Yesterday was an exciting day because it does not happen very often that we have a major data print coming out as well as get the newest FOMC (Federal Open Market Committee) members’ freshest projections for the US GDP, inflation, and unemployment as part of the SEP (Summary of Economic Projections). What do we make of the newest developments in the US, and how do we think that affects the ECB’s monetary policy in light of the currently preached religion of data dependency? – Let’s dive in:
The day started with a somewhat softer reading of the US CPI with every number coming a tad below their respective expectations. Headline CPI is now at 3.3% YoY (0.0% MoM), and Core is at 3.4% (0.2% MoM). Without delving deep into the specifics of this print, the biggest contributors to falling inflation were vehicle insurance and airfares.
Before the press conference, we received the interest rate decision (hold) and the statement accompanied by the SEP. As Chair Powell informed us in an answer to one of the questions, members are allowed to update their projections and what they see as the most likely outcomes after receiving important data such as this one, although generally, they choose not to do so. Real GDP projections remained basically unchanged; those for the unemployment rate ticked up a bit for 2025 and 2026, while those for inflation using their preferred PCE measure went up 20bps for 2024 and 10bps for 2025, indicating that in their opinion, it is going to take a bit longer to completely tame the beast they’ve been in a clash with for more than 2 years which is when they started their hiking cycle. This change was also reflected in their assessment of appropriate monetary policy for the end of the year. The median number of cuts this year moved down from 3 to 1, although the mode (most frequent answer) moved from 3 to 2. If more of the participants updated their forecasts, taking the CPI print and its implications on the PCE Index into consideration, the median number of cuts would also probably be 2.
Moving onto the press conference where Chair Jerome Powell headlined the Committee’s view. He didn’t want to make the same mistake as the ECB a couple of meetings ago when they basically gave a guarantee to cut in June and entrapped themselves, although their opinion has most likely changed in the meantime, so he continued to preach their data dependency and how it is going to take a bit more of consecutive good prints to make the move, likewise to them getting a couple of consecutive bad prints, which led them to lose confidence that inflation will quickly move down to target. He also took stock of changes in the labour market, with unemployment ticking up to 4.0% and payroll numbers as strong as ever, assisted by strong numbers of average hourly earnings growth, noting that if they see abating pressure on the labour market, it might give them an incentive to cut.
Lastly, let’s move on to the ECB and how this is going to affect their decision-making. After they volitionally moved away from the religion of data dependency and delivered their underwritten cut, they switched back to preaching data dependency with aplomb. The number of cuts priced in for this year is 1.75 for the Fed and 1.4 for the ECB (excluding the one they already made). In our opinion, it isn’t likely that the ECB will cut more than one time more than the Fed and is likely to adopt a waiting stance, taking note of developments in the US. The next couple of inflation prints (in the EA as well as in the US) are going to be crucial in determining the date of the next rate cut for the ECB. For now, it looks like it won’t happen before the summer ends.
Source: Bloomberg, InterCapital
Eurostat has published its estimates for GDP growth in the EU as well as the euro area recently. According to the estimates, the EU GDP increased by 0.3% QoQ, and 0.5% YoY, while the euro area’s GDP increased by 0.3% QoQ, and 0.4% YoY. This would mean that in Q1 and at the current prices, the euro area GDP amounted to EUR 3.68tn, while the EU GDP amounted to EUR 4.35tn.
According to the latest report on the GDP released by Eurostat for Q1 2024, the euro area GDP grew by 0.3% QoQ, 0.4% YoY, while the EU GDP increased by 0.3% QoQ and 0.5% YoY.
Quarterly YoY GDP growth rates (Q1 2008 – Q1 2024, %)
Source: Eurostat, InterCapital Research
As compared to the United States, where GDP increased by 0.3% QoQ, and 2.9% YoY, we can see that the EU is lagging far behind, at least on a more important yearly basis. This can be attributed to several factors, including the higher inflation level and impact of the war in Ukraine on the EU (for example, in terms of energy prices), slower overall growth in the most developed economies of the Union, lower productivity & innovation as compared to the US, etc. Furthermore, the high interest rates held by the ECB are also slowing down growth, albeit the latest rate cut (-25 bps across key interest rates), could prove positive, although it would also make the EU less attractive for investments as compared to the US, due to US offering higher interest on its bonds as compared to the EU.
EU member countries GDP growth rate (Q1 2024, YoY, %)
Source: Eurostat, InterCapital Research
In terms of individual countries’ growth, Malta recorded the highest increase in Q1 YoY, growing by 4.6%, followed by Croatia at 3.9%, Cyprus at 3.4%, Lithuania at 2.9%, and Slovakia at 2.7%. On the other hand, Ireland recorded the largest decrease, a notable -5.9% YoY, followed by Estonia at -2.1%, Austria at -1.3%, Finland at -1.2%, and the Netherlands at -0.6%.
In terms of GDP components leading to the GDP change, household & NPISH final consumption expenditure grew by 1.1% YoY in Q1, government final consumption expenditure increased by 1.8%, gross fixed capital formation declined by 0.2%, exports decreased by 0.2%, while imports declined by 1%. As a result, household & NPISH final consumption expenditure contributed 0.6 p.p. to GDP growth, government final consumption expenditure increased by 0.4 p.p., gross fixed capital formation didn’t contribute anything (0.0 p.p.), changes in inventories led to a negative 0.9 p.p. contribution, decrease in exports to a negative 0.1 p.p. contribution, while a decrease in imports led to a positive 0.5 p.p. contribution.
As such, the euro area GDP amounted to EUR 3.68tn at the current prices, while the EU GDP amounted to EUR 4.35tn.
Overall, what this can show us is that while private consumption remains a key driver of GDP growth, it has been quite subdued, under the inflation of both elevated inflation and subsequently, higher interest rates. Government expenditure also continues to support GDP growth, although one shouldn’t rely too much on this as it usually has an inflationary effect. A drop in exports, on the other hand, is worrying but expected given the situation in some of the larger EU economies such as Germany, which are quite export-orientated. Finally, a decrease in imports can be seen as positive (at least for GDP growth) but it could also be a sign of more trade between member countries as opposed to the rest of the world, mostly due to sanctions on Russia and attempts at reduced reliance on other major economies such as China.
At the share prices before the announcement, this would imply a DY of 3.1% for the regular shares, and 4.2% for the preferred shares. The ex-date is set for 5 July 2024, while the payment date is set for 24 July 2024.
Yesterday, Adris held its GSM meeting, during which the proposal for the distribution of profit was approved. As a reminder, Adris proposed EUR 2.57 DPS to be approved in the form of dividends. Out of this, EUR 2.28 DPS will be paid out from the retained earnings of the years 2005 – 2011, while EUR 0.29 will be paid out from the retained earnings of the Company after 2012. Following the GSM, this dividend has been approved.
At the share price before the announcement, this would imply a DY of 3.1% for the regular shares, and 4.2% for the preferred shares. The ex-date is set for 5 July 2024, while the payment date is set for 24 July 2024. Below we provide you with the historical dividend per share and dividend yields of the Company.
Adris Grupa dividend per share (EUR, left) and dividend yield (%, right) (2013 – 2024)
Source: Adris Grupa, InterCapital Research
At the share price before the announcement, this would imply a DY of 1%. The ex-date is set for 26 June 2024, while the payment date is set for 12 July 2024.
Yesterday, Končar held its GSM, after which the resolutions were published. According to the resolutions, a EUR 2.5 dividend per share has been approved by the GSM. At the share price before the announcement, this would imply a DY of 1%. As a reminder, in absolute amount, this implies a dividend of EUR 6.36m, implying a payout ratio of 46% of the 2023’s net profit.
The ex-date is set for 26 June 2024, while the payment date is set for 12 July 2024.
Končar Group dividends per share (EUR) and dividend yields (%) (2015 – 2024)
Source: Končar, InterCapital Research