Week ahead; UK inflation set to push up to 4%, UK banks set to report, Netflix and Tesla results

1) UK CPI (Sep) – 22/10 – current expectations are for UK inflation to peak at 4% during September and drift lower over the rest of this year. This seems like a best-case scenario for the Bank of England if we are to get another rate cut this year. The jury remains very much out on that at this point in time with the government making it extremely difficult for businesses to plan with any certainty when it comes to accurately assessing their future costs. In August inflation remained steady at 3.8%, unchanged from July, however food inflation continued to edge higher, rising to 5.1% and thus keeping household finances under pressure. This shouldn’t be a surprise to anyone with an ounce of economic literacy. Heaping additional costs on business, along with farmers as well, combined with high energy prices, will make it difficult for inflation to drift lower short of killing demand, which in turn would slow the economy. Among the biggest rises in food stuffs in August were milk, butter and beef all of which went up in price by 12.6%, 18.9% and 24.9% respectively on an annualized basis. The new extended packaging tax rules which kicked in during September are also likely to raise costs further for businesses already under pressure from the April tax increases, and these will probably get passed through as well in the coming months.

2) UK Retail Sales (Sep) - 24/10 – assuming you can believe anything the ONS publishes the UK consumer has managed to see a rebound in spending over the last 3 months after a sharp slump in April and May, in the wake of a sharp rise in bills as well as taxes at the start of the new tax year. The last 3 months of June, July and August have seen gains of 0.4%, 0.5% and 0.5% respectively, assuming no further adjustments. The August numbers were driven largely by sales of clothing as well as food as decent weather helped a modest feel-good factor. Clothing sales were also probably driven by back-to-school spending, however with consumer confidence in September showing a sharp fall it seems likely that the end of Q3 could well see a sharp slowdown. 

3) UK Public Sector borrowing (Sep) – 21/10 – the most public sector borrowing numbers served to highlight the challenges facing the government in balancing the books and maintaining its fiscal credibility as the markets look to the November budget. While a figure of £18bn, was recently revised lower by the now discredited ONS, the numbers were still significantly above estimates, raising concerns that we’ll see further self-defeating tax rises at the November 26^th budget. A borrowing figure fiscal year to date of over £80bn is also a record number outside of the pandemic and is well above what the OBR estimated it would be when it released its most recent estimates. With further downgrades now more or less baked in it seems inevitable that this economically illiterate government will lean into more self-defeating tax rises than tackle the thornier issue of spending cuts. Recent attempts to cut public spending by the government ran into a brick wall in the form of its own MPs, which means at some point the markets will call time as tax returns diminish further, and the economy slows further. Another sticking plaster budget merely serves to delay that outcome.

4) US CPI (Sep) – 24/10 – with the US government currently shutdown most US data has been delayed; however, it appears that an exception is being created with the September inflation report. This is happening because the Social Security Administration has to meet statutory deadlines to ensure the accurate and timely payment of cost-of-living benefits. It also means that the report will be available just in time for the latest Fed meeting on 28^th and 29^th October which looks set to deliver another 25bps rate cut, although there is some nervousness amongst some Fed members as to whether another cut is needed quite yet. With Q2 GDP coming in at 3.8% on an annualised basis and Q3 tracking at a similar pace there is some concern that despite a slowing in the jobs market, that inflationary pressures still remain elevated on both core and headline measures. In August headline inflation rose from 2.9% from 2.7% in July, with core inflation steady at 3.1%. With uncertainty about tariffs still very much front and centre the risk is that US policymakers allow themselves to be unduly influenced by administration pressure and cut too quickly. There already appear to be clear divisions opening up on the FOMC and another strong CPI report can only add to these splits. One of the front runners to replace Chair Powell, governor Christopher Waller seems open to an October cut and appears to be playing up labour market weakness although there are others on the FOMC who are more cautious.     

5) Lloyds Banking Group Q3 25 – 23/10 – there was a fairly muted market reaction to Lloyds results in July, despite reporting better than expected Q2 profits. Statutory profits after tax came in at £1.41bn, a solid improvement from last year and the best performance in 5 quarters. Net interest margin was steady at 3.04%, while loans and deposits to customers both saw solid improvements. H1 profits came in at £2.54bn, with impairments acting as a drag of £442m. It would appear that the market was disappointed by the decision to keep full year guidance unchanged, perhaps over concerns that economic weakness in H2 may diminish the outperformance in H1. Lloyds set aside another £133m in Q2 on top of the £309m set aside in Q1 in respect of the motor finance issue, taking the total set aside to £1.2bn. Earlier this month the bank said they expected to set aside a further “material” sum in respect of this after the FCA announced that they expected the total episode to cost the industry around £11bn. This caused the shares to slip back from recent peaks, however it's hard to imagine that any further provision would be in any way close to what has already been set aside, which suggests that the initial share pullback is likely to be an over-reaction. The decision to acquire the remaining 49.9% of Schroders Personal Wealth it didn’t already own in exchange for its 19.1% stake in Cazenove with no cash consideration will more than likely compensate for that in the longer term even if it does raise the bank’s annual operating costs above the previously guided £9.7bn in 2025.

6) Barclays Bank Q3 25 – 22/10 – posted a positive set of Q2 and H1 numbers in July continuing a theme of banks posting solid profits in Q2 with a solid £1.66bn, a 34% increase on the same quarter last year, helping to push H1 profits up to £3.5bn an increase of 26%. Total income for H1 increased to £14.9bn an increase of 12%, with Q2 seeing a 14% increase in income to £7.2bn. Impairment charges rose to £1.11bn although as in the case of NatWest these were driven by acquisition costs with Barclays integration of Tesco bank assets pushing these higher. The investment bank division performed particularly well, as net trading income rose 28% in Q2 and 25% in H1, although advisory disappointed. FICC saw a 26% increase in total income in Q2, while equities pulled in £870m, an increase of 25%. The bank announced an H1 dividend of 3p per share as well as a £1bn share buyback with the bank leaving full year guidance of ROTE intact at just over 12%.

7) NatWest Q3 25 – 24/10 -.now fully back in private hands the bank posted a solid set of Q2 numbers with profits attributable to shareholders coming in at £1.24bn, a solid improvement on the same quarter a year ago, although slightly lower from Q1, which came in at £1.25bn, pushing H1 profits to £2.49bn, an increase of 18.5%, from £2.1bn a year ago. Net interest margin improved to 2.28%. Impairments were quite a bit higher at £389m with management saying that these included additional costs as a result of balances acquired as a result of the integration of Sainsbury’s Bank. Operating expenses were also higher as a result of that acquisition. Customer deposits rose by £1.8bn in H1, as did net loans to customers which rose 5.9%, with the increased balances from Sainsburys, as well as the mortgage relief tax changes helping to bring forward demand for credit. The bank also announced an interim dividend of 9.5p per share as well as a £750m share buyback program commencing in H2. Guidance was also raised with an expectation to increase ROTE to greater than 16.5%, and income to be greater than £16bn    

8) Netflix Q3 25 – 22/10 – while Q2 numbers all came in above forecasts the Netflix share price has traded sideways with a slight downward bias. Net income was $3.12bn, while operating margins rose to 34.1% on revenue of $11.08bn. In terms of the outlook, it was a bit of a mixed bag, with Q3 forecasts for revenue higher at $11.5bn, however net income came in at $2.98bn slightly below expectations with management admitting that higher marketing costs in H2 were likely to act as a drag on profitability, with margins expected to slip back to 31% in Q3. This perhaps explains the ambivalent response to what was a decent set of numbers even as the company raised its revenue outlook for the year to between $44.8bn to $45.2bn. This was raised from an upper boundary of $44.5bn. Exp profits of $6.87 on revenue of $11.52bn. 

9) Tesla Q3 25 – 22/10 – deliveries in Q3 beat forecasts giving the shares a boost despite a weak H1. In Q2 the shares initially slipped back after reporting a 16% decline in automotive revenues to $16.66bn. Total revenues were down 12% at $22.5bn, while operating margins fell to 4.1% from 6.3% a year ago. On the plus side operating margins were higher than Q1, when they slid to 2.1%. Tesla has managed to improve its offering on the services side, with a 17% increase to $3.05bn, however this remains a small percentage of its total revenue. Profits were down 18% to 33c a share, or $1.17bn. The main drags on revenue were lower deliveries, as well as lower selling prices, however the share price has continued to recover from the lows seen in April this year, almost matching the record high levels seen at the end of 2024 at the start of this month. While Tesla appears to be keeping production levels high, inventory supply has been increasing, up from 18 days a year ago to 24 days, suggesting that the pace of sales was slowing sharply. This appears to have been addressed in Q3, where deliveries rose 7% year on year to a record 497k helped by a rebound in domestic sales, which was due to an expiration of a $7.5k EV tax credit, which would have seen prices rise sharply post 30^th September.  Tesla also delivered a record 12.5GW of energy storage products.