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Market Outlook

The Week Ahead: UK inflation; Fed minutes; NatWest results

Read our pick of the top stories to look out for in the week commencing 14 February 2022, and view our key company earnings schedule.

OUR TOP THREE EVENTS FOR 14-18 FEBRUARY 2022:

UK inflation (January) – Wednesday

Consumer prices rose 5.4% in the 12 months to December 2021, up from 5.1% in November, as the headline rate of inflation reached its highest level since 1992. Retail prices rose even faster, up 7.5% in the year to December, versus November’s 7.1% uptick. 

In an effort to tame rising inflation, the Bank of England’s Monetary Policy Committee this month voted by a majority of five to four to raise the cost of borrowing from 0.25% to 0.5%. The surprise was that the minority wanted to go even further and increase the base rate to 0.75%. If, as expected, consumer prices rose further in January – consensus estimates suggest that January’s consumer price index (CPI) reading will come in at 5.5% – we could see another rate hike when the Bank meets next month. 

Key takeaways from the December numbers included a sharp rise in food and non-alcoholic drink prices, alongside increases in the prices of clothing and household goods, as recent supply chain issues filtered down to higher consumer prices, hitting shoppers’ wallets. Prices are likely to continue to rise in the near term, with the Bank of England predicting that CPI will peak at 7.25%, probably in April, while the retail price index (RPI) is set to top 9%. 

US Federal Reserve minutes – Wednesday

As expected, the US Federal Reserve decided at its January meeting to keep interest rates on hold, but at the subsequent press conference Fed chair Jerome Powell signalled that the Fed is considering raising interest rates at a faster pace than previously anticipated and shrinking the size of its balance sheet. The Fed is poised to sign off on a first pandemic-era interest rate hike in March.  

Powell stated that there was “quite a bit of room to raise rates before it hurts the labour market”, indicating that the Fed will not shy away from tackling an inflation problem that Powell called a “severe threat”. While some Fed officials pushed back on the idea that rates could rise by 50 basis points in March, potentially cooling the economy, last week’s US jobs report pointed to a resilient US labour market and a robust recovery. The US economy added 467,000 jobs in January, exceeding expectations for 150,000 extra jobs.  

The release of the minutes from the Fed’s January meeting are likely to reveal the appetite among members for a 50 basis-point hike in March, and shed light on the potential for rate hikes at every meeting between March and year-end. We could also learn more about committee members’ views on the timetable for reducing the balance sheet, and whether this is likely in the first half of 2022. 

At the end of last year, markets were pricing in three rate rises in 2022, but now some economists expect that there could be as many as seven. Looking ahead, the big question is whether Fed officials have shifted their thinking on the pace of rate rises.

NatWest Group full-year results – Friday 

The NatWest share price has risen more than 40% in the last year, returning to its highest levels since December 2019. That’s not to say that CEO Alison Rose has had an easy ride – the bank was fined £264.8m last year after pleading guilty in October to three criminal charges of money laundering. And in December, as part of NatWest’s withdrawal from Ireland, the bank agreed a deal to sell its Irish loan books to Permanent TSB for €6.4bn, with the sale expected to complete around the end of 2022 or early 2023. 

In the first half of 2021, NatWest reported profits of £1.84bn and resumed its dividend, declaring an interim payment of 3p per share. The bank also said it planned to buy back £750m of its own shares, starting in the second half of 2021, as the Bank of England removed Covid restrictions on shareholder payouts from July. Profits were boosted as emergency provisions set aside in 2020 to cover possible loan defaults during the pandemic were drip-fed back onto the balance sheet – in total, the bank released £949m from its emergency stockpile in the first three quarters of 2021. 

As they await the Q4 and full-year numbers, shareholders will be hoping that the bank has added to its £2.5bn of year-to-date profits. Whatever happens, the full-year results seem set to mark a remarkable turnaround from 2020, when NatWest reported a pre-tax loss of £351m. Shareholders will also be looking for management to follow through on the pledge to distribute a minimum of £1bn a year to investors from 2021 to 2023, through a combination of ordinary and special dividends. That would also be good news for the UK government, whose stake in the bank it bailed out during the financial crisis now sits at 52.96%. 

As far as the underlying business is concerned, the focus will be on personal loans and credit card lending, which was subdued in Q3, and on mortgage lending, which has driven a lot of this year’s loan growth. It’s also worth paying attention to NatWest’s net interest margin – a core measure of profitability – which slipped to 1.54% in Q3, down from 1.61% in Q2.  

MORE KEY EVENTS (14-18 FEBRUARY):

Monday 14 February

No major announcements

Tuesday 15 February

UK unemployment, average earnings (December)

Unemployment in the UK fell to 4.1% in the three months to November, its lowest level since July 2020 but still above pre-pandemic levels of 3.8%. However, wage growth slowed to 3.8% year-on-year, putting further pressure on workers as the cost of living rises. Since the middle of last summer, when wage growth was 7.4%, growth has slowed, with little sign that it will pick up any time soon. The number of payrolled employees increased by 184,000 in December, while the number of vacancies grew to 1.25m. There were 459,000 fewer people in work in December than before the pandemic, and it seems unlikely that this deficit will disappear in the near term. In the coming months, this shortfall could impact UK retail sales, which contracted by 3.7% in December.  

Airbnb Q4 results

When Airbnb reported a year ago, it had recently completed its IPO and was trading at close to $220 a share, giving the company an impressive valuation of more than $120bn, ahead of established players in the hospitality sector such as Marriott International and Holiday Inn owner Intercontinental Hotels Group. Since then, the Airbnb share price has fallen to around $170 a share, which is still decent given the company’s recent results. Airbnb reported a loss of $4.6bn for 2020, part of which was related to a $2.8bn charge for its IPO. Revenue in Q4 2020 fell 22% to $859m, as travellers stayed at home. 

While Airbnb declined to offer forecasts for profit and revenue in 2021, there was optimism that performance would recover, especially in the US. Analysts expected revenue to improve, not only compared to 2020 but also to 2019, with consensus estimates putting annual revenue at $5.9bn. That number was supported by strong performance in Q3, rising vaccination rates, and the resumption of international travel. In Q3 Airbnb reported record revenue of $2.24bn and profits of $1.22 a share. For Q4, Airbnb said it expected revenue to come in between $1.39bn and $1.48bn. Despite this, the company still isn’t expected to generate an annual profit, though we could see a modest quarterly profit of around $0.10 a share. Annual losses are expected to come in at $0.65 a share. 

Wednesday 16 February

UK CPI; US Federal Reserve minutes (see top three events, above)

US retail sales (January) 

US retail sales fell 1.9% in December, compared to revised growth of 0.2% in November. The bigger-than-expected decline in December may have been partly due to US consumers buying their Christmas presents as early as October, when sales rose by 1.8%, amid concerns that supply chain disruptions could lead to shortages of popular gifts in the runup to Christmas. The spread of the Omicron variant also played a part in December’s slowdown, as spending fell across the retail sector. So-called control group sales, which are also used to calculate US GDP, the decline was even bigger at 3.1%, down from a revised decline of 0.5% in November. This end-of-year weakness may lead into an early-2022 rebound, with wages expected to have risen, though this may be outpaced by rising inflation.

Nvidia Q4 results

Like other chipmakers, Nvidia has benefitted from increased demand for semiconductors amid a supply shortage. In the wake of its Q3 numbers, Nvidia’s share price hit record highs as the company blew past expectations on revenue and profits, while posting a bullish outlook for Q4. Revenue came in at $7.1bn, a rise of 50% on a year ago, helped by huge demand for its graphic cards, as well as a huge jump in demand for its data centre services. Gaming revenue rose 42% to $3.22bn. A 55% rise in sales of high spec chips for AI tasks saw revenue in this growing area of the business rise by over $1bn to $2.9bn. The launch of a new suite of chip products called the Omniverse is also expected to drive revenue in this area in the coming quarters. For Q4, the company said it expects revenue of $7.4bn, plus or minus 2%, with gross margins of between 65.3% and 67%. Profits are expected to come in at $1.22 a share.

Thursday 17 February

Walmart Q4 results

A key takeaway from US big-box retailers’ recent earnings reports has been the big rise in costs as they look to take on Amazon’s stranglehold on US retail. Walmart is one of the few retailers that has been able to take the fight to Amazon on this front even as its share price has traded sideways over the last six months. As at other retailers, business costs have eaten into the top line as extra staff were hired to help clean stores, stack shelves and get online orders out the door. In total the company hired more than 500,000 extra staff last year alone, and as we await results for the US holiday period these numbers are only likely to have increased. There were concerns that these higher costs would impact Walmart’s Q3 numbers. These fears proved unfounded, with the retailer raising its full-year EPS guidance to $6.40 a share. Q3 EPS came in at $1.45 a share on revenue of $140.53bn, compared to $134.7bn a year ago. US same-store sales ex-fuel rose 9.9%, and e-commerce sales rose by 8%, despite some tough comparatives from 2020. For Q4 the retailer expected to grow sales by another 5%, as consumers bought early to guarantee Christmas delivery, while profits are expected to come in at about $1.50 a share.  

Reckitt Benckiser full-year results

When Reckitt reported its half-year numbers in July, the shares took a tumble on concerns over falling margins. Half-year net revenue came in at £6.6bn, while operating margins declined 260bps to 21.6%, with the company citing accelerated cost inflation in Q2. The company went on to say that these rising costs were expected to be a drag over the rest of the fiscal year, before improving to between 22.7% and 23.2% by year-end. In Q3 Reckitt said that group net revenue rose by 3.3% on a like-for-like basis, pushing year-to-date revenue up to £9.87bn. This equates to a fall of 5.3% year-on-year, though this decline can be explained by the disposal of its IFCN China business in September for $2.2bn, as well as its Scholl brand. On a like-for-like basis, nine-month revenue saw a rise of 3.6%, showing that – like its peers Unilever and Procter and Gamble – it has been able to pass on price increases to its customers without adversely affecting sales. In terms of its guidance, the company said it expects like-for-like revenue to rise 1-3%, up from 0-2%. Bosses also said that the business remains on course to meet its guidance on the margin improvement that it outlined in July. Earlier this month, there was speculation over a disposal of the rest of its infant formula business as a result of pressure from shareholders, who questioned whether this business was high-margin enough to be considered worth investing further resources in. Let’s not forget that this business was acquired back in 2017 for the not inconsiderable sum of $17bn in an M&A deal with Mead Johnson.   

Friday 18 February

NatWest Group full-year results (see top three events, above)

UK retail sales (January)

In the wake of the government’s rollout of plan B restrictions in mid-December, UK retail sales fell 3.6% as consumers stayed at home and limited their social contacts. The decline in sales was felt most keenly in pubs and the wider hospitality sector, though high street retailers also felt the impact of lower footfall. Although there may have been a bit of a rebound between Christmas and New Year, consumer confidence slipped to an 11-month low in January. There appears to be little doubt that the surge in prices of the last two months has knocked consumer confidence, causing a significant pullback in spending. That said, the latest BRC retail sales numbers pointed to a decent rebound in January, as sales of homeware and electronics bounced back, as food sales fell. If the BRC numbers are any guide, we could see a modest improvement in retail sales for January, but rising prices and the decline in real incomes could see UK consumers rein in their spending in the coming months.

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 14 February Results
Avis Budget (US) Q4
Kelly Services (US) Q4
Weber (US) Q1
Tuesday 15 February Results
Airbnb (US) Q4
Denny's (US) Q4
La-Z-Boy (US) Q3
Marriott International (US) Q4
PDF Solutions (US) Q4
ROBLOX (US) Q4
Toast (US) Q4
ViacomCBS (US) Q4
Wednesday 16 February Results
Amplitude (US) Q4
Cisco Systems (US) Q2
Endava (US) Q2
Fastly (US) Q4
Hilton Worldwide (US) Q4
Hyatt Hotels (US) Q4
Indivior (UK) Full-year
KnowBe4 (US) Q4
Kraft Heinz (US) Q4
NVIDIA (US) Q4
Pan African Resources (UK) Half-year
Pegasystems (US) Q4
Primary Health Properties (UK) Full-year
Sunoco (US) Q4
Synopsys (US) Q1
TripAdvisor (US) Q4
Tronox Holdings (US) Q4
Vulcan Materials (US) Q4
Wingstop (US) Q4
Thursday 17 February  Results
Awilco Drilling (UK) Full-year
Dropbox (US) Q4
Liberty Global (US) Q4
Moneysupermarket.com (UK) Full-year
Reckitt Benckiser (UK) Full-year
Roku (US) Q4
Shake Shack (US) Q4
SolarWinds (US) Q4
Standard Chartered (UK) Full-year
Sunrun (US) Q4
US Foods (US) Q4
Walmart (US) Q4
Friday 18 February  Results
City of London Investment Group (UK) Half-year
Deere & Co (US) Q1
DraftKings (US) Q4
NatWest Group (UK) Full-year
Pod Point Group Holdings (UK) Full-year
Segro (UK) Full-year

Company announcements are subject to change. All the events listed above were correct at the time of writing.


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