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Analys

The Week Ahead: Fed, ECB minutes; Levi's, Constellation results

The Week Ahead: CMC Markets' Michael Hewson covers key economic and company events in the week ahead.

The publication of US and European central banks’ latest meeting minutes should offer clues regarding the extent of policymakers’ concerns over rising inflation and their appetite for interest rate rises. 

On the company results front, updates are expected from fashion retailers Levi Strauss and US booze behemoth Constellation Brands.  

OUR TOP EVENTS FOR 4-8 APRIL:

US Federal Reserve minutes – Wednesday

As expected, the US Federal Reserve raised interest rates by a quarter of a percentage point from near zero earlier this month as it battles the highest level of inflation that the US has seen in four decades. To curb rising prices, the Fed has indicated that it may raise rates at each of its six remaining meetings this year. The publication on Wednesday of the minutes from the Fed’s March meeting should reveal the extent to which events in Ukraine shaped policymakers’ thinking on interest rates. 

We already know that there was some disagreement about the pace of tightening, with president of the St. Louis Fed James Bullard arguing for a more aggressive half-point hike, with a view to increasing the federal funds rate to 3% by the end of the year. A more moderate approach might see the fed funds rate rise to between 1.75% and 2% by year-end, though even that roadmap leaves room for a half-point rise. 

Policymakers have indicated that a half-point move is likely to be on the table at the Fed’s next meeting in May. When even doves, like Neel Kashkari of the Minneapolis Fed, are calling for a more aggressive monetary tightening policy, it’s clear that the probability of a half-point rise may be increasing, especially if high inflation persists in the coming months. 

Members of the Federal Open Market Committee raised their 2022 inflation forecast to 4.3%, up from 2.6%, and their 2023 forecast to 2.7%, up from 2.3%. They also lowered their GDP growth estimates to 2.8% in 2022, and 2.3% in 2023. Although these adjustments are significant, the inflation forecast for this year still put price growth at less than the current level of 6.1%. 

US bond markets have already shifted to price in future rate hikes, though there is concern that the Fed could overtighten in its desire to rein in inflation. The Fed’s March meeting minutes could reinforce those concerns.

European Central Bank minutes – Thursday

In a surprise move at its recent meeting, the European Central Bank signalled that it plans to taper its asset purchase programme with a view to ending it in Q3. And in another unexpected shift, the ECB made no reference to interest rates remaining at or falling from current levels, opening the door just a fraction to a possible interest rate rise later this year. 

This subtle repositioning highlights the ECB’s bind. With inflation running high across the eurozone, figures from northern European countries, such as Bundesbank head Joachim Nagel, are talking about the need for tighter monetary policy. However, an interest rate hike would pile the pressure on heavily indebted southern European countries. 

Nevertheless, recent comments from a number of the bloc’s policymakers suggest that there is a growing concern that the ECB is behind the curve on interest rates. The release this week of the ECB’s latest meeting minutes could shed light on the depth of those concerns.  

MORE KEY EVENTS (4-8 APRIL):

Monday 4 April

No major announcements

Tuesday 5 April

Reserve Bank of Australia rate meeting

Australia’s central bank has been uncharacteristically dovish in recent months, despite evidence that inflation is running well ahead of expectations. Governor Philip Lowe has gone to great lengths to play down the prospect of a rate rise this year, although at the last meeting he was careful not to rule it out. Unemployment has been falling while inflationary pressures and wages have been increasing. As a major commodity exporter, Australia is at the forefront of higher prices for iron ore, metals and oil. 

The ratcheting up of inflationary pressures marks a significant shift from the start of the year, when the RBA was insisting that a rate rise in 2022 was unlikely. Events have moved on since then, with the Reserve Bank of New Zealand having raised rates already. The RBA could soon follow suit and raise rates from their current level of 0.1%. Expectations are for a hike in June, though this could change. In the current climate it’s not out of the question that the RBA could make a move this month, if only to anchor inflation expectations.      

Global services PMIs (March)

The recent flash PMIs from Germany and France showed that, despite rising prices, services activity has remained robust. This is mainly due to the easing of covid restrictions rather than resilience to inflation, which has shown little sign of easing. The rise in the cost of doing business has been exacerbated by the war in Ukraine, forcing companies to pass higher costs onto consumers. While that is working for now, the picture could quickly change as we move into Q2 and people start to feel the cost-of-living squeeze. Business and consumer confidence is already on the decline, and is likely to deteriorate further as prices rise ever higher. 

This week’s services PMI readings could well be the last hurrah for the rebound in economic activity that we’ve seen since the start of the year. France’s services PMI reading is expected to rise to 57.4 from 55.5 in February, while Germany’s services PMI index is expected to come in at 55.0, down from 55.8 in February, but better than an initial forecast of 53.8. 

In the UK, services PMI is expected to edge up to 61.0, from 60.5 in February. However, in a worrying sign for the sector’s Q2 outlook, inflationary pressures are at a record high and look set to rise even higher. Improvements in PMI readings over the last two months has been driven by inventory rebuilding, as businesses get ahead of rising prices by restocking while prices are relatively low. Looking further ahead, many businesses fear that they are entering an uncertain period.

Wednesday 6 April

US Federal Reserve minutes; THG full-year results (see top three events, above)

Levi Strauss Q1 results

In January, Levi Strauss reported Q4 net revenue of $1.7bn, up 22% versus a year earlier, as profit margins improved 350 basis points to 57.8%. For the full year, revenues came in at $5.8bn, a 29% rise on 2020, while net income rose to $554m. Despite those solid numbers, the shares have declined to their lowest levels in 15 months, largely due to concerns about the retail outlook and declining consumer confidence. For the new fiscal year, Levi Strauss says it expects to grow net revenues by 11-13%. Profits for Q1 are expected to come in at $0.41 a share.

Thursday 7 April

European Central Bank minutes (see top three events, above)

Constellation Brands Q4 results

Alcoholic drinks stable Constellation Brands beat profit expectations in Q3, with earnings of $3.42 a share. However, the losses in its Canopy business knocked up to $0.31 a share off that headline number. Net sales also beat expectations, coming in at $2.32bn, although they were still below the levels seen the year before. The numbers continued to be driven primarily by its beer business, which saw sales growth of 4.5%. Sales in the wine and spirits segment were disappointing, with shipment volume declining 38.6% in Q3. 

Despite this, the company raised its comparable EPS guidance for 2022, with the company saying it expected net sales growth of 10-11% for the beer segment, while sales of wine and spirits are expected to decline 21-22%. The company also announced a partnership with Coca-Cola to relaunch Fresca, a brand of fruit-flavoured fizzy drinks, in the US. Profits for Q4 are expected to come in at $2.12 a share, with full-year profits at $10.50-10.65 a share, excluding the Canopy business.

Friday 8 April

No major announcements

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 4 APRIL RESULTS
No major announcements --
TUESDAY 5 APRIL RESULTS
Acuity Brands (US) Q2
Next Fifteen Communications (UK) Full-year
SMART Global Holdings (US) Q2
SourceBio International (UK) Full-year
WEDNESDAY 6 APRIL RESULTS
Epwin Group (UK) Full-year
Hilton Food Group (UK) Full-year
Levi Strauss & Co (US) Q1
RPM International (US) Q3
Schnitzer Steel Industries (US) Q2
Simply Good Foods (US) Q2
Skillsoft (US) Q4
THURSDAY 7 APRIL RESULTS
AngioDynamics (US) Q3
Conagra Brands (US) Q3
Constellation Brands  (US) Q4
Lamb Weston Holdings (US) Q3
WD-40 Co. (US) Q2
FRIDAY 8 APRIL RESULTS
No major announcements --

Company announcements are subject to change. All the events listed above were correct at the time of writing.


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