The Week Ahead: Fed Minutes, easyJet, and Kingfisher Earnings in Focus.

U.S. Q3 GDP and October PCE Data – 27/11

The U.S. economy has shown resilience this year, maintaining steady job growth despite numerous challenges and uncertainty surrounding the recent presidential election. Although hurricanes in the southern U.S. caused a notable slowdown in October’s job growth, an improvement is anticipated in November. With the Federal Reserve recently cutting interest rates and unemployment stable at 4.1%, there seems little urgency for further rate reductions. The economy grew by 2.8% in Q2 and appears on track for similar expansion in Q3, based on recent employment and retail figures. However, concerns about bottoming inflation could influence the Fed’s decision-making, with upcoming core PCE deflator data offering critical insights into the likelihood of a December rate cut.

Fed Minutes- 27/11-

The previous Fed minutes revealed a consensus on the need for a rate cut in September, though the debate centered on its magnitude. While some officials favored a smaller 25bps cut, most supported the eventual 50bps reduction. The upcoming November meeting minutes are expected to show a broader consensus. Notably, the September forecasts indicated that seven officials supported 75bps of easing in 2024, two preferred 50bps, and ten leaned towards 1% or more, suggesting strong backing for at least a 25bps cut at the year’s final meeting.

U.S. rates have risen since the November 25bps cut, tightening monetary conditions. Additionally, October’s slightly higher-than-expected CPI inflation and hurricane-affected jobs data have complicated the outlook. Fed Chair Powell’s post-election comments, coupled with the November meeting statement, suggest a December rate cut is less certain than markets anticipate. This week’s minutes could offer further insight into this evolving debate.

EU CPI (Nov)- 29/11

The focus is no longer on whether the ECB will cut rates next month but rather on the size of the cut—25bps appears likely, though a larger 50bps move remains a less probable option. Having already reduced rates three times this year, the ECB is widely expected to deliver a fourth cut, bringing rates to 3% at its final meeting.

The eurozone faces mounting challenges, with manufacturing mired in an 18-month slump and the services sector also showing signs of deceleration. This week’s flash CPI data for November is expected to show headline inflation ticking up to 2.2%, with core inflation rising from 2.7% to 2.9%, further complicating the ECB’s policy decisions.

UK Mortgage Approvals (October)- 29 /11

Mortgage approvals have shown a gradual recovery over the past year, surpassing 50k earlier in 2023 and steadily climbing toward pre-mini-budget 2022 levels, where approvals averaged in the high 60ks. This progress has been slow, but September approvals hit 66k—the highest since September 2022.

However, optimism in the mortgage market may be waning as borrowing costs rise, returning to post-mini-budget levels despite two Bank of England rate cuts. With the recent budget now behind us, there’s speculation that the current approval levels might represent a peak.

In terms of house prices, Rightmove’s November data revealed a 1.4% drop in average new seller asking prices. While sales activity has increased, this marks the second consecutive month of price declines, suggesting ongoing pressures in the housing market.

Kingfisher Q3 25- 25 /11

Retailers have faced significant challenges in recent years, with rising living costs heavily impacting the sector. DIY retailers, in particular, have struggled with escalating raw material costs that have squeezed margins and tested consumers’ willingness to pay higher prices.

Kingfisher has seen mixed results across its business. Online sales and its Screwfix brand have been bright spots, outperforming other segments, which have faced like-for-like (LFL) declines. In the first half of the year, total sales fell by 1.4%, with LFL sales down 2.4%. The French division was the weakest performer, with a 7.2% drop, while the UK saw a more modest decline of 0.2%, thanks to a 1.2% rise in LFL sales from Screwfix, offsetting a 1% drop at B&Q.

Looking ahead, Kingfisher has adopted a more optimistic outlook, raising its adjusted full-year profit before tax guidance to £510m–£550m, up £20m at the lower range. Free cash flow expectations were also upgraded to £410m–£460m, driven by £120m in cost reductions, including implementing technologies like self-service checkouts.

However, cost pressures are likely to increase following the latest budget, which has raised fixed costs for employers. These challenges have already taken a toll on industry peer Homebase, which recently entered pre-pack administration, leading to half its stores being acquired by The Range and the remainder expected to close.

EasyJet FY 24- 27/11

In Q3, easyJet reported a 16% rise in profits to £236m, supported by an 8% increase in passenger numbers year-on-year and a 1% improvement in revenue per seat. This growth was largely driven by a 4% rise in ancillary revenues, which climbed to £24.66m.

The easyJet holidays segment continues to thrive, with profits before tax now expected to exceed £180m. The division reported a 42% increase in revenue to £336m and Q3 profits of £73m, an upgrade from the £170m forecast at the end of H1. This business line has been a consistent performer, with steady improvements over recent quarters, and management is optimistic about its continued momentum.

Despite a £350m loss in H1, easyJet typically recovers profitability in the second half of the year, aiming to surpass last year’s annual profit of £324m. Investor sentiment has also improved in recent months; after hitting a nine-month low in August, the share price has steadily rebounded to levels last seen in April.