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Market Outlook

The week ahead: UK GDP, Apple conference; Brown-Forman, BAT results

Read our pick of the top stories to look out for this week (7-11 June), and view our key company earnings schedule.

Michael looks back at the week’s price action on equity and currency markets, and ahead to the upcoming ECB meeting, US CPI, and latest UK data. He also discusses key levels on the FTSE 100, DAX, Nasdaq, EUR/USD and GBP/USD.

Apple WWDC

Monday: In this latest worldwide developers conference, it's being reported that Apple plans to introduce significantly updated versions of the MacBook Pro, MacBook Air and iMac with new chipsets, as it looks to accelerate its efforts to replace Intel chips with its own in its desktop devices. The company is looking to up its game when it comes to the PC market, which has seen huge levels of growth over the past 12 months due to the pandemic. Apple is also expected to outline its plans for future upgrades to its operating systems for iOS, iPadOS, macOS and watchOS. Privacy settings are likely to be a key focus, so that users can see what data is being collected on an app-by-app basis. This is particularly pertinent given the spat between Apple and Facebook over the recent iOS change, which forces developers to ask permission from app users to use tracking identifiers. 

British American Tobacco Q2 results

Tuesday: In April, tobacco stocks got smoked on reports that the US is considering legislation to cut the amount of nicotine in cigarettes to a level that’s not addictive Putting to one side what level of nicotine isn’t considered addictive, this could have the unintended consequence of making people smoke more, not less in order to get their fix. While nobody is arguing that nicotine isn’t addictive, new legislation is unlikely to resolve the reasons why people feel compelled to smoke in the first place. 

Furthermore, it’s not as if tobacco companies don’t have other sources of revenue these days. They do, in the form of e-cigarettes and vaping products which make an increasingly greater proportion of their revenue. We saw that in the recent numbers from Imperial Brands, which suggests a similar trend for BAT. At the end of last year, BAT saw a 15% increase in new category products. The company also expressed confidence that it could meet its £5bn revenue target in this area by 2025, as well as restating a 65% dividend payout ratio. In March, BAT acquired a 19.9% stake in Organigram, a leading Canadian cannabis provider, as it looks to diversify into CBD products.

Brown-Forman Q4 results

Wednesday: It’s not just Jack Daniels that appears to appeal to peoples taste for whiskey products; Brown-Forman’s new Tennessee Apple brand has helped the share price to perform well in recent months, though in Q3 both sales and profits disappointed to the downside. The company pulled its guidance initially in the wake of the Covid-19 disruption, however it did keep the dividend and went on to say it fully expected to continue to be able to do so, despite the uncertainty.

For the first nine months of the current fiscal year, net sales rose 2% to $2.65bn, with operating income rising 10% to $988m. Sales in the US remained strong, rising 7%, with a decent performance in international markets, though markets in Asia underperformed. In May, Brown-Forman's share price received a boost after the EU and US agreed to postpone a planned doubling of tariffs on American whiskey to 50%, that was supposed to take effect on 1 June. If current negotiations over the complete removal of the current 25% tariff are successful, the next 12 months could offer a significant boost to sales. Profit is expected to come in at $0.32 a share.

GameStop Q1 results

Wednesday: Do the fundamentals really matter for GameStop? The stock has seen huge amounts of volatility since the middle of January, and where short interest has reduced markedly from the beginning of the year when it was just shy of 71.2m shares at the end of 2020, to levels of 11m now. 

Away from the noise that has dominated the discourse around this company, GameStop has been struggling for some time with falling sales as a result of online game stores cannibalising its market share. Quite simply mall shopping isn’t anywhere near as profitable at a time when ordering games can be done at the click of a mouse and downloaded straight to your computer or console without the need for a physical disc. Reddit day traders appear to have taken it upon themselves to come to the rescue of a tired brand, which is in desperate need of rejuvenating itself in the digital age. 

The company has taken steps to address this by bringing in several names from Amazon and Walmart, while Ryan Cohen becomes chairman on 9 June. GameStop has already closed 100s of stores in response to this changing dynamic, with the Covid-19 pandemic accelerating this process, and while all the free publicity over the last few weeks is likely to have boosted their sales in the most recent quarter, it’s not enough to just cut costs to sustain a tired business model. Revenues have been in decline since 2018 and Cohen will need to address that as well streamlining the business. Losses are expected to come in at $0.20 a share.

Go-Ahead Group Q4 results

Thursday: Transport companies have been at the forefront of the pandemic, as passenger footfall craters as a result of the stay-at-home orders on both train and buses. Go-Ahead, which runs the franchise for Thameslink, Southern and South Eastern trains, recorded a statutory pre-tax profit of £24.6m in March when it reported its six-month numbers to the end of January. Rail profits came in at £6.5m, with some criticism over how the company was able to achieve this despite passenger numbers being at 40% of normal levels. This was largely achieved by way of government support, however as we have since discovered the existing franchise model is now on borrowed time. What impact the new government Great British Railways scheme will have on these train company franchisees is not immediately clear, which perhaps explain why since the announcement the Go-Ahead share price has barely moved.

ITM Power Q4 results

Thursday: With the focus increasingly on renewable energy, attention has inevitably turned to smaller, more niche companies to provide the innovation required to smooth the transition away from fossil fuels to cleaner sources of energy, and the decarbonisation of the global economy. ITM Power is one such company which in 2015 signed a deal with Royal Dutch Shell for hydrogen refuelling stations for cars, a deal that was extended to include buses, trains and ships. ITM also develops solutions to capture surplus renewable energy by the development of battery technology to store renewable energy.

In the last two years, ITM has raised £230.8m as it opens the world’s largest electrolyser factory in Sheffield. In those two years the ITM share price has risen from levels of 30p to a peak of 723p earlier this year. Since then, we’ve seen a sharp decline to levels around 400p, nonetheless the increased focus on the renewable energy sector since the pandemic suggests huge potential. 

Nonetheless, as with anything the focus has to be on the numbers, and back at the beginning of the year the company’s H1 figures were disappointing to say the least, injecting a huge dose of reality to what was quite a high valuation. H1 revenues fell 92% to £200,000, and while some of that was probably due to Covid-19 disruption, losses also increased to £10.4m. The company has announced some notable deals since the beginning of the year including the sale of a 1.4MW electrolyser to Sumitomo Corporation and the sale of a 2MW HGas electrolyser to Linde in Austria.

There appears little doubt that the share price fall seen since mid-January was prompted by the big decline in revenues seen in the first half of this year. The key test this week is whether what’s been announced in the second half will allay concerns over the outlook moving forward as the company looks to meet revenue targets that project annual revenues of £29.1m by 2022, a sizeable jump from the record number of £4.6m in 2019.

ECB rate meeting

Thursday: This week’s ECB rate meeting is likely to prove an interesting one given the recent rise in long term yields across the bloc. While the move higher in German yields is eminently manageable, given they are still below 0%, the rise in the periphery of Italy and Spain is less so given their high debt levels. The rise in headline inflation is certainly welcome given how long it has been well below the ECB’s target rate but it also raises questions as to how long the central bank can continue its currently accommodative asset purchase programme, against a backdrop of rising unease amongst an increasing quorum of Northern countries who want the ECB to start considering scaling back support for the eurozone economy. 

Another problem facing the ECB is what a scaling back of support might mean for the more vulnerable sections of the economy, after the recent financial stability review laid out the effects of such action in stark terms. As things stand the latest growth and inflation forecasts may well get nudged higher, making it that much harder to hold the line against the monetary policy hawks, however if the ECB was to lean in that direction, a further rise in borrowing costs could be hugely damaging at a time when the pandemic recovery fund disbursements still remain several months away. 

In Italy, 10-year yields have already seen a move above 1%, which may not seem a lot but when you have a debt to GDP ratio in excess of 150%, it soon becomes a financing problem. Some of the ECB’s problems are outside of its control, namely rising US yields but for the here and now the central bank doves need to convince the hawks that now is not the time to start signalling a change of stance.

US CPI (May)

Thursday: The markets got spooked a little last month when US CPI jumped sharply to 4.2%, well ahead of expectations of 3.6%, and the highest level since September 2008, with core prices rising 3%. A big component of the increase was the 10% rise in used car and truck prices, as well as higher energy costs. In the aftermath of this number, as well as the growth in PPI prices there has been much debate as to how much of this will prove to be transitory.

If the recent April PPI numbers are any guide, we could well see an even higher number, given how much PPI tends to be a leading indicator for CPI, as we look towards this week’s May numbers. As a reminder April PPI jumped to 6.2%, its highest annual level in over 10 years, as prices in the goods index saw increases of 18.4%, which includes some dairy, meats, as well as plastics and other materials. Expectations are for a rise of 3.4%

UK GDP (April)

Friday: The most recent economic data out of the UK saw the economy enjoy a decent end to Q1, with an expansion of 2.1%, as the economy picked up steam ahead of the relaxation of restrictions at the end of March. On the quarter, the economy contracted -1.5%, however with the further easing of restrictions on 12 April, optimism is high that April GDP is likely to see another monthly expansion, as Q2 gets off to a flier.

UK manufacturing and industrial production (April) 

Friday: With the further relaxation of restrictions that were announced in April, optimism is rising that the decent performance that we’ve seen in the manufacturing sector over the last three months can be sustained into Q2. In March manufacturing activity showed further strength, rising 2.1%, and well ahead of expectations, while construction output jumped sharply by 5.8%. Industrial production also had a good month, rising 1.8%, as a weak performance in January was put to one side. According to a recent survey from the CBI, manufacturing output in the three months to May grew at the fastest rate since December 2018, with order books at the best levels since December 2017. This gives an idea of the direction of travel when it comes to economic activity, as the UK economy continues its reopening process. 

Index dividend schedule

Dividend payments from an index's constituent shares can affect your trading account. See this week's index dividend schedule.

Selected company results

Monday 7 June Results
Stitch Fix (US) Q3
Vail Resorts (US) Q3
Tuesday 8 June Results
American Software (US) Q4
British American Tobacco (UK) Q2
Calavo Growers (US) Q2
Card Factory (UK) Full-year
Casey's General Stores (US) Q4
OnTheMarket (UK) Full-year
Oxford Instruments (UK) Full-year
Renold (UK) Full-year
RWS Holdings (UK) Half-year
UiPath (US) Q1
Wednesday 9 June Results
Brown-Forman (US) Q4
Chewy (US) Q1
GameStop (US) Q1
SSP Group (UK) Half-year
Vera Bradley (US) Q1
Thursday 10 June Results
Auto Trader (UK) Full-year
Go- Ahead Group (UK) Q4
ITM Power (UK) Q4
Mitie Group (UK) Full-year
Signet Jewellers (US) Q1
Friday 11 June Results
No major results  

Company announcements are subject to change. All the events listed above were correct at the time of writing.


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