US economy could see rising inflation risk, as we look to Q1 GDP

1) US Q1 GDP - 28/05 – while the US economy managed to rebound significantly from the slowdown seen at the end of last year it was still below market expectations, coming in at 2%, up from 0.5% in Q4, but below forecasts of 2.3%. Some of the rebound came from a 4.4% increase in government spending, which appeared to be a mechanical recovery from a -5.6% contraction in Q4. What was more notable was a big jump in gross domestic private investment which increased by 8.7% and a surge in business investment and structures of 10.4%. This was driven by capital flowing into AI technologies in a trend that shows little sign of slowing, and could drive inflation pressures going forward. Consumer spending on the other hand does appear to be showing signs of slowing demand albeit modestly, rising 1.6%, down from 1.9% in Q4, although that shouldn’t be surprising given Q4 has holiday season spending underpinning it. Net trade was a drag with imports rising by 21.4%, exports rising 12.9%. This week’s latest revisions aren’t likely to show a material change, although we could see an upward revision given stronger consumer spending patterns seen in February and March.    

2) US Personal Spending/PCE (Apr) – 28/05 – after a slow start to the year US personal spending has seen a pick up in the last couple of months, slowing to 0.4% at the start of the year, before picking up in February to 0.6% and then rising sharply to 0.9% in March. The increase was primarily driven by a sharp rise in gasoline sales, as well as sales of motor vehicles and parts, along with sales of food and beverages. Spending on services also saw a strong performance, primarily driven by healthcare services, followed by financial services. It was also notable that in recent months we’ve seen a pick-up in core PCE price pressures with the monthly number doubling from 0.2% to 0.4% at the end of last year, and only slowing modestly to 0.3% in March, although the annualised number rose to 3.2%, the highest level since November 2023. This recent acceleration doesn’t bode well for the prospect of future Fed rate cuts and also helps to account for the recent dissent on the FOMC with respect to the keeping of the easing bias that was kept in the Fed statement by a majority of 8-4. There are signs in recent numbers that US consumer spending is starting to show signs of slowing, albeit only gradually, but it does suggest that for now Fed policy is unlikely to change in the near term.    

3) Kingfisher Q1 27 – 26/05 - B&Q owner Kingfisher full year results initially prompted a positive share price reaction after the retailer reported a 1.3% increase in total sales for 2026 of £12.95bn, and a 15.2% increase in operating profit, all of which was in line with recent upgraded guidance. That rebound didn’t last with the shares sliding to 6-month lows and where they have remained for most of the last few weeks. This is despite a 23% rise in pre-tax profits to £378m while the dividend was kept unchanged at 12.4p per share. Retail profit margins edged higher by 30bps to 5.7%, while free cash flow came in at £512m. On a regional basis the UK outperformed with LFL sales at B&Q seeing a 3.3% increase and Screwfix 3.2%. The French business continued to underperform with Castorama down -2.2% and Brico down -2.3%. For the new fiscal year 2026/2027 Kingfisher said it expected to see adjusted PBT to come in slightly above the £560m seen in the previous year, at between £565m and £625m and free cash flow slightly lower in the range of £450m and £510m. This reaction suggests that investors are sceptical that they will be able to deliver on this. Furthermore, the decision to announce a further share buyback of £300m doesn’t exactly seem a great use of shareholder funds.  Since September 2021 Kingfisher has completed £1.2bn in the form of share buybacks, with the shares actually lower than they were then. Not exactly an advert for efficient use of shareholder capital.               

4) Snowflake Q1 27 – 27/05 – while the likes of Alphabet and Amazon shares have continued to push higher, the likes of Snowflake have struggled despite their position as a cloud services provider, albeit on a much smaller scale. When the company reported in Q4 total revenues rose 30% to $1.23bn, while profits came in at 34c a share, both in excess of expectations. Net Revenue Retention saw a 125% increase with 733 customers generating product revenues of over $1m. With operating margins holding steady at 75% the company said it was continuing to spend on its AI push, as it looks to boost the +9,100 accounts it already has using AI features. For the outlook Snowflake said it expects Q1 revenue of between $1,262m and $1,267m, an increase of 27%. On an annualised basis revenues of $5.66m on a gross margin of 75%. While Snowflake has yet to generate an annual profit, there is a hope that 2027 could be the year that changes.  

5) HP Inc Q2 26 – 27/05 – after an initial dip in the aftermath of their Q1 numbers, HP shares have managed to see a decent rebound from their lowest levels since October 2020. In so doing they’ve managed to move above their 50-day SMA and could be on the cusp of heading back towards the 200-day SMA currently close to $23. In Q1 HP posted a 6.9% increase in net revenue of $14.4bn, although profits slowed slightly to 58c a share. The main contributor was a 11% increase in PC and laptop sales to $10.3bn, with spending on peripherals/printing down 2%, at $4.2bn. There was also a strong improvement in cash flow, which increased to $383m from $175m. The initial dip in the shares back in February was perhaps caused by a cautious guidance outlook which saw management project annual EPS of between $2.90 and $3.20 a share due to concerns over increased memory costs, which may eat into profit margins. HP also said they expect free cash flow for 2026 to be between $2.8-$3bn. For Q2 HP said they expect to see net EPS to be in the range of 52-58c a share.         

6) SSE FY 26 – 28/05 – when SSE updated the market back in April the shares popped higher after management upgraded their full year guidance of adjusted EPS to 147-152p per share, on the basis of better-than-expected progress on its 5 years £33bn investment plan. The company said its regulated Networks business is expected to deliver a 60% year on year increase in capital investment. Renewable generation is expected to see a 10% increase to 14.5 TWH. Capex investment is expected to be around £3.5bn for the year, with adjusted net debt of just over £10bn. We’ve seen the shares slip back since then over concern that with a potential change in leadership at the top of Government that could see some nationalisation of utility providers in the wake of Andy Burnham announcing he wants to stand as an MP and challenge for the position of PM.  

7) Best Buy Q1 27 – 28/05 – as electrical retailers go, Best Buy is one of the US biggest, however in a market where Amazon and Walmart also operate the challenges facing the business are high. With the shares finding support at the 2025 tariff Liberation Day lows of $55, the shares are vulnerable to further declines on a technical level. The share price weakness is all the more surprising given that Q4 profits came in ahead of forecasts at $2.61 a share. Net income saw a huge improvement, jumping to $541m, up from $117m a year before. Q4 revenues did come in light however at $13.81bn, while same store sales fell 0.8%. For 2027, Best Buy said it expected to see full year revenue of between $41.2bn and $42.1bn with same store sales expected to oscillate around 0%, at between -1% and 1%. On profits the company said it expects to see adjusted EPS of between $6.30 and $6.60 a share. For Q1 comparable sales are expected to see growth of 1%.