Fed expected to cut rates next week, UK GDP in focus

1) Fed rate meeting – 10/12 – while there are other central bank meetings this coming week from the RBA and Bank of Canada, the main focus will be on the US, and the last meeting of the year from the Federal Reserve. Back in October when the Fed cut rates by 25bps, Fed chair Jay Powell poured cold water on the idea that another rate cut before year end was a done deal, prompting a modest spike in yields and a pullback in US stock markets. Furthermore, there was a 3-way split on the committee, with Trump appointee Steve Miran calling for a 50bps cut, while Jeffrey Schmid of the Kansas City Fed voted to keep rates unchanged. Since that meeting at the end of October the economic picture hasn’t gotten any clearer, especially since the US government shutdown has clouded the picture from an economic data point of view. On the plus side the Fed has had visibility on a series of private sector reports like ADP as well as ISM services and manufacturing which have shown that the US labour market is slowing, however there are also signs that inflation is remaining sticky, which could give some members of the FOMC pause. While the US labour market is showing signs of slowing with the latest ADP report seeing a decline in hiring, there is a sense that it is still reasonably resilient and with the latest payrolls report not set to be released until next week, any further move to cut rates by another 25bps could well be a leap of faith on the part of some members of the committee. That said the markets are pricing in the likelihood of another cut, which means any delay could prompt a significant adverse reaction. Of course, there is another scenario where the Fed cuts rates, but then signals a pause as it looks to assess the effect that 3 successive rate cuts have had on the US economy which means Fed chair Jay Powell is likely to have to navigate a delicate balancing act when it comes to setting expectations for 2026. By this time, we may well know a little more detail on who is set to replace Powell which could signal some volatility in some areas of the market. Whoever it is Trump appoints, on their own they aren’t likely to make that much of a difference in terms of the voting patterns unless they can convince their fellow committee members of the wisdom of going harder and faster on rate cuts.  

2) UK GDP (Oct) – 12/12 – over the last few months the UK economy has undergone a sharp slowdown in economic activity. At the most recent set of Q3 GDP numbers the economy saw a slowdown to 0.1%, down from Q3 in Q2. On a monthly basis, the economy shrank by -0.1% in September, while August was revised lower to 0%. Manufacturing slowed the most, slipping by -1.7%, with the JLR shutdown playing a big part. Business investment was also negative, declining -0.3%, on top of the -1.1% seen in Q2. While the resumption of operations in JLR ought to provide a pickup in October the economy as a whole has shown little signs of vigour ahead of the budget last month. October GDP is unlikely to be an improvement with the services sector also joining the malaise if recent PMI data is any sort of accurate guide, and the uncertainty provided by speculation over the November budget causing businesses to sit on their hands, until the maelstrom of noise surrounding the event has subsided.  

3) BAT FY 25 – 09/12 – like sector peer Imperial Brands NGP revenue remains a small but growing part of the British American Tobacco business model. Like Imperial Brands it has also performed well this year, with the shares up over 40% year to date, and close to 7-year highs. When the company reported in June, H1 revenue was down 2.2%, to £12.07bn, however new categories revenue improved by 2.4% in constant FX terms to £1.65bn, with smokeless products seeing a 70bps improvement to 18.2% of group revenue. Reported profit from operations saw a 19.1% increase, with management saying that performance for the start of the year was slightly ahead of expectations. Forecasts for the full year were left unchanged, at revenue growth of between 1% to 2% at the top end, while another £200m was added to the share buyback program taking it to £1.1bn.                   

4) Chemring FY 25 – 09/12 – back in November Chemring shares slipped to their lowest levels in June when they reported that they expect full year adjusted operating profit to be in line with expectations, with an adjusted operating margin of 14.7%. The company order book rose to £1.3bn, an increase of £300m on the same period last year. This includes a $65m contract for aircrew equipment tester systems as well as a £24m order for rocket motors, and other critical components used in the Next Generation Light Anti-Tank Weapon. (NLAW. The lacklustre response is a little surprising, given the potential for further growth, however the lack of follow-up on a bid earlier this year from Bain Capital appears to be taking the froth of what was a strong performance in the first half of this year. Speculation about an imminent cessation of hostilities between Russia and Ukraine also appears to be acting as a drag, with the shares now back at levels last seen in May.

5) GameStop Q3 25 – 09/12 – when GameStop reported back in September the shares enjoyed a brief rally to 3-month highs after reporting an improvement in Q2 net sales to $972.2m, while profits rose to $168.6m, a significant increase on the $14.8m seen during the same quarter a year ago. A rise in the company’s bitcoin holdings will have played a significant part in that improvement, given a valuation of $528.6m. Since those September peaks however the shares have seen a sharp decline towards one-year lows, with the recent decline in the value of bitcoin probably likely to have played a part in this recent weakness. As the company looks to Q3 it’s hard not to think that the US government shutdown is likely to have had an impact on its sales numbers given its reliance on consumer discretionary spend. Over the first half of this year GameStop has seen a 1% increase in revenue, helped by the strong performance in Q2, however its focus on areas away from what was once its core business of gaming, could be a weakness if sentiment in these areas deteriorates further.

6) Broadcom Q4 25 – 11/12 – has seen solid gains this year reporting progressively improved results quarter on quarter. In Q2 revenues came in at $15bn, above the $14.9bn expected. This equated to a 20% increase in sales and a 44% increase in earnings. For Q3 Broadcom also beat expectations, with revenues of $15.95bn as revenue from AI continued to deliver strong returns. In its AI segment revenue rose 63% to $5.2bn, with chips helping to deliver over 50% on the revenue front. Free cash flow also saw a sharp rise to $7bn, an increase of 47%. For Q4, AI revenue is expected to see further acceleration to $6.2bn, with an expectation that total revenue for the quarter will come in at $17.4bn, an increase of 24% on last year, with profits set to come in at 67c a share. The sharp increase in semiconductor solutions has seen this segment now account for 57% of total revenue with VMWare and other infrastructure software accounting for 43%.