UK inflation and Fed minutes in focus, Nvidia and Walmart set to report

1) UK CPI (Oct) – 19/11 – the most recent Bank of England rate decision saw a narrow vote to keep rates unchanged at 4%, in the wake of September inflation coming in unchanged at 3.8%, and below the expectation of an increase to 4%. This has raised expectations given the narrowness of the vote, 5-4 in favour of keeping rates unchanged that we could see the central bank cut rates next month to 3.75%. While the September undershoot is welcome amid an expectation that headline CPI may well have peaked, that doesn’t necessarily mean it could come down quickly. This is where the main split on the MPC appears to be, with the likes of Catherine Mann and Huw Pill concerned about the persistence in inflationary pressure, while Megan Greene appears to think we could see further upside risk. While Greene is an outlier as far as this is concerned, the majority of the MPC appear to want to see further evidence that price growth will now start slowing with Governor Bailey appearing to want to see this evidence on the basis of further reports. This is where we could see a shift in the voting patterns even with food inflation still at painfully elevated levels of 4.5%, and wage growth at a similar level. We’ve now seen headline CPI come in at 3.8% for the last 3-months in a row, while core CPI has only slipped from 3.8% to 3.5%. This rather begs the question as to how much of a slowdown is needed to shift the narrative towards a December cut. There are 2 more inflation reports between now and the December meeting. What will it take to shift Bailey from a hold to a cut? 3.6%, 3.5% or lower? If we only slip to 3.7% does that make a December cut more or less likely? It’s a tricky balancing act given that the MPC could be accused of being reckless if it cuts the base rate to 3.75% if headline CPI is at or close to this same level.                 

2) Fed minutes – 19/11 – as expected the US central bank cut the Fed funds rate by 25bps to an upper level of 4%, with Fed governor and Trump appointee Stephen Miran calling for a larger 50bps cut. While this wasn’t a surprise there was a 3-way split with Jeffrey Schmid of the Kansas City Fed breaking from the majority in voting to keep rates steady. While there appear to be more divergent views when it comes to the pace of rate cuts, chair Powell also put the proverbial cat amongst the pigeons by saying the another cut in December wasn’t the done deal markets seem to think, prompting an uptick in Treasury yields, and a modest slide in US stocks. While unexpected, perhaps it shouldn’t be given that, as Powell pointed out, the economic outlook continues to look cloudy, given the government shutdown and the impact it is likely to have on US consumer spending in the short term. There is also the fact that the Fed is flying blind somewhat given the lack of official stats from the BLS on the US economy, although there are other private sector avenues the Fed can use to get a steer on prices, as well as the labour market. We also need to consider that the recent CPI report showed that headline inflation rose to 3%, indicating that upwards price pressures were still present in the US economy. One additional point was that the Fed announced it was ending its QT program, meaning that one part of its monetary policy is now longer pushing against the central bank's easier rate policy. Hopefully this week’s minutes will add additional colour to the Fed’s deliberations on the timing of when to expect the next rate cut, which still looks like it could come in December given that Q4 is likely to see a sharp slowdown compared to Q3. It’s important that we don’t understate the impact of the current shutdown and the impact on US consumers on the suspension or reduction in SNAP benefits (food stamps) to 42m Americans which has prompted many to tighten their belts sharply.               

3) UK retail sales (Oct) – 21/11 – despite a sharp decline in both April and May, UK consumer spending has been remarkably resilient in the months since then, with 4-months of positive readings across the summer months, and into the autumn. July, August and September all saw robust readings of 0.5%, 0.6% and 0.5% respectively, despite very low consumer confidence. This resilience helped keep the UK economy above water in Q3, however with the November budget coming up and a government who appear intent on putting the fear of God into people with speculation over what might be in this year's red box it wouldn’t be surprising to see a sharp slowdown in October retail spending. 12 months ago, Rachel Reeves assured everyone who would listen that she would not be back with further tax rises. At the time there was enormous amounts of scepticism about this hostage to fortune remark and so it has proved, amid scenes reminiscent of Groundhog Day. This time last year saw UK retail sales post negative numbers in October, November, December and January. Will it be different this time given the prevailing gloom in recent economic numbers? I wouldn’t bet against it.

4) Babcock H1 26 – 21/11 – when Babcock published its full year numbers back in June the company announced full year revenues of £4.83bn, an increase of 11%, with the possibility of more to come. Underlying operating profit was also higher, rising 53% to £363m with the nuclear division doing a lot of the heavy lifting. Margins were also higher, rising to 7.5% from 5.4%, while net debt was lower. In the past companies like Babcock have always come under pressure from governments to deliver projects as cheaply as possible. The recent change of emphasis when it comes to defence has changed all of that, and with a contract backlog of £10.4bn defence companies now have the upper hand when it comes to delivering projects to its customers. On guidance for 2026 the company said it was confident that it would be able to deliver on its target of 8% operating margin in 2026, a year earlier than forecast. The company also announced a £200m share buyback and a total dividend of 6.5p per share, an increase of 30%.    

5) JD Sports Q3 26 – 20/11 – since hitting 5-year lows in April the JD Sports share price has seen a modest rebound rising to its best levels since early January at the start of October, however there have been modest dips in between, While recent concerns over tariff impacts may have been a little overdone the retailer has still found its markets tough going given that the retailer gets most of its stock imported from China and Vietnam. This could put a dent in expectations for profits this year which are currently in the area of £890m. This saw the company announce that Q1 like for like sales declined 2% with the US bearing the brunt with a 5.5% fall. When the retailer reported its H1 numbers total sales were up by 20% to £5.94bn, while operating profits fell 6.3% to £369m. Operating margins slipped back further, slipping to 6.2% from 8% the previous year. Organic sales growth of 2.7% was in line with expectations, as the integration of Hibbert continues, along with a new US distribution centre which is due to come on line by the end of the year. JD Sports kept their guidance for full year profits unchanged at around £890m with limited impact from US tariffs expected this year.  

6) Imperial Brands FY 25 – 18/11 – have continued to perform well since the tobacco giant updated the market back in October that it was on target to deliver low single digit growth in both tobacco and NGP net revenue in line with guidance. The company also said it was looking to buy back £1.45bn in shares over the next 12 months. With governments continuing to raise barriers to future revenue with advertising bans, as well as bans on the sales of its products to younger smokers, the challenges for the tobacco, as well as vaping industry have never been greater. NGP net revenue growth for the full year is expected to be around 13%. Management went on to say that they expect market share gains in the US, Germany and Australia to broadly offset declines in Spain and the UK.      

7) Nvidia Q3 26 – 19/11 – even though we saw a modest sell-off in the wake of Nvidia’s Q2 numbers this served to be merely a precursor to another dip buying opportunity, as the chipmaker became the latest tech giant to reach a $4trn valuation as the shares soon after posted fresh record highs. Q2 revenue came in well ahead of forecasts at $46.7bn, with data centre revenue of $41.1bn. This was 6% higher than Q1, and 56% up year on year, and was achieved with no H20 sales to China based customers during the quarter. Margins remained steady at 72.4%, with net income coming in at $26.42bn, up 59% year on year. The company returned $24.3bn to shareholders during H1 in the form of dividends and buybacks. On Q3 the chip maker said it expects Q3 revenue of $54bn +/- 2% with margins set to increase by 1%, plus or minus 50bps. The Data Centre business once again stood out with the company stating that its 6000 Blackwell Server GPU being adopted by names like Disney, Foxconn, Hyundai, and TSMC.

8) Home Depot Q3 26 – 18/11 – Home Depot shares have slid back sharply since a fairly choppy reaction to their Q2 numbers saw the shares initially slide in the premarket, before closing higher on the day. Net sales in Q2 were up 4.9% to $45.28bn, with profits narrowly missing forecasts at $4.68 a share. The DIY retailer did reaffirm its full year outlook of 2.8% sales growth and comparable sales growth of 1%. Digging into the numbers in detail did suggest that business was doing well with 12 of its merchandising departments reporting sales growth, while there was also a decent pick up in big ticket items year on year of 2.6%.  Recent acquisitions have meant that Home Depot now gets 55% of its sales from professional businesses and 45% from the retail market. Acquisition of SRS Distribution last year for $18.3bn, a supplier to roofing, and landscaping professionals has helped the sales mix here, while the bid for GMS for $4.3bn in June is expected to help further. Unfortunately, the share price action since then has seen the shares roll over to 3-month lows, with a weak housing market probably not helping matters. Q3 profits are expected to come in at $3.86 a share.      

9) Walmart Q3 26 - 20/11 – Walmart shares saw a bit of a dip after Q2 profits came in below forecasts at $0.68 a share, although it was still a 1.5% increase on last year while revenues rose 4.8%, coming in at $177.4bn. Gross margins on the other hand were still strong, up by 4bps led by Walmart US with strong growth in ecommerce of 26%, as well as in store. This has seen the shares slowly recover all of these losses in the weeks since that update. Despite the disappointment over the Q2 numbers the number 1 retailer in the US still raised its full year guidance, although sales could well have taken a hit due to the government shutdown which caused SNAP benefits to get reduced or even cut completely in some states. 

10) Target Q3 25 – 19/11 – Target shares plunged on the open despite beating expectations on both revenues and profits in Q2, while reaffirming their full year outlook. The retailer also named a new CEO, existing COO Michael Fiddelke who will succeed Brian Cornell has been with Target for 20 years with investors apparently sceptical that he will be able to turn the ailing business around with the shares sliding to 5-year lows in October, although we have seen a modest rebound since then. Q2 revenues came in at $25.21bn while profits came in at $2.05 a share. Full year guidance of annual profits is expected to be between $7 and $9 a share was reaffirmed. The overall trends don’t look promising with annual sales flat lining for the last few years, while store traffic has been in decline for most of this year, and like Walmart it could well find that consumers have cut back further in Q3.