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- Bank of England meeting – 04/08 – having seen the Federal Reserve hike rates by 75bps last week, the pressure is on the Bank of England to at least follow with a bumper rate hike of its own. Since the Bank of England was given its independence the Monetary Policy Committee has never raised rates by more than 25bps, while they’ve never been slow to cut them by much more than 25bps increments. This appears to speak to the conservative nature of the central banks mindset, and thus makes it difficult to move out of that narrow way of thinking. With inflation now at 9.4% and at the Bank of England’s own admission set to go as high as 11% the central bank is running out of excuses not to hike in a more aggressive fashion. With industrial action now part of the background noise, wage growth is likely to remain well underpinned over the coming months. At its June meeting the MPC once again issued a baffling statement of intent over its response to inflationary pressure. They said that they would act “forcefully” on inflation if necessary, following it up by saying they expect inflation to peak at an eye watering 11% by year end, an upgrade from its previous 10%, thus begging the question as to what level of inflation would justify a bigger hike? Sadly, this sort of mixed messaging isn’t a new thing from the Bank of England, his predecessor Mark Carney was famously named “the unreliable boyfriend” however it has got even worse under the stewardship of Andrew Bailey. While the central bank’s flakiness is nothing new to those who have been following its communications in the City of London, it has now attracted the ire of senior politicians. While this isn’t a particularly welcome development, its not altogether surprising, given recent events. There is no question the Bank of England, as do all other central banks, have a thankless task in these difficult times, however to some extent they are authors of their own misfortune, with a complete inability to admit their mistakes. This continues to happen now, with decisions being taken with a very narrow focus. If the Bank of England wants to prevent its mandate being questioned further it could start by doing its job, and stop lecturing the rest of us on whether to ask for a wage rise. This week the Bank of England will also be coming out with a new set of economic projections, and while a 25bps rate rise is the least we can expect, there’s also a good chance the Bank of England will make history and move by 50bps.
- US non-farm payrolls (Jul) – 05/08 – the June payrolls reports posed more questions than answers when it was released a month ago, even though it was the weakest number this year at 372k. It was still much higher than expected with the unemployment rate steady at 3.6%. Wages growth remained steady at 5.1%, while the May numbers were revised up to 5.3%, however the fall in the participation rate to 62.2% was puzzling. With wages rising at a slower rate than inflation, and vacancies at record levels this ought to be going the other way but isn’t. With the US labour market still looking solid we are now starting to see evidence of weakness in the services sector, while weekly jobless claims have been rising steadily for three months now, and are back above 250k, having hit a 50 year low of 167k back in April. The rise in jobless claims appears to be the first sign the US labour market is showing signs of weakness even if this isn’t being reflected in the actual numbers. July payrolls is expected to see 250k jobs added, which coincidentally was the forecast for June which was beaten quite comfortably. The headline numbers are of lesser importance than the wages numbers which are expected to remain steady at or around 5%.
- Global Services PMIs (Jul) – 03/08 – the most recent flash PMI numbers for Europe and the US showed a sharp drop-in economic activity in July raising concerns that the increase in energy, as well as food prices is starting to act as a brake on consumption. In Germany, as well as the US we saw sharp drops into contraction territory, although France managed to stand out with a slightly better performance, although this could be because the French government is insulating the French consumer from the worst of the energy price spike. The UK is looking slightly more resilient however even here the economy is facing challenges as orders start to show signs of slowing.
- RBA rate meeting – 02/08 – having hiked rates by 50bps for two meetings in a row, the RBA is expected to do another 50bps this week as it looks to play catchup having been woefully behind the curve earlier this year. The RBA board went on to say that they expected to take further steps in the process of normalising monetary policy in the coming months. With rates currently at 1.35% the RBA remains well behind the RBNZ who realised very early on that inflation was starting to become increasingly embedded across the world, and where the headline rate is currently at 2.5%. RBA Governor Philip Lowe expressed confidence that the Australian economy could withstand higher rates, despite concern over the pressure it would put on mortgage rates. Unemployment is currently at 50-year lows of 3.9% while vacancies are at record highs. With Q2 CPI rising from 5.1% to 6.1% the RBA will find it difficult to justify not doing at least 50bps this week, at a time when the strength of the US dollar is pushing an inflation wave its way.
- BP H1 – 02/08 – since BP reported its Q1 numbers back in May, the shares have traded sideways, although they did touch 2-year highs back in June, at around the same time that we saw a short-term peak in oil prices. Since then, the oil and gas sector has had to deal with the imposition of a windfall tax by the UK government due to the rise in oil and gas prices delivering a dividend in the form of higher-than-expected profits. The unexpected bonus of higher profits has been a significant benefit to BP, which has undergone significant challenges over the past 12 years, after the events in the Gulf of Mexico. Its exposure to Russia saw it write down the value of its Rosneft stake in Q1 by $29bn, pushing the company into a loss for the quarter of $20bn. Putting to one side the effect of the Q1 write down the underlying BP business performed well as underlying profits rose from $2.63bn a year ago to $6.25bn. Adjusted oil and gas production and operations profit before tax and interest beat expectations of $4.5bn, coming in at $4.68bn. Despite the better-than-expected return BP said it is sticking to its capex target of $14bn to $15bn for this year, with $5bn of that a year going into low carbon energy. This number suggests that renewables still only make up around a third of its total capex, although it says it expects energy transition spending to increase to around 40% by 2025. The imposition of a targeted energy profits levy of 25% will be on top of the 40% headline rate the main oil and gas companies already pay on their UK profits. In the wake of the Chancellor’s announcement BP said it would be reviewing its UK investment plans in the North Sea due to the ongoing nature of the levy, as well as its plans to invest £18bn into the UK economy by 2030. This threat appears to have receded with the clarification on the 2025 sunset clause, after BP Head of UK Louise Kingham said that with the additional clarity on the end of the levy there shouldn’t be an impact on BP’s immediate plans.
- HSBC H1 22 – 01/08 – HSBC has been one of the better performers share price wise year to date in the banking sector, with the shares up over 15% year to date, outperforming its 3 major UK peers. This outperformance has been all the more surprising given concern that the performance of the Chinese economy, and its exposure to it, might impact performance during Q1. The bank reported profit after tax of $3.4bn, a reduction of $1.1bn on the same quarter last year, primarily due to an increase in credit impairment charges of $600m, as a result of potential negative impacts from the Russia, Ukraine war. The Asia business and the UK business contributed the bulk of the banks’ profits before tax, with Asia adding $2.8bn and the UK $1.2bn. Lending demand remained decent during Q1, however the bank warned that rising inflationary pressure, as well the prospect of further impairment provisions may well present risks to the outlook. The bank also warned that the impact of the Russia, Ukraine war and a weaker outlook in its China markets would mean that further stock buybacks were unlikely for now. As we look towards this week’s H1 numbers the key focus is likely to be on further impairment provisions, its margins, and whether management feel like answering questions on calls from Ping An Insurance Group to explore strategic options in the form of spinning off its Asia business to unlock shareholder value. These calls gained traction after HSBC was forced to suspend its dividend in 2020 due to the pandemic. While management have pushed back on these calls, the decision to separate the two business might become more compelling after the bank took the controversial step to allow the formation of a Chinese Communist Party committee in its investment banking subsidiary inside China.
- Rolls-Royce H1 22 – 04/08 – Rolls-Royce shares hit an 18-month low in the leadup to its Q1 numbers back in May, but have performed much better since then, albeit in a fairly confined range. The various problems with the resumption of civilian air travel have meant that the rebound in revenues that had been expected in 2022 has been slower to materialise than expected. Nonetheless long-term flying hours in Q1 were 42% higher than the same period last year, although that’s quite a low bar. The company announced a deal with Qantas for 12 Trent XWB-97 engines to power 12 A350’s, along with a service agreement for said engines. The sale of ITP Aero for £2bn is expected to complete soon with the proceeds expected to pay down its debt. The company appears to be making significant strides in its power systems business. The small nuclear reactor project which was announced last year following investment from private sources and the government has the potential to be a huge revenue earner, despite significant upfront costs. Rolls-Royce has shortlisted six potential sites for a factory to build the said reactors, while the Russian invasion of Ukraine has given a lift to its defence business. In Q1 Rolls-Royce said trading was in line with expectations, keeping its full year guidance of low to mid-single digit revenue growth, unchanged, along with maintaining its operation margins. The company says it expects to be free cash flow positive towards the second half of the year. Last week the company announced the appointment of Tufan Erginbilgic as new CEO to replace Warren East when he leaves at the end of the year.
- Uber Q2 22 – 02/08 – despite concerns over a rise in costs due to having to pay their drivers more money, Uber posted a decent set of Q1 numbers with revenues coming in at $6.85bn, well above expectations, with gross bookings valued at $26.45bn. Net losses came in at $5.9bn largely related to unrealised losses from its stakes in Grab, Aurora and Didi. For Q2 the company sees a big jump in gross bookings to between $28.5bn and $29.5bn, largely due to outperformance in its rapidly expanding groceries and deliveries business. Losses are expected to come in at $0.25c a share.
- Airbnb Q2 22 – 02/08 – had a decent start to the year, reporting Q1 revenues that beat expectations, coming in at $1.51bn, while also upgrading their outlook for Q2, to between $2.03bn and $2.13bn, on hopes that we the summer of 2022 will see a return to normal after the disruptions of the last two years. This improvement doesn’t appear to have impressed shareholders with the shares down from those May levels, and to the lowest levels since the IPO back in December 2020. The company narrowed its net loss to $19m from $1.2bn a year ago. Bookings in Q1 exceeded pre-pandemic levels for the first time ever, coming in at 102.1m, and this should improve further as we look to this week’s Q2 numbers, as more people look to get away for a summer break, having been had their movements limited for almost two years. With that in mind the company could well post its first ever quarterly profit with forecast of $0.52c a share.
- Moderna Q2 22 – 03/08 – Moderna posted an impressive set of numbers in Q1, revenues coming in at $6.07bn, well above expectations of $4.71bn, while profits came in at $8.58c a share. Covid-19 revenue was $5.39bn, which also came in ahead of consensus. The company maintained its full year guidance of $21bn in vaccine sales, although CFO David Meline did suggest some level of uncertainty over H2 sales, as the company looks to adapt the vaccine to the changing variants of the virus. During the quarter it was reported that Moderna had agreed a £1bn deal with the UK government. Profits are expected to come in at $4.54c a share.
- Robinhood Markets Q2 22 – 03/08 – the popping of the meme stock bubble along with sharp declines in bitcoin has eviscerated Robinhood Markets business model, along with the share price. In the wake of its Q1 numbers in May the shares hit a record low of $6.90, well below its IPO value of $38. In Q1 revenue fell by 43% from a year ago, coming in at $299m, and well below estimates of $356m. As a result, the company announced it was laying off 9% of its staff, however with the increasingly difficult retail environment the so-called easy money of shares surging higher has gone, with the result that it has become a lot harder to be profitable. Equities trading was the biggest revenue faller in Q1, a decline of 73% to $36m, while cryptocurrency revenue fell to $54m, a decline of 39%. Losses in Q1 came in at $0.45c a share and although they are expected to narrow in Q2 to $0.23c a share, the outlook is set to remain bleak. The company appears to be doubling down on its crypto business, however the recent declines in bitcoin and other cryptos are likely to make this challenging. The company did get a boost in May when it was reported that Sam Bankman-Fried, founder of crypto exchange FTX had taken a 7.6% stake in the business, prompting speculation that a bid might be forthcoming. This looks unlikely given the share structure of Robinhood.
- AMC Entertainment Q2 22 – 04/08 – AMC Entertainment managed to post a lower-than-expected loss of $0.52c a share when it reported its Q1 numbers, helped by higher footfall, as people returned to enjoy the big screen experience. The new Spiderman and Batman films helped to push revenues up to $785.7m, above estimates of $769.9m, and a huge improvement on last years $148.3m. Revenue from admissions made up $443.8m of that total as the cinema chain saw over 39m people come through its doors, as the cinema chain cut its operating losses to $167m from $428m in the same quarter last year. Q2 is likely to see a further improvement with the likes of Fantastic Beasts, The Secrets of Dumbledore, Dr. Strange and Top Gun: Maverick we could see a further improvement as the summer blockbuster season helps to boost traffic as well as sales of refreshments. In the most recent earnings call AMC CEO Adam Arons expressed the hope that Q4 box office could exceed pre-pandemic levels, as well as saying that AMC is looking to acquire more theatres and move into other industries. While this may come across as exuding confidence in the outlook it can’t hide the fact that the business still has huge debts of over $5.5bn, and perhaps it might be more prudent to stabilise the balance sheet before embarking on further diversity or expansion plans. Losses are expected to come in at $0.21c a share.
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2022-07
2022-07-30
The week ahead: Bank of England, RBA, US non-farm payrolls, BP, Rolls Royce and HSBC results
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