The week ahead – UK CPI, Jackson Hole and Walmart results

1) UK CPI (Jul) – 20/08 – last week’s unemployment numbers pointed to a labour market that continues to slow as companies slow down or halt hiring plans. On a more positive note, as far as the Bank of England is concerned the rate of pay growth appears to be slowing, however if bonuses are excluded this number remains steady at 5%, which is still well above the Bank of England’s 2% inflation target. Vacancy rates continued to slow, falling by 44k, and to their lowest levels in over 5 years. In the private sector which is the engine of the UK economy the number of job losses especially in hospitality and retail has accelerated sharply with most of the 165k job losses in the last 8 months in that sector. With inflation still running hot and businesses keen to protect some of its margins it’s unlikely that the Bank of England will have the head room to cut much more than once this year. The June inflation numbers showed evidence that price pressures were starting to accelerate during the quarter after headline inflation jumped to 3.6% from 3.4% in May. The increase was driven by increases in transport as well as food inflation, with food price inflation reaching its highest level since February 2024 at 4.5%. Core inflation also jumped sharply to 3.7% from 3.5%. While some of this food inflation is a consequence of an increase in price of key ingredients, higher energy, transport and labour costs aren’t helping. The reality is that since the budget in October, headline inflation in the UK has risen from 2.3% to 3.6% with a large part of the rise due to government fiscal policy.  The Bank of England in its most recent meeting expects this trend of higher prices to continue with a 4% expected by Q3 before starting to slide back into year end.    

2) UK Retail Sales (Jul) – 22/08 – higher prices in the shops didn’t appear to affect consumer spending patterns in the first part of this year, however the strong start to 2025, appears to have come to a halt in Q2 in the wake of the various tax changes that kicked in as the new tax year started in April. UK consumers also had to absorb large increases in various bills whether they be council tax or other utility bills. In May retail sales fell off a cliff, diving -2.8%, before seeing a modest recovery of 0.9% in June as warmer weather prompted a modest recovery. Consumer spending patterns have continued to be patchy with early indications that July could build on the rebound seen in June. According to the BRC total sales rose 2.5% year on year in July, with sporting events and the warmer weather encouraging stronger food sales. Barclaycard also painted a similar picture with a 1.4% increase in card spending., with strong growth in spending on clothing.   

3) Jackson Hole annual symposium – 21/08 – with President Trump continuing to sound off in the direction of Fed chair Jay Powell for refusing to cut rates, this year’s Jackson Hole Symposium is always viewed as a key signpost for future Fed policy when it comes to interest rate policy heading into year end. For quite some time the Federal Reserve has used this symposium to signal the direction of policy as it looks to manage market expectations, whether it be on interest rates, or QE or QT. At the most recent Fed meeting we saw a split on whether to cut rates by 25bps with Fed governors Christopher Waller and Michelle Bowman opting out of the consensus of another hold. The latest July inflation numbers were encouraging, in so far that it remained steady at 2.7%, while there are signs of a slowing jobs market if the recent US payrolls numbers are any guide. This year’s symposium is titled “Labor Markets in Transition, Demographics, Productivity and Macroeconomic Policy” which is rather topical given the large revisions to the recent payrolls numbers. While expectations around a rate cut for September are increasing it remains a finely balanced decision despite the political pressure being exerted by the current US administration.    

4) European/UK flash PMIs (Aug) – 21/08 – manufacturing has continued to look weak across Europe, although we have seen some signs of an improvement in recent months the numbers have remained solidly below 50 for months across Europe, in Germany, France, as well as the UK. In the UK we’ve seen a gradual recovery in manufacturing activity from the lows of March but we are still below the levels we saw prior to the October budget. Services have been much more resilient in both Germany and the UK, although the UK saw a sharp slowdown below 50 in April before a rebound in May. In July we saw a slowdown to 51.8 from 52.8 in June largely due to a slowdown in total new work which fell at its fastest rate since November 2022. Export sales also slowed in July, while employment numbers fell by the biggest extent since February. Input prices also continued to rise, albeit at the slowest pace since December. There was some improvement in business optimism as concerns over tariff effects receded however the mood remained cautious.

5) Hays FY 25 – 21/08 – with so much uncertainty around the accuracy of official UK employment, as well as unemployment data it’s sensible to look elsewhere for trends in the UK jobs market, whether it be in PMI numbers or in the case of Hays who specialise in the placing of permanent and temporary hiring positions around the world. In June the company said it expected to see £45m in pre-exceptional operating profit for the full year. On labour market trends the company was downbeat with activity levels during Q4 showing “broad-based weakness in Perm markets globally”. In its UK market the company said it expected to see a 13% net fee decline in its permanent market, although its market in Europe is only marginally better than a 5% decline in Germany. Contracting appears to be an area which is holding up better, although that perhaps shouldn’t be surprising as this tends to be a cheaper option for business.

6) Walmart Q2 26 – 21/08 – the Walmart share price has steadily traded higher over the last quarter and looks set to revisit the previous record highs set in the early part of this year, before the sharp falls that saw it sink to 7-month lows in April. When the retailer reported in May revenues saw an increase of 2.5% in Q1 to $165.6bn, and EPS profits of 61c a share. US comparable sales increased by 4.5% to $112.2bn, while global ecommerce sales rose 22%. For Q2 Walmart said it expected to see net sales increase by 3.5% to 4.5% from Q2 25, however they declined to offer estimates for operating income growth and EPS, due to uncertainty over the effects that tariffs might have on its margins.

7) Target Q2 26 – 20/08 – Target’s share price has been struggling for some time despite being one of the biggest US discount retailers. The share price has never really recovered from a profit warning back in November 2024, which saw the share price plunge sharply from $158, subsequently hitting lows of $86 in April this year. We’ve seen a modest recovery since then but it has been incremental. While Target has been doing well by way of digital sales it appears to be struggling when it comes to footfall, cutting prices across a wide range of goods to drive up comparable sales. Its sales mix could well be working against in this regard given that food sales only account for about 25% of its sales compared to 60% for Walmart. In Q1 revenue slowed to $23.85bn, down from $24.53bn a year ago, while profits slumped to $1.30c a share. Same store sales fell 3.8%, although this could have been worse given that digital sales grew by 4.7%. On guidance, Target said it expected to see a low-single digit decline in sales and for annual profits to be between $7 and $9 a share. The retailer blamed a decline in consumer sentiment, uncertainty over tariffs and a backlash against its rollback of DEI initiatives. This comes across as excuses given that in March there was a big surge in consumer spending, with both Walmart and Home Depot still managing to perform relatively well

8) Home Depot Q2 26 – 19/08 – DIY retailers generally tend to be a decent indicator not only of the housing market, but consumer confidence in general, and Home Depot is no different. In May the retailer reported a solid set of Q1 numbers, and despite some weakness in the aftermath of the numbers the share price has seen a solid recovery since then trading at 5-month highs earlier this month. Q1 revenues came in at $39.86bn, above forecasts while profits came in at $3.56, with the company keeping full year guidance unchanged. At the time the company said it didn’t feel the need to look at increasing pricing at this point despite the risk of tariffs, saying that its suppliers have worked hard to diversify its imports over the years away from China. For the year Home Depot says it expects total sales to grow by 2.8%, and same store sales to rise by 1%. Management said that poor weather during the quarter hindered the company's performance, a not unreasonable assertion given the cold weather in January and February.