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Market Outlook

The Week Ahead: Jackson Hole Symposium; Bridgepoint, Salesforce results

Read our pick of the top stories to look out for this week (23-27 August), and view our key company earnings schedule.

In this week's video, Michael looks at the slide in equity markets and key support levels, and what to expect from the Jackson Hole Symposium and the latest US economic data, plus results from Bridgepoint, Best Buy and Snowflake.

France, Germany manufacturing & services flash PMIs (August)

MON 23: It’s quite possible we’ve seen a peak for purchasing manager indices (PMI) data for both France and Germany, despite last month’s strong readings. Germany in particular saw strong readings in both services and manufacturing, however the slowdown in the Chinese economy, as well as the flooding disruptions, could have impacted economic output and business confidence in August. In July, German manufacturing rose to 65.9, and services jumped sharply to 61.8. It would be a surprise if either of these came in anywhere close to that this month, given the various production shutdowns announced by businesses because of parts shortages. Likewise, in France there has been increasing evidence that business activity has been declining, with both manufacturing and services slipping back in July from their June levels.

UK manufacturing & services flash PMIs (August)

MON 23: There’s been an increasing disconnect in recent months between what the PMI numbers are telling us and the official ONS data, when it comes to manufacturing and industrial production, as well as construction output. While the PMI readings appear to be starting to reflect some of the weakness shown in the ONS data, they are still coming in at fairly bullish levels well above 50.

Manufacturing activity did slow in July, coming in at 60.4, down from 63.9 in June. Likewise, services slowed from May peaks of 62.9, falling back to 59.6 in July, largely because of the so-called ‘pingdemic’, which resulted in staff shortages and other business disruptions. It’s also important to remember that while services have seen a decent rebound in the last few months, certain sectors are still struggling as a result of consumer behaviour, which is much more cautious than it would have been pre-pandemic. One other trend to keep a close eye on will be higher cost prices being reported by businesses as they struggle to source the necessary materials for their various goods and services.

Best Buy Q2 results

TUE 24: Best Buy’s share price is broadly higher this year, helped by the US electronics retailer’s decent numbers in Q1, as US stimulus payments fuelled a rise in the sale of kitchen appliances and other electronic goods. Best Buy said it expected same-store sales to grow between 3% and 6% this year, although the optimism was tempered by an acceptance that the second half might be slower than the first. Q1 revenue came in at $11.64bn, with a big jump in online sales of 37.2%, which appears to have prompted the retailer to pare back jobs across its store footprint. Profit for Q2 is expected to come in at $1.90 a share.

German IFO business climate (August)

WED 25: For most of this year, German business confidence has been rising with both manufacturing output as well as services activity showing much more resilience than at the end of last year. In June, IFO business activity hit its highest levels in two years, however recent events across western Europe with respect to floods led to a slowdown in economic activity in the most recent July numbers. The tragic events, along with various factory shutdowns due to component shortages, could lead to further declines in the coming months, while uncertainty over the upcoming German election could also see business start to become more pessimistic about the overall outlook.

Bridgepoint Group half-year results

WED 25: It was only a month ago that Bridgepoint launched itself on the stock market at a valuation of £2.9bn, pricing at 350p per share. Though it was an IPO that didn’t receive much publicity, the Bridgepoint share price has moved well above its initial valuation. The private equity group  has investments in Hobbycraft, Fat Face and y bought a stake in fast-food chain Itsu in June. Bridgepoint may provide an update on its plans with respect to its UK Burger King franchise, which it’s reported to be looking to sell. The company currently has €27bn of funds under management, and a presence across the US, Europe and China. In 2020 the company generated £ 192m in revenue and profit of just under £50m, on a much lower figure for assets under management, so expectations are high of a decent performance.

Snowflake Q2 results

WED 25: When Snowflake reported in March, annual revenue increased 120% to $553.8m, and this growth has continued in the first half of this year, although Snowflake’s share price performance so far this year has been less than stellar. Nonetheless, the shares have still seen a decent rebound from May lows of $185, after a sharp sell-off than began in December last year.

In May, the company reported Q1 revenue of $228.9m, up 110% from the same period a year ago, although its losses were also higher at $203.2m. Snowflake now has over 4,500 customers, with management expressing optimism that full-year revenue would be able to crack the $1bn level for the first time ever. With the Snowflake share price at current levels, this still represents a lofty valuation compared with its peers, which means it needs to continue to bat expectations to justify its current valuation. Snowflake now needs to look at turning a profit and get tighter control of its cost base. This Q2 update will give investors a decent idea of how far along it is in meeting its full-year revenue estimates. A number more than $250m in revenue is needed to meet these expectations, while losses are expected to come in at -$0.15 a share.

Salesforce Q2 results

WED 25: Salesforce is another company that has benefited from the shift to working from home, despite being mostly geared towards office working, helped by its acquisition of Slack, which completed during Q2. At its Q1 earnings call, management raised their target for 2022 to $25.9bn to $26bn, from $25.7bn, with Slack set to contribute $500m of that. This is a big increase on its last set of full-year revenue, which came in at $21.25bn.

Since its elevation into the Dow, the shares have traded sideways. They are up year to date, although down from the record highs from last September. It remains to be seen whether the $27.7bn price tag for Slack will be money well spent, given that Microsoft is also pushing its own Teams product, but for now investors appear content to offer the benefit of the doubt. The outlook for the next few months still looks positive, given the upgrades to its guidance. Revenue for Q2 is expected to come in at $6.22bn, net of Slack. Profit is expected to come in at $0.92 a share.

Williams-Sonoma Q2 results

WED 25: A solid bellwether of the US economy, Williams-Sonoma specialises in a range of household cookware, bakeware and furniture. It’s one of the biggest retailers in this space, and a good barometer of middle America and consumer confidence. The company also owns the Pottery Barn and West Elm brands, and in May its shares hit record highs on the back of optimism that it would continue to see consistent gains in operating margins. Robust retail sales and consumer spending in the wake of the various stimulus measures have seen the shares go from strength to strength this year, with Williams-Sonoma’s share price bouncing back massively since the lows in March 2020, up more than 500%.

In Q1, the company reported revenue of $1.7bn, a rise of 40.4%, with the best performance in its Pottery barn and West Elm businesses. Earnings per share came in at $3.01, a huge increase over the same quarter the year before. As a result of the results, management raised its guidance for the year to low double-digit to mid-teen revenue growth. Q2 profit is expected to come in at $2.58 a share, down from the bumper number in Q1.   

Jackson Hole Symposium

THU 26: Unlike last year’s affair which was held virtually, this year’s event will be a limited in person programme. A year ago, the theme was “navigating the decade ahead: implications for monetary policy” with Federal Reserve chair Jay Powell outlining the Fed’s new policy of average inflation targeting. This policy has been very apparent in the past few months, in that the central bank is prepared to tolerate prices rising above 2% for extended periods to compensate for other periods when inflation is running below target.

With core PCE rising from levels of 1.5% at the end of last year to current levels of 3.5% already, and little sign that the Fed is in any mood to slow down its current bond buying programme significantly, it’s quite clear where Fed policymakers priorities lie right now, and it’s not in controlling inflation. This week’s symposium could offer guidelines in how the Fed is looking to start tapering its bond buying programme as we head into the autumn, but it’s important to understand that the discussion won’t be in terms of stopping it, just slowing it down. With talk that some Fed officials are looking to end asset purchases by the middle of next year, the composition of any reduction could also be important.  

US GDP (Q2)

THU 26: The rebound in the US economy from last year’s GDP slump of -31.4% has been decent, with four consecutive quarters of expansion, although the extent of the rebound has been slightly less than was anticipated in April. In Q1, the economy expanded by 6.4%, driven largely by two big stimulus interventions from the US government at the end of last year and in March. The spillover effects were expected to accelerate into Q2, especially with the various fiscal interventions still ongoing and due to expire in September.

Manufacturing has been strong in Q2, while the slow recovery in the services sector, along with the return of theme parks, has given a boost to economic activity. Nonetheless the extent of the economic rebound in the flash Q2 data was somewhat below expectations  of 8.5%, falling well short at 6.5%. On any measure, that headline number is still strong, especially given that personal consumption was stronger than expected at 11.8%, however the fact it fell short suggests there are headwinds for US businesses. It appears that some sectors are still struggling, while supply chain disruptions are also acting as a drag, with shortages of key parts prompting some factory shutdowns and other business disruptions. Expectations are for a slight upward revision to 6.6%.

US personal spending (July) & personal consumption expenditure (Q2)

FRI 27: US retail sales have been somewhat on the patchy side in recent months, though we did see a strong rebound in June. This in turn translated into a rebound in personal spending of 1% in the same month, which was double expectations, although personal income has remained a little on the soft side after  big gains in March. Since a 4.2% expansion in March, spending has been a little cautious, which is not surprising given vaccine hesitancy in some US states. The ever-changing virus outlook isn’t helping either, even as most parts of the US economy reopen. Some of the slowdown in spending can be put down to higher fuel prices, which may have deterred unrelated consumer discretionary spending.

Expectations are for July personal spending to stay fairly resilient and rise by 0.6%, however personal incomes still look a little on the weak side which won’t help, especially with core inflation at a 30-year high. On the plus side, jobs growth is still heading in the right direction and wages appear to be recovering, which means all we probably need to see here is evidence of a direction of travel on the income side.

With concerns that higher prices might be acting as a break on other discretionary spending, the PCE data is likely to be closely watched, after coming in at 3.5% in June. While the consumer price index (CPI) showed signs of plateauing in July, producer price inflation (PPI) did no such thing, pushing even higher, with the wider worry that at some point these price pressures are likely to become more persistent. Core PCE is the Federal Reserve’s preferred measure of inflation and has been trending higher for several months, more than doubling from levels at the end of last year, when it was at 1.5%. This ought to be a real concern for the US central bank, and while the consensus is now shifting towards the timing of a taper, at some point the discussion will have to move to the timing of a rate hike if this current trend continues.

Index dividend schedule

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

Selected company results

Monday 23 August Results
Ferroglobe (UK) Q2
Madison Square Garden Entertainment (US) Q4
Palo Alto Networks (US) Q4
SigmaRoc (UK) Half-year
VivoPower International (UK) Full-year
Tuesday 24 August Results
Benchmark (UK) Q3
Best Buy (US) Q2
John Wood (UK) Half-year
Wednesday 25 August Results
Anglo Pacific (UK) Half-year
Clipper Logistics (UK) Full-year
Costain (UK) Half-year
Dick's Sporting Goods (US) Q2
Salesforce (US) Q2
Snowflake (US) Q2
Splunk (US) Q2
Williams-Sonoma (US) Q2
Thursday 26 August Results
Abercrombie & Fitch (US) Q2
Chesnara (UK) Half-year
Dell Technologies (US) Q2
Dollar General (US) Q2
Gap (US) Q2
Hays (UK) Full-year
HP (US) Q3
Hunting (UK) Half-year
KNOT Offshore Partners (UK) Q2
Macfarlane (UK) Half-year
Membership Collective Group (UK) Q2
Peloton Interactive (US) Q4
Workday (US) Q2
Friday 27 August Results
Coty (US) Q4
Northern Drilling (UK) Q2

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


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