Nato meets, US economic data
The FT's Vanessa Kortekaas highlights the key stories to watch for in the week ahead, including a meeting of Nato defence ministers, the release of US economic indicators and annual results from Rolls-Royce.
Filmed by Nicola Stansfield and Rod Fitzgerald. Produced by Vanessa Kortekaas. Additional footage by Gregory Bobillot and Reuters. Still images by Getty and Reuters.
Hello, and welcome to The Week Ahead from the Financial Times in London. Here are some of the big stories we'll be watching this week. NATO defence ministers are set to meet as US allies look for reassurance on Washington's commitment to the organisation. We'll have a health check on US consumer and industrial output. And Rolls-Royce, the UK's flagship engineering company, is announcing its annual results.
First, Jim Mattis, US Defence Secretary, is set to meet his NATO counterparts in Brussels for the first time since he took office in Donald Trump's administration. The meeting on Wednesday and Thursday comes amid deep uncertainty about the new president's actual stance on NATO, and allies are hoping for reassurance from Mr. Mattis about Washington's support for the organisation. While Mr. Trump was campaigning to become US president, he called NATO obsolete. But he struck a more conciliatory tone last week while also calling on NATO members to make appropriate financial contributions to the organisation. Here's what he had to say.
And America stands with those who stand in defence of freedom. We have your back, every hour, every day, now and always. That also means getting our allies to pay their fair share. It's been very unfair to us. We strongly support NATO. We only ask that all of the NATO members make their full and proper financial contributions to the NATO alliance, which many of them have not been doing. Many of them have not been even close. And they have to do that.
Within NATO circles, there's confidence that Mr. Mattis, who is a lifelong military man, will remain committed to the American security guarantee. President Trump's calls for NATO allies to increase their defence spending and for NATO to play a bigger role in counterterrorism operations will pose difficult questions for the organisation to address.
Now to the US economy, following disappointing wage growth in January, investors will be watching US inflation data and other economic indicators for clues on the timing of the Federal Reserve's next interest rate rise. Here's the FT's Mamta Badkar with more on what the early forecasts are showing.
The latest report from the Bureau of Labour Statistics, due Tuesday, is expected to show that producer prices advanced 0.2% in January from the previous month, when they climbed 0.3%. Core producer prices, which exclude more volatile items like energy and food, are also expected to have cooled last month, rising just 1.1% from a year ago, compared with a 1.6% rise in December.
The indicator measures prices at the producer level before they're passed on to consumers, and this offers investors clues on inflation in the coming months. Consumer prices published the following day are expected to show that CPI was unchanged on a monthly basis at 0.3%, but it is expected to have risen 2.4% from a year ago.
Investors will also get an update on the health of US consumer and industrial output. While estimates for 0.1% monthly rise in retail sales following a 0.6% gain in December might lead some to believe that Americans tightened their purse strings last month, economists estimate that so-called core retail sales, which strip out autos and petrol, climbed 0.4%. And industrial production, which was boosted by cold weather at the end of last year following an unseasonably warm November, is expected to have slowed in January as well.
And finally, Rolls-Royce, the UK's flagship engineering company, is announcing its annual results on Tuesday. This comes after last month's revelations of past corruption at the company, which is already struggling to recover from a string of profit warnings. Rolls-Royce reached a deal last month to pay 671 million pounds in fines to authorities in three countries. And Warren East, the chief executive, will be hoping to draw a line under this. Our industry editor Peggy Hollinger explains how the fine will affect the company.
That settlement number is quite big, and the company is probably going to have to take a provision for that as a post balance sheet event. But it's not the only one. Rolls-Royce will have to write down the value of its hedge book. Sterling fell quite sharply after Britain voted to quit the EU, and they did take a very big charge at the interim stage.
Sterling has fallen further since, so that's likely to leave them with a reported loss when they report on the full 2016 figures. The good news is that when they announced the SFO fine, Warren East actually said that 2016 had ended slightly ahead of expectations.
While the currency revaluation and the settlement provision together could lead to a hit of close to 4 billion pounds, this is just accounting. Analysts will be focusing on the company's underlying pretax profit figure, which is a better reflection of its actual trading. The consensus forecast for underlying annual pretax profits is about 687 million pounds for 2016, a figure which Mr. East suggested last month would be exceeded, although this would still be substantially lower than last year's 1.4 billion pounds.
And that's what the week ahead looks like from the Financial Times in London. See you again next time.