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Market Outlook

The week ahead: US non-farm payrolls; Alphabet, Amazon, BP results

Read our pick of the top stories to look out for this week (1-5 February), and view our key company earnings schedule.

Michael looks back at this week’s market movements inspired by the GameStop-related volatility and the vaccine story, as well as looking ahead to the Bank of England meeting and US non-farm payrolls. He also previews the latest results from BP, Royal Dutch Shell, BT Group, Vodafone, Amazon and Peloton.

Alphabet Q4 results

Tuesday: Alphabet crushed all Q3 expectations, as advertising revenues helped boost profits across the board. Group revenues came in at $46.17bn, with total advertising contributing $37.1bn of that. YouTube ad figures were also strong, rising 32% to $5bn. CEO Sundar Pichai said that, as of this upcoming quarter, Alphabet would break out the numbers for its Google Cloud business in order to create more transparency. Alphabet’s ‘other bets’ also saw good revenue gains with improvements in the likes of Waymo and Verily, though it still showed an operating loss of $1.1bn.

As we come to year-end, these big tech giants appear to be immune to bad news. Even the announcement of another antitrust investigation into online collusion with Facebook hasn’t been enough to dull investor appetite for Alphabet, or other big tech stocks. This might change if the new US administration decides to look at measures to curb the power and influence of these behemoths, as concerns over privacy issues stay front and centre. We also saw a host of US companies pull their ad spend at the beginning of January in the wake of the Capitol Hill unrest and this could well impact ad revenues towards the end of the quarter.    

Amazon Q4 results

Tuesday: When Amazon reported in Q2, profits rose sharply as people shopped online through lockdown. These increased sales still managed to outstrip rising costs as a result of safeguarding measures for its staff. These costs came in at a staggering $4bn as the company hired 175,000 new staff, as it expanded its grocery delivery capability by 160%. Management spent another $2bn in Q3, with sales coming in above expectations at $96.1bn. Amazon’s Web Services division has also been a key contributor, with revenue growth of 29% the last two quarters, and accounting for 12.1% of total revenue.

Despite these record numbers Amazon’s share price has more or less traded sideways over the past six months, as concerns about its size and scale start to prompt questions about how the company might be regulated under a new US administration. For Q4, the company said it was setting aside another $4bn in costs to deal with the challenges facing its retail operations, with CEO Jeff Bezos saying the company has created more than 400,000 new jobs this year alone. With Prime Day sales and pre-Christmas shopping being within this quarter, this week’s numbers look set to be good, however AWS growth might start to slow given the intense competition in this particular sector The focus on sport appears to be key with deals on tennis, rugby union and Premier League football attracting a host of new users. The addition of the Amazon Prime Video app on Sky Q boxes has no doubt helped too. In the UK, Prime memberships saw another decent rise, with more than 50% of UK households now having a Prime membership. Profits are expected to come in at $7.13 a share. 

BP full-year results

Tuesday: It’s been quite a year for BP. The oil giant was forced to raise an extra $10bn in the form of a new revolving credit facility, as well as issuing $7bn in new bonds in April last year, they then took a $15bn write-down in June, before announcing the loss of 10,000 jobs. It was therefore no surprise that in August they were finally forced to accept the inevitable and cut the dividend in half, with the only surprise being that it took them so long to succumb to the inevitable.

Soon after the shares fell to their lowest levels since the mid 1990s, however there’s been a decent rebound since then, helped by a bounce in the oil price above its breakeven price of $42 a barrel, as BP, under new CEO Bernard Looney, embarks on its new “Performing while Transforming” strategy. It appears that the penny has finally dropped that big capex in oil and gas exploration isn’t the way forward, with the number of geologists and scientists in the exploration division dropping below 100. As part of this strategy, BP have entered the offshore wind sector through a deal with Equinor, which is expected to complete this year, and is also looking to expand its Chargemaster business to deploy more than 1,000 charging points for Police Scotland. Its Lightsource business has also continued to expand, acquiring the responsibility for a 1.06gw portfolio across Spain from RIC Energy. Looney has set an ambitious target of cutting output by 1m barrels a day over the next decade, as well as growing renewable energy output by a factor of 20. He is also looking at developing low carbon technologies for carbon capture and storage in an attempt to lower the company’s carbon footprint. 

In Q3 the company posted a profit of $86m, avoiding the first quarterly back-to-back loss in more than a decade, but it hasn’t disguised the challenges facing the industry. Net debt levels were up at $40.4bn at the end of Q3, still on the high side, though the company is looking to get this down to $35bn with the help of further divestments. The recent rebound in oil prices has certainly helped margins in Q4, which should afford BP some headroom on the profit front. Let’s hope they use it wisely.

EU Q4 GDP

Tuesday: At the most recent ECB rate meeting, president Christine Lagarde said that the EU economy contracted in Q4. This week we’ll find out by how much, after the 12.5% rebound in Q3. It is clear that the manufacturing sector has been a saving grace for the EU economy with some decent PMI reports. Economic activity seems to be holding up well despite the challenges being imposed by Covid-19.

Five successive monthly contractions in services sector activity is likely to paint an ugly picture of the wider economy given that services makes up a much greater portion of economic output. The possibility of a double dip can’t be ruled out either given that Covid-19 restrictions across both France and Germany look set to be extended into April and Easter.

Global services PMIs (January)

Wednesday: The global services sector, China and the US aside, continues to bear the brunt of the pandemic. Even where there has been outperformance, the jobs recovery has struggled to match up to the headline numbers. A sharp rise in coronavirus cases across Europe has derailed the optimism of last summer. Flash PMIs last month showed no post-Christmas pickup from the contractions seen in European and UK numbers. If anything, they've worsened as the restrictions that were imposed in December were extended into, and beyond, this month. With German Chancellor Angela Merkel implementing further harsh measures on 16 December, and French President Macron ordering a 6pm curfew, this week’s January PMI numbers aren’t likely to show any improvement.

In January, France services PMI is expected to come in at 46.5, while Germany’s is expected to come in at 46.8. The latest Spain and Italy services numbers are expected to weaken further with Italy GDP for Q4 expected to contract again, and services activity to remain sub-40. Spain services activity is expected to be slightly better, but still below the 48 level seen in December. With restaurants and bars in France set to remain closed until Easter, and Germany still in a state of hard lockdown, it’s hard to see the case for any type of decent recovery any time soon, which means January is likely to be the fifth conservative month of contraction. Despite the positive vaccine news lifting the mood from a markets point of view, the various delays in the rollout mean that it is clear that there will be no significant uptick in economic activity until such times as restrictions start to get eased, perhaps sometime in the late spring. The manufacturing sector is managing to hold its own despite the tighter restrictions.

Vodafone Q3 results

Wednesday: When Vodafone reported its first-half numbers back in November, there was some unexpected good news which saw Q2 organic service revenue decline only 0.4%, much better than the expected -2.3%. Pre-tax profits for the first-half came in at just over €2bn, a much-needed improvement on last year when the company wrote down the value of its Indian business. First-half revenues saw a modest decline of 2.3% to €21.43bn. This better-than-expected performance helped push H1 earnings up above €7bn, with management nudging up its full-year guidance to between € 14.4bn and €14.6bn for its earnings outlook.

The main focus for investors going forward is the need to address Vodafone’s cashflow issues, and invest in 5G over the next few years, with all eyes on the upcoming IPO of the company’s Vantage Towers business, and the possible raising of another €4bn. In another coup for Vodafone, Virgin Media said it was launching its own 5G services on the Vodafone network, calling time on its relationship with BT’s EE. The upcoming auction for 5G spectrum has now been pushed back to March

Bank of England rate decision

Thursday: Having increased its bond buying programme by £150bn to £875bn in November, there had been some speculation that the central bank might go further by cutting rates into negative territory. The central bank has consistently refused to rule out the prospect of going down this route, and with the UK economy likely to see significant weakness at the end of last year, as well as the beginning of this year, the prospect of further central bank intervention remains high. However, the mood music around negative rates has definitely become much more muted in recent weeks. While some on the monetary policy committee still appear enthusiastic about the prospect, it is hard to see how cutting rates further can help an economy that is essentially shutdown, with people confined to their homes.

It has been notable that the Bank of England governor Andrew Bailey has been slightly less enthusiastic about the workability of negative rates than he was before Christmas, probably because the UK financial services sector has pointed out to him that they can significantly harm the banking sector. As such we can expect little in the way of change on the monetary policy front, despite the prospect of a technical recession for the UK economy. With Brexit now in the rear-view mirror and the prospect that a successful vaccine rollout could lead to a summer rebound, the central bank is likely to focus on that.

BT Group Q3 results

Thursday: BT can’t seem to catch a break at the moment. After losing out to Vodafone for Virgin Media’s 5G service last month, the company is also facing a challenge in Italy with the start of the trial into the false accounting there, with management and staff accused of attempting to conceal more than €280m of losses, as well as inflating revenues between 2013 and 2016. While BT has finally offloaded some of the offending business to Telecom Italia, the company could still face fines if the defendants are found guilty.

The underlying business is still facing challenges from multiple sides, with a tough market in broadband and mobile hitting margins in its consumer division, while the enterprise and global divisions are having to cope with rapidly changing business environments, as fixed phone lines get used less. On the plus side, Openreach has the chance to benefit from the rollout of the high-speed broadband the UK needs, but only if it is kept under the BT umbrella. Last May there was some chatter that BT was looking at selling off a multibillion-pound stake in Openreach in order to help fund investment in its fibre to the premises (FTTP) network, with a target of 20m homes connected by the mid-to-late 2020s, and a target of more than 2m in 2020/2021 alone. In Q2 the company said the roll out of its ultra-fast broadband hit record levels of 40,000 households per week. Over the last year the company said it had doubled the number of FTTP orders as well as expanding its 5G network across 112 towns and cities across the UK.

This outperformance prompted BT management up their profit guidance for the full-year from £7.3bn to £7.5bn, while also saying that they expected to restore the dividend of 7.7p a share in the next fiscal year. The upcoming Q3 update is set to be a key arbiter of how its various businesses are doing, and how they will cope with the increasing challenge of competing with Telefonica and Liberty Global in the quad play space of home phone, broadband, TV and mobile contracts into a one-size-fits-all package, with this particular deal expected to get waved through later this year.

Royal Dutch Shell full-year results

Thursday: Shell has said it wants to reduce greenhouse gas emissions to net zero by 2050 or sooner, and while their aims are more ambitious than the likes of Exxon and Chevron, the reality is they could be forced to act even more quickly if governments adopt more climate-friendly policies. It will be up to Shell CEO Ben van Buerden as to how they go about transitioning away from fossil fuels towards renewables at a pace that keeps the competing claims of shareholders and climate activists happy. Shell has certainly done the better job in tackling its various legacy issues, or stranded assets, starting to take impairment losses at the end of 2019. Unlike BP they cut the dividend early, for the first time since 1945, from $0.47 a share to $0.16 a share, as well as rolling up its buyback programme. In June, the company went further and wrote down the value of its assets by up to $22bn, before posting an $18bn loss in its Q2 numbers. This was then followed up in October by taking another $1bn and $1.5bn in impairment charges in Q3, and slashing thousands of jobs, though it did nudge the dividend up to $0.1665 a share.

The company has said it will devote 10% of its yearly spending to energy projects by 2025, though this could well increase in the years to come. Shell also seems to be following in BP’s footsteps by investing in the electric vehicle charging network. Last week it purchased Ubitricity, owner of the largest public charging network for electric vehicles in the UK, with a 13% market share. Shell already has electric charging points at 430 of its service stations around the UK, with this purchase expanding that network into street infrastructure, like lamp posts. The recent rebound in oil prices has also probably helped margins in Q4.

Peloton Q2 results

Thursday: Peloton has been another big winner during the pandemic. The Peloton share price has surged, with sharp rise in sales leading to a decent Q4 profit of $89.1m, and annual revenues in 2020 of $1.83bn. Subscriptions alone made up about $360m of that number, 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 more than double the $1.46bn of sales in its last fiscal year. Its margins are also healthy, almost Apple-esque at over 40%.

Peloton’s biggest 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, though these should ease with the opening of the Taiwan facility. Another factor which could impact its growth potential is the likes of Apple getting in on the fitness market. Peloton’s Q2 numbers will show whether they have got anywhere near half way to that lofty $3.6bn sales goal.  

US employment report (January)

Friday: Seven consecutive months of job gains came to a shuddering halt in December, as the US economy shed 140,000 jobs. Coming on top of a similarly negative ADP payrolls report, this non-farm payrolls data pointed to a US economy that appears to be recovering from an output point of view, but where the jobs market is lagging significantly behind. Consumer spending, which is a big part of the US economy, has stalled in recent months, reflecting the uncertain economic outlook for a lot of US services jobs, which bore the brunt of the losses. In the absence of further fiscal support, it is going to be very difficult to determine whether the most recent results were a one-off or part of a broader slowdown that might be difficult to reverse.

The unemployment rate has still fallen quite sharply from its peaks in April of 14.7%, to 6.7%. However, this rather disguises the fact that the participation rate has also fallen sharply to 61.5%, from 63.4% at the end of last February. This number reflects the number of people who have more or less given up looking for a new role, and as such understates the actual number of people who are probably out of work. A more accurate measure is probably the underemployment rate which currently sits at 11.7%, which is still below the April peak of 22.8%, but still well above the lows of 6.7% at the end of 2019.

The rise in virus cases, hospitalisations and deaths across the US is no doubt playing a part in the slowdown in the economy, with weak demand over the Thanksgiving and Christmas break weighing on economic activity. Expectations are for a 100,000 jobs recovery in January; however, it has been notable that the headline non-farm payrolls number has missed to the downside in the last two months. The slowdown in US jobs growth in the last few months has been quite stark, particularly since August, with only 1.48m jobs being added back into the numbers.

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 1 February Results
Cirrus Logic (US) Q3
Hargreaves Lansdown (UK) Half-year
Omnicell (US) Q4
Porvair (UK) Full-year
Vertex (US) Q4
Warner Music (US) Q1
Tuesday 2 February Results
Alphabet (US) Q4
Amazon (US) Q4
Amcor (UK) Half-year
BP (UK) Full-year
Chipotle Mexican Grill (US) Q4
Exxon Mobil (US) Q4
Harley-Davidson (US) Q4
Match (US) Q4
Pfizer (US) Q4
Sirius XM (US) Q4
UPS (US) Q4
Wednesday 3 February Results
Boston Scientific (US) Q4
GlaxoSmithKline (UK) Full-year
Grubhub (US) Q4
Humana (US) Q4
Netgear (US) Q4
Santander (UK) Full-year
Triumph (US) Q3
Vodafone (UK) Q3
Thursday 4 February Results
Activision Blizzard (US) Q4
Barratt Developments (UK) Half-year
BT Group (UK) Q3
Columbia Sportswear (US) Q4
Ford (US) Q4
Gilead Sciences (US) Q4
Hershey (US) Q4
Hub Group (US) Q4
New York Times (US) Q4
Peloton (US) Q2
Philip Morris International (US) Q4
Pinterest (US) Q4
Post Holdings (US) Q1
Royal Dutch Shell (UK) Q4
Snap (US) Q4
Unilver (UK) Full-year
WWE (US) Q4
Yum! Brands (US) Q4
Zendesk (US) Q4
Friday 5 February Results
Aon (US) Q4
Beazley (UK) Full-year
Estee Lauder (US) Q2
Spectrum Brands (US) Q1

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


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