The Week Ahead: U.S. Jobs; Bank Of Canada Rate Decision

Friday’s US jobs report is expected to show that 350,000 non-farm payrolls were added in May, supporting the Fed’s plans for further interest rate hikes to tame inflation. UK markets will be closed on Thursday and Friday to mark the Queen’s platinum jubilee.

In a relatively quiet week for corporate earnings, look out for updates from B&M (LON:BMEB), Hewlett Packard (NYSE:HPQ), and Dr. Martens (LON:DOCS).

OUR TOP EVENTS FOR 30 MAY - 3 JUNE:

Wednesday – Bank of Canada interest rate decision

After procrastinating on interest rates in Q1, the Bank of Canada finally bit the bullet in April and raised its headline interest rate to 1% from 0.5% in a bid to curb surging inflation. The central bank also announced that it would stop purchasing government bonds from 25 April in order to reduce the size of its balance sheet. These moves were expected as the bank’s counterpart south of the border, the US Federal Reserve, was set to raise rates by a similar amount in early May, with inflation showing little sign of abating.

Canada’s consumer price index increased 6.8% in the year to April – the country’s highest level of inflation since 1990. With unemployment having fallen to 5.2% in April, the Bank of Canada may feel emboldened to raise interest rates further at its upcoming meeting. With the Fed likely to implement another half-point rate rise in June, the Bank of Canada is expected to make a similar move, with some suggestion that it could opt for a 75-basis-point hike to lift rates closer to what economists consider neutral territory.

Friday – US non-farm payrolls (May)

The US economy added 428,000 jobs in April, matching the downwardly revised figure of 428,000 new jobs in March and beating expectations for 391,000 jobs. The labour market has added more than 400,000 non-farm payrolls in each of the last 12 months, highlighting the economy’s underlying strength despite a sharp contraction in economic output in Q1.

That said, the jobs report for April report wasn’t all good news. The labour force participation rate fell to 62.2% from 62.4% in March, while unemployment remained steady at 3.6% despite 11.5m job vacancies. This equates to roughly two job openings for every unemployed person, a ratio that is making it harder for employers to fill roles and contributing to higher wages. Average hourly earnings grew 5.5% in the year to April, steady compared to the March figure of 5.6%.

These trends are expected to continue in the May report. Job creation could slow to 350,000, while unemployment is predicted to fall to 3.5%, but neither of these outcomes would radically alter the overall picture of the labour market. Hourly earnings is one figure to keep an eye on. An acceleration in wage growth could strengthen the Fed’s case for aggressive interest rate hikes, while a slowdown could see some of the urgency come out of the tightening timeline.

MORE KEY EVENTS (30 MAY - 3 JUNE):

Monday 30 May

UK lending (April)

Mortgage and consumer credit lending remained resilient throughout the first quarter of 2022, with net lending rising to £7bn in March – a six-month high – and net consumer credit coming in at £1.3bn. In Q2, mortgage approval numbers might start to slow. Consumer credit numbers could go either way, potentially rising as struggling consumers borrow more to pay for everyday items, or slowing as consumers tighten their belts and dip into savings.

Rather surprisingly, UK retail sales rebounded strongly in April. House price growth also remained resilient despite inflationary pressures and four interest rate rises in succession from the Bank of England. It remains to be seen whether lending held up equally well.

Tuesday 31 May

Eurozone flash CPI (May)

With the bloc’s consumer price index already running at a record high of 7.4%, and core prices up 3.5%, there has been some talk that inflation in the euro area is plateauing. This view seems dangerously misguided given what is happening with producer prices, as the latest German PPI reading hit a new record high earlier this month. Consensus estimates suggest that eurozone CPI will come in at a new record high of 7.6% for May.

The European Central Bank is preparing markets for a possible 25-basis-point rate hike at its July meeting, but it is doubtful that such a small move would do much to ease high inflation, especially as interest rates are in negative territory at -0.5%. Although consumer prices are up only 4.8% annually in France, where the government capped energy prices, in places like Estonia CPI is running at 18.8%, while in Lithuania the figure is 16.8%.

B&M European Value Retail full-year results

It’s not been a great year for UK retailers thus far. In line with the wider trend, B&M shares are down by more than a quarter year-to-date, despite the company upgrading its full-year guidance in January. The shares came under pressure in early April after it was announced that CEO Simon Arora intends to step down from the position he has held for the last 17 years.

A stronger than expected performance in Q3 which covered the Christmas trading period, put B&M’s underlying full-year profit on track to reach £605m-£625m on an adjusted EBITDA basis, according to the company. This marked a significant upgrade on the previous figure of £578m.

Revenue for the first nine months of the fiscal year was running at £3.66bn, slightly ahead of 2021 levels, despite a modest slowdown in Q3 versus the year-ago period. If the company had a solid Q4, the 20 new stores that B&M opened during the year could propel revenue beyond the 2021 total of £4.8bn. While UK growth appears to be plateauing, the French business has been growing rapidly, albeit from a lower base.

HP Q2 results

A surge in PC sales over the past couple of years helped Hewlett-Packard shares rise to a record high in April, when it was revealed that Warren Buffett had taken a $4.2bn stake in the business. HP has been looking to acquire new businesses after agreeing to buy audio and video accessories maker Poly (NYSE:POLY) for $1.7bn.

At its most recent trading update, HP recorded net sales of $17bn, with $12.2bn of that coming from sales of personal systems, which includes laptops and PCs. Printing sales were slightly disappointing, falling by 23%. HP also said it was pulling out of Russia, although it did offer an optimistic outlook, upgrading its full-year guidance to $4.28 a share.

For Q2, profit guidance was between $1.02 and $1.08 a share. That range encompasses market consensus, which currently sits at $1.05 a share. However, continued supply chain disruptions and rising costs have cast doubt over whether expectations will be met.

Wednesday 1 June

Bank of Canada interest rate decision

See top events, above

Dr Martens full-year results

When Dr Martens went public in January 2021 there was optimism that private equity firm Permira’s decision to sell a portion of its stake in the business, which it bought in 2013, would kick off a good year for London’s IPO market. After some initial early gains this optimism soon faded, with the shares now worth less than half their 2021 peak, weighed down by falling profits and supply chain issues.

First, while annual revenues have improved steadily from £672m in 2020 to £773m in 2021, profits after tax fell by 52% to £35.7m in 2021. A large part of this decline was attributed to IPO-related expenses of £80.5m. In early January Permira sold another 6.5% of its stake in the business, reducing its holding to 37%.

Second, the macro situation really hasn’t helped. Like all retailers, Dr Martens is facing supply chain disruptions and rising costs, with lockdown restrictions in Vietnam hitting its facilities there. Backlogs at ports haven’t helped either, with prices of its goods likely to rise in line with costs elsewhere. This could present a challenge when it comes to meeting revenue targets.

When the company reported in January, revenue stood at £676.9m for the fiscal year-to-date, and was projected to come in at £907.5m for the full year, an annual rise of 17%. This now looks like a big ask.

Friday 3 June

US non-farm payrolls (May)

See top three events, above

European services PMIs (May)

Recent readings of French, German and UK purchasing managers’ indices (PMIs) have lost some credibility as an indicator of the state of these countries’ economies. It is clear that economic growth is sluggish across the UK and the EU, while soaring energy prices and persistent supply chain disruptions pose significant challenges to businesses of all sizes. Yet the PMI numbers imply that all is well.

After the release of last week’s flash numbers, this week’s services PMIs are expected to confirm the decreases from April, when readings for the UK, France and Germany were all in the mid-50s. Reliability issues aside, PMI readings from China look even worse, with private survey results in the mid-30s – deep in contraction territory.

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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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