Weekly outlook: UK inflation numbers drop and Netflix reports

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13 January 2023

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Monday 16 January

– Trading statement from Rio Tinto
– Start of the Davos World Economic Forum (runs all week)
– Rightmove UK house price index
– German industrial production
– In Asia, quarterly results from Taiwanese silicon chip foundry UMC

Tuesday 17 January

– Full-year results from Crest Nicholson and Ramsdens
– Trading statements from Experian, Hays and THG
– Chinese growth figures for retail sales, industrial production and tangible fixed asset investment
– German ZEW financial market sentiment survey
– UK unemployment and wage growth data

The latest jobs figures will cover the three months to November, with the employment rate for the same period to October coming in at 75.6%, which is a fraction below pre-pandemic levels, according to AJ Bell’s Russ Mould and Danni Hewson. In October, the unemployment rate was 3.7%, a 0.1% uptick on September’s figure, but the vacancy rate fell for the sixth time in a row to under 1.2 million. Mould and Hewson noted that, in the eyes of some economists, the slight increase in unemployment and decrease in job vacancies has provided further evidence of a “steady slide toward a recession”.

The pair also noted that wage growth including bonuses was still strong at 6.1% year-on-year, adding that this figure could fit in with the ‘stagflation’ narrative propagated by some.

– In the US, quarterly results from Morgan Stanley, Goldman Sachs and Alcoa

Wednesday 18 January

– Trading statements from Burberry, Pearson, Antofagasta, WH Smith, QinetiQ, Currys, Vistry and Centamin
– Interest rate decision from the Bank of Japan
– EU final consumer price inflation figures
– US producer price (factory gate) inflation figures
– US retail sales
– US industrial production and capacity utilisation rate
– US NAHB house builders’ survey
– Federal Reserve Beige Book
– UK inflation figures

In November, CPI inflation eased slightly to 10.7% from October’s 11.1%, and Wednesday’s CPI inflation figure for December will be the benchmark against which Tuesday’s wage growth number will be compared, said Mould and Hewson.

They added: “Economists, politicians and central bankers will be looking for another deceleration this time around. The Bank of England will be looking for a retreat in inflation toward its 2% target so it can cut interest rates and boost the economy, and workers will be looking for a deceleration, so their pay goes further – inflation is still outstripping wage growth so in real terms, workers are worse off.”

Isabel Albarran, an analyst at Close Brothers Asset Management, said her firm expects UK headline inflation to fall over the first quarter: “Base effects, in the form of large increases in 2022, and lower energy prices today will pull down inflation in 2023. This will strengthen the Bank of England’s inclination to slow monetary tightening. However, the labour market remains a risk – tightness could last longer, given the fall in labour participation, and stronger-for-longer employment could boost spending, despite shrinking real incomes. This could mean that, even as headline inflation falls, core inflation remains too high for the bank’s comfort, leading to more rate hikes.”

– In the US, quarterly results from Procter & Gamble and American Airlines

Thursday 19 January

– Trading statements from Sage, Dunelm, Deliveroo, Boohoo, Premier Foods and Bakkavor
– Q4 results from Netflix

Netflix shares have rallied 90% since May’s low, but they are still down more than 40% over the last year. AJ Bell’s Mould and Hewson pointed out that the first number analysts and shareholders will look for in this set of results is net subscriber additions. They said: “After shedding 203,000 net subscribers in Q1 and 969,000 in Q2 (and that was much less than management’s forecast of an initial loss of two million), Netflix added a better-than-expected 2.4 million in Q3 and forecast 4.5 million adds for Q4.”

The pair noted that the rich catalogue of content and strong slate of shows, the launch of a discounted, ad-funded price package designed to win new subscribers, and management’s more upbeat forecast for subscriber growth in the final three months of 2022, could herald good news on Thursday.

However, they also cited increased competition, the surging cost of content production, weakening cash flow, and a balance sheet with $7.8bn (£6.4bn) of debt, more than $2bn (£1.6bn) in leases, and over $20bn (£16bn) in guaranteed content purchase obligations.

Susannah Streeter, senior investments and markets analyst at Hargreaves Lansdown, also expressed concern. “Although Netflix added more subscribers during the last quarter than expected, it’s a super-tough market and numbers are set to come under intense pressure this year. With the market saturated in the US and Canada, the company is seeking-out growth in emerging economies, particularly in the Asia Pacific region, but these are areas which generate less revenue per membership. So, hanging onto existing customers is crucial and the company still has a fight on its hands as cost-of-living pressures mount on households in Europe and North America.”

She added: “Costly monthly subscriptions are among the first to go when times are tight and unless Netflix keeps rolling out the hits, which is an expensive business, cancellations will mount. Netflix has to spend big just to keep hold of the customers it already has, let alone the cost of bringing new customers on board. Industry analysis estimates that Netflix could shed another 200,000 subscribers this year, as cash strapped consumers cut back. There were high hopes that the new ad supported service could help win new fans, but there is also a risk that this cheaper option will accelerate paid subscriber drop-offs.’’