In an action-packed week, central banks in the US and the eurozone will meet to discuss whether to raise interest rates again. We’ll also get an update on euro area inflation and the US non-farm payrolls print for April. It’s an eventful week on the earnings front too, with BP, Shell, HSBC, Lloyds Banking Group and Apple among the household names set to report their latest results.
Our top three economic and company events in order of importance are:
1. Federal Reserve rate decision – Wednesday
A lot has happened since the Fed raised interest rates by 25 basis points in March amid concerns over financial stability and the US banking system. While recent manufacturing data has shown signs of disinflation, the same cannot be said for services data or food prices. This is likely to shape the Fed’s rate decision and its forward guidance.
The jobs market is starting to slow, but not by enough to drag on demand. Recent earnings numbers from the likes of JPMorgan Chase and Bank of America suggest that US consumers remain resilient, while one-year inflation expectations showed a sharp rise in March.
All this suggests that the Fed is likely to raise interest rates by a further 25 basis points on Wednesday, though Fed chair Jay Powell will probably want to keep his options open when it comes to the question of subsequent rate rises. He’s also likely to maintain that there won’t be any rate cuts this year.
2. US non-farm payrolls (April) – Friday
The US economy added 236,000 jobs in March, in line with economists’ expectations. The unemployment rate fell to 3.5%, down from 3.6% in February, while the participation rate rose to 62.6%, up from 62.5% in February. The data suggested that people are returning to the workforce as the cost of living continues to squeeze consumer finances.
The jobs report also showed that average hourly earnings increased 4.2% in the year to March, down from annual growth of 4.6% in February.
With the Federal Reserve expected to raise interest rates by 25 basis points on Wednesday, the latest jobs report should give traders and investors a sense of whether another 25-basis-point rate hike is likely in June.
3. Lloyds Banking Group Q1 results – Wednesday
Shares of Lloyds, up 3.5% year to date, reached a one-year high of 54p in February following the release of the bank’s full-year results, before sliding to a three-month low of around 45p in March as turmoil in the banking sector clobbered valuations. Britain’s biggest mortgage lender has seen its shares underperform over the past five years, even though the group – which also includes Halifax and Bank of Scotland – is more profitable now than when its shares were trading above 70p in 2019.
Lloyds’ full-year numbers showed statutory pre-tax profit of £6.9bn, despite £1.51bn in impairments. Net interest margin rose to 3.22% in Q4, up from 2.98% in Q3, pushing the full-year average up to 2.94%, a 40-basis-point increase from 2021. The bank announced a final dividend of 1.6p, lifting the total dividend per share to 2.4p, an increase from 2p last year. The bank also pledged to buy back £2bn of its shares. Costs were one area of weakness as they rose to £9.1bn in 2022.
Looking ahead, Lloyds expects net interest margin to improve to greater than 3.05% in 2023, up from its previous estimate of 2.8%. Operating costs are set to remain static at £9.1bn, rising to £9.2bn in 2024. The bank paid £1.37bn in tax last year and expects to pay a 27% effective tax rate in 2023, taking into account increases in both the banking surcharge and corporation tax, effective from April.
More key events
Our calendar of selected upcoming economic and company announcements:
MONDAY 1 MAY
No major scheduled events; UK markets closed (bank holiday)
TUESDAY 2 MAY
EU flash CPI (April)
In March, the headline rate of inflation fell to 6.9%, down from 8.5% a month earlier and reaching its lowest level since February 2022. However, the picture on core prices wasn’t as cheery, as they rose by a new record high of 5.7%. Any continued stickiness here is likely to embolden the hawks on the governing council, which on Thursday could raise interest rates by a further 50 basis points and commit to another 50bp hike in the summer.
There are signs that core inflation may have peaked. The more forward-looking PPI numbers have been slowing for several months and should start to feed into core prices soon.
BP Q1 results
This week we are likely to get the usual cacophony of quarterly pearl clutching from politicians about the “obscene” profits being made by the evil oil and gas companies, completely deaf to the fact that it is the same policies enacted by these politicians over the last 20 years that have prompted energy prices to rise in the manner that they have. We start the week with BP’s Q1 numbers and, given the sharp fall in gas prices, as well as lower oil prices, we aren’t likely to see the same level of profits that we saw last year.
In February BP reported a record set of full-year numbers, raised the dividend and announced another $2.75bn share buyback for Q1. As for Q4, underlying replacement cost profit was $4.8bn, down from $8.15bn in Q3. BP attributed the decrease to underperformance in its oil and gas trading division. That said, total profit for the year still came in at $27.65bn, more than double the $12.8bn reported in 2021. While that increase grabbed headlines, profit attributable to shareholders slid into negative territory – a loss of $2.48bn – once the Rosneft write-down costs were taken into account.
Capital expenditure rose to $16.33bn last year, a significant rise from $12.85bn in 2021. Last year BP also reduced its net debt levels from $30.6bn to $21.4bn. Looking ahead, the company announced that it plans to split this year’s investment of between $14bn and $18bn evenly between “transition growth engines” and oil and gas.
This is welcome news given the low amounts BP spent on renewables last year. The big question is how BP defines “transition growth engines”, since liquid natural gas (LNG) could easily be described as a transition energy source as it’s cleaner than coal and oil. The hope is that research and development into hydrogen and other biofuels will start to advance more rapidly. BP also pushed back on the “no new capacity” narrative, saying that new gas resources will be needed to support the energy transition and keep energy prices low. Last year BP paid $2.2bn in UK taxes.
HSBC Q1 results
When HSBC reported a solid set of full-year numbers in February, the shares finished the day at their highest levels since August 2019. In March, however, the shares slipped back, along with the rest of the banking sector, following Silicon Valley Bank’s collapse and UBS’ takeover of Credit Suisse. More recently, HSBC shares have rebounded as sentiment has stabilised.
The Q4 numbers showed that adjusted pre-tax profit rose 92% year-on-year to $6.83bn. Full-year adjusted pre-tax profit increased 3.4% to $24.01bn as full-year revenue climbed to $51.7bn. Net interest margin for the year rose to 1.48%, up from 1.2% a year ago. Total provisions for non-performing loans came in at $3.95bn, with an extra $1.4bn being set aside in Q4.
The Q1 numbers are likely to have been boosted by China’s post-lockdown economic reopening as businesses and consumers in the country began to spend again. That said, because the bank acquired the UK assets of Silicon Valley Bank for £1 during the quarter, the Q1 results could be a mixed bag, especially with financial conditions tightening in the UK as Asian markets pick up.
Uber Technologies Q1 results
Uber shares hit a one-year high after the company’s Q4 numbers were released in February. Revenue in Q4 increased 49% to $8.6bn as gross bookings came in at $30.7bn, a record quarter. Although net income for the quarter came in at $595m, the company posed an eye-watering annual loss of $9.14bn, primarily due to large write-downs on investments in Grab, Aurora and Didi during the first half of the year.
Mobility continued to be the main revenue driver, contributing $4.1bn. However, delivery is quickly catching up as it contributed $2.9bn. Freight brought in $1.54bn. On a full-year basis, bookings were up 28% at $115.5bn, with annual revenue up 83% at $31.87bn.
On guidance, Uber was optimistic. The company projected gross bookings of $31bn to $32bn for the fiscal year 2023. Last month, its sector peer Deliveroo reported that orders in the most recent quarter fell back due to the continued squeeze on consumer incomes, although gross transaction value (GTV) rose on higher prices. Could we see a similar trend at Uber? Its Q1 GTV is expected to come in at $31.47bn, with revenue at $8.7bn. That would equate to a small loss of $0.08 a share.
WEDNESDAY 3 MAY
Federal Reserve interest rate decision; Lloyds Banking Group Q1 results
See our top three events, above
THURSDAY 4 MAY
ECB interest rate decision
Tuesday’s flash consumer price index (CPI) reading for April could help determine whether European policymakers opt to raise interest rates by 25 or 50 basis points on Thursday. Over the past few weeks, several European Central Bank officials have said that there’s a long way to go before the ECB would consider a pause in its rate-hiking cycle.
In particular, the core CPI print for April could underscore the need to maintain an aggressive approach on interest rates. That said, there is a risk that the ECB could overplay its hand given that producer prices have fallen to 13.2%, down from 43.3% in August last year. Indeed, month-on-month readings are now coming in negative.
Shell Q1 results
After rival BP announces its results on Tuesday, attention shifts to Shell on Thursday. Shell’s share price has, like BP’s, slipped back from the highs of early March, primarily due to concerns over demand and lower energy prices.
In February Shell posted a record annual profit of $39.87bn, more than double the 2021 figure and comfortably beating the previous record of $28.4bn set in 2008. In Q4 the integrated gas division performed best, with a profit of $5.97bn. Next best was the upstream business, with a quarterly profit of $3.06bn. The renewables business contributed a profit of $293m, down from $400m in Q3.
Shell set aside $1.9bn in Q4 for the EU solidarity contribution and the UK’s Energy Profits Levy, pushing total charges for the year to $2.3bn. Shell paid a total of $802m in respect of the UK windfall tax.
For 2023 Shell said that it expects to invest between $23bn and $27bn. The company plans to integrate its oil and gas and LNG divisions as part of a broader effort to streamline the business. The renewables operation will be rolled into the oil refining and marketing operations from 1 July.
The Q1 results are expected to show that revenue fell compared to Q4, mainly due to weaker demand and lower prices.
Apple Q2 results
Apple shares held up reasonably well over the last quarter, as the iPhone maker was one of the few tech companies not to announce widespread job cuts. Indeed, Apple stock is almost behaving more like a safe haven asset than a tech company.
The shares pushed up through $150 in Q1 and above the 200-day simple moving average, continuing to rise even as the company reported Q1 revenue of $117.15bn, below the previous record of $123.95bn the year before. This was still a solid performance given the various supply chain disruptions that affected the business at the end of last year.
Profit in Q1 came in lower at $1.88 a share, with a breakdown of the numbers revealing weakness across the board. Sales of iPhones fell short at $65.78bn, against an expectation of $68.3bn, while Mac revenue was also disappointing at $7.74bn, $2bn below expectations. Although iPad revenue beat forecasts, coming in at $9.40bn versus an estimate of $7.78bn, wearables fell short of expectations despite the release of three new Apple watch models and the new AirPods Pro. The results suggest that consumer appetite for incremental upgrades may be waning.
For Q2 Apple said it expects revenue to decline 5%, the first decrease of that scale since 2016. Profit in Q2 is expected to come in at $1.43 a share, with revenue at $92.56bn. It will be interesting to find out whether Apple benefited from the recent banking turmoil, perhaps scooping up customers as it launched a banking service and a savings account with a 4.15% interest rate. To be eligible, applicants must have an Apple credit card.
Paramount Global Q1 results
Paramount shares fell back in February then found a short-term base in March after the company posted Q4 revenue of $8.13bn, slightly shy of expectations. Direct-to-consumer revenue came in at $1.4bn. Streaming service Paramount+ added 9.9m new subscribers during the quarter, taking the global subscriber base to 56m. Pluto, Paramount’s free ad-supported service, had 78.5m users.
For Q1 Paramount said it expects to post an EPS loss, mainly due to a charge of $1.3m related to integration costs of Showtime and Paramount+. Consequently, subscription prices are likely to rise by $2 a month for the premium tier.
At the end of March, the shares got a brief lift on reports that parts of the business could be put up for sale.
Profit in Q1 is expected to come in at $0.10 a share on revenue of $7.45bn. The number of subscribers is expected to have risen by 2.7m.
FRIDAY 5 MAY
US non-farm payrolls (April)
See our top three events, above
INDEX DIVIDEND SCHEDULE
Dividend payments from an index's constituent shares can affect your trading account. View this week's index dividend schedule.
SELECTED COMPANY RESULTS
|MONDAY 1 MAY||RESULTS|
|MGM Resorts International (US)||Q1|
|Vertex Pharmaceuticals (US)||Q1|
|TUESDAY 2 MAY||RESULTS|
|Caesars Entertainment (US)||Q1|
|Dorman Products (US)||Q1|
|Marriott International (US)||Q1|
|Match Group (US)||Q1|
|Molson Coors Beverage Co. (US)||Q1|
|Prudential Financial (US)||Q1|
|Uber Technologies (US)||Q1|
|Western Union (US)||Q1|
|WEDNESDAY 3 MAY||RESULTS|
|Aurora Innovation (US)||Q1|
|CVS Health (US)||Q1|
|Estee Lauder (US)||Q3|
|Kraft Heinz (US)||Q1|
|Lloyds Banking Group (UK)||Q1|
|World Wrestling Entertainment (US)||Q1|
|THURSDAY 4 MAY||RESULTS|
|Endeavour Mining (UK)||Q1|
|Papa John's International (US)||Q1|
|Paramount Global (US)||Q1|
|Regeneron Pharmaceuticals (US)||Q1|
|Virgin Money (UK)||Half-year|
|FRIDAY 5 MAY||RESULTS|
|AMC Entertainment Holdings (US)||Q1|
|International Consolidated Airlines (UK)||Q1|
|Warner Bros Discovery (US)||Q1|
Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.
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