Market Outlook

The week ahead: UK retail sales; Microsoft, Tesla, Vodafone results

Watch our week ahead video preview, read our pick of the top stories to look out for this week (20-24 July), and view our key company earnings schedule.

In this week's video, UK chief market analyst, Michael Hewson, looks back at the price action of the last few days, and looks ahead to the latest UK retail sales and public finance numbers, the latest flash PMIs, as well as the latest numbers from Vodafone, Tesla and Microsoft. He also looks at the key levels on all those companies, as well as the FTSE 100, DAX, S&P 500, EUR/USD, GBP/USD and EUR/GBP.

Canada retail sales (May) 

Tuesday: Retail sales in Canada declined by a huge 26.4% in April, with most of the economy in lockdown. Like in the US, the reopening of the Canadian economy prompted a big rebound in consumer activity as lockdown measures were eased. The latest Canadian jobs numbers have followed a similar pattern to the US, which suggests that retail sales are likely to rebound. Whether we’ll get the type of V-shaped rebound we saw in the US is another matter given the Canadian economy’s heavier reliance on the oil and gas sector, which has taken an absolute pummelling in recent months.   

Snap Q2 results

Tuesday: Back in 2017, Snap was yet another IPO that promised much and delivered little. Since then its share price has mainly stayed below its $17 IPO price, and has only recently managed to claw its way back, rebounding from lows of just below $8 a share in March. Earlier this month the shares hit a record high of just over $26. In 2017 the company was haemorrhaging cash, and while losses have narrowed since then the company still hasn’t made a profit. In Q1 of this year Snap revenue rose 44% to $462m, with average revenue per user rising 20%, though losses only narrowed slightly from $310m to $306m for Q1. Snap has been able to make positive moves below the radar as its illustrious rivals like Facebook and Twitter, receive all the political and media scrutiny, and its price could continue to edge higher. However, Snap is still no nearer to making a profit than it was a year ago and given its governance structure remains very much a punt, rather than an investment.   

UK public sector borrowing (June)

Tuesday: The UK government has borrowed over £100bn in the last two months, an exceptional post-war intervention to mitigate the economic shock of the Covid-19 lockdown. Some £47.8bn was borrowed in April, followed by a further £54.5bn in May, as the UK treasury paid the wages of over 9m private sector employees. The UK government has also spent over £15bn on PPE to deal with the crisis, more than its combined spend on the Home Office and Foreign Office. At some point the UK government will have to work out how to pay for all of this, but with two-year and five-year yields in negative territory and 10-year yields below 0.2%, they needn’t be too concerned right now. We’re expecting to see another big number in June, as the costs of the furlough scheme continue to rack up, and UK borrowing moves above 100% of GDP for the first time since world war two.

Microsoft Q4 results

Wednesday: In just three years, Microsoft has gone from turning over just under $100bn a year in revenue to more than $141bn, helped by a subscription-based model and an off-the-shelf product offering, which more or less guarantees a steady cash flow. A sharp rise in PC demand and a rise in remote working due to coronavirus is also likely to have boosted its income when it reports its Q4 and full-year numbers on Wednesday. CEO Satya Nadella acknowledged this shift in the company’s Q3 earnings report, saying that the digital transformation seen in the last few weeks would normally have taken two years to achieve. Microsoft Teams usage has seen a big increase, and cloud-based revenue now takes up the biggest percentage of the company’s quarterly revenue. Xbox One sale and Game Pass subscriptions could also have seen a rise. Profit is expected to come in at $1.386 a share.

Tesla Q2 results

Wednesday: Recent moves in the Tesla share price have been mind-boggling, hitting a high just shy of $1,800 earlier this month. In terms of market capitalisation, it’s recently been valued higher than Toyota and Volkswagen, and the electric carmaker’s share price is up over 200% year to date (and even more if you price it off the $350 lows in March.) Last year the company turned over $24.6bn, posting a loss of $862m, though its last two quarters were profitable. Since then the company has had to deal with the temporary closure of its car plants in China and California due to coronavirus, as well as diversifying its production capability towards its Model Y SUV, in addition to the more popular Model 3. Having missed out on its 500,000-delivery target for 2019, expectations were high that the company would be able to meet its target for 2020, however this was before the various shutdowns. 

The business appeared to have avoided the worst effects of the shutdown in Q1, delivering 88,400 cars and posting a $16m profit. At the time management said they had the capacity to produce over 100,000 vehicles a quarter, before they were forced to close the plant in California, on 23 March. Steps were taken to cut costs by furloughing staff and cutting production, with operations eventually restarting in May. Original guidance for 2020 was for a production target of over 500,000 cars, however this target is likely to be difficult to achieve given the amount of production time lost. CEO Elon Musk will be hoping for a repeat of 2019, where a poor first half was followed by a bumper second half of the year. However the coronavirus pandemic may have other ideas. Expectations are for a quarterly loss of $0.57 a share, bringing to an end a run of three successive profitable quarters. 

Twitter Q2 results

Thursday: At the end of 2019 Twitter passed an important milestone, passing $1bn in revenue in a quarter for the first time, largely as result of better performance from advertising revenues. In Q1 this year those revenues came under pressure as companies cut back on ad spend due to Covid-19. This meant that while revenues were slightly higher than the same quarter a year ago, higher costs meant that the company swung to a quarterly loss of $7m. The company also withheld guidance in April, over uncertainty about advertising revenues. The company got egg on its face last week after some high-profile US political and business figures' accounts were hacked by a bitcoin scam, causing Twitter to have to temporarily disable their accounts. Apart from the embarrassment, this event poses a number of questions over Twitters procedures. As we look ahead to Thursday’s Q2 numbers, there has been unrest among some investors, notably Elliott Management, about the governance of the company to improve profitability. While a deal was reached at the end of March that left CEO Jack Dorsey in place, Silver Lake pumped in $1bn, so they will want to see some bang for their buck. The results are unlikely to be reassuring, with a loss of $0.02 a share expected, and the prospect of job losses unless things pick up over the rest of the year. 

Unilever half-year results

Thursday: Ahead of Unilever’s half-year update, it’s worth reminding ourselves that when the company reported on Q1 in April, it was a rather mixed affair. Coming off the back of challenging conditions in its Asia markets last year, personal care and home performed strongly as Domestos and Cif flew off the shelves, with sales rising 2.4%. Food and refreshment acted as a drag, declining 1.7%, with ice cream seeing the largest volume decline, not altogether surprising given that we’re coming out of winter. Across all of its regions Asia recorded the biggest declines, led by China, while the Americas had sales growth of 4.6%. This is unlikely to be repeated in Q2, with the lockdown likely to have a similar affect to the one that hit Asia sales in Q1. In welcome news for shareholders, the company said it would be paying the dividend of 36p a share. In June the company announced further cost-savings in making its main HQ in London, while keeping its various listings in London, Amsterdam and New York, so there could be further details on this.

UK, France and Germany purchasing managers’ index (PMIs) (July)

Friday: Optimism over a rebound in economic activity took a bit of a knock in May’s UK GDP numbers, which showed a 1.8% economic rebound, after a 20.4% decline in April. Friday’s latest UK flash PMIs need to show a sustained improvement in the June numbers, given that a much bigger proportion of the UK reopened on 15 June. Services activity in particular was very weak, so we really need to see a big improvement on the June PMI of 47.1. Manufacturing was slightly better at 50.1, but for all the optimism about a V-shaped recovery, the PMI numbers haven’t reflected that so far. 

In Germany and France, both ahead of the UK in reopening, economic activity has also improved but not to the extent where optimism about a ‘V’ is warranted. The data from Europe is also expected to improve, with France currently out in front in the recent June numbers, which were both in expansion territory of 52.3 in manufacturing and 50.7 in services. The comparative numbers for Germany in May were 45.2 and 47.3 respectively.


Centrica half-year results

Friday: As bad as 2019 was for the Centrica share price, there have been further losses in 2020. In April the shares hit a record low, with CEO Iain Conn finally departing after a disastrous tenure. Management cut the dividend, finally succumbing to the inevitable. Centrica also announced a £400m cut to capex, as well as cutting bonuses for board members, with uncertainty around the financial impacts of Covid-19 and energy price cap blamed for its poor performance. The company has also paused the Spirit Energy divestment process. In June plans were announced for a simpler and more focused business model, as Centrica looks to embark on yet another restructuring programme. Three management layers will be removed to create a flatter, less bureaucratic business as 5,000 roles are lost across the group. This is expected to take place over the rest of this year, so progress could be discussed this week.  

UK retail sales (June)

Friday: The latest British retail consortium sales results showed the best numbers in over two years, with a like-for-like gain of 10.9%. This was largely driven by a rise in supermarket sales, as well as a big increase in online spending. This shouldn’t have been too much of a surprise as the effects of the total lockdown continue to diminish. Many shops also reopened in mid-June, and this is likely to have prompted a rebound as well. After an 18.1% decline in April, sales rebounded by a solid 12% in May.  More of the same is needed in June to help reverse the -23.2% two-month decline from March and April.

Vodafone Q1 results

Friday: It’s not been a particularly good last two years for Vodafone shareholders. Shares have lost half their value since the beginning of 2018, due to concern over rising debt levels and underperformance across all of its divisions. This also caused the company to cut its dividend in 2019. In November 2019, the company also took a £1.9bn loss due to problems in India, as a result of a court decision that ruled in favour of a government demand to pay $4bn, though improvements in performance from South Africa, Italy and Spain led to raised guidance. Full-year numbers announced in May showed group revenue had risen by 3% to just shy of €45bn, which was slightly below expectations. Operating profit rose to €4.1bn, however most of this was wiped out by the huge provision last year for losses at its Indian operation.

The acquisition of cable assets from Liberty Global in Germany boosted annual revenue, and this should continue to act as a tailwind. The completion of the deal to create Europe’s largest towers portfolio with Italy’s TIM has also yielded £2.1bn, as it looks to monetise its 61,700 Europe-wide towers infrastructure, which is expected to start adding value from early next year. The company does need to take further steps to reduce debt levels as it looks to ramp up the roll out of 5G. Vodafone will also face challenges as it strives to compete with BT and Telefonica in light of the latter’s deal to buy the Liberty Global UK broadband and TV assets. In a time of big consolidations and deals in the telecoms sector, Vodafone is still lagging behind its peers, despite the recent OPPO deal as well as the completion of the Vodafone Hutchison-TPG Telecom merger in Australia.

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 20 July Results
G4S (UK) Half-year
IBM (US) Q2
Lennox International (US) Q2
ManpowerGroup (US) Q2
SThree (UK) Half-year
Tuesday 21 July Results
Capital One Financial (US) Q2
Coca-Cola Co (US) Q2
Lockheed Martin (US) Q2
Philip Morris International (US) Q2
Snap (US) Q2
United Airlines (US) Q2
Wednesday 22 July Results
Baker Hughes (US) Q2
Equifax (US) Q2
Microsoft (US) Q4
Nichols (UK) Half-year
Stagecoach Group (UK) Full-year
Tesla (US) Q2
Thursday 23 July Results
AT&T (US) Q2
Beazely (UK) Half-year
Citric Systems Inc (US) Q2
Croda International (UK) Half-year
Hershey (US) Q2
Intel (US) Q2
Southwest Airlines (US) Q2
Twitter (US) Q2
Unilever (UK) Half-year
Friday 24 July Results
Centrica (UK) Half-year
IMI (UK) Half-year
Verizon (US) Q2
Vodafone (UK) Q1
WW Grainger (US) Q2

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

Disclaimer: CMC Markets is an execution-only service provider. 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.

Disclaimer: CMC Markets is an execution-only service provider. 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.