The week ahead - US Core PCE, EU CPI, easyJet and Birkenstock results

US core PCE Deflator (Oct) – 30/11 – When the October CPI numbers were released a couple of weeks ago and saw headline CPI slow to 3.2%, and core prices slow from 4.2% to 4.1%, bets on another Fed rate hike in December were pared back sharply. What was particularly noteworthy was a similar slowdown in super core inflation which the Fed pays close attention to and could well translate into a similar slowdown in this week’s core PCE deflator numbers. If we see a similar trend playout in the core PCE deflator numbers that we saw in the headline CPI and PPI numbers, then it will become increasingly difficult for Fed officials to push back on the idea that rate cuts are coming in the middle part of next year. In September PCE core deflator slowed to 3.7% its lowest level in 2 years and this week’s October numbers are expected to slow further to 3.5%. This is likely to be the Fed’s next key challenge in the face of slowing inflation, that is reining in market expectations of rate cuts and reinforcing the higher for longer mantra that has tightened financial conditions this past few months.  

EU flash CPI (Nov) – 30/11 – Having seen EU CPI for October slow sharply from 4.3% to 2.9% in October, traders are rapidly revising their estimates for when the ECB might start to look at cutting rates. While some ECB policymakers have been at pains to point out that they are expecting rates to rise further there is a growing caucus on the governing council who are now urging caution when it comes to raising rates further, urging a wait and see approach. Looking at the direction of travel when it comes to recent inflation prints the hawks can jawbone the prospect of further rate hikes as much as they like, the markets simply aren’t buying it and while policymakers will claim they aren’t thinking about rate cuts as this time, the markets most certainly are, with bets increasing the ECB will be first out of the traps in cutting rates as soon as Q1 next year. EU flash CPI for November is expected to come in at %, with core prices at %  

Manufacturing PMIs (Nov) – 01/12 – These key indicators have continued to look weak, with economic activity in this sector in Germany and France stuck firmly in contraction territory for the last 16 months. Economic activity in Spain and Italy has been slightly better but even here we’ve started to see significant weakness. Last week’s flash manufacturing numbers saw Germany and France economic activity see divergent fortunes, with Germany edging up from 40.8 to 42.3, while France got worse slipping back from 42.8 to 42.6. As for Italy and Spain, October saw a slowdown to 44.9 and 45.1 respectively, in a sign that while manufacturing had been more resilient initially during the summer months, even here we are starting to see the effects that higher rates are having on economic activity.

US Q3 GDP – 26/11 – The first iteration of US Q3 GDP came in well above expectations at 4.9%, the biggest gain since 2021, with personal consumption contributing 4% to that number. Core PCE prices also slid back to 2.4% for Q3 giving the market the sort of goldilocks scenario that has prompted optimism that the Fed may well be done when it comes to further rate increases. The resilience of this number wasn’t a surprise given how strong US retail sales have been over the summer, while low unemployment and resilient wages growth has further pointed to a robust economy. That said Q4 is likely to see a modest slowdown, but so far most of the data for October and November hasn’t seen a marked deterioration. This week’s revision isn’t expected to alter the headline numbers that much with the focus expected to be on the October personal income and spending numbers, both of which were resilient in September at 0.3% and 0.7% respectively.   

UK Mortgage Approvals/Consumer Credit (Oct) – 29/11 – The first half of this year saw a modest improvement in mortgage approvals, after they hit a low of 39.6k back in January. The slowdown towards the end of last year was due to the sharp rise in interest rates which weighed on demand for property as well as house prices. As energy prices have come down, along with lower rates, demand for mortgages picked up again peaking in June as approvals rising to 54.6k. It’s been downhill since then with the sharp rise in rates during the summer months, prompting a sharp fall-off which saw approvals fall to 43.3k in September, and the lowest number this year. We have seen interest rates come down since the summer which might offer some respite to the housing market, however recent housing data would appear to suggest that consumers are holding back when it comes to the purchase of a new house. Net consumer credit has been slightly more resilient coming in at £1.4bn in September, which hasn’t been dissimilar to previous months. Although we are seeing inflationary pressures continuing to subside, wages have been holding up well, although the resilience in these numbers might suggest that consumers are adding to their levels of debt just to get by.        

easyJet FY 23 – 28/11 – When easyJet reported its Q4 update in October the shares slipped back sharply, however the October performance for stock markets more broadly was disappointing which meant that the wider negativity in the markets during the month outweighed the fact that easyJet’s numbers were better than the market reaction suggested they were. This has been reflected by the fact that since dropping to 10-month lows back in October, the shares have seen a modest rebound. On the numbers themselves the airline confirmed a return to profit for the year, saying that headline profit before tax is expected to come in between £440m and £460m. This was slightly below consensus forecasts, and while disappointing is still a vast improvement on last year, although it pales into insignificance when compared to Ryanair which blew away expectations when it reported that it expected to see profits of between €1.85bn to €2.05bn, as well as the paying of a dividend. This is the standard on which easyJet is being judged even as the airline posted a much better performance in H2.  easyJet said it expects to see a record performance in Q4 when it comes to headline profit before tax with estimates of between £650m and £750m, which it said expects to see H2 profits rise to between £850m and £870m. easyJet holidays has continued to add value with an expectation of annual profits before tax of £120m. The airline appears to be adding value across all its key revenue areas, with revenue per seat up 9%, and ancillary yield per passenger up 14%, during Q4, with a load factor at 92%. On guidance for Q1 capacity is 15% up from last year, while the airline announced a big order of 157 new aircraft from Airbus worth $20bn, with an option for 100 more. The airline also said it expects to be able to generate £1bn in profits by 2026. 

Birkenstock Q3 23 – 29/11 – 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?       

Dr Martens PLC H1 24 – 30/11 – Hasn’t performed well so far year to date. The markets stuck the boot in in January after the company issued a profits warning, with the shares slowly drifting lower over the course of the rest of this year, falling to new record lows earlier this month. The bootmaker blamed supply chain issues in its US operation which it said reduce wholesale revenues by £15m-£25m, and EBITDA by around £20m. For the full year the company says it expects to see EBITDA in the region of between £250m and £260m below estimates of £285m. In June the company reported full year revenues of £1bn, however net profits fell short of the £140m estimate, coming in at £128.9m. This was due to a £3.9m impairment charge, as well as a £10.7m hit in relation to FX effects on euro bank debt    Looking forward their sole concern now is resolving supply chains issues and reversing the decline in profitability. H1 revenues are forecast to come in at £414m, with a stronger performance expected in H2. H1 adjusted EBITDA is expected to come in at £62.8m.  

Foot Locker Q3 24 – 29/11 – Back in August Foot Locker shares plunged to a 10-year low, just below $15, after sliding to a loss in Q2 of $0.05c a share and falling short on revenues at $1.86bn. Inventory levels came in higher than expected, with signs of softening demand in July. The retailer also slashed its full profit outlook from between $2 and $2.25 to $1.30 and $1.50, as well as pausing the dividend. Since then, the shares have rebounded, helped by stronger numbers from the likes of sector peers like Nike and JD Sports, who own the Finish Line brand in the US. For Q3 revenues are expected to come in at $1.97bn while same store sales are expected to decline by 9.7%, while profits are forecast to plunge from $1.27c a share to $0.26c a share.

Snowflake Q3 24 – 29/11 – The last few months have seen Snowflake share price broadly trade sideways, even accounting for the fact that the business has slowly been improving quarterly revenues. Much of the underperformance appears to have come about because in Q1 the company nudged down its full year outlook for revenues to $2.6bn. In Q2 revenues came in at $674m which was still above forecasts, while profits came in at $0.22c a share. For Q3 the company guided for revenue of between $670m and $675m, however this is likely to come in higher at $713m due to higher demand for cloud-based solutions. Profits are expected to come in at 16c a share.