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The Week Ahead: BoE rate meeting; US jobs report; Shell, BT results

Read our pick of the top stories to look out for in the week commencing 31 January 2022, and view our key company earnings schedule.


Bank of England rate meeting – Thursday

The Bank of England’s surprise decision last month to raise the base rate from 0.1% to 0.25% marked a significant shift in mindset. The bank’s monetary policy committee voted by a majority of 8-1 to increase interest rates, having voted 7-2 to keep rates at 0.1% in November. The change of heart was welcome, and is likely to have been prompted by two key factors. First, the IMF essentially urged the Bank of England to get on with it. Second, inflation is soaring. The UK’s consumer price index (CPI) hit 5.1% in the 12 months to November, while the retail price index (RPI), which also includes housing costs, reached 7.1%, its highest level in 30 years. In December, CPI climbed to 5.4%, with RPI rising to 7.5%. Some economists are forecasting that CPI could rise to 6% by April, which may spur the Bank of England to raise the base rate to 0.5% on Thursday.

Some observers suggest that another 25 basis-point rise will do little to curb inflation because a rate hike cannot address the underlying issues affecting the economy, such as the supply chain crisis, energy price rises and a shortage of workers. However, that rather misses the point. Interest rates cannot stay at near-zero levels for ever – at some point central banks around the world will need to pull them off the floor, if only to buy themselves some space to cut them again at a later stage. This does not imply that central banks must go on a rate-hiking spree. But if they are to retain any degree of credibility when it comes to their core mandate of delivering price stability, they need to take the risk of spiralling inflation much more seriously. Bank of England governor Andrew Bailey said in November that it isn’t his job to steer financial markets on interest rates, but he is mistaken. Maybe he needs to take a closer look at his job description, or talk to his peers at the US Federal Reserve and the European Central Bank, because it is his job to guide market expectations. The sooner he realises that, the better. 

Shell Q4 results – Thursday

Shell has been one of this year’s early winners, its shares climbing more than 10% so far in January to reach their highest levels since February 2020. The rebound in oil and gas prices has certainly helped the stock recover from the huge losses of 2020, though a disappointing Q3 update prompted activist shareholder Dan Loeb to call for the company to break up. These calls appear to stem from frustration among some shareholders over what they regard as the underperformance of the business. Loeb, who runs New York-based hedge fund Third Point, wrote in a client letter that Shell should consider separating its legacy energy business from its liquefied natural gas, renewables and trading businesses, essentially suggesting that Shell cannot be both an oil major and a green energy pioneer. In September Shell announced that it would sell its oil and gas production in the Permian Basin, the biggest American oil field, to ConocoPhillips for $9.5bn, promising to return $7bn to shareholders and to pay down debts which have fallen to $57.5bn. 

Adjusted earnings for Q3 came in at $4.13bn, below expectations of $5.42bn, and also well short of Q2’s $5.53bn. The number was a particularly poor outcome, even accounting for disruptions caused by Hurricane Ida in late August and early September, which cost the business $400m. Higher costs elsewhere were also a drag. But with natural gas prices at record highs in Europe, and at multi-year highs in the US, shareholders are justified in thinking that the company should be doing better. Shell management said they expected to see an improved performance in Q4. They will be hoping to be proved right, otherwise they could see more shareholders join Third Point in calls for a breakup.  

US jobs report (January) – Friday

The last two US non-farm payroll reports of 2021 indicated slower-than expected jobs growth, alongside decent figures for other measures of the American labour market. The most recent report showed that 199,000 jobs were added to the US economy in December an 11 month low, and a 20% decrease from the 249,000 jobs that were added in November. The December figure came in lower than consensus estimates for 400,000 new jobs, and was also well below the 807,000 jobs that were added in December according to payroll processing firm ADP. However, other data points were more encouraging. The report showed that unemployment fell to 3.9% in December, down from 4.2% in November, and only marginally above pre-pandemic levels.

Meanwhile, the labour force participation rate edged up from 61.8% in November to 61.9% in December. Average hourly wages climbed 4.7% to more than $31 an hour in the 12 months to December, above expectations of 4.2%. Wage growth in the year to November was revised up to 5.1% from 4.8%. News of stronger-than-forecast wage growth helped drive the rise in bond yields that we saw at the beginning of January. The key takeaway from the US’ December jobs report would appear to be that, despite higher wages and more than 10m job vacancies, some would-be workers are in no hurry to return to the workplace. Looking ahead to the upcoming January report, consensus estimates cautiously suggest that the US economy added 238,000 jobs during the month, with unemployment steady at 3.9%. 


Monday 31 January

No major announcements

Tuesday 1 February

Germany, France PMIs (January) 

Germany and France release their latest purchasing managers’ index (PMI) readings this week, with manufacturing PMIs out on Tuesday and services PMIs set for Thursday. Despite concerns over a slowdown in the German economy at the end of last year, we saw an end-of-year rebound in the latest flash PMI numbers for January, which bodes well for the final PMI readings. In December, German services PMI slipped into contraction territory at 48.7, its lowest level since February. However, the recent preliminary estimate for January showed a return to expansion territory at 52.2, suggesting that services activity rebounded. Manufacturing activity also looks to have improved, with a reading of 60.5 in preliminary estimates for January, up from 57.4 in December. This uptick came as a surprise, given reports of supply chain disruptions caused by Omicron. In France, economic activity was more mixed. The flash figures for January indicate that services activity slipped back to 53.1, from 57.0 in December. Meanwhile, French manufacturing activity remained steady, with the flash results giving a reading of 55.5 for January, flat compared to December’s 55.6.

Alphabet Q4 results

Google’s parent company Alphabet has seen its share price fall roughly 12% in the last month, dropping below its 200-day moving average for the first time since April 2020. That’s despite a strong Q3 in which the company generated record profits, allaying fears that Apple’s privacy changes might hit Google advertising income. Total revenue came in at $65.12bn, while profits rose to $18.9bn or $27 99 a share. Google’s cloud division continued to reduce the level of its losses as it plays catch-up to the market leaders Amazon and Microsoft in this space. Google was able to shrug off the worst effects of the Apple privacy changes due to its focus on its own Android operating system, which wasn’t affected by those changes. YouTube ad revenue grew 43% to $7.2bn, missing estimates of $7.5bn partly because of the iOS changes. Overall revenue from advertising came in at $53.6bn, to which cloud revenue contributed $4.99bn, below consensus estimates of $5.04bn. All in all, then, the company recorded a positive Q3 amid rising costs following the recruitment of 18,000 extra staff over the previous year. Many companies are facing increased costs, but this issue shouldn’t have a significant impact on the likes of Alphabet. Consensus estimates are for Q4 profits of $27.38 a share.

Wednesday 2 February

EU flash CPI (January) 

After Eurozone inflation hit a record high of 5% in December, another increase would pile the pressure on the European Central Bank (ECB) to take a more proactive stance against rising prices. The high level of inflation is causing unease in some of the thriftier parts of northern Europe. The ECB can counter that core prices are rising more slowly, at 2.6% year-on-year, but even that exceeds the ECB’s inflation target of 2%. With supply chain issues continuing through December, it’s possible that this week’s flash CPI reading will edge up even higher. 

Vodafone Q3 results

Vodafone shares have had a sticky few months since reporting some decent half-year numbers in November. Last week the shares hit their highest levels since June on reports that Vodafone was discussing a deal with Iliad to merge their respective Italian operations. European telecom providers have had to deal with a considerable hit to their revenues over the past two years due to weaker roaming revenues as fewer people went on cross-border trips. At the same time, these companies have ploughed billions of euros into 5G to support the future growth of their businesses. In November Vodafone reported Q2 revenue of €11.39bn, pushing half-year revenue up to €22.49bn, above expectations of €22.1bn. Half-year revenue is up 5% compared to the same period last year, driven by a decent performance in Germany, Vodafone’s largest market, where service revenue grew 1.2%. Vodafone guided expectations for full-year adjusted EBITDA to be towards the top end of its forecast range of between €15.2bn and €15.4bn. The company also adjusted its free cash flow forecast upwards to €5.3bn, though the risks to this come from a possible slowdown to operations in Germany, where the economy struggled at the end of last year.  

Thursday 3 February

Bank of England rate meeting; Shell Q4 results (see top three events, above)

ECB rate meeting 

Despite EU CPI hitting a record high of 5% in December, European Central Bank president Christine Lagarde has continued to insist that the ECB is not inclined to look at raising rates this year. In January, Lagarde said that there was less urgency for the ECB to act because the EU recovery was well behind that of the US, and that inflation was likely to be temporary. This comes across as incredibly naïve, especially when you look at producer price indexes (PPI) across the region, which are at record highs in some cases. In Germany, December’s PPI reading rose 5% in a single month, and by 24.2% year-on-year. Spain and Italy recorded even bigger increases at 33.1% and 27.1%, respectively. It is unrealistic to think that higher prices for domestic producers of goods and services will not filter through into higher CPI. Nonetheless, the main focus for investors will be how the ECB manages its messaging around the end of its pandemic emergency purchase programme (PEPP) next month, and whether it looks at increasing its asset purchase programme (APP) to compensate. Bond purchases under the APP are currently running at €20bn a month. One individual to keep an eye on will be new Bundesbank president Joachim Nagel, who fired a broadside at the ECB last month. He warned that the bank needed to be vigilant, given his concern that inflation risks are escalating, and could last a lot longer than expected.   

UK services PMI (January) 

December saw a sharp drop in UK services sector activity, with the PMI reading falling to 53.6 from 58.5 in November. A further decrease is likely in January, as so-called plan B restrictions remained in place through most of the month to limit the spread of the Omicron variant. Preliminary data for January, released on 24 January, indicated that PMI had fallen to 53.3, an 11-month low. Though disappointing, this is still an improvement on this time last year, when January PMI came in at 39.5 as the economy was locked down throughout January and February. The latest set of restrictions clearly hit the hospitality sector hard, most notably pubs, restaurants and some retail outlets. With consumer confidence low as the cost of living rises, the next two to three months could see services PMI struggle to move back towards the October level of 59.1. Meanwhile, UK manufacturing PMI, which is due on 1 February, is expected to come in at 56.9, down from December’s 57.9.  

BT Group Q3 results

Since November, when BT reported its results for the six months to the end of September, the shares have slowly edged their way back to levels last seen in mid-July. The Telecoms giant reported that it had delivered on its cost savings programme ahead of schedule, and that Q2 EBITDA came in at £1.88bn, with revenue in line at £5.24bn, bringing total half-year revenue to £10.3bn, down 3% from the year-ago period. Enterprise and Global were the divisions that weighed on revenue. The Openreach fibre to the premises (FTTP) network has now reached 6m premises, with average expected build costs lowered to between £250 and £350 per premises, helping to keep profits just above £1bn, a decline of 5%. 

There has also been chatter about potential bid interest for its Openreach division, which is nothing new. In fact, the rumours are getting a bit stale. There would be very little upside for BT in selling off the one part of the business that is likely to drive growth over the next few years. Nonetheless, the underperformance in the share price attracted a £2bn investment from Altice in June, which was topped up to an 18% stake in December. Many have suggested that this could be a prelude to a takeover bid sometime in the next few months. While Altice President Patrick Drahi said that he wasn’t interested in making a bid in the short term, that certainly doesn’t preclude him from getting more involved if he feels certain things could be done differently, or more effectively. BT has already taken steps to free up extra cash by reportedly agreeing a deal to offload its BT Sport channel for around £580m to DAZN. Negotiations are still ongoing and there is interest from other parties, with Discovery said to be interested in a joint venture.  

Amazon Q4 results

The slide in the Nasdaq 100 over the past few days has dragged Amazon’s share price to its lowest level since summer 2020, with the shares having fallen more than 20% from November’s record high. When the company reported its Q3 results there were signs that Amazon was starting to see a slowdown in profit growth due to sharply rising costs. Sales remained strong in Q3, coming in at $110.8bn, slightly below the $111.8bn that was expected. However, profits came in at $6.12 a share, well below expectations of $8.96 a share, mainly due to a significant increase in costs, which rose by an extra $2bn, with half of that going towards wages. Amazon Web Services was a bright spot in Q3, with revenue rising to a better-than-expected $16.1bn, up from $14.8bn in Q2, and higher than Q1’s $13.5bn. But the online store suffered a quarterly decline in revenue to $49.94bn, down from $52.9bn in Q2. 

For Q4 Amazon said it expected to see higher sales than in Q3. The company forecast sales of between $130bn and $140bn, with the holiday period helping to drive the increase. However, management also warned that costs were likely to go up significantly, possibly by as much as $4bn. This raised the prospect that Amazon might not make a profit in Q4. Again, higher costs were being driven by the wage bill, as the business looked to hire an extra 250,000 people globally for the holiday period. Sign-on bonuses were also being offered to entice prospective employees. The projected cost increase would take overall annual expenses close to $20bn, a big hike from the $12bn that was expected at the start of the year. Profits for Q4 are expected to come in at $3.89 a share.  

Friday 4 February

US jobs report (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 31 JanuaryResults
Cirrus Logic (US)Q3
Kilroy Realty (US)Q4
Porvair (UK)Full-year
SThree (UK) Full-year
Tuesday 1 FebruaryResults
Alphabet (US)Q4
Amcor (UK)Half-year
Electronic Arts (US)Q3
Exxon Mobil (US)Q4
General Motors (US)Q4
Match Group (US)Q4
Starbucks (US)Q1
SunCoke Energy (US)Q4
United Parcel Service (US)Q4
Wednesday 2 FebruaryResults
Aflac (US)Q4
Boston Scientific (US)Q4
Capri Holdings (US)Q3
Essex Property Trust (US)Q4
Meta Platforms (US)Q4
MetLife (US)Q4
New York Times (US)Q4
Santander UK (UK)Full-year
T-Mobile (US)Q4
Vodafone (UK)Q3
Thursday 3 February Results
Activision Blizzard (US)Q4
Amazon (US)Q4
Bill.com (US)Q2
BT Group (UK)Q3
Columbia Sportswear (US)Q4
ConocoPhillips (US)Q4
Estee Lauder (US)Q2
Ford (US)Q4
GoPro (US)Q4
Hershey (US)Q4
Honeywell International (US)Q4
Hubbell (US)Q4
Janus Henderson Group (UK)Full-year
News Corp (US)Q2
Prudential Financial (US)Q4
Ralph Lauren (US)Q3
Renishaw (UK)Half-year
Shell (UK)Q4
Skechers (US)Q4
Walker & Dunlop (US)Q4
World Wrestling Entertainment (US)Q4
Friday 4 FebruaryResults
Meridian Bioscience (US)Q1
Regeneron Pharmaceuticals (US)Q4
Twist Bioscience (US)Q1

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

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