Market Outlook

The week ahead: RBA rates, UK statement; Halfords, Rolls-Royce results

Watch our week ahead video preview, read our pick of the top stories to look out for this week (6-10 July), and view our key company earnings schedule.

Michael reviews the week's price action before and after the US non-farm payrolls, and looks ahead to the UK chancellor's economic plan, the RBA rate-meeting, Canada jobs report, plus results from Halfords, Whitbread, Rolls-Royce and Persimmon. He also looks at key levels on the S&P 500, DAX, FTSE 100, GBP/USD and AUD/USD.

Reserve Bank of Australia rate meeting

Tuesday: With Australian interest rates already at record lows of 0.25%, there has been speculation that we could see more quantitative easing from the RBA if the economic picture deteriorates further. The unemployment rate has already increased from 6.4% to 7.1% since the last meeting, its highest level since October 2001. While the Australian economy has started to reopen, it seems unlikely that the economic picture will improve significantly in the short term, even with the recent announcement by the Australian government of a new ‘Jobmaker’ employment programme. Despite this rise in unemployment there has been little indication that the RBA appears inclined to do more than it already has done in terms of supporting the economy.

Halfords full-year results

Tuesday: It’s fortunate that Halfords doesn’t just rely on its automotive business for revenue. Classed as an essential business it remained open during the UK lockdown, and has even seen an uptick as people either buy or service bicycles in order to avoid public transport and keep healthy in the good weather. At the beginning of May, Halfords said that full-year results would be boosted by these increased sales, with profits pushed up from £50m to £55m. Despite this, the company still pulled the dividend, saving £24m, and suspended its guidance for 2021. Halfords should also benefit from the business rates suspension. With the government looking to push cycling as part of a new green agenda, Halfords seems well-positioned: bicycle demand is already high, and the share price is still well below the levels we saw at the beginning of 2019.

JD Sports Fashion full-year results

Tuesday: Like most retailers, JD Sports has been hit hard by the various shutdowns in the US and UK economy. In March, management took the decision to close all of its stores in the UK, Europe and the US, though online sales remained open. The suspension of business rates will help cushion some of the effects of the government-enforced lockdown, with future guidance suspended until further notice. Tuesday’s full-year results are expected to show revenues of £5.96bn and gross profits of £2.8bn, numbers that will be hugely difficult to replicate. The company also has to take note of the recent decision by the CMA to block its acquisition of FootAsylum, despite the brand only accounting for 5% of the retail market. The CMA’s logic appeared to be based around the rationale that the loss of competition would leave consumers worse off, and that FootAsylum should be sold to an approved buyer. This is likely to leave JD Sports nursing a large writedown on its original £90m purchase price, a huge sum of money at a time when consumers aren’t spending and retailers are closing outlets. This update is likely to add further colour to that decision, how JD Sports intend to deal with it, and whether they intend to appeal. In a sign of the challenges facing the sector, JD Sports has already taken steps to restructure its Go Outdoors business, and we could also get further information on that process.

Whitbread Q1 results

Tuesday: It’s been an interesting few weeks for Premier Inn owner Whitbread. Having reported decent full-year numbers in May, the coronavirus shutdown blew a huge hole in its expectations for this year. All but 39 of its hotels in the UK remain closed, with the assumption that they will have fairly low occupancy until September. This could change in the coming weeks however, as the UK gets set for a big reopen. With staycations likely to be the only option for many, Premier Inn look set to benefit. In Germany, there was also positive news as hotels reopened on 11 May. Nonetheless, management have taken steps to batten down the hatches, suspending the dividend and furloughing 27,000 staff on full pay with the help of the government scheme. Whitbread also completed a 1-for-2 £1bn rights issue at 1,500p. Like most companies, no guidance has been issued, but a snapshot was offered at the end of May for the 11-week period to 14 May, which showed accommodation revenues were down 75%, and 99% lower in the previous seven weeks. This week’s Q1 update is likely to offer little insight into the UK business, however we could get a glimpse into demand for summer bookings, and how Premier intends to take advantage of that.

Levi Strauss Q2 results

Tuesday: It’s not been a great run for Levi Strauss since its IPO over a year ago. Since then the share price has tended to drift lower, perhaps underperforming as it’s not a tech stock. In Q1, the company posted revenues of $1.51bn, above expectations, which meant the company was able to pay a dividend of $0.08 a share. This week’s Q2 result is unlikely to come anywhere close to Q1, however management’s withdrawal of guidance does mean that expectations are low. On the plus side, Levi Strauss’s international reach means that they will still be able to shift product, even if some markets are closed. It also has $1.8bn in liquidity, so should be able to ride out the current uncertainty. The company is expected to post a Q2 loss of -$0.41 a share.   

UK economic statement

Wednesday: This week, UK chancellor of the exchequer, Rishi Sunak, will outline further details of his plans to steer the UK economy through the coronavirus crisis. Last week, the prime minister, Boris Johnson, promised to bring in significant infrastructure investment, as well as plans to cut red tape in order to improve key infrastructure like homes, schools, roads and broadband. There has been speculation that the chancellor might look at some tax cuts like VAT, however there is no evidence that these would be passed on to the consumer. Businesses have a tendency to pocket the difference, leaving prices unchanged. The chancellor could encourage companies to take on apprentices by way of wage subsidies or tax breaks in order to plug skills gaps, which are particularly acute in the construction industry. He could also come under pressure to be more flexible about the furlough scheme, as various sectors continue to struggle with lower footfall and revenue, with concerns rise that a tsunami of job losses could hit the economy as we head towards the autumn.

Persimmon Q2 results

Thursday: The closure of the housing market at the end of March resulted in the construction sector briefly grinding to a halt, though Persimmon, and its peers were able to begin a phased reopening of sites on 27 April. Sales offices reopened on 15 May, with strict guidelines on social distancing and hygiene. There is no doubt that the disruption has led to costs rising, though the cancellation rate has been no higher than average. In the eight weeks to 10 May, Persimmon managed to secure 1,351 reservations, with the prospect of further gains in the weeks ahead. The main concern is that this rate could slow in the coming months, with the slide in mortgage approvals likely to point to a slowing housing market.

Rolls-Royce Q2 results

Thursday: This UK marquee brand has had a torrid time in recent months, with a share price just above its multi-year low, and Rolls-Royce shares had been in decline since before the coronavirus pandemic decimated the aviation sector. Problems with its Trent 1000 engine which powered the 787 Dreamliner has seen costs rise to a potential £2.4bn by 2023. With the wholesale grounding of aircraft across the world, and customers taking steps to delay or cancel future aircraft orders, the Rolls-Royce order book has been hit hard. The collapse in air travel has seen nearly half of the company’s projected revenue disappear, as airlines ground their fleets and various travel bans bite. This collapse in revenues has meant that the company has had to defer bonuses for its CFO and CEO, and secure an additional $1.5bn revolving credit line in April in addition to the $2.5bn it secured in March. Given the ongoing uncertainty, Rolls-Royce also scrapped its guidance. The company has also announced plans to cull 9,000 jobs from its 52,000-strong workforce, mainly from its civil aerospace division, as the business struggles to adapt to a new trading environment. There are also reports that Rolls-Royce is looking at raising extra cash in order to bolster its balance sheet.

Workspace Group Q1 results

Thursday: Real-estate investment trusts have had a rough time, with Intu recently going into administration. Workspace Group has been one of those companies that have done things a little differently over the last 10 years, in terms of how it sold its office space, and that has helped cushion the blow to some extent. Unlike its larger peers, Workspace has focused on small or micro businesses, selling flexible office space, and short-term leases with superfast connectivity. The business was driven by a desire to cater for diverse clients: from one person startups to slightly larger communal areas for bigger businesses with more sophisticated requirements. This business model took a huge blow from the coronavirus pandemic, sending Workspace shares down from record highs in February to six-year lows in just five weeks, as the company was forced to offer 50% rent reductions in the wake of the lockdown. It’s highly likely that in this new social distancing world, and the emphasis on home and/or remote working, revenue for Workspace will be much harder to attain in the short- to medium-term.

Delta Airlines Q2 results

Thursday: At the end of 2019, Delta was one of the few airlines that was having a good year, largely down to the fact that it didn’t have any Boeing 737 MAXs in its fleet. Record revenue and decent profit were helped largely by sales of premium-class tickets. This was reversed within three months, with CEO Ed Bastian, along with the rest of the airline sector, having to go to the US government to ask for a portion of a $25bn bailout. As airlines slowly resume operations, normal business is unlikely to be the same again. Business travel, which a lot of national carriers rely on, is likely to see a big drop off in the months ahead, as companies realise that many meetings can take place through remote conferencing facilities. Year-on-year revenue for Q2 is expected to decline by 90%, with the carrier losing 85% of its flight capacity at the height of the pandemic, while losses are expected to come in at $4.43 a share. Delta expects to add 1,000 new flights to its schedule this month, and another 1,000 in August.

Weekly US jobless claims

Thursday: The recent weekly decline in jobless claims appears to be slowing down, after a lower-than-expected fall in the claimant count for the previous week. More worryingly, the continuing claims number edged back up, as concerns over rising infection rates raise the prospect that the return of furloughed workers that began in June, may stop due to rising infection rates in various US states. We’ve already seen Apple re-close 77  stores, while bars and restaurants have delayed their reopening plans in the face of a surge in coronavirus cases. It’s important to remember that the full economic impact of the crisis hasn’t quite reached the pockets of the average American, as stimulus payments continue to hit the doormats of American workers.

Canada employment report (June)

Friday: Having seen a total of 3m jobs lost in March and April, some of that damage was reversed in May when the Canadian economy surprisingly added 289,000 jobs, as workers returned to work from furlough. While the rebound wasn’t anywhere near as robust as the one seen in the US, the hope is that the worst is over for the Canadian economy, with the recent uptick in the oil price also helping in terms of the recovery. Despite the rebound in the jobs market, the unemployment rate still rose to a high of 13.7% in May, however this is expected to fall to 12.5%.

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 6 July Results
No major announcements  
Tuesday 7 July Results
Aspen (US) Q4
Halfords (UK) Full-year
JD Sports Fashion (UK) Full-year
Levi Strauss (US) Q2
Mirco Focus International (UK) Half-year
Paychex (US) Q4
Photo-Me International (UK) Full-year
Smart Global (US) Q3
Superdry (UK) Full-year
Whitbread (UK) Q1
Wednesday 8 July Results
Bed Bath & Beyond (US) Q1
FirstGroup (UK) Full-year
MSC Industrial Direct (US) Q3
Simply Good Foods (US) Q3
Thursday 9 July Results
AZZ (US) Q1
Capstone Turbine (US) Q4
Dart (UK) Full-year
Delta Air Lines (US) Q2
Franklin Covey (US) Q3
Helen of Troy (US) Q1
Persimmon (UK) Q2
PriceSmart (US) Q3
Rolls-Royce (UK) Q2
Walgreens Boots Alliance (US) Q3
WD-40 (US) Q3
Workspace Group (UK) Q1
Friday 10 July Results
No major annoucements scheduled  

 

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

 

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