UK lockdown exit plans, HSBC results, Powell appears before Congress

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The UK should get to hear some good news for a change this week when Boris Johnson lays out his plans to ease slowly Covid lockdown restrictions. Investors will watch closely as the heads of both the UK and US central banks appear before their respective legislatures, and there is plenty of economic data due from both sides of the Atlantic too. On the corporate side, the week belongs to HSBC, which is expected to spell out some big strategic changes alongside its full-year results.

UK lockdown exit

Boris Johnson is on Monday due to set out a government road map to lift England’s lockdown from next month, as data suggested that coronavirus infections were falling 3-6 per cent per day.

The UK prime minister is expected to lay out plans for a mass return to schools on March 8, and then proceed with a “prudent” reopening of much of the economy by the summer. He has said he wants to ensure “cautious but irreversible” progress in tackling the virus that has caused nearly 120,000 deaths.

Government insiders said the publication of the road map will see a decisive shift away from strict legal restrictions, backed by heavy fines, towards an approach based on encouraging people to take care.

The rules on social distancing are under review but people will still be urged to wash their hands and wear masks to control the spread of the disease as the economy gradually opens.

Government scientists last week put the official estimate of R, the average number of people to whom someone infected passes the virus, is in the range 0.6 to 0.9 for the UK as a whole. The week before the range was 0.7 to 0.9.

As with previous reopenings, hospitality is expected to start initially with a focus on operating outdoors, with April pencilled in by some ministers as a likely date for pubs to serve takeaway pints.

Officials close to the road map preparations said they will also do away with a requirement that pubs serve a “substantial meal” alongside alcohol — the controversial “scotch egg” clause.

Johnson puts final touches to cautious easing of England lockdown

Elsewhere . . . 

Russia’s president Vladimir Putin will on Monday holds talks with his Belarusian counterpart Alexander Lukashenko, who has faced intense political pressure from the opposition since a contested election last year.

Hong Kong will release its budget on Wednesday, with economists expecting limited spending measures as an extended recession and repeated stimulus over the past year has expanded the government deficit to a record and shrunk the fiscal reserve.

Earnings reports

The rest of the big UK banks are in action after NatWest and Barclays set the scene with their full-year reports last week.

Big changes are on the way at HSBC, which is expected, alongside its full-year results, to give a strategic update where it will raise the relocation of top executives from London to Hong Kong and a withdrawal from consumer banking in the US after concluding it cannot turn around the struggling unit

Exiting the 150-branch US retail network would mark the end of the lender’s 40-year long attempt to run a full-service bank there. The division has been lossmaking for the past three years.

The moves are intended to galvanise an overhaul effort announced only in February last year to redeploy more than $100bn of capital to Asia and slash 35,000 jobs.

The bank is also expected to deepen cost-cutting measures, speed up plans to simplify its bureaucratic organisational structure and update on the sale process of its 200-branch French retail network.

HSBC is also facing pressure from senior staff who are braced for a drop in their annual bonuses when they are announced this week. Like many lenders, HSBC suffered a sharp drop in profit in 2020 because of a surge in bad debt charges during the Covid-19 pandemic and a fall in client activity.

Lloyds, which also suffered a loss in the first half of 2020 because of bad loan provisions, has sounded a more cautionary note saying that it will not pay any bonuses.

Investors will be looking at credit losses, the impact of low interest rates on profits and signals that point towards future restructuring.

Investors at Standard Chartered will be on the lookout for signs that years of cost-cutting and restructuring under chief executive Bill Winters have paid off as the Asia, Africa and Middle East-focused lender grapples with the pandemic.

Operations losses will be in the spotlight when International Airlines Group, the owner of British Airways, reports this week after it slashed its flight schedule at the end of 2020 as Europe entered lockdown. IAG lost more than €1bn in the third quarter when travel restrictions dashed hopes of a recovery.

British Gas owner Centrica is expected to post an increase in full-year adjusted earnings per share from continuing and discontinued operations.

The company, in a trading update at the start of the year, said that it recorded a “resilient” second half performance with the restructuring programme announced in June, and so far it remains on track.

Serco, one of the biggest suppliers of outsourced services to governments worldwide, is set to record a growth in overall revenues, which are expected to rise 19 per cent to £3.9bn in 2020.

Despite the company’s leisure and travel businesses suffering from a lack of demand during the pandemic, Serco is forecast to be in line with previous guidance.

Anglo American also announces final results after rivals BHP, Glencore and Rio Tinto updated last week.

Australia’s largest carrier Qantas is set to benefit from Australia’s adept handling of the Covid-19 crisis and tough calls made by the carrier’s management in 2020.

As state borders reopen in a nation on the brink of eliminating local transmission of the virus, the company should be able to achieve cash break-even, begin rebuilding its balance sheet and target opportunities following the worst crisis in aviation history, Qantas chief executive Alan Joyce said.

Nvidia is expected to post a rise in fourth-quarter revenue, driven by strong demand for its graphic chips used in gaming devices and data centres. Investors will look out for commentary on regulatory concerns around the company’s $40bn buyout deal for UK-based Arm.

Going into the weekend, Warren Buffett is due to issue his annual letter to Berkshire Hathaway shareholders on Saturday. The billionaire investor is likely to review some of Berkshire’s businesses, including the impact of Covid-19, along with any thoughts about the worlds of investing and markets, and the world at large.

Berkshire will also release fourth-quarter and full-year results, which are both forecast to reflect large gains from common stock investments such as Apple.

Key reports

Monday

Occidental Petroleum Corp; Royal Caribbean Cruises Ltd

Tuesday

Home Depot; HSBC; Intuit; Occidental Petroleum; InterContinental Hotels

Wednesday

Booking; Lowe’s Companies; Royal Bank Of Canada; Lloyds; Heathrow Holdings; Metro Bank; Reckitt Benckiser; Nvidia Corp; William Hill; Petrofac

Thursday

American Electric Power; Salesforce; Vale; Moderna; Bayer; Etsy; Beyond Meat; BAE Systems; Centrica; Serco; Standard Chartered; Telefónica; Qantas; Anglo American; St James’s Place; Evraz; Inchcape; John Menzies; National Express Group; Vistry Group

Friday

Foot Locker; IAG; Norwegian Air

Saturday

Berkshire Hathaway

Appearances and speeches

Federal Reserve chair Jay Powell is scheduled to testify before the Senate Banking Committee on Tuesday and the next day at the House Financial Services panel.

Powell will appear at the same time as lawmakers weigh up US President Joe Biden’s plan for $1.9tn in additional pandemic aid, so he can expect pressure to endorse the Democrats’ proposal to go big with more taxpayer support, but it is likely he’ll steer clear of commenting on specific elements of the stimulus package. 

He could also face questions about financial stability, including elevated stock prices and wild trading in GameStop.

Bank of England governor Andrew Bailey appears before the UK Treasury Committee on Wednesday, which could also produce some market-moving comments.

European Central Bank president Christine Lagarde and Bank of Canada governor Tiff Macklem are also set to speak this week.

Central banks and economic data

UK labour market and wage growth data this week look set to show the unemployment rate has risen to 5.1 per cent and average weekly earnings have gone up to 4 per cent, but analysts point to emigration and the furlough scheme as factors that could be distorting the picture.

In the US investors will gain a clearer idea on Friday of how much prices changed during January when the US Department of Commerce releases its personal consumption expenditures price index, the Fed’s preferred gauge of inflation.

Economists forecast a 1.3 per cent year-on-year rise, according to Bloomberg, considerably less than the Federal Reserve’s long-term inflation target of 2 per cent.

In December, the PCE — which strips out the more volatile categories of food and energy — stood at 1.5 per cent year on year.

The second estimate of US gross domestic product is also out, which is expected to have risen to 4.1 per cent during the fourth quarter following a 4 per cent increase the previous quarter.

Initial jobless claims are forecast to fall to 843,000 for the week ended February 15, following 861,000 claims the week before.

An increase in January new-home sales and a ninth-straight advance in orders for durable goods are also forecast.

Plenty of European data this week, including the final French and German fourth-quarter GDP releases and the final reading of eurozone January inflation, which shot up to its highest level since the coronavirus pandemic last year.

The jump was driven by a combination of one-off factors rather than a revival in underlying demand, as many shops, schools and leisure venues stayed shut to stem the spread of the virus. The reversal of a temporary reduction in German value added tax, higher energy costs and supply chain disruptions also played a role.

Two widely tracked German surveys will provide a key measure of morale among the households and companies enduring one of Europe’s longest lockdowns.

The Ifo Institute in Munich will issue its latest business climate indicator for the EU’s biggest economy, which economists expect to rebound from a seven-month low of 90.1 in January to hit 91.8 in February.

Then the GfK institute’s indicator of consumer confidence is forecast to recover after hitting an eight-month low last month.

India’s GDP growth for the fourth quarter is expected to bounce back into positive territory.

In Latin America Brazil has the mid-month reading of its benchmark consumer price index, inflation, wholesale prices, unemployment, current account, foreign direct investment and key budget data.

Mexico has unemployment data, bi-weekly inflation figures, and the final report on fourth-quarter GDP.

The People’s Bank of China is the biggest of the week’s central bank meetings, but as with the scheduled meetings in Israel, Hungary, South Korea and New Zealand, rates are expected to stay on hold.

Mexico’s central bank publishes the minutes of its last meeting, when the key rate was cut to a four-year low of 4 per cent.

Further reading

Market Questions: Will inflation data justify investors’ concerns?

Asset managers rush to shore up portfolios against inflation

Key data and events

Monday

China, Israel, rate decisions

Germany, Ifo expectations (Feb)

Tuesday

UK, labour market (Oct-Dec, Jan)

Eurozone HICP (Jan, final)

Hungary, rate decision

Wednesday

Germany, GDP (Q4, final)

Brazil, IBGE inflation; current account balance; foreign direct investment

Mexico, bi-weekly CPI (first half)

New Zealand, rate decision

Thursday

Eurozone, consumer confidence (Feb)

Germany, GfK consumer confidence (Mar)

US, real gross domestic product (Q4)

US, real consumer spending (Q4)

US initial jobs data

Mexico, unemployment rate (Jan)

Mexico, GDP (Q4, final)

South Korea, rate decision

Mexico, monetary policy minutes

Friday

France, GDP (Q4, final)

US, personal income (Jan)

US, core PCE inflation (Jan)

India, GDP (Q4)

Brazil, national unemployment rate; primary budget balance; net debt

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