The Week Ahead: Bank of Japan, US Core PCE, FedEx and Nike earnings
- Bank of Japan - 20/12 – with the recent weakening of the US dollar which has put the Japanese yen back above the previous intervention levels of just below 150.00 Bank of Japan policymakers are likely to be much more relaxed about where the yen is now, than perhaps they were two months ago. Some of the recent yen strength has also come about as a result of some mutterings that the BoJ might start to look at changing its current policy on yield curve control now that national CPI has moved up to 3.7%, and its highest level in 8 years. While it would be tempting to think this might happen soon this seems unlikely with the central bank likely to opt for a significant overshoot before thinking about tweaking the brakes on its exceptionally easy monetary policy.
- US Consumer Confidence – 21/12 – since moving up to a six-month high of 108.30 in September US consumer confidence has started to soften, despite evidence that inflation is starting to come down. The main reason for the slowdown is more than likely down to the fact that interest rate rises from the Federal Reserve are now starting to have an impact on credit costs, which in turn is hammering the US housing market, which has seen sales fall every month this year, except January. We’re also seeing services level inflation starting to become stickier and this also appears to be affecting consumption patterns. This pattern of higher prices is expected to see consumer confidence continue to soften below 100 to 99.9 and a four-month low.
- UK Q3 GDP final – 22/12 – we aren’t expecting any surprises from this week’s Q3 final GDP numbers, which are expected to confirm that the UK economy contracted in Q3 by -0.2%, with private consumption set to be the main drag at -0.5%. The -0.2% contraction was slightly better than expected but nonetheless the numbers, and the numbers since then point to a UK economy, like others elsewhere, that is suffering from a deep malaise caused by surging inflation, and shrinking pay packets in real terms, along with a government which appears continuously at war with itself.
- US Core PCE (Nov) – 23/12 – having seen the Federal Reserve raise rates by another 50bps last week, thus marking a slowdown in the pace of rate rises from the previous 75bps, this week’s core PCE numbers could set a benchmark as to the size of future rate hikes as we head into 2023. Recent PPI and CPI prints have shown that inflation is still coming down, albeit not as fast as perhaps the prevailing narrative of the peak inflation camp would like. In October we saw PCE Core Deflator fall to 5%, while PCE Deflator fell from 6.3% to 6%. In light of last week’s Fed decision this week’s PCE numbers could well start to shape a narrative of whether we get another 50bps when the Fed next meets at the start of next year, or whether we get another step down to 25bps.
- Carnival Corp Q4 22 – 20/12 – the cruise industry like most in the travel sector has had a difficult two years, and having seen a modest recovery in the share price in 2021, the shares have continued to struggle due to the stop start nature of the recovery in overseas travel. Year to date the shares are down over 50% year to date after hitting a 30 year low in October. Pre-pandemic in 2019, annual revenues were $20.8bn, and even now don’t look like getting anywhere near that much before 2024. At the end of its 2021 fiscal year annual revenues collapsed to $1.9bn, and while we’re on course to beat that number quite comfortably, as well as the 2020 number of $5.6bn, it will be some time before normal service is resumed. For Q2 the company posted a bigger than expected loss of $1.9bn, while revenues fell short at $2.4bn. While disappointing the numbers were still much better than Q1, while occupancy rates rose to 69% from 54% in Q1, as booking volumes almost doubled. In Q3 Carnival posted a bigger than expected loss of $0.58c a share, which was higher than expected. Q3 revenues came in at $4.31bn so we are seeing a gradual improvement, however this was still below consensus expectations of $4.8bn, which shows there still remains a long way to go. Rising fuel costs are one reason the sector is struggling with Carnival saying it expects to post a Q4 loss as well, due to having to offer discounted prices to drive up passenger numbers. Even when they do encourage passengers on board, they appear to be spending less with revenue per passenger still lower than pre-pandemic. Losses are expected to come in at -$0.86c a share.
- FedEx Q2 23 – 20/12 – back in September US parcels and delivery company surprised the market when it brought forward its Q1 earnings numbers, sending the shares sharply down, hitting a two year low at the end of the month. The company cited a warning over a significant business slowdown, missing on revenues and profits and pulling their full year guidance for the whole year. The move was somewhat of a surprise given that FedEx raised its full year profits guidance in the previous quarter insisting that it could manage the increase in operating costs by raising prices. This seemed somewhat a little optimistic at the time, however the decision to completely toss it out of the window, along with big misses on revenue and profits was particularly unwelcome, with the company blaming a slowdown across all of its businesses. Q1 revenues came in at $23.2bn, below expectations, with the company saying it expects Q2 revenues to come in 4% lower at $23.75bn. Profits for Q1 also came in below expectations of $5.14c a share, at $3.44c. The company also said it would be taking further measures to cut costs and raise prices as it looked to make $2.7bn in savings. The plans are said to include cutting flights as well as closing underperforming offices. Q2 profits are expected to come in at $2.80c a share.
- Nike Q2 23 - 20/12 – Nike shares slipped to 2-year lows back in October, on concerns that the hit to its China business could see an even bigger decline to the 19% fall in revenues seen at the end of Q4 last year. Total revenues for 2022, were up 5% at $46.7bn. In the leadup to its Q1 numbers Nike said that it expected revenues to be flat to slightly up versus last year, despite the disruptions in China, and elevated freight and other costs. This turned out to be fairly accurate as Q1 revenue rose 4% to $12.69bn, although net income fell 22% to $1.5bn, or $0.93c a share. What sent the shares tumbling was a 44% rise in inventory to $9.7bn, with an even bigger increase in the US which saw a 65% build in stocks. Sales in Greater China saw a fall of 16% to $1.7bn, even as sales in the US increased. For Q2 Nike said it expects to grow revenue by low double digits on the basis of a pickup in consumer demand. This could prove to be optimistic given the continued problems in its China markets and some evidence of a slowdown in US consumer spending. Profit is expected to come in at $0.65c a share.
Author
Michael Hewson MSTA CFTe
Independent Analyst
Award winning technical analyst, trader and market commentator. In my many years in the business I’ve been passionate about delivering education to retail traders, as well as other financial professionals. Visit my Substack here.
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