US CPI, Fed Minutes, UK GDP, Tesco full year results and US bank earnings – The week ahead

1)  US CPI (Mar) – 10/04 – Fears about the US economy grew at the end of last week after personal spending for February slowed by -0.2%, while PCE inflation came in higher than expected. The PCE inflation number is particularly important given that it is the Federal Reserve’s preferred measure when assessing price pressures in the US economy. On a month-on-month basis it rose by 0.4%, and by 2.8% on the year, well above the Feds 2% target. It is precisely these concerns about sticky inflation that stayed the FOMC’s hand at the recent meeting when it came to cutting rates further. This was reflected in the changes made to the inflation and growth forecasts, both in the wrong direction for those who are looking for an imminent rate cut. The inflation forecast was nudged upwards while the growth projections were revised down. It was especially notable that Fed chair Jay Powell wheeled out “transitory” when it came to his expectations on tariffs, however there is little doubt that President Trump’s narrative around the economy as well as tariffs is hurting some parts of the US economy. Consumer confidence in some areas has been in freefall, particularly Democrat areas if the Michigan confidence numbers are any indicator. In February US CPI did slow modestly, falling from 3% to 2.8%, while core prices came in at 3.1%, still uncomfortably high but still the lowest level since April 2021. The big concern is that food prices may well have bottomed out meaning that the easy wins as far as slowing inflation may be in the rear-view mirror.              

2)  UK GDP (Feb) – 11/04 – After an unexpected pickup in December which helped the UK economy avoid a quarterly contraction at the end of 2024, the economy slipped back in January by -0.1%, as the slowdown in the economy seen since the new government came to power last summer, showed little signs of abating. With the Chancellor already sowing the ground for the prospect of further tax hikes in the Autumn there is little sign that the fortunes of the economy are likely to improve. With the government insisting on doing the fiscal equivalent of shooting itself in the face with its recent budget measures, 2025 is shaping up to be a difficult one for UK PLC, with the advent of the new tax year likely to make things worse. With the US also set on a collision course with the rest of the world over tariffs the outlook doesn’t look good, however that also raises the prospect that a lot of the bad news might be priced in. With growth downgrades coming thick and fast the UK is probably already in stagflation, and while most forecasters appear optimistic of an improvement after this year, even here optimism is in short supply, with unemployment set to rise in the coming months.             

3)  Fed minutes – 09/04 – At its most recent meeting the Federal Reserve kept rates unchanged to the surprise of almost no-one, although President Trump did belatedly criticise the central bank for not cutting rates the day after the meeting. The latest economic projections announced by the FOMC reinforced the case for a steady as she goes approach, upgrading their inflation forecasts to 2.8% from 2.5%, while downgrading their expectations for growth, from 2.1% to 1.7%. A lot of this was down to concerns over tariffs as well as any countermeasures announced by other countries in response to the US government's more belligerent approach. Headline CPI is starting to slow after rising steadily since October, however there is a fear that any further slowdown may well be supported at higher levels. On unemployment the Fed appeared more optimistic merely nudging its end of year target higher to 4.4% from 4.3%, while acknowledging that the “uncertainty around the economic outlook has increased”. Powell said the higher inflation forecast was in part driven by expectations of higher prices due to tariffs, and urged patience when it came to assessing the wider effects. This week’s minutes should determine whether this was a consensus view or whether there was a wider split on this.        

4)  Tesco FY 25 - 10/04 – When Tesco along with a host of other food retailers reported just days into 2025, there was some optimism that the UK consumer wasn’t completely dead and buried. In their post-Christmas trading update the UK’s largest food retailer reported 5% sales growth for the 12-week period to 29th December, a number that was close to this morning’s Q3 announcement which saw the UK’s number 1 supermarket post UK Christmas sales of 4.1% helping to achieve an increase in UK market share to its highest level since 2016, driven primarily by its UK Clubcard scheme. Management kept their full year outlook unchanged with full year retail adjusted operating profit of £2.9bn and retail free cash flow expected to remain between £1.4bn and £1.8bn. In February the shares rose to their highest levels in a decade, before seeing a sharp fall in March, along with the rest of the sector after Asda management launched a big campaign to claw back its market share by embarking on a major price cutting spree on major items of between 5-10%. This appears to have prompted concerns about a price war as well as negative effects on margins and future returns. We already know that costs are rising across the sector, with Tesco’s national insurance bill expected to rise by an extra £250m per year over the next four years, assuming no further changes to NI rates. Management’s view on the outlook is likely to be key to how the share price reacts hereon in.     

5)  JP Morgan Chase Q1 25 – 11/04 – As the new financial year gets under way for US banks, we’ve seen the entire sector slip back from the peaks that we saw in February. In the wake of JPMorgan’s Q4 results the shares pushed up to a record high above $280 in February, after the bank posted record annual net income of $54bn. Since then, we’ve seen a sharp drop with the shares slipping back towards the 200-day MA. The numbers for Q4 were another record set of results with a 50% increase in profits to $14bn on a 10% increase in revenues of $43.74bn. The increase in profits was helped by a 7% decline in non-interest expenses, although this was mainly due to higher costs incurred by way of the $2.9bn set aside as a result of regional bank failures and its takeover of First Republic which went into FDIC receivership. At the time of those results in January CEO Jamie Dimon said that the US economy was still resilient although susceptible to inflationary pressures and a deterioration in geopolitical conditions. On the outlook JPMorgan said they expect NII for 2025 to rise to $90bn, based on at least 1 interest rate cut in 2025. On the impact of the LA fires, JPMorgan said they don’t expect much of a financial impact from it. Profits are expected to come in at $4.57 a share.  

6)  Wells Fargo Q1 25 – 11/04 – Wells Fargo showed a similar pop in the aftermath of their Q4 numbers back in January before peaking at a new record high above $81 before slipping back. Another key bellwether of the US domestic economy Wells Fargo is another big US lender whose fortunes hinge on the health of the US consumer and credit market. Q4 net income rose 47% to $5.1bn on revenues of $20.38bn, which was slightly down on last year. On guidance for 2025 the bank was bullish saying it expects net interest income to be 1% to 3% higher than 2024’s $47.7bn. For Q1 revenue estimates are for an improvement to in the region of $20.78bn and profits of $1.23 a share.