Bank of England expected to hike, US midterms, Apple results and US payrolls

It’s been another broadly mixed few days for stock markets this week, with the Fed and ECB both leaving rates unchanged with the only stories of note being the dissent on the FOMC and the announcement that Christine Lagarde would be stepping down early as President of the ECB.

Starting with the Fed the statement said that while inflation “remains elevated” the committee wanted to wait to see how the September hike starts to play out along with further economic data vis-à-vis the US economy which Fed chair Warsh said is expected to grow by 3% in Q3. The two dissents came from Cleveland Fed President Beth Hammack, which wasn’t a surprise as well as Fed governor Lisa Cook, which was a surprise, voting for a 25bps hike.

On the dissents, Beth Hammack has been one of the more notable hawkish voices in recent months, however she wasn’t joined by her fellow travellers Lori Logan and Neel Kashkari in that regard. She was joined by governor Lisa Cook who decided to join her in what could perhaps be considered as a bit of a middle finger to President Trump who has attempted to force her removal in recent months for what he has claimed is mortgage fraud.

We also had the small matter of the UK budget, which turned out to be a fairly low-key affair with a lot of micro measures which did little to alleviate the longer-term issues facing the UK economy. They also did little to dispel the idea that we could see an early election.

What is clear is that there appears little appetite by anyone in government to tackle the issues around spending, as the Chancellor took with one hand, before giving back with the other.

As we look ahead to next week the main topics to focus on will be the Bank of England and the expectation of a 0.25% increase in the base rate, along with the US midterm elections, along with US non-farm payrolls and the latest results from Apple, along with UK retailers ABF and Marks and Spencer.

1) Bank of England rate meeting – 05/11 – there’s been plenty of chatter about the wisdom of the Bank of England hiking rates into an energy price shock, however they wouldn’t be unique in doing this. We’ve already seen the ECB hike twice this year, and the Federal Reserve raise rates in September. The real question is whether the Bank of England can afford not to hike? While one can argue that hiking into a supply shock is a questionable thing to do, if everyone else raises rates, and the pound sinks the central bank runs the risk that we get imported inflation due to the fact that the UK has exported most of its industrial and manufacturing capability. There’s also the small matter of the Bank of England’s credibility when it comes to the management of interest rates and keeping inflation in check, and before everyone piles in and says it’s low to begin with, that also rather misses the point I’m trying to make. The central bank needs to show the market and overseas investors in particular that it is determined not to allow inflation to get out of control relative to its peers. This is due to the fact that a lot of the UK’s debt is index-linked, about 25%, which means if investors think that the banks’ reaction function vis-a-vis inflation starts to slip, then the UK pays a heavier price on yield, as well as debt interest. As it is, aside from France, the UK is the most vulnerable when it comes to being in hock to the bond market, and much as we’d like the Bank of England to look through the effects of this supply shock, the reality is that at some point we will start to see some second and third round effects, if not this year, then possibly early next year, given that we import almost all of our energy, due to our utterly economically illiterate economic policy. Fortunately, the UK economy has held up better than anticipated so far this year, however much of that has been as a result of one-offs, as well as high government spending, and as such this may not continue into Q4. We’ll also be getting the latest economic projections from the central bank, a week on from last week’s budget and the subsequent revisions to the OBR’s numbers, in its latest inflation report, as we look ahead to 2027.              

2) US non-farm payrolls (Oct) – 06/11 – no surprises from the Federal Reserve at their recent policy meeting, which was widely expected. The last non-farm payrolls report for September saw a sharp slowdown to 29k, after a bumper August which saw 133k jobs added, although this was also revised down. While disappointing, the trends being seen in the ADP report from the same month pointed to a much greater degree of resilience with 90k jobs added, a 3-month high. With weekly jobless claims also remaining stubbornly close to 3-month lows as well it is clear that while jobs growth is slowing, it’s not falling off a cliff either. It’s also notable that participation has also started to improve with a jump to 61.8%, and back to levels last seen in May this year. It is certainly true that US firms’ costs have been growing, however thus far there has been little evidence that companies have felt compelled to cut jobs at an accelerating rate, although we have heard some notable announcements this month from the likes of Microsoft, Uber, Netflix, Amazon, eBay and Electronic Arts of significant job cuts on a global basis. It remains to be seen how soon that will start to show up in the jobs numbers, when the unemployment rate, currently at 4.2%, just above the recent lows of 4.1%.        

3) EU Flash CPI (Oct) – 04/11 – no change in rates at the recent ECB meeting, even as headline inflation threatens to push up to 4%. With 2 rate hikes already banked the ECB clearly decided to wait and see, especially given events in France, and the sharp rise in yields there. They won’t want to do anything that mechanically raises rates any further than is already priced for December. Inflation at the start of this year was at 1.7% and now sits at 3.8% and a 3-year high, with the very real prospect that we see a 4% handle this week. The bulk of the gain seen in September was in energy which rose by 18.9% vs 14.3% in August, services (3.2% vs 3%) and food, alcohol and tobacco (1.3% vs 1.1%). Core prices have been much more manageable given that they exclude energy, food, alcohol & tobacco, only saw a modest increase to 2.5% from 2.4%, and remain significantly below the levels we saw back in 2023 at the height of that price shock in the aftermath of the initial Russian invasion of Ukraine.

4) US Mid Term elections – 03/11 – will Trump become a lame duck President in the wake of this week’s mid-terms? There’s been a lot of talk that once these are out of the way the US could go all shock and awe on Iran? I’m not sure how the midterms would affect that if he loses control of both Houses. Does the outcome matter for the markets, probably not, although a crude oil price which moves above $120 a barrel could well be another story. This remains a much bigger risk for markets than anything the US midterms might bring about.     

5) Apple Q4 26 – 02/11 – while concerns about the affordability of the AI trade have been growing, Apple shares have proved impervious to these concerns largely due to the fact they choose to stay away from large scale investment in the AI trade. That still didn’t prevent a large-scale sell off in Apple shares in the wake of their Q3 results. Despite a record quarter and Q3 revenues which came in 16% higher at $109.4bn, the shares came under pressure due to sales in China and services slightly missing expectations, although they were still much better than the same quarter last year. While not the end of the world, the losses gained traction when the earnings call started after management delivered weaker than expected Q4 guidance. Looking at the numbers, they were still good. iPhone revenue came in at $54.25bn, an increase of more than 20%, while Mac revenue increased to $10.35bn, from $8bn. Services also posted a strong quarter, pushing through $30bn, and up from $27.4bn, however investors were hoping for more, with Cook blaming FX headwinds for the miss. Furthermore, sales in China came in lower than expected despite a strong increase from last year, rising to $18.8bn, $3.5bn higher than last year. iPad sales were also disappointing, slowing down to $6.19bn. Q4 guidance proved to be the main drag however with Apple guiding for a 9% to 11% increase with markets hoping for 12.1%. The lower number was blamed on Apple saying that supply chain constraints were starting to bite, and which are expected to weigh on the company’s growth prospects, with the iPhone, Mac and iPad all expected to be affected. These supply chain constraints appear to be being driven by the fact that TSMC can’t match the demand. Apple also said that memory prices were likely to keep going up which could hit the business with higher costs unless the company can find new sources of supply. Nonetheless these losses have given way to a slow rebound back to new record highs on the back of strong demand for the new iPhone Duo, which despite a £2k price point is seeing strong demand to the point that Apple is having to delay new order delivery until the end of January next year. Against this sort of demand, the expectation over revenue numbers have been adjusted sharply higher, with the shares now at fresh record highs, and a $5trn valuation. It is important to point out, however, that the revenues numbers for the Duo won’t be included in this week’s numbers, cracked screen problems aside. This means Q1 revenue expectations are likely to be raised accordingly, heading into the Thanksgiving and Christmas quarter, with Q1 26’s record of $143.8bn the benchmark that Q1 27 will be set against.

6) Associated British Foods H2 26 – 03/11 – we already got a flavour of the nature of ABF’s H2 numbers with the recent Q4 trading update in September, which saw the shares plunge briefly to 4-month lows. We saw a -3% decline in like for like sales for Q4, with and a -2.6% decline in full year sales in the retail division. The main drag was continental Europe, which saw Q4 LFL sales fall -4.3%. In response to the weaker retail outlook Primark appears to be finally biting the bullet when it comes to online, saying that in addition to developing its click and collect business it would soon be offering a delivery option in the UK. The UK business was able to maintain its recent resilience with full year LFL sales growth of 0.6%. The US business has continued to perform well with sales growth of 11% in Q4. For the full year 2026 Primark sales are expected to grow by 2% with LFL sales down -2.6%. Grocery and Ingredients delivered solid growth, despite hot weather impacting Twining’s tea sales, and the company is progressing with the Hovis integration. The Sugar division expects an adjusted operating loss towards the higher end of its £25m to £60m range due to pricing and crop yield issues. Group adjusted operating profit is expected to be broadly in line with previous expectations. Adjusted earnings per share is expected to be ahead of our expectations. Work on the demerger of ABF's Retail business from its Food businesses is progressing well and the demerger is expected to be completed in December 2027.  

7) AMD Q3 26 – 03/11 – AMD shares slid sharply on the back of their Q2 earnings despite reporting record revenues of $11.54bn, helped by a sizeable jump in data centre revenue of $6.7bn, which doubled by more than 100%. Profits were also better than forecast with EPS of $1.66 a share, or $2.88bn in net income. Gaming revenue was the only cloud, which declined 31% to $779m, while for Q3 AMD guided for revenue of between $12.7bn and $13.3bn, an implied increase of over 40%. Despite this stellar set of numbers, the slide in the share price once again appears to be over concerns that it can keep up this rate of growth, even as prices continue to increase. Nonetheless the reaction of the share price isn’t anything new to AMD given how volatile the shares have been of late and have remained in the range they’ve been in since the end of May, with the shares eventually shrugging off the initial losses to post new record highs in early October.  

8) Marks and Spencer H1 27 – 04/11 – when M&S reported its full year numbers back in May it was evident that the market was choosing to ignore the fact that profits were down as the retailer continued its recovery from the impact of the 2025 cyberattack, with a much stronger H2 performance than was the case in H1. This confidence has been reflected in the shares rallying strongly from the 2-year lows seen in May, with the shares back at their highest level since 2015. Full year adjusted profits before tax for 2026 were £671.4m, a decline of 23.8%. Statutory profits before tax fell 28.8% to £364.6m. Despite the disruption total revenue rose 25% to £17.27bn, while operating profits fell 14% to £536.7m. The bulk of the disruption was felt by fashion and home which saw sales decline 7.7%, while food sales saw solid growth of 7%. A final dividend of 3p per share was announced taking the total dividend to 4.2p, an increase of 16.7%. On the outlook M&S said it expected profit growth to return in 2027, with an expectation of profits above the levels of those seen in 2024. It will be interesting to see if management is still confident in this assessment and whether any increases in costs can continue to be mitigated by cost savings, and other measures.

9) IAG Q3 26 – 06/11 – airlines have been very much in the firing line when it comes to operating costs, and exposure to events in the Middle East. At IAG’s most recent H1 update the airline reported revenue of €16.06bn, a 1% increase, operating profit of €1.61bn, modestly down from last year’s €1.88bn. Profit after tax was down 20.6% to €1.03bn. Passenger revenue per ASK was 2.4% higher at 8.29, however available seat kilometres (ASK) were lower by 0.1% at 169,800. Operating margin before exceptional items was down 0.9% to 10.9%. At the time of the H1 results IAG said it was 57% booked for H2, and said they expect to recover 60% of the higher fuel cost. Of course, that was then and this is now, and with the likes of easyJet and Ryanair cutting capacity in response to surging aviation fuel prices it can only be a matter of time before IAG does the same, particularly around its smaller brands like Vueling or Aer Lingus. ASK capacity was expected to be flat compared to 2025, with total fuel costs scenarios of between €8.3bn and €8.6bn. Capex was €3.4bn with 16 aircraft set to be delivered in 2026. IAG said it still expected to be able to deliver operating margins of between 12% to 15%. IAG’s core markets performed well, with Transatlantic, and Latin America performing well, however Europe was weaker with a 2.8% decline in ASK.