(Bloomberg) -- As earnings season gathers pace, a slew of weak results and a hawkish European Central Bank risk spoiling the rally that spurred European equities to their best-ever start to a year. 

This week, it’s the turn of banks and pharmaceutical majors to report, a week in which the ECB Governing Council also meets to set policy for the first time in 2023. Mixed results from Wall Street earlier in January raise the ante on their European peers.

While a hawkish ECB bodes well for net interest income metrics, last year’s deal-making drought left banks clambering for advisory fees. Underwhelming fourth-quarter equities trading by Goldman Sachs Group Inc. and Morgan Stanley may be an omen for UBS Group AG, fueling concern that Switzerland’s biggest bank could also fall short on that front. On the fixed-income side, Deutsche Bank AG and Nordea Bank Abp are expected to post strong year-on-year revenue growth, following the 28% surge by their five biggest US rivals. 

GSK Plc, Novartis AG and Novo Nordisk A/S set the ball rolling for Europe’s pharmaceutical majors on Wednesday, with Roche Holding AG and Sanofi following suit later in the week. Their quarterly results will probably play second fiddle to forecasts for 2023, as double-digit earnings growth beckons for some, while others face generic competition and challenging year-on-year comparisons, according to Bloomberg Intelligence.

In the medical equipment sphere, Royal Philips NV on Monday announced plans to cut another 6,000 jobs as it embarks on a major cost-cutting push after delivering consensus-beating results. 

Eyes too will be on BT Group Plc, with the European telecommunications major set to report results for the quarter ended Dec. 31 on Thursday. Investors will be scrutinizing the mid-term outlook for its Openreach infrastructure unit as well as the extent to which recent price increases are helping to keep inflation at bay.

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Highlights to look for this week:

Tuesday: UBS (UBSG SW) is scheduled to report at 6:45 a.m. CET. Morgan Stanley and Goldman’s equities trading misses may have led some analysts to lower their expectations for UBS, whose trading floors are more geared toward stocks rather than fixed income, said BI’s Alison Williams and Neil Sipes. In its prime discipline of wealth management, the bank’s $222 billion loan book could “pose risks if market turmoil persists,” owing to the fact that a big chunk has securities as collateral, said BI credit analyst Jeroen Julius. The Swiss giant outperfomed peers in BI’s index for global investment banks in the last 12 months, helped by its leading payout ratio. This time last year, UBS announced a $5 billion share buyback program — a move it may not repeat as economic uncertainty lingers.

Wednesday: GSK (GSK LN) will report full-year results at 7 a.m. in London. The UK drugmaker appears to be on track to “at least meet” its 2022 guidance, according to BI’s John Murphy and Sam Fazeli, citing the strength of its shingles vaccine and an improving product mix. Regulatory approvals could help boost sentiment, but potential litigation tied to the Zantac heartburn drug continues to weigh on investor’s minds. GSK scored a crucial win in U.S. court cases last year, but BI Litigation Analyst Holly Froum sees lawsuits still posing a risk. As for the 2023 outlook, estimates compiled by Bloomberg show adjusted diluted EPS growing by about 9%, though still falling short of pre-pandemic levels.

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  • Novo Nordisk (NOVOB DC) is scheduled to report at 7:30 a.m. CET. Analysts expect the Danish drugmaker’s operating margin to hold slightly below 43% this year, according to estimates compiled by Bloomberg, with revenue seen rising about 14%. Consensus “seems reasonable” now that the supply shortage affecting obesity drug Wegovy is behind it, and even as currency tailwinds fade, said BI’s John Murphy and Michael Shah. Fourth-quarter sales are expected to have climbed about 24%, while the dividend is projected to rise to 11.82 Danish kroner ($1.73) per share from 10.40 kroner. Key catalysts this year will be readouts for Rybelsus in obesity and the GIP-GLP-1 combination in diabetes, as well as outcomes data on Wegovy to make the case for reimbursement, according to BI.

Thursday: Deutsche Bank’s (DBK GR) fourth-quarter report is due at 7:00 a.m. CET. Eyes will be on the lender’s 2023 outlook, with analysts expecting net revenue just shy of €28 billion, according to estimates compiled by Bloomberg. Higher interest rates and a strong fixed-income trading performance should provide some upside to this, according to BI analysts Alison Williams and Neil Sipes. Guidance for credit loss provisions should also give clues on the bank’s overall economic outlook. For the fourth quarter, Deutsche Bank is expected to post €1.63 billion in revenue from fixed-income, currency and trading, a more than 35% increase year-on-year. That should offset lower underwriting and advisory fees and give a boost to headline revenue.

  • Nordea’s (NDA FH) fourth-quarter report is expected around 6:30 a.m. CET. Sequential net interest income growth is expected to accelerate further, following hefty rate hikes from the ECB, although an appreciation of the euro against the Swedish and Norwegian currencies could weigh on gains, DNB analysts said. NII is seen climbing more than 25% year-on-year in the final quarter of 2022, according to estimates compiled by Bloomberg. Nordea should have continued to outperform its peers on cost control, BI’s Philip Richards and Mar’Yana Vartsaba said. They predict operating expenses to rise 4% to 5% in the quarter — below analyst consensus and slower than inflation. Guidance for 2023 will be scrutinized as weakness in the Nordic housing market and a tougher economic environment cloud the outlook.

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  • BT (BT/A LN) is scheduled to give a third-quarter update at 7 a.m. in London. Among the worst performers on the Stoxx 600 Telecommunications Index last year, the stock counts among this year’s winners, climbing more than 15%. The Openreach infrastructure unit will be in focus after revealing a decline in broadband connections in November, BI’s Matthew Bloxham says. Meanwhile, Morgan Stanley and HSBC say falling energy prices could boost the sector’s earnings this year and next, depending on hedging strategies. Estimates compiled by Bloomberg indicate third-quarter adjusted Ebitda probably grew by less than 2% compared to the previous quarter. In the consumer unit, analysts expect earnings to fall, although Bloxham says a 14.4% price increase for most broadband and mobile subscribers indicates the company is happy with retention and doesn’t fear rivals trying to snatch market share by undercutting.

Friday: Sanofi (SAN FP) is expected to report fourth-quarter results at 7:30 a.m. in Paris. Achieving 2022 guidance should be easily within reach, even accounting for a drop-off in flu vaccinations in the last quarter, according to BI. Stiffer headwinds lie ahead, as the company faces generic competition for multiple sclerosis drug Aubagio and needs to keep spending on R&D as it prepares to roll out new hemophilia and respiratory virus drugs. While adjusted EPS probably grew 25% last year, growth in 2023 is expected to shrink to just 2.5%, consensus shows.

--With assistance from April Roach, Leonard Kehnscherper, Charles Capel, Christopher Jungstedt and Scott Rose.

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