Week ahead: UK wages and inflation expected to ease, Netflix earnings

1) UK Wages/Unemployment (Nov) and UK CPI (Dec) – 20/01 and 21/01 – the recent November CPI numbers gave cover for the Bank of England to cut rates last month bringing the base rate down to 3.75%. The sharp slowdown in headline CPI to from 3.6% to 3.2% in November, appears to reinforce the idea that the UK economy has passed peak inflation concerns. Nonetheless, the decision to cut rates was marginal with governor Andrew Bailey proving to be the key swing voter as the MPCs stance slowly shifted towards concern over the economic outlook, over the idea that inflation could well continue to slow sharply. With unemployment for the 3-months to October rising to 5.1% and the highest level since 2021, the shift now appears to be increasing concern over a sharply slowing economy, with worries that unemployment could continue to rise sharply during 2026. This is despite pay growth in the public sector, which is still trending at well above that of the private sector, which means that the idea that we might see a swift return to the central banks inflation target of 2% is for the birds in the short term. On a more welcome note, food inflation saw a welcome slowdown to 4.2% from 4.9%, while services inflation was a little more sticky at 4.4%, down from 4.5%   

2) UK Retail Sales (Dec) – 23/01 – could we see a December rebound for the UK consumer? Given the resilience of recent UK retailers pre-Christmas trading updates, there is certainly a case for a rebound in sentiment. We could certainly do with one given the dreadful retail sales numbers seen in October and November, which were solely down to concerns over what might come out of the latest budget at the end of the month. In October and November, we saw declines of -0.9% and -0.1% respectively as consumers kept their hands firmly in their pockets. 12 months ago, similar uncertainty over the government’s plans for the UK economy gave rise to a similar hesitancy on the part of consumers where we saw retail sales decline in 4 of the last 5 months of 2024. Could this December be any different? Let’s hope so for the sake of the hospitality and retail sector, and early indications do appear to point that way, with the only concern being as to whether any consumer rebound, we see, might be sustainable at a time when unemployment is starting to accelerate sharply.   

3) Bank of Japan rate decision – 23/01 – having hiked rates by 25bps last month to 0.75%, as expected, it seems likely that the Bank of Japan may well sit on the sidelines in the short term as it assesses the effect recent changes in monetary policy will have on the Japanese economy. There is also the small matter of rate expectations going forward and the impact of further rate hikes from the Bank of Japan on global bond markets. Last year the 30-year JGB popped above 3%, and only this month hit the 3.5% level, up from 2.25% at the end of 2024. This erosion of interest rate differentials could have profound implications for global bond markets if Japanese investors take the view that yields have risen far enough to justify repatriating some of their overseas holdings of US treasuries, and other foreign owned government bonds. While this hasn’t happened yet, that doesn’t mean it won't, although some of the recent disinflationary trends being seen globally might well help in this regard and help to cap inflation risks.

4) JD Sports Q4 26 – 21/01 – we’ve seen a modest rebound in the JD Sports share price in the wake of the company’s Q3 numbers back in November, having managed to hold above their June lows, just above 70p. 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. In Q3 total sales rose by 8.1%, due to the effect of recent acquisitions, although on a like for like basis the picture was slightly less rosy. North America saw a -1.7% decline and Europe a -1.1% decline while the UK was even worse with a -3.3% fall. Operating margins have also remained under pressure with a 30bps decline, while US synergies remain a work in progress. Guidance was left unchanged with the company reiterating what it said in H1, 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) J D Wetherspoon Q2 26 – 21/01 – there was some scratching of heads in November with respect to the weakness in the Wetherspoon share price, with the shares down almost 20% from their July peaks. This decline came in spite of solid levels of trading activity in their recent trading updates, and the Q3 update was no different, which in turn appears to have stopped the rot, and sent the shares back higher again. The pub chain announced a 3.7% increase in like-for-like sales, with bar sales rising 5.7% and food by 0.9%. Total sales rose 4.2% as 4 new pubs opened including two in London, at London Bridge Station, and the Paddington Basin. The hotel business saw a decline of 6.3%. Chairman Tim Martin, never one to shy away from a pot shot at the government of the day, weighed in once again on the way food and drink is taxed, relative to supermarkets, as well as firing a broadside about energy costs. One example that he used was that pubs have lost 50% of their beer volumes to supermarkets since 2000, according to research by Morgan Stanley. This disparity was also highlighted earlier this month by the Tesco CEO who criticised the recent changes to business rates, which have disproportionately impacted smaller hospitality businesses. On guidance Martin said that he was cautious about the outlook given the recent budget so it will be interesting to hear what he has to say now. 

6) B&M European Retail Q3 26 – 22/01 – we saw a sharp fall in the B&M European Retail share price back in October after the retailer reported a surprise revision to their full year profits guidance which saw a £7m downward revision to its previous forecast for H1, from £198m to £191m. This compares to £274m the previous year. The group’s full year adjusted EBITDA is now projected to be between £470m and £520m, down from £510m to £560m. The error appears to have resulted from the omission of some freight costs. All of the other measures that were highlighted in its earlier October statement were left unchanged; however, its CFO Mike Schmidt has stepped down as a result. In November the company reconfirmed a 4% rise in group revenue to £2.75bn translated into a group adjusted operating profit of £177m, a 31.5% decline on last year. Group adjusted EBITDA came in at £191m in line with expectations with the shares continuing to languish at multi year lows. An interim dividend of 3.5p was announced, down from 5.3p last year. Q3 trading in the UK business has been at the lower end of expectations, however management expect this to reset as we head into the end of the year, reiterating FY26 group adjusted EBITDA of between £470m and £520m. With the shares continuing to languish just above its recent lows shareholders will be looking for signs of stabilisation and a return to the levels of Q3 when the shares were well above 200p. The company remains on course to open 40-45 gross new stores this financial year with 23 already open in H1, (9 net).  

7) Netflix Q4 25 – 20/01 – in October I posed the question as to whether we’ve hit peak Netflix in the wake of the Q3 results which saw the streaming giant miss on Q3 profits, although revenues came in line with expectations. Since then, the shares have fallen below $100 to levels last seen in April last year, a decline of 25%, and crucially below its 200-day SMA. Q3 revenues were $11.5bn, while profits fell short at $2.5bn due to a tax bill incurred in its Brazilian business, which shaved over 6% off its operating margin, compared to Q2. The expense of $619m related to the settling of a tax dispute with authorities in Brazil that management said would be a one-off. On guidance for Q4 management said that they expected revenues to rise to $11.96bn helped by the return of Stranger Things, the Witcher and the Diplomat, along with a new Knives Out sequel. Operating margins, which fell to 28% in Q3 are expected to fall further to 23.9%, although they are still expected to be above the levels we saw in Q4 last year. The company said it expects to see $45.1bn in full year revenue (at the top end of its forecast), while cutting its forecast for operating margin to 29% from 30%.  On cashflow the company also raised its forecast for 2025 to $9bn, as well maintaining the share buyback program. Since then, the company has confirmed that it has agreed a deal with Warner Bros Discovery for its studios and streaming business for a price in the region of $60bn with a $5bn break fee if the deal doesn’t complete. Any deal would involve the spinning off of CNN, TBS and TNT, although Netflix would get HBO. There would be antitrust issues and Paramount has tried to gatecrash the deal with a huge counterbid which has been rejected by the Warner Bros board.