1. UK unemployment (December) and earnings (December), UK CPI (January) and UK retail sales (January) – 18/02, 19/02 and 20/02
The UK economy is largely in good shape, the unemployment rate is on par with levels seen in the 1970’s, plus wages are growing at far faster than inflation so workers a receiving a nice increase in real wages. Workers who earn more tend to spend more, but there is evidence to suggest that political uncertainty in the UK has curtailed spending as well as investment.
The headline inflation rate has dipped to 1.3%, while the retail sale report for December showed a fall of 0.6%. The sales reading was disappointing seeing as it included the all-important Christmas period. If people don’t spend money at Christmas, when will they spend money? The Conservative party won a big majority in the general election. The Boris Johnson led government pitched itself as being pro-business, so the public are expecting some policies that should help stimulate the economy from the Budget next month. The UK has left the EU but it has entered the transition period – which entails staying in step with the EU, so spending in addition to investment might remain subdued until the post transition period relationship has been mapped out.
2. Fed minutes (January meeting) – 19/02
The Fed kept interest rates in hold in late January, meeting forecasts. The text as well as the language from the first meeting in 2020 was very similar to what was used in the final meeting of 2019. The central bank were a bit firmer on their commitment to getting inflation to 2%, and they don’t see that level as a ceiling. Jerome Powell, the head of the Fed, said they are not satisfied with the cost of living running below the 2% mark. The Fed’s preferred measure of inflation is the core PCE reading, which is currently at 1.6%.
The Fed expressed a little concern about the health of the global in relation to trade tensions as well as the coronavirus situation. The US central bank cut rates three times in the latter half of last year, and the institution seems as if it is content to sit on its hands for the time being. The update should provide more detail as to why the Fed maintained rates last month, but it is unlikely to highlight any information that would suggest that policy could in changing anytime soon.
3. European and US flash manufacturing PMI reports and services PMI reports (February) – 21/02
France, Germany, the UK as well as the US will announce the flash reading of the manufacturing PMI report and the services PMI reports. The European as well as the US economy are broadly showing signs of improvement. The eurozone continues to muddle along but things seem to be on the up. Manufacturing in the currency bloc has been under pressure for some time, especially the German manufacturing industry, but it seems to have bottomed out. The eurozone’s services sector is showing modest growth.
There are some early signs the UK economy has picked in in the wake of the Tory party victory in the general election. The services data was the strongest in over one year, while the manufacturing report showed an improvement too. The services industry in the UK accounts for roughly 80% of the economic output, so boost to that industry is a major boon to the UK economy. The US economy is in even better shape that the UK’s. Services as well as manufacturing as ticking along nicely. Last month the US signed phase one of the trade deal with China, so that should help business activity.
4. Lloyds (LON:LLOY) full-year results – 20/02
Lloyds (LON:LLOY) revealed a third-quarter statutory loss after tax of £238 million – a stark difference from the £1.42 billion in the same period last year. The bank posted a pre-tax profit of £50 million, which missed the £163 million forecast. The bank’s profit in the three month period were essentially wiped out as it made yet another provision for the mis-selling of payment protection insurance (PPI) of £1.8 billion – which was near the upper end of a recent forecast. Lloyds has been by far the worst offender when it comes to PPI provisions as the group’s costs are in excess of £21 billion. August was the deadline to claim for PPI, so you would imagine that Lloyds can now draw a line under the fiasco, but as we saw with the credit crisis, provisions can keep rolling. Even when you strip out the PPI cost, the firm still underperformed as underlying profit was £1.82 billion, while traders were expecting £1.98 billion. Impairments relating to corporate lending were cited for the miss on underlying earnings. The hit seems to have been a one-off, but the timing isn’t great when you consider the PPI charge. Net interest margin for the three month period was 2.88%, which was a 0.05% decline on the year. Given the moves in gilt yields in recent months, it’s not a surprise that lending margins are under pressure. The cost to income ratio crept higher too, but the firm now expects annual operating costs to be below the £7.9 billion guidance. The yearly cost to income ratio is tipped to drop below the 2018 level. With lending margins being squeezed, the firm will need to trim expenses just to keep things ticking along.
5. HSBC full-year results – 18/02
HSBC (LON:HSBA) posted an 18% fall in third-quarter profit before tax. The bank derives the vast majority of its revenue in Asia so the economic cooling of China as well as the political protests in Hong Kong caused problems for the group, but the region ‘held up well’ considering the landscape. Noel Quinn, the interim CEO, said the performance in Europe as well as the US was ‘not acceptable’ Mr Quinn did not go into any detail, but he expressed a desire to trim the headcount. It is worth remembering the bank announced plans to cut 10,000 jobs in October. The finance house cautioned about ‘significant charges’ in the fourth-quarter. The global banking sector is under pressure from the low interest rate environment and HSBC is feeling the pinch too. In the latest-quarter the net interest margin rate slipped to 1.59%, down from 1.67% in the same period last year. Central banks around the world are unlikely to be hiking rates any time so the likes of HSBC could find lending business under strain for the foreseeable future. The London-listed bank is likely to suffer as a consequence of the coronavirus crisis. In November, the finance house confirmed it plans to expand its private banking business in Asia. It is not uncommon for banks to focus on other areas of the business in order to try and diversify away from trading the financial markets as well as lending.
6. Canadian CPI (January) – 19/02
The demand is robust in Canada as the CPI rate is 2.2%. The latest employment report showed that unemployment fell back to 5.5%. Throughout 2019 the unemployment rate has been low – roughly 5.5%. Average earnings have increased to above 4%, which is far higher than the CPI rate of 2.2%. Workers are clearly getting a nice increase in real wages. At the last Bank of Canada meeting rates were kept on hold – meeting forecasts. The head of the BoC Stephen Poloz, indicated he was open to the idea of cutting rates should economic uncertainty persist. The central banker commented on the trade tensions – but those should fade away a little seeing as the US and China have signed phase one of the trade deal. Canadian cities like Toronto have a housing bubble so the central bank probably don’t want to make that situation worse. The coronavirus crisis have hammed the oil market as traders are worried that China’s demand for the energy will dwindle seeing as it is the largest imported of energy in the world. The slump in the oil market has weighed on the Canadian dollar so headline inflation in Canada might tick up on account of the softer “loonie”.
7. BHP first-half results – 17/02 (21:30 GMT)
The BHP (LON:BHPB) stock price has been under pressure since last summer as concerns about the US-China trade relationship weighed on the stock, and the more recent coronavirus crisis has hit the share price too. In July 2019, the stock hit its highest level in five years as traders had high hope for the full-year figures that were due out in August. The annual numbers showed a 2% rise in underlying profit, but that fell short of equity analysts’ forecasts. The mining titan paid out a record dividend as a way of saying thanks to shareholders for the lean times post late 2015 and early 2016 – when metal prices tumbled, so the firm had to undergo major restructuring. As a part of the reorganisation of the group, BHP sold-off its shale assets to BP (LON:BP) for $10.5 billion. The cash was used to firm up the group’s balance sheet. The transaction was completed in late November – since then the underlying oil market has fallen roughly 20%, so things have gone in BHP’s favour. Earlier this year the US and China singed phase one of their trade so that should help the group, but dealers will be listening out for forecasts in relation to the health crisis.
8. Anglo American (LON:AAL) full-year figures – 20/02
The mining giant had a strong first half thanks to a stellar performance at the iron ore division – earnings at the unit increased four-fold. The group posted a 19% increase in earnings. To celebrate the strong earnings the company confirmed a share buyback scheme of $1 billion. Anglo have been generous to shareholders in recent years as a way of thinking them for the lean times in around 2016 – when the firm suspended its dividend. Back then the metals market was under major pressure, so mining firms had to tighten their belts and boost the health of the balance sheets. In 2017 the company reinstated its dividend, and since then it has returned $3 billion in the form of dividends, which seems excessive seeing as in July 2019 the groups’ net debt position stood at $3.4 billion. The industry has recovered greatly from the lows of 2016, but Anglo might be running the risk of falling into the old trap of making sizeable cash returns to investors while simultaneously servicing high debt repayments. The coronavirus has clobbered the underlying minerals markets on fears that China’s demand will be dampened, so traders will be keen to find out Anglo’s outlook.
9. Deere (NYSE:DE) first-quarter results 21/02
In November, the group predicted that 2020 will see a 5-10% fall in agricultural equipment revenue, while revenue from construction machinery could fall as much as 15%. The group blamed ‘lingering trade tensions’ for the poor outlook in relation to farming equipment. It is surprising the firm has such as negative forecast for the construction business seeing as the US housing sector is in reasonably good health. The company posted mixed third-quarter quarterly figures as EPS came in at $2.14, which was a fall from the $2.30 posted in the same period last year, but the consensus estimate id $2.13. Revenue increased by 5% to $9.89 billion, which topped the $8.43 billion consensus. The downbeat forecast that was issued in November might not come to fruition seeing as the China pledged to purchase at tens of billions of dollars’ worth of US agricultural goods in the next few years, so that should boost the farming sector.
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