The Week Ahead: US CPI; UK GDP; Rivian, M&S results

With the US and the UK each having increased interest rates by 0.75 percentage points this month, attention now turns to economic data that could help shape the pace of rate hikes to come. On Thursday, we’ll get the October reading of US consumer price inflation, followed on Friday by the first estimate of the UK’s Q3 gross domestic product. As for company earnings, look out for updates from electric car maker Rivian, Marks & Spencer and Disney, among others.

OUR TOP THREE EVENTS FOR 7-11 NOVEMBER:

Wednesday – Rivian Q3 results 

Though down almost 70% year-to-date, Rivian shares have stabilised somewhat in the last few months. Since hitting a 52-week low of $19.25 during intraday trading on 11 May, the stock has risen roughly 64% to close at $31.52 on 2 November. The electric vehicle maker has been busy adding production capacity, which may have gone some way towards justifying the expectations that accompanied its IPO on 9 November last year. 

Rivian made progress in Q2. The company produced 4,401 vehicles – ahead of its target of 4,000 – and delivered 4,467 vehicles in the three months to the end of June. That marked a step up from Q1, when the company made 2,553 vehicles and delivered 1,227. Management said that they remained optimistic of meeting their target to produce 25,000 vehicles this year, despite various challenges, from ramping up production to sourcing raw materials. 

In September, Rivian signed a deal with Mercedes-Benz to produce electric vans. However, in slightly less encouraging news, in October the company recalled almost every R1T electric pickup truck and R1S three-row SUV that it has produced so far – just over 12,000 vehicles – to fix a problem affecting their front suspension. The company will be hoping that the negative publicity doesn’t affect sales, which have improved of late. 

In Q2, forward sales came in ahead of expectations at $364m, though the company also warned that production costs had risen. This resulted in a higher-than-expected quarterly loss of $1.71bn. Full-year losses are expected to rise to $5.4bn. While Rivian still has plenty of cash, higher costs could become a problem unless the company raises its prices. Losses for Q3 are expected to come in at $1.86 a share.  

Thursday – US CPI (October)

While headline inflation has begun to ease in the US, core prices have continued to go up. The US consumer price index (CPI) increased 8.2% in the year to September, slowing from both August’s reading of 8.3% and the June peak of 9.1%. However, core CPI, which excludes volatile food and energy prices, rose 6.6% in the year to September, up from 6.3% in August, hitting a fresh 40-year high. 

Companies are now passing higher costs on to consumers in the form of higher prices. This trend is fuelling the increase in core prices, exacerbating the cost-of-living squeeze for consumers. Stubbornly high inflation led the US Federal Reserve to raise interest rates by 75 basis points (bp) for the fourth time in a row this week, lifting the federal funds rate to a target range of 3.75% to 4%. Unsurprisingly, bond markets sold off sharply on the news. Markets now expect the key policy rate to reach at least 5% by the end of Q1 next year. 

In the wake of the Fed’s latest 75 bp rate hike, the upcoming CPI reading for October could play an important role in determining whether we see another 75 bp increase at the Fed’s next meeting in December. Fed chair Jay Powell hinted that policymakers might soon consider easing the pace of tightening, saying: “That time is coming, and it may come as soon as the next meeting, or the one after that”.

Friday – UK Q3 GDP

The UK economy grew by an upwardly revised 0.2% in Q2, versus an initial estimate of a contraction of 0.1%, according to data published by the Office for National Statistics. While this reprieve may have given the UK government a chance to claim that the economy is in better shape than many economists originally feared, news of economic growth won’t alleviate the cost-of-living squeeze that many people are experiencing. 

Similarly, Friday’s first reading of Q3 GDP is likely to underplay the extent of the pinch being felt by consumers across the country. Recent purchasing managers’ index (PMI) readings have come in under 50, pointing to economic contraction, while in August and September retail sales fell on a month-on-month basis by 1.7% and 1.4%, respectively. 

Monthly GDP figures offer little hope of growth, with GDP expanding just 0.1% in July and falling 0.3% in August. September is unlikely to have been much better, given the bank holiday for the funeral of Queen Elizabeth II. Consensus estimates suggest that GDP may have contracted 0.5% in Q3.

KEY EVENTS OVERVIEW (7-11 NOVEMBER):

Monday 7 November

China trade (October)

China’s September trade numbers were unexpectedly delayed by a couple of weeks, prompting concerns that the data was likely to paint a really ugly picture of the country’s economy. While the numbers eventually came in slightly ahead of expectations, they may not accurately capture the problems facing the Chinese economy, which is experiencing a surge in Covid cases as winter approaches. 

Imports increased 0.3% year-on-year in September, unchanged from August, while exports rose 5.7% annually, beating expectations of a 4% increase, but down from 7.1% in August. Meanwhile, consumer demand remains tepid, even as industrial production continues to improve. The recent manufacturing and non-manufacturing PMI readings for October were in contraction territory, providing further evidence of an economy struggling to get back on its feet.

Vroom Q3 results

Vroom’s share price performance since its IPO at the height of the pandemic in June 2020 has been a tale of woe. Shares in the used car retailer have plummeted almost 98% as falling sales and big losses have eroded investor confidence.

In Q2 the company reported that sales declined 37.6% to $475.4m, well below expectations of $545.9m. Sales fell in both e-commerce and wholesale divisions, while operating losses widened to $100m. The company announced a raft of job cuts and closed outlets across the US. As the US economy slows, the outlook appears gloomy. Estimates suggest Vroom’s Q3 loss could come in at $0.55 a share.

Tuesday 8 November

US midterms

If the midterm elections see Republicans do well at the expense of Democrats, the US Congress could enter a state of political gridlock, impeding decisions on issues such as Ukraine, abortion and the ongoing investigation in to the insurrection on 6 January. 

If Republicans gain a House majority, they will effectively be able to roadblock anything the Democrats propose, unlike in the first two years of Joe Biden’s presidency. For financial markets, such an impasse could be the best outcome. Markets tend to prefer it when state meddling is kept to a minimum as it limits politicians’ ability to mess things up.

Associated British Foods full-year results

Although budget retailers seem to be faring better than their pricier counterparts, ABF’s share price has significantly underperformed this year, dropping 30%. The share price slid to a 10-year low in September, despite riding out the worst that the pandemic could throw at it. For the first half of this year, the Primark owner reported that group revenue grew 25% to £7.9bn, while adjusted profit before tax rose 109% to £666m. Primark was the main driver of half-year revenue growth, with its sales rising to £3.54bn. 

In Q3 group revenue rose 32% to £4.05bn, with Primark revenue increasing 81% to £1.73bn. This is hugely encouraging, with Primark revenue now comfortably above pre-pandemic levels. In the first nine months of ABF’s financial year, total revenue grew 29% to £11.93bn, with solid growth across all of its other business areas. While it lacks an online operation, Primark is looking at trialling a click-and-collect service on children’s clothing in a number of stores by the end of this year as it looks to boost sales further. 

In September’s pre-close statement the company warned that profits next year are likely to be lower due to rising input cost inflation. This is set to result in a decline in operating margins for Primark. The pre-close statement on the year to 17 September also flagged up a cash outflow which the company attributed mainly to an increase in working capital of £750m, of which £440m was blamed on inflation. While net cash declined, largely due to the advancing of a Primark inventory purchase that pushed up costs by £200m, ABF’s grocery, sugar and agriculture businesses are expected to post increased revenues.

Disney Q4 results

Down more than 35% this year, Disney shares have been trading close to two-year lows for the last three months. After a rally in August the shares have once again trended down. 

In the streaming space Disney has been outperforming its main rival, Netflix. Disney+ has added subscribers and has plans to introduce an ad-supported subscription tier in response to concerns over rising prices. Revenue in Q3 came in at $21.5bn, comfortably beating forecasts of $21bn, as the reopening of theme parks and studios provided a boost. Profit rose to $1.09 a share, beating forecasts of $0.96 a share. 

The Disney+ subscriber base grew to 152.1m in Q3, up from 137.7m, with the company also announcing that it would be raising prices to $11 a month for its US audience. Most new subscribers came from its Hotstar service in India. Disney now faces twin challenges: first, how to keep growing its subscriber base as the cost-of-living squeeze continues; and second, how to mitigate the indefinite closure of its Shanghai resort due to rising Covid cases in China. Fourth quarter profit is expected to come in $0.53 a share.

AMC Entertainment Q3 results

AMC Entertainment’s share price, down nearly 80% year-to-date, slipped to an 18-month low this month following management’s bizarre decision to declare a special preferred stock dividend. This move, which essentially split the stock in to preferred and ordinary shares, was given a collective raspberry by unimpressed investors. 

CEO Adam Aron is no stranger to odd decisions having taken a 22% stake in Hycroft Mining earlier this year. The offer of a special preferred stock dividend seems strange given AMC’s still very high debt levels. For some reason, Aron seems unconcerned about these debts, drawing ire from investors who think he should be cutting debt and creating a more sustainable business model.

All this rather overshadowed the results for Q2, when revenue was in line with expectations at $1.17bn. Though losses came in at $0.20 a share, ticket sales more than doubled from a year ago as the likes of Top Gun: Maverick and Doctor Strange in the Multiverse of Madness got punters through the door. In July the cinema chain said it had its highest monthly attendance in US theatres since December 2019 as confidence returned. AMC added that Q3 was likely to bring a slowdown due to the lack of big new releases, but that Q4 was expected to be better. Losses for Q3 are expected to come in at $0.24 a share.

Wednesday 9 November

Rivian Q3 results

See our top three events, above

Marks & Spencer half-year results

It’s not been a good year for the Marks & Spencer share price. Down more than 50% year-to-date, the decline has wiped out last year’s gains. Although the shares have held above their November 2020 lows, markets are pricing in a significant slowdown in consumer spending. This pessimism seems somewhat overdone, given the transformation carried out over the last few years by ex-CEO Steve Rowe, who stepped down earlier this year. 

In its current form M&S is a very different beast compared to just a few years ago. Rowe, who is staying on in a consultancy role, said that when he became chief executive in 2016, he “committed to tackling underlying issues that had eroded the strength of the business and building the foundations for future growth”. He is credited with restoring profit and strong cash flow through a focus on simplifying business structures, using more digital tools and “bringing back value and style” to the M&S clothing range.  

The focus on digital tools has been evident this year. In July the retailer announced the acquisition of its long-term food logistics provider, Gist, for £145m as it looks to streamline its food supply chain operation and control costs better. However, in September M&S revealed that its partnership with Ocado was expected to see sales decline slightly over the full year 2022, with core earnings set to come in at about break-even. 

Last month M&S announced it would be speeding up the closure of some of its main stores, while opening up more food halls. This process is expected to unfold over the next three years, instead of the previous five-year timeframe. 

ITV Q3 results

For most of this year ITV shares have been struggling over concerns about the sustainability of advertising revenues, as well as its somewhat disjointed streaming strategy. On the plus side, ITV Studios has been performing well. 

In the first half, total revenue rose to £1.99bn, helped by a 16% rise in revenue from ITV Studios, while total advertising revenue (TAR) rose 5%. The increase in TAR may be slightly misleading in that it disguises a drop of 5% in Q2, and forecasts for declines of 9% in July and 18% in August. 

The company said that by the end of September TAR is expected to be broadly flat compared to 2021. While revenue is expected to have deteriorated in Q3, the World Cup in Qatar this month could offer a respite if, as expected, it contributes to a significant uplift in ad revenues in Q4. The tournament could be this year’s silver lining after the shares hit a two-year low in September. 

Aviva Q3 results

It’s been a rough quarter for the Aviva share price, which hit a 23-month low in October as a result of the meltdown in the UK gilt market and the resulting problems in the UK pensions market. In the first half Aviva reported that operating profit rose 14% to £829m. While the headline number missed estimates, that didn’t stop the shares from rising as the insurer said it would look to buy back more shares at the end of the financial year. The company has launched a new car insurance product, quotemehappy.com, while its health insurance brand, Essentials, has also been expanded.  

Thursday 10 November

US CPI (October)

See our top three events, above

Haleon Q3 results

It’s not been a great start for Haleon, the consumer healthcare business that was spun off from GSK in July after GSK management rejected a £50bn bid for the unit from Unilever earlier this year. It was clear at the time that turning down the bid could be an expensive mistake, and so it has proved. Shares in Haleon, which owns brands such as Sensodyne toothpaste and Panadol painkillers, are trading at about 275p, well below their IPO price of 330p. The spin-off is now valued at roughly half the amount offered by Unilever. 

As operating costs soar, the company’s ability to raise consumer prices could well dictate where the stock goes next. Competitors such as Reckitt Benckiser and Unilever have raised prices already. 

In the first half Haleon’s revenue rose 13.4% to £5.19bn, driven largely by its painkiller brands. Adjusted operating profit came in at £1.19bn. For the full year, Haleon said it expects organic revenue growth of between 6% and 8%, which seems on the low side when you consider that this winter could be the first proper flu season since Covid.  On the Zantac litigation claims which have hammered the share price in recent months, management rejected the notion that they should shoulder liability over the antacid drug. 

Friday 11 November

UK Q3 GDP

See our top three events, above

INDEX DIVIDEND SCHEDULE

Dividend payments from an index's constituent shares can affect your trading account. View this week's index dividend schedule.

SELECTED COMPANY RESULTS

Note: Company announcements are subject to change. Dates correct at the time of writing.

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