Weekly outlook: Latest inflation figures set to shape Fed's roadmap

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04 November 2022

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Monday 7 November

– First-half results from Ryanair
– Trading statements from Beazley and Kingspan
– Halifax UK house price index
– In Europe, quarterly results from Coloplast
– In the US, quarterly results from Activision Blizzard, BioNTech and Palantir

Tuesday 8 November

– First-half results from Aveva and DCC
– Trading statements from Persimmon, IMI, Direct Line and Coca-Cola HBC
– EU retail sales
– US NFIB smaller companies survey
– US mid-term elections
– In Japan, quarterly results from NTT and Nintendo
– In Europe, quarterly results from Bayer
– In the US, quarterly results from Walt Disney and Nio
– Full-year results from Associated British Foods (owner of Primark, British Sugar, and Twinings)

Associated British Foods (ABF) announces its full-year results on Tuesday. The results will be closely followed by investors, who will be monitoring the impact the cost-of-living crisis and continued high inflation is having on one of the UK’s largest companies.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “ABF’s final dividend has been in doubt as higher costs weigh on Primark, so investors will be waiting to find out if there is any surplus cash available. ABF has been showing resilience, despite the cost-of-living headwinds and weaker than expected trading in Europe across its retail operations. Any change to the outlook will also be closely watched with the group already having warned that adjusted operating profit will be sharply lower for the year ahead.

“Although being seen as very much a value retailer, Primark is by no means immune as customers tighten their belts and lighten the load in their shopping baskets as a result. Expenditure on essentials should hold up well and the odd splurge on fashion may still be forthcoming but spending on homeware is likely to follow recent declining sales trends. With the savvy use of social media though, Primark has shown some sharp skills when it comes to shifting stock and keeping demand elevated so trading may well be better than feared, but this isn’t guaranteed.”

She added: “However, ABF’s unique structure should help it navigate the inflationary environment better than others. Just as Primark starts to feel the sting from inflation, the price hikes in other parts of the business, like food and commodity divisions should start to filter through. High sugar prices in particular have helped here, and ABF is also successfully increasing prices in the grocery business, passing on rising costs to customers.’’

AJ Bell investment director Russ Mould and financial analyst Danni Hewson said: “Intriguingly, the forecast dip in margins in the coming financial year looks to extend a longer-term trend of lower returns on sales, even if the Covid-marred years of 2020 and 2021 are seen as an aberration. Margins peaked in 2014, just one year after the collapse of a factory used by Primark, and others, to manufacture clothes in Dhaka, Bangladesh.

“While inflation and higher input costs are now taking all of the headlines, the issues of supply chains and working conditions for staff in factories are not going away, especially after 2020’s allegations that Primark’s fast-fashion rival Boohoo was using sweated labour in the UK.”

Wednesday 9 November

– First-half results from Marks & Spencer and Biffa
– Trading statements from ITV, Flutter Entertainment, Smiths Group, Taylor Wimpey and Watches of Switzerland
– Chinese inflation data
– US oil inventories
– In Europe, quarterly results from Siemens Healthineers, Adidas, E.On, Commerzbank and ABN Amro
– In the US, quarterly results from Rivian Automotive and Roblox

Thursday 10 November

– Full-year results from WH Smith and Joules
– First-half results from National Grid, B&M European Value Retail, 3i and AutoTrader
– Trading statements from Haleon, Vistry, ConvaTec, Domino’s Pizza and Endeavour Mining
– US weekly unemployment claims
– In Europe, quarterly results from Deutsche Telekom, Allianz, Merck, Hapag-Lloyd, RWE, Credit Agricole, Arcelor Mittal, Siemens Gamesa Renewables and Continental
– US inflation figures

The latest data on US inflation is set to be released on Thursday, a week after the Federal Reserve raised interest rates by 75bps for the fourth meeting on the bounce.

With inflation currently at 8.2%, the Fed’s attention has now turned to its December meeting at which it will decide on further rate rises as it attempts to beat down inflation to its 2% target.

AJ Bell’s Mould and Hewson said: “Economists, politicians, consumers and central bankers will no doubt all be hoping that inflation is starting to peak out and financial markets, judging by late October’s rally, are starting to think in terms of a central bank pause or pivot in monetary policy, whereby the run of interest rate hikes comes to an end and cuts become the order of the day once more.

“The last time US inflation reached 8.2% was January 1982 – and the Fed Funds rate then was 14%, way, way higher than where we are today. There seems little chance of a repeat of that – government debt to GDP was barely 30% then compared to over 100% now and the economy would not stand the strain – but for the moment the Fed remains committed to both further rate hikes and more quantitative tightening.”