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The Week Ahead: US, UK inflation; Vodafone, US retail results

The Week Ahead: CMC Markets' Michael Hewson analyses key upcoming economic and company events.

Here's our pick of the top three economic and company events in the week commencing Monday 13 November:

US CPI (October)

Tue 14 Nov: Having found a short-term base at 3% in June, US headline inflation has spent the last three months edging higher, although the core consumer price index (CPI) has fallen. Core price growth eased to 4.1% in September, down from 4.3% in August. Somewhat surprisingly the headline number was unchanged at 3.7% in September, with inflation driven by higher rent and fuel prices. That raised concerns that the Federal Reserve may raise interest rates again before the end of the year. These concerns have eased in recent days after a weaker than expected October jobs report, while retail sales in the US have also slowed. If we see evidence that core price growth eased further in October, it could support the idea that the Fed might forego a pre-Christmas rate hike and keep rates on hold. But while economists’ estimates suggest that US CPI slowed to 3.3% in October, core price growth is expected to have remained flat at 4.1%. 

Vodafone half-year results

Tue 14 Nov: The Vodafone share price has been in a slow decline for the last five years, falling to a 25-year low below 70p in the summer of this year. Since those lows, we’ve seen a slow recovery as new CEO Margherita Della Valle looks to try and turn the ailing business around. Almost all of its European businesses have proved to be a drain on the balance sheet, which makes one question the wisdom of the decision last year to reject an €11bn bid by Iliad for its underperforming Italian business. That is now ancient history, with the new CEO looking to focus more on the UK business, after announcing last month a €5bn deal to offload its Spanish business to Zegona for €5bn. The increased focus on the UK and German businesses has seen the company agree a deal with Hutchison Holdings to take over the running of its UK Three network, while also agreeing an 18-year roaming deal with 1&1 Mobilfunk in Germany. In Q1 the company reported revenues of €10.74bn, a decline of 4.8%, with declines in all of its major markets except the UK, which saw organic services revenues rise 5.7% to £1.7bn. Germany, Italy and Spain saw revenues decline by 1.3%, 1.6% and 3%, respectively. Its smaller South Africa market managed to post a gain of 9%. For H1 revenues are expected to come in at €21.6bn with organic services of €18.4bn, a 5% decline from the same period last year, with Spain expected to see a decline of 3.4%. The UK business is forecast to see a 5.78% rise in organic growth to $2.8bn.

UK CPI (October)

Wed 15 Nov: Friday’s Q3 GDP print showed that the UK economy recorded zero growth in the three months to September underscoring the economic challenges facing the country, despite the continued slowdown in headline inflation over the past few months. Price growth in the UK remains higher than in its European and North American peers, mainly due to the impact of the energy price cap which has kept prices in this area artificially high. For workers higher pay has helped take the edge off inflation, but earnings growth may have peaked. Earnings excluding bonuses were up 7.8% year-on-year in the three months to August, down from 7.9% in July. The reading for the three months to September is out on Tuesday. Against this backdrop, the Bank of England has kept interest rates unchanged at its last two meetings. A further slowdown in headline inflation in October could reinforce the idea that the Bank of England may be done with rate hikes for now. In September CPI came in higher than expected at 6.7%, with most of the increase driven by higher petrol prices, which offset a modest fall in food prices. Core price growth eased slightly to 6.1%. However, services-based inflation rose from 6.8% year-on-year to 6.9%, and this is the area where the BoE has concerns. That said, Wednesday’s inflation reading for October should show a major easing given that the energy price component is expected to fall sharply from the same period last year, when the price cap jumped sharply. This factor should contribute to a lower rate of inflation, with economists expecting headline CPI to ease to 4.8%. Meanwhile, core CPI is expected to slow to 5.7%.

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

Birkenstock Q3 results

Tue 14 Nov: As IPOs go Birkenstock hasn’t had a great time of it. Trading consistently below its $46 listing price, the shares fell 12% on the opening day and later fell below $36, although they have since rebounded from those lows. They say timing is everything when it comes to IPOs. Unfortunately, Birkenstock’s timing was off, coming just before the sharp sell-off in October. One thing in its favour is that the business is profitable. Total revenue in 2022 came in at $1.35bn, with net income of $202.8m. When the accounts were released prior to the IPO the revenues for the nine months to June were estimated to be $1.2bn, and on course to beat last year’s total revenue. The money raised by the IPO has allowed the company to repay $550m in loans, reducing its total debt to €1.31bn. We’ll find out on Tuesday whether the Q3 results boost the (Birken)stock.  

Home Depot Q3 results

Tue 14 Nov: In the lead-up to Home Depot’s Q2 results announcement, the shares hit a six-month high. However, those gains quickly disappeared with the shares sliding to their lowest levels this year at the end of October. The sharp falls in the aftermath of the Q2 numbers were somewhat surprising given that the results came in ahead of forecasts. Back in May the company cut its full-year forecasts sending the shares lower. Q2 revenue saw a modest decline from last year to $42.9bn, as same store-sales growth declined by 2%. Profits also beat consensus, coming in at $4.65 a share. The outlook for the second half of the year is more uncertain with the company reaffirming its guidance from May for same-store sales to decline between 2% and 5%. The retailer also outlined a new $15bn share buyback, though this wasn’t enough to stop the shares from sliding back. The uncertainty over the second half of the year is perhaps the main reason for the share price weakness since then. Q3 revenues are expected to come in at $37.87bn, while same-store sales are expected to decline by 3%. Profits are forecast to slow to $3.82 a share.

US retail sales (October)

Wed 15 Nov: The US consumer has been remarkably resilient for most of this year. Retail sales have contracted in only two months this year – February and March. Since then, consumer spending has grown, helped by a resilient labour market and falling inflation. Q3 was particularly strong, with month-on-month gains of 0.5%, 0.8% and 0.7% in July, August and September, respectively. The October numbers could show a slowdown in the pace of spending growth – estimates point to a decline of 0.5% month-on-month – as consumers pare back ahead of Thanksgiving and Christmas. Indeed, Target, one of the US’s largest retailers, recently said that consumers were starting to cut back on spending. 

Target Q3 results

Wed 15 Nov: While Walmart has been sweeping all before it, Target has gone in the other direction. The shares have slipped towards their 2020 lows as the retailer struggles with higher costs and several cuts to guidance. Management warned of “shrinkage” (read: shoplifting) impacting its margins, a nod to the fact that a number of stores are in less salubrious locations. Q2 revenues slowed to $24.38bn, falling short of expectations, although profits saw a solid increase to $1.80 a share, comfortably beating the top end of forecasts of $1.70 a share. Target also downgraded its full-year profits forecast to between $7 and $8 a share, down from $7.75 to $8.75. The retailer also projected Q3 profits of between $1.20 and $1.60 a share. It is noteworthy that there has been an improvement in operating margins, which would appear to account for the better profit numbers. That could prompt a surprise to the upside in the Q3 results, with revenue expected to come in at $25.1bn.

China retail sales (October)

Thu 16 Nov: Last month China reported that its economy expanded by 1.3% quarter-on-quarter in Q3, helped by growth in consumer spending.  A key narrative of the last few months has seen various retailers report a sharp slowdown in Chinese consumer spending, a trend that doesn’t appear to be reflected in the official government data. The three months to September saw retail sales grow year-on-year, with gains of 2.5% in July, 4.6% in August and 5.5% in September. For October, retail sales are expected to have increased 7% year-on-year.

Burberry half-year results

Thu 16 Nov: With the fashion brand’s share price hitting record highs back in April, the outlook was looking really good for Burberry. The shares got a lift on decent returns from competitors like LVMH, Hermes and the wider luxury sector as Asian demand surged in the wake of the relaxation of lockdown measures at the end of last year. Those heady highs seem a long way away now, given the recent declines for shares of luxury goods companies. The weakness is mainly due to a sharp slowdown in demand across all markets, but particularly in China. Burberry’s shares slipped to one-year lows earlier in November. When Burberry reported in Q1 the retailer reported an 18% rise in Q1 sales, pushing quarterly revenue up to £589m, which was below consensus forecasts. Mainland China sales increased 46%, while south Asia Pacific rose 39% and Japan was up 44%. However, the US posted an 8% decline and it was this factor that appeared to disappoint investors, along with the fact that various other luxury retailers have reported sharp slowdowns in luxury spending, dragging the sector lower. Burberry also left full-year guidance unchanged in Q1, saying that they still expected to see low double-digit revenue growth for full-year 2024.

Walmart Q3 results

Thu 16 Nov: Walmart has stood out when it comes to the US retail sector. The shares have made strong gains this year, hitting record highs earlier this month. The US consumer has held up well this year, with Q3 seeing personal consumption contributing 4% to US GDP growth. There is a danger, however, that may be as good as it gets for the foreseeable future. When Walmart reported in August the retailer crushed expectations, growing revenues and profits. Q2 revenues rose 5.7% to $161.63bn, while profits came in at $1.84 a share. Total same-store sales rose by 6.3%, with the retailer raising its forecasts for the full year. Walmart said it expected Q3 profits to be between $1.45 and $1.50, and raised its full-year profit forecast to between $6.36 and $6.46, up from between $6.10 and $6.20 a share. Full-year net sales were raised to between 4% and 4.5%.

US government shutdown deadline

Fri 17 Nov: On 1 October, US lawmakers agreed a 45-day extension that averted a government shutdown. The agreement ultimately cost house speaker Kevin McCarthy his job. There are huge differences of opinion on how much money the US is spending in supporting Ukraine in its battle against Russia, while recent events in the Middle East have complicated matters further. With new house speaker Mike Johnson now in place, markets are likely to get increasingly anxious the nearer we get to Friday. Any new deal on government spending is likely to be a sticking plaster similar to the extension at the beginning of October. Republicans want to see spending cuts due to concerns over the sharp rises in government debt, and the rising cost of servicing that debt. A new deal will need to convince the markets that US debt isn’t on an unsustainable upward path.

INDEX DIVIDEND SCHEDULE

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SELECTED COMPANY RESULTS

Monday 13 NovemberResults
British Land (UK)Half-year
Clearside Biomedical (US) Q3
Rumble (US) Q3
Tuesday 14 NovemberResults
Babcock International (UK)Half-year
Birkenstock (US) Q3
ClearSign Technologies (US) Q3
Getty Images Holdings (US) Q3
Home Depot (US) Q3
Imperial Brands (UK)Full-year
Land Securities (UK)Half-year
Oxford Instruments (UK)Half-year
Paysafe (US) Q3
Vodafone (UK)Half-year
Wise (UK)Half-year
Wednesday 15 NovemberResults
Advance Auto Parts (US) Q3
Sonos (US) Q4
SSE (UK)Half-year
Target (US) Q3
TJX Companies (US) Q3
SSE Half-year
Warehouse Reit (UK)Half-year
Thursday 16 NovemberResults
Assura (UK)Half-year
Bath & Body Works (US) Q3
Beazer Homes (US) Q4
Burberry (UK)Half-year
Dolby Laboratories (US) Q4
Gap (US) Q3
Great Portland Estates (UK)Half-year
Macy's (US) Q3
Premier Foods (UK)Half-year
United Utilities Group (UK)Half-year
Walmart (US) Q3
Warner Music Group (US) Q4
Friday 17 NovemberResults
Atkore (US) Q4
Buckle (US) Q3

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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