The week ahead: US payrolls, UK Q2 GDP revisions and Tesco results

1) US non-farm payrolls – (Sep) – 03/10 – having seen the US economy add jobs at the slowest rate since November last year, prompting the Federal Reserve to deliver their first rate cut this year it is slowly becoming apparent that jobs growth has been much weaker than expected. This was borne out by the latest revisions to the hiring numbers from the BLS which saw a record 911k fewer jobs added in the year through to March 2025. With unemployment also rising to its highest level since 2021 the Fed appears to have shifted gears towards looking more closely at the employment side of its mandate, as opposed to inflation. There does appear to be some evidence that price pressures are slowing, even with headline inflation still closer to 3% than the central bank’s 2% target. With the first rate cut of 2025 now behind it the Fed now has to decide whether to follow this up with further cuts at its remaining 2 meetings this year. Market pricing does appear to be leaning in that direction; however, it remains far from a done deal given recent comments in the last few days from some Fed officials. It also means that whatever the recent thoughts of new Fed governor and Trump puppet Steve Miran who is arguing for a more aggressive approach won’t mean that much without support from other FOMC members. This more aggressive approach doesn’t seem necessary at this point; after the latest revisions to US Q2 GDP, and a sharp slowdown in weekly jobless claims, however, recent revisions have pointed to a sharp slowing in jobs growth in the last 3 months in both private and public sector hiring. Could we see another negative print after recent revisions saw a jobs decline in June in both ADP and the BLS numbers? The problem the Fed has, and it’s the same here in the UK, is that the BLS, like the ONS isn’t doing the one job it is supposed to do, and that is capturing an accurate picture of the labour market. On the one hand the latest JOLTs numbers show vacancies have risen in the last 3 months yet jobs growth is slowing? Another disappointing ADP as well as non-farm payrolls report will add momentum to those wanting the Fed to go harder and faster on rate cuts.

2) UK lending data (Aug) - 29/09 – in a sign that slightly lower rates were stimulating demand in the UK mortgage market mortgage approvals in July edged up to 65.4k in July in expectation of more rate cuts by year end. These hopes have been dealt a blow in recent weeks by stubbornly persistent inflation and an economy while flatlining, that has proved to be surprisingly resilient. With the OECD recently observing that inflation in the UK is unlikely to come down quickly, the bad news for homeowners could be that any further rate cuts may well take some time to arrive. With further tax rises being touted in the upcoming November budget the incentives to take on new borrowing are likely to diminish further in the wake of concerns over faltering private, as well as public sector output.          

3) UK Q2 GDP final – 30/09 – it’s well documented that the ONS is struggling with its core function, namely collating the data needed to assess how well the UK economy is performing. This week’s final Q2 GDP numbers aren’t likely to tell us anything we don’t already know about the UK economy, after a strong start to the year. The idea that somehow the economy grew by 0.3% in Q2 is very difficult to square with a lot of the other data that we’ve seen from other independent sources. One takeaway from the number published in August was that government spending accounted for a lot of the improvement. On all other measures the private sector struggled with business investment seeing a decline of 4%. Also performing poorly, wholesale and retail trade saw a decline of 0.9% partially reversing the gains seen in Q1. We also saw a strong performance from pharmaceuticals suggesting some front running of possible tariffs in this sector. We also saw that services performed, however given the recent downward revisions to UK retail sales, which saw the ONS overstate the performance of the retail sector, we can probably expect to see a downward revision from the previous Q2 number in light of these recent revisions.              

4) Tesco H1 26 – 02/10 – when Tesco reported back in June it showcased a relatively strong set of Q1 numbers, helping to push the share price gradually back to its highest levels since 2013. Not only did the UK’s number 1 food retailer push its market share to 28%, for the 13 weeks to 24^th May the supermarket chain saw a 4.7% increase in LFL sales of £15.39bn, with the UK operation seeing a 5.1% increase. Food sales saw a strong quarter with a 5.9% increase, while there was also strong growth in home and clothing due to the warmer weather. The weak link, which was Booker in the end of year results, also saw a decent pick up in sales, rising 2% to £2.3bn, helped by a strong performance in its catering business, which saw a 7.3% increase in sales. On the other side of the ledger however its Best Food logistics division saw a weak quarter, with a 0.8% decline in LFL sales to £358m, along with tobacco which declined by 9%. Full year guidance was left unchanged, with group adjusted operating profit remaining between £2.7bn and £3bn, and FCF of between £1.4bn and £1.8bn. A recent Kantar survey pointed to the fact Tesco continued to perform well relative to its peers, its market share edging up to 28.4%, with spending up 7.7% its highest rate since December 2023. This increase helps to raise the bar when it comes to expectations for the H1 numbers as well as the prospect of a positive guidance change. Of course, management may decide to adopt a safety-first approach, especially with the budget fast approaching amidst concern that the Chancellor will once again announce another set of financially illiterate tax changes.

5) JD Wetherspoon FY 25 – 03/10 – a solid set of Q4 numbers saw Wetherspoon shares rise to their highest levels in over 12 months in July after a 5.1% increase in like-for-like sales for the 12-weeks to 20^th July. The numbers were helped greatly by the warmer weather helping the pub chain to deliver the expectation that profits will come in line with forecasts. This was welcome news and helped to offset the increased costs from the recent budget changes to NI and the minimum wage, however the shares have slipped back from those heady peaks. While sales volumes have recently overtaken pre-pandemic levels with wines proving popular and food sales have also recovered there is a concern that onset of autumn could prompt a slowdown. In a sign that even Wetherspoon gets to do puns, the Q4 report said that chicken dish sales put in a clucking good performance. This month Wetherspoon announced the opening dates of the 15 new pubs it was currently planning over the next 12 months, as well as announcing that it would be slashing prices for a day in 800 of its pubs to highlight the inequity of the different VAT rules on food and alcoholic drinks with supermarkets paying a zero rate, while pubs pay the full 20%. 

6) Greggs Q3 25 – 01/10 – having performed well during and in the aftermath of the pandemic Greggs shares have fallen off a cliff this year, with the share close to 5-year lows. The rot set in very early on this year, despite the bakery chain reporting a 11.3% rise in full year sales to £2bn in January. Some of the initial weakness came about as a consequence of the company increasing its prices at a time when fragile consumer confidence could prompt weaker sales and footfall. These fears came to pass in July when the shares fell even further after a profits warning caused by weaker sales due to the warmer weather during Q2. Like-for-like sales fell by 2.6% in the first half of the year, as the heatwave prompted consumers to opt for ice cream over sausage rolls and pasties. The fact that the price of sausage rolls has gone up by more than 25% since 2022 may well have also played a part as well. Despite these concerns over a consumer slowdown Greggs has continued to open new shops, although it has also been closing others. This increase in footprint is likely to result in much higher overheads and there is some doubt as to whether this increase can be offset with increased sales at a time when consumers continue to feel the pinch. The next 2 quarters are likely to be key for the Greggs share price. Can management allay investor concerns about higher costs and weaker sales, or will a reluctance to pare back their expansion plans prompt further share price weakness? 

7) Nike Q1 26 – 30/09 - expectations were already low leading into Nike’s Q4 numbers with the shares rebounding from 8-year lows back in April. The previous 3 quarters had already seen revenue declines of 10%, 8% and 9% respectively so the forecast for Q4 was for declines in the mid-teens. The reality was somewhat better with the shares rallying higher in the aftermath of the numbers, even as Nike admitted that tariffs would cost the business $1bn over the new fiscal year given that 16% of its supply chain is currently in China. Revenues for Q4 were $400m higher than forecast at $11.1bn, a decline of 12%, while profits came in at 14c a share, a decline of 86%. For Q1 26 Nike said it expects to see a 7% decline in sales with gross margins expected to fall between 3.5 and 4.25 percentage points. Revenue for Nike Direct saw a 14% decline during Q4, although Nike stores did see an improvement with a 2% increase. It appears that Nike is shifting its focus back into store sales particularly in the US, its largest market, and focussing less on selling direct to consumers as it looks to run down its inventory overhang. With the shares currently close to 2-month lows investors will be looking for further progress as the business looks to recover its mojo and revisit the highs seen earlier this year, pre tariff “Liberation Day”.