The week ahead: UK wages and Q3 GDP, Vodafone, Burberry and AstraZeneca results

UK Wages/Unemployment (Sep) – 12/11 – Having seen the Bank of England cut rates by 25bps in both August, and again this week, to 4.75%, it would appear that there is an expectation that inflationary pressures are likely to abate further in the coming months. Having seen the levels of wage inflation subside since the start of the year from 6.5% to 3.8% in the 3 months to August this doesn’t come across as particularly unreasonable with headline inflation now back at target. There is a danger however this might be as good as it gets given the recent decision by the new government to grant inflation-busting pay deals to a raft of public sector workers with no accompanying productivity improvements. These decisions are likely to make the Bank of England’s task when it comes to reducing rates quickly that much more difficult, even with headline inflation now below the central bank's 2% target, a fact that was noted by them upgrading their inflation forecast by 50bps. This is also because core inflation is still much higher at 3.2% while service sector inflation is even higher at 3.9%. The Bank of England’s actions in raising this forecast are an acknowledgement that the recent budget is expected to have a significant impact when it comes to how companies mitigate the various tax changes to national insurance when it comes to preserving their profit margins. This could either come in the form of higher prices or more worryingly we could see job losses, as automation takes over. We’ve already heard from the likes of the big UK retailers Sainsbury and Marks and Spencer this week that the recent budget changes will add significantly to their staff costs. Given how squeezed margins in the food sector already are this could accelerate the rollout of self-service checkouts. Having seen unemployment fall from a 3 year high of 4.4% back in April to 4% for the 3 months to August, this could well prompt those numbers to edge back up in the months ahead. It would appear that in seeking to squeeze more money out of the cash cow that this government thinks UK business is, they haven’t fully understood the concept of cause and effect.  

UK Q3 GDP – 14/11 – Having got off to a strong start to the year the UK economy is expected to slow in the second half of this year. In Q1 we saw the economy achieve growth of 0.6%, before slowing modestly to 0.5% in Q2, making it one of the best-performing G7 economies during H1 of 2024, although this does need to be set in the context of a weak end to 2023. The election of the new government in July could well see the economy slow due to a combination of the civil unrest seen during that month along with the self-inflicted pessimism of the new government on blaming the previous Conservative administration for leaving a supposed £22bn black hole in the public finances. This pessimism, along with speculation of what was going to be in the first budget of the new Labour administration caused an abrupt decline in consumer confidence in a politically motivated self-inflicted wound. This uncertainty was reflected mostly in July in consumer spending as retail sales for July slumped by 1.2%, although we did see a modest rebound in August and September of 0.5% and 1% respectively. Nonetheless the UK economy is expected to slow sharply in Q3 to 0.2%.

US CPI (Oct) – 13/11 – Having seen the Federal Reserve cut rates again at their November meeting, cutting by another 25bps, building on the 50bps cut in September it is clear that the US economy is holding up reasonably well. Inflation is back close to target, although unemployment is higher than it was a year ago at 4.1%, while labour force participation has remained stubbornly fixed at 62.7%, still well below pre-covid levels of 63.4%. US CPI is expected to remain steady at 2.4%, which in the wake of the latest rate cut from the Fed will be good news for Fed chair Jay Powell as they look to navigate the choppy waters of a new Trump presidency.  

US Retail Sales (Oct) – 15/11 – Always a decent bellwether of US disposable income although as with non-farm payrolls last week we could see a significant Hurricane impact which may impact the numbers. The last time we saw a negative number was back in May, however recent consumer confidence numbers have shown a sharp improvement in recent weeks, which suggests that any hurricane impact could be negligible.         

Vodafone H1 25 – 12/11 – With the share price languishing close to its lowest levels since 1997 earlier this year Vodafone has endured a torrid time of late. The rot set in soon after it sold its stake in US based Verizon back in 2014, which since then has seen the share price crater. Management have also made a series of questionable decisions as they look to turn the business around. Having turned down several offers over the years for its Italian and Spanish businesses CEO Margherita Della Vale finally agreed a €5bn deal to sell its Spanish business to Zegona which was completed in May. At the start of the year there was also renewed chatter about its Italian business with French telecoms giant Iliad set to return with a new bid after an €11bn bid was rejected in 2022. This was once again rejected in a familiar sign of déjà vu. Nonetheless recent chatter suggests that Vodafone may well be forced to dispose of some of these assets as a consequence of its recent €8bn tie-up with Swisscom, as a review by Italian regulators into the merger concludes. There has been some good news for Vodafone this year, signing a 10-year deal with Microsoft to integrate generative AI into its services to its 300m customers as it looks to focus on its core UK and Germany businesses, and the rollout of its 5G services as it looks to take on EE and O2.  In other news the CMA does appear minded to greenlight the merger between Vodafone and Three as long as various conditions are met with respect to pricing and competition. The 7th December has been set as a deadline by the CMA. Shareholders will be hoping for good news in the hope that we can see the shares move back above 100p

AstraZeneca Q3 24 – 12/11 – One of the largest companies in the FTSE100 AstraZeneca has seen its share price take a pause after slipping from record highs back in August. Over the last few years AstraZeneca has been on an acquisition spree that has seen it secure access to various new treatments paying $1bn almost a year ago to acquire US based Icosavax a biopharmaceutical company that specialises in the development of vaccines for severe respiratory infections. Its biggest deal however was of Alexion in 2021 for $39bn which gave it access to expertise in rare diseases, hematology, neurology, cardiology and metabolic disorders expertise. The recent decline in the share price appears to be down to some natural profit-taking, along with disappointment over drug trial results for its lung cancer drug Dato-DXD. It’s also under regulatory scrutiny in China as part of an anti-corruption crackdown by Chinese authorities, after its top executive in the region was detained on allegations over the illegal importation and sale of cancer drug Imjudo. Nonetheless its H1 guidance was positive with H1 revenues up by 18% when the company reported earlier this year.   

Burberry H1 25 – 14/11 – Having dropped out of the FTSE100 in September, Burberry shares have had a year to forget thus far, sinking to their lowest levels since December 2009, although we have seen a modest rebound from those September lows since then. While a slowdown in the luxury market hasn’t helped its fortunes, the company’s fortunes haven’t been helped by a management strategy that has seen numerous CEOs come and go. The latest incumbent Joshua Schulman, whose CV includes Michael Kors and Coach was appointed in July and is expected to give a strategy update as the retailer looks to turn around a trend of falling sales in all its markets, and a backdrop of takeover reports with Moncler said to be circling. The retailer is not alone in seeing falling sales, with the likes of Kering issuing weak forecasts due to weak China demand, as well as across Asia, with LVMH also struggling.

Disney Q4 24 – 14/11 – It’s been a choppy few months for the Disney share price. Having slipped to 9-year lows just over a year ago we saw a modest rebound in the second quarter of this year with a move to the highest levels since August 2022. The progress since then however has been less than stellar, with a continued decline in streaming subscriptions as the business there continues to struggle against market leader Netflix which currently has over 260m subscribers. Disney still remains in 3rd place, with 150m global subscribers, behind Amazon Prime, though this is largely due to its presence in India and its HotStar service. The business had until recently been struggling to add new subscribers from the peak of 164.2m in Q4 of 2022, due to a decision to sharply increase prices in an attempt to help cut losses in this area as returning CEO Bob Iger looks to transform the business model. At its most recent earnings update in Q3 Disney reported a modest increase in subscriber numbers to 153.8m, while managing to return a profit in this area for the first time, helped by the success of films like Inside Out 2, although revenue was down slightly from the same quarter last year. Total Q3 revenue came in at $23.2bn while profits increased 35% to $1.43c a share. Parks revenue proved to be a little disappointing, although attendance was up, it appears that higher costs are proving to be a drag. This will be an area of particular significance in the current quarter due to the impact of Hurricanes Milton and Helene which caused the closure of its theme parks last month. Disney said it expects to see a modest increase in subscriber numbers in Q4 with profitability similar to Q3. With the share price languishing back below $100, investors will be hoping for a rosier outlook for fiscal year 2025 as 2024 comes to a close.