After a long weekend in the UK, the trading week and new month of May begin on Tuesday with some big central bank policy announcements, a raft of new economic data and some more big companies reporting.
Companies in the UK include BP and Shell, British Airways owner IAG and Holiday Inn owner IHG, retailers Next and Boohoo, along with more AGMs.
In the US, earnings season is still rumbling on, with names in the coming week including Berkshire Hathaway, Pfizer and Moderna, AMD, Airbnb (NASDAQ:ABNB), Starbucks and Yum Brands, Uber and DoorDash and Ford.
Amid highly volatile markets and rising macro worries, halfway into the reporting season and results in Europe and the US have been supportive, finds research from Barclays, with results coming well ahead of expectations on the whole.
Analysis of management calls reveals “firms are more cautious about the outlook, particularly on China, but most are sticking to their guidance for the year. Although costs issues persist, impact on margins looks generally manageable.”
There have been some high profile misses (Netflix, Amazon) and “extreme dispersion between winners and losers”, Barclays says equity market reaction has been “mostly positive to results” so far.
TUESDAY 3 MAY
Oil giant BP PLC (LSE:BP.) kicks things off in London on Tuesday, with the investors likely to be keen to hear how the company is managing its exit from Russia and the impact on future performance and shareholder returns.
Any boost to profits from higher oil and gas prices may be overshadowed by a write-down of its 20% stake in Russia’s Rosneft (LSE:ROSN), which could see the company post a big paper loss (but still make oodles of cash).
BP’s and peers have been among the best share price performers in the year to date, bouncing back from the 25-year lows in 2020 when it posted a US$20.3bn loss.
“It’s important not to understate how bad 2020 was for the oil and gas industry, as demand collapsed, and oil companies cut production as storage and refinery capacity ran out,” said Michael Hewson at CMC Markets.
As part of boss Bernard Looney’s 10-year plan, the group aims to reduce oil and gas production by 40% and boost spending on low carbon energy to US$5bn a year.
Amid continued calls from politicians for a windfall tax, Hewson said "there is a case for arguing that the oil companies should be spending more on transitioning away from fossil fuels”.
However, amid the sanctions on Russia, when BP reported back at the end of last year, Looney said that in the short term more natural gas was needed, not less.
In the US, earnings season is also still rumbling on, including Pfizer Inc (NYSE:PFE), which came out of the pandemic a lot richer after teaming up with Germany’s BioNTech on one of the most successful Covid vaccines.
While 2021 was a record year for the company, with US$81.3bn of revenues compared to US$41.9bn in 2020, for the whole of this current year revenues are expected to rise to a new high of US$102bn.
This is on the back of the company increasing its prices, with over half expected to come from its new Covid pill and the vaccine.
WEDNESDAY 4 MAY
Markets are pricing a Federal Reserve interest rates hike of 50 basis points on Wednesday, which has been telegraphed by several officials and chair Jerome Powell.
Powell also said “it is appropriate” in his view to “move a little more quickly” on interest rates than the Fed did during the 2004-2006 cycle when the Fed hiked by 25 bps at every other meeting or even less frequently.
But fears of a policy overreaction by the Fed are “driving markets, and will keep volatility elevated”, as UBS observed.
So markets the world over will be “laser-focused” on what the Federal Open Market Committee (FOMC) does and says, said analysts at Deutsche Bank, with consumer price inflation at its highest in four decades at 8.5% and an unemployment rate at 3.6%.
Aside from rate hikes, markets will be looking for Powell to outline when the FOMC plans to start ‘quantitative tightening’ (QT) – in other words rolling back a large part of its US$9 trillion balance sheet built up through its support of markets since the 2008 financial crisis sheet by allowing bonds that they hold to mature without being rolled over – and the committee’s view on the ‘terminal’ interest rate.
Deutsche’s economists expect a 50bps hike at each of the next three meetings and a terminal rate of 3.6%, with QT starting in May and amounting to around $1.6tn of run-off through the end of 2023.
In UK company news, Flutter Entertainment PLC (LSE:FLTR) is reporting first-quarter results, with its shares down more than 30% so far this year.
Full-year results two months ago were underwhelming, with the owner of the Paddy Power and Betfair saying the final quarter of 2021 was a challenging one in the UK & Ireland with a lot of sporting results going in favour of the punter.
The company also took a £543mln non-cash charge for amortisation of acquired intangibles, which meant it posted a reported loss of £288mln for the year.
Reported revenue grew 37% year-on-year, benefiting from the May 2020 acquisition of Stars Group, although underlying earnings (EBITDA) were 6% lower reflecting increased US investment and regulatory impacts in its international business.
For the whole of 2022, consensus expectations are for revenues to rise 10% to £6.6bn and EBITDA to jump more than a third to just over £1bn, with its US business making an EBITDA loss of £251mln, according to UBS.
Elsewhere, former ‘king of AIM’ Boohoo Group PLC (AIM:BOO) will be releasing its final results with its shares, like sector rivals, having tanked this year, down 30% to 81.8p, down 80% from its peak and, like online rival Asos, lower than their pre-pandemic levels.
Management reassured in March that profits will be within guidance for the year to end-February 2022, with adjusted profits are expected to be £125mln, up 61% compared to two years prior and 14% on the previous year.
The online fashion retailer said ongoing supply challenges continue to impact the group’s international performance, with longer customer delivery times affecting performance.
"The group has delivered strong growth over the last two years, which has translated into significant market share gains,” commented chief executive John Lyttle at the time.
As analysts at Barclays have also mentioned, online businesses such as Boohoo are also generally facing “a laundry list of headwinds”, which as well as supply chain issues, also include growing competition and environmental, social and governance compliance.
At Peel Hunt they said: "We are keen to understand how boohoo intends to address the current distribution challenges that have left US customers facing a c.10 - day standard delivery proposition and 5+ days in the EU."
THURSDAY 5 MAY
It will be a big week for the Bank of England, with a monetary policy committee (MPC) meeting a day ahead of its 25-year anniversary since being granted independence.
On the day that local elections are carried out around the UK, the MPC is expected to hike interest rates for the fourth consecutive meeting, with markets pricing in a 25 basis-point increase to 1%, though some policy makers may vote for a 50 bps increase.
Members of the committee are faced with the dilemma of combating soaring inflation against nudging the economy (further) towards a recession, with stagflation warnings growing louder.
“We shouldn’t be too surprised if they hang fire because of the storm clouds gathering over the global economy,” said Laith Khalaf at AJ Bell.
“Continued high energy prices and supply chain disruption stemming from COVID lockdowns in China have impaired the macro-economic outlook, and the central bank may feel that pressing down hard on the brakes might not be the best idea in the current environment.”
Bank of England governor Andrew Bailey last week acknowledged the MPC was “walking a very tight line” with rates and inflation.
There has been a major downgrade of year-end rate expectations over the last week, notes Marshall Gittler at BDSwiss, with almost 50 bps of further tightening over the coming year priced out.
“Watch what they say about the risks – that will be key, I think,” Gittler adds.
The policy decision will be accompanied by a quarterly update to the Bank’s economic projections, including labour market projections.
In company news, Shell PLC (LSE:SHEL, NYSE:SHEL) will publish a first-quarter trading update where it is highly likely to confirm further positive impact from high oil and gas prices, driven by macroeconomic and geopolitical situations, boosting the oil supermajor’s Integrated Gas and Oil Products arms.
A focus on cashflow generation and potential for higher shareholder returns is likely to be the main focus, said analysts at UBS.
On the other side of the coin, the company in February flagged "very significant" cash outflow of US$7bn and said exiting three joint ventures with Gazprom following Russia's invasion of Ukraine, and other Russia activities, are expected to lead to US$4bn-US$5bn of charges.
UBS noted that on shareholder returns, management said the target range of 20-30% of cashflows returned to shareholders could be raised, in the event of a more favourable environment.
Elsewhere, Next PLC (LSE:NXT) will be releasing its first-quarter results on the same day, with investors keen to see whether the retailer can navigate a tricky year where the shares have already tumbled nearly 25%.
The clothes retailer lowered its earnings guidance by £10mln last month due to rising inflation and the cost of living.
However, the company has a reputation for under-promising and over-delivering under boss Simon Wolfson, so its first-quarter results will be the first glimpse as to whether the same tactic has been repeated.
Barratt Developments PLC (LSE:BDEV) follows FTSE 100 rivals Persimmon and Taylor Wimpey with an update on the state of its own business and the UK housing market.
The message is likely to be a similar one, of buoyant prices offsetting cost inflation.
For the full year (to June 2022), analysts at UBS expect selling prices to rise by around 4.5%.
The trading update should indicate sales rates have stayed strong at around 0.85 sales per site per week, adds the broker, which would be down on January but in line with the prior year’s 0.83.
UBS also expects 17,250-17,500 housing completions, a £302,000 average selling price and pre-exceptional profits of £1.06bn.
Cladding issues are the other moving target, with broker Peel Hunt saying Barratt’s 34% share price fall year to date reflects its larger exposure than rivals.
Following Q1 results from its larger rivals in recent weeks, challenger banks Virgin Money UK PLC (LSE:VMUK) and OSB Group are almost inseperable in terms of size and both report numbers in the week.
Virgin Money’s loan growth and net interest margins are likely to be the main thing on investors’ minds.
The lender’s plan to navigate a market where base rates are rising and mortgage spreads compressing is to try fundamentally to change the mix of its lending in 2022.
It’s a tricky path, says UBS, and is why its shares trade around 5-10% below larger rivals Lloyds and NatWest on a forward earnings metric.
Consensus forecast are for loan growth of 3.4% in 2022 and NIM to rise to 1.77% but what it says about competition and mortgage demand will be enlightening.
FRIDAY 6 MAY
First-quarter results from British Airways owner International Consolidated Airlines Group (LSE:IAG) SA will be going up against very soft comparatives from 2021, when the airline industry was bemoaning global lockdown restrictions.
The industry is not out of the woods yet but there are clear signs of some pent-up demand, as confirmed by IAG’s chief executive Louis Gallego, who said at the time of the company’s full-year results in February that the group is confident “a strong recovery is underway”.
Booking were said to have remained strong for Easter and summer 2022, having picked up in the New Year.
“We expect a robust summer with IAG returning to around 85% of its 2019 capacity for the full year,” Gallego said.
Having said that, the first quarter of the year is one in which the airline group would expect to post a seasonal loss in the best of times, never mind in a pandemic.
The company line in February was that IAG should to be profitable at the operating level from quarter two, leading both operating profit and net cash flows from operating activities to be significantly positive for the year.
Elsewhere in the travel and tourism sector, InterContinental Hotels Group PLC should be telling a story of continued recovery in its first-quarter trading update, particularly in the US.
The Holiday Inns owner saw “significant acceleration in signings” in the fourth quarter of 2021 and shareholders will be hoping that momentum will have been maintained.
The resurgence of Covid in China is likely to be a concern, however; the company added a net 12,863 rooms in Greater China in 2021 in the expectation that
As it is the first Friday of the month, that means the market will be watching out for US non-farm payrolls and what these numbers will imply about further interest rate rises.
The market is expecting yet another healthy increase of 390,000 jobs, which would be down slightly from the previous month but still substantial.
The unemployment rate is expected to stay at the previous month’s 3.6%, just a touch above the 50-year low of 3.5% achieved before the pandemic, while the participation rate is expected to edge up one tic.
This, said analyst Marshall Gittler at BDSwiss, “will only confirm Fed Chair Powell’s contention that the job market is ‘extremely, historically tight’ and ‘volatilely hot,’ meaning that they can hike rates without fear of causing unemployment to soar to 10.8%, as it did under [1979-87 Fed boss Paul] Volcker.”
Citing renowned economics commentator, Sly Stone, Gittler said such evidence of an “extremely, historically tight” jobs market would scream “higher” at the rates market.
“The dollar in turn is likely to dance to the music and continue to follow rates upward.”
Significant announcements expected in the coming week
Monday 2 May
Bank Holiday UK
AGMs: Legal and General Group PLC
Economic data: Construction Spending (US), ISM Manufacturing (US), ISM Prices Paid (US)
Tuesday 3 May
Finals: Card Factory (LSE:CARD) PLC, Intelligent Ultrasound Group PLC (AIM:MED)
Trading announcements: BP PLC (LSE:BP.)
AGMs: AVI Opportunity Trust PLC, CPP Group (LSE:CPP) PLC, F&C Investment Trust (LSE:FCIT) PLC, IOG PLC (AIM:IOG), Plus500 Ltd (LSE:PLUS)
Economic data: Factory Orders (US)
Wednesday 4 May
Finals: Dianomi PLC (AIM:DNM), e-Therapeutics PLC, Inspiration Healthcare Group PLC (AIM:IHC), Boohoo Group PLC (AIM:BOO)
Interims: Aston Martin Lagonda Global Holdings PLC (LSE:AML)
Trading announcements: Direct Line Insurance Group PLC (LSE:DLG), Flutter Entertainment PLC (LSE:FLTR), OSB PLC
AGMs: Barclays PLC (LSE:BARC), GlaxoSmithKline PLC (LSE:GSK), Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB), Mpac Group (LSE:MPAC) PLC, Ocado Group PLC (LSE:OCDO), Standard Chartered PLC (LSE:STAN), Ten Entertainment Group PLC (LSE:TEG), Tribal Group, Tritax Big Box REIT PLC (LSE:BBOX), Unilever PLC (LSE:ULVR)
Economic data: US Federal Reserve (US), MBA Mortgage Application (US), ISM Prices Paid (US), ISM Services (US), Crude Oil Inventories (US), BRC Shop Price Index (UK), Consumer Credit (UK), M4 Money Supply (UK), Mortgage Approvals (UK)
Thursday 5 May
Finals: Trainline PLC (LSE:TRN)
Interims: Helios Towers PLC (LSE:HTWS), Shell PLC (LSE:SHEL, NYSE:SHEL), Virgin Money UK, Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF)
Trading announcements: Derwent London (AIM:DLN) PLC, Mondi PLC (LSE:MNDI), Next PLC (LSE:NXT), Barrat Developments PLC, Derwent London (AIM:DLN) PLC, Reach PLC (LSE:RCH), BAE Systems PLC (LSE:BA.),
AGMs: Abrdn Smaller Companies Income Trust PLC, AIB Group PLC (LSE:AIBG), Alpha FX Group PLC (AIM:AFX), Apax Global Alpha Limited, Ceres Power Holdings PLC (AIM:CWR, OTC:CPWHF), ConvaTec Group PLC (LSE:CTEC), Costain Group (LSE:COST) PLC, Domino’s Pizza Group PLC, Emis Group PLC, GetBusy PLC (AIM:GETB), Glanbia PLC (LSE:GLB), Griffin Mining, IMI PLC (LSE:IMI), Indivior PLC (LSE:INDV), James Fisher & Sons PLC (LSE:FSJ), KRM22 PLC (AIM:KRM, OTC:KRMCF), Made.com Group PLC (LSE:MADE), Melrose Industries PLC (LSE:MRO, OTC:MLSPF), Mincon Group PLC (AIM:MCON), Mondi PLC (LSE:MNDI), Moneysupermarket.com (LSE:MONY), Morgan Advanced Materials plc (LSE:MGAM), Morgan Sindall Group PLC (LSE:MGNS), Pershing Square Holdings (LSE:PSH) Ltd, Personal Group Holdings, Phoenix Group Holdings PLC (LSE:PHNX), Quixant PLC (LSE:QXT), Rathbones Group PLC (LSE:RAT, OTC:RTBBF), Reach PLC (LSE:RCH), Scotgems PLC, Witan Investment Trust plc (LSE:WTAN).
Ex-divs to reduce FTSE 100:1.24 points: Croda International PLC (LSE:CRDA), Admiral Group
Economic data: Continuing Claims (US), Initial Jobless Claims (US), BoE Interest Rate Decision (UK)
Friday 7 May
Finals: CMO Group PLC (AIM:CMO)
Interims: Numis Corporation (AIM:NUM) PLC
Trading announcements: Beazley PLC, Ted Baker PLC (LSE:TED), InterContinental Hotels PLC, international Consolidated Airways PLC
AGMs: BlackRock World Mining Trust PLC, CVC Credit Partners European Opportunities (LSE:CCPG) Ltd, InterContinental Hotels Group PLC, Man Group (LSE:EMG) PLC, Rightmove PLC (LSE:RMV), Spirent Communications (LSE:SPT) PLC
Economic data: Non-Farm Payrolls (US), Unemployment Rate (US), Consumer Credit (US), Halifax House Price Index (UK)
USA earnings season
Monday: Berkshire Hathaway, NXP, Semiconductor, The Mosaic Company, ON Semiconductor, Clorox
Tuesday: Pfizer, AMD, Airbnb (NASDAQ:ABNB), Estee Lauder, Starbucks, Skyworks, Yum China, Lyft
Wednesday: Uber, Ford, Moderna, Barrick Gold, Yum Brands, Wolfspeed
Thursday: ConocoPhillips (NYSE:COP), Zoetis, Shopify (TSX:SH., NYSE:SHOP), DoorDash, Kellog, Royal Caribbean Crusies