The Week Ahead: US, UK inflation; NatWest, Airbnb results

After 20-plus years of award-winning service (he again led the team to the Best In-House Analysts award at last year’s Professional Trader Awards), our chief market analyst, Michael Hewson, is stepping down. This is his last Week Ahead. Thanks for reading – we hope his insights and analysis helped support your trading. 

Here’s Michael’s pick of the top three economic and company events in the week commencing Monday, 12 February:

US CPI (January)

Tuesday 13 February: The annual rate of consumer price inflation in the US rose to 3.4% in December, up from a five-month low of 3.1% in November. The persistence of inflation and a surge in hiring (the US economy added 353,000 jobs in January, almost twice as many as forecast) have led the US Federal Reserve to all but rule out an interest rate cut in March. Although Fed chair Jay Powell said earlier this month that policymakers still expect to make three separate quarter-point rate cuts this year, markets now expect the first rate cut to arrive after May. CPI for January is expected to remain at 3.4%, while core CPI – which excludes volatile items such as food and energy – is forecast to ease to 3.7%, down from 3.9% in December. 

UK CPI (January)

Wednesday 14 February: The UK’s consumer price index unexpectedly increased 4% in the year to December, up from an almost two-year low of 3.9% in November, and above economists’ estimates of 3.8%. The uptick was mainly driven by higher prices for tobacco, as a result of a government tax increase, and leisure goods. With inflation proving sticky, the Bank of England held interest rates at 5.25% at its last rate-setting meeting in January. The rate hold was a split decision. Although most members of the nine-person Monetary Policy Committee voted for a hold, Swati Dhingra broke rank to vote for a rate cut, while Catherine Mann and Jonathan Haskel continued to push for a quarter-point rate rise. The latter pair’s hawkishness appears to be driven by concerns over domestic inflation pressures, not least the fact that service-sector inflation is running at 6.4% and expected to go higher. Of perhaps equal concern is the fact that average earnings grew 6.6% year-on-year in the three months to November (the latest average earnings figures are set to be released on Tuesday, a day before CPI). Although the headline rate of inflation is expected to slow to 2% in April because of a further fall in the energy price cap, the Bank of England forecasts that inflation will rise to 2.75% by the end of the year. If the rate of pay growth also remains high, the BoE may continue to avoid appearing too eager to lower rates. 

NatWest Group full-year results

Friday 16 February: NatWest shares – down 30% over the past 12 months – slid to a 30-month low in October after the Q3 results prompted the bank to cut its full-year guidance on net interest margin (NIM) to just above 3%, down from 3.15%. NatWest also announced that the FCA is reviewing the findings of an independent review into the bank’s closure of Nigel Farage’s accounts at its private bank subsidiary Coutts. NIM guidance was downgraded for the second quarter in a row, having also been downgraded in Q2. In Q3, NIM fell to 2.94%. In terms of profits the picture was more positive. Reported profit after tax came in at £924m in Q3, pushing year-to-date profit up to £3.3bn. The upcoming Q4 and full-year results announcement gives the bank an opportunity to draw a line under the Farage “debanking” story and the departure of chief executive Alison Rose. Interim chief executive Paul Thwaite will be keen to look to the future, with the UK government considering the sale of its remaining 35% stake in the bank, which it bailed out during the 2008 financial crisis. Although the shares have recovered from the October lows, they remain well below their January 2023 highs, suggesting that management still has work to do to reassure investors that the bank’s governance problems are in the past. The appointment of a permanent successor to Alison Rose might help. Rather than waste money on looking for an external candidate, perhaps the bank should anoint Thwaite in the position, given he’s been doing the job for nine months now.

Other notable economic and company events in the coming week include:

Airbnb Q4 results

Tue 13 Feb: Airbnb shares have made solid gains since the stock joined the S&P 500 back in September. Even a guidance downgrade for its Q4 revenue expectations back in November wasn’t enough to stop the shares pushing higher. Revenue in Q3 grew 18% year-on-year to $3.4bn while profit rose to $6.63 a share, though a one-off tax benefit of $4.37bn boosted the numbers. For Q4, Airbnb guided revenue of between $2.13bn and $2.17bn, which would represent an increase of 13%. Profit is forecast to come in at $0.72 a share..

Robinhood Markets Q4 results

Tue 13 Feb: Although the number of monthly active users is declining, Robinhood has managed to improve revenue on an average user basis over the past few quarters, even though we aren’t anywhere close to the levels we saw back in Q2 2021 when average revenue per user was in triple-digit territory. In Q3 monthly active users fell to 10.3m, while average revenue per user rose to $80, up from $63 a year ago. Q3 revenue grew 29% to $467m, below market expectations, with growth mainly due to charging clients higher interest rates on their loans when they borrow money to buy securities on margin. For Q4 revenue is expected to come in at $456m, with interest expected to account for $236m of that total. The results announcement might also provide an update on how much progress has been made towards the launch of its UK platform.

Cisco Systems Q2 results

Wed 14 Feb: Cisco shares plunged to a six-month low after the company reported Q1 results in November. Although revenue and profit beat expectations, guidance for Q2 was lower than investors had expected. Revenues in Q1 rose by 7.6% to $14.67bn, but predictions for Q2 revenue of $12.7bn – which would represent a decline of over 6% – underwhelmed the market. Cisco also downgraded its full-year revenue forecast, although it did nudge its profit outlook upwards. Full-year revenue is expected to be between $53.8bn and $55bn, which would mark a decline on last year’s $57bn.The underperformance from Cisco is somewhat surprising given its aspiration to win over $1bn worth of orders for AI infrastructure from cloud providers through the 2025 fiscal year. For Q2, profit is expected to come in at $0.84 a share, down from the year-ago figure of $0.88 a share.

UK Q4 GDP

Thu 15 Feb: After the British economy shrank 0.1% quarter-on-quarter in Q3, many observers were hoping for a rebound in Q4. But that may not have materialised, especially as retail sales declined by 3.2% month-on-month in December. A second successive quarterly decline in GDP would put the UK in a technical recession. Manufacturing has been struggling for some time now, with the sector in contraction since July 2022, based on purchasing managers’ index (PMI) readings. Support has come from the services sector, which in January recorded a PMI reading of 54.3, its highest level since last May. In December there was a similarly robust reading of 53.4, a big improvement on the readings from August to October, all of which came in below 50, indicating contraction in the sector. One factor that might have helped boost the UK economy in the final quarter of last year was the sharp fall in the energy price cap in October. Slowing inflation may also have helped. However, the monthly GDP numbers suggest that the question of whether the UK slipped into recession will be a close-run thing. GDP contracted 0.3% month-on-month in October, before rebounding 0.3% on a monthly basis in November. Much depends on December. It’s possible that Q4 will mark another quarter of no growth at all, as happened in Q2, or we may get a second successive quarterly contraction of 0.1%. It’s a tight call.

US retail sales (January)

Thu 15 Feb: The US consumer continues to defy expectations. Retail sales rose 0.6% month-on-month in December as shoppers came out in force, helping the US economy to grow by 3.3% in Q4, blowing away forecasts of 2%. A tight labour market and rising wages appear to be bolstering consumer confidence, which is at its highest levels since August 2021. After a strong December for retail sales, economists expect that January saw a modest slowdown to growth of 0.2% as consumers cut back on spending after Thanksgiving, Christmas and new year celebrations.

Coinbase Q4 results

Thu 15 Feb: After posting modest losses in the first three quarters of its fiscal year, Coinbase may have returned to profit in Q4. In Q3, revenue came in at $674m on total trading volumes of $76bn, a sharp decline from the $159bn in volumes a year earlier. That said, the company’s ability to improve its revenue, despite the drop off in volumes, is encouraging. A decent increase in subscription and services revenue in Q3 helped to offset the decline in transaction revenue. With more of a focus on subscription and services revenue, analysts expect Q4 revenue to reach $826m, with a profit of $0.09 a share. The increased crypto market volatility of recent months is likely to have provided a boost. Still, on an annual basis, Coinbase is set to post a loss of $0.68 a share.

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