The week ahead – UK budget, Shell, BP and HSBC and NatWest results

Financial markets have undergone another turbulent week with concerns about public sector debt levels, the impact of energy policy and higher oil and gas prices, and what events in France might mean for the UK economy going forward.

It’s also been a big week for company earnings with strong numbers from the likes of Meta, Tesla and SpaceX, while Barclays has got the UK bank earnings season off to a strong start, despite concerns about an increase in the bank levy next week.

With French bond yields surging the focus has shifted away somewhat from the UK’s fiscal problems despite a big surge in September public borrowing, along with some questions about the accuracy of the UK’s unemployment numbers.

That said, UK yields have had a modest reprieve out of the spotlight as investors retreat from French bond markets, pushing “les spread” to the widest levels since the height of the eurozone sovereign debt crisis back in 2011.

We’ve also seen a sharp sell-off in the tech sector specifically on concerns over the sustainability of increased capex spending on AI infrastructure at a time when opposition to data centres is building on both sides of the Atlantic.

This comes amid concerns the build out could be slowed substantially by local opposition as well as grid capacity constraints after Microsoft pulled out of a deal with Nscale to help build and open a data centre in Loughton Essex due to the inability to get a grid connection before 2033.

This is even more unfortunate given the UK’s so-called desire to become an “AI superpower” at a time when we have the most expensive energy in Europe and the government is still unable to make a decision on the Rosebank oil field despite belatedly approving the Jackdaw gas field this week.

Hopefully the upcoming week will see the government lay out its plans to be more pragmatic when it comes to fiscal policy when we get to hear its spending plans for the next fiscal year.

All things being equal the bar is set very low, however if we get a budget that is broadly neutral that would be a start, although it could also start speculation about an early election.

Perhaps that’s why our new PM Andy Burnham wants to go on Celebrity Gogglebox as he looks to make plans for an alternative career in the event any plans to go to the country early backfire on him. One can only hope!

1) UK Budget – 28/10 – there’s been much speculation as to what to expect in the upcoming budget, with the prospect of increases to the bank levy, from tweaks to capital gains tax rates, to other measures that tinker around the edges. The rising cost of living due to surging energy prices has increased the pressure on the government to do more to mitigate some of the effects these are having on the most vulnerable members of society. With a new Chancellor of the Exchequer in John Healey, he is faced with the problem of borrowing rising faster than tax receipts, despite two big tax raids in 2024 and 2025, and borrowing costs that make up almost half of the most recent monthly deficit. On a positive note, the UK economy has proved itself to be much more resilient than many had thought it would be at this time. Nonetheless the problems facing the labour market have been brought about by precisely the measures his predecessor introduced a year ago, and which have prompted the new PM Andy Burnham to recently announce thousands of one month work experience packages with major retailers to address the problems of to a huge surge in NEET unemployment, caused by the Reeves budget a year ago. The big question is what can we expect aside from more tax rises? Healey may well have to defer the fuel duty rise which is due to kick in on the 1^st January and the 1^st March, which should be affordable given the huge amounts of extra VAT the government is collecting at the pump. The main focus will be on who the Chancellor targets when it comes to tax rises, although it is comforting that he appears to have ruled out changes to capital gains tax.     

2) US Fed Meeting – 28/10 – there is little prospect of a Fed rate hike this meeting given the Fed hiked in September. Quite simply the economic numbers don’t support a hike at this point, while on a more political level, with the midterm elections next week, anything other than a Fed low profile would not be a good look. Recent comments from Fed chair Kevin Warsh also point to the Fed standing pat, despite a surge in both CPI and PPI to 3.7% and 6.3% respectively in September. His comments last Friday that inflation had broadly moved in line with expectations suggests that for now the Fed is content to wait and see. With core prices also starting to track higher as well, largely due to surging diesel prices, albeit from 5-year lows the likelihood is that October will be a pause before another hike before the end of the year. For now, with the labour market remaining resilient the line of least resistance is likely to be for a hold with the likelihood it will be a unanimous vote.    

3) US Q3 GDP – 29/10 – the last 2 quarters for the US economy have been one of remarkable resilience. At the most recent iteration of US GDP, we saw upward revisions to both Q1 and the Q2 numbers. Q2 was revised up from 1.5% to 2.2%, while Q1 was also revised higher to 2.5%, on the back of upward adjustments to investment, consumer and government spending. This comprised mainly of non-residential structures (particularly commercial and healthcare construction, led by data centres. This trend is likely to have continued in Q3 with the amount of spending that is going into AI related infrastructure, while the resilience of the US consumer has remained undiminished if recent retail sales reports are any guide, although much of this has been juiced by rising gasoline prices. The consumer confidence numbers tell a slightly different story. Nonetheless with a still resilient labour market, expectations are for Q3 GDP of about 3%.        

4) ECB Rate Meeting – 29/10 – the ECB has already led the way when it comes to rate hikes with 2 in the last few months. The first hike came in June lifting the deposit rate to 2.25%, and then again by another 25bps in September to 2.50% in response to headline inflation jumping sharply back above 3%, largely due to the sharp increases we’ve seen in energy prices. While many have decried the ECB for its hastiness, and it does have previous on this score, they don’t seem deterred with the prospect of another rate hike before the end of the year quite likely. With headline inflation now at 3.8% and the highest level in 3 years the prospect of an October hike has been growing, despite core prices remaining resolutely anchored close to 2.5%. The problem the ECB has is that in its laser-like focus on inflation it risks losing sight of the effect that its rate increases are likely to have on the eurozone economy. There is also the small matter of recent events in France that could prompt the ECB to intervene in an attempt to mitigate rising instability in French bond markets. We’ve already heard from Belgian ECB governing council member Pierre Wunsch that he expects to see another rate rise, although he was coy about when it was likely to happen. With various policymakers pointing out that there has been little sign of building wage pressure, the likelihood of an October hike appears slim, with December the most likely time for a move. With yields already higher than they were in September financial conditions are already tighter with the market doing the ECB’s job for it, especially in France where the ECB could be forced to step in to “close spreads”. This could prompt some questions about the ECB’s Transmission Protection Instrument, which it announced in 2022, and which it has never had to use.  

5) HSBC Q3 26 – 27/10 – a strong set of H1 numbers saw the HSBC share price initially pop higher to new record highs before seeing a slow gradual slide lower in the days and weeks since then. Profit before tax rose 23% to $19.5bn, while revenues rose 11% to $37.7bn. The size of the increase in profits was helped by better comparatives, notably last year saw the bank take a sizeable write down in respect of its Bank of Communications stake. Nonetheless the wider business also saw an improvement with a solid increase in net interest income which rose to $22.9bn, while wealth management fees and other income rose by 18%. The bank raised its full year guidance for net interest income to exceed $46bn. The bank also said it would proceed with a $1bn share buyback. The distribution of profits saw the Asia operation contribute the bulk of the profit with a 66.1% increase to $12.9bn, while the UK bank saw profits increase by 20% to $3.9bn. Net interest margin improved to 1.61%. For Q2 profits before tax increased 60% to $10.1bn due to the lack of write-downs compared to a year ago. As we look towards this week’s Q3 numbers all eyes will be on the budget and a possible increase to the bank levy, which could be the straw that breaks the camel’s back when it comes to HSBC deciding to offload the UK business. In recent years Ping An which is one of HSBC’s main shareholders has been fairly vocal in its demands that HSBC focus more on its core Asia market. While it has marginally reduced its stake in the last couple of years it still has a 7.98% stake in the bank. One thing is certain if the UK’s economic illiterati do get their way HSBC will once again come under pressure to leave the UK in fairly short order.

6) Alphabet Q3 26 – 28/10 – even with a high bar for Q2, Alphabet still managed to beat expectations, however it wasn’t enough to drive the shares above the record highs we saw in May. Total revenues for Q2 rose 24% to $119.8bn, while operating income rose 34% to $40.77bn. The increase was driven by a sharp increase in Google Cloud which saw revenues there increased by 82% to $24.8bn, comfortably beating forecasts of around $22bn. This rise was driven by AI enterprise as well as infrastructure. Net income surged by almost 300% to $112bn, which was primarily driven by $98bn of unrealised gains on the company’s equity stakes in Anthropic and SpaceX, which are likely to vary quite a bit from quarter to quarter and given recent volatility around the AI trade are likely to be scrutinised even more now. On the numbers themselves they were solid across the board, YouTube ads rising to just over $11bn, while search came in at $63.2bn. With the World Cup taking place during Q2, advertising revenue came in at $81.6bn, an increase of over $10bn from a year ago. On capex this came in higher than expected at $44.9bn, while raising its guidance for 2026 to between $195bn and $205bn. Free cash flow was negative to the tune of -$5.9bn. Consensus around Q3 is for revenues of between $126.9bn to $127.35bn and EPS of $3 a share, +/- 5c a share. Cloud revenue growth is likely to be a key benchmark.

7) Microsoft Q1 27 – 28/10 – it’s been a very strong quarter share price wise for Microsoft with the shares almost back to the record highs we saw back in 2025. For most of this year the shares had been pummelled on concerns over its exposure to SaaS which has seen that sector hit by concerns over the effect that AI might have on sales of services software, as well as related CRM programs. Its exposure to OpenAI didn’t help it either, especially given the amount of money it, along with its peers, is throwing at beefing up its AI infrastructure. The question being increasingly asked is, when can we expect the payoff from these huge amounts of money being thrown at AI, however these concerns appear to be diminishing somewhat on the back of strong growth in its Azure business. When Microsoft reported in Q4 revenues came in well ahead of expectations at $90bn, an increase of 18%, with net income up by 31% at $35.8bn. Microsoft Cloud revenue was up by 27% at $59.3bn, with the Azure business more specifically seeing revenues there rising by 43%. On the downside the disappointments came in declines in personal computing and Xbox which saw a 4% combined decline in revenue to $12.9bn, with the company also taking an impairment charge. The numbers were helped by the company booking a $3.2bn gain from its investment in Anthropic, as well as a decision to extend the useful life of its data centre infrastructure from 15 to 25 years, thus reducing the depreciation expense, and improving the cash flow. This decision also means that annual capex is now projected to be $175bn for 2026, a headline reduction from $190bn, having spent $41bn in Q4. For the full year revenue rose 18% to $331.8bn, with net income rising 31% to $133.7bn, with Azure contributing over $100bn of that total. For Q1 Microsoft says it expects to deliver revenue of between $89.85bn and $90.95bn, an increase of 16% with Azure revenue growth of 45%.,  

8) Shell Q3 26 – 29/10 – it’s been a strong Q3 share price wise for Shell, with surging natural gas and oil prices helping to drag the share price to new record highs. When Shell reported in Q2, both trading and refining revenue saw strong gains driven by production in Brazil helping to offset disruption in the Middle East. Adjusted earnings more than doubled from last year, coming in at $9.8bn, while income attributable to shareholders tripled to $10.8bn, from $3.6bn. Cashflow from operating activities also surged to $21.4bn, along with free cash flow which increased from $6.5bn to $17.5bn. Net debt was also lower, falling from $43.2bn to $41.7bn reducing the gearing to 18.7%. The improvement in the earnings numbers was broad based and driven by higher prices and LNG, as well as crude oil and products trading, along with better margins in its chemicals business. Integrated gas saw income rise to $2.68bn, from $1.8bn, while upstream, which includes the exploration of oil, gas and other by-products, saw income surge to $3.58bn from $2bn. The notable outperformer however was chemicals which turned a $174m loss a year ago into a $3.98bn profit this year. This business turns crude oil into a range of oil products that are used across the global economy for domestic, industrial and transport use. The renewables business which includes carbon capture and hydrogen production saw losses more than double to $550m. Shell also announced the commencement of the $3bn share buyback which was suspended in the wake of the ARC Resources acquisition. For Q3 Shell said it expects to deliver capex of $24-26bn, with integrated gas outlook production expected to be between 570-630 kboe/d which would be the lowest this fiscal year. Q1 saw 909 kboe/d of output. This is due to the lack of Qatar output which remains closed, as well as ARC Resources which is due to complete in Q3. Upstream production is similarly expected to be at the lower end, between 1,680 – 1,880 boe/d due to higher maintenance across the portfolios. Nonetheless expectations for Q3 are still higher due to widening crack spreads which are likely to drive much higher profits.  

9) Lloyds Banking Group Q3 26 – 29/10 - initially saw a sharp dip in the Lloyds share price when the bank announced its Q2 results at the end of July, before rallying briefly to the highest levels since 2008. Since then, we’ve seen a modest pullback primarily over concerns that the government will increase the banking levy from 3% in this week’s budget. Statutory profit before tax for H1 rose to £4.3bn, a 23% increase from £3.5bn a year ago. Underlying net interest income rose 9% to £7.28bn, while the bank raised the dividend to 1.58p per share, as well as announcing it was buying back £1bn in shares. Net interest margin rose to 3.19%, an increase of 15bps. On the business itself both underlying loans and advances to customers, and deposits were both up by 1%, at £491.5bn and £501bn respectively. It was notable that while UK mortgage loans were stable there was a big jump in credit card loans of 3% to £18.2bn, and 5% year to date. Unsecured loans were also higher by 2% on the quarter and 6% year to date. On a quarterly basis the bank appears to be keeping costs stable at around £2.4bn on average. Profits have been rising compared to 2025 as well with Q2 delivering net profits of £1.57bn and Q1 of £1.55bn, a significant improvement. The bank also announced it would be looking to cut costs by boosting the use of AI to transform its customer service, although it was opaque about the role this might have on existing job roles within the bank. The main things to look out for in this week’s numbers will be on the trends around mortgage lending, as well as wider loan demand, amidst signs of a slowing UK economy. 

10) Amazon Q3 26 – 29/10 - an extremely good set of Q2 numbers saw Amazon post a 20% increase in net sales, pushing the numbers to over $200bn, with a strong performance across all business areas, the shares rallying strongly to new record highs in the days afterwards. North America saw sales rise by 16% to $116.2bn, while international sales increased 15% to $42.2bn. The icing on the cake was the performance of AWS which saw sales increase by 37% to $42.2bn and assuaging concerns that the big capex spending might not show signs of paying off. As far as AWS is concerned it clearly is, adding to the overall profitability of the wider business. Net income surged to $62.6bn, with the caveat that like its peers the stakes in Anthropic added a good chunk of that earnings boost to the tune of $53.4bn. Of course, the danger here is that any fall in the valuation in Anthropic could see this net income gain disappear. Amazon reported that it spent $53bn over the quarter on property and equipment and also upped its Capex projection for 2026 by $20bn to $220bn. While operating cash flow increased 33% to $161.4bn, free cash flow saw an outflow of $7.6bn, due to spending on property and equipment as it invests in AI. On guidance for Q3, on top of the capex upgrade Amazon said that net sales are expected to match the numbers in Q2 at $200bn mid-point, an increase of between 9% and 12%. Of course, with nervousness about future return on investment on its AI capex the bar for Q3 is likely to be a much higher one than the bar from Q2.

11) BP Q3 26 – 30/10 – it’s been a strong year for the BP share price, rising to their best levels since 2010, as rising oil and gas prices, as well as the new broom of CEO Meg O’Neill shakes up the status quo at the UK’s second largest oil company. The announcement last quarter that BP is looking to sell its North Sea operation, while bad news from a domestic point of view serves to illustrate that the focus of new management will be on returns first and foremost, with little room for sentiment. BP also announced that they are putting their US biogas business Archaea Energy up for sale as well, as it looks to bring its net debt down to between $14bn and $18bn by the end of next year. Q2 profits came in at $5.73bn, over double the $2.35bn a year ago, while operating cash flow also rose sharply to $10.86bn. Profits attributable to shareholders for H1 surged from $2.3bn a year ago to $7.75bn. Net debt also came down by $3bn to $22.3bn. The improvement was driven mainly by the oil production and operations division which saw profits double from Q1 to $3.4bn, while customers and products also saw a similar jump in profits to $5.1bn, from $2.5bn in Q1, due to better refining margins. Oil trading also contributed to a much better performance. For Q3 BP said it expects Q3 upstream production to be similar to Q2’s 2,201mboe, due to the continued disruption in the Middle East, while in the customer business expects a reduced performance, due to lower Castrol, earnings as a result of higher base costs. For 2026 BP said upstream production is also expected to be lower due to the divestment of the Culzean gas field in the North Sea, and potential seasonal weather events in the Gulf of Mexico/America.

12) NatWest Group Q3 26 – 30/10 - NatWest shares briefly rose to new post financial crisis highs after reporting a solid set of Q2 and H1 results. Q1 profits rose by 11% to £1.5bn, pushing H1 profits after tax up 18.9% to £3.18bn, bringing the inevitable tired lament of the economically retarded, for a higher bank levy. This week we’ll get to see if these people get their wish. Total income for H1 was up by 11% to £8.86bn with net interest income rising 12.6% to £6.89bn. Much of the improvement was driven by a 20bps increase in net interest margin which rose to 2.48%, compared to 2.28% a year ago, while the cost to income ratio fell to 46%, from 48.8%. On the business itself loans to customers rose 1% to £435.9bn from Q1, and were up 4.1% year to date. Customer deposits were also equally resilient rising to a more modest 0.7% from Q1 and up 1.3% year to date at £448.6m. With the Evelyn Partners acquisition now complete all eyes will be on H2 to see what type of value add £2.7bn buys you, with the bank raising its guidance for the full year, targeting total income of £17.9bn with a £275m uplift from the Evelyn acquisition. The expected full year ROTE guidance was also raised from 17% to 19%. The bank also announced a 26% increase in the interim dividend to 12p per share. They also announced that the buyback program which was deferred due to the Evelyn acquisition could restart before the end of this fiscal year, six months earlier than previously guided.

13) Intel Q3 26 – 29/10 – Intel shares have enjoyed a strong last 12 months helped in no small part by the US government taking a 10% stake in the business in August last year. They also played a big part in the impressive H1 gains seen in the S&P500 in the first part of this year, as chip demand surged on the back of the build out of AI infrastructure. In the last 12 months the shares have gone from $25 to over $140 in June, before seeing a modest decline during July in the wake of the “Situational Awareness” sell off. When Intel reported in Q2 revenues rose 25%, coming in at $16.1bn, comfortably beating expectations, while EPS came in at 42c a share. Gross margins also rose sharply to 41.8%, up from 29.7%. Data centres and AI drove most of the improvement with revenue in that segment rising 59% to $6.3bn, although PC chip demand was also robust, rising 13% to $5.8bn. For Q3 Intel said it expects to deliver revenue of between $15.8bn and $16.8bn. EPS is forecast to be 31c a share. Intel also raised its capex to more than $20bn to accommodate AI spend.