Weekly outlook: UK eyes escape from sticky inflation

Key events for UK wealth managers for the week starting 13 February

Photo by esraa gamal on Unsplash


Monday 13 February

  • – In Europe, quarterly results from Michelin
  • – In the US, quarterly results from Checkpoint Software, Palantir and Lattice Semiconductor

Tuesday 14 February

  • – Full-year results from Coca-Cola HBC
  • – Trading statement from TUI 
  • – Japanese Q4 2022 GDP growth
  • – UK unemployment and wage growth
  • – US inflation figures

US inflation dropping to 6.4% in December gave markets a shot in the arm, and central bankers, economists, politicians, and investors alike will be keeping a close eye on how the figure changes, said AJ Bell’s Russ Mould and Danni Hewson. Inflation is on the way down from June’s peak of 9%, but it is still way ahead of the Federal Reserve’s target of 2%.

With regard to the next rate decision, Mould and Hewson added: “Chair Jay Powell and the Federal Open Markets Committee are also mandated to manage employment levels, and strong labour markets and wage growth will remain a key consideration for policymakers. Even so, financial markets think the Fed funds rate will get to around 5%, from the current 4.5% level, and then pause before Powell and colleagues pivot to rate cuts in response to slower inflation and possibly a recession later this year or early next.”

  • – US NFIB smaller companies survey
  • – EU Q4 2022 GDP growth
  • – In Japan, quarterly results from Japan Tobacco and Toshiba
  • – In Europe, quarterly results from Norsk Hydro, Randstad, Telecom Italia and ThyssenKrupp
  • – In Europe, quarterly results or trading updates from Coca-Cola, Airbnb and GlobalFoundries

Wednesday 15 February

  • – Full-year results from Glencore
  • – First-half results from Dunelm and Pan African Resources
  • – Trading statements from DCC
  • – UK inflation figures

A UK inflation update from the Office for National Statistics will follow hot on the heels of the US. Mould and Hewson noted that CPI hit 10.5% in December, below November’s 10.7%. This represented the second consecutive month in which the rate of change decelerated, and the pair added that financial markets are hoping that October, at 11.1%, represented the peak. Further slowdowns in the rate of inflation may give the Bank of England a chance to pause when interest rates hit around 4.5% mid-year, compared to the current 4% base rate, allowing the central bank to start cutting in late 2023 or early 2024, Mould and Hewson said.

The pair from AJ Bell added: “Governor Andrew Bailey and the Monetary Policy Committee must still navigate between not tightening too much, whereby the economy could tip into recession, and loosening too quickly, which could permit a second round of inflation – and force an even tougher round of new rate rises, as happened in the late 1970s and early 1980s. Remember that the Bank of England’s sole mandate is to keep inflation at or around the 2% level.”

In addition, they highlighted that the hopes for a return to cheaper money are driving much of the current rally in stocks, bonds, and cryptos, so stickier inflation may well lead to markets becoming more volatile. “Note in this respect that the dollar – strong when risk assets plunged in the middle of 2022 and weak when risk assets rallied in the final quarter – is rising again […], maybe suggesting that market expectations of a softer approach from the Fed could lead to disappointment,” the pair concluded.

  • – EU industrial production figures
  • – US retail sales
  • – US NAHB housebuilding industry survey
  • – US weekly oil inventories
  • – Barclays fourth quarter results

Barclays shares are still trading below where they were a year ago, despite a strong rally from October’s lows, according to Mould and Hewson. The pair attributes this to worries over the mortgage market, the UK economy more widely, the health of its chief executive CS Venkatakrishnan, as well as how the investment bank is faring more generally amid a dearth of new flotation or merger and acquisition activity.

For the whole of 2022, pre-tax profit is therefore expected to be £7.2bn, compared to £8.4bn in 2021, with Mould and Hewson identifying Q2’s £1.3bn product mis-selling fine from US regulators as a big swing factor in the full-year figures.

Matt Britzman, an equity analyst at Hargreaves Lansdown said Barclay’s last set of results caught headlines for the hundreds of millions set aside in readiness for an increase in loan defaults. Britzman highlighted the $400m (£331m) non-cash hit to profit that Barclays put through its accounts in the third quarter, with Mould and Hewson expecting the figure to grow in Q4.

Britzman added: “On the flip side, higher interest rates helped push net interest margins up to 2.78% which provided a boost to profit. However, Barclays isn’t as exposed to interest rates as some of its peers, due to its large corporate and investment banking arm. That’s been a benefit while rates were low, as revenue from fees, commission and trading has plugged a gap. In the new world of higher rates, we’ll be watching closely to see how investment banking performance is holding up. The market environment for raising capital in public markets has shifted, and combined with tough comparative periods, investment banking income has been falling.”

  • – Quarterly results from Heineken

As pressure mounts on household budgets, Hargreaves Lansdown’s Susannah Streeter has identified concern about a falling off in demand for Heineken’s beers, and third quarter trading numbers revealed that weakness was beginning to seep in. However, with consumer confidence starting to creep up in key markets, she said there will be hope that orders for the company’s premium brews will keep pouring in.

She added: “Heineken’s brand strength is still pulling in the punters for now and enabling it to pass on higher input costs, but inflation is still expected to be a significant headwind and investors will be watching for detail about how the company can mitigate the effects. Growth is also coming from the company’s non-alcoholic brands, particularly the Heineken 0.0 label which will offer a refresh to the draft offering in pubs across the UK, and there will be thirst for any update about the success of the roll-out.’’

  • – In Europe, quarterly results from Kering,  and Tenaris
  • – In the US, quarterly results from Cisco, Analog Devices, Shopify, Kraft-Heinz, Barrick Gold, Roblox, Marathon Oil, CF Industries and Zillow

Thursday 16 February                                                               

  • – Full-year results from Centrica, RELX, Moneysupermarket.com and Indivior
  • – First-half results from MJ Gleeson
  • – Trading update from SSP Group
  • – US producer price (factory gate) inflation
  • – US new housing permits
  • – US new housing starts
  • – US weekly unemployment claims
  • – In Australia, quarterly results from bid target Newcrest Mining and South32
  • – In Europe, quarterly results from Nestlé, Airbus, Schneider Electric, Air Liquide, Pernod Ricard, Repsol, Puma, Commerzbank and Renault
  • – In the US, quarterly results from Applied Materials, Agnico Eagle, DoorDash, Hasbro and Yamana Gold

Friday 17 February

  • – Full-year results from NatWest and SEGRO
  • – UK retail sales
  • – In Japan, quarterly results from Olympus and Mazda Motor
  • – In Asia, monthly sales update from the world’s largest semiconductor foundry TSMC
  • – In Europe, quarterly results from Hermès, Mercedes, Allianz, Safran, Uniper and Air France-KLM
  • – In the US, quarterly results from Deere and Liberty Broadband

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