Rising prices are set to make headlines again this week as the US and the UK release their latest consumer price index (CPI) readings on Tuesday and Wednesday, respectively. Meanwhile, earnings season still has a little distance left to run, with Airbnb and Cisco posting quarterly results in the US, while UK banksBarclays and NatWest are due to report their full-year numbers.
KEY ECONOMIC AND COMPANY EVENTS (13-17 FEBRUARY):
Monday 13 February
No major scheduled announcements
Tuesday 14 February
US CPI (January)
Since growth in US consumer prices peaked at 9.1% in the year to June, inflation has trended lower, easing to 6.5% in December. So-called core CPI, which excludes food and energy prices, has fallen from 6.6% in September to 5.7% in December.
Nevertheless, US Federal Reserve chair Jay Powell told the Economic Club of Washington on Tuesday that the “disinflationary process” still had a “long way to go”. Powell also warned that the Fed may have to lift interest rates higher than investors expect because it could take a “significant period of time” to tame inflation, especially with a strong labour market. The US economy unexpectedly added 517,000 jobs in January, smashing economists’ forecasts of 185,000.
In its latest bid to tame inflation, on 1 February the Fed raised its benchmark interest rate by a quarter of a percentage point to a range of 4.5% to 4.75%. With markets pricing in another quarter-point rise at the next meeting in March, the CPI figures for January may help determine how many more rate rises could be on the way after that.
Analysts expect headline CPI to have risen 0.4% month-on-month and 6.2% year-on-year in January. Core prices are expected to be up 0.5% month-on-month and 5.4% year-on-year.
Airbnb Q4 results
Airbnb shares have risen 35% since the start of the year, rebounding from December’s record low. Last year’s share price decline was mainly due to investor concerns over slow growth in bookings despite the lifting of Covid restrictions. In Q2, bookings came in below expectations at 103.7m even though profits increased and revenue exceeded $2bn. In Q3, Airbnb enjoyed its best quarter ever as revenue grew to $2.83bn, up 29% on the year-ago period.
The Q3 numbers were impressive across the board. Gross booking value per night was $156.44, while per-share earnings came in at $1.79, beating expectations. However, Airbnb issued weak guidance for Q4, warning that revenue could drop to between $1.8bn and $1.88bn. Seasonal factors usually contribute to fewer bookings in Q4 than in Q2 and Q3, but the forecast of such a sharp drop in revenue concerned investors. Profit in Q4 is expected to come in at $0.33 a share.
Wednesday 15 February
UK CPI (January)
The Bank of England increased the base rate by half a percentage point to a 15-year high of 4% on 2 February, raising the question of whether interest rates may have peaked. Although the BoE signalled that further rate rises would only be required if inflationary pressures persist, that does not mean there will be no more rate hikes.
In contrast to the US and Europe, where inflation has slowed markedly, UK consumer prices grew 10.5% in the year to December, down only slightly from the October peak of 11.1%. Additionally, core CPI was unchanged at 6.3% in December, while retail price inflation is running at an eye-watering 13.4%. All of this suggests that inflationary pressures could indeed persist in the UK, perhaps necessitating a further rate hike of at least 25 basis points when the BoE’s Monetary Policy Committee next meets on 23 March.
Economists expect that CPI growth eased to 10.1% in the year to January. Why is UK inflation still so high? A sluggish economy and a weak pound aren’t helping. A weaker pound makes imports to the UK more expensive, often resulting in price rises for UK consumers, thus exacerbating inflationary pressures. With earnings growth – another driver of inflation – rising year-on-year from 6% in September to 6.4% in November, the Bank of England may need to stay the course in its fight against inflation for a little longer than it would like, unless CPI drops sharply below 10% in the coming months.
US retail sales (January)
Given the strength of the US labour market, it is somewhat surprising that US retail sales fell on a monthly basis by 1% and 1.1% in November and December, respectively, suggesting that US consumers became more cautious amid economic uncertainty. US banks have continued to set aside funds to cover potential losses from non-performing loans, while company earnings reports have pointed to slowdowns in revenue and profit growth.
It could be that consumers are building up a financial buffer as gasoline prices are on the rise again. January retail sales are expected to have increased 1.4% month-on-month, offsetting the decline in December when a cold snap limited consumer activity.
Barclays full-year results
The Barclays share price dropped to an 18-month low in October before rebounding to current levels, leaving the shares down 8% over the past year. The bank has faced various challenges during that period, including a jump in operating expenses and litigation charges.
Barclays expects full-year operating expenses to be around £16.7bn, while the bank has also taken a charge of £540m related to its over-issuance of securities in the US.
In Q3 total revenue came in at £5.9bn, up 9% versus the year-ago quarter. Although corporate and investment banking revenue declined 10% to £2.8bn, revenue from the consumer, card and payments division grew 54% to £1.24bn. The bank set aside £381m to cover potential losses from bad loans, pushing impairment provisions in the first nine months of the year to £722m. With Barclays’ UK credit card business thought to be vulnerable to a possible economic downturn, it will be interesting to discover how much more was set aside in Q4.
Operating costs in Q3 rose 14% to £3.94bn, while profit after tax increased 9% to £1.7bn. That means profits for the first nine months of the year were down 19% versus the year-ago period. Profits in 2021 were boosted by the release of pandemic-era loan loss provisions back on to the balance sheet.
Cisco Systems Q2 results
Last year Cisco Systems issued a profits warning, citing supply chain disruptions and issues in China that were impacting its margins. Then, in November, Cisco upgraded its full-year guidance.
At first, Cisco said it expected Q1 revenue growth of between 2% and 4%, and profits of $0.83 a share. But in November, the Q1 results came in better than expected, with reported profits of $0.86 a share on revenue of $13.6bn.
For Q2, profits are expected to come in at $0.85 a share, while full-year profits could be upgraded to between $3.51 to $3.58 a share. Full-year revenue could be on track to grow 4.5% to 6.5%.
Thursday 16 February
Centrica full-year results
Centrica shareholders have had a hard time of it over the last 10 years. The shares fell from highs of more than 400p in 2013 to record lows of 29p in March 2020. It’s been a long road back from those lockdown-era lows, with the shares now hovering around the 100p level.
In January the British Gas owner upgraded its full-year guidance for the second time in two months, saying that they expect adjusted earnings per share (EPS) of more than 30p and net cash in excess of £1bn. Half-year adjusted EPS came in at 10.2p. The company also announced a share-buyback programme in November, drawing criticism as consumers struggled with soaring energy costs.
Centrica has reopened the Rough gas storage facility off the Yorkshire coast after the site was closed for upgrades in 2017. The company has also set aside £50m to help its customers through the cost-of-living crisis, although that effort is somewhat undermined by reports this month that debt collectors working on Centrica’s behalf have forcibly installed pre-payment meters in the homes of hard-up customers.
Friday 17 February
UK retail sales (January)
UK retail sales fell 0.5% and 1% month-on-month in November and December, respectively. The December decline was surprising given that UK retailers announced better-than-expected trading numbers in the run-up to Christmas, raising hopes that consumer spending had rebounded despite the rail and postal strikes.
Although sales volumes fell in December, the amount of money that consumers spent held up, suggesting that consumers became more discerning about their outgoings. Over the previous three months, sales volumes have decreased 5.7%, but the value of goods (excluding fuel) has increased 3.6%.
Meanwhile, the consumer confidence indicator fell to a reading of -45 in January, down from -42 in December, as the British public dealt with rising prices and sky-high energy bills. On the plus side, travel and leisure spending could be on the up as people book summer holidays to counter the winter blues. In their recent trading updates, airlines recorded decent demand for seats and package deals.
NatWest Group full-year results
Shares of NatWest fell to a seven-month low in October after the bank’s Q3 results showed an unexpected increase in loan loss provisions, with some investors also responding to concerns that politicians could levy a windfall tax on banks’ profits. Since then, the shares have risen more than 40% to their highest levels since May 2018 as concerns over an economic slowdown have receded.
In Q3 the bank posted an attributable profit of £187m, a sharp fall from the previous quarter’s £1bn profit that was mainly due to a one-off loss of £652m on the discontinued Ulster Bank operations and the reclassification of its mortgage book. NatWest became more aggressive on credit impairments in Q3, setting aside £247m during the quarter, up from £26m in the first half of the year. Operating expenses grew to almost £1.9bn, but remained lower than a year ago. Stripping all of this back, underlying performance was weaker than in Q2. Operating profit came in at £1.09bn, down from £1.4bn in Q2 and slightly short of analyst expectations.
The higher interest rate environment lifted net interest margin in Q3 to 2.99%, bringing the average for the year to 2.73%, up from 2.59% at the end of the first half. Net loans increased to £192.8bn in Q3, up from £188.7bn in Q2, driven by new mortgage lending of £3.9bn. However, growth in mortgage lending is likely to have slowed in Q4. Customer deposits increased to £190.9bn, a rise of £400m versus Q2. Addressing expectations for the full year, NatWest said total income will be around £12.8bn, with net interest margin set to have averaged 2.8%.
Deere & Company Q1 results
Last July, Deere & Co’s share price hit a 15-month low of $283.81 after the agricultural machinery maker cut its full-year profit guidance to between $7bn and $7.2bn, down from $7bn to $7.4bn, amid downward pressure on operating margins.
This warning proved to be overly cautious, with the shares rebounding strongly as Q4 revenue came in at $15.54bn and profit grew to $7.44 a share, beating expectations of $7.10 a share. On an annual basis, revenue rose to $52.58bn, up 19%, and profit came in at $7.13bn as the company managed to pass on price increases to its clients.
The company also raised its 2023 profit forecast to between $8bn and $8.5bn on the back of strong demand for tractors from farmers who are getting higher prices for their crops. Profit in Q1 is expected to come in at $5.50 a share.
INDEX DIVIDEND SCHEDULE
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SELECTED COMPANY RESULTS
|MONDAY 13 FEBRUARY
|Avis Budget Group (US)
|TUESDAY 14 FEBRUARY
|Carr's Group (UK)
|WEDNESDAY 15 FEBRUARY
|Aurora Innovation (US)
|Cisco Systems (US)
|Dunelm Group (UK)
|Hargreaves Lansdown (UK)
|Kraft Heinz (US)
|Krispy Kreme (US)
|Pan African Resources (UK)
|THURSDAY 16 FEBRUARY
|Kelly Services (US)
|MJ Gleeson (UK)
|Paramount Global (US)
|Standard Chartered (UK)
|FRIDAY 17 FEBRUARY
|Barnes Group (US)
|Deere & Company (US)
|NatWest Group (UK)
Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.
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