The week ahead: Fed Minutes, easyJet and Kingfisher results

US Q3 GDP US PCE (Oct) – 27/11 – The US economy has managed to remain resilient throughout this year, with a decent pace of jobs growth being sustained despite various challenges as well as uncertainty ahead of the recent Presidential election. The recent hurricanes that wreaked havoc across the southern US haven’t helped, with a sharp slowdown in jobs growth during October, however this is expected to pick up again in November. With the Fed having just reduced interest rates again, and unemployment steady at 4.1% there is little sign that the Fed needs to rush to cut rates further. The US economy expanded by 2.8% in Q2 and looks set to expand by a similar amount in Q3 if recent jobs and retail data is any indication. There is some concern that headline inflation may be starting to bottom out a little and the Fed might need to be concerned about, with the latest core PCE deflator inflation numbers likely to add colour to the picture as to whether we get a December rate cut from the Fed.

Fed Minutes – 27/11 – The last set of Fed minutes showed that officials agreed a rate cut was necessary in September, however the debate was centred around the size of the cut, which eventually came in at 50bps. There was a school of thought that preferred a smaller 25bps reduction however this was outweighed by the majority of a 50bps move. The minutes for the November meeting are likely to be less controversial with a broader consensus. What was most interesting about those minutes was the fact that in the forecasts, 7 officials preferred 75bps of easing in 2024, while 2 preferred 50bps points. On the flip side of that 10 were looking at 1% or more, which suggests there is a majority for at least another 25bps at the final meeting of 2024. Since then, we’ve had the Fed cut by 25bps in November, yet US rates have pushed higher, meaning that monetary conditions have tightened since that decision. We’ve also seen US CPI inflation come in slightly higher than expected in October, as well as jobs data that was affected by the hurricanes and the Boeing strike. The statement at the November meeting along with Fed chair Powell’s post US election press conference suggests that a rate cut in December may not be the nailed-on certainty that markets think it is. This week’s minutes could add further colour to that debate.    

EU CPI (Nov) – 29/11 – It’s not a matter of whether the ECB will cut rates next month, it’s now becoming a matter of debate as to whether they will cut by 25bps or by a bigger 50bps, although the latter is more of an outlier. We’ve already seen the ECB cut 3 times this year, with an expectation of cut number 4 to 3% when they meet for the final time this year next month. With manufacturing in the midst of an 18-month depression and the services sector showing signs of slowing as well, the challenges facing the ECB are significant. This week’s flash CPI number for November is expected to see headline inflation edge higher to 2.2%, with core prices expected to follow suit, up from 2.7% to 2.9%.     

UK mortgage approvals (Oct) – 29/11 – Mortgage approvals have been on a slow upward climb for the most part of the last 12 months. Earlier this year we saw them move above 50k and we’ve steadily advanced to the levels we were seeing prior to the infamous mini budget of 2022 when they were averaging the high 60ks. It’s been a slow road back, however with rates starting to rise again despite 2 Bank of England rate cuts, optimism around the mortgage market may well be starting to diminish again especially since UK borrowing costs have moved back to levels they were in the aftermath of that budget. In September mortgage approvals rose to their best levels since September 2022 at 66k. With the latest budget now in the rear-view mirror could this be as good as it gets when it comes to approvals. When it comes to house price sales the latest Rightmove data shows that average new seller asking prices fell 1.4% in November, and that while activity is higher it is the second month in a row that prices have been marked lower, although sales activity is higher.          

Kingfisher Q3 25 – 25/11 – It’s no secret that retailers have found life difficult in recent years, with the increase in the cost of living, weighing heavily across the sector. DIY retailers especially have struggled with increases in the costs of raw materials which have eaten into margins, as well as the capacity of consumers to pay those higher prices. One of the better performing areas of the Kingfisher business has been in online and Screwfix where the retailer has generally performed well, even as like for like sales elsewhere showed declines. In H1 Kingfisher saw total sales decline 1.4% with LFL sales falling -2.4%. The French business was the biggest drag with a -7.2% slide, while the UK declined -0.2%. The UK business was bailed out by a 1.2% increase on like-for-like sales from Screwfix, while B&Q declined 1%. For the outlook Kingfisher said it was more optimistic saying that they expected to see full year adjusted profit before tax to come in between £510m and £550m, adjusting its outlook in the lower range up by £20m. They also upgraded their expectations for full year free cashflow to between £410m and £460m. This improvement has been partly driven by the implementation of £120m of cost reductions so far this year, with the implementation of technology like self-service checkouts. This pressure on costs is only likely to intensify in the months ahead in light of the recent budget which has raised employers fixed costs. These pressures have already proved to be the last straw to sector peer Homebase which earlier this month fell into a pre pack administration which saw around half of its stores getting snapped up by the Range, with the other half likely to close.   

easyJet FY 24 – 27/11 – When easyJet reported in Q3 the airline said it had seen a 16% increase in profits to £236m, helped by an 8% increase in passenger numbers year on year, as well as a 1% improvement in revenues per seat. This improvement was driven by a 4% increase in ancillary revenues, which rose to £24.66m. easyJet holidays continues to go from strength to strength and is expected to deliver profits before tax in excess of £180m, posting a 42% increase in revenues to £336m and profits of £73m for Q3, upgrading its profits forecast from the £170m figure reported at the end of H1. This area of the business is one of the more consistent areas showing incremental improvements over the past few quarters, and clearly management will be hoping it continues to do so. In H1 easyJet reported a loss of £350m, with the second half of the year tending to be where the airline claws its way back towards being profitable, with the hope it can surpass last year’s annual profit number of £324m. Sentiment towards the easyJet share price has seen an improvement in the last few months having slipped to a 9-month low back in August, we’ve seen a gradual rebound back towards levels last seen in April.

Zoom video Q3 25 – 25/11 – Last December Zoom Video found itself relegated from the Nasdaq 100 after a share price crash that saw it peak at above $585 in 2020 as everyone stayed at home during lockdowns to slide as low as $56 back in August this year where it appears to have found a bit of a base. Since those lows, the shares have enjoyed a bit of a resurgence helped in no small part by a decent set of Q2 numbers which saw them raise their full year guidance after reporting a 2.1% increase in revenues to $1.16bn, and earnings per share of $0.70c a share. For the full year Zoom said it expects revenues of between $4.63bn and $4.64bn. The improvement in Zoom’s economic performance is no better reflected than its H1 net income numbers which saw this metric rise sharply compared to 2023, from $197m to $435m, helped by a sharp drop in stock-based compensation expenses. Q3 profits are expected to be in the region of $1.30c a share.