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The week ahead: UK wages data & Q4 GDP

Chief Market Analyst, Michael Hewson, looks at this week’s rebound in the stock markets, and asks where the next resistance levels are. He also looks ahead to the latest UK wages data and Fed minutes while assessing the outlook for EUR/USD and GBP/USD.

Reckitt Benckiser FY17 results 

Monday: Consumer goods is a sector that has seriously underperformed in the past year or so as rising costs have started to eat into revenue growth. We’ve already seen sector peers Unilever and Nestle offload underperforming parts of the business, while Reckitt went the other way when it acquired Mead Johnson. At its Q3 update the company announced another disappointing performance, and while this is partly due to events outside its control, like the cyber attack in June, there are doubts as to whether the reorganisation announced in October last year will be enough to turn things around. A poor update could hasten calls for the business to be broken up, and become more focused on its consumer health business.  

HSBC FY17 results 

Tuesday: HSBC’s focus on Asia is expected to yield a big jump in profits when the company releases its latest full year numbers this week. At its Q3 update the bank reported an increase in profits of nearly 450%, benefitting from the strong growth of its core Asia markets of China and Hong Kong. Like most of its peers, the investment banking division is likely to have underperformed, though the recent rise in yields is likely to have some positive effects.  

Wal-Mart Q4 update 

Tuesday: Wal-Mart has been one of the few US retailers that managed to take the fight to Amazon in terms of the online shopping experience. Big box retailers have come under increasing pressure from the low overheads model that Amazon is able to bring to the table, however Wal-Mart’s stronger grocery offering is helping it ride out the storm. The company’s last trading update at the end of 2017 showed that revenues in its US stores were holding up well, however the recent increases in wages and bonuses announced by its management could cause the company to revise down its outlook for 2018. 

Federal Reserve minutes 

Wednesday: The FOMC teed up the prospect of another rate rise next month at its most recent meeting in January. It upgraded its outlook for inflation on a 12 month basis while staying optimistic about the health of the US economy. Given recent volatility these minutes may not be too instructive, but as long as US data continues to show increasing price pressure then a March rate hike could be the first of many this year.

Lloyds and RBS FY17 results 

Wednesday & Friday: The fortunes of two of the UK’s bailed out banks could not be more different. Lloyds Banking Group (Wednesday) is now back in private hands having paid back all of its government bailout. It has reinforced its presence in the UK market with a significant restructuring of the business, improving its digital and online presence as well as buying the MBNA credit card division from Bank of America Merrill Lynch to increase its presence in the UK credit card market. Royal Bank of Scotland (Friday) on the other hand, while performing well with respect to the underlying business is still wrestling with a number of legacy issues. The latest of which is malpractice at its Global Restructuring Group unit where it is alleged staff were encouraged in mis-selling unsuitable interest rate products to small businesses. Read more on the performance of UK banks

German IFO Business survey (February) 

Thursday: The German economy started 2018 the same way it finished the end of last year, with business sentiment holding up well, along with the more sector specific PMI numbers. There is some evidence that higher costs could start to impact profitability as we head into 2018, if the recent 4.3% pay rise won by German metal workers heralds a wider shift to higher wages across the economy. 

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