Watch our week ahead video preview (above), read our top ten events to look out for this week (17-21 June), and view our key company earnings schedule.
Chief Market Analyst Michael Hewson looks at this week’s price action across gold, crude oil and equity markets, while also looking ahead to the latest rate decisions from the Federal Reserve, Bank of England and Bank of Japan.
Conservative party leadership contest - TV debate
Tuesday: There’s a saying in Conservative party leadership contests that the early favourite rarely ends up crossing the line. Boris Johnson remains the early favourite, however his team has strictly controlled the message when he has been presented to journalists. This week’s TV debate on the BBC could be the one opportunity his challengers have to derail his tilt at the crown, as he will be exposed to the full scrutiny of the voting public. If he nails it, he could go a long way to making it onto the ballot paper for the final two candidates. If he trips up, he may find that his lead amongst Tory MPs disappears faster than a rat up a drainpipe. The outcome of the debate could, in turn, affect how markets view the likely prospect of a 'no-deal' Brexit. It is Boris’ to lose, faux pas notwithstanding.
Fed rate decision
Wednesday: It’s hard to believe that just over six months ago Fed officials were talking about the prospect of at least two rate rises this year, even after the rate rise in December. Market expectations have changed sharply in the last few weeks, with nobody talking about the prospect of a rise in rates. Markets have started to price the prospect of a decrease in the Fed Funds rate as soon as next month, and even the prospect of two rate cuts by year end. While allowing for the weak May non-farm payrolls report, this seems an incredible prospect. Unemployment is still at multi-year lows, while wages are growing at 3.1% a year. The recent change of tone by Fed officials has in some part helped shape this change in expectations, however it seems way overdone. As such we could see Fed officials temper market expectations in this regard. A rate cut in July or September would be tantamount to admitting they erred in December, and while no-one should be afraid to admit a mistake, it could do more harm than good if the Fed rush to cut rates so soon after raising them.
UK CPI (May)
Wednesday: The latest inflation data in April showed a modest uptick, largely as a result of increases in energy prices and council tax rates seeing an uptick to 2.1%, reaching a six-month high. Core prices were slightly more subdued but nonetheless, the weaker pound and higher energy prices appear to be exerting upward pressure on prices. We could see the consumer price index rise to 2.2% in May.
Whitbread Q1 results
Wednesday: Shorn of its Costa Coffee chain, Whitbread now has to stand or fall by the performance of its Premier Inn hotel brand. However, it does still have the luxury of a good proportion of the £3.9bn proceeds, having returned £2.5bn of the Coca-Cola funds to shareholders. It was therefore rather puzzling to hear Whitbread CEO Allison Brittain give such a downbeat assessment of the company at the end of last year. At the end of Q4 we saw sentiment and business confidence slip back, and revenue per room decline 4.4%. This could merely be a case of lowering market expectations against a backdrop of a 1% decline in total occupancy rates. However, the company still remains on course to boost room capacity by another 3,000 to 4,000 rooms, from the current 76,000, so the future may not be so bleak. Investors seem to think so, pushing the Whitbread share price to four-week highs last week. Revenues last year showed a rise of 2.1% to £2.05bn, with underlying profit before tax rising to £438m.
Berkeley Group full-year results
Wednesday: The slowdown in the London and south-east housing market has the potential to hit Berkeley Group’s profit more than most, given its exposure to these areas, which may explain why Berkeley Group share price has gone precisely nowhere in the last 12 months. In the first six months of the year the company saw a 26% drop in pre-tax profit, while revenues were down to £1.7bn. In an attempt to diversify, Berkeley launched a new division in Birmingham in 2017, and has bought a number of sites outside of the London area. At its last update in December the company upgraded its full-year profit target to £3.37bn, while leaving its longer-term outlook unchanged. Given the extension to the Brexit deadline we could see this revised lower, in light of the continued lacklustre nature of the London and wider housing market.
Slack Technologies gets set to go public this week and will follow in the footsteps of Spotify in doing a direct listing, rather than a typical initial public offering. In normal circumstances when companies embark on an IPO, the process involves the issuing of new shares. This means that the existing private shareholders will make their own private shares available for sale to the wider market, with no clear indication as to where the value might be. Expectations are for Slack's valuation to be around $17bn, which would put the shares in a price range of between $25 and $28 a share. The company, which is an instant messaging and collaboration tool, and also provides mobile apps for iOS and Android, is expected to generate revenue of around $590m for 2020. This would be an almost 50% improvement on last year’s number of $400.9m. Last year the company lost $138.9m but expects to see those losses come down.
Bank of England rate decision
Thursday: Given the ongoing uncertainty over Brexit, this meeting almost seems irrelevant as the prospect of the Bank of England doing anything currently sits between slim and none. Recent noises from Bank of England officials appear to be clouding the picture surrounding interest rates, with chief economist Andrew Haldane and external member of the MPC Michael Saunders, warning about the prospect for higher rates. With the Brexit deadline extended to October and the latest economic data showing signs of softening, any talk of rate hikes is looking increasingly detached from reality. After a decent Q1, recent April data appears to show a UK economy coming down from a pre-Brexit deadline boost, as UK consumers hold back and become more discerning about how they spend their money.
Bank of Japan rate decision
Thursday: An improving economy is likely to see the Bank of Japan (BoJ) keep policy unchanged. The latest GDP numbers showed the economy expanded 0.6% in Q1, however, the lack of inflation will keep central bankers cautious, with BoJ governor Haruhiko Kuroda reiterating that the central bank still has options when it comes to keeping policy loose.
Darden Restaurants Q4 results
Thursday: Anyone who's been to the US knows the Olive Garden chain of restaurants. When the US consumer is confident, dining out generally tends to do well. US consumers certainly don’t appear to have lost their appetite, with Darden Restaurants’ share price going from strength to strength in the last few years. At its most recent update in Q3, the company reported earnings and revenue above expectations. The company also raised its full-year outlook, with the Olive Garden franchise seeing same-store sales rise 4.3%. Full-year earnings are expected to come in at $5.76 to $5.80c a share, with total sales growth of 5.5% expected for the year.
Kroger Q1 results
Thursday: Kroger finished the end of last year with an earnings miss, however, this was mainly down to investment in new areas to help it take on the likes of Walmart and Amazon. The deal with Ocado is a case in point, with the upcoming year expected to be one of transition, according to some analysts. This helps to explain why Kroger shares are down this year, however, revenue still look strong while profits are expected to come in at $0.72c a share. The company is expected to spend $3.2bn this year in overhauling its stores, up from $3bn last year. This expenditure in 2018 saw digital sales rise 58%, as more warehouses were opened in its online operation.
Germany and France flash PMIs (May)
Friday: So far this year’s manufacturing activity has been abysmal, particularly in Germany where readings are at multi-year lows. Services activity has been slightly better, but even here it’s looking softer than in recent months. Trade war concerns are likely to continue to be a worry, with the auto sector acting as a significant drag. Markets will be looking for an improvement from the sub-45 readings we’ve seen in the past three months, otherwise recession fears could increase further in Europe’s largest economy.
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 17 June||Results|
|No major US or UK companies reporting|
|Tuesday 18 June||Results|
|Ashtead Group (UK)||Full-year|
|Safestore Holdings (UK)||Half-year|
|Telecom Plus (UK)||Full-year|
|Wednesday 19 June||Results|
|American Outdoor Brands (US)||Q4|
|Barnes & Noble (US)||Q4|
|Berkeley Group (UK)||Full-year|
|Winnebago Industries (US)||Q3|
|Thursday 20 June||Results|
|Darden Restaurants (US)||Q4|
|Dixons Carphone (UK)||Full-year|
|Red Hat (US)||Q1|
|Friday 21 June||Results|
Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.