13th Apr 2022 15:35
(Alliance News) - Energy sector earnings should drive UK PLC's first quarter outturn as investors hunt for indicators of broader economic health, UBS has said ahead of the start of earnings season.
"I suspect markets will look closely for clues about the economy. Everyone agrees economic growth will be slower this year than last year, and slower next year than this year. But just how much of a slowdown will materialize? When will inflation start to fall? And how much are central banks going to need to tighten?" said UBS strategist Caroline Simmons.
Earnings from UK banks are due towards the end of April, while oil majors BP PLC and Shell PLC report in May. Consumer goods firms such as Unilever PLC and Reckitt Benckiser PLC will release their first quarter results at the end of April.
First quarter earnings will be watched for patterns that could indicate more broadly how the UK economy is managing - with investors likely to be on the lookout for comments over inflation and the demand outlook.
"In the UK equity market, consumer staples will be a particular area of focus, and we expect some margin pressure, albeit mitigated by price rises. We would expect decent earnings for financials given the rise in interest rates and bond yields, with less impact from inflation," said Simmons.
Energy sector earnings, meanwhile, should be "decent" given surging commodity prices.
"On balance, I suspect the overall UK index earnings number will rise this earnings season, but only due to energy sector upgrades offsetting small growth and cost-related downgrades elsewhere," she said.
For 2022 as a whole, UBS expects around 10% earnings per share growth for the FTSE 100 and expects the blue-chip index will reach the 8,000 level in December.
The UK flagship stock index was down 0.2% at 7,563.12 on Wednesday afternoon, and is up 2.4% in the year-to-date.
By Lucy Heming; [email protected]
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