Market Outlook

The week ahead: US GDP; Apple, Tesla, Facebook results

Read our pick of the top stories to look out for this week (25-29 January), and view our key company earnings schedule.

Michael looks back at this week’s price action, and ahead to the US central bank rate meeting, US Q4 GDP and UK unemployment. He also previews the latest numbers from Apple, Facebook and Tesla, and analyses the key technical levels on the US dollar, GBP/USD, EUR/USD, plus the FTSE 100, S&P 500, Dax and Nasdaq.

UK ILO unemployment rate (November)

Tuesday: In the spending review announced in November, chancellor Rishi Sunak forecast that unemployment could peak in the second quarter of 2021 at 7.5%, and to that he said that he would put aside £3bn to deliver a new three-year restart programme to get the longer-term unemployed back into work. While this was well received at the time, along with the furlough scheme which was extended into April, it is likely to have come too late, given that a lot of employers decided to make a start on reducing headcount before the tighter lockdown measures were announced in November and December. 

With an economic reopening now put back even further, probably into Q2 of this year at the earliest, it is quite likely that further job losses will come in the weeks and months ahead, even if the government does come up with extra help in any March budget. The ILO measure of unemployment is expected to show an increase from the 4.9% level of October and move above 5% for the first time since April 2016, before the Brexit referendum. Monthly jobless claims, a more accurate reflection of the labour market, is expected to rise from 7.4% to 7.5%.

US consumer confidence (January)

Tuesday: The strong rebound in retail sales since the US came out of lockdown ran out of steam at the end of last year, as November and December saw sharp declines in US consumer spending. With virus cases rising, along with political uncertainty as President Trump did the equivalent of throwing his toys out of his pram at the election result, US retail spending has slowed sharply. This slowdown has also been showcased in slumping consumer confidence, which fell back to 88.6 in December, as consumers weighed up the loss of the $600 a week Cares Act payment that began at the end of July, with US lawmakers unable to agree on a replacement. While US lawmakers were able to eventually agree on a substitute to this payment, the ensuing uncertainty is still likely to act as a brake during January, especially given that virus cases and hospitalisations continue to rise, which means there could be further weakness.

Apple Q1 results

Wednesday: Last year was marked by the fragmented rollout of Apple’s new products ahead of what is usually its best quarter, as Thanksgiving and Christmas tend to generate the most product enthusiasm and upgrades. In September, Apple announced its new range, with a new iPad and Apple One subscription, which looks like an attempt to take on Amazon Prime. There was also a new Apple Watch 6 and fitness bundle, as Apple look to tap into the lucrative online fitness market with a Fitness Plus option, which connects to the Apple Watch and tailors virtual workouts to the user. The new iPhone 12 which was announced a month later in October was rather underwhelming, though we did finally get the long-awaited 5G model. 

Over the last 12 months, Apple services revenue has grown to the point that they make up a much greater proportion of its overall revenue, however it is still at heart a hardware provider, and while Apple TV+ is expected to see some gains against the likes of Netflix, Amazon Prime and Disney+, hardware sales still drive the company forward. Last year Apple posted record revenue and income for Q1 at $91.8bn and $22.2bn respectively, and with the company not providing guidance in its last set of numbers, results could fall significantly short of that this week. Profits are expected to come in at $1.40 a share.

Boeing Q4 results

Wednesday: Boeing shares have slowly started to recover from the March lows of 2020, and while the decision to restore the airworthiness certificate to the 737 Max aircraft is a notable success, getting people to fly on the aircraft is likely to be another story. The damage to the Boeing brand has been significant, with the manufacturer charged with criminal conspiracy and fined $2 5bn by the Department of Justice earlier this month. This stink is likely to linger, especially since the evidence pointed to the company “knowingly and wilfully” conspiring to defraud the US by obstructing the FAA from fully evaluating the aircraft.
 
In Q3 Boeing posted a fourth conservative quarterly loss of $1.39 a share, while announcing that another 7,000 jobs would be lost. By the end of this year Boeing aims to have cut headcount to 130k, a loss of 40k jobs since the beginning of 2020. The continued weak outlook for air travel is likely to push back any likelihood that Boeing will be cash flow positive this year, with the loss of over 400 net orders last year alone. Boeing already has more than 400 737 Max’s on the ground that have as yet not been handed over to customers. That’s a lot of storage and maintenance costs, always assuming they don’t get cancelled in the meantime. 

Facebook Q4 results

Wednesday: Facebook shares have come under pressure over the past few days over its controversial decision to ban outgoing US President Trump from its platform. While its rationale may appear to make sense, on one side of the political divide it comes across as too little too late, while on the other side it comes across overstepping the bounds of free speech. Whatever the rights and wrongs of the decision, they speak to a world which is becoming increasingly uncomfortable at the grip social media companies have over social and political discourse. 

In an increasingly polarised world, the amplifiers of division have seen increasing calls for them to be regulated on the grounds they are purveyors of so called ‘fake news’. Advertisers have already started to cut back spend on social media sites in the past few weeks, a step that is likely to show up in the Q1 numbers. While profits are expected to come in at $3.20, the outlook for this sector is likely to be clouded in uncertainty until we get some clarity from the new US administration on what regulation might look like. WhatsApp, which is owned by Facebook is already changing its usage rules on data sharing with its parent company causing a storm of protest, and some migration to other messaging platforms like Snap, Telegram and Signal.

Tesla Q4 results

Wednesday: It’s been a stellar quarter, and year, for Tesla. Admitted to the S&P 500, and with the Tesla share price gaining over 600% from a year ago, it has been a one-way ticket to the moon for shareholders. With a market cap in excess of the entire automotive sector, the shares have an almost cult like status among their devotees, despite only selling less than 500,000 cars this year, missing its target for the second year in succession. To be fair this year was only a minor miss, with 499,000 cars sold, given the addition of the new Chinese factory that helped boost production capacity.

Tesla has also done well in managing to post consistent profits on a quarterly basis over the past 12 months, though this has only been achieved by sleight of hand in the form of the sale of regulatory credits, and energy storage sales. Tesla made a profit of $331m in Q3, though on car sales alone the company is still losing money.  With other mainstream auto makers now making inroads into the electric vehicle market, it can only be a matter of time before Tesla’s first-mover advantage becomes much more difficult to maintain. Profits are expected to come in at $1 a share.

US Federal Reserve rate meeting

Wednesday: At the last central bank meeting of 2020, the Federal Reserve was slightly more upbeat about the US economic outlook, improving its 2020 GDP forecast to a -2.4% contraction, while upgrading its 2021 forecast to 4.2% from 4%. The FOMC was also more optimistic about the unemployment rate, forecasting it to fall to 5% by the end of this year. These more positive outlooks didn’t exactly chime with the near-term outlook, with Fed chief Jay Powell once again pointing to the need for further fiscal support from Congress, something the Fed simply cannot help with.

The central bank also committed to keep buying bonds at the rate of at least $120bn a month until substantial progress had been made in respect of the economic recovery. This tone changed at the beginning of the year when some members raised the prospect that this might be pared back if inflation started to edge higher as new fiscal measures came into effect. This apparent change of tack helped push US 10 year yields back above 1%, as well as steepening the curve, however Powell, along with vice chair Richard Clarida, quickly stamped down on this with some soothing words, dragging yields off their peaks. Nonetheless, this sharp spike in US yields speaks to wider market concerns about the so-called reflation trade, and the fact that inflation expectations are much higher now than they were a year ago. Fed officials will need to be very wary of creating a situation where markets start to price in a taper tantrum if the US central bank is seen to be preparing the ground for a potential tightening of monetary policy

American Airlines Q4 results

Thursday: Airlines have borne the brunt of the global pandemic, and US airlines have been no different. Having been on the receiving end of a congressional bailout last year, the sector is still struggling with limited levels of cash flow, while trying to keep its grounded fleets maintained.

American Airlines losses are expected to come in at $4.13 a share, the fourth quarterly loss in succession. In Q3 the airline posted a loss of $2.4bn, while announcing the furloughing of 19,000 employees, after a Federal aid programme expired. Revenue fell 73% to $3.7bn from $11.9bn, but the daily cash burn in Q3 was down to $44m a day from $58m in Q2. This is expected to fall further in Q4 to about $25m to $30m a day, with the company hoping for a boost from the Thanksgiving holiday weekend. The airline also announced it would be retiring 157 aircraft including its Boeing 757, 767 and Airbus A330-300 aircraft. It was also going to defer the delivery of 18 Boeing 737 Max aircraft to 2024.

Diageo half-year results

Thursday: When drinks giant Diageo last updated the market, the company said that the US business was performing ahead of expectations, while business in Europe, despite robust demand due to pubs and restaurants starting to re-open, remains at risk due to a rise in infection rates. Since then, the picture has deteriorated even further with extended lockdowns that are likely to extend deeper into this year. 

Diageo’s emerging markets recovery was also less robust and likely to take more time, but the company said its outlook for the first half of 2021 had improved, after profits in the previous year showed a fall of 47%, as sales fell 9% to £11.8bn. Last year the company paid a full-year dividend of 69.88p a share, however it did suspend its three-year programme to return £4.5bn to shareholders as it took steps to underpin its balance sheet. The second half of this fiscal year is unlikely to paint a brighter picture, with the various tightening of restrictions across Europe likely to weigh on its sales targets, as well as revenue. 

Fever-Tree full-year results

Thursday: Last September soft drinks and tonic maker Fever-Tree announced it had seen a solid start to the year, despite some weakness in the on-trade sector as a result of lockdowns. Off-trade sales for the 12-week period to 12 June had seen a 34% increase year on year, as alcohol consumption among consumers went up during lockdown, with the US showing a particularly strong performance. On-trade sales were weaker as various lockdowns closed bars and other licensed premises, and this is likely to be another weak spot given the restrictions that have been in place since November. This weakness was reflected in first-half revenues at the time, which declined 11% at £104.2m, and pre-tax profits falling 38% to £21.7m. Management at the time were more confident about H2, raising the interim dividend to 5.41p from 5.2p, despite gross margins slipping from 51.9% to 46.8%.

The company also announced the acquisition of Global Drinks Partnership, its sales agent in Germany for €2.6m, which prompted the company to up its full-year revenue guidance to come in between £235m and £243m. This may have been a touch premature given events since October which could lead to sharp deterioration in its on-trade sales business. 

US Q4 GDP and US personal spending (December)

Thursday: GDP
Friday: Personal spending

US personal spending rebounded strongly in the five months after the big declines of March and April of last year. This came to a shuddering halt in November with a slide of -0.4%, as various US States imposed lockdowns, and/or tighter restrictions. We can expect to see further declines in December if the recent retail sales numbers are any guide. Expectations are for a decline of -0.6%. 

Disagreements between US lawmakers over further fiscal support from the government is also likely to have depressed consumption, which in turn is likely to have weighed down the first iteration of Q4 GDP. One of the main reasons Q3 GDP was so strong was because personal consumption came in at 41%. This week’s Q4 GDP numbers are likely to be much weaker, for the same reason. Personal consumption accounts for over two thirds of US GDP and the slowdown in November and December may reflect a rather weak end to 2020. Expectations are for annualised Q4 GDP to come in at 4.3%, a sharp slowdown from the 33.4% seen in Q3.

Index dividend schedule

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

Selected UK & US company announcements

Monday 25 January Results
Brown and Brown (US) Q4
Flexsteel (US) Q1
Kimberly-Clark (US) Q4
SThree (UK) Half-year
Tuesday 26 January Results
American Express (US) Q4
Capital One (US) Q4
General Electric (US) Q4
Invesco (US) Q4
Johnson & Johnson (US) Q4
Microsoft (US) Q2
Polaris (US) Q4
PZ Cussons (UK) Half-year
Quiz (UK) Half-year
Wednesday 27 January Results
Apple (US) Q1
AT&T (US) Q4
Boeing (US) Q4
Facebook (US) Q4
Hargreaves Services (UK) Full-year
McCarthy and Stone (UK) Full-year
Nasdaq (US) Q4
OshKosh (US) Q1
Tesla (US) Q4
Thursday 28 January Results
American Airlines (US) Q4
Comcast (US) Q4
Diageo (UK) Half-year
Dolby (US) Q4
Dow (US) Q4
Fever-Tree (UK) Full-year
Mondelez (US) Q4
Stanley Black and Decker (US) Q4
Visa (US) Q1
Friday 29 January Results
Caterpillar (US) Q4
Provident (US) Q4
Real Good Food (UK) Half-year

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


Sign up for market update emails