The Week Ahead: Fed, BoE rate meetings; UK inflation; Ocado, Next results

Here's our pick of the top three economic and company events in the week commencing Monday 18 September:

US Federal Reserve rate meeting

Wed 20 Sep: The jump in US unemployment in August and falling core inflation increased the likelihood that the Federal Reserve will keep interest rates unchanged on Wednesday. When Fed chair Jay Powell spoke in Jackson Hole at the end of August, he reiterated that the Fed’s rate decisions remained data-dependent, and said rates might need to go higher. More recently, he has pushed back against speculation that the Fed’s inflation target could be raised to 3%, saying that policymakers remain committed to the 2% target. It's good that Powell nipped talk of a higher target in the bud, but the debate is likely to rumble on if inflation remains persistently above 2%. Although rising consumer prices may support the case for a rate hike on Wednesday, markets expect a pause. The CME FedWatch Tool, which tracks the probability of rate changes as implied by 30-day Fed Funds futures pricing data, indicates that traders believe there is a 97% likelihood of the benchmark interest rate staying at a target range of 5.25% to 5.5%. 

UK CPI (August)

Wed 20 Sep: The UK’s consumer price index grew 6.8% in the year to July as inflation slowed from June’s 7.9%. This positive development for the UK economy was spurred by the reduction in the energy price cap, while food price inflation slowed to 14.8%, down from 17.3% a month earlier. However, growth in core prices – which exclude volatile food and energy bills – remained stuck at 6.9% due to continued high levels of inflation in areas such as health, restaurants and hotels. If Wednesday’s figures show that core inflation remained high in August, it’s possible that the Bank of England might raise interest rates at its meeting on Thursday. That said, there is concern that the UK economy hasn’t yet felt the full effects of the BoE’s 14 rate hikes since late 2021. Those who subscribe to this view believe that Britain’s central bank has already done enough. If inflation has peaked, rates might not have to go up much higher, though they may need to stay at or close to current levels for a long time. However, while headline and core CPI are expected to have eased in August, the slowdown might be more gradual than policymakers would like.

Bank of England rate meeting

Thu 21 Sep: It’s decision time again for the Bank of England on Thursday, with markets continuing to price in at least one more rate hike this year. Although earlier this month the Bank’s governor Andrew Bailey cast doubt on the need for further rate rises, one of the Monetary Policy Committee’s more hawkish members, Catherine Mann, argued on Monday that rates should rise further to tame rising prices. Her comments suggest that the nine-member panel could be split on the best course of action to take. The Bank may look to atone for past errors in misdiagnosing inflation as “transitory”, but a rate rise at this stage risks compounding one mistake with another. While it wouldn’t be a surprise to see the Bank raise rates by a quarter of a percentage point to 5.5%, there is a strong case for keeping rates on hold and giving previous rate hikes more time to take effect. Chief economist Huw Pill and deputy governor Ben Broadbent have indicated that the current level of monetary policy is sufficiently restrictive, in an apparent bid to prepare the market for a pause. If the Fed keep rates unchanged on Wednesday, that could increase the likelihood of the BoE following suit.

Here's our pick of the rest of the week's major economic and company events:

Ocado Q3 results

Tue 19 Sep: After narrowly avoiding dropping out of the FTSE 100 earlier this year, Ocado shares have more than doubled from their June lows, hitting a 14-month high at the end of July. The gains of the last few months have been helped by chatter that the company might be the target of a possible bid. One of the grocery and technology company’s largest shareholders, Lingotto Investment Management, increased its stake in the business to 5% earlier this year, fuelling speculation that a takeover might be afoot. Rumours that Amazon might also be looking to acquire the company have been denied – in any case, a deal with Amazon would have to overcome several obstacles related to the partnerships Ocado has with the likes of Kroger in the US, Carrefour in France, Sobey’s in Canada, and M&S in the UK. For the first half of the year, Ocado posted revenue of £1.37bn, a 9% increase on last year, with the retail operation delivering a 5% increase. Group EBITDA came in at £17m, though the company still slipped to a pre-tax loss of £212.3m. Full-year guidance was kept unchanged. For Q3, revenue is forecast to come in at £555m.

FedEx Q1 results

Wed 20 Sep: When FedEx reported its Q4 results in June, the shares initially slipped back as the company warned on its outlook for next year. However, the dip was short-lived as at the end of July the shares pushed to their highest levels since August 2021. FedEx has taken steps to boost its margins in recent quarters, cutting flights, grounding planes, reducing office space and announcing plans to lay off 25,000 workers in the US. In April, the company outlined plans to consolidate its express package and ground delivery units to make a further $4bn in savings. These two businesses make up the bulk of FedEx’s revenue, so consolidation here should further improve margins. At the same time, pressure to raise wages could soon increase after staff at rival UPS secured a pay rise in August that lifted their starting pay to $21 an hour, up from $16 an hour In Q4, revenue came in at $21.93bn, while profit came in at $4.94 a share. Full-year revenue came up short at $90.2bn, with the company saying it expects to see lower to flat revenue for 2024, and EPS at the bottom end of between $16.50 and $18.50 a share. As for Q1, revenue is expected to come in at $21.8bn, with a profit of $3.69 a share. 

Next half-year results

Thu 21 Sep: The Next share price has rebounded off last October’s lows, in July pushing up to their highest level since February 2022. In June the retailer surprised the market, announcing it expects full-year pre-tax profit to come in at £835m, up from its previous estimate of £795m, mainly due to a significant outperformance in the first seven weeks of the quarter, when full-price sales rose 9.3% versus an expected decline of -5%. In August, Next again raised its full-year pre-tax profit, this time by £10m, to £845m. The revised guidance also indicates that full-year sales are projected to increase by 1.8% to £4.68bn, with half-year sales expected to come in at £2.63bn.

JD Sports half-year results 

Thu 21 Sep: It’s been a tricky few weeks for the JD Sports share price. The stock fell to an eight-month low in August after a string of profit warnings from its peers in the US, the most notable of which came from Foot Locker which saw its shares plunge to 10-year lows after posting a Q2 loss. In its most recent update JD Sports warned that its North America business was underperforming, although it maintained its full-year guidance that headline pre-tax profit would be around £1bn. Half-year revenue is expected to come in at £4.7bn, with better performance expected in the second half of the year. The deal to acquire the remaining 40% stake it doesn’t own in Poland’s MIG may help it to meet these revenue targets, which had looked under threat ahead of the half-year results.

Bank of Japan rate meeting

Fri 22 Sep: The Bank of Japan surprised the markets in July by offering to purchase 10-year Japanese government bonds (JGB) at 1% through fixed rate operations, while keeping the upper limit of its yield curve control policy unchanged at 0.5%. The move has seen the 10-year JGB yield rise past 0.6%, above the cap. At the same time, the Japanese yen has weakened to its lowest level against the US dollar since November last year. Although the BoJ has tightened policy, policymakers may be reacting too slowly given that core inflation is running close to 40-year highs. The upcoming meeting could bring another policy tweak, and possibly an acknowledgement of the weak yen.

Flash PMIs (September)

Fri 22 Sep: The services sector has helped to keep the global economic recovery on an even keel this year as manufacturing activity contracted. However, cracks began to appear in the services sector in August as it joined manufacturing in contraction territory. This poses a dilemma for central banks as they look to tame inflationary pressures which are especially prevalent in services. While there does appear to be some signs of stabilisation in manufacturing, the slowdown in services is more worrying given that it remains very much consumption-led and there is evidence that rate hikes are now starting to bite. In Germany we’ve seen a particularly sharp fall in services activity in the last two months, while in France the picture is little better. Even the UK services sector has seen a significant slowdown from the resilience of the summer months, slipping into contraction territory in August. As Q3 comes to an end there is concern that this trend may continue as higher rates hit consumer spending, although higher wages could go some way to softening the blow.

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SELECTED COMPANY RESULTS

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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