US non-farm payrolls (Sep) – 06/10 – Assuming we avoid a US government shutdown this weekend we’ll get the latest US payrolls report for August this week. Having seen the Federal Reserve leave rates unchanged as expected at their recent September meeting the jury remains out as to whether we will see another rate hike at the next meeting in November. The decision to hold rates while unanimous had a very hawkish bias with the Fed funds target rate for 2024 raised to 5.1% from 4.6%, while the end of year Fed Funds target rate was left at 5.6%. A large part of the reason for this shift has been the strength of the US economy reinforcing the higher for longer mantra which pushed both short- and long-term rates to their highest levels since 2007. With both US rates and the US dollar pushing higher, and another rate rise looking an each-way bet, the US economy is entering dangerous territory when it comes to further rate rises. For now, the economy is holding up well, however with the bulk of recent rate increases yet to filter down, we could see an end of year slowdown. The August payrolls report saw 187k new jobs added as well as a sharp rise in the unemployment rate from 3.5% to 3.8%, although part of that can be explained by a rise in the participation rate to 62.8% from 62.6%, putting US worker participation in the workforce at its highest level since the US economy reopened after Covid. We also saw sharp revisions lower to the June and July payrolls report, with July revised down to 157k from 187k, while June was revised down from 209k to 105k. Wage growth was also softer at 4.3% pointing to a welcome slowdown as far as the Federal Reserve is concerned when it comes to the narrative surrounding the US economy. Inflation on the other hand now appears to be picking up again, driven by higher fuel prices which is prompting the threat of strike action and wage inflation. This is likely to make core inflation much stickier, and likely to put a floor under wages. Expectations are for 155k new jobs to be added with unemployment set to slip to 3.7%. It’s also worth keeping an eye on average hourly earnings for signs of stickiness. Another solid jobs report will add weight to the argument for one more rate rise before year end, especially if core prices and/or wages continue to look sticky.
US JOLTS/ADP report – 03/10 and 04/10 – Usually served up as an appetiser for the main jobs report at the end of the week, these two pieces of economic data, while showing signs of slowing in the last few months are still reasonably resilient. ADP payrolls saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k, but overall, the main gains have been in services. Vacancies have also been slowing in the US dropping from 9,165k to 8,827k in July, and the lowest level since March 2021. While this is encouraging in the context that the US labour markets is becoming tighter the fact remains that the number of vacancies is still well above pre-pandemic levels of just over 7m, so while the US labour market appears to be slowing, the economy still has some way to go before we can expect to see a significant move higher in the unemployment rate.
Services PMIs (Sep) – 04/10 – The recent flash PMIs for France, Germany and the UK suggest further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup with the flash services number falling to 43.9 from 46. Germany, on the other hand saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength. The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its last meeting, although one suspects it may well have been its last. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient.
Tesco H1 24 – 04/10 – Since pushing up to 12-month highs back in May the Tesco share price slipped back and retested its March lows which has managed to act as support for the modest rebound seen since then. Faced with a squeeze from rising costs, along with its suppliers the sector has come under some criticism from politicians keen to deflect the blame for their own failings on anyone else but themselves. Supermarkets are by no means perfect but competition from the likes of Aldi and Lidl serves to keep the grocery market reasonably honest. In Q1 Tesco announced a 9% increase in like-for-like sales in UK stores to £10.8bn with group retail revenues increasing by 8.2% to £14.83bn. Its Booker business also continues to perform well with like for like sales increasing by 8% to £2.27bn. Fuel was the only area which saw like for like sales decrease to the tune of 15.7% to £1.7bn. On guidance Tesco remained optimistic that it would be able to deliver the same level of adjusted operating profit as last year, despite the ongoing pressure on its margins, while keeping retail free cash flow in the region of £1.4bn to £1.8bn. In September the UK’s number 1 supermarket announced it was freezing up to 1,000 items until next year as it looks to maintain the gap to its rivals. Supermarkets are also having to contend with a “shrinkage” epidemic as incidents of shoplifting soar. For H1 UK revenues are expected to increase to £25.4bn.
JD Wetherspoon FY23 – 06/10 – Wetherspoon shares surged to one-month highs in July after saying that current trading had been much better than expected with like for like sales rising 11% in the first quarter compared to the same period last year. Compared to FY22, like for like sales were 11.5% higher in Q4 to date, and by 12.9% year to date. This week’s full year numbers are expected to show full year revenues rise to £1.9bn with the pub chain expected to show a return a profit of £29m. At the July trading update Wetherspoon said it had reduced net debt to £688m, while investing £116m in new pubs and £82m in freehold reversions, as well as raising equity of £240m. They went on to say that the waivers on their banking covenants would no longer be required at the end of the current quarter.
Imperial Brands Q4 23 – 05/10 – When Imperial Brands reported on its H1 numbers back in May investors responded in a weak fashion, even as NGP revenue came in ahead of expectations, rising by 19.8%. H1 revenue rose 0.3% to £15.4bn, while earnings per share rose to 117p from 105.2p the year before. The company said it was on course to meet its full year guidance but since then the shares have been in a steady decline, on concerns over slowing volumes which saw a 6.8% decline. Tobacco continues to make up the bulk of the company’s revenue while NGP adjusted losses increased by 33% to £56m. It is the speed of this offset that appears to be driving the weakness in the share price, as well as concerns over global governments cracking down on smoking in general. In September the shares hit their lowest levels in over a year on reports the UK government was considering even stricter restrictions on the sale of cigarettes by increasing the legal smoking age for cigarettes in a way that would mean anyone born after 1st January 2009 would be unable to legally buy tobacco.
Boohoo Group H1 24 – 03/10 – The last 12 months have been somewhat of a roller-coaster for the Boohoo share price, rallying strongly from where they were a year ago, to highs of 60p in April this year. Since then, the shares have slipped back to those September 2022 lows after the online clothing retailer reported a 11% decline in full year revenue to £1.77bn, and a loss before tax of £90.7m back in May. Gross margin also fell to 50.6%, although on the plus side the revenue numbers were still higher than they were in 2021. The online retailer said it had been able to reduce its excess inventory while taking steps to improve the oversight of its suppliers, which had pushed up its costs. On the plus side management said they had managed to consolidate market share gains in the sector, expressing optimism that profitability would improve as it looks to strengthen its balance sheet. This weeks H1 numbers should offer investors an insight into progress on the company’s goals with H1 revenues expected to come in at £774m, with an expectation that gross margin should improve to 52.64%. The performance of sector peer ASOS hasn’t been encouraging given that they recently reported that Q4 revenues fell by 15%. One of the more notable stories of the last 6 months has been the interventions from Frasers Group which has taken out sizeable stakes in both ASOS and Boohoo with the Boohoo stake currently worth 9.1%.If this week’s H1 numbers disappoint we could well see Frasers up their stake further on any additional share price weakness.
Levi Strauss Q3 23 – 05/10 – When Levi Strauss reported in July its share price fell sharply after management lowered its full year guidance, even though Q2 results came in line with expectations. Revenues were $1.34bn, while profits came in at $0.04c a share. For the rest of the year Levi lowered the top end of its revenue forecast to 2.5% from 3%, due to a slowdown in its wholesale business. It also lowered annual profits to between $1.10c and $1.20c a share.
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