UK, US CPI and retail sales, Barclays, NatWest and Centrica full year results
- US CPI (Jan) – 14/02 – headline CPI in the US has been trending lower for several months now, so much so that it prompted Fed chair Jay Powell at the recent Fed meeting to acknowledge that there were some disinflationary trends playing out in the US economy. This set various hares running about the prospect of rate cuts before the end of the year, which ran into the wall of a bumper US payrolls report of 517k for January earlier this month. In December US CPI fell to 6.5%, while core prices fell to 5.7% from 6%, with markets pricing in another downshift in the Fed’s hiking cycle to 25bps. This week’s numbers for January could well go some way to establishing how many more rate rises could be on the way in the coming months. The recent ISM services report showed that prices paid remained resilient at 67.8, while wages still appear to be looking resilient. This is likely to be reflected in a similar uptick in inflationary pressure with headline CPI expected to rise 0.4% on a monthly basis, and by 6.2% year on year. Core prices are expected to rise by 0.5% and 5.4% year on year.
- UK CPI (Jan) – 15/02 – with UK base rates now at 4% attention is turning to when the Bank of England is likely to signal a pause in its current rate hiking cycle. Unfortunately, unlike the US and Europe, headline CPI is much higher at 10.5%, having fallen only modestly from its October peaks of 11.1%, and could well prove to be a lot stickier than markets are currently pricing. Core CPI is also higher at 6.3% while RPI is still at an eye-watering 13.4%. This means that further rate hikes of at least 25bps at the next meeting are likely even against the backdrop of a weaker economy. The weakness of the pound isn’t helping, acting as an updraught underpinning the stickiness in prices. With wage growth also trending higher the Bank of England may well need to stay the course a little longer than it would like if headline inflation doesn’t start to drop sharply below 10% in the coming months. This week’s numbers are expected to see a further slowdown to 10.1%. The day before the inflation numbers we get the latest unemployment and wages numbers with wage growth expected to maintain recent resilience with a further rise from 6.4%. Unemployment forecast to remain steady at 3.7%.
- US retail sales (Jan) – 15/02 – given the resilience being seen in the US labour market, it is perhaps surprising that the last two months of 2022 saw US retail sales slide back quite sharply. Declines of 1% and 1.1% respectively in November and December pointed to an economy that was finally starting to become more cautious about the economic outlook. A lot of US banks have continued to build up their buffers in respect of non-performing loans, while a lot of recent company earnings reports have pointed to growth slowdowns in the pace of revenues and profits. It could be that perhaps what we saw at the end of last year was US consumers building up some new year buffers, especially as gasoline prices have started to rise again. For January it is expected that after two negative months we could see a New Year bounce, of 1.7%, especially as some of the December miss may well have been exacerbated by the freezing weather during the early part of the month.
- UK retail sales (Jan) – 17/02 – the last quarter of 2022 was a poor one for UK consumers, with November and December retail sales seeing sharp declines of -0.5% and -1% respectively. The 1% decline in December was all the more surprising given that UK retailers all announced better than expected trading numbers in the lead-up to Christmas which had raised hopes that, despite the rail and postal strikes that consumers had still managed to push a rebound in spending. One of the more notable features of the December data was that while sales volumes were predominantly lower, the amount of money being spent held up, reinforcing the fact that consumers are still spending money, but they are being more discriminating about how they spend it. Over the previous 3 months volumes fell by -5.7%, however the value of goods saw a rise of 3.6% excluding fuel. On another pessimistic note consumer confidence numbers in January fell back sharply to -45 as people got a dose of the January blues, as consumers look to pay off any pre-Christmas spending. On the plus side we might see an uplift in travel and leisure spending as more people book holidays. In their recent travel updates airlines have recorded decent demand for seats as well as holiday packages.
- Barclays FY 22 – 15/02 – the last 12 months have been somewhat of a mixed bag for Barclays share price, with the shares dropping to an 18-month low last October. We’ve seen a decent rebound since then but this year has been a challenging one for the bank. The bank has faced challenges over litigation as well as governance with operating expenses set to rise to £16.7bn. This was due to the bank having to take a charge of £540m in respect of over issuance of securities, which it had to buy back. In Q3 the bank saw total revenues come in at £5.9bn, a 9% increase from the same quarter a year ago. The corporate and investment bank saw a 10% decline to £2.8bn, however this was offset by a big increase in its consumer, card and payments division which saw a 54% increase to £1.24bn. The bank also set aside £381m in respect of credit impairments, pushing up total impairment provisions to £722m year to date. Operating costs also rose by 14% during the quarter to £3.94bn, as profits after tax for the quarter, rose by 9% to £1.7bn. Year to date Barclays profits are down 19% largely down to the fact that last year saw profits boosted by the release of loan loss provisions which flattered the numbers.
- NatWest Group FY 22 – 17/02 – when NatWest reported its Q3 numbers at the end of October the share price dropped sharply after reporting an increase in loan loss provisions as well as concerns that a further windfall tax might be levied on its profits. Since then, the shares have gone from strength to strength, rising to their best levels since May 2018, as concerns over a sharp slowdown in the UK economy have receded. In many ways the actions the bank took in Q3 where sensible planning as the bank posted a modest Q3 attributable profit of £187m, a sharp fall from the £1bn profit seen in Q2. The reason for the sharp slowdown was due to a loss of £652m on the discontinued Ulster Bank operations and the reclassification of its mortgage book, so was very much a one-off. It is notable that NatWest has taken more aggressive action with respect to impairments. In H1 impairments were a modest £26m, however Q3’s numbers saw that provision increased by £247m, while operating expenses also saw a sharp increase compared to Q2, to just shy of £1.9bn, although they are still lower from a year ago. When all of this is stripped out the underlying performance was still slightly weaker than Q2 as operating profits came in at £1.09bn, slightly shy of expectations, and a £310m fall from Q2. As far as the internals are concerned the higher interest rate environment saw net interest margin increase in Q3 to 2.99%, bringing NIM year to date up to 2.73% from 2.59% in H1. On the business side of things net loans have look steady throughout the year, rising to £192.8bn in Q3, and up from £188.7bn in Q2 and £184.7bn in Q1. This increase was mainly down to new mortgage lending of £3.9bn. This is likely to have slowed in Q4. Customer deposits increased to £190.9bn, a rise of £400m. On the outlook NatWest said they expect total income to be around £12.8bn with NIM expected to rise to 2.8% for the year.
- Centrica FY22 – 16/02 – Centrica shareholders have had a hard time of it over the last 10 years, with the shares falling to record lows of 29p back in March 2020. It’s been a long hard slog off those lows since then even as the shares push back towards the 100p level. In January the British Gas owner upgraded its full year guidance for the second time in two months, saying they expect full year adjusted EPS of above 30p per share, and that net cash is expected to be above £1bn. The company also announced a share buyback program in November inviting criticism as consumers continue to get squeezed by high energy costs. The company has spent money reopening the Rough gas storage facility which was closed in 2017, while also setting aside £50m to help its customers, although that rings hollow given the recent reports of forced installation of pre-payment meters by third party contractors on its behalf. In its H1 numbers adjusted EPS came in at 10.2p, so an expectation of adjusted EPS of above 30p is quite a leap.
- Airbnb Q4 22 – 14/02 – Airbnb shares have got off to a decent start to the year, sliding to a record low in late December, the shares have managed to rebound over 35% year to date. Last year’s declines were mainly down to concerns over slow bookings growth despite the relaxation of Covid restrictions. In Q2, bookings came in below expectations at 103.7m even though profits improved and revenues came in at just over $2bn. In Q3 this improved further to $2.83bn in revenues, an increase of 29% on the same period a year ago, and the best quarter ever. The Q3 numbers were impressive across the board, with gross booking value per nights up at $156.44, and profits above expectations at $1.79c a share. Unfortunately, Airbnb issued weak guidance for Q4 saying they expected revenues to drop sharply to $1.8bn and $1.88bn, which prompted further weakness. Q4 does generally tend to see a modest slowdown during the winter months, however the extent of the drop in revenue caught a lot of investors unawares. Profits are expected to come in at $0.33c a share.
- Cisco Systems Q2 23 – 15/02 – back in May Cisco Systems issued a profits warning citing disruptions from supply chain disruptions, alongside problems in China which have impacted its margins. When Cisco reported in November the company upgraded its full year guidance. At the beginning Q1 Cisco said it expected revenue growth of between 2% and 4%, and profits of $0.83c a share. In November these numbers came in much better with reported profits of $0.86c a share on revenues of $13.6bn. Q2 profits are expected to come in at a similar level of $0.85c a share, while upgrading full year profits to between $3.51c to $3.58c and full year revenue growth of between 4.5% and 6.5%.
- Deere Q1 23 – 17/02 – at one point last year Deere’s share price hit a 15 month low after a profits warning after the agricultural equipment maker downgraded its expectations for full year profits to between $7bn to $7.2bn, from $7bn to $7.4bn. due to downward pressure on operating margins. This proved to be overly cautious with the shares rebounding strongly since then, and were confirmed when in Q4 revenues came in at $15.54bn and profits of $7.44c a share, well above expectations of $7.10c a share. Annual profits came in at $7.13bn, while revenues for the year rose to $52.58bn, a rise of 19%, as the company managed to pass on price increases to its clients. The agricultural equipment maker also upped its forecast for 2023 profits to between $8bn and $8.5bn, on the back of strong demand for tractors, from farmers who are getting higher prices for their crops. Profits are expected to come in at $5.50c a share.
Author
Michael Hewson MSTA CFTe
Independent Analyst
Award winning technical analyst, trader and market commentator. In my many years in the business I’ve been passionate about delivering education to retail traders, as well as other financial professionals. Visit my Substack here.
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