The week ahead – US Payrolls, ECB rate meeting, ITV results – W/c 3rd March

1) US non-farm payrolls (Feb) – 07/03 – Having seen the Federal Reserve keep rates on hold last month the US labour market continues to show remarkable resilience, despite seeing a slowdown in hiring in January, after a blow out December number. While the January number came in below expectations at 143k, there were strong upward revisions to November and December as strong seasonal trends boosted the labour market at the end of 2024. The unemployment rate also fell to 4%, suggesting that there is little urgency for the Fed to cut further in the short term. With average hourly earnings also coming in at 4.1%, which is still well above headline inflation, the FOMC’s main concern is likely to remain on prices given their dual mandate. Private sector jobs growth also looks resilient having seen the ADP report for the same month edge up to 183k last month. All in all, with markets pricing only one more 25bps rate cut this year, expectations management might suggest a poor report seeing this forecast move higher, and a drift lower in yields, especially if President Trump follows through in his threat to axe thousands of federal jobs. Expectations for February payrolls are for      

2) ECB rate meeting – 06/03 – Having overseen another rate cut in January, the ECB has cut rates 5 times since June last year when it became the first major central bank to start its cutting cycle. With headline CPI currently edging higher, up from lows of 1.8% back at the end of last year, to 2.5% where it is now, there is some concern that the scope for cutting further might well be limited. After all, the scale of cuts since the summer of last year has done little to help the German economy, let alone the rest of Europe which has shown little of any significant signs of an economic pickup, with the German economy stagnant for the last 2 years. In recent comments last month ECB governing council member Sabine Lautenschlager suggested that it might be time for the ECB to consider a pause in its hiking cycle. That said the market is still pricing at least another 75bps of cuts this year. At this week’s meeting the ECB will also be publishing a review of their estimates of where they think the neutral rate is. There is a bigger concern as well with the prospect that tariffs from the US could help push underlying inflation back towards 3%, and it is this that perhaps helps to explain why some ECB members might be cautious about cutting further in the short term. Ultimately the level of interest rates is the least of Europe’s problems, they could cut rates by another 1% and it probably wouldn’t make a difference given that the blocs problems are structural as opposed to monetary, a fact outlined in a recent paper by previous ECB President Marion Draghi. At the last meeting ECB President Christine Lagarde was asked if a 50bps rate cut was considered instead of the 25bps that was delivered to which she delivered an emphatic “No”, however that doesn’t mean we won’t see another 25bps delivered later this week, despite Lautenschlager’s apparent reticence.  

3) EU Flash CPI (Feb) 03/03 – Inflation has been on an upward track since slowing to 1.8% back in October, edging up to 2.5% in January with core prices at 2.7%, this week’s flash number for February is likely to reinforce this stickiness, and probably won’t have much impact on this week’s deliberations by the ECB, who will be more focussed on trying to promote a recovery in an economy that is moribund at best. ECB President Christine Lagarde’s comments at her last press conference that the economy remains on a recovery path, despite current weakness, seem more like wishful thinking than anything else if recent PMI data is any guide with only the services sector showing signs of life. This weak demand should mean that inflationary pressures are muted, however that is clearly not the case, and it is that fact that is probably likely to be of more of a concern for the ECB.     

4) Services PMIs (Feb) – 05/03 – Services have been one of the main bright spots when it comes to economic activity across Europe and the UK with solid readings across the board in January for most countries. In the UK the services sector has been flat lining albeit just above the 50 level with a sharp slowing in November, in the wake of the October budget. The latest flash numbers saw activity come in at 51.1, a modest increase from 50.8 in January, however there was a sharp drop in new work, while cost pressures increased. In Germany economic activity remained steady at 52.2, however there was an outlier, and that was in France where the services sector has been struggling since the Olympics in August. Since then, we’ve seen 5 successive months below the 50 level with the latest flash PMI seeing a further collapse to 44.5, and the lowest level since September 2023, with new business activity sliding sharply, while input cost pressures rose at their fastest rate since August 2023.  

5) UK lending data (Jan) – 03/03 – Mortgage approvals in December saw an unexpected pop to 66.5k running counter to the narrative that the recent move higher in gilt yields and home loan costs was deterring interest in the housing market. Some have suggested that much of this may well be buyers looking to get ahead of the changes in the stamp duty thresholds announced in the budget which are due to take effect in April which will lower the threshold for from £250k to £125k, while the first-time buyer threshold is coming down from £425k to £300k. This makes a lot of sense, and could offer a boost to the housing market in the short term, however the buyer will have to make sure the sale goes through before this date or run the risk of a higher tax bill. As far as other lending patterns the picture was more nuanced with consumer credit slowing to 6.5%, while credit card borrowing saw a modest increase.    

6) ITV FY 24 – 06/03 – When ITV announced its Q3 results the shares fell sharply to their lowest levels since March 2024, after the broadcaster said that group revenues slowed 8% to £2.74bn for the 9 months to September, with ITV Studios acting as the main drag, coming in at £1.2bn, a fall of £299m. ITV blamed this slowdown on the impact of the US writers and actors strike which delayed £80m of revenue from 2024 to 2025. On the outlook the group was not much more upbeat with an expectation that full year revenue would be lower in the mid-single digits, although with a significant production slate coming up, and no disruptions in 2025, investors will be hoping for a more optimistic outlook. On the advertising side ITV was also downbeat with revenue in Q4 expected to be 6% lower than last year. ITV CEO Carolyn McCall also announced that the company would be looking to shave £20m in costs as it looks to combat a slowing advertising market as we head into 2025. On the plus side ITVX has continued to gain subscribers in what is already a crowded market place, with streaming hours increasing by 14% year to date. The shares have managed to rebound in the wake of the November sell off, and back just below 80p, largely due to renewed chatter that the broadcaster could be ripe for a bid, with reports earlier this year that Abu-Dhabi based RedBird might be interested in its production business. This sort of speculation isn’t new, there have been many suggesting that ITV Studios is worth more on its own, however that also misses the point that without it, ITV would be a shell of the business it currently is. It’s a faintly ridiculous notion that management would sell its crown jewels when its other business, advertising, is cyclical in nature. The whole point of the studios business is it’s a diversifier and as such acts as a buffer when advertising spending slows.      

7)  Reckitt Benckiser FY 24 – 06/03 – Having seen its share price hit 11-year lows last summer the Reckitt Benckiser share price has undergone a welcome rebound and is up over 25% from those lows, but still remains below the levels it was trading at the start of 2024 when a profit warning a year ago prompted a sharp sell-off. The catalyst for last year's price plunge was a sharp slowdown in revenue which declined 1.2%, as the Gaviscon maker got a severe bout of indigestion after its health division saw a 2% decline in revenue. This also prompted a 22% decline in full year operating profit to £2.53bn. There was also concern that the loss of a lawsuit over its Mead Johnson baby formula product in the US might signal a wider class action over the product. So far that hasn’t happened however the acquisition of Mead Johnson in 2017 has given management a number of headaches they could have done without, and this is likely to continue to be an overhang. Nonetheless the company appears to be living up to expectations, its Q3 numbers saw a 0.5% decline in net revenue, to £3.45bn, which was better than the 1.7% which had been forecast. Its Essential Home business which is due to be spun out appears to be on course for the end of this year. Net revenue year to date was up by 0.4% at £10.6bn. Full year guidance of between 1-3% full year sales growth was kept unchanged.

8) Target Q4 25 – 04/03 – While Walmart continues to set the standard as far as US retail is concerned, Target has been struggling in comparison. The US budget retailer saw its shares slump sharply in November to a one year low after missing on both revenues and profits only months after raising those same forecasts. They also cut their forecasts for Q4. For Q3 revenues came in at $25.67bn below forecasts, while profits came in at $1.85c well below the $2.30c consensus forecasts. Consequently, the annual profit forecast was slashed to between $8.30 to $8.90. To try and improve footfall and traffic across all areas of its business Target has been cutting prices across a wide range of goods, with digital sales a particularly strong area, with growth of 10.8%. Comparable store sales however were down 1.9% year on year, although the sales mix here could be working against Target, given that food sales are a much lower percentage of its footprint compared to Walmart, 23% for Target compared to 60% Walmart when comparing like for like in the filings. As we look at this week’s Q4 and full year numbers, the recent downgrade to forecasts by sector peer Walmart has seen their shares tumble in the last few days, indicating they have concerns about upcoming weakness in US consumers. Could this impact Target's numbers and guidance? It must be a worry for Target management, however with a lot of bad news already in the price there could be scope for an upside surprise.

9) Broadcom Q1 25 – 06/03 - Another US chip stock that is riding the big AI boom, it has gone from strength to strength the past 2 years, performing strongly in 2023 and carrying that performance over into 2024. Since the start of 2023 the shares have more than tripled from $60, with their Q4 numbers taking those gains through the $200 level area, after reporting earnings per share $1.42, and revenue of just over $14bn. They also increased their dividend by 11% to 59c a share. During the earnings call CEO Hock Tan said that by 2027 he expects Broadcom’s 3 biggest clients to deploy 1m AI chips in networked clusters. The company said it expects to see Q1 revenue of $14.6bn, driven by AI chip demand. Revenue in this area increased 12% to $8.03bn. More importantly, Broadcom isn’t a one-trick pony; it does have other revenue sources given its purchase of VMWare which helped it to add the remaining $6bn to its quarterly revenue numbers. Profits are expected to come in at $1.50 a share with the focus once again expected to be how management frames their guidance for Q2 and the rest of the year.