The UK and the US are set to release their inflation numbers for March, with consumer price growth in both countries likely to continue to soar.
As a new earnings season gets underway, the major US banks – including JPMorgan, Citigroup and Goldman Sachs – get ready to report their Q1 results, while in the UK Tesco will announce preliminary full-year results and easyJet will release a half-year update.
OUR TOP THREE EVENTS FOR 11-15 APRIL:
UK CPI (March) – Wednesday
The UK’s consumer price index (CPI) is likely to have risen again in March. Consumer prices increased 6.2% in the year to February – the fastest pace in 30 years – versus a rise of 5.5% in January. Core CPI, which strips out the cost of energy, food, alcohol and tobacco, rose by 5.2% in February. Retail prices are rising even faster, up 8.2% in the year to February, an acceleration from January’s figure of 7.8%. Input prices were up 14.7% year-on-year in February.
The latest numbers and the ongoing war in Ukraine, which has exacerbated the surge in energy prices, suggest that we may be heading towards double-digit CPI inflation, possibly within the next three months. In a further sign that inflation is becoming more embedded, we’re also seeing significant increases in core CPI. Clothing and footwear prices are up 8.8% year-on-year, while furniture and household goods are up 9.2%. All this is contributing to the cost-of-living squeeze, and that’s before various tax rises kick in from April.
In the EU, inflation jumped to 7.5% in March, up from 5.9% in February. If this is any guide, we could see a similar leap in the UK’s March update, although Britain’s broader energy mix may shield it to some extent from the worst effects of soaring fossil fuel prices. Nonetheless, UK CPI is forecast to rise to at least 7% for March, with the likelihood that it will hit 8% by the end of June. Meanwhile, retail price inflation is expected to edge towards 10% in the next two to three months.
Tesco full-year results – Wednesday
Over the past 12 months Tesco’s share price has been on a slow march higher, having slipped to an almost four-year low in February 2021 after a share consolidation and £5bn payout to shareholders. In January, Tesco’s Q3 and Christmas trading statement showed strong growth in sales, prompting the retailer to raise its guidance. The company now expects full-year retail operating profits, which were revised upwards at the half-year stage, to exceed the top end of the previously guided range of £2.5bn to £2.6bn.
Tesco has also increased its share of the UK grocery market in the last year to 27.9%, up from 27.3%, consolidating its market-leading position ahead of Sainsbury’s and Asda. In the 19 weeks to 8 January, Tesco’s like-for-like sales were up 2.4% compared to the year-ago period. Retail sales in the UK grew 0.2%, below expectations of 0.6% but still impressive against the tough comparatives of the previous year. On a two-year basis, UK retail sales were up 7.5%.
Tesco’s Ireland operation lagged over the same period, its sales down 2.1% year-on-year. However, on a two-year basis, sales were up by 9.6%.
Once again Tesco’s wholesale subsidiary, Booker, stood out. Across the same 19-week period sales were up 17.5% year-on-year, and up 14.8% on a two-year basis. On a one-year basis, growth was driven by the reopening of restaurants and other hospitality venues, which should also boost the Q4 numbers.
In the upcoming full-year statement, the main areas to focus on are costs and the year-ahead outlook. Tesco’s key challenges this year are likely to include competition for staff, the negative impact on margins of an expected drop in shoppers’ disposable incomes, and the rising cost of doing business, from higher wages to soaring fuel costs.
On the issue of whether some customers may cut their grocery spending, Tesco chair John Allan warned in February that the worst is yet to come on food price inflation, forecasting it will hit 5% this year, up from 1% in Tesco in Q3. Meanwhile, on staff costs, the supermarket chain has announced a 5.5% pay rise for its workers, albeit alongside 1,500 job cuts as it pulls back on night shifts.
JPMorgan Chase Q1 results – Wednesday
JPMorgan’s stock hit record highs of more than $170 a share in October, but slumped in January following the release of the bank’s Q4 results, which sharpened investor concerns over rising costs and subdued loan demand. The worry is that economic headwinds could impact bank trading revenues and profits in the coming months.
Overall, the US’ largest bank by assets posted a decent set of Q4 numbers. Revenue came in at $30.35bn, beating expectations of $30bn, while profits came in at $3.33 a share as the bank released another $1.8bn from reserves set aside during the pandemic. FICC sales and trading revenue came in below expectations at $3.33bn, as did equities and sales trading at $1.95bn. Investment banking performed better, bringing in $3.21bn, broadly in line with expectations. However, the concern for investors was the 11% increase in costs to $17.9bn, pushing total expenses for the year to $71bn.The bank attributed this cost increase to higher pay packages as it strives to retain staff.
On the retail side, home lending revenue fell 26% to $1.1bn, while credit card and auto lending revenue fell 9% to $5bn. These downtrends, plus the fact that profits will soon no longer be boosted by the release of bad debt provisions, have led investors to re-evaluate JPMorgan’s share price, despite the bank making a full-year profit of $48.3bn in 2021. This sum will be difficult to match in 2022. According to chief executive Jamie Dimon, JPMorgan stands to lose about $1bn on its Russia exposure.
MORE KEY EVENTS (11-15 APRIL):
Monday 11 April
No major announcements
Tuesday 12 April
US CPI (March)
After the US Federal Reserve pulled the trigger on its first interest rate rise since 2018, much has been made of how big the next few rate increases are likely to be. With the US producer price index (PPI) showing little sign of slowing, this week’s CPI numbers could seal the deal on a half-point rate hike in May.
In February US CPI jumped to a new 40-year high of 7.9%, while core prices rose by 6.4%. Any prospect that price pressures might be easing were hit by March’s sharp rise in prices paid, based on the ISM manufacturing survey.
PPI is running at 10% and could well go higher. That said, the increases have been more incremental in recent months than the big jumps we saw at the end of last year, which are now feeding into the recent CPI numbers.
UK wages, unemployment (February)
Although wages including bonuses increased 4.8% in January, and are set to rise further in subsequent months, growth will not come close to matching the impact of rising prices in the shops. The change in national insurance insurance thresholds from July will help in the longer term. Upward pressure on wages is likely to increase in the coming months, helped by rising vacancies which rose to a new record high of 1.3m for the three months to January. Unemployment fell back to 3.9% in January, and is now close to the pre-pandemic lows of 3.8%.
easyJet Q2 results
In early March easyJet’s share price hit its lowest levels since November 2020 over concerns that surging oil prices in the wake of the Russian invasion of Ukraine would increase the cost of travel, deterring some passengers. After falling from the February peaks of 727p to the March lows of 417.5p, the shares have partially recovered to around 520p – roughly where they were in December.
In January, when the airline posted its Q1 numbers, revenue came in at £805m, well above consensus estimates, with losses almost halving from a year earlier to £213m. The number of aircraft in service was 251, up from 152 a year ago, with almost 11.9m passengers carried. The load factor dropped off sharply in December to 67%, down from 81% in November. This figure was expected to improve in Q2.
Fuel costs are 60% hedged at $504 per metric tonne, compared to the current price which is much higher. On capacity, the airline expects Q2 capacity to come in at more than 67% of 2019 levels, and said that Q4 capacity will be close to 2019 levels.
Asos half-year results
The online fashion retailer’s share price has plunged more than 70% in last 12 months, as the reopening of the economy post-pandemic saw shoppers return to the high street, causing Asos’ sales growth to slow. Profits are expected to decline due to higher freight, delivery and labour costs, as well as a huge increase in returns costs. In Q1 the company said that total group revenue rose by 5% to £1.39bn, helped by a 13% increase in the UK business.
Full-year guidance was left unchanged with revenue growth expected to be in the range of 10-15% and adjusted profits before tax expected to be between £110m and £140m. On 21 February Asos delisted from the AIM market and was admitted to the main market. Management said this would incur costs of between £10m and £15m. Then, on 2 March, the company issued a profits warning after it suspended sales in Ukraine as it became impossible to serve customers there. The retailer also terminated operations in Russia. These two regions represented around 4% of revenue and about £20m of group profit.
Wednesday 13 April
UK CPI (March); Tesco, JPMorgan results (see top three events, above)
Bank of Canada rate decision
It was a little surprising that the Bank of Canada saw fit to defer a rate rise at its March meeting, given that in January the central bank warned that inflation was likely to be higher than forecast through most of this year and for a good part of 2023.
The fact they didn’t raise rates says more about their timidity than anything else, especially with CPI at 30-year highs and the labour market holding up well. With the Fed having raised rates in the US, the BoC now has more cover to follow suit.
While we can expect to see a quarter-point rate rise this week, taking interest rates to 0.75%, policymakers may consider going bigger, given that the Fed is likely to announce a half-point hike in May.
China trade (March)
China’s last trade update showed that exports grew an annual 16.3% in the January-February period – a strong uptick by most countries’ standards, but down from 29.9% in December. Imports grew 15.5%, down from 19.5% in December. This slowdown suggests that higher prices, supply chain disruptions and Beijing’s zero-Covid policy continued to have a negative impact on demand.
Ongoing lockdowns in Shanghai and other Chinese cities are likely to continue to act as a brake on demand, as China experiences its biggest coronavirus outbreak of the pandemic. Some industries have remained open in Covid-secure settings, though output is likely to remain limited. Oil demand is also likely to fall as a result of the various restrictions.
Estimates suggest that exports grew 14% in March, while import growth is expected to fall to 7%. A poor set of March numbers could prompt speculation of further loosening of monetary policy by the PBoC in the coming weeks.
Thursday 14 April
European Central Bank rate decision
When the European Central Bank met in March, we saw the first signs that members on the governing council were having a wobble over inflation. In a surprise move, the ECB signalled that it plans to taper its asset purchase programme with a view to ending it in Q3. And in another unexpected shift, the ECB made no reference to interest rates remaining at or falling from current levels, opening the door to a possible interest rate rise later this year.
This hawkish tilt highlights the challenge facing the ECB. With the eurozone’s March CPI reading surging to a new record high of 7.5%, up from 5.9% in February, anxiety over inflation is likely to increase further, even if core prices still remain low at 3%. Inflation is running especially high in Poland, Estonia and Lithuania, where levels are well above 10%. The pain of sharply higher prices is now being felt in the bigger European economies like Germany, where inflation is now above 7% and at post-unification highs. Rampant inflation contrasts with the ECB’s inflation target of 2%. At the same time, rising bond yields are likely to hurt the most vulnerable member states the most. Italy is a particular problem. It can ill afford higher borrowing costs – its annual PPI is running in excess of 41%.
The ECB doesn’t have the luxury of doing nothing, even if it would rather sit and wait. At some point interest rates will have to rise, possibly as soon as Q3.
Citigroup Q1 results
Citigroup’s shares have fallen 30% in the last year, compared to a 5% rise in the NYSE Composite over that period. CEO Jane Fraser, who took over in March 2021, has had a hard task managing a bank in the midst of a significant reorganisation while trying to keep shareholders happy.
The bank’s Q4 numbers were a mixed bag, with revenue from FICC sales and trading falling short of expectations at $2.54bn, while equities sales and trading also missed expectations at $785m. Investment banking and advisory performed better, coming in at $1.85bn and $571m, respectively. This helped push total revenue above expectations to just over $17bn.
The retail business was also mixed, with services revenue falling to $1.3bn and mortgage lending also down. Costs came in higher than expected partly due to a $1.2bn charge on the bank’s South Korean operations, although profits came in better than expected at $1.99 a share.
Given the bank’s position as one of the bigger US domestic lenders, it is one of the key barometers of the US housing market, alongside Wells Fargo. With this week’s Q1 numbers likely to paint a troubling picture of US mortgage rates, investors will be looking for progress on the business split that was announced in January. Some shareholders appear concerned that Fraser is overcomplicating the task of reorganising the bank.
A new unit called Legacy Franchises is set to be created, comprising the business units that the bank wishes to offload. The rest of the business is set to be split into two divisions – personal banking and institutional banking. Personal banking looks set to be divided into US personal banking and global wealth management, while the institutional side will include investment banking, markets and services.
For Q1, profits are expected to come in at $1.71 a share, though look out for an increase in costs as the restructuring gets under way. We could also see losses as a result of Russia exposure.
Goldman Sachs Q1 results
Despite a record-breaking 2021 Goldman Sachs’ share price has slipped back from the record high it set in November, falling over 20% year-to-date. The Q4 headline numbers had net revenue at $12.64bn and EPS at $10.81 a share. EPS was down from Q3 and year-on-year, with the bank pointing to an 8% increase in headcount during 2021 as the reason for higher operating expenses.
Trading revenue in Q4 came up short at $3.99bn, below expectations of $4.27bn, as did equities and sales trading which came in at $2.12bn, well short of forecasts of $2.47bn, and also below 2020 levels. The investment banking division turned in a record quarter with revenues of $3.8bn.
Concerns over the outlook for 2022 appear to be behind the stock’s recent declines, as investors start to mull the prospect of tighter margins, the uncertainties of multiple rate increases and surging inflation. For Q1, profits are expected to come in at $9.46 a share, though the bank could take a hit on its Russia exposure.
Friday 15 April
Good Friday: markets closed
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Selected company results
|MONDAY 11 APRIL||RESULTS|
|No major announcements||--|
|TUESDAY 12 APRIL||RESULTS|
|JD Sports Fashion (UK)||Full-year|
|Nanoco Group (UK)||Half-year|
|Pure Cycle (US)||Q2|
|WEDNESDAY 13 APRIL||RESULTS|
|Delta Air Lines (US)||Q1|
|First Republic Bank (US)||Q1|
|JPMorgan Chase & Co (US)||Q1|
|Rent the Runway (US)||Q4|
|THURSDAY 14 APRIL||RESULTS|
|Ally Financial (US)||Q1|
|Goldman Sachs Group (US)||Q1|
|Morgan Stanley (US)||Q1|
|PNC Financial Services (US)||Q1|
|Progressive Insurance (US)||Q1|
|Rite Aid (US)||Q4|
|State Street (US)||Q1|
|UnitedHealth Group (US)||Q1|
|US Bancorp (US)||Q1|
|FRIDAY 15 APRIL||RESULTS|
|Sonida Senior Living (US)||Q4|
Company announcements are subject to change. All the events listed above were correct at the time of writing.