The week ahead: US Q1 GDP, Bank of Japan decision, UK banks, and US big tech earnings

1) US Q1 GDP – 27/04 – Having seen the US consumer recover strongly in January with a retail sales surge of 3.2%, the edge has come off a little in recent months as consumer spending slowed in February and March, by -0.2% and -1% respectively. The instability caused by the banking turmoil will also have affected economic output at the end of the quarter, although we probably won’t know the full extent of that until we get later revisions. The strong labour market and resilience in wage growth seen in the first part of the quarter are likely to offer a strong personal consumption component. Expectations are for the US economy to slow slightly from 2.6% in Q4 to 2%, while personal consumption is expected to rebound strongly from the 1% seen in Q4.

2) Bank of Japan rate decision – 28/04 – With the recent weakness in the Japanese yen, and it being the first meeting as central bank governor for Kazuo Ueda all eyes will be on the Bank of Japan this week to see whether Ueda lays out the ground for a possible tweak to the bank's current yield curve control policy. In comments earlier this month, Ueda was careful not to say too much that was different from his predecessor Kuroda. At his first press conference, Ueda stuck with the script of his predecessor by saying the current policy remained appropriate under current economic conditions.  With national core CPI in Japan currently at 3.8% and a 40-year high, it could be argued that a shift in policy is close, and could come by the end of Q2. On the flip side of that headline, CPI has slowed sharply from 4.3% in January to 3.2% in March, which is likely to offer encouragement to the doves, although the resilience of core prices, like elsewhere is a little concerning, and is likely to be a cause for concern.      

3) Germany Q1 GDP – 28/04 – There is a distinct possibility that the German economy could slide into recession when the latest Q1 GDP numbers are released. Having contracted by -0.4% in Q4 we haven’t seen a significant improvement in manufacturing PMIs over the quarter despite lower energy prices. If anything, economic activity has subsided with the March PMI sliding to 44.7 and its lowest level since 2020. Services sector activity has offered more encouragement with three readings above 50 over the quarter, although retail sales spending has been negative, sliding -0.3% and -0.4% in January and February.   

4) Associated British Foods H1 23 – 25/04 – Seen some strong gains since the 10-year lows seen back in October last year, pushing to one-year highs back in February. The rebound in the share price has been long overdue but still remains below the levels we saw pre-pandemic. All of the retail sector has faced challenges over the past 3 years but ABF’s diverse business model has seen the company decent numbers across all of its businesses. In February the Primark owner upgraded its full-year outlook on all of its businesses including Primark. Adjusted operating profit and earnings are expected to be broadly in line with the previous year, despite higher costs. Total sales in the Primark business are expected to be 16% ahead of the same period last year which was disrupted by the tail end of Omicron restrictions in the Netherlands and Austria. The operating profit margin is expected to be above 8%, compared to last year’s H1 margin of 11.7%. UK sales are expected to rise by 15%, while European and US sales growth is also expected to improve, by 18% and 12% respectively.  

5) Sainsbury FY 23 – 27/04 – Despite the intense competition facing food retailers Sainsbury share price has been on a decent run since the record lows we saw back in October. When Sainsbury reported just after Christmas Q3 total sales rose by 5.2%, with grocery seeing a rise of 5.6%. Christmas grocery sales saw an acceleration to 7.1%. On a like-for-like quarterly basis, sales rose by 5.9%, with the Argos business generating a decent uplift as shoppers eschewed the flakiness of a strike-ridden Royal Mail service, by doing their grocery and Christmas shopping all at once. Guidance for a full-year underlying profit before tax was kept unchanged at the upper end of the guidance range of £630m to £690m, despite concerns over price and margin pressures, which continue to act as headwinds. At the end of March according to the latest Kantar survey, Sainsbury saw 12-week sales growth of 6.9%, which while behind Aldi and Lidl compared very favourably to its other peers. At the end of January, it was revealed that Bestway Group had taken a 3.45% stake in the business and suggested it could take a larger stake. While this has helped push the share price to its highest levels in over a year the obstacles to a bid remain high in that Bestway would need to convince Sainsbury’s other two big shareholders, the Qatar Investment Authority as well as Daniel Kretinsky’s Vesa Investment fund that they have a credible plan to take the business forward. One upside is that Bestway’s position as a wholesaler could offer synergies for Sainsbury in any future relationship, given that Tesco already owns Booker.          

6) Barclays Q1 23 – 27/04 – Barclays shares briefly hit their lowest levels in over 2 years earlier this year on the back of the turmoil in the banking sector during the month of March, although their Q4 and full-year numbers had already started to undermine the gains seen since the start of the year. Notwithstanding the losses incurred in H1 due to over issuance of debt securities have dragged on its performance, the miss on its Q4 numbers saw the shares slide sharply. For Q4, pre-tax profits came in short of expectations as did revenues. Q4 attributable profit came in at £1bn, pushing full-year group attributable profit to £5bn. The corporate and investment bank saw a 2% decline in Q4 revenues to £2.57bn with a disappointing performance across the board. Operating expenses over the year came in as expected at £16.7bn, up from £14.66bn in 2021, with £1.6bn of that related to litigation and conduct charges. Credit impairment charges were £1.2bn, with another £700m set aside in Q4. The dividend was increased to 7.25p from 6p, with the bank pledging a buyback of £500m. Barclays CEO Venkat expressed caution over global economic conditions but was optimistic about the outlook. Nonetheless, the turbulence seen in Q1 is likely to see a weaker performance from its international bank which is already struggling to generate a decent return on equity.          

7) NatWest Group Q1 23 – 28/04 – When NatWest reported its full-year results back in February the shares were trading just below their highest levels since May 2018, as concerns over a sharp slowdown in the UK economy receded. The shares have retreated a touch since then touching 3-month lows in March, largely due to concerns over whether the strong performance seen in 2022 can be repeated in 2023, while the recent uncertainty around the European banking sector and the fallout over Credit Suisse didn’t help. In Q4, profits rose to an impressive £1.26bn, a big increase on the £187m in Q3, taking full-year profits to £3.34bn, up from £2.95bn a year ago. Total impairments for the year rose to £337m, which given the uncertain outlook comes across as sensible financial contingency planning. The higher interest rate environment saw net interest margin increase from 2.99% in Q3 to 3.2% in Q4, bringing NIM year-to-date up to 2.85% from 2.30% a year ago. The bank proposed a final dividend of 10p as well as a share buyback program of £800m in the first half of 2023, taking the total amount paid to shareholders £5.1bn, or 53p per share, which is good news for the UK government which still holds a 48% stake in the bank. On the outlook, the bank was cautious with the bank saying it expects to generate full-year income of £14.8bn, and a full-year NIM of 3.2%, based on a base rate of 4%. The current base rate is already above this at 4.25% and could well go higher next month to 4.5%, potentially pushing NIM higher. Impairments are expected to remain in line with previous forecasts.  

8) Microsoft Q3 23 – 25/04 – When Microsoft reported in Q2 their numbers were by and large positive despite some weak areas, however, the downbeat guidance initially saw the shares come under pressure as the penny started to drop that the next few quarters are likely to be challenging for even the most competitive businesses. Q2 revenues came in at $52.7bn, with cloud revenue rising 22% to $27.1bn, driven by growth in AI and Intelligent Cloud. Net income fell to $16.43bn from $18.77bn primarily due to a $1.2bn charge as a result of the decision to cut 10,000 jobs and revise its hardware line-up. On the downside, Personal Computing revenue fell 19% to $14.2bn, with OEM revenue falling 39%.  Since then, the shares have rebounded to just shy of the highs seen last August. Microsoft said the next few quarters were likely to see a further slowdown in growth, even in strong areas like Azure, and that new business was already becoming more difficult. They also said that existing customers were asking for its help to make cost savings around their existing services. Microsoft also said subscriptions were also likely to slow, and that revenues would remain flat in Q3, at between $50.5bn and $51.5bn, with further weakness in personal computing expected, at around $12bn, while being offset with continued strength in Azure. We may find out more detail about the challenges facing the Activision deal. Profits are expected to come in at $2.23c a share.

9) Alphabet Q1 23 – 25/04 – When Alphabet reported back in February the shares popped to their highest levels since September, before sliding back down again in early March on the back of the wider stock market selloff. We’ve since revisited those peaks but are currently struggling below the $110 level. The main focus of their Q4 numbers was on their advertising business as well as YouTube revenues, which have come under pressure in recent months as advertising budgets get cut and the economy slows. Q4 revenues came in at $76.05bn, slightly below expectations of $76.5bn, with net income falling to $13.6bn, or $10.05c a share. The main drag was in advertising with YouTube ad revenue coming in light at $7.96bn, down from $8.6bn a year ago, while advertising revenue came in at just over $59bn, also down from last year. The cloud business did see an improvement last year, rising to $7.3bn. Investors will also be hoping that the glitches that have affected its AI release known as Bard are closer to being resolved. Alphabet said it expects to incur charges of up to $2.3bn in respect of severance costs for 12,000 employees in its Q1 numbers when it reports later this week. Profits are expected to come in at $1.10c a share.    

10) Meta Platforms Q1 23 – 26/04 – When Meta reported earlier this year the shares surged over 20% after beating on Q4 revenues, which came in at $32.17bn, while profits came in at $1.76c a share. The Facebook owner also announced a $40bn share buyback. Meta also said it expects to see Q1 revenues come in between $26bn to $28.5bn, which was in line with expectations, as the company saw active daily users rise to 2bn a day, also beating forecasts. The Reality Labs business continues to haemorrhage cash to the tune of a -$4.28bn operating loss in Q4, above expectations of a -$3.99bn loss, although revenues did increase, coming in at $727m. In March Meta said it was looking to cut thousands of more positions on top of the 11k it announced at the end of last year, which is likely to see costs rise in the short term. The share price gains seen so far this year have far outstripped its peers, up over 70%, however, these need to be set in the context of the falls last year which saw the shares tank over 70% from its record highs of $384 back in September 2021. Q1 profits are expected to come in at $1.99c a share.

11)  Amazon Q1 23 – 27/04 – In the lead-up to Amazon’s Q4 numbers the shares tried to push above their 200-day SMA before slipping back. In Q3 Amazon downgraded expectations around their Q4 revenues to between $140bn to $148bn, so it was welcome that they managed to beat on this, coming in at $149.2bn, while they also managed to eke out a profit of $300m or 3c a share. This was a nice bonus given warnings that we might see another loss due to another $2.3bn write-down from its stake in Rivian, which weighed on the top-line numbers. AWS was slightly weaker than expected, with revenues of $21.3bn, but these were still up 20% year over year. For the full year, Amazon posted $514bn in net sales, compared with $496.8bn in 2021, however, the company posted a net annual loss of $2.7bn, with Rivian knocking $12.7bn off that profit number, compared to a $33.4bn profit in 2021. In an attempt to better control its cash flow Amazon is slowing its capex expenditure pausing construction on its second HQ in Virginia. For its Q1 guidance, Amazon said it expects to deliver between $121bn and $126bn, which was slightly on the lower side of forecasts of $125.5bn. Profits are expected to come in at $0.20c a share.