The Week Ahead: Fed, ECB, BoE rate meetings; Adobe, Currys results

A trio of central bank interest rate meetings form our pick of the top three economic events in the week commencing Monday 11 December:

Federal Reserve rate decision

Wednesday 13 December: Last month, when the Federal Reserve kept interest rates unchanged for the second meeting in a row, there was still the possibility of one last increase in December to bring rates in line with Fed policymakers’ dot plot forecasts of 5.6%. However, that prospect has all but disappeared. As recently as the start of this month, Fed chair Jay Powell was still insisting that rate hikes remained on the table. Now, though, the CME FedWatch Tool, which tracks the probability of interest rate changes based on futures trading data, indicates that investors believe there is a 97.3% likelihood that the Fed will hold its benchmark rate at a target range of 5.25% to 5.5%. Although Fed policymakers have guided that the federal funds rate will drop to 5% by the end of next year, markets are betting that rates could fall lower than that, with the first rate cuts expected to be delivered next summer. Diverging from Powell’s insistence that no decision had been made on whether more rate hikes were coming, one hawkish member of the rate-setting Federal Open Market Committee, Christoper Waller, said recently that monetary policy was already well positioned to slow the economy and get inflation back to the Fed’s 2% target. He added that, if disinflation became a concern, rates could be cut, suggesting that the ground is shifting and rates may have peaked. That said, the recent slide in bond yields could concern some Fed members if it loosens financial conditions enough to send inflation higher. So, while the Fed is set to keep rates unchanged on Wednesday, the FOMC may shy away from revising its dot plot for next year or issuing guidance that could appear dovish. 

European Central Bank rate decision

Thursday 14 December: The Fed’s European counterpart, the ECB, is also likely to keep rates on hold this month. There’s a sense that the ECB made a mistake in raising rates in September when both the Fed and the Bank of England left rates unchanged. A month later, ECB president Christine Lagarde said that risks to growth were tilted to the downside, and that inflation was still too high. She was non-committal on the question of whether the ECB was done with rate hikes, even though the economic data coming out of the eurozone since June has painted a gloomy picture. In Q3 France’s economy contracted 0.1% on a quarterly basis, while Germany has seen little to no growth this year. All of which suggests it’s time up for rate hikes – a view that was given support just a few days ago by Germany’s ECB governing council member Isabel Schnabel, who acknowledged that the ECB is done on rates and expressed surprise at how quickly inflation has slowed. France’s ECB member Francois Villeroy de Galhau has also signalled that rate hikes are over as inflation is returning to target. The eurozone’s consumer price index (CPI) rose 2.4% in the year to November, easing from 2.9% a month earlier and down from 5.3% in August. Lagarde’s biggest challenge now is to convince the market that rates won’t be cut before the summer.

Bank of England rate decision

Thursday 14 December: The Bank of England could make it a hat-trick of rate holds this week. Its decision to leave rates unchanged in September was a close call, but on the balance of risks it was probably the right one. The Bank has switched to a so-called “Table Mountain” approach to interest rates, likening the rate graph to the shape of Cape Town’s famous natural landmark, as inflation and earnings growth remain elevated in the UK compared to other major economies, despite recent drops. Consumer price inflation fell to 4.6% in October, down from 6.7% a month earlier, as energy prices decreased following Ofgem's reduction of the cap on household bills. Core inflation, which excludes the price of energy, food, alcohol and tobacco, eased to 5.7%, down from 6.1% in September. Earnings growth, which is running at 7.7%, remains a concern, which partly explains why three out of nine members of the rate-setting Monetary Policy Committee – Catherine Mann, Megan Greene and Jonathan Haskel – still want higher rates. It will be interesting to see how these three vote on Thursday with the markets already pricing in rate cuts for next year.

Here's our pick of the week's other notable economic and company events:

US CPI (November)

Tue 12 Dec: US consumer price growth fell to 3.2% in October, down from 3.7% a month earlier, ending a slight rebound in inflation after it fell to 3% in June. Core inflation continued to ease, falling to 4%, down from 4.1% in September. With the threat of a US government shutdown postponed until January, the economic risks facing the US economy appear to be diminishing. There was concern that the resilience of the US economy might delay the return to the 2% inflation target, but inflationary pressures have eased. While US CPI could slip below 3% before the end of the year, the figures for November are expected to show a drop to 3.1%, with core inflation steady at 4%.

UK average earnings (October)

Tue 12 Dec: UK pay excluding bonuses increased 7.7% year-on-year in the three months to September, down from 7.9% in the previous three-month period. Despite the Bank of England’s concerns, the current rate of pay growth is good news for people who have seen their purchasing power shrink during a period of high inflation. Higher pay means that some of the purchasing power that has been lost over the last few months is being clawed back, though it may take years to get back to pre-pandemic levels. With food price inflation having only recently dropped below 10%, it won’t feel like a wage-price spiral for the consumers who are finally seeing the price/wage ratio turn in their favour. Expectations for the three months to October are for average earnings to have risen 7.3% on an annual basis. 

UK GDP (October)

Wed 13 Dec: Having expanded 0.6% year-on-year in Q3, the UK economy has continued to hold up well based on the latest monthly data. When you consider that a year ago both the IMF and the Bank of England were predicting a long recession this year, the avoidance of one is no small feat. That’s not to say that everything is fine and dandy. It isn’t. But sometimes it’s too easy to be negative. The UK economy grew 0.2% month-on-month in September, up from a 0.1% increase in August, as mortgage rates eased from their summer peaks, relieving some of the pressure on hard-pressed consumers. Recent purchasing managers’ index (PMI) numbers also offer grounds for mild optimism. Estimates for October GDP point to zero growth, but after the 0.6% contraction in July, flatlining is not to be sniffed at.

Adobe Q4 results

Wed 13 Dec: It’s been a strong year for the Adobe share price, which has soared 80%. The company had predicted Q3 revenue of between $4.83bn and $4.87bn, and profit of between $3.95 and $4 a share, driven by growth in its AI products. In fact, the results were even better than forecast, with revenue coming in at a record $4.89bn, up 10% year-on-year. Profit came in at $4.09 a share, sending the shares up to their best levels since December 2021 in the last few weeks. Adobe’s main revenue earner is digital media content creation, helped by its new AI feature Firefly. For Q4 Adobe said it expects revenue of close to $5bn and profit of between $4.10 and $4.15 a share. For the full year, Adobe expects revenue to come in at between $19.25bn and $19.35bn, with full-year profit at $15.70 a share.

Currys half-year results

Thu 14 Dec: Shares of electrical retailer Currys have fallen almost 20% this year, though they have recovered somewhat after dropping to a record low in October. Back in July, Curry’s reported that full-year group revenue had fallen 7% to £9.51bn. Group adjusted profit before tax was £119m, with its Nordic business acting as the main drag. The UK and Ireland business was a bright spot, seeing an increase of 45% in EBIT of £170m. Profit in the Nordic area dropped 82% to £26m. The Greece business also saw profit slow to £18m. The company took a £511m goodwill impairment in respect of the Dixons Carphone merger in 2014, dragging the business into a loss of £450m. For the new fiscal year management said that trading had been in line with expectations, a position that was left unchanged back in September even though revenue was down on the same period last year. Like-for-like sales for the group were down 4%, with UK and Ireland like-for-like revenue down 2%, while Nordics was down 8%. In November the decision was taken to offload the Greek and Cyprus business for €200m to Public Power Corporation, with net cash proceeds expected to be in the region of £156m. The deal is expected to complete early next year.

China retail sales (November)

Fri 15 Dec: China has been wrestling with disinflation as problems in its heavily indebted real estate sector weigh on its economy. That said, retail sales have improved in each of the last three months. In October retail sales soared 7.6% year-on-year, up from 5.5% in September. The increase was, however, from the low base of a year earlier when the country was stuck in a Covid lockdown that restricted consumer spending. Estimates for November suggest that retail sales growth may have hit double digits, again versus a low base, driven by increased spending on Singles Day (11 November), a popular shopping event. 

Darden Restaurants Q2 results

Fri 15 Dec: If ever there was a symbol of the resilience of the US consumer, it’s the performance of Darden Restaurants’ share price, which is up 16% year to date. During the pandemic, the stock plunged to its lowest levels since 2009. Since then the shares have more than tripled in value, although the last few months have seen the share price drop from its record high in July. In Q1 net sales rose 11% to $2.73bn, while profit came in at $1.78 a share. For the full year, the restaurant chain reiterated its outlook, forecasting net sales of between $11.5bn and $11.6bn, and earnings per share of $8.55 to $8.85. In the summer, the company acquired Ruth’s Chris Steak House for $715m, though its contribution won’t be included in Darden’s quarterly results for at least another 12 months.

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SELECTED COMPANY RESULTS

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.

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