Market Outlook

The week ahead: UK public finances; Aviva, Marks & Spencer, Snowflake results

Read our pick of the top stories to look out for this week (24-28 May), and view our key company earnings schedule.

Join Michael as he looks at the week’s cryptocurrency-inspired market volatility, and all the other major events, including US inflation, US GDP and UK public finances. He also previews the latest numbers from Marks & Spencer, Aviva and Ted Baker, and discusses the key levels on the FTSE 100, S&P 500, GBP/USD and EUR/USD.

Germany Q1 GDP and IFO (May)

Tuesday: The German economy is expected to confirm a contraction of -1.7% in Q1, marking an annualised -3.3% contraction. While an improvement is expected in Q2, the stop-start nature of the country’s economic reopening is likely to mean that any rebound in the current quarter is likely to be subdued. The recent decision to extend restrictions to the end of June has seen business confidence ebb, with the latest IFO business climate survey showing only a modest improvement in April after a big jump in March. IFO business expectations actually declined in April, in the wake of rising infection rates and some localised tightening of restrictions. Expect to see an improvement in May’s data, given that Germany’s vaccination programme has been going quite well. The latest business climate survey is expected to show an improvement too.

UK public finances (April)

Tuesday: Having seen the UK economy post its biggest annual post-war deficit of over £300bn in 2020, the new tax year is likely to start the same way it finished the last, with further big increases in public sector borrowing. Twelve months ago, a lot of estimates suggested that the figure would be a lot higher than it subsequently turned out. Nonetheless, there is some concern about the sustainability of the current levels of borrowing, especially since furlough has been extended into September. On the plus side, a lot of businesses have repaid their business rates support, which has helped keep the numbers down, while the UK economy started its reopening process in April. A lot of businesses appear to have adapted quite well to a new way of operating, and while borrowing is expected to remain high for the next few months, markets still remain fairly relaxed about it, despite gilt yields edging higher, towards 0.9% over the last few weeks, largely over concern about rising inflation risk. April public sector borrowing is expected to rise by £30bn. 

British Land full-year results

Wednesday: As UK retailers have suffered as a result of the pandemic so have landlords, with British Land one of many commercial property owners having to grant rental holidays as their customers struggle to meet their rents due to the various lockdowns over the last 10 months. Last year the company, which owns shopping centres in Sheffield and Plymouth, wrote down the value of its property portfolio by £1bn. While not paring back their exposure to retail, British Land is reorientating towards out-of-town warehouse and logistics spaces, as more shopping moves online. In its most recent trading update, British Land said 82% of total rent had been collected for FY21, with offices at 99% and retail at 70%. In an attempt to rebalance its portfolio, the company has sold off older assets from its office portfolio, while putting cash into more modern ones. Disposals of £1.2bn in the last 12 months have been indicative of this new approach. In April, British Land signed-up JLL on a 15-year lease as a tenant for its new development at 1 Broadgate, putting it at around 30% pre-let. 

Marks & Spencer full-year results

Wednesday: When Marks & Spencer reported its first-half results back in November last year, it was notable that it was the first time that this bellwether UK brand had posted a loss in its 94-year history, as the spillover effects of the various shutdowns in its retail operations hit trading, with its general merchandising division bearing the brunt. A first-half loss after tax of £71.6m was notable for a 15.8% slide in sales to £4.1bn, although its food division came to the rescue in some respects due to the recent deal with Ocado, with sales rising 47.9%.

In Q3, the picture wasn’t much better as far as general merchandising was concerned, with clothing and home sales down 24.1%, however this was better than most estimates of a 30% decline. The outperformance here was down to a 47.5% increase in online sales, which helped boost sales while stores remained closed, while food sales rose 2.6%. Q3 revenue came in at £2.77bn, with management saying that near-term trading was likely to remain challenging, given the likelihood of stores being closed for most of Q4, while its Ireland and Czech Republic operation was likely to see costs increase as a result of potential tariffs. 

Nvidia Q1 results

Wednesday: As Nvidia sets out on a new fiscal year, the company is mostly known for its graphics chips. However it has also been moving into high-spec CPUs for data centres, and while its $40bn deal for ARM Holdings is currently under review, the shares are only marginally down from the record highs of April. The biggest earners still come from the gaming segment, with a 41% rise in revenues accounting for $7.76bn of the total 53% rise in 2021. Data centre revenue was the big gainer in 2021, rising 124% to $6.7bn.

In the last quarter, the company hit $5bn in quarterly sales for the first time, a rise of 20% on the previous quarter. With this sort of sales growth, market expectations around future sales are already quite high, even though, with the UK government threatening to block the ARM acquisition, there are downside risks in the short term. However, even if Nvidia fails in its bid to acquire ARM, the speed at which it has moved into the data centre segment suggests a lot of additional potential on the revenue front, given the explosion in web services over the last 12 months. Profit is expected to come in at $3.277 a share.

Snowflake Q1 results

Wednesday: When Snowflake reported in March, revenue came in better-than-expected at $190.5m. However, losses rose to $0.70 a share, or $199m, largely as a consequence of higher stock compensation. Annual revenue rose by 120% to $553.8m, and while the company has seen decent growth in the aftermath of its IPO last year, Snowflake's share price has still halved from the record highs in December last year. This is probably just as well given that even at current levels, the valuation still looks generous for a business that has a turnover of less than a $1bn. That’s not to say it isn’t a good business given the calibre of some of its clients and its satisfaction ratings. Snowflake now needs to look at turning a profit and getting tighter control of its cost base. For the current quarter, it expects revenue to come in at $200m, with full-year revenue expected to rise to $1bn, which is in line with market expectations. Wednesday’s update will give investors a decent idea of how far along they are in meeting those estimates, while losses are expected to come in at $0.155 a share.

Aviva Q1 results

Thursday: Aviva has been on a bit of a disposal spree in the last few months, selling its Singapore business for £1.6bn to Singlife and a consortium of other buyers in September. The insurer also sold its stake in Italian business, Aviva Vita, in November for €400m, and the Hong Kong and Vietnam businesses in December. In March it announced another disposal, selling Aviva Italy to Allianz for €873m, while earlier this month it completed the exit process for its Turkey business, receiving a £122m cash consideration in the process. 

These sales are part of CEO Amanda Blanc’s desire to focus on Aviva’s core markets of UK, Ireland and Canada, and it appears to be paying off. In November, new business sales in the UK and Ireland rose by 40%, and in the recent full-year figures, there has been continued growth in all areas of the business, from assets under management, which rose to £81bn for bundled workplace pensions, to record net flows of £8.5bn for savings and retirement. Group operating profits also beat expectations, coming in at £3.2bn, well above consensus estimates of £2.73bn, and only 0.7% below last year’s number. Aviva also confirmed a final dividend per share of 14p.

Ted Baker full-year results

Thursday: Rocked by bad press over the behaviour and departure of its founder, and various stock accounting errors, it’s been a slow road back for Ted Baker, with the new management taking great steps to keep the business above water. In June last year, the retailer said it was looking to raise over £100m at a discounted price of 75p, as it sought to shore up its finances. Last year the company also sold and leased back its head office in London for £78.75m, with £72m of that used to pay down its debts. In February, Ted Baker said retail sales fell by nearly 50% between 1 November and January, as various restrictions and the January lockdown hit footfall. 

Management doesn’t expect to see a significant pickup in sales until the end of May, and forecasted an extra £5m of costs due to extra duty and import fees related to Brexit. On the plus side, its Chinese business appears to have been performing well, and is likely to have continued to do so over the Chinese New Year period. The company also signed a new e-commerce deal in the Middle East with Al-Futtaim, to cover the likes of Qatar, UAE, Bahrain and Saudi Arabia. Since its last update in February, the Ted Baker share price has recovered quite well, rising over 80% on expectations that it will continue to improve its digital platform. Despite the recent losses, Ted Baker CEO Rachel Osborne has insisted that free cash flow will be positive this year in spite of all the restructuring efforts and Covid-19 headwinds. We’ll find out if that optimism is justified on Thursday.

Salesforce Q1 results

Thursday: Salesforce is another company that has benefited from the shift to working from home, despite being mostly geared towards office working. Total revenue increased 24% to $21.25bn, with the company raising its revenue target for 2022 from $25.5bn to $25.7bn. The acquisition of Slack is included in the updated figures, assuming a closing date of Q2 2022, and a net contribution of $600m. The US cloud-based software firm cited its new Work.com product, which helps aid clients in the transition to remote working, for the big jump in revenue, while the Salesforce share price hit a record high in early September after Salesforce’s elevation to the Dow Jones. Since that record high, the shares have been on a downward slide, although they appear to have found some support at around $200. It remains to be seen whether the $27.7bn price tag for Slack will be money well spent, but for now investors appear content to offer the benefit of the doubt. Following recent upgrades to its guidance, the outlook for the next 12 months looks rosy. Profit is expected to come in at $0.88 a share.

US Q1 GDP

Thursday: This second iteration of Q1 GDP looks set to show the US economy got off to a decent start to the year. The first iteration showed the US economy expanded by 6.4%, a modest improvement on the 4.1% gain at the end of last year. As the data becomes more complete and the more recent data gets parsed through, we could get an upward revision. The first Q1 GDP estimate showed personal consumption rebounded strongly from 2.1% in Q4 to 10.7%, and this could be revised higher on Thursday, given a big jump in the recent March data, with 770,000 new jobs added and retail sales rebounding 10.7%. Irrespective of whether Q1 GDP is at the lower or upper end of expectations, the US economy looks set to start 2021 very much on the front foot, with expectations of an annualised expansion of 6.4%, driven by an 11% rise in personal consumption.

US personal spending & personal income (April)

Friday: If April's retail sales are any guide, Friday’s spending number is likely to be much weaker than March, which was boosted by the stimulus payments helping boost consumers' personal incomes. In March, personal income rose 21.1%, after a 7.1% decline in February. This rise wasn’t matched by a similarly strong rebound in personal spending, which only increased 4.2%, despite a strong rebound in retail sales. This suggests that while US consumers have seen their disposable incomes rise, they aren’t spending it all yet. This was borne out by a flat April retail sales figure, suggesting a fair amount of residual uncertainty despite a brightening economic outlook. Personal incomes for April are expected decline 15% after the March jump, as the boost effects of the stimulus payments get washed through. Personal spending is likely to see a modest uptick to 0.5% in April, however there is a risk of a miss here given the weaker-than-expected retail sales, as well as the recent poor jobs report. 

US core PCE deflator (April)

Friday: Amid all of the recent concern about rising inflation, it’s important to remember that for all of the big increases in recent CPI and PPI data over the past month, with CPI hitting its highest levels since 2008, the Federal Reserve doesn’t look at either when assessing the inflation outlook. The US central bank’s twin mandate of unemployment and inflation uses the core PCE as its main inflation benchmark, which in March came in at 1.8%. This was the highest level since February 2020, with the measure slipping to a low of 0.9% in June last year, before rebounding. April’s number is not expected to be immune to the recent sharp rise in inflationary pressure, and a steep rise here could reignite market concerns about a less than transitory inflation environment. Expectations are for a sharp rise to 2.7%, which would be the highest level since the early-1990s. 

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 24 May Results
Kainos (UK) Full-year
Nordson (US) Q2
Tuesday 25 May Results
Electrocomponents (UK) Full-year
Helical (UK) Full-year
Hurricane Energy (UK) Full-year
iMedia (US) Q1
Intuit (US) Q3
Skyline Champion (US) Q4
Speedy Hire (UK) Full-year
Wednesday 26 May Results
Abercrombie and Fitch (US) Q1
American Eagle Outfitters (US) Q1
Biffa (UK) Full-year
British Land (UK) Full-year
Build-a-Bear Workshop (US) Q1
Dick's Sporting Goods (US) Q1
Marks & Spencer (UK) Full-year
Nvidia (US) Q1
Okta (US) Q1
Snowflake (US) Q1
SSE (UK) Full-year
Universal (US) Q4
Workday (US) Q1
Thursday 27 May Results
Aviva (UK) Q1
Costco (US) Q3
Daily Mail and General Trust (UK) Half-year
Dell (US) Q1
Gap (US) Q1
HP (US) Q1
Lions Gate Entertainment (US) Q4
PayPoint (UK) Full-year
Pets at Home (UK) Full-year
Salesforce.com (US) Q1
Ted Baker (UK) Full-year
United Utilities (UK) Full-year
Friday 28 May Results
Caleres (US) Q1
Northern Drilling (UK) Q1

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


Sign up for market update emails