The week ahead: ECB rate meeting, UK wages, CPI, Sainsbury, B&M and Netflix results

1)    UK Unemployment/Wages (Feb) – 15/04 – there’s been a lot of talk in political circles in recent weeks that April will bring about a big boost to millions of pensioners and working people as the minimum wage increases announced last year kick on, along with the increase in pensions. 

Wage growth has seen some above inflation increases in the past few months with the data at the end of last year showing that average weekly earnings increased by 5.9% in the 3-months to December. In the private sector pay growth was higher at 6.2%, and with unemployment still fairly low at 4.4% the Bank of England will be reluctant to signal that they are anything less than committed to hitting their inflation target, despite the weakness of the UK economy. 

The January numbers showed wage growth remained steady at 5.9%, with unemployment also unchanged at 4.4%, although these jobs numbers remain highly suspect due to a large drop in the number of people willing to complete its survey forms. 

The sector that saw the highest increase in annual pay growth was hospitality and retail at 6.3%, the very same sectors that are set to be hit by the big increase in national insurance rates this month. 

If the UK economy continues to struggle as it has over the past 2 quarters it could be in these sectors where we could start to see job losses as consumer spending starts to slow. 

Economic inactivity also remained eye-wateringly high at 21.5%.              

 

2)    UK CPI (Mar) – 16/04 – headline inflation has shown little signs of slowing in the past few months in another blow to the Bank of England as it looks for further opportunities to cut the base rate. The problem the central bank has is that even though they have reduced the cost of borrowing on 3 occasions since August last year, by a total of 75bps these reductions haven’t been reflected in the gilt market. Since October last year headline CPI has risen from 1.7%, rising to 3% in January before slipping to 2.8% in February. While this was welcome, the slowdown in headline inflation masked the fact that core CPI inflation remains well above 2% at 3.5% and services inflation is even higher at 5%. By the Bank of England’s own estimates, it expects headline inflation to move as high as 3.7% this year before sliding back, while some independent economists expect prices to peak even higher at 5%. With the threat of tariffs also expected to exert upward pressure on prices the central bank is likely to find itself in a bind. Markets are struggling to price in the various scenarios that might play out in the next few months, with the near-term risks of higher prices being somewhat offset by concerns that in the long term we could see price deflation. We’re already seeing lower prices in the energy sector, with sharp declines in oil prices, which should provide some relief in the short term.                    

 

3)    ECB rate meeting – 17/04 – with the EU deciding to retaliate against US tariffs, the risk of higher prices remains a clear and present danger to the European economy. We are also starting to see splits on the ECB governing council when it comes to whether further rate cuts are needed at this point. 

As one of the first central banks to start its rate cutting cycle the ECB is much further along when it comes to reductions in its headline rate, 6 rate cuts of 25bps since June last year bringing the headline rate down to 2.65%, well below the US and UK which sits at 4.5%. 

The bigger question for the ECB is whether any further rate cuts can help the euro area escape the low growth trap it finds itself in. The recent changes by the German government to its debt brake has increased optimism about a big fiscal boost, however that could still be some way off. 

At a recent press conference in Frankfurt, ECB President Christine Lagarde indicated that the ECB was becoming less able to guarantee meeting its 2% inflation target in the short term due to recent increases in global uncertainty. The recent decline in energy prices is likely to be welcomed in the short term especially since headline inflation has risen sharply since October last year, although we did see a modest slowdown to 2.3% from 2.5% in March. 

The problem for the ECB in the same way as the Bank of England is that core inflation is proving to be stickier at 2.6%. This would suggest a pause in the upcoming April meeting as policymakers continue to weigh up the trickle-down effects of previous rate cuts on the wider economy.            

 

4)    US retail sales (Mar) - 16/04 – US consumer spending had until January proved to be reasonably resilient, with a -0.6% decline seen at the start of the year prompting some concerns that the US economy was starting to slow.

A lot of the reason for the slowdown in January can be put down to the very cold weather that impacted most of the eastern and central parts of the United States. 

In February we did see a modest rebound of 0.2% which was modestly below market expectations, although on the control group measure which feeds directly into US GDP the numbers were better than expected, rising 1%. 

Nonetheless while the February numbers showed that the US economy remains resilient the consumer confidence numbers appear to tell a different story with sharp slowdowns since the start of the year. 

In March US consumer confidence slowed to 92.9, a sharp fall from the end of last year when it was at 104.7. 

What does this tell us about how US consumers see the US economy? The jobs market continues to hold up well with little sign of a slowdown in the short term, however with all the noise and disruption coming from the Trump administration who could blame US consumers for holding back a little as 2025 gets under way.      

 

5)    B&M European Retail Q4 25 – 15/04 – despite being a discount retailer, and showing a solid improvement in performance in its most recent Q3 trading update, the shares have continued to come under pressure, sliding to their lowest levels since the Covid lockdown 5 years ago last month. 

As a discount retailer the business has performed solidly over the last 12 months with the UK business seeing a 2.8% increase in Q3 revenues to £1.39bn. Year to date revenues rose 3.3% to £3.5bn, with revenue growth in the French business also seeing a decent boost. The Heron Foods business appears to be the main weak spot with a 1.2% decline in revenues year to date to £411m. The retailer said it was on track to open 73 new stores across the group, 45 of which are in the UK. 

The board declared a special dividend of 15p per share paid on 14^th February, yet the shares remain very much unloved having been demoted from the FTSE100 in December. 

In February it was announced that CEO Alex Russo is retiring with the company looking to recruit a replacement, while also announcing a downgrade to expectations for group adjusted EBITDA from between £620m and £650m, to £605m to £625m.      

 

6)    Sainsbury FY25 – 17/04 – when Sainsbury last reported in January it reported total sales growth of 3.7%, with grocery sales of 4.1%. Christmas sales saw an increase of 3.8%. For the full year Sainsbury said they expected to deliver underlying operating profits between £1.01bn and £1.06bn, which represents an increase of 7%, with retail free cash flow of at least £500m. 

The supermarket chain said that the increase in national insurance costs would add £140m to its operating costs in the new financial year and might mean tough choices in the months ahead when it comes to headcount, as well as price rises. 

The shares came under renewed pressure in March, slipping to 2 and a half year lows, along with the rest of the sector after Asda announced it was going to start cutting prices as it looked to claw back the recent losses in its market share. 

This fear that profits could come under further pressure saw the shares slip again when sector peer Tesco warned that profits would be lower in the coming year despite reporting that full year adjusted profits rose 10.6% to £3.1bn. 

On guidance Tesco said they expected group adjusted operating profit for the upcoming fiscal year to be lower, between £2.7bn and £3bn. Sainsbury has already made a start when it comes to reducing its cost base, and reducing headcount, after announcing earlier this year that it was closing its cafes and patisserie counters. 

In an attempt to spread the pain across the business Sainsbury also said it would look at reducing senior management roles by 20% in an attempt to save over £1bn over the next few years.    

 

7)    Deliveroo Q1 25 – 17/04 – to look at the share price you would have been forgiven for thinking that Deliveroo isn’t performing well. Just over a month ago the company reported its first annual profit, and the shares promptly drifted to their lowest levels in a year. Not only did the company report an annual profit of £2.9m, it also managed to generate positive free cash flow of £85.5m, while announcing a £100m share buyback program. GTV saw an increase of 5%, driving revenues 2% higher to £2.07bn. The slide in the share prices appeared to have been driven by disappointment over its guidance for 2025 which saw the company delay its target to deliver an EBITDA margin of more than 4% to mid-2026. While we’ve seen a modest recovery since then the delay in meeting that target shouldn’t overshadow the fact that the expectation is that it should get there eventually. Nonetheless this week’s Q1 update ought to give us an indication of how this part of the UK economy is doing as incomes continue to get squeezed by the rising cost of living.

 

8)    Netflix Q1 25 – 17/04 – despite the big sell-offs seen in the past few weeks in US markets, Netflix shares have held up reasonably well. Although they are well off the highs seen in February seen in the wake of a strong set of Q4 numbers in January the shares are still in the long-term trend that has been in place for several years. The shares managed to rebound off the 200-day SMA earlier this month, slipping back to the levels they were prior to the announcement of the Q4 numbers back in January.

Looking back at those Q4 numbers they were very strong. Q4 revenues came in at $10.25bn a 16% increase, helped by a 15.9% increase in subscribers to 301.63m. Q4 saw an additional 18.9m subscribers join the platform, a record number in a single quarter. Profits also surged rising to $1.87bn or $4.27 a share. There was a modest decline in Q4 operating margin to 22.2% from Q3’s 29.6%, however it was still well above the same quarter last year of 16.9% in what tends to be its weakest quarter anyway, as the cost of new content gets absorbed. 

Total revenue for 2024 came in at $39bn, up from $33.7bn in 2023, with operating margins rising from 20.6% to 26.7%. For 2025 Netflix was bullish, raising its annual revenue expectations to between $43.5bn and $44.5bn, based on January 1 2025 FX rates, while its operating margin for Q1 was raised to 28.2% as price increases continue to filter through. 

Net income is forecast to rise to $2.44bn, and it is here that investors will be looking for any change in tone when it comes to expectations for 2025 as consumers all over the world react to the disruption taking place in global markets. The belated decision to start hedging its FX risk in 2023 is now showing up in its top and bottom lines, a long overdue decision given that 60% of its revenue comes from its overseas markets. 

On a regional basis Netflix saw consistent gains across the board, on subscribers, helping to drive strong gains in paid net additions across the regions.     

 

9)    Goldman Sachs Q1 25 – 14/04 – bank earnings season continues and with JPMorgan setting the bar, attention now shifts to the rest of the sector. Like JPMorgan before it, Goldman Sachs enjoyed a strong finish to 2024, with Q4 revenues coming in at $13.87bn, and profits surging to $11.95 a share, pushing annual revenues up to $53.51bn and profits of $14.28bn. 

The bank reported an almost doubling of Q4 profit to $4.1bn, while costs went down. The gains were primarily driven by higher equities and fixed income trading, both of which were significantly above estimates at $3.45bn and $2.05bn respectively. 

Another strong area was in the area of asset and wealth management which saw revenues there increase by 8% to $4.72bn. Optimism over a surge in M&A and other deals drove gains in the banking sector in the early part of this year. These expectations have taken a huge knock in recent days begging the question as to whether any of the early year optimism will return in the short term. Increased M&A generally requires a stable macro-economic outlook, and that is something that we are lacking at the moment. 

Recent actions by the US administration may well have shattered this early year optimism, not to mention the prospect that recent market volatility may well have imposed big losses across the entire sector. 

This in turn could prompt some profit downgrades in some areas. Q1 profits are expected to come in at $12.33 a share.