Earnings time

The Morning Message

Morning all.

It's a big week for the FTSE 100, with a raft of results due. That makes it a big week for investors too, as earnings from some of Britain's largest companies will provide a clear snapshot of the health of corporate Britain.

In other news, Bank of England officials meet on Thursday to discuss their next decision.

Inflationary pressures driven by oil prices following the Houthi attacks will be high in the mind of Bank officials on Thursday, just as they were for the ECB last week.

Markets

The Number

26

The number of earnings releases we will be tracking this week across the FTSE 100.

The Big Story

And The Results Are In…

This week won't just be a series of earnings releases. It will be a health check on some of the UK's largest FTSE 100 companies, against a backdrop of elevated energy prices, geopolitical uncertainty and with an interest rates decision around the corner.

Some of the UK's biggest hitters across banking, consumer and healthcare are releasing results. The current climate raises different questions for different sectors, but it's likely we'll start to build a clearer picture of how market conditions are affecting the UK's key corporates.

Banking

In banking and financial services, Barclays, Lloyds and Standard Chartered are amongst those releasing results. We expect that lending businesses will have been supported by relatively higher interest rates, and management commentary will be closely watched ahead of Thursday's Bank of England decision. We will be looking for any evidence that rates have started to impact on borrowers in the form of higher defaults. In addition to the numbers, management teams may also comment on current M&A/IPO deal-flow amidst a backdrop of geopolitical uncertainty. Trading teams tend to be less affected by the economic cycle than investment banking teams.

Consumer

Unilever and Reckitt are amongst those releasing results. This should provide more insight into how higher interest rates have affected consumer spending. When households spend more on loans and mortgages, they have less disposable income for discretionary spending. The results should give us a sense of what the impact has been and management's plans to try and finish the year strongly.

Healthcare

Healthcare tends to be resilient even in difficult markets as demand for medicines is fairly consistent. Investors will be watching for any updates on AI's impact on productivity and other innovation. GLP-1 and other weight loss drugs continue to increase in popularity, particularly in pill form: it will be interesting to see if management provides any insight into sales growth in these areas.

The Boardroom

Let's Just Pause

When European regulators approved Paramount's $110 bn merger with Warner Brothers, they probably thought they were in the clear.

On Friday however, it was reported that the deal is on freeze because twelve states and the Writers Guild of America have brought lawsuits. They're concerned that the deal would be anti-competitive. The pair argue that they need the tie-up to happen in order to be able to compete with digital streaming platforms.

US firms have had their fair-share of run-ins with European authorities in the past so this will come as a blow so soon after EU approval. It is now for a US judge to decide whether or not to allow the legal challenge.

Around the World

Don't You Two Get Involved

Whilst the US has briefly paused strikes on Iran, tensions between the Houthis and Saudi Arabia have escalated, as a new frontier in the Middle East conflict begins to emerge.

Following last week's strikes by the Houthis on two Saudi vessels, oil prices jumped up to $100 a barrel. The weekend saw further strikes by the Houthis following alleged attacks by the Saudis on Yemeni targets last Friday. Markets continue to fear that the Bab el-Mandeb Strait could be a new front in the conflict with the potential for further Yemeni disruption along that shipping route.

Quick Hits

The Take

Andy Burnham deciding not to call an election is hardly a surprise but it does raise questions.

Whilst previous Prime Ministers such as May and Johnson have chosen to, it was as much about trying to get a clear parliamentary majority as much as establishing a mandate. Andy Burnham inherits a majority of over one hundred and sixty. But in many cases Labour won quite a few seats by narrow margins in the 2024 election and the tide could change quickly.

Burnham and Chancellor John Healey now have to convince markets they can push through spending plans whilst maintaining fiscal discipline. With the IMF having raised concerns about debt levels and cuts unpopular in the Labour parliamentary party it seems difficult to see how tax rises can be ruled out. John Healey is well respected following his time as Defence Secretary and largely seen as prudent and solid. This explains his appointment. But the markets will be looking for more than political symbolism ahead of the budget later this year. Healey will have to ensure future spending plans are properly funded.

When bond markets turn, they turn sharp and fast.

Before You Go

That's you up to date ahead of the new week.

Until tomorrow,
Sean