UK CPI, retail sales, FOMC minutes, barclays, natwest FY, walmart earnings

1) UK Retail Sales (Jan) –" 19/02 - Since the April lockdown last year UK retail sales growth saw 6 consecutive months of gains, however these came to a shuddering halt in the November numbers due to the lockdown restrictions that were put in place from the 5th November, with a decline of -3.8%. A large part of the reason for the November decline was probably due to some pull forward effect to October as consumers tried to do all their pre-Christmas shopping before the lockdown began due to concerns it might get extended up until Christmas. The biggest drag to retail sales came from closing bars and restaurants which saw big declines in spending there, though as recent retail numbers have shown the boom in on-line and digital sales has helped compensate. In December we got a rebound of 0.3%, which was a little disappointing given the brief two week unlock at the beginning of the month which saw consumers go on a pre-Christmas spending binge before restrictions were tightened again. With a new lockdown imposed in January the outlook for the beginning of 2021 is likely to be on the weak side as consumers hunker down for the long haul towards Easter, with expectations of a 1% decline. With the Bank of England expecting to see a 4% contraction in Q1, due to the tighter restrictions, January retail sales could well give an early feel as to how consumers feel as 2021 gets under way. We also have the latest flash PMI’s for manufacturing and services which came in at 54.1 and 39.5 in January. Manufacturing is expected to decline modestly to 53, while services is predicted to rebound to 42.

2) UK CPI (Jan) –" 17/02 - in recent months these numbers have fallen below the radar a little, however given the sharp rise in 10-year yields in the past month in the US, as well as here long-term inflation expectations have been rising since the end of last year. A combination of a large-scale fiscal expansion in the US, alongside additional fiscal support here in the UK in next month’s budget have sent US and UK yields up to their highest levels since before the pandemic, as concerns grow that all of this extra liquidity, along with an economic re-opening could see an inflationary spike. The UK 10 year briefly edged above 0.5% on the 8th February for the first time since 23rd March last year, and while it has slipped back since then any sign that inflationary pressures are starting to build up in the system could prompt concerns about a sharp rise in prices. This isn’t expected to manifest itself in this week’s January numbers, however the headline CPI numbers could start to get more interesting as the year progresses. Expectations are for UK inflation to slip back to 0.5% from 0.6% with core prices also set to decline to 1.3%, from 1.4%.

3) UK Public Sector Borrowing (Jan)–" 19/02 –" the success of the UK’s vaccine rollout program is increasing speculation around the timing of a paring back of the emergency measures that the UK government has been taking in helping to support the economy, over the course of the last fiscal year. It is no secret that Chancellor of the Exchequer Rishi Sunak would rather rein back on the extraordinary support measures sooner rather than later, however it remains highly likely that it will be quite some time before normal service is resumed, with the likes of hospitality unlikely to return to pre-pandemic levels of activity until next year at the earliest. This focus on the public finances, and the growing levels of public debt is certainly a concern, however it is also a distraction to the wider issues facing the UK economy. It is true that borrowing is already at a post war record, and that it will continue to go higher, however with gilt yields still well below 1% long-term borrowing costs still remain very low. In December the government borrowed £33.4bn, and with the UK economy locked down for most of January, as well as the rest of Q1 this figure is set to move well above £300bn by year end, with expectations for another £20bn or so for January, due to some year-end tax payments ahead of the end of year tax deadline. This shouldn’t be a problem if the UK government behaves in a sensible fashion given everyone else is in the same boat, and that the appetite for longer term debt appears resilient, if last month’s 50-year French bond auction is any guide after it got €59bn worth of bids.

4) FOMC minutes –" 17/02 –" the lead-up to the January Fed meeting was notable for some apparent policy differences on the part of several Fed officials including Raphael Bostic of the Atlanta Fed who suggested, in contrast to the December messaging of lower for longer, that we could well see a taper of the $120bn monthly asset purchase by the second half of this year, and a rate hike before the end of 2022. While Fed chief Jay Powell, along with vice Chair Richard Clarida clamped down on this messaging at last month’s meeting, these concerns haven’t gone away given the prospect of another large stimulus program, and a US economy that looks more resilient than some of the recent data might suggest. At the press conference Powell was keen to stress that the recovery was still fragile, and a little weaker than had been the case in December, nonetheless concerns about higher prices weren’t particularly elevated in the short term. His comments that the Fed was prepared to tolerate inflation above 2% for some time suggests that they might be prepared to look past any short-term inflation pressures. This does appear to being reflected in bond yields, with the short end fairly steady, however long-term inflation expectations are rising quite sharply. As such it will be interesting to note whether the concerns articulated by some FOMC members in early January got an airing in the broader discussions, around what might happen if inflation pressures did start to accelerate beyond what members of the committee might be comfortable with.

5) US Retail Sales (Jan) –" 17/02 –" after a decent recovery in the aftermath of last year’s April lockdown US consumer spending rebounded quite strongly as the US consumer spent their stimulus cheques, and the economy showed a strong improvement through Q2 and Q3. This growth started to slow quite markedly in Q4, as the expiry of certain unemployment benefits, uncertainty over the US election, along with the imposition of tighter coronavirus restrictions started to weigh on consumer confidence. This consumer slowdown along with the political deadlock on Capitol Hill over a stimulus package saw retail sales in November and December slide back quite sharply, by -1.1% and -0.7% respectively. Since then, the economic data has picked up markedly, helped in some part by the new $900bn stimulus plan that was agreed at the end of last year, and expectations over another $1.9trn later this quarter. This optimism is likely to translate into a rebound in consumer confidence and ergo a possible rebound in consumer spending, after a disappointing Thanksgiving and Christmas spending period. Expectations are for a 0.8% recovery to start the year, which could well continue into the rest of Q1.

6) Germany/France flash PMI’s (Feb) –" 19/02 –" it’s been clear for several months now that economic activity between the services sector and manufacturing sector has been chalk and cheese. The various lockdown restrictions that have been in place since October in both France and Germany has meant that the services part of both economies has really struggled. In France services has been in contraction for 5 months in succession, while in Germany it’s been 4 months. This period of contraction is set to continue in February with both countries well behind in their vaccination programs, and restrictions set to remain firmly in place. Manufacturing has been a bright spot and has helped on the margins with some fairly positive numbers on both sides, with Germany outperforming, however with little prospect of restrictions being eased in the near term we can expect to see further pain for services in February as well. With restaurants and bars in France set to remain closed until Easter it is hard to see the case for any type of decent recovery any time soon, which means February is likely to see the sixth consecutive month of contraction. Despite the positive vaccine news, lifting the mood from a market point of view, it is clear that there will be no similar uptick in economic activity until such times as restrictions start to get eased, perhaps sometime in the spring, and both countries get their vaccination act together. On the plus side manufacturing has been a strong performer for both Germany and France, helping to offset some of the slowdown on other parts of their economies

7) Barclays FY20 - 18/02 –" the past 12 months have been difficult ones for banks in general, but UK banks have underperformed relative to their peers, with the unknowns of what a final Brexit deal might look like also weighing on investor sentiment, along with the fallout from the ongoing coronavirus pandemic. As a result of these concerns their overall performance since the beginning of 2020 has been disappointing, with Barclays the best performer amongst the big four, currently down over 15% from where it finished 2019. The recovery off the March lows of last year has been a long slow one, with management forced to cut shareholder pay-outs, as well as setting aside billions of pounds in provisions for non-performing loans. Back in October Barclays set aside £608m in respect of this for Q3, slightly lower than expected, bringing the total year to date to £4.3bn, while we also saw an increase in PPI provision of £1.4bn. The £608m came on top of the £3.7bn set aside in the first half of the year, a fall of 63% from Q2, with the bank saying that the second half of the year in terms of provisions is likely to be lower than that seen in H1. In terms provision for credit card debts the provision was also sharply lower with £183m in that total of £608m. As we navigate our way through this latest lockdown, there is a risk that the optimism we saw back in October may well have been misplaced, and that we could see an increase in provisioning. On the plus side if the recent performance of US banks is any guide, along with the recent steepening of the yield curve, the investment banking division could well help offset any underperformance in its retail operations, with any outperformance offering an insight into when management might look at reinstating the dividend.

8) NatWest Group FY 20–" 19/02 –" it’s been a roller-coaster start for new CEO Alison Rose this year as she looks to steer the rebadged bank into the next decade. While Rose has done a good job of giving the bank a makeover and given the paintwork a bit of a buff up; unless you fix what’s under the bonnet, you’re still left with the same old banger underneath. In September last year, the NatWest share price hit fresh record lows, but since then the shares have rebounded strongly to a post pandemic high, as the prospect of a resumption of dividends and a decent set of quarterly numbers showed that the pessimism priced into NatWest’s share price was probably a little overdone. The past 12 months has been one of damage limitation with the concerns about a Brexit deal, along with the pandemic and all of the problems that has brought about. The bank set aside impairments of £801m in Q1, and an attributable profit of £288m, following that on in Q2 with impairments of over £2bn, and Q3 of £254m. NatWest said it expects full-year impairments of between £3.5bn and £4.5bn, which suggests on the basis of the previous numbers we could well come in in the middle of that given the tighter restrictions that have been in place since November. On the wider concern regarding its margins NatWest has the thinnest in the UK banking sector at 1.65% so shareholders will be hoping for an improvement there, given how the yield curve has steepened over the last three months. Despite the rebound from its record lows in September the shares are still over 25% lower from where they started 2020.

9) Walmart Q4 21 –" 18/02 –" Walmart shares have been another big winner of the coronavirus pandemic. Having increased e-commerce sales by 74% in Q1, they went better than that in Q2 with an increase of 97%, as more customers stayed at home and ordered on line. With the increasing popularity of on-line services Walmart announced the launch of Walmart+ in Q3, a new membership service in order to better compete with the likes of Amazon and its Prime service. It will be interesting to note how much take up of this new service there has been in Q4. In Q3 e-commerce sales increased again, this time by 79%, however the company declined to offer an outlook. Revenues in Q3 came in a $134.7bn, with the international business also doing well. Business costs remained elevated coming in at $600m, on top of the increases seen in Q1 of $1bn, which comprised of an extra 200k people to help clean stores, stack shelves and get online orders out of the door. In total the company has hired in excess of an extra 500k people this year alone. On the plus side it has managed to sell its Asda operation in the UK for £6.7bn, drawing a line under an area of the Walmart business that has struggled to keep pace with the ever-competitive nature of UK retail. In terms of free cash flow year to date the business has seen an increase of $9.7bn to $16.4bn. At the beginning of this year Walmart said it was moving into the fintech space with the creation of a new fintech start-up in partnership with Ribbit Capital. Ribbit Capital is one of the firms that is behind the Robinhood app which is so popular with retail investors, and which, it has been argued, has helped fuel the strong rally in US markets in recent months. Profits are expected to come in at $1.487c a share.

10) Dropbox Q4 20–" 18/02 –" when Dropbox IPO’d almost three years ago at $21 a share it got an early day pop, and spent the most part of 2018 well above its IPO price before spending most of the next two years struggling to meet its rather lofty valuation. Since its March lows of last year of just below $15 the shares have slowly recouped those losses to be trading near $25, with the company generating a quarterly profit for the first time in May last year when it posted a Q1 profit of 9c a share on revenues of $455m. The big move to homeworking has helped companies like Dropbox enormously with the move to cloud based file sharing technology, however given that is competing with the likes of Microsoft and Google it has still done well to grow its user base to 600m in over 180 countries, with average revenue per user coming in at around $128. Full year revenues look set to come in at $1.9bn, a rise of 14.9% from a year ago, while quarterly profits are projected at $0.23c a share, pushing full year profits to $0.90c.

11) Palantir Technologies Q4 20 –" 16/02 –" when Palantir reported in Q3 it was the first set of numbers in the wake of its recent launch on the US stock market. Palantir is a company that specialises in big data analytics, with the US government being one of its biggest clients with $1.5bn worth of contracts, particularly in respect of defence, and counter terrorism through its service Palantir Gotham. Last year the company lost $579.6m, and hasn’t made an annual profit since it was founded in 2003, while on the revenue front the picture is equally as worrying with annual revenues last year at $740m, and operating expenses which appear to be on the high side, at over $500m. That doesn’t appear to matter too much to investors who have driven the share price upwards from the $10 listing price. In Q3 the company reported a loss of $0.94c a share on revenues of $289.4m, while also predicting that full year revenues were expected to come in at $1.07bn, which would be a 44% increase from a year ago. In Q3 the company signed new contracts with the US Army and the National Institutes of Health for a combined $127m, while also renewing a $300m aerospace contract. Expectations are for a modest profit of about $0.02c a share.

12) EQT Corp Q4 20 –" 17/02 –" one of the largest natural gas producers in the US, EQT has seen some fairly decent share price gains over the last quarter, on expectations that demand will rise as the world shifts to cleaner energy sources. Natural gas demand tends to rise organically during winter months in any case, and with its resources in the Appalachian basin being amongst the richest in the world demand for this cleaner fuel is unlikely to diminish especially since the new Biden administration appears determined to push down on dirtier fuels. The company recently acquired some natural gas assets from Chevron further south in Pennsylvania and West Virginia for $735m, which should add to its ability to easily meet future demand, without adding to its overall production cost base too much. With natural gas prices up near 2-year peaks, the outlook for the company looks positive. The company is expected to post a loss of $0.27c a share.