December meeting spooking investors. The minutes revealed that members of the policy-setting Federal Open Market Committee (FOMC) held a lengthy discussion on reducing the size of the balance sheet after the first rate hike. This prompted concern on Wall Street that the Fed might act too quickly to normalise policy. The Fed’s change of tone over the last six months is a sign that Fed officials sense that they might be behind the curve when it comes to dealing with inflation. Fed members have recently admitted that they are open to more than three rate rises this year if inflation worsens – a situation that would have been inconceivable in September, when the prospect of more than two rate rises was met with concern.
Wednesday’s Fed meeting is likely to serve as a staging post en route to the first rate rise, which markets expect to come in March. Discussions are likely to centre around the extent of the rate rise – namely, whether to raise rates by 25 or 50 basis points from the current near-zero level – and the scope and timing of any balance sheet reduction. The Fed’s guidance has led many economists to expect a 25bps rise. Some have asked why the Fed, given its concerns about inflation, would wait until March to raise rates, speculating that a hike could be announced this month. While this is a valid point, such a move would fly in the face of the Fed’s guidance that rate rises can begin after the end of tapering in March. The Fed is likely to stick to that script, as raising rates sooner could send the message that Fed officials are more worried about inflation than they have let on.
Tesla Q4 results – Wednesday
The electric vehicle manufacturer posted another record profit in Q3 of $1.86 a share, beating expectations of $1.67. Revenue came in at $13.76bn, another record, but missed expectations of $13.91bn. Automotive margins improved to 30.5% from 28.4%, with the company delivering just over 241,000 cars during the quarter, an increase of more than 40,000 on Q2. About 96% of those deliveries were Model 3 and Model Y. Since the company announced its Q3 results in October, the Tesla share price has climbed roughly 20%, while Tesla’s market capitalisation now exceeds $1trn. Investor sentiment was boosted by the announcement at the end of October of an order worth $4.2bn for 100,000 cars from the vehicle rental company Hertz, although it has since transpired that the deal has not yet been signed.
It was certainly a busy Q4 for Tesla, with Elon Musk selling 10% of his stake in the business to pay a large tax bill, as sales continued to improve. In January Tesla announced that it delivered 308,600 vehicles in Q4, up 28% compared to Q3, setting another single-quarter record. Again, roughly 96% of deliveries were Model 3 and Model Y. Profits for Q4 are expected to come in at $2.24 a share.
The Q4 figures mean that Tesla delivered a total of 936,172 vehicles in 2021, with the company hoping to push past the 1m mark in 2022. Musk said in October that he was looking to increase production by more than 50% annually. Those efforts are set to be fuelled by new manufacturing capacity, as Tesla plans to open its plant in Austin, Texas soon. The plant will help ramp up production of Model Y cars, though Cybertruck production appears to have been pushed back to 2023. The plant near Berlin is also expected to be fully operational later this year.
Apple Q1 results – Thursday
As we await Apple’s results for the three months to December – typically Apple’s best quarter, as it covers the Black Friday sales and pre-Christmas shopping period – it seems increasingly difficult to gauge what would constitute a decent quarter for the tech titan. In Q4 revenue fell short of expectations, coming in at $83.36bn, but that’s still an impressive number. Like other tech manufacturers, Apple has had to contend with supply chain disruptions and chip shortages in recent months. The company cut production of iPhones by 10m units in Q3. Partly as a result of this, Apple’s biggest problem in Q4 was meeting demand for its products. CEO Tim Cook said that various supply issues cost Apple $6bn over Q4, with iPhone revenue coming up short at $38.87bn during the quarter, below the consensus estimate of $41.6bn. Mac revenue also missed expectations, coming in at $9.18bn, versus an estimated $9.31bn. On the other hand, iPad revenue was better than expected, coming in at $8.25bn, beating estimates of $7.16bn. Services, on which Apple is increasing its focus, saw another record performance, generating $18.28bn, beating forecasts of $17.57bn. Apple also announced a raft of new product upgrades in Q4, with the newest iPhones, iPads, Watches and Macs not shipping until late November and early December. This could boost the Q1 numbers, with profits expected to come in at $1.89 a share.
MORE KEY EVENTS (24-28 JANUARY):
Monday 24 January
Germany, France flash PMIs (January)
German services activity slipped into contraction territory in December, with the purchasing managers’ index (PMI) for the sector dropping to its lowest level since February, as the German economy was negatively affected by a disjointed regional government response to Delta outbreaks. The situation was then compounded by the spread of the Omicron variant. While the services sector has struggled, manufacturing activity has proved more resilient, ending last year with a PMI reading of 57.4. However, that number doesn’t chime with industrial production and factory order data, which have been poor. Earlier this month Germany’s Federal Statistical Office estimated that the country’s economy had shrunk by between 0.5% and 1% in the final quarter of 2021, a worse performance than that of peers such as France and Italy. The decline was attributed to supply chain disruptions, higher energy costs, and rising Covid infection rates. Meanwhile, in France, economic activity has remained robust, with both services and manufacturing activity steady over the past few months. This trend looks set to continue, although virus levels have been high in the past few weeks, possibly constraining the services sector.
UK flash PMI (January)
December brought a sharp fall in UK services sector activity, with PMI falling to 53.6 from 58.5 in November, as a result of the government’s plan B restrictions that were introduced mid-month to combat rising cases of the Omicron variant. Limits on socialising indoors hit pubs and restaurants, with many venues reporting high numbers of cancelled bookings. Some retail outlets were also affected. In January, we’re expecting to see a post-Christmas and New Year rebound, as Covid cases have begun to fall. Meanwhile, manufacturing activity remained steady throughout the final three months of last year. Selling price inflation hit a record high in December, while new orders and employment also rose.
Tuesday 25 January
Microsoft Q2 results
Since reaching record highs in excess of $340 in November and December, the Microsoft share price fell back to around $300 in January. That’s despite Microsoft’s strong performance in 2021. The company posted record revenue of $46.15bn in Q4, driven by a 51% rise in revenue from Azure, Microsoft’s cloud computing service which competes with Amazon Web Services. Revenue from Microsoft’s Intelligent Cloud segment totalled $17.38bn. Company revenue declined on a quarterly basis in Q1, but still beat expectations, coming in at $45.32bn, a rise of 22% year-on-year. Its Azure and Intelligent Cloud business contributed revenue of $16.96bn, up 31% compared to a year ago, while personal computing and gaming revenues grew 12% to $13.31bn. This is expected to pick up in Q2, driven by the rollout of Windows 11 and increased revenue from Office 365. For Q2 Microsoft expects to post record revenue of more than $50bn, with estimates ranging from $50.15bn to $51bn. Profits are expected to come in at $2.32 a share.
Moderna Q4 results
It’s been a disappointing few months for the Moderna share price – having come within touching distance of $500 a share in August, the stock closed at $167.52 on 20 January. The share price plunge is mainly due to concerns that new antiviral pills and other treatments for Covid will dampen demand for Moderna’s vaccine. These concerns appeared to be validated by Moderna’s Q3 results, which showed that the vaccine maker missed on revenue expectations, leading the company to cut its full-year guidance. Revenue came in at $4.8bn, below expectations of $5.86bn, after the company delivered 208bn doses. The company also lowered its vaccine production forecasts for this year to between 700m and 800m doses. Moderna said it was now expecting sales of between $15bn and $18bn for the year, down from $20bn, with an increase to between $17bn to $22bn in 2022. Despite the recent pullback, the shares are well above their pre-pandemic levels, but any further negative news could put the shares under further pressure. Profits are expected to come in at $9.17 a share.
Wednesday 26 January
Fed rate meeting; Tesla Q4 results (see top three events, above)
Thursday 27 January
US Q4 GDP
The US economy grew by an upwardly revised 2.3% in Q3, marking a slowdown from growth of 6.7% in Q2. This week’s initial estimate for Q4 is expected to deliver a significant improvement on Q3, highlighting an uneven recovery, with growth driven by rising employment levels and a strong recovery in both manufacturing and services activity. Economic growth is likely to have slowed in December because of the spread of Omicron, with consumer spending also likely to have fallen. The Institute of Supply Management (ISM) survey showed that services activity hit a record high in November, while manufacturing remained steady. In October, consumer spending hit its highest level since March as people brought forward their Christmas shopping plans. This is likely to have tailed off in December, as Omicron outbreaks caused staff shortages and restricted economic activity. Despite all this, the US economy is expected to have grown 5.8% in Q4.
Diageo half-year results
When drinks giant Diageo updated the markets in November, the shares pushed up to new record highs of around 4,100p, as the company upgraded its full-year guidance for 2022. The company says it expects to see organic net sales growth of 16% in the first half of 2022. In addition to that, over the period from 2023 to 2025, the company expects to see organic net sales growth of 5% to 7%, and operating profit growth of 6% to 9%. Since the start of the year the shares have undergone a bit of a correction, closing at 3,745p on 20 January. It remains to be seen whether the upcoming half-year numbers will put the Diageo share price back on an upward path.
Robinhood Markets Q4 results
The initial optimism around Robinhood Markets’ IPO last year pushed its shares from $38 to above $80 in the first week of trading, but since then the wheels have come off in spectacular fashion for the Robinhood share price. The stock’s weakness was exacerbated after its Q3 earnings report – revenue missed expectations as a collapse in crypto trading and meme stock activity saw trading turnover plunge. Total revenue for Q3 came in at $364.9m, well short of the $423.9m estimates. Crypto revenue fell to $51m, down from $233m in Q2. This sharp decline was a particular worry, given that Bitcoin had hit record highs. If people don’t trade the cryptocurrency when it’s breaking records and hitting the headlines, one wonders when they will. Losses in Q3 came in at $1.32bn. This and the recent declines in cryptocurrencies don’t bode well for the company, which has warned that Q4 revenue could be as low as $325m. With the shares now at record lows – they closed at 13.69 on 20 January – the bar may well be low enough to trigger a surprise uplift. Q4 losses are expected to come in $0.39 a share.
Friday 28 January
US PCE deflator (December)
Inflationary pressures might be starting to plateau in the US, if recent slowdowns in the growth rate of CPI and PPI are to be believed. US central bankers will certainly be hoping so, given how wrong their characterisation of inflation as “transitory” has proved to be. The US producer price index for December was 9.7%, down from 9.8% in November, in a sign that supply chain pressures might be easing. Wednesday’s Fed meeting should shed light on the FOMC’s current thinking regarding inflation. However, on Friday Fed members will be keeping a close eye on the latest reading of their favourite measure of inflation, the core personal consumption expenditure (PCE) deflator, for further signs that price pressures are easing. Core PCE increased from 3.7% in September to 4.2% in October, and 4.7% in November. It could rise to 4.8% in December, which would be its highest level since 1983.
US personal spending (December)
Until now, US consumers haven’t appeared to feel the effects of the rise in the cost of living, but that could be about to change. Personal spending has remained strong over the past few months, though we can expect spending growth to slow to 0.1% in December, the lowest level since July, as many US consumers cut back on their spending in the leadup to Christmas due to the spread of Omicron.
Index dividend schedule
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Selected company results
|Monday 24 January||Results|
|Bank of Hawaii (US)||Q4|
|Tuesday 25 January||Results|
|American Express (US)||Q4|
|Capital One (US)||Q4|
|General Electric (US)||Q4|
|Johnson & Johnson (US)||Q4|
|Lockheed Martin (US)||Q4|
|Verizon Communications (US)||Q4|
|Wednesday 26 January||Results|
|Hargreaves Services (UK)||Half-year|
|Levi Strauss & Co (US)||Q4|
|Thursday 27 January||Results|
|IG Group (UK)||Half-year|
|NCC Group (UK)||Half-year|
|Rank Group (UK)||Half-year|
|Robinhood Markets (US)||Q4|
|Friday 28 January||Results|
Company announcements are subject to change. All the events listed above were correct at the time of writing.
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