A busy week of economic announcements lies ahead. The US Federal Reserve and the Bank of England are set to maintain the pace of their recent interest rate rises, then on Friday we’ll get the US jobs report for October. Meanwhile, BP and Rolls-Royce are among the big names due to report their latest results.
OUR TOP THREE EVENTS FOR 31 OCTOBER – 4 NOVEMBER:
Wednesday – US Federal Reserve interest rate decision
The Federal Reserve is expected to raise interest rates by 75 basis points (bps) for the fourth consecutive meeting. In September Fed chair Jay Powell said that the Federal Open Market Committee (FOMC) was “strongly committed” to driving inflation lower, signalling further rate rises, and added that there was no painless way to drive inflation lower.
Core inflation is forecast to ease to 4.5% this year, before falling to 2.1% by 2025. We could see rates rise by at least 100 bps and perhaps by as much as 150 bps before the end of this year. The latter would lift the federal funds rate to a target range of 4.5% to 4.75%.
The central bank has also downgraded its GDP growth target for this year to 0.2%, with Powell admitting that a recession might be possible.
At the end of last month there was talk that some Fed officials were becoming uneasy about the pace of the current hiking cycle. That’s understandable, but apart from Fed vice chair Lael Brainard few Fed officials have spoken out. Even hawkish policymakers like Minneapolis Fed President Neel Kashkari have remained tight-lipped on the need for a pause or a pivot. Kashkari commented in October that the Fed would be in no position to ease the pace of rate rises if inflation was still rising.
That said, cracks may be starting to emerge in the wall of consensus. San Francisco Fed President Mary Daly has hinted that after November there could be discussions about slowing the pace of rate hikes. Powell’s post-meeting press conference is therefore likely to be crucial as observers monitor whether he comes across as hawkish as he did in September.
Thursday – Bank of England interest rate decision
A weakened pound after weeks of political turmoil has had a negative impact on UK inflation. The pound’s fall against the dollar has raised import costs, while the markets’ rejection of ex-prime minister Liz Truss’ economic plan sent bond yields soaring, contributing to higher mortgage rates. The instability led ratings agencies such as Moody’s and Fitch to downgrade the UK’s economic outlook and credit rating.
Now that some sense of calm has been restored, the big question is whether the Bank of England raises interest rates by 50 or 75 bps. With fiscal policy now set to be a lot tighter, the scope for the Bank of England to be more aggressive on monetary policy is limited due to concerns about the impact on demand. It seems a little bit late to worry about that now. The new Rishi Sunak-led government’s decision to reverse many of Truss’ proposed tax cuts could mean that any recession is likely to be prolonged, piling further pressure on the pound. All things considered, it seems more likely than not that the Bank of England will opt for a third successive rise of 50 bps.
The Bank also has to deliver its latest economic forecasts for inflation and GDP. Let’s hope they are more accurate than they have been so far this year.
Friday – US non-farm payrolls (October)
The US labour market has held up well despite concerns over slowing consumer spending and increased costs for businesses. Job losses, as reported in the latest round of corporate earnings updates, may soon work their way into the unemployment figures. But that hasn’t happened yet, with new jobless claims still at a very low 230,000 a week.
The September payrolls data were decent. The US economy added 263,000 jobs last month, slightly above economists’ estimates of 250,000, but fewer than the 315,000 jobs created in August. Meanwhile, the unemployment rate fell to 3.5%, mainly because of a drop in the labour force participation rate, which fell to 62.3% from 62.4%. The participation rate remains a puzzle. Despite the rising cost of living, the rate is still 1% below pre-pandemic levels. The September jobs report also showed that wages grew 5% year-on-year, the lowest increase this year.
For October, economists expect non-farm payroll growth to ease to 200,000 jobs, which would be the lowest number this year. The unemployment rate is forecast to tick back up to 3.6%.
KEY EVENTS OVERVIEW (31 OCT – 4 NOV):
Monday 31 October
No major announcements
Tuesday 1 November
BP Q3 results
Despite oil and gas prices slipping from their recent highs, the BP share price proved resilient. The oil major’s shares hit new two-year highs earlier this month, despite the imposition of a windfall tax on their UK profits by the UK government.
The unexpected bumper profits have been a significant benefit to BP. Since the Gulf of Mexico oil spill in 2010, a disaster for which BP is still paying, the company has had a challenging 12 years. More recently, it had to write down up to $25bn for its 20% stake in Russian oil firm Rosneft, pushing the company into a $20bn loss for the quarter.
In Q2 BP posted underlying replacement cost profits of $8.45bn, beating expectations of $6.73bn, while profit attributable to shareholders was $9.3bn. That meant BP incurred a first-half loss of $11.1bn after the Rosneft impairment. Despite that loss, the company announced a $3.5bn share buyback and increased the dividend by 10% to just over 6p a share. The company has also made great strides in cutting debt, which has fallen to $22.8bn from more than $50bn two years ago
While the oil majors’ record profits have had politicians chomping at the bit to impose a windfall tax on energy firms, it’s important to remember that North Sea oil and gas firms like BP and Shell already pay 30% corporation tax on their profits, plus a supplementary 10% rate. On top of that, they pay the
windfall tax, taking their total tax rate to 65%. As a result of the windfall tax, BP said it expects to pay an extra $800m in its Q3 accounts.
Besides tax, another issue facing BP is the push towards clean energy. Despite posting bumper profits, BP is spending pitifully low amounts of money on renewables. One look at the numbers shows that BP makes most of its profits through its oil production and operations business. This division notched up adjusted profit before tax and interest of $5.9bn in Q2, comfortably beating Q1 performance. The gas and low-carbon energy division delivered profits of $3.1bn, slightly down from Q1, but illustrating how important oil and gas are in terms of cashflow.
At the end of Q2 BP had spent $5.8bn on capex this year, versus a full-year target of $14bn to $15bn. However, very little of that has gone into renewables. Of the year-to-date spend, $823m was spent on gas and low-carbon energy. Breaking that $823m down further, $681m went on gas and $142m was spent on low-carbon energy. Up to the end of Q2, BP had spent a total of $361m on low-carbon energy this year, which is a pittance in context.
Pfizer Q3 results
Over the last two years Pfizer revenues have surged due to its role in developing a Covid-19 vaccination with BioNTech. Full-year revenues are expected to rise to a record $102bn this fiscal year, helped by the company raising its prices. Just over half of that estimated total – about $54bn – is expected to come from its Covid vaccine and newly developed pill.
In Q2 revenue rose to $27.74bn, of which $16.97bn was generated by the Covid vaccine and pill. The Covid pill contributed almost half of that subtotal, bringing in $8.12bn. Pfizer mostly reaffirmed its full-year revenue and earnings guidance. The company is expecting sales of $98bn to $102bn this year, and earnings per share of $6.30 to $6.45. The drugmaker upgraded the lower end of guidance from a previous estimate of $6.25.
Since those Q2 numbers in July Pfizer shares have slipped back, hitting a one-year low last month on concerns that we might see lower demand for its Covid vaccine and pill. Despite all the extra revenue, Pfizer appears to have little appetite to look at new areas in which it could leverage its mRNA technology. Does Pfizer have more new products in the pipeline, or is it a one-trick pony? Investors seem uncertain. The decision by Moderna to sue Pfizer over its Covid vaccine hasn’t helped sentiment either. Profit in Q3 is expected to come in at $1.43 a share.
Uber Q3 results
Have we got to a stage where Uber can put in a base on its share price after hitting a low of $20 in June? In July the shares managed to push higher after Uber reported revenue of $8.1bn for Q2, with gross bookings rising to a record high of $29.1bn, which was at the top end of company guidance. For Q3 the company expects gross bookings of between $29bn to $30bn.
Despite these improvements, the company still posted a loss of $2.6bn in Q2 as it wrote down its stakes in Grab Holdings and Aurora Innovation. Since then the shares have broadly traded sideways. Though the focus is likely to remain on rising costs, gross transaction value may have slowed in Q3 as the cost-of-living squeeze tightened. For Q3 Uber is expected to post a loss of $0.17 a share.
Wednesday 2 November
US Federal Reserve interest rate decision
See our top three events, above
Next PLC Q3 results
Next shares have fallen almost 40% this year. In October they hit their lowest levels since April 2020, despite half-year numbers that showed the retailer was performing relatively well amid a worsening economic outlook.
At the beginning of August Next said that full-price sales were up 5% and £50m ahead of previous guidance, after hotter-than-average temperatures in June and July prompted a spike in spending on summer clothing. Store sales recovered, while online sales reverted towards their longer-term average. The company retained its full-price sales guidance for the year and raised its full-year profit guidance by £10m to £860m.
This proved to be somewhat premature. August trade slowed sharply, prompting Next to downgrade their target for full-year sales growth to between 1% and 1.5%. The business also reduced its profit guidance to £840m, a rise of 2.1% year-on-year. This also seems optimistic given that first-half profits before tax came in at £401m. What Next is saying is that it expects profits to improve significantly in the second half of the year, relative to the first half. Shareholders will be hoping that Next has got this forecast right.
Robinhood Markets Q3 results
Shares in Robinhood Markets are down roughly 40% this year, but have recovered slightly since hitting a record low in June. The company shifted towards cryptocurrencies at the start of the year – a move that turned out to be terribly timed, coming as it did just before the crypto market tanked.
In Q2 the company posted revenue of $318m and a net loss of $295m. With full-year operating expenses expected to be in the region of $1.7bn, the company was haemorrhaging cash. This prompted the company to lay off 23% of its workforce, on top of the 9% job cuts in Q1, as it looked to stabilise the business. These cuts appear to have stemmed the bleeding, with the share price gaining ground, but the company continues to face a challenging outlook.
The move towards crypto and away from stocks backfired spectacularly, with revenues in the crypto business falling by 75% year-on-year. Monthly users have also slumped year-on-year, falling to 14m from 21.3m. We saw slightly more market volatility in the last quarter which may have boosted the numbers; however, losses for Q3 are still expected to come in at $0.18 a share.
Paramount Global Q3 results
Shares in film studio and media conglomerate Paramount Global are down more than 40% year-to-date. In recent months the market’s lukewarm reaction to Paramount’s new streaming service has weighed on the shares, which hit a two-year low earlier this month.
It’s not as if the company isn’t increasing revenue on a year-on-year basis. In Q2 revenue rose 19% on an annual basis, but profits dropped sharply. Paramount’s entry into the crowded streaming market, where it competes with the likes of Netflix, Apple TV, Amazon Prime and Disney+, may have given small-screen watchers one streaming service too many.
Paramount’s content isn’t necessarily the issue. By all accounts, they have some good stuff. However, they are coming at a developed market from a standing start. They’re lagging well behind the streaming market’s more established peers. Netflix’s latest Q3 numbers gave the sector a lift, but the shift towards ad-based subscriptions isn’t good news for streaming providers’ margins.
The Paramount+ service has 43.3m subscribers, while the Walmart deal will help add numbers in Q3. Nonetheless, losses from streaming are still expected to approach $2bn this year, and may increase in 2023. That simply isn’t sustainable.
Consensus is for about 3.5m new subscribers in Q3. As for traditional TV and film studio productions, the numbers are expected to be good, helped by the global release of Top Gun: Maverick which is expected to continue to perform well, boosting overall revenues. Profits for Q3 are expected to come in at $0.47 a share, down from $0.64 a share in Q2.
Thursday 3 November
Bank of England interest rate decision
See our top three events, above
BT Group half-year results
The BT share price has fallen more than 20% since July, sinking to its lowest levels since December 2020. Pessimism around the UK economy and underperformance in BT’s Enterprise operation have been the main drivers. Enterprise saw a 7% decline in revenue during Q1, casting doubt over whether the company will be able to meet its EBITDA guidance.
BT was at pains to reaffirm its full-year outlook when it reported that Q1 EBITDA was in line with forecasts at £1.9bn. Q1 revenue rose to £5.13bn as the rollout of fibre broadband connections continued at pace, with a record 763,000 new premises added during the quarter.
In October the company updated its outlook for the joint venture between BT Sport and Eurosport, downgrading its revenue forecast for the current year by around £350m. However, BT said that they didn’t expect to see a material impact on their full-year adjusted EBITDA outlook of £7.9bn.
Through Q2 BT had to contend with strike action among its employees over the rising cost of living, with stoppages likely to have impacted its broadband rollout and costs.
Rolls-Royce Q3 results
While Rolls-Royce shares are still above their 2020 low, they have had a woeful year. The stock has fallen approximately 40% year-to-date, even though the company’s outlook has improved since the beginning of the year. The resumption of global air travel boosted revenue for the jet engine maker, but the diversification away from civil aviation hasn’t been as smooth as investors may have liked.
The company’s first-half loss of £111m prompted much disappointment, sending the shares to 23-month low at the end of September. We’ve subsequently seen the sale of ITP Aero go through, generating sales proceeds of €1.6bn which will help reduce debt from £5.4bn.
Total first-half revenue came in at £5.3bn, a modest increase on last year. However, the company slipped to a bigger-than-expected underlying loss before tax of £111m as higher costs negatively impacted margins. Gross margin fell to 17.7%, down from 21% last year, while financing costs rose to £236m from £174m.
Civil aerospace, which accounts for the bulk of the company’s revenue, saw an 8% rise in underlying revenue to £2.34bn. Large engine flying hours were still at 60% of 2019 levels, but are expected to rise to 70% by year-end, before returning to pre-pandemic levels in 2024. The power systems division also performed well, with revenues coming in at £1.37bn, a rise of 20% that comfortably beat expectations. Order intake here was £2.1bn, a 53% rise from the prior period and a record quarter.
The biggest disappointment was the defence division, where revenue fell 9% to £1.61bn. The company blamed delays that affected the next tranche of the F-35B jet, and lower spare engine sales. Meanwhile, the new markets division has not yet generated any revenue and saw losses rise to £48m. The deterioration in margins appears to be investors’ biggest concern and something that new CEO Tufan Erginbilgic will need to get to grips with when he replaces Warren East at the end of the year.
J Sainsbury half-year results
Last month we saw the Sainsbury’s share price hit a record low of 168.70p, and although we’ve seen a modest recovery since then it’s been a little lacklustre in nature. There is no question the outlook for retailers remains challenging. Sainsbury’s is having to absorb higher costs in terms of energy prices, while it has also given its staff a 10% pay rise. But it still remains a very profitable business, despite concerns over its sales growth outlook and losing market share to the likes of Aldi and Lidl.
In Q1 Sainsbury’s reported a 4.5% decline in year-on-year sales growth from 2021, but compared to pre-pandemic 2019 sales were up 5.4%. This was primarily driven by grocery sales, which are its core business. Weighing the business down was weakness in general merchandise across both Argos and Sainsbury’s supermarkets.
Despite the challenges facing Argos and general merchandise more broadly, Sainsbury’s maintained its full-year outlook for underlying profit before tax of between £630m and £690m. In the current environment, that would be a decent outcome and in line with last year’s profit. The big challenge facing Sainsbury’s given the recent Kantar numbers and grocery price inflation of 14% will be in sticking to that guidance, as pressure on costs continues.
Friday 4 November
US non-farm payrolls (October)
See our 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 OCTOBER||RESULTS|
|TUESDAY 1 NOVEMBER||RESULTS|
|Electronic Arts (US)||Q2|
|Eli Lilly (US)||Q3|
|Liberty Global (US)||Q3|
|Western Union (US)||Q3|
|WEDNESDAY 2 NOVEMBER||RESULTS|
|Aston Martin Lagonda Global (UK)||Q3|
|Estee Lauder (US)||Q1|
|Robinhood Markets (US)||Q3|
|THURSDAY 3 NOVEMBER||RESULTS|
|Amryt Pharma (UK)||Q3|
|Autolus Therapeutics (US)||Q3|
|BT Group (UK)||Half-year|
|Helios Towers (UK)||Q3|
|Hyatt Hotels (US)||Q3|
|J Sainsbury (UK)||Half-year|
|Papa John's (US)||Q3|
|RS Group (UK)||Half-year|
|Shake Shack (US)||Q3|
|Virgin Galactic (US)||Q3|
|Warner Bros Discovery (US)||Q3|
|FRIDAY 4 NOVEMBER||RESULTS|
Company announcements are subject to change. All dates correct at the time of writing.
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