The Week Ahead: ECB Rate Meeting; U.S. Inflation; Greggs, Rivian Results

The Russia-Ukraine war is not only a humanitarian crisis but is also amplifying inflation concerns, as supply fears contribute to soaring prices for oil and other commodities. As the cost of living seems set to continue rising, we look ahead to a key interest rate decision at the European Central Bank on Thursday. Other notable events this week include the February reading of the US consumer price index (CPI) and earnings announcements from Greggs (LON:GRG), Rivian (NASDAQ:RIVN) and Balfour Beatty (LON:BALF).

OUR TOP THREE EVENTS FOR 7-11 MARCH 2022:

ECB interest rate decision – Thursday

If the European Central Bank wasn’t in a difficult position already, it certainly is now. Recent events in eastern Europe mean that consumer price inflation – already high across the eurozone and above 10% in the Baltic states – is likely to rise even higher over the next few months. At the same time, European interest rates are in negative territory and GDP growth remains lacklustre. Unsurprisingly, at her last press conference ECB president Christine Lagarde refused to rule out raising interest rates this year, having previously pushed back against calls for a rate hike.

The inflation indicators appear ominous. Producer price growth, which tends to foreshadow growth in consumer prices, is at record highs across the bloc. Germany’s producer price index (PPI) increased 25% in the 12 months to January, while PPI readings in Spain and Italy are running even higher.

However, is now the time for a bold shift in economic policy? With the ECB’ s pandemic emergency purchase programme (PEPP) ending this month, it seems likely that its sister policy, the asset purchase programme (APP), will need to be extended. APP spending is currently running at €20bn a month. Furthermore, some ECB hawks – including Austrian ECB Governing Council member Robert Holzmann – are pulling back on calls for a rate rise this year amid uncertainty brought by Russia’s invasion of Ukraine.

As oil prices soar above $110 a barrel and tensions between the West and Russia escalate, it seems that economic conditions could be about to get worse before they get better. Even before the current situation in eastern Europe unfolded, a rate hike would have presented enormous challenges for the ECB. Despite Lagarde’s apparent openness to raising rates this year, recent developments may have made a rate hike less likely in the near term.

US inflation (February) – Thursday

US CPI jumped to a 40-year high of 7.5% in January, up from 7% in December, while core CPI – a measure of inflation which excludes food and energy – was up 6%. With inflation running high, US Federal Reserve chair Jay Powell has said that he intends to press ahead with a March rate hike despite the outbreak of war in eastern Europe.

His determination makes sense. Used car and petrol prices are up 40% year-to-date, and Americans are seeing double-digit price rises for domestic gas, as well as on meat, dairy, fish and fruit. With the PPI measure of inflation showing little sign of slowing, February’s CPI reading is expected to increase to 7.8%.

That would go some way towards sealing a 25-basis point rate hike when the Fed meets later this month. The key question then becomes how many more rate rises will follow. As recently as last month, Bank of America was sticking to its prediction of seven rate hikes this year. That estimate now appears a tad high, given the strength of the US dollar, but Powell this week said he still expects a “series” of rate rises in 2022.

Greggs full-year results – Tuesday

Greggs’ share price has fallen 27% so far this year, as the company confirmed on 6 January that its CEO Roger Whiteside is to step down after nine years in charge. However, the company also announced a strong Q4 trading update, suggesting that the company remains in good shape.

As part of the trading update, Greggs announced provisional full-year 2021 sales of £1.23bn, up 52% versus 2020 and an increase of 5.3% on 2019. Like-for-like sales in Q4 rose 0.8% compared to the same period in 2019, helped by strong sales of mince pies and the vegan festive bake. However, the baker also warned of higher costs, as rising energy costs are likely to eat into margins, and revealed some temporary interruptions to its supply chain.

On shareholder returns, the board said they expected to be in a position to pay out £30m to £40m in 2022. Management remained upbeat about their long-term ambitions, saying they expected to see full-year revenue almost double to £2.4bn by 2026, as the business continues to expand. The company plans to open around 150 net new stores this year.

Despite recent share price declines, Greggs’ stock is up more than 13% over the last 12 months, as the retailer did well during a pandemic in which demand for pasties, sausage rolls and doughnuts remained robust. Greggs’ shares reached record highs in December last year, before the recent drop-off following confirmation of Whiteside’s exit, concerns over margins and higher fuel prices, and a wider slowdown in the UK economy.

For the first half of 2021, Greggs reported a pre-tax profit of £55.5m, a significant improvement on the £65.2m loss from the same period in 2020. The numbers also surpassed pre-pandemic performance in 2019. The company opened 131 new stores last year, closing 28, to take its total number of outlets to 2,181, of which 375 are franchised shops. Last year Greggs also improved its online offering via Just Eat, with home delivery sales now accounting for 8.5% of shop sales.

MORE KEY EVENTS (7-11 MARCH):

Monday 7 March

No major announcements

Tuesday 8 March

Greggs full-year results

See top three events, above

Wednesday 9 March

No major announcements

Thursday 10 March

ECB interest rate decision

See top three events, above

US CPI (February)

See top three events, above

Balfour Beatty full-year results

When Balfour Beatty reported its half-year numbers in August, its shares were within touching distance of the seven-year highs they reached in April. Since then the shares have struggled, falling to 15-month lows last month. However, under the guidance of Leo Quinn, who became CEO in 2015, the company has undergone a major transformation, focusing on high-margin work and maintaining a reliable and healthy cashflow.

The half-year results delivered pre-tax profits of £55m on revenue of £4.15bn, as the company increased its dividend – which it restored at the end of 2020 – to 3p per share. The company had to write down the value of some projects in central London because of the pandemic, though this appears to have been more than offset by improved margins in support services, up from 3-5% to 6-8%. The order book shrank slightly to £16.1bn, down from £17.5bn a year earlier, but the company reiterated its full-year guidance for profits to be in line with 2019 levels.

The company’s construction business suffered a £23m loss in the first half of last year, with the company saying that a problem with cladding on a project could cost it as much as £50m. In December the company announced that it expected to post an underlying operating profit of £172m, as well as a further reduction in the size of its order book to around £15.5bn. Full-year group revenue is expected to be around £8.4bn.

Rivian Automotive Q4 results

Rivian floated on the Nasdaq in November last year to much fanfare, surging from its initial $78 IPO price to as high as $179 in the first week of trading, pushing it above the market caps of the likes of Ford and Volkswagen (DE:VOWG_p). This was never sustainable given that its Q3 numbers, announced in December, revealed a loss of $1.23bn for the quarter. On the plus side, the company reported revenue of $1m, as it began deliveries of its R1S SUV in December, though it also said that it would fall short of its 2021 production target of 1,200 vehicles. That said, pre-orders have risen to 71,000, up from 55,400 in October. Rivian’s biggest problem, it seems, is producing cars fast enough to fulfil its orders and justify its eye-wateringly high valuation. Since December Rivian shares have fallen from $120 to current levels of just under $50 a share. Full-year revenue is expected to come in at $63.3m. That’s up from $1m last year, but still pretty pitiful for a company that has a market cap of around $60bn. Full-year losses are expected to be $3.6bn.

DocuSign Q4 results

Tech company DocuSign (NASDAQ:DOCU) is another lockdown winner that has seen its fortunes dip over the past nine months. In Q3, revenue and profits beat expectations, coming in at $545m and $0.58 a share, respectively. The shares hit record highs of more than $300 last year, but have fallen by almost two-thirds since then. The plunge came after the company downgraded its Q4 revenue forecast to between $557m and $563m. Once again we’ve seen a company with a mind-boggling valuation get punished for missing on guidance and posting a slowdown in revenue growth. Profits for Q4 are expected to come in at $0.48 a share.

Friday 11 March

UK GDP (January)

In December, the UK economy contracted by 0.2%, mainly as a result of the government’s so-called plan B restrictions which were implemented just before Christmas to curb the spread of the Omicron variant. Data also showed that in Q4 the UK economy expanded by 1%, a better result than expected given the challenges facing consumers and businesses as Covid cases increased. For 2021 as a whole, UK GDP expanded 7.5%.

Even without the various restrictions that were put in place in December, there was always the prospect that economic activity would slow before Christmas as people became wary of catching Covid and having to spend the holidays in self-isolation. We could see a rebound in January GDP, a notion supported by recent data. Expectations are for a monthly expansion of 0.2%, driven by growth across all sectors of the economy.

UK industrial and manufacturing production (January)

The UK manufacturing and construction sectors experienced a strong rebound at the end of last year, despite higher costs and labour shortages. Order books have continued to look healthy, as has recent PMI data. Although these measures two do not always correlate with growth in industrial and manufacturing output, there is little indication that economic activity in these sectors is slowing.

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Selected company results

Company announcements are subject to change. All the events listed above were correct at the time of writing.

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