Weekly outlook: FCA fronts up on pensions costs, BoE decision, Trump’s State of the Union

The key events for UK wealth managers for the week starting 4 February

Next week will be largely dominated by the Bank of England’s first interest rate decision of 2019. Commentators have overwhelmingly discounted the prospect of a rate rise, noting that a “cliff edge” Brexit scenario is still a distinct possibility.

While the interest rate decision itself is unlikely to provide any startling revelations, the thing to watch out for is how the voting pattern looks, said AJ Bell investment director Russ Mould.

“In the last three meetings of 2018 it’s been 9-0 against doing anything so you would get some sort of steer as to the future direction of travel if there were to be any shift in that mix.”

The central bank’s dovishness will hinge in large part on what kind of Brexit deal the UK is able to secure. Theresa May is expected to brave the bitter temperatures to travel to Brussels imminently to present her amended exit strategy which includes finding “alternative arrangements” to replace the Northern Irish backstop.

“If there is going to be any move by the EU then the history of the Greek drama would suggest it would be right at the very last minute,” said Mould. “I think the EU will want to be seen to be immovable because if it gives the UK a bone then there might be a few other EU members who are looking for a similar bone.”

So far, the EU has proven to be “better poker players than Theresa May”, who has the added challenge of fighting with members of the opposition and from within her own party, said Mould. “Every time she goes into negotiate, she’s already shown them her hand.”

Monday 4 February

Pressure on Alphabet to impress with annual results

Alphabet earnings release

Google parent company Alphabet reports its full year-results on Monday, capping off a mixed bag of results for the FAANG stocks, which saw Netflix and Facebook beat their earnings forecasts, while Apple’s revenue slipped 5% due to weak iPhone sales over the Christmas period and Amazon sparked fear by predicting slower growth over the next three months.

There are 98 S&P 500 companies due to report next week, but Alphabet is one of a handful of major companies whose results will decide the course of the current equity rally, said Psigma Investment Management head of investment strategy Rory McPherson.

“Although there have been some high-profile good earnings (Facebook being the most recent example), the season has actually been quite poor so far: the lowest beats in seven years and growth has slowed markedly,” he said. “Hence, it is key for the continuation of the rally that the high-profile names come in good to boost sentiment and investor confidence.”

The stakes are even higher for Alphabet considering its third quarter results were widely panned by analysts, Mould said. “If making $8.3bn in operating profit on sales of $33.7bn in the space of just three months can ever be seen as disappointing.”

Over the fourth quarter analysts are predicting the Silicon tech company to rake in $37.2bn of sales, up 15% year on year, and deliver earnings per share of $11.12, a 15% increase, which adjusts for the impact of 2017’s corporate tax changes under Trump.

Falling short of these targets could rattle its share price, which has recovered by 7.7% so far this year, but is still some 11% below its peak price of $1285.50 per share last July.

Tuesday 5 February

Trump delivers State of the Union address

After a 35-day standoff with House speaker Nancy Pelosi, Donald Trump will at last be permitted to give his State of the Union address on 5 February, nearly a week after he was slated to deliver it.

The impasse over #45’s border wall and trade talks with China are issues that will likely take centre stage in Tuesday night’s speech, said Psigma’s McPherson.

Sources told Politico that Trump’s speech will incorporate firm anti-abortion language in a bid to energise his evangelical supporters.

Mattioli Woods to unveil weaker revenue growth in interim results

Mattioli Woods earnings release

In a prelude to its interim results Mattioli Woods teased strong earnings growth over the six months to 30 November 2018, with EBIDTA margin ahead of its 20% target, and said it was in a “strong financial position” boasting £16m of cash on its balance sheet.

But the wealth manager cautioned that revenue growth would be “slightly lower than expected” due to it lowering costs for clients and the impact from volatile market conditions.

Total client assets are expected to come in at £8.8bn.

Wednesday 6 February

FCA’s Andrew Bailey weighs in on pensions cost and transparency

Work and Pensions Committee inquiry on pension costs and transparency

FCA chief executive Andrew Bailey is one of a handful of witnesses who will present oral evidence on pensions costs and transparency as part of a Work and Pensions Committee (WPC) inquiry.

The latest investigation asks whether the pensions industry is providing enough transparency around charges, investment strategy and performance to consumers.

It follows on from the WPC’s inquiry into pension freedom and choice in which it found British Steel Pension scheme members had been “shamelessly bamboozled” by advisers and other unregulated firms into signing up to ongoing adviser fees and unsuitable pension products and investments characterised by high-risk, high charges and punitive exit fees.

The committee ruled that contingent charging whereby advisers only charge a client a fee if they act on their advice recommendations gave rise to conflicts of interest and pushed for the FCA to ban these models for DB transfer advice.

US nonfarm productivity

Following on from last Friday’s US nonfarm payroll figures, the Bureau of Labor Statistics reveals data on productivity and costs for Q4. Productivity in the US shot up in the third quarter of last year by 2.3% compared with the year before and was up 3% on the previous quarter.

Thursday 7 February

BoE unlikely to hike rates as economic data softens

Bank of England interest rate decision

With the UK’s split from the EU rapidly approaching governor Mark Carney (pictured) is expected to leave both interest rates and quantitative easing unchanged at 0.5% and £445bn respectively.

“It is highly unlikely that we will see any move from the Bank of England given the cliff edge scenario we could face from a no-deal under two months away,” the Share Centre said, adding that inflation has been “heading back in the right direction” toward the bank’s 2% target.

“With employment at a 48-year high, unemployment at its lowest since the early 1970s and wage growth finally exceeding 3% to reach a near-decade high you would normally expect the BoE to be taking interest rates higher,” said Mould. “However, governor Carney keeps mentioning Brexit as one explanation for the Old Lady of Threadneedle Street’s studious inactivity and softer economic data in Europe, the USA and China do seem to have central banks on alert and pondering whether policy is already tight enough.”

The US Federal Reserve already appears to have backtracked on its intentions to raise rates two to three times in 2019.

The BoE meanwhile is forecast to hike rates one time from 0.75% to 1.0% by the end of the year. How quickly Britain’s central bank moves depends on the Brexit outcome, said Mould.

“If there’s a speedy resolution or one that seems to be relatively useful for the economy maybe the BoE will move quicker. If we fall out or there’s a perception that there’s a bad deal being done, then the BoE may move more slowly.”

Friday 8 February

European countries report trade balance and manufacturing data

A slew of European economic data is published at the end of the week, including trade balance figures for Germany and Hungary, as well as manufacturing data for France.

This will complement PMI composite data for Europe due out on Tuesday. Psigma’s McPherson said he will be keeping a close watch on the European periphery countries following sluggish growth figures out of Germany and news Italy had entered into a recession.

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