The week ahead – UK CPI, Wages, US CPI, Vodafone, Burberry and Walmart earnings

UK Wages (Sep) /UK CPI (Oct) – 14 and 15/11 – last week’s Q3 GDP numbers showed how much pressure the UK economy is under despite the continued slowdown in headline inflation we’ve seen over the past few months. Despite this slowdown headline inflation remains well above its peers in Europe and the US mainly due to the impact of the energy price cap which has kept prices in this area artificially high. One major plus point has been wages growth which has taken some of the edge off, but which now looks as if it might have peaked. The last 3-months has seen earnings excluding bonuses remain steady at record highs of 7.8%, although including bonuses we’re still above 8%. At the most recent Bank of England meeting interest rates were kept unchanged and a further sharp slowdown in headline inflation in October could reinforce the idea that the Bank of England is done when it comes to further rate hikes. September CPI came in higher than expected at 6.7%, with most of the increase being driven by higher petrol prices, which offset a modest fall in food prices. Core prices eased slightly to 6.1% however services-based inflation rose from 6.8% year on year to 6.9%, and this is the area where the BOE has some concerns. That said this week’s October inflation numbers should see another big slowdown given that the energy price component is expected to fall sharply from the same period last year, when the price cap jumped sharply. With energy prices now much lower, we can expect to see another sharp fall in this component which in turn should see a commensurate fall in the headline rate with expectations for a sharp slowdown to 4.8%, from 6.7%. Core CPI is expected to slow to 5.7%, from 6.1%.

US CPI (Oct) – 14/11 – having found a short-term base in June at 3%, US headline inflation has spent the last 3 months edging higher, although core CPI has still been slowing at a steady rate. Core prices slowed to 4.1% from 4.3% while there was a modest upside surprise in the headline number caused mainly by higher rent and fuel prices, and which did raise concerns that the Fed may well go with another rate hike between now and the end of the year. These concerns have eased in recent days after a weaker than expected October jobs report, while retail sales in the US have also slowed. If we see further evidence of core prices slowing in October, then it could add fuel to the idea that the Fed might forego a pre-Christmas rate hike and leave policy as is.  US CPI is expected to slow from 3.7% to 3.3%, with core prices expected to come in unchanged at 4.1%.      

China Retail Sales (Oct) – 16/11 – last month China reported that its economy expanded by 1.3%, helped by a more resilient consumer, after retail sales rose by 5.5% in September, while industrial production rose by 4.5%. Industrial production has been steadily consistent over the third quarter; however, consumer spending has been much more constrained since the post Covid lockdown spike we saw at the start of the year. One of the more consistent narratives of the last few months has been various luxury as well as other retailers who have reported a sharp slowdown in Chinese consumer spending, a trend that doesn’t appear to be being reflected in the official Chinese data. The Q3 months have seen retail sales slow sharply, with gains of 2.5% and 4.6% in July and August, rounded off by 5.5% in September. While today’s numbers do suggest a modest improvement in Q3 the extent of the rebound does raise questions given the weakness of recent trade data, as well as PMIs. For October retail sales are expected to show an increase of 7%, with industrial production remaining steady at 7%  

US Retail Sales (Oct) – 15/11 – the US consumer has been remarkably resilient for most of this year. with only 2 negative months, in February and March. Since then, consumer spending has been steady, helped by a resilient labour market and inflation that has slowed much faster than elsewhere in the world. Q3 was particularly strong and consistent with gains of 0.5%, 0.8% and 0.7% from July to September. As we head into Q4 this week’s October numbers could well see a slowdown in the pace of spending as consumers pare back ahead of the holiday seasons of Thanksgiving as well as the Christmas period. In comments made recently the CEO of Target, one of the US’s largest retailers said that consumers were starting to slow the pace of their spending. Expectations are for a decline of -0.5%.

US Government shutdown deadline – 17/11 – back on October 1st US lawmakers agreed a 45-day extension that averted a government shutdown, but which ultimately cost House Speaker Kevin McCarthy his job. There are huge differences of opinion on how much money the US is spending in supporting Ukraine in its battle against Russia, while recent events in the Middle East have complicated matters further. With new House Speaker Mike Johnson now in place markets are likely to get increasingly anxious the nearer to the date we get with any new deal likely to be of the variety that saw an extension at the beginning of October. Republicans want to see spending cuts due to concerns over the sharp rises in government debt as well as the rising cost of that debt. Any new deal will need to convince the markets that US debt isn’t on an unsustainable upward path.   

Birkenstock Q3 23 – 14/11 – as IPOs go Birkenstock hasn’t had a great time of it, trading consistently below its $46 listing price, the shares fell 12% on the opening day, trading down to $36 although we have since rebounded from those lows. They say timing is everything when it comes to IPO’s and we can safely say Birkenstocks timing was off, given the sharp sell-off in October. One thing in its favour is that the business is profitable, with the business seeing total revenue in 2022 of $1.35bn, with net income of $202.8m. When the accounts were released prior to the IPO the revenues for the 9-months to June were estimated to be $1.2bn, and on course to beat last year’s total revenue number. The money raised by the IPO as allowed the company to repay $550m in loans, reducing its total debt to €1.31bn. Will this week’s Q3 numbers give the stock a decent leg up?        

Vodafone H1 24 –14/11 – the Vodafone share price has been in a slow decline for the last 5 years, falling to a 25-year low, below 70p in the summer of this year. Since those lows, we’ve seen a slow recovery as new CEO Margherita Della Valle looks to try and turn the ailing business around. Almost all of its European businesses have proved to be a drain on the balance sheet, which makes the decision last year to reject an €11bn bid last year by Iliad for its underperforming Italian business. That is now ancient history with the new CEO looking to focus more on the UK business, after announcing last month a €5bn deal to offload its Spanish business to Zegona for €5bn. The increased focus on the UK and German businesses has seen the company agree a deal with Hutchison Holdings take over the running of its UK Three network, while also agreeing an 18-year roaming deal with 1&1 Mobilfunk in Germany. In Q1 the company reported revenues of €10.74bn, a decline of 4.8%, with declines in all its major markets except the UK, which saw organic services revenues rise 5.7% to £1.7bn. Germany, Italy and Spain all saw revenues decline by 1.3%, 1.6% and 3% respectively. Its smaller South Africa market managed to see a gains of 9%. For H1 revenues are expected to come in at €21.6bn with organic services of €18.4bn, a 5% decline from the same period last year, with Spain expected to see the biggest decline of -3.4%. The UK business is forecast to see a 5.78% rise in organic growth to $2.8bn.

Burberry H1 24 – 16/11 – with the share price hitting record highs back in April the outlook was looking good for Burberry, with the shares getting a lift on decent returns from the likes of LVMH, Hermes and the wider luxury sector as Asia demand surged in the wake of the relaxation of lockdown measures in China at the end of last year. Those heady highs seem a long way away now given the sharp declines seen in the luxury sector in the months since then, on the back of a sharp slowdown in demand across all of its markets, and China in particular, with the shares slipping to one-year lows earlier this month. When Burberry reported in Q1 the retailer reported an 18% rise in Q1 sales, pushing quarterly revenue up to £589m, which was below consensus forecasts. Mainland China saw an increase of 46%, while south Asia Pacific rose 39% and Japan 44%. A poor performance from its US markets saw an 8% decline and it was this that appeared to disappoint along with the fact that various other luxury retailers have reported sharp slowdowns in luxury spending that appears to have dragged the sector lower. Burberry also left full year guidance unchanged in Q1 saying that they still expected to see low double-digit revenue growth for full year 2024.   

Walmart Q3 24 – 16/11 – has been a significant stand out when it comes to the US retail sector, the shares have made strong gains this year with the shares hitting record highs earlier this month. The US consumer has held up well this year with Q3 seeing personal consumption contributing 4% to US GDP growth. There is a danger however that could be as good as it gets as we head into the final quarter of 2023 and Q4. When Walmart reported in August they crushed expectations, growing revenues, and profits. Q2 revenues rose 5.7% to $161.63bn, while profits came in at $1.84c a share. Total same-store sales rose by 6.3%, with the retailer raising its forecasts for the full year. Walmart said it expected Q3 profits to come in between $1.45 to $1.50c, while raising its full year profit forecast to between $6.36 to $6.46 from between $6.10 and $6.20 a share. Full year net sales were raised to between 4% and 4.5%.   

Target Q3 24 – 15/11 – while Walmart has been sweeping all before it, Target has gone in the other direction the shares slipping towards their 2020 lows, the retailer has been struggling with higher costs, and several cuts to their guidance, with management warning of “shrinkage” impacting its margins, given that several of their stores are in less salubrious geographic locations. Q2 revenues slowed to $24.38bn, falling short of expectations, although profits saw a solid increase to $1.80 a share, comfortably beating the top end of forecasts of $1.70 a share. Target also downgraded its full year profits forecast from $7.75 to $8.75 to between $7 and $8 a share. The retailer also projected Q3 profits of between $1.20 and $1.60 a share, although it is noteworthy that there has been an improvement in operating margins, which would appear to account for the better profit numbers and could prompt a surprise to the upside in this week’s numbers. Q3 revenues are expected to come in at $25.1bn.

Home Depot - Q3 24 – 14/11 – in the leadup to Home Depot’s Q2 numbers the share hit a 6-month high, however those gains quickly disappeared with the shares sliding to their lowest levels this year at the end of October. The sharp falls in the aftermath of the Q2 numbers were somewhat surprising given that the results came in ahead of forecasts. Back in May the company cut its full year forecasts sending the shares sharply lower. Q2 revenues saw a modest decline from last year to $42.9bn, as same store sales growth declined by -2%. Profits also beat consensus coming in at $4.65c a share. The outlook for the second half of the year is more uncertain with the company reaffirming its guidance from May for same store sales to decline between 2% and 5%. The retailer also outlined a new $15bn share buyback, however this wasn’t enough to stop the shares from sliding back, with the uncertainty offered for the second half of the year perhaps the main reason for the share price weakness seen since then. Q3 revenues are expected to come in at $37.87bn, while same-store sales are expected to decline by 3%. Profits are forecast to slow to $3.82c a share.