Michael Hewson MSTA CFTe
CMC Markets
- US Core PCE (May) – 30/06 – the Federal Reserve’s unexpected pivot on rate hikes in the wake of the latest CPI data appears to suggest that the central bank is becoming less concerned about its primary targeting measure of core PCE and is more concerned about inflation expectations. While the jump in headline CPI in May to 8.6% is unwelcome, there has been evidence in other inflation indicators that we could be near a peak. The recent trend in PPI numbers has seen inflation pressures slowing down, while core Deflator peaked in February at 5.3%, falling to 4.9% in April. It’s been a similar story in core PCE which slipped back to 6.3% in April from 6.6% in March. A further softening in this week’s May numbers could signal a shift in market thinking about the timing and substance of further Fed tightening beyond the July meeting. Expectations are for PCE Core Deflator to fall to 4.8%.
- EU CPI (Jun) – 01/07 – with surging inflation already front of mind in Europe and the ECB yet to get started on its own rate hiking cycle, this week’s flash CPI for June will once again focus attention on the next meeting of the ECB governing council later in July. Inflation is already at a record high of 8.1% while core prices are less than half that at 3.8%. With interest rates still at record lows of -0.5% the voices for more than a 25bps rate rise will get louder if this week’s flash CPI numbers show further gains. Food and energy prices continue to make up the bulk of the upward pressure on consumer budgets, and with producer prices in a lot of eurozone countries well above 30%, the risk to headline CPI remains clearly towards higher prices, especially with the euro so weak. Expectations are for a rise to another new record high of 8.3%, which could prompt calls for bolder action on rates than the currently priced 25bps which is expected at the next ECB meeting.
- Global Manufacturing PMIs (Jun) – 01/07 – rising energy prices, supply chain disruptions, as well as lockdowns in China have served to constrain economic activity globally over the last few months. Despite these constraints manufacturing activity has managed to hold up reasonably well on the PMI measures, however they have also served to paint a false narrative when it comes to wider economic activity, particularly around certain areas of production like auto sales which have been weak. The recent flash numbers have indicated the potential for further weakening in Germany, France, Italy and Spain, with the US economy also expected to show signs of slowing down given recent weakness in Empire and Philadelphia Fed surveys. We should also be mindful of Chinese economic activity given the recent weakness due to lockdowns and restrictions. Is industry there starting to return to a semblance of normal?
- US Q1 GDP (Final) –29/06 – this week’s final iteration of Q1 GDP isn’t expected to add to the sum of our overall knowledge of the US economy. We already know that the US economy contracted sharply in Q1 by -1.5%, despite personal consumption holding up well, getting revised up to 3.1% from 2.7% a few weeks ago. The main reason for the poor performance was a big fall in net trade which contributed to a -3.2% drag while inventories saw a -0.8% decline, on the back of supply chain disruption, as well as purchases being brought forward into Q4 which resulted in a big inventory built-up into Q1. No substantive changes are expected in this week’s final numbers, with quarterly core PCE expected to come in at 5.1%. We’ll also be looking for evidence of any slowdown in consumer spending given the squeeze on the cost of living with the release of personal spending numbers for May, on 30th June which are expected to slow to 0.7% from 0.9% in April. These numbers could come in lower if the recent retail sales numbers are any guide, where we saw a decline of -0.3%, the first decline in US retail sales this year.
- B&M European Retail Q1 23 – 29/06 – since B&M reported its full year numbers a few weeks ago the shares have slipped to two-year lows. Full revenues fell 2.7% to £4.67bn, down from £4.8bn, although on a two-year basis revenues are much higher, rising by 22.5%. Profits before tax were unchanged at £525m, while the dividend was lower at 16.5p, however this was on top of the special dividend paid in January of £250m. The outlook for current trading for a brand that is traditionally a discount retailer was troubling, with like for like sales for the first 8 weeks of 2023, showing a 13.2% decline. Management went on to warn that trading patterns were likely to remain unpredictable, which could see consumers prioritising spending away from higher margin products which is likely to see a dilution in margins more broadly. EBITDA margin is expected to fall by between 70-130bps, although it would still be higher than pre-pandemic levels. We have seen a bit of a rebound off the lows earlier this month helped by positive broker comment with respect to its position as a discount retailer and consumers preference for it over other brands at a time when cost is the primary driver for sales.
- AO World FY22 – 30/06 – just before the UK announced its first lockdown AO World shares sank to a record low of 47p, before surging to a peak of 442p in early 2021, as the online electrical retailer of white goods saw a sharp increase in turnover as consumers turned to ordering online with most ordinary stores closed due to Covid-19 restrictions. To cope with rising demand AO World upped its capex to create more capacity in both its UK and Germany markets. When the boom was in full effect at the end of 2020, expectations were for pre-tax profits to be in the region of £43.6m by 2022. Unfortunately for AO World shareholders the reality has turned out to be rather different, as the pandemic boom gave way to a return to the more traditional methods of shopping for white goods. Various supply chain issues have also affected its business over the past few months, with the company issuing successive profit warnings over the last few quarters, as rising costs and fewer orders clobber its margins. The rising cost-of-living has also hit its warranties business, with full year revenues for this year expected to be lower than last year’s £1.66bn. Full year revenue for this year is expected to come in at £1.56bn, a decline of 6%, while revenue estimates for next year have also been revised lower, due to the recently announced closure of its business in Germany, which is expected to incur costs of up to £15m.
- Nike Q4 22 – 27/06 – since peaking at new record highs in November the Nike share price has seen a significant decline. Down over 35% year to date its main struggle has been meeting demand, while the shutdown of its Russia and Ukraine operations is likely to have disrupted its Q4 performance. In Q3 the company saw revenues of $10.87bn, helping to generate profits of $1.4bn or $0.87c a share, beating expectations of $0.71c a share. Its North American market proved to be the main dynamic behind the better-than-expected numbers, however inventory problems meant that the company wasn’t able to perform as well as it could have, although its Vietnam factories are now fully operational, after facing covid related disruption in Q2. The company declined to proffer an outlook for the rest of the year due to the rising uncertainty around events in eastern Europe, as well as China. Its markets in China are likely to have been affected by the lockdowns in Shanghai and Beijing. Inventory levels in Q3 were at relatively high levels due to ongoing supply chain disruptions, and were 15% higher from a year ago at $7.7bn. These are expected to remain high, even as Nike prioritises selling its products directly to consumers and away from wholesalers. Q4 profits are expected to come in at $0.85c a share.
- Walgreens Q3 22 – 30/06 – despite being at the forefront of the US vaccination effort in terms of testing, as well as the administration of vaccine shots, Walgreens has struggled when it comes to revenue growth over the years. Since 2019 when annual revenues hit a record of $136.87bn but have stalled since then. On the one hand the pandemic can be partly blamed, for this due to the closure of its store real estate, however forward estimates still point to a business that looks set to struggle for the foreseeable future. In Q2 total sales rose 3% to $33.8bn while profits came in at $883m, or $1.02c a share, which was slightly below expectations. In an attempt to reposition itself into a health care company Walgreens paid $5.2bn into VillageMD a primary care company that is opening clinics inside Walgreens stores, which will allow doctors to write out prescriptions inside its stores. The company has also been looking to spin off the UK operation Boots with a price tag of around £7bn being mooted. Earlier this month a combination of Apollo Global and Reliance Industries made a £5bn bid for the UK Boots operation, although there are other interested parties. With markets in their current state of turmoil the obstacles to a deal at that sort of price are high. The UK government might also want a say given the importance of Boots branches to the UK’s health infrastructure. With over 2,200 branches and the various problems facing GP’s and hospitals, any branch closures could be controversial if any deal goes through. Profits are expected to come in at $0.93c a share.
- Constellation Brands Q1 23 – 30/06 – Constellation Brands share price managed to put in a new record high in the aftermath of its Q4 and full year results back in April, despite losses in its Canopy business which acted as an overall drag. Q4 sales rose to $2.1bn, pushing full year revenues up to $8.82bn. Q4 profits came in ahead of forecasts at $2.37c a share well ahead of the previous year. The beer segment has been its leading segment for revenues with 11% net sales growth, while the wine and spirits business generated a 9% improvement. Operating margins in both businesses improved significantly due to lower marketing spend. For the new fiscal year, the maker of Corona beer says it expects to generate between $11.20c to $11.50c a share in EPS, with net sales growth in the beer segment expected to be between 7-9%, while wine and spirits are expected to see a decline of between 1-3%. Capex is expected to rise by $1.4bn, with the bulk of that going to increase beer production capacity in its Mexican market by way of a new brewery in Veracruz. Profits are expected to come in at $2.56c a share.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.5% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.