Interest rates are again in the spotlight, with the US Federal Reserve expected to raise rates by half a percentage point on Wednesday, while the Bank of England is likely to opt for a quarter-point hike on Thursday.
OUR TOP THREE EVENTS FOR 13-17 JUNE:
Wednesday – Federal Reserve interest rate decision
The US Federal Reserve will raise interest rates again on Wednesday, with Fed chair Jerome Powell and other policymakers having indicated that they expect to implement half-point rate hikes in both June and July. Last month, the Fed lifted its benchmark interest rate by 50 basis points to a range of 0.75% to 1%, after a quarter-point increase in March.
Several Fed policymakers have signalled that they want to see the Fed funds rate in “neutral” territory – a level that neither encourages nor reins in inflation – by the end of the year. There is some consensus that a neutral rate could be around 2.5%, with president of the Kansas City Fed Esther George calling that a starting point. However, St. Louis Fed president James Bullard, who earlier this year called for rates to rise to 3.5% by year-end, put neutral at 2%. President of the Atlanta Fed Raphael Bostic has suggested that a neutral rate could be between 2% and 2.5%, while also proposing a pause on rate rises in September.
Whether we see a pause in September is likely to depend very much on the inflation outlook, with the latest surge in May CPI making that prospect much less likely, which means that all of the talk of a 50bps move post Jackson Hole is unlikely to diminish. In March the Fed raised its 2022 inflation forecast from 2.6% to 4.3% – still below current inflation levels. The Fed also raised its 2023 inflation forecast from 2.3% to 2.7%, while downgrading GDP growth estimates to 2.8% in 2022 and 2.3% in 2023. A further upward revision to the inflation outlook this year would be considered hawkish, while leaving it unchanged might suggest that the Fed’s concerns over rising prices are easing.
Meanwhile, the Fed began reducing its $8.5tn balance sheet from 1 June. It is cutting the amount of maturing securities that it reinvests by up to $47.5bn a month, with that cap rising to $95bn a month from September.
Thursday – Bank of England interest rate decision
The Bank of England has raised interest rates at each of its four previous meetings, stretching back to December. At the most recent meeting in May, the Bank’s nine-member Monetary Policy Committee (MPC) raised rates by a quarter of a percentage point to 1% in their latest bid to curb soaring prices.
With headline inflation at 9% and rising, it’s hard to imagine the MPC voting against another 25-basis-point rise when they meet on Thursday, especially as three external members of the MPC – Jonathan Haskel, Catherine Mann and Michael Saunders – wanted to raise rates by 50 basis points in May. Given that the May increase didn’t go as far as these three members had hoped, we can probably assume that the three of them will vote for another rate rise on Thursday. This means that only two more members need to agree with them in order for another rate hike to be implemented. The bigger question is whether the MPC will move to play down inflation expectations like their counterparts at the Federal Reserve, who have become much more hawkish in recent weeks.
Bank of England governor Andrew Bailey has gone to great lengths in recent months to insist that there is little the central bank can do about supply chain problems, which is true, but it’s not something the central bank should be admitting. Another communications failure on his part. That said, he still has a responsibility to focus on what the Bank can do; namely, to inspire confidence that it will manage inflation expectations effectively and support the pound, which has fallen 10% against the US dollar in the past 12 months, exacerbating pressures on the British economy. It’s no good simply proclaiming that high inflation is not the Bank’s fault. For one thing, this isn’t true. Inflationary pressures were mounting long before the Bank belatedly decided to act.
A further rate increase in June arguably became even more likely after the government announced a financial aid package last month to ease the cost of living squeeze and help support the economy over the course of this year. That support will be needed, as the Bank of England’s forecasts paint a dispiriting picture of the UK economy. While this year’s GDP growth estimate remains at 3.75% despite a predicted Q4 contraction of around 1%, in 2023 the Bank expects GDP to contract by 0.25%. The MPC also predicts that inflation will take around two years to fall back to the Bank’s 2% target. We can expect to see a 25bps move, but we really ought to be matching the Fed with a similar 50bps move.
Friday – Tesco Q1 results
Despite a decent set of full-year numbers in April, the Tesco share price has fallen more than 10% year-to-date. Investor caution has been shaped by an uncertain outlook for retailers amid high inflation and the cost of living squeeze. Tesco guided that adjusted operating profits in its new financial year would fall modestly from last year’s £2.83bn. The retailer also pledged to expand its Aldi price-match scheme to 650 lines, alongside various Clubcard promotions.
This determination to increase the pressure on the likes of Aldi and Lidl will inevitably put downward pressure on margins – a challenge also faced by Tesco’s peers, including Sainsbury’s, Asda and Morrisons. Tesco has increased staff wages by 6% in an effort to maintain service levels, while rising fuel prices will increase the cost of its delivery and logistics operations. However, cost-saving measures may go some way towards offsetting these pressures. Tesco is in the midst of a three-year cost-cutting programme that it hopes will generate savings of £1bn.
MORE KEY EVENTS (13-17 JUNE):
Monday 13 June
No major announcements
Tuesday 14 June
UK average earnings (April)
The most recent jobs data showed that the labour market remained tight in the three months to March. Unemployment fell to 3.7%, its lowest level since 1974. The Office for National Statistics added that, for the first time since records began, there are fewer unemployed people than job vacancies. Meanwhile, average weekly earnings including bonuses rose 7%, beating expectations of 5.4%. Without bonuses, earnings grew a more modest 4.2%. Both figures are well below the headline CPI inflation rate of 9%, though the recent government announcement on financial support is intended to ease the pressure on people feeling the cost of living squeeze.
Earnings growth in April is likely to have been fuelled by pay rises that came into effect at the start of the new financial year, including those announced by retailers as they seek to retain staff in a competitive labour market. A significant uptick in earnings growth could provide further grounds for the Bank of England to raise interest rates again when they meet on Thursday.
Wednesday 15 June
Fed interest rate decision
See top three events, above
US retail sales (May)
Consumer spending in the US has recovered well this year, after declining 2.5% in December. In January retail sales grew 4.9%, followed by gains of 0.8% in February, 1.4% in March and 0.9% in April. Growth has been driven resilience in the labour market, despite weak consumer confidence linked to high inflation.
However, there are doubts over how much of the rebound has been fuelled by consumer debt, which increased by $52.4bn in March, having risen by $37.7bn in February. Revolving credit, which is mainly credit card debt, grew 21.4% in the first three months of the year. With interest rates on the rise, this sort of credit growth may not be sustainable.
Estimates suggest that retail sales growth slowed to 0.2% in May. Looking ahead, there is potential for a decline as higher food and gasoline prices eat into demand.
China retail sales (May)
The last two to three months have been difficult for Chinese consumers, who have endured strict lockdowns as authorities sought to implement a zero-Covid strategy. In March, retail sales in China declined by 3.5%, the first decline since July 2020 and the biggest decline since April 2020 when China was coming out of its first nationwide lockdown. April saw an even steeper decline of 11.1%, versus an expected contraction of 6.6%. Expectations for May suggest that retail sales declined by around 7%.
We can probably expect an improvement in the coming months. However, it’s unlikely that we’ll see a V-shaped rebound as China is unlikely to shift its zero-Covid policy, given the vulnerability of its health service to high numbers of infections. After a poor Q1, performance in Q2 could be even worse.
Expectations for China’s economic growth this year are being reined in. At the start of 2022 there was widespread optimism that China’s economy could grow by 5.5%. This goal now looks highly unlikely, given the restrictions that have been in place across China since March. Industrial production fell 2.9% in April, missing expectations of 0.5% growth, and is thought to have contracted 1% in May.
JD Sports full-year results
As recently as November last year, the JD Sports share price was trading at record highs. However, since those peaks the shares have plunged, losing over half their value and hitting a one-year low last month. In January the shares popped higher after the retailer said it expected full-year profits to come in at £875m, well above consensus of £810m. The figure has since been revised upwards twice – to £910m in February, and to £940m in May – but neither upgrade has halted the share price slide.
The shares have been dragged lower by investor concerns over the company’s outlook, with management expressing caution about margins and sales. The revelation that chairman Peter Cowgill had sold 10m shares at an average price of 213.33p per share also weighed on sentiment, although it now transpires that he is stepping down.
Publication of the full-year results was delayed after the Competition and Markets Authority fined JD Sports and Footasylum a combined £5m for breaching an order that barred the two companies from integrating further. JD Sports is reported to be assessing the impact of a forced sell-off of Footasylum on its business.
In May the retailer announced that Q1 trading was in line with expectations, with total sales rising by 5% from the previous year. The company predicts that profits for the new financial year will be at least equal to the £940m expected for its 2022 financial year.
Thursday 16 June
Bank of England interest rate decision
See top three events, above
Boohoo Group Q1 results
After Boohoo reported its full-year numbers in May the shares slipped back towards their lowest levels this year, although they have since rebounded. Full-year revenues were positive, rising 14% to £1.98bn, though the impact of higher costs and lower margins showed up in profits before tax, which declined 94% to £7.8m. CEO John Lyttle blamed the decline on increases in both outbound carriage costs and inbound shipping costs which impacted EBITDA to the tune of £60m.
The retailer also paid out £261.5m in capex as it looks to expand and automate its distribution network. The company plans to open a new centre in the US in 2024 in a bid to consolidate its market share gains. For 2023 Boohoo said it expects to see revenue growth in the low single digits, and adjusted EBITDA margins between 4% and 7%, as it raises prices to offset eroded margins.
Kroger Q1 results
Shares in the Ohio-headquartered supermarket chain have held up reasonably well despite the recent stock market sell-offs of the likes of Target and Walmart. In Q4 Kroger posted revenues of $33bn, which helped push the shares to a record high. Since then, the shares have slipped back on concerns that rising costs could jeopardise Kroger’s earnings guidance for the new fiscal year. The retailer’s outperformance has been helped by its deal with Ocado, which has kept delivery costs down.
Looking forward, the retailer said it expects full-year adjusted same-store sales to rise in the region of 2% to 3% this year, with full-year profits of $3.80 a share.
Adobe Q2 results
Adobe shares hit a two-year low last month, but appear to have found a short-term base, having fallen from record highs of just shy of $700 in November, rebounding from $371 last month. Recent revenue and profits numbers have been solid with the company ending its last fiscal year with total fiscal revenue of $15.79bn, a rise of 23% year on year. The company saw decent growth in both of its business segments, Digital Media saw a rise of 25%, while creative revenue rose by 23%. Full year revenue estimates for the current fiscal year are expected to rise to $17.9bn. In Q1, Adobe also beat expectations on revenue with $4.26bn, and a net profit of $3.37 a share. Adobe did say that revenue would be $75m lower this year, due to halting sales to Russia. Profits are expected to come in at $3.30 a share.
Friday 17 June
Bank of Japan interest rate decision
The Bank of Japan has set itself apart from other central banks by pledging to keep rates low despite rising inflationary pressures. The decline in the Japanese yen year to date reflects this policy of neglect on the part of the central bank. The yen is down over 13% year to date, while national CPI has risen from 0.5% in January to 2.5% in April, the first-time headline inflation has moved above the Bank of Japan’s 2% target since 2015. In the last two months we’ve seen a sharp increase in the headline rate, however in the past when this has happened the surge has been short-lived. The bigger question is whether this time is different? At its most recent policy meeting the BoJ stated it expects “short-term and long-term policy rates to remain at their present, or lower levels”. Those last three words are key, the Bank of Japan is signalling in contrast to the Fed that it has no intention of tightening policy at all, despite the sharp weakening of the yen so far this year, although it does appear that are starting to become less relaxed about the prospect of further yen declines, which might signal some sort of policy shift this week.
Tesco Q1 results
See 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 13 JUNE||RESULTS|
|GB Group (UK)||Full-year|
|Molten Ventures (UK)||Full-year|
|TUESDAY 14 JUNE||RESULTS|
|Ashtead Group (UK)||Full-year|
|Core & Main (US)||Q1|
|Oxford Instruments (UK)||Full-year|
|Paragon Banking Group (UK)||Half-year|
|WEDNESDAY 15 JUNE||RESULTS|
|AO World (UK)||Full-year|
|Bloomsbury Publishing (UK)||Full-year|
|JD Sports (UK)||Full-year|
|John Wiley & Sons (US)||Q4|
|THURSDAY 16 JUNE||RESULTS|
|FRIDAY 17 JUNE||RESULTS|
Company announcements are subject to change. All the events listed above were correct at the time of writing.
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