What a week it was, a veritable roller coaster ride for the pound and equity markets in general, as concerns about political stability and economic weakness roil sentiment, and keep investors on the back foot. Any prospect of further progress on the Brexit withdrawal agreement appears to have been kicked into next year after the Prime Minister pulled the vote at the last minute prompting a confidence vote on her competence in her party.
While she prevailed in the resulting vote it also became clear that the withdrawal deal as is, is dead in the water in its current format. Even if it is possible that she might be able to get some tweaks in the way of a side text from EU leaders, it is highly improbable that any clarifications would be enough to get even a handful of MPs to vote for the deal, let alone the 117 MPs who voted against her earlier last week. This saga is now set to run into next year as both sides indulge in a staring contest as we head into 2019 and the clock ticks down further.
Fed rate decision – 19/12
The US Federal Reserve is widely expected to raise interest rates for the fourth time this year later this week, but it is less of the done deal that it was two to three weeks ago. This is because a number of key Fed policymakers have suggested that rates were closer to neutral than had originally thought to be the case.
Expectations around next year’s rate hike glide path is also likely to be a key area of scrutiny to determine whether policymakers have revised lower their expectations for future rate rises. Fed chair Jay Powell is also likely to face questions about the yield curve and the risks of a recession.
Bank of England rate decision – 20/12
Given all the uncertainty over Brexit this meeting almost seems irrelevant given that the prospect of the Bank of England doing anything currently sits between slim and none, and slim just left the building.
Bank of England governor Mark Carney will be thankful for the fact that there is no press conference given the brickbats he had to field over the forecasts/projections the bank submitted to the Treasury Select Committee after the November decision. No policy change is expected.
UK inflation (Nov) – 19/12
Headline inflation is currently sitting at its lowest levels this year, though there is a risk that the recent weakness in the pound could put a floor under this decline, from last year’s 3.1% peak.
With growth in wages at their best levels this decade at 3.3% the recent decline in oil prices is likely to be a welcome boon for UK consumers. This could well be reflected in this week’s numbers and keep prices at 2.4%, or even see them slip to 2.3%.
EU CPI (Nov) – 17/12
Headline inflation is set to fall towards the ECB target rate of 2%, slightly down from October’s 2.2%, as lower oil prices feed through into the annualised numbers.
The lack of inflationary pressure is also expected to keep core prices weak, with a decline to 1% from 1.1%. Core prices have consistently been a drag in the EU over the past ten years, with the peak this decade seen last year, when prices reached 1.2% in the summer when GDP growth was at its strongest.
Last week’s ECB meeting showed that the ECB remained on course to end its stimulus program at the end of this month, but they seem to be developing a worrying tin ear to concerns about economic weakness, which got a little bit louder with the release of some truly dreadful flash PMI’s for December out of France, at the end of the week.
Bank of Japan decision – 20/12
This week’s rate decision from the Bank of Japan is likely to be a non-event given that the Japanese economy fell into contraction in Q3, with a decline of 2.5% year on year. This is a remarkable turnaround from the 3% expansion seen in Q2, and means when set against the performance in Q1 the Japanese economy has stagnated this year.
UK retail sales (Nov) – 20/12
Depending on who you believe the Black Friday effect was either positive in terms of spending patterns, or negative given that footfall was lower, according to a number of high street estimates. Footfall fell 3.2% in November as consumers increasingly decide to take their business on-line. It seems likely that this week’s retail sales may hint at slower spending with most consumers preferring to leave their purchases until the last minute as Christmas approaches.
CAD CPI and Retail Sales – 19/12 and 21/12
Did the Canadian consumer get a Black Friday boost or was the recent decision by the Bank of Canada to be slightly dovish in its recent decision to hold rates indicative of a wider concern that higher rates were starting to squeeze Canadian households? Its warning that there could be room for non-inflationary growth in the months ahead suggests that the prospects of a January hike have receded quite considerably. A weak CPI number, below 2% would pretty much confirm that view as could a weak November retail sales number at the end of the week.
FedEx (NYSE:FDX) - 18/12 Q2 19
The online shopping boom may be causing problems for shopping malls and the traditional retail brands but for the likes of the companies that deliver parcels it’s been an absolute boon.
At Fedex’s end of year it posted full year numbers that showed an acceleration in both revenues and profits growth, in excess of expectations. The company also raised its guidance for the upcoming year saying it expected revenues to rise 9%, despite continued integration costs from the acquisition of TNT Express two years ago. The shares have slid sharply in the wake of the company’s June update and despite attempts at rebounding have continued to struggle, over concerns that higher wage costs could impact margins.
This week’s Q2 numbers should show whether the company remains on track to meet its outlook for the current fiscal year. It would be surprising if we didn’t see a positive outlook given how strong recent US consumer data has been.
Darden Restaurants (NYSE:DRI) Q2 19 - 18/12
There’s nothing more American than bread-sticks and the Olive Garden's never ending pasta bowl. US consumers certainly appear to agree as the owner of this US consumer staple has seen its share price go from strength to strength in the last few years. At its most recent update all of the chains in the Darden portfolio showed positive comparable numbers on same store sales, Olive Garden up 2.4%, LongHorn Steak House, up 2.4%, Eddie V’s up 3.6% and Yard House up 1.4%.
This week’s Q2 trading update, while likely to show that company remains on track to meet its targets, may not affect the overall direction in the share price given it has slid sharply from recent highs, but it could see further losses if the numbers miss to the downside. Expectations are for Q2 earnings of $0.90c a share.
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