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The Week Ahead: Fed, BoE rate decisions; Cineworld, Deliveroo, Ocado results

The week ahead sees key interest rate decisions at the US Federal Reserve and the Bank of England. Both central banks are expected to press ahead with a quarter of a percentage point increase, despite uncertainty stemming from the war in Ukraine, as inflation continues to soar. On the corporate earnings front, we pick out Cineworld’s full-year results as one to watch, while investors will be hoping that the latest results from Deliveroo, Ocado and FedEx deliver the goods.  

OUR TOP THREE EVENTS FOR 14-18 MARCH 2022:

US Federal Reserve interest rate decision – Wednesday

With US headline inflation at 8% and rising, it seems almost certain that the US Federal Reserve will raise interest rates this week, probably by a quarter of a percentage point. Some Fed members want an interest rate rise of half a percentage point, but the consensus position is likely to be for a more cautious approach given Russia’s invasion of Ukraine and the resultant surge in global commodity prices. 

The most recent jobs data showed that the US economy added 678,000 jobs in February, while unemployment fell to 3.8%. Wages were up 5.1% year-on-year, a slight slowdown from annual growth of 5.5% in January, suggesting that wage growth may be levelling off. Although the numbers point to a strong jobs market, supporting the case for higher interest rates, the Fed must now manage its messaging on future rate rises against a backdrop of surging input prices, which are likely to slow the US economy over the course of this year. 

James Bullard of the St. Louis Fed has been particularly vocal about the need for a 1% rise in interest rates by 1 July. Calls for aggressive interest rate hikes could become more urgent if the headline rate of inflation climbs to 10% by the middle of summer. This week’s inflation forecasts are therefore likely to be significant, as markets look to price in the Fed’s stance on rate hikes. Before the war in Ukraine, some forecasters were expecting as many as seven rate rises this year. We may not see that many now, but Fed policymakers are determined to press on with a “series” of rate hikes. However, they are in a difficult position – tighten too quickly and they risk tipping the economy into recession, but act too timidly and the cost of living may continue to spiral.      

Bank of England interest rate decision – Thursday

Despite its muddled guidance over the last few months, the Bank of England has arguably been ahead of the game when it comes to rate rises. Two rate rises since December have lifted the base rate to 0.5%, though that’s still below pre-pandemic levels. With unemployment low and wage growth subdued, the central bank must be looking with some concern at how much higher inflation is likely to go. With consumer price inflation at 5.5%, and retail price inflation even higher, the Bank of England expects prices to rise further, recently estimating that the consumer price index (CPI) will peak at 7.25% by April. 

However, in light of Russia’s invasion of Ukraine, which has exacerbated the surge in commodity prices, the 7.25% estimate is likely to be surpassed, with the very real prospect that CPI could move above 10% by the summer. This will make life difficult for the Bank of England, which has a mandate to keep inflation at 2%. A weaker pound is unlikely to help. The Bank of England may have to raise interest rates a few more times this year. This is likely to have a significant impact on the UK economy, particularly on the housing market and those on variable rate mortgages. It’s hard to see how the Bank of England can avoid raising interest rates to 0.75%, returning the base rate to its pre-pandemic level.

Cineworld full-year results – Thursday

Cineworld’s share price has had a terrible 12 months, falling almost 70%. A year ago the shares rallied to 120p on optimism that revenue would rebound as cinemas reopened. However, sentiment has soured, despite some improvement in revenue in the last six months. The company reported half-year revenue of $292.8m, down by nearly half from the same period a year earlier. As expected, admissions were also down, falling 70% to 14.1m from 47.5m in the first half of 2020, as the cinema chain continued to be negatively affected by coronavirus restrictions. 

The company said it was mulling a US listing, as well as exploring the possibility of listing its Regal cinema operations in the US. The company needs to act to shore up its finances, after it lost its court case with Cineplex. The Ontario court ordered Cineworld to pay Cineplex damages of C$1.23bn for lost synergies, and C$5.5m for lost transaction costs. Keen to avoid falling even deeper into debt, Cineworld says it will appeal. 

In better news for the company, Cineworld reported in January that group revenue for December came in at 88% of 2019 levels, up from 56% in November, despite the restrictions that were in place to combat the spread of Omicron. Cineworld’s US operation led the way, posting 91%, while UK venues were at 89% of 2019 levels. As a result of these improvements, Cineworld said it was cash flow positive in Q4. 

All of this is very welcome, but it’s hard to see a road to recovery unless the company reduces its debt level from $8.4bn and grows revenues. Surging inflation is the latest obstacle facing the company, as increases in the cost of living are likely to squeeze consumers’ disposable incomes. Thursday’s preliminary announcement of full-year results could be a pivotal moment for the business. 

MORE KEY EVENTS (14-18 MARCH):

Monday 14 March

No major announcements

Tuesday 15 March

China retail sales (February) 

In December – the last month for which data are available – growth in China’s retail sales fell to 1.7%, down from 3.9% in November and well below expectations of 3.8%. Industrial production, another key economic indicator, came in slightly better at 4.3%, up from 3.8% in November. In a sign that the central bank is concerned about weakness in the economy, in January it cut the rate on one-year medium term lending facility loans by 10 basis points to 2.85%. 

Retail sales numbers for January and February combined, due out on Tuesday, are expected to show a Chinese New Year-related pickup. Estimates point to an increase of 3% from the year-ago period, while industrial production is forecast to rise by 4.1%. Both of these are significant falls from the same period a year ago.

Last week’s trade data showed that exports grew 16.3% in January and February compared to a year earlier, marking a slowdown from December’s growth of 29.9%. Imports grew 15.5%, which also marked a slowdown from 19.5% in December. This weakness suggests that higher prices and supply chain disruptions continued to have a negative impact on economic activity, while covid restrictions are also likely to have stifled demand.  

UK earnings, unemployment data (January)

UK unemployment in the three months to December was 4.1%, its lowest level since the three months to June 2020, and is expected to remain at or around this level when the January numbers are released later this week. The number of vacancies remains high, which is perhaps unsurprising given that earnings growth excluding bonuses was 3.7% in the October-to-December period, down from 5% in the three months to September. Pay including bonuses grew by 4.3% in three months to December. 

Though the figures may be lacklustre, they do not reflect the various pay increases announced by retailers over the past few months. Sainsbury’s, for instance, announced a 10% pay increase. Tesco announced a 5.5% increase, while Lidl has also announced similar inflation-linked pay rises in recent months. This should help underpin wage growth later this year. However, in the three months to January pay growth including bonuses is expected to remain flat at 4.3%. 

Wednesday 16 March

US Federal Reserve interest rate decision (see top three events, above)

US retail sales (February)

US retail sales rebounded in January after a decline of 1.9% in December. Despite weak consumer confidence, January retail sales grew 3.8%, the fastest rate in 10 months, and well above expectations of 2%. The biggest gains were in online sales, furniture, autos and building materials, as US consumers spent money on improving their homes and upgrading their cars, suggesting little concern over rising energy prices and higher living costs. US consumers are entering the looming wage squeeze from a slightly better place financially thanks to the various stimulus packages of the last 18 months. However, in the longer term those benefits are likely to fade, as input prices continue to rise. Expectations are for US retail sales to rise by 0.5% in February.  

Williams-Sonoma Q4 results

US kitchen and homeware retailer Williams-Sonoma has seen its share price come under pressure over the last few weeks. As is the case for many retail stocks, sentiment has been hit concerns over rising costs and falling margins. This has seen the shares decline more than 25% from the record highs of November. 

In Q3 the company reported revenue of just over $2bn, while profits beat expectations, coming in at $3.32 a share. Sales rose 16.9% year-on-year, with e-commerce sales accounting for 67% of total sales. Sales grew across all brands, with West Elm and Pottery Barn standing out. The retailer said it expects to see full-year revenue growth of 22-23%. Consensus estimates are for full-year revenue of $8.32bn, with earnings per share at $14.26. Q4 earnings are expected to equal $4.84 a share.

Thursday 17 March

Bank of England interest rate decision; Cineworld full-year results (see top three events, above)

Deliveroo full-year results

Deliveroo hasn’t been able to catch a break since its IPO at the end of March last year. The shares have been on a slow decline since briefly recovering to their IPO price of 390p in August. While the company is on course to beat the £1.2bn in revenue it recorded in 2020, the shares have struggled to gain any sort of traction. They currently sit just around the 110p mark. 

Consensus estimates are for full-year revenue to increase 56% to £1.9bn. In Q3 Deliveroo raised its full-year revenue growth guidance to between 60% and 70%, leaving gross profit margins unchanged at 7.5-7.75%. The Q4 update in January saw Deliveroo report that full-year pro forma gross transaction value (GTV) rose 70% to £6.63bn, at the top end of its previously guided 60-70%. Orders grew 42% to 80.8m, and GTV increased 36%, beating consensus estimates. The Q4 order figures implied that orders in 2021 totalled 300.6m, up 73%. 

Deliveroo has seen orders surge on deals with Amazon and Morrisons, but concerns over rising costs, the competitive nature of the delivery market, and falls in the share prices of competitors like Just Eat have weighed on investor sentiment. 

Ocado Q1 results

The Ocado share price has halved since the start of last year, with the shares now back where they were before the first lockdown. The decline from the record highs of February 2021 has come despite Ocado reporting full-year revenue of £2.5bn, a modest rise from the year before. Although revenues have grown, so have losses. This is what shareholders are unhappy about. 

A big increase in costs saw EBITDA fall to £61m for 2021, while losses increased to £176.9m from the previous year’s loss of £52.3m. Higher capital expenditure of £680.4m over the year, along with higher expected spending of £800m for 2022, has raised shareholder concerns over when the business will return a profit. Management insist that the increased spending will safeguard future revenue, but that has been a familiar refrain for a while now and it appears that investors are losing patience. They're tired of waiting for profits tomorrow.

FedEx Q3 results

FedEx has been a key cog in the US vaccination effort and a decent bellwether of US consumer demand over the past few months. After warning on profits in Q1 and saying it was increasing prices, Q2 saw the company post revenue of $23.5bn and profits of $4.83 a share, both well in excess of expectations. The company said that costs were still increasing, but that this would be offset by the increase in prices. It restored its 2022 profit target of $20.50-$21.50 a share, after cutting the target in Q1.

Since the Q2 update the shares have fallen back, which isn’t surprising given that so has pretty much everything else. The big rises in energy prices which we’ve seen in the past few weeks are likely to hammer its margins, and while it will probably be able to pass on some of these costs, it won’t be able to pass on all of them. This suggests its full-year profit target could come under threat again. Profits for Q3 are expected to come in at $4.68 a share.

Friday 18 March

JD Wetherspoon half-year results

The last few days have seen JD Wetherspoon shares drop to a 23-month low over concerns about the effect higher energy costs and other commodity price rises are likely to have on its margins. For the year to the end of July, Wetherspoon posted a record loss of £154.7m. Revenue fell 40% to £772.6m, down from £1.26bn a year earlier. 

In the first quarter of the chain’s current financial year, it reported an 8.9% decline in sales compared to the high base of a year earlier, when “Eat Out to Help Out” boosted the numbers to record levels. In January, CEO Tim Martin confirmed that the pub chain would incur a half-year loss, mainly due to December’s Covid restrictions. He also expressed confidence that the second half of the year would be better as restrictions are lifted and the weather warms up. 

Index dividend schedule

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Selected company results

MONDAY 14 MARCH RESULTS
Craneware (UK) Half-year
EverCommerce (US) Full-year
Gitlab (US) Q4
Whole Earth Brands (US) Q4
TUESDAY 15 MARCH RESULTS
Boxed (US) Q4
DFS Furniture (UK) Half-year
Ferguson (UK) Half-year
Informa (UK) Full-year
Northwest Pipe (US) Q4
SentinelOne (US) Q4
WEDNESDAY 16 MARCH RESULTS
Fevertree Drinks (UK) Full-year
Ideanomics (US) Q4
Restaurant Group (UK) Full-year
Samsonite International (HK) Full-year
Semtech (US) Q4
Shoe Carnival (US) Q4
Williams-Sonoma (US) Q4
WM Morrison Supermarkets (UK) Full-year
THURSDAY 17 MARCH RESULTS
Cineworld (UK) Full-year
Deliveroo (UK) Full-year
FedEx (US) Q3
Kirkland's (US) Q4
Ocado (UK) Q1
Wickes (UK) Full-year
FRIDAY 18 MARCH RESULTS
JD Wetherspoon (UK) Half-year
Pensionbee (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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