Market Outlook

The week ahead: US non-farm payrolls; Pfizer, Moderna, ITV results

Read our pick of the top stories to look out for this week (3-7 May), and view our key company earnings schedule.

Michael reviews the week’s price action in equity markets, as well as previewing the US non-farm payrolls report, Bank of England rate meeting, and the latest services and manufacturing data. He also looks at the key levels on currencies and indices, plus the share prices of IAG, Intercontinental Hotels, Boohoo and Next.

European manufacturing & services PMIs (April)

Monday: Manufacturing; Wednesday: Services

One of the main bright spots amid the gloom in Europe has been the manufacturing sector, and its resilience in the face of restrictions which have been in place in some form since October last year. With no prospect of an imminent easing, political leaders across Europe’s big four economies will have been grateful for this, and with the services sector now starting to show some life, there are signs that businesses are learning to adapt to some of the restrictions.

In France, this resilience is expected to be sustained after the recent flash numbers saw a rise to 59.2 for manufacturing, and services recover to 50.4. German manufacturing also remained solid, slipping slightly to 66.4, while services slipped back to 50.1. While the manufacturing PMIs have remained resilient, they aren’t always reliable, as the sharp decline in French industrial production for February showed last month. Nonetheless they still can be decent guides on business optimism and confidence.

Italy and Spain remain the pressure points, and while manufacturing is expected to stay resilient, services are a key revenue earner and there’s been little evidence of a return to growth. In March, Italy services PMI came in at 48.6, while Spain improved modestly from 43.1 to 48.1. The hope is that April shows a spark from domestic demand, given that UK tourists still remain restricted to UK borders.

UK PMIs (April)

Tuesday: Manufacturing; Thursday: Services

The performance of the UK economy since the start of the year has allowed expectations to be raised on an almost monthly basis. It was easy to be pessimistic at the start of the year. Papers were carrying headlines about Brexit disruption at the ports (some of which is still affecting some sectors of the UK economy) which combined with another three-month lockdown meant economic expectations were anchored very much to the downside.

Despite the lockdown, manufacturing activity stayed fairly resilient and has improved since the 54.1 in January. The recent flash number was 60.7, a ten-year high. Services activity saw a big slump in January, slipping back to 39.5, however since then we’ve seen a big rebound with expectations of 60.1, an 80-month high, if the recent flash numbers are any guide. This v- shaped recovery in services bodes well for the rest of Q2 at a time when not all essential retail has yet reopened, with the only question being as to how sustainable the current levels of economic activity are.

Pfizer Q1 results

Tuesday: Pfizer has done well from the pandemic, using its scale to complement the BioNTech jab. The pharma giant has forecast $15bn in additional sales in 2021, which could well add $4bn to its profits. In the US it is charging $19.50 per dose while in the EU the company has recently raised prices to from €12 to €19.50 per dose in 2022/2023, which is incredibly altruistic of it.

In its last set of annual accounts, the company turned over $47.6bn, however estimates for 2021 are for an increase to $62.5bn, as a result of the pandemic, which would see its earnings surge. For a comparison at the end of 2019, revenues came in at $41.2bn, meaning in the space of two years revenues would have risen 50%. When looked at through this prism, it is a little surprising that Pfizer shares are only modestly higher year-to-date, and still below the highs we saw in 2020, particularly given they have a dividend yield of just under 4%.

Boohoo full-year results

Wednesday: The last 12 months have been testing ones for Boohoo. The share price was hit hard on reports that Jaswal fashions, a factory in Leicester and a reported supplier to the company, was operating below the required standards as set by UK Health and Safety, and was also paying below minimum wage levels. While Boohoo was exonerated by an independent investigation, the company was criticised for not acting quickly enough.

These revelations rather took the gloss of what had been an impressive Q1, which saw a 45% rise in revenue a couple of weeks before, when the company also confirmed the acquisition of the online operations of Oasis and Warehouse for £5.25m. During the same period the company also acquired the remaining 34% minority shareholding in PrettyLittleThing. Fortunately, management appears to have drawn a line under their issues, and in March took the decision to drastically cut back on the number of suppliers it uses in its supply chain, to 78, down from over 200, as it looked to shore up its battered reputation and improve its oversight.

In January, Boohoo raised its guidance for this year, saying that they expected full-year revenue to increase between 36 and 38%. In February, the group acquired another three brands to add to its catalogue: Dorothy Perkins, Wallis and Burton, while in April the company signed a new lease on a new warehouse in Daventry, as it strives to build up its retail capacity. Gross margins dipped to 53% in Q3. In January, the company said it expected the full-year adjusted EBITDA margin to be around 10%, with 25% annual sales growth.

ITV Q1 results

Wednesday: You would think that as a broadcaster, ITV would have been able to do well from the pandemic. However, even when your audience is stuck at home you still need to have something for them to watch apart from Love Island.

The shuttering of ITV Studios at the start of the pandemic saw revenues slide, while advertising revenues also fell back as customers cut costs to preserve cash. Total advertising saw a decline of 11%, however the picture in Q4 was much more positive, showing much better comparatives from the same quarter a year previously. This could well be down to rising optimism about the outlook, as the vaccine rollout program offered the hope of a strong summer rebound.

Statutory total profits after tax declined to £281m from £478m a year ago. Management were cautious about Q1 advertising revenue, and declined to offer any firm guidance, however for Q2 and the rest of the year there was an expectation of a strong rebound if the loosening of restrictions, as travel companies ramped up spend to encourage the booking of holidays.

To augment a recovery in 2021, the programme budget is set to be restored with an increase to £1.1bn. Management will also be hoping that subscriptions for on demand services stayed resilient. In January BritBox subscriptions in the UK rose 500,00 though these numbers could start to slow as summer approaches. 

Uber Q1 results

Wednesday: For a company that remains a long way from being profitable, Uber’s share price has traded sideways over the last three months, largely in a range between $50 and $60 a share. The ride-share company’s most recent results showed losses for the year of $6.77bn. While better than expected, this was still only a 20% improvement on last year's $8.51bn losses. Given that the company’s business has been decimated this year, one could argue that this is a small victory.

The Uber Eats side of business appears to be behind the recent resilience, alongside an expectation that its rides business will also improve as economies reopen. This appears to have been borne out in its recent March data, which showed bookings rise to their best levels in a year. The number of gross bookings in its delivery unit also surged, rising to $52bn on an annualised run rate.

As with anything to do with Uber there is a downside with the prospect that costs will increase after the company was forced to classify all of its drivers as workers, meaning they are all entitled to minimum wage protections and other employment rights after the UK Supreme Court ruled against the business. Losses are expected to come in at $0.56 a share.

Next Q1 results

Thursday: The Next share price has been one of the retail outperformers over the last 12 months, despite being exposed to one of the worst retail environments in modern times. At the end of last year, the Next share price managed to push above their pre-pandemic peaks of 2020, and also posted new record highs in April, completely counter to the wider retail environment.

Rather than fight against the effects of the pandemic, the shutdowns merely served to force Next to accelerate its transition to online which was already well-established. This strength allowed management as they put it to “follow the new money.” Just over a month ago Next raised its full year guidance for 2022 for pre-tax profits of £700m, on the basis that online sales in February and March picked up the slack from the closure of retail stores.

Expectations for this week’s Q1 numbers are set to be quite high. Next has already said it expects to see total sales rise 18% over the next 12 months, so a decent number here could see them revise that estimate higher. The figures will need to be decent, with reports that Next CEO Lord Simon Wolfson saw his pay rise by 28% in the past 12 months due to various long term incentive schemes. While this is good news it could also raise some eyebrows given that Next has been in receipt of a significant amount of help from the government’s job retention scheme, perhaps raising the pressure on it to return some of the money as some of its retail peers have done.

Bank of England rate meeting

Thursday: As the Bank of England gets set for its third meeting of 2021, the economic picture is quite different from the beginning of the year. At the time the central bank were talking up the prospect of negative rates, while now the need for them has never been less obvious.

The March meeting saw some members of the Monetary Policy Committee become notably more optimistic, notably chief economist Andrew Haldane, who suggested the potential for a coiled spring economic rebound from a build-up of excess savings. His departure from the MPC in the coming months will be keenly felt. While some of his ideas have attracted criticism and scorn in some circles, he was prepared to think outside of the box, unlike other members of the MPC who seem rather two dimensional in their thinking.

Mercifully, this talk of negative rates has been put to one side, with the vaccine rollout plan now much further advanced and various restrictions set to be eased, new virus variants notwithstanding. No changes to monetary policy are expected, and the recent pause in 10 gilt yields is also likely to have prompted a sigh of relief given concerns that a sharp rise in inflation expectations might warrant some form of response from the central bank in terms of reducing the amount of stimulus in the economy.

Moderna Q1 results

Thursday: Unlike AstraZeneca, the Moderna vaccine isn’t being provided at cost, which means the company is likely to make billions of US dollars from its product. The company has signed various contracts with numerous governments, with the US government signing up for 100m doses at $15 each, and the UK government signing up for 17m doses, which were delivered in April.

In January, Moderna raised its lower end estimate for global production to 600m doses in 2021, with the hope it can deliver up to 1bn doses. Moderna’s biggest problem will be economies of scale. Can it build up its production capability to not only deliver on its Covid-19 vaccine, but also new vaccine candidates for seasonal flu, HIV and the Nipah virus using the same biotechnology?

In Q4 revenues rose strongly, coming in at $570.7m, well above expectations of $287m, and a huge jump from $14.1m a year ago. Despite this big jump in revenues, losses widened to $272.5m, or $0.69 a share, from a loss of $0.37 a year ago. The bigger losses appear to be as a result of Moderna boosting its productive capacity, with R&D expenses for Q4 amounting to $759m. The company said it plans to spend $350m to $400m of capital investments for 2021, however with $18.4bn of vaccine deals in the offing this seems like a good trade-off. However, whether the company is worth its current $71bn valuation is another matter entirely. In April Modena signed a deal with Sanofi to manufacture another 200m doses in the US in September this year. Profits are expected to come in at $2.60 a share, a huge jump from Q4, and with booster shots set to add to its revenues these numbers could go even higher.

Peloton Q3 results

Thursday: Another winner from the pandemic, demand for Peloton’s rather pricey fitness solution saw annual revenues surge to $1.83bn last year. Subscriptions alone made up about $360m, as the company grew its customer base to just over 3m. At the end of the previous fiscal year management expressed optimism about the outlook for 2021 projecting annual sales of between $3.5bn and $3.65bn, which would be over double the $1.46bn of sales in its last fiscal year. Margins are also healthy, at over 40%, with the currently on track to hit that target.

Peloton’s biggest business problem is the upfront cost of its $2,000 bike, along with some supply concerns as result of the pandemic, which has caused some production constraints. This has seen shares slide in the past three months, though some of this may be down to recent concerns over the safety of its treadmills, which prompted a US safety body to request Peloton recall the product (a request that was rejected). At the end of Q2 management admitted that they were having trouble keeping up with demand for its products, despite reporting that Q2 revenue rose 128% to $1.06bn, and subscriptions rose 134% year-on-year. There appears to be a wider concern that rise of rivals in the fitness and health space might impact further growth potential, with the likes of Apple’s Fitness Plus subscription arriving on the market. Nonetheless, revenues are expected to come in at $1.11bn, with a smaller loss of $0.12 a share, with attention likely to be on the safety issue on its treadmill product, its production issues, as well as its future guidance.

China trade balance (April)

Friday: The Chinese economy finished 2020 on a strong note, however the start of 2021 has been a little more cautious if the latest quarterly GDP figures are any guide. Despite this, trade numbers have continued to look positive. Export demand has been strong, primarily as a result of the continued lockdowns in the rest of the world, which has seen the export of PPE and other medical related products do well. As vaccines continue to get rolled out this trend could well slow in the coming months.

The most recent China trade data for March saw a big rebound in exports as global demand continued to show resilience. Exports rose 30.6% and while you can argue that the number was flattered due to the coronavirus slowdown at the beginning of last year, which shut factories down, the direction of travel still looks impressive. Imports also beat expectations, rising 38.1% in a sign that domestic demand was starting to recover from the caution that has been prevalent for most of the last few months. This trend of an improving economy is expected to continue in April, as the US and UK economies loosen restrictions further. Expectations could be tempered by the trade disruption at the Suez Canal, but the Chinese economy is expected to do better in Q2, and as such this week’s trade numbers should reflect that.

IAG Q1 results

Friday: When IAG reported a £6bn loss back in February, it was no surprise given the impact on the travel sector over the last 12 months. For the year, passenger revenue fell 75.5% from €22.47bn to €5.5bn. For Q1, IAG has estimated that capacity plans would be around 20% of 2019 levels, in essence meaning that Q1 was going to be worse than Q4, which helps explain why its shares have gone nowhere since those end-of-year numbers were released, though we are still well up from the lows of the year.

IAG hasn’t offered any guidance for this year, and with the international travel outlook still uncertain with the surge in cases being seen in places like India, short haul appears to have an advantage over long-haul carriers in the here and now. Its main problem will be getting the same levels of long-haul business travel that it had before the pandemic. This is where most big carriers make their money, and it is here that normal service may well take a little longer to return to the same levels they were in 2019. There has been talk in the last few days of a transatlantic travel corridor being opened with the US, where vaccination levels are running at similar levels. This would be most welcome, and a boost for Q2, at a time when the long-haul market may take longer to resume than the short haul market.

US non-farm payrolls (April)

Friday: Despite a slowdown in the US jobs market at the end of last year, we’ve seen an impressive rebound with jobs gains of 166,000 and 468,000 in January and February respectively, and then a stunning 916,000 in March. There is no question that the huge amount of fiscal support that has been pushed into the US economy over the last four months has helped in this regard, with $900bn agreed at the beginning of January, followed by a much bigger $1.9trn stimulus which was signed off in March.

Combined with the accelerated vaccination program that is continuing apace across the US, along with a slowdown in the rise in virus cases, hospitalisations and deaths, expectations for April’s job numbers are now similarly elevated. Average estimates are for a number in the region of 1m especially since weekly jobless claims are also trending lower, dropping sharply below 600,000 a week, while the unemployment rate is expected to fall further, from 6% to 5.8%. This is very welcome especially since the participation rate has remained steady, edging up to 61.5% in March, suggesting early signs that some disincentivised workers are returning to the work force. Furthermore, underemployment also fell to 10.7% from 11.1%, so further progress will be welcomed here as well.

This still needs to be set in the context of a participation rate of 63.4% over a year ago, but putting that to one side, the US economy is going in the right direction. It’s also worth keeping an eye on the latest ADP payrolls report which gets released two days before, and which has underperformed somewhat relative to NFP. In March the ADP report saw 517,000 new jobs added with April set to see another 825,000, however the first two months have lagged behind considerably which means there is potential for a bit of a catch-up. It is also important that with the various ISM reports that came out in March and April, employment has also started to improve, and which could also start to be reflected in much stronger payroll numbers as we head into the summer months. 

InterContinental Hotels Q1 results

Friday: The hotel business has been another area hit hard by the pandemic, and the recent full-year numbers from Intercontinental Hotels Group, who own Holiday Inn, back in February illustrated this quite starkly, as full-year revenues fell to $992m, down from last year's $2.08bn. Revenue per room fell by 52.5%, as the overall business reported an operating loss of $153m.

On the plus side, its China business has been showing signs of strength albeit at lower levels of activity, however this quarter is likely to be different given that the comparatives this year are likely to be better. Despite the pandemic, IHG still opened another 285 hotels during the year with half of those being under the Holiday Inn brand. In terms of an economic reopening there is optimism that any rebound in the next couple of quarters will be led by the US, where 70% of rooms are in its Holiday Inn Express model. This area could see a strong rebound in the US summer driving season.

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 3 May Results
Avis Budget (US) Q1
Estee Lauder (US) Q3
Zoominfo Technologies (US) Q1
Tuesday 4 May Results
Activision Blizzard (US) Q1
Amcor (UK) Q3
Caesars Entertainment (US) Q1
CVS Health (US) Q1
Denny's (US) Q1
Dolby Labs (US) Q1
ESCO Technologies (US) Q1
Gartner (US) Q1
Herbalife Nutrition (US) Q1
IPG Photonics (US) Q1
Lyft (US) Q1
Marathon Petroleum (US) Q1
McAfee (US) Q1
Pfizer (US) Q1
Premier (US) Q3
Under Armour (US) Q1
Virgin Galactic (US) Q1
Warner Music (US) Q1
Wednesday 5 May  Results
Boohoo (UK) Full-year
Etsy (US) Q1
Fastly (US) Q1
Fox (US) Q1
Fresh Del Monte Produce (US) Q1
General Motors (US) Q1
GoDaddy (US) Q1
Hubspot (US) Q1
ITV (UK) Q1
Liberty Global (UK) Q1
Marathon Oil (US) Q1
MetLife (US) Q1
New York Times (US) Q1
Turtle Beach (US) Q1
Twilio (US) Q1
Uber (US) Q1
Thursday 6 May Results
Avaya (US) Q1
Beyond Meat (US) Q1
Cars.com (US) Q1
Carvana (US) Q1
Dropbox (US) Q1
Eventbrite (US) Q1
Funko (US) Q1
GoPro (US) Q1
Groupon (US) Q1
Iron Mountain (US) Q1
Kellogg (US) Q1
Live Nation (US) Q1
Moderna (US) Q1
Next (UK) Q1
Peloton (US) Q3
Rio Tinto (UK) Q1
Roku (US) Q1
SeaWorld Entertainment (US) Q1
Stamps.com (US) Q1
Trainline (UK) Full-year
TripAdvisor (US) Q1
Yelp (US) Q1
Friday 7 May Results
AMC Networks (US) Q1
DraftKings (US) Q1
InterContinental Hotels (UK) Q1
IAG (UK) Q1
Lear Corp (US) Q1
MoneyGram International (US) Q1
Olympic Steel (US) Q1

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


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