The week ahead – US CPI, Whitbread Q3 results and US bank earnings

US CPI (Dec) – 13/01 – US inflation slowed to 2.7% from 3% in November, giving cover for the Federal Reserve to cut the Fed Funds rate by 25bps, as expected. However, the slowdown came with a huge number of caveats. Firstly, the cancellation of the October report due to the government shutdown meant that the report was missing a number of key data points and thus there was little in the way of comparison data, although what’s to stop them using the data from September, even if it is slightly older. November CPI data could also have been impacted by discounting from retailers keen to encourage consumer spending after the slowdown seen in October due to the US government shutdown. 

US Retail Sales (Dec) – 14/01 – Saw a modest rebound in US consumer spending in November after a weak October, which was impacted by the US government shutdown. As we head into year end, and the uncertainty over the government shutdown in the rear-view mirror, US retailers will be hoping that the slowdown in inflation, as well as a pre-Christmas bump will give them a strong end to the quarter in what is still likely to be the weakest quarter of the year for US consumer spending.

Whitbread Q3 26 – 13/01 – It’s been a slow slide lower for Premier Inn owner Whitbread shares since they reported their H1 numbers back in October. A 2% decline in H1 revenue to £1.54bn also saw a 1% fall in statutory profits before tax to £217m. UK sales saw a modest improvement in Q2, which helped offset a weak Q1. Total accommodation sales for the UK were flat on the year, while RevPAR was down 1%. Food and beverage sales fell 11% while pre-tax profit margins were modestly lower at 23.4%. We did see a welcome improvement in the German business where losses improved to -£3m from -£9m, while total sales rose by 9% as a solid Q1 gave way to a weaker Q2. Across both businesses the main drag appears to be an increase in costs. Whitbread also downgraded its expectation for this business to adjusted profit before tax to up to £5m, down from a previous £5m-£10m. Higher than expected UK costs are also only likely to be partially mitigated by increased cost efficiencies. With the improvement seen in Q2, Whitbread said it remained confident in delivering up to £300m in incremental profit by 2030, as it looks to unlock £2bn for shareholders in dividends and buybacks over the next few years. Investors don’t appear convinced by this optimism with the shares well down from their October peaks of 3,300p, and close to the April lows of last year.

Hays Q2 26 – 14/01 – With the share price languishing at levels last seen in 2009, the shares have been struggling to make any sort of gain, against a weak backdrop for employment trends globally. While a lot of the pessimism potentially already in the price was always low when it came to the latest results for recruiter Hays, with the argument that a lot of the pessimism was already priced in the shares made a marginal new low in December last year. The company wasn’t exactly upbeat about the outlook, labelling the current slowdown as the “Great Hesitation” with the company posting Q1 numbers in line with expectations as total net fees fell -8%. The decline in net fees for the UK market was -9%, ANZ, -10% and Germany -5%. What was notable was that while fees for permanent roles declined -13%, contracting role fees saw a more modest decline of -5%. There was progress on costs. The company said progress on the £45m of cost savings was in line with the company saying it was on course to meet its full year guidance.

Persimmon Q4 26 – 13/01 – Has managed to see some decent gains in the share price since sliding to 2-year lows of 1,031p back in September, when the housebuilder reported a 4% increase in new home completions to 4,605, and a 13% increase in underlying operating profit of £172m. This turned out to be somewhat of a turning point for the share price with the initial weakness turning out to be temporary. Operating margins saw a modest increase of 10bps to 13.1% with management saying that the house builder was on track to meet its full year forecasts. Total group revenue rose 14% to £1.5bn, while profit before tax came in at £146.7m, only modestly higher from last year’s £146.3m. In Q3 there was similarly positive news with forward sales rising 15% to £2.79bn, driven primarily by private forward sales. The private average selling price also remained resilient, rising 1.5% year on year, to £295,150. Management expressed confidence that despite the uncertain outlook that the company was on track to meet expectations for the year, helping to push the shares back towards last year’s peaks at 1,417p.     

JPMorgan Chase Q4 26 – 13/01 – The last few months have seen the JPMorgan share price continue to push on to new record highs, with their last set of earnings numbers in October, seeing another strong quarter, with revenues increasing 9% to $47.2bn. Profits rose 12% to $14.39bn. Unsurprisingly, the trading side of the business performed well posting record revenues of $8.9bn, with FICC seeing an increase of 21% to $5.6bn, while equities added $3.3bn, an increase of 33%. JPMorgan did increase its provision for credit losses by 9% to $3.4bn having taken losses from its exposure to subprime auto lender Tricolor Holdings. The bank said it had no exposure to First Brands. As far as its retail bank was concerned there was little sign that consumers were feeling the pressure from the rising cost of living, although this will probably change in Q4 given the US government shutdown’s impact on consumer finances.  

Citigroup Q4 25 – 14/01 – Citigroup also posted a strong set of Q3 numbers back in October, helping to push the shares up by over 20% in the last 3 months, although they remain well short of the pre-financial crisis highs, unlike the likes of its peers which are already well above them. A 9% increase in revenue of $22.09bn and profits of $3.8bn an increase of 15% saw all of its business divisions post a record quarter.

Wells Fargo Q4 25 – 14/01 – One of the biggest mortgage lenders in the US, Wells Fargo also posted a strong Q3 helped by the recent relaxation of its asset cap by the Federal Reserve. Revenues came in at $21.44bn, while profits came in at $5.59bn, helped by investment banking advisory fees which jumped by 25% to $840m as it expands this area of the business so that it can diversify its revenue streams.    

BOA and Goldman Q4 25 – 14/01 and 15/01 – BOA saw a 10.8% increase in Q3 revenue to $28.24bn driven mainly by a 43% increase in investment banking revenue to $2bn, while equities trading rose 14% to $2.3bn and FICC was up 5% to $3.1bn. Unlike JPMorgan, BOA reduced its provision for credit losses. In Q3 Goldman saw Q3 revenues rise by 20% to $15.18bn, while profits came in at $4.1bn, an increase of 37%. FICC revenue rose 17% to $3.47bn, while equities trading rose 7% to $3.74bn.