(Bloomberg) – Almost two-thirds of blue-chip UK companies will discount the market over the next three weeks as the earnings season comes to a head. As Square Mile professionals dig into the details of the second quarter, the reports are also likely to shed light on broader topics affecting the entire country, from the energy crisis to the cost of living crisis, to rising interest rates and the threat of an economic crisis. .
Here are five things to watch out for.
Airlines and travel chaos
For some airlines, the travel chaos of the summer may also be a boon, as travel rebounds after two years of lackluster results. Weak supply amid staff shortages – as well as an increase in demand with the end of Covid restrictions – has sent ticket prices skyrocketing.
Ryanair Holdings Plc, which reports results on Monday, is among those that avoided mass cancellations. The Irish budget carrier has exceeded estimates in six of its last 10 years. EasyJet Plc is due to report a day later, with International Consolidated Airlines Group, owner of British Airways, and Air France-KLM disclosing their performance at the end of the week.
But there could be turbulence. Travel industry data platform OAG recently estimated that capping passenger numbers at London Heathrow could result in up to $550 million in lost revenue.
Energy companies and the crisis
Soaring oil and gas prices following Russia’s invasion of Ukraine gave energy majors a historic boost. Shell Plc is expected to post its biggest profit since 2008 on July 28, and BP Plc is also expected to reveal windfall earnings on August 2.
Centrica Plc, the owner of British Gas, reports the same day as BP. Profits there may spark political grumbling, but with a windfall tax already imposed by the UK government, ministers’ options are limited.
London-listed miner Glencore Plc is expected to report an increase in coal sales on July 29 as the global energy crisis boosts demand for the highly polluting fuel.
Retail and Inflation
The most intense cost of living crisis in decades has forced Britons to tighten their purse strings. The clearest sign of the effect on retailers will come from Next Plc, when it reports results on August 4. According to Deutsche Bank analyst Adam Cochrane, the sector faces precarious times: on the edge of a cliff.
Meanwhile, Mars Inc. and Kraft Heinz Co. have clashed with supermarkets over price hikes as grocers also seek to undermine suppliers with their cheaper own-brand products. Consumer goods rivals Unilever Plc and Reckitt Benckiser Group Plc updated the last week of July.
Tineke Frikkee, head of UK equity research at Waverton Investment, is looking for any indication that buyers have started to “lower” low-priced foods. Kantar data shows that sales of branded products fell 2.4% in the 12 weeks to July 10, while own brand sales increased 4.1%.
FTSE’s new £30billion consumer goods giant Haleon Plc will publish its first update on July 27 after being spun off from pharmaceuticals giant GSK Plc. BT Group Plc and Vodafone Group Plc will report on July 28 and July 25, respectively, on whether the hardest-working families are trying to cut their telecom bills.
Banks, insurers and interest rates
Rising interest rates could be good news for banks. Lloyds Banking Group Plc launches banking reporting on July 27, with NatWest Group Plc releasing its half-year results two days later (July 29).
But with the Bank of England eyeing a 50 basis point hike in August, consumer-facing lenders are vulnerable to the economic downturn. Mortgage spreads for UK banks have narrowed and consumer credit markets could also slow along with the economy, Shore Capital analyst Gary Greenwood said in a note.
Banks with relatively large trading operations, such as Barclays Plc, hope to have enjoyed a revenue boom similar to that of financial giants on Wall Street, which have benefited from market volatility. Barclays reports July 28.
Insurers themselves face inflationary pressures through claims. Direct Line Insurance Group Plc and Admiral Group Plc both signaled that profits will decline when they report on August 2 and August 10, respectively.
“Supply chain issues and broader economic inflation are likely to make it difficult to reduce near-term claims inflation levels,” JP Morgan analyst Kamran Hossain wrote in a note. The costs are already being passed on, according to the Federation of Small Businesses, which said 60% of small businesses have seen their insurance premiums rise.
Cars and supply chains
The global supply chain crisis, triggered by the Covid shutdowns and exacerbated by the war in Ukraine, has weighed heavily on the automotive sector. Amid continued shortages of semiconductors, automakers will be closely watched for signs of opening up supply chains. Mercedes-Benz Group AG and Ford Motor Co report July 27, while Stellantis NV and Volkswagen AG update the markets a day later. Although not listed in the UK, their reports could provide crucial updates on supply and demand issues in the face of the cost of living crisis.
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