The week ahead – ECB set to cut rates again, US Payrolls in focus

1) US NFP (May) – 06/06 – While many have been fretting about the overall health of the US economy, as consumer confidence levels slide and the economy contracted in Q1, the labour market has remained fairly resilient. At the last payrolls report for April the number of jobs added to the US economy saw a number of 177k, the second month in a row the number has come in ahead of forecasts. Unemployment remained steady at 4.2% while average earnings came in below forecasts at 3.8% and matching the lowest level in the last 6 months. This perhaps explains the reticence of the Federal Reserve to cut rates further in the short term. Despite all the noise and uncertainty surrounding the new Trump administration and the weakness of various business and consumer surveys there is little sign at the moment that the US economy is under any significant duress. Jobless claims data has remained steady at around 225k, as has continuing claims at 1.9m. Expectations for this week’s May payrolls report is for 130k jobs to be added.       

2) ECB rate decision – 05/06 – Since starting its rate cutting cycle a year ago the ECB has been at the forefront when it comes to reducing the cost of borrowing. In April cut the cost of borrowing for the 7th time with many expecting another cut to come when they meet in June. Despite cutting rates at twice the speed of its peers the euro is modestly higher from where it was 12 months ago. While much of this is down to a decline in the US dollar it does present a problem for the central bank at a time when growth in the euro area has been weak, with the regions two biggest economies of Germany and France struggling. While it would be easier to dismiss the ECB’s current problem being that one of a Trump sized one as the US President singles out the bloc for its big surplus, the ECB’s problems predate the Trump administration. There are some on the governing council who feel that the ECB has done enough when it comes to rate cuts with headline CPI back close to 2% at 2.2% and likely to weaken further when the latest data comes out earlier in the week. It is true that core CPI is higher at 2.7% but even here there are signs of slowing prices here as well. Of course, the ECB also has to be aware that its own politicians could exacerbate the problem if they choose to slap further tariffs on US goods if trade talks break down. Never underestimate the ability of politicians to make a bad situation worse, because of misplaced ego or slight. At this week’s latest review, the ECB will have to make best guess estimates of the glide path of growth, inflation and unemployment, all factors that have seen little change despite what could well be the 8th rate cut since the current cycle started a year ago. The latest ECB bank lending survey showed that demand for credit was slowing which suggests that the problem isn’t the level of rates but something more structural. These problems have been well documented for years, with ex ECB President Mario Draghi outlining in detail what needs to be done, however it’s highly unlikely that many of them will see the light of day as the bloc becomes more EU sceptic.         

3) EU flash CPI (May) - 03/06 – Inflation in the euro area has remained fairly steady for the last couple of months slipping from peaks of 2.5% at the start of the year, and slowing to 2.2% in May. These peaks of 2.5%, where headline inflation was a year ago, when the EU started its rate cutting cycle, and despite 7 rate cuts since then inflation only briefly slipped below 2% back in October last year. This week the expectation is for inflation to slow further, to 2%, while core prices are forecast to remain steady at 2.7%.

4) UK lending data/Mortgage Approvals (May) – 02/06 – When the latest lending data for April was released it was with some surprise that the mortgage lending number surged to £12.96bn, from £3.8bn in March, while mortgage approvals remained steady at 64k. This came across as somewhat counterintuitive given that in that very same month the changes to stamp duty kicked in, reducing thresholds at which the rate kicked in. While this change seems to have prompted a slowdown in house prices, consumer appetite for borrowing seems to know no bounds although we could well see a delayed reaction once it becomes apparent that the costs of moving have increased sharply in the last few weeks due to the change in thresholds. With pressure growing on personal finances there was a slowdown in spending on credit cards which came in at £875m in April, down from £1.35bn in March.

5) B&M European Value FY25 – 04/06 – Since B&M announced its pre-close results back in April the shares have enjoyed a modest rebound having slipped to their lowest levels since Covid back in February. At a time when consumer finances are being tested this budget retailer has flown under the radar somewhat. It has been doing well with management overseeing an aggressive store opening program across its regions. The retailer said it opened 45 new stores in the UK with another 45 expected in 2025. In France the picture is a similar one with 11 new stores, along with another 14 under the Heron brand. FY25 group adjusted EBITDA expected to be between £605m and £625m. Full year revenue is expected to come in at £5.6bn, with B&M UK contributing £4.48bn of that sum. Full year group adjusted EBITDA is expected to be above £615m, but less than £625m.         

6) Chemring H1 25 – 03/06 – The defence sector has seen its fortunes change this year with an increased focus in the wake of the new US administration's tone when it comes to other countries taking responsibility for their own defence capability. This sector has been overlooked in recent years for various reasons, ESG being one, however they now appear to be back in fashion given the recent performance from Chemring since the start of the year, and more importantly since the shares hit an 18-month low in February. Since those lows, the shares have surged by over 50%, although some of that boost came from a report that Bain Capital had made a bid for the company at 390p per share. In April the shares received a further boost after winning a 6-year missile defence contract called STORM, with the MOD for £250m. Chemring provides services to the aerospace, defence and security market and whose key strength is in designing sensors and detection, as well as countermeasures (chaff) to protect aircraft and ships from missiles. Their products cover the range of electronic warfare, as well as explosive hazard protection (IED) as well as chemical and biological detection. The company also provides systems like oxygen mask deployment on commercial aircraft, as well as ejector seat technology for aircrew. Customers range from governments as well as NASA and SpaceX. When Chemring updated the market in February the company said its outlook was in line with expectations, with a Q1 order intake of £393m, and that the order book was at £1.35bn as at 30th January. The company also said it is on track to deliver over £1bn in revenues by 2030, generating mid-teen margins in the process.  

 7) British American Tobacco Q2 25 – 03/06 – One of the larger companies on the FTSE100, this UK tobacco giant has been battling against a decline in global smoking trends and a move towards vaping. At the end of 2023, the shares slipped to a 13-year low at 2,230p, after reporting a £25bn impairment charge on some of its US brands in response to the difficulties being faced in its US market. Since those multi year lows the shares have enjoyed a bit of a renaissance briefly pushing up to a two year high in February before seeing a sharp decline in the wake of the publication of its annual results which saw a 5.2% decline in annual revenue to £25.9bn, due to the sale of its Russia and Belarus businesses. More positively, having reported a huge loss the year before, profits from operations came in at £2.7bn. New Categories saw an increase in revenues of 8.9% to £3.43bn. For 2025 management said that they are targeting 1% revenue growth, despite tobacco volume growth of down 2%, with performance expected to be second half weighted with the shares almost back at the levels we saw back in February ahead of their latest update.    

8) GameStop Q1 26 – 06/06 – We’ve seen slow progress on GameStop since the company reported in Q4, with the shares pushing up to their highest level in almost a year this month. The shares briefly dipped to a four-month low in the aftermath of their last set of numbers before rebounding from $21. Net sales fell to $1.28bn in Q4, a sharp fall from the $1.79bn the previous year, however profits were much better than expected, coming in at $131.3m, over double from the same period a year ago. On the full year numbers there was a similar drop in revenue, down from $5.27bn to $3.8bn, however profits were much better due to it closing loss making operations in Italy, as well as Germany. With money now burning a hole in its pocket the shares dropped sharply this week after the company announced it had made its first investment in bitcoin, buying $512.6m in a move that could well backfire on it. GameStop does have previous when it comes to questionable investments, at market tops, namely crypto exchange FTX, as well as NFT’s, or non-fungible tokens, both of which cost the company millions of US dollars.          

9) Broadcom Q2 25 – 05/06 - Another US chip stock that is riding the big AI boom, it has gone from strength to strength the past 2 years, performing strongly since 2023 and carrying that performance over since then. The last few months have seen a bit of a reality check since then, along with the rest of the tech sector, but overall the picture still looks positive. In March the company reported $4.1bn in AI revenue, an increase of 77%, out of a total of $14.92bn, which helped it beat market expectations. Profits also came in ahead at $1.60 a share. For Q2 Broadcom says it expects revenue of $14.9bn as it works with Google as one of its primary data centre infrastructure vendors for its custom AI chips. The VMWare business also performed well during Q1, posting a 47% increase in sales to $6.7bn.