Another busy week, full of interest rate decisions and inflation drama!
Things get quieter from here – for just a few weeks. Just in time, too; I’m off to Jersey for a week! Truth be told, I’ll be there when this post goes live… Ah, the perks of scheduling posts.
Anyway! Here’s a rundown of this week’s events. Let me know your thoughts in the comments, or fire me a DM on Instagram!
Key Events
UK CPI (Inflation) Data for February 2023
On Wednesday, we got UK inflation data for February, and it came in HOT!
Expectations were that year-over-year CPI would rise by 9.9%, while month-over-month CPI would rise by 0.6%.
However, year-over-year, CPI rose to 10.4%, compared to January’s 10.1%, above expectations. This is now the sixth consecutive month where headline inflation has been above 10%.
Not only that, but month-over-month, prices rose a whopping 1.1% (13.2% annualised), after January’s decline of 0.6%, also well above expectations.
Reportedly, the biggest increases came from food, hospitality and clothing.
US FOMC Meeting
Also on Wednesday, we heard from the Federal Reserve regarding interest rates and the economy.
At this FOMC, the Federal Reserve voted to increase interest rates once again, by 0.25%, largely in line with expectations. This brings the “Fed Funds Rate” (essentially their equivalent of a base rate) to 5.00% at the upper end.
During the FOMC meeting, participants plotted where they expect interest rates to be at the end of 2023. The majority of members estimate rates will lie between 5.25% and 5.75%, implying at least one more interest rate hike is expected in upcoming meetings.
On the economy, the FOMC reduced their projections for GDP in both 2023, 2024 and 2025. However, all projections are all positive at the midpoint. This implies they do not expect a recession to occur. At least, not a ‘deep’ recession. They also expect minimal change to the rates of unemployment across the US, despite the higher interest rate environment. This suggests the labour market is still incredibly strong and resilient.
Regarding the banking crisis, the Federal Reserve are confident that the banks to have failed so far, are outliers. The Federal Reserve Chair, Jerome Powell, claims that these banks “grew too quickly” and took on too much risk. He also reiterates that liquidity is strong across the banking sector and that there is little to no risk in rising interest rates further.
UK Bank of England Monetary Policy Committee Meeting
On Thursday, the Bank of England increased interest rates by another 0.25%.
This brings the base rate to 4.25%, putting a little more pressure on variable mortgage payers and those in debt. On the other hand, it give additional benefit to savers.
This also bumps up interest revenue for companies. Particularly, stock brokerages and banks with investment platforms, who have seen slumping revenue and profits due to lower trading volumes.
The BoE suggests they do expect inflation to quickly fall in the second quarter of 2023. While this will be met with a sigh of relief from many, it does mean prices are still rising above the target 2%. Some would argue we need to see negative inflation (i.e., deflation) to normalise the economy.
Stock Market News
Amazon (AMZN) – Second Round of Layoffs Announced
Back in January 2023, Amazon announced it was cutting 18,000 jobs as a cost-saving measure.
On Monday, the company announced it will in fact be laying off an additional 9,000 employees, bringing the total to 27,000 in 2023.
Accenture (ACN) – First Bout of Layoffs Announced
On Thursday, Accenture announced it will be cutting its workforce by 19,000, or by around 2.6%.
This is only a small portion of the 230,000 or so employees the company has hired since August 2020, but is one of the first consultancy and outsourcing businesses to announce such cost-cutting measures.
Does this signal the start of a weakening labour market? How many companies are soon to follow suit? I’m sure we won’t have to wait too long to find out.
Nike (NKE) – Q1 (Fiscal Q3 2023) Earnings
On Tuesday, Nike beat analyst expectations on both revenue and earnings.
Key Points:
- Revenue of $12,390m, up from $10,871m (+14.0%) a year ago
- Gross profit of $7,019m, up from $5,804m (+20.9%) a year ago
- Gross margin fell slightly, to 43.3%, compared to 46.6% a year ago
- Operating profit of $1,412m, down from $1,629m (-13.3%) a year ago
- Profit before tax of $1,477m, compared to $1,670m a year ago
- Profit after tax of $1,240m, compared to $1,396m a year ago
- Basic earnings per share of $0.80
- Dividend of $0.34 announced, to be paid on 3rd April 2023
- The company expects the next quarter to see flat to low single-digit revenue growth
- Cash and cash equivalents of $6,955m, falling from $8,704m a year ago. This is largely due to share repurchases and dividend payments exceeding cash earned from operations
- Inventories remain higher than the company would like, not helped by a bigger fall of sales in China than expected. Though, quarter-over-quarter, Nike reduced inventories by around $400m and increased sales in all other regions
Next Week
US GDP Report (Q4 2022, Final Revision)
On Thursday, we’ll get the second and final revision regarding the US’s Q4 GDP reading.
The previous reading (i.e., the first revision) suggested GDP rose 2.7% in Q4 2022. This was actually a downward revision from 2.9%.
I can’t seem to see a consensus estimate for this second revision, but tradingeconomics.com suggests this will be remain stable at 2.7%.
UK GDP Report (Q4 2022, Final Revision)
On Friday, we’ll get the UK’s ‘final’ GDP report for Q4 2022.
The previous report stated a GDP growth rate of 0.4%. Analysts do not expect this figure to change in the final version of the report. But that is by no means a guarantee.
Let me know your thoughts on this week’s events, in the comments below!
