The week ahead – UK CPI, wages, China Q4 GDP, Ocado, Deliveroo and Goldman results

UK wages/UK CPI (Dec) – 16/01 and 17/01 - Since March of last year headline CPI in the UK has more than halved, slowing from 10.1%, with November slowing more than expected to 3.9%, prompting speculation that the Bank of England might be closer to cutting rates in 2024 than had been originally priced. The decline in headline inflation is very much welcome, however most of it has been driven by the falls in petrol prices over the past few weeks. Inflation elsewhere in the UK economy is still much higher although even in these areas it has been slowing. Food price inflation for example is still much higher, slowing to 6.6% in December, while wage growth is still trending above 7% at 7.2%. Services inflation is also higher at 6.3% while core prices rose at 5.1% in the 3-months to November. This week’s wages and inflation numbers are likely to be key bellwethers for the timing of when the Bank of England might look at starting to reduce the base rate, however the key test for markets won’t be on how whether we see a further slowdown in inflation at the end of last year, but how much of a rebound we see in the January numbers. Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 7% is likely to stay the Bank of England’s hand when it comes to looking at rate cuts. It’s also important to remember that at the last rate meeting 3 members voted for a further 25bps rate hike. That means it will take more than a further slowdown in the headline rate for these 3 MPC members to reverse that call, let alone call for rate cuts. Expectations are for wages to slow to 6.7% and headline CPI to come in at 3.8%.

China Q4 GDP/Dec retail sales – 17/01 – There was some scepticism when China reported Q3 growth of 1.3%, despite evidence over the quarter of weak domestic demand. In the 3-months since then we’ve seen retail sales show modest improvements in October and November, while industrial production numbers have remained steady. The weak demand in the Chinese economy is already being reflected in headline inflation numbers with both CPI and PPI in deflation, as Chinese authorities wrestle with the problems posed by Evergrande, Country Garden and latterly Zhonghzi. After a slow start to Q4 there was a modest improvement in retail sales while industrial production remained steady at 4.6%. In November we saw a decent uptick in retail sales to 10.1%, however this was still below expectations despite the numbers including Chinese Singles Day sales, and weak comparatives given that a lot of China still hadn’t come out of lockdown measures in November 2022. Industrial production was better coming in at 6.6% the best performance since February 2022. For December retail sales are expected to slow again with an increase of 8%, although here again we need to be careful given that Chinese authorities relaxed lockdown measures at that start of December 2022 so the comparatives here could well see a sizeable skew. Industrial production is expected to be unchanged at 6.6%, however Q4 GDP is still expected to slow to 0.9%.     

US retail Sales (Dec) – 17/01 – The US consumer has proved to be a more resilient beast over the last 12 months, with only 3 negative months over the last 12 months, the most recent of which was in October with a decline of -0.2%. In November we saw a rebound of 0.3% confounding expectations of a -0.1% fall. The improvement was mainly driven by a rebound in food services and bars, as well as sales of sporting goods, while sales at gas stations slowed by 2.9%. Despite the resilience in spending, consumers do appear to be slowing down compared to what we saw in Q3 which saw very solid spending patterns. Nonetheless another positive number could go a long way to seeing market repricing the likelihood of a Fed rate cut in March which markets continue to see as a realistic possibility.    

UK retail sales (Dec) – 19/01 – The UK consumer saw a big rebound in spending in November after 2-months of weak demand, rising 1.3% comfortably beating forecasts of 0.4%. an improvement in consumer confidence along with sharp falls in the price of petrol appear to have prompted some resilience in consumer demand with Black Friday sales helping to bring forward some early pre-Christmas spending. A sharp reduction in the energy price cap in October may also have helped boost confidence along with lower mortgage rates. The rebound in consumer spending has also raised the hope the UK economy will avoid a technical recession. In the last 2-weeks we’ve also seen several retailers report strong pre-Christmas trading updates which augurs well for a positive December retail sales number, following on from the November rebound.

Ocado Q4 23 – 16/01 – The Ocado share price saw some big swings last year falling to lows of 342p during the summer before surging to peaks of just over 1,000p in July before finishing the year only modestly higher from where it started 2023. During that summer surge there was speculation that Amazon might look at making a bid for the business after one of its largest shareholders Lingotto Investment Management increased its stake in the business to 5%. This speculation proved short-lived and while it has settled its patent dispute with Autostore, attention has once more shifted towards whether the business will ever turn a profit. The focus in recent months has been on its robotics division as it looks to increase automation at its various fulfilment centres around the country. Its joint venture with Marks and Spencer also appears to be seeing an improvement in revenues after a slow start and could well return an annual profit. In November Ocado agreed a deal to sell its robotic technology to Canadian health care provider McKesson Corp.

Deliveroo Q4 23 - 19/01 – The last 12 months have seen the Deliveroo share price start to make progress from the lows this time last year when it was languishing near to 80p. The company is finally making progress in keeping its costs under control as well as improving its revenues. When the company reported in Q3 it was very much a case of steady as she goes with GTV rising 5% to just below £1.7bn, and the company maintaining its full year guidance of full year adjusted EBITDA guidance to £60-£80m. For Q4 revenues are forecast to rise to £534m with an expectation that we could see the business break-even. On revenues the expectation is that the company will see a record £2.04bn, and possibly break even when it comes to annual profits, which could see the share price head towards the 151p share price target that was set by Bank of America when they restarted coverage of the business back in October.       

Goldman Sachs Q4 23 – 16/01 – Up until the last quarter of 2023 it hadn’t been a great year for the Goldman Sachs share price, however a strong rally off the October lows managed to see the shares finish the year on a high, closing at a one year high. A disappointing Q2 trading update saw the bank take a $584m impairment tied to its GreenSky operation while there was also a $485m in respect of real estate write-downs. In seeking to further cast off its foray into retail banking, management finally agreed to sell the business to a private equity group. The banks Q3 numbers reflected this with profits falling to $5.47 a share, a sharp fall from last year’s $8.25c a share. Q3 revenues also declined slipping to $11.82bn, however this was still ahead of expectations. On the plus side there was an improvement in its equities division, which grew revenues by 8% from last year, as did investment banking. FICC revenues slowed modestly by 6% to $3.38bn. The bank set aside $7m in respect of credit losses, with the focus this week expected to be very much on the outlook for 2024. For Q4 expectations are for revenues of $11bn with a modest decline in FICC revenue to $2.6bn, however equities are expected to have seen an improvement in Q4 to $2.26bn. Profits are expected to come in at $4.64 a share taking total profits for 2023 to $23.72 a share. 

Morgan Stanley Q4 23 – 16/01 – A late rally in the last quarter of 2023 saw US bank shares finish the year on a high, with Morgan Stanley shares recovering from a two and a half year low in October to finish close to the peaks in July, and up over 9% on the year. As last set of trading numbers the bank reported Q3 revenues of $13.3bn and profits of $1.38c a share, both of which were slightly ahead of forecasts. Drilling down into the numbers they were some notable misses, with wealth management falling short at $6.4bn, even as FICC and equities trading revenue was better than expected. Equities trading saw revenues come in at $2.51bn, and FICC at $1.95bn. For Q4 equity trading is expected to see revenues of $2.25bn and FICC of $1.5bn with overall revenues expected to see a modest rise to $12.85bn. For the full year revenues are expected to increase to $54.06bn, although higher costs are expected to see profits fall to $5.57 a share. This week’s numbers will also be the last set of numbers for James Gorman who is leaving as CEO to be replaced by Edward “Ted” Pick.