Market Outlook

The week ahead: ECB rate decision; Morrisons, Slack, Peloton results

Watch our week ahead video preview and read our pick of the top stories to look out for this week (7-11 September). UK market analyst, David Madden, talks about the huge tech-driven decline in stocks and some optimism surrounding the health crisis, and looks at the week's major events.

JD Sports half-year results 

Tuesday: In its full-year numbers in July, JD confirmed that revenue had increased by 30% to £6.11bn, while EBITDA on a comparable accounting basis increased by 28% to £623.6m. However, the retailer warned that the Covid-19 pandemic will have a material impact on next year’s results. Stores began to reopen in April and the majority are back in business, but footfall at shopping centres and on the high street has been weak as many people avoid such areas for health purposes. This blow has been cushioned by strong online sales during lockdown. JD will resume paying dividends when conditions allow, but given the current climate, dealers are not holding out much hope. In 2019, JD acquired Footasylum and earlier this year, the Competition and Markets Authority (CMA) ordered JD to spin off the group as the regulatory body felt the acquisition would lead to fewer discounts, less choice for consumers, and worse customer service. In the current environment, JD Sports might find it tough to claw back its original investment in the company. 

Slack Technologies Q2 results

Tuesday: Slack floated in June 2019, and traded above $40 on its debut, but by November the messaging service’s share price had dropped more than 50%. Like other stocks, it endured a big sell-off amid the pandemic, but rebounded as working-from-home increased, as traders realised that certain businesses might thrive in the new environment. In June, the stock almost reached its all-time high in advance of the Q1 figures being released. The loss per share was ¢2, while that was smaller than the ¢6 loss per share that traders were expecting. Revenue was $201.7m, which exceeded the consensus estimate of $188.1m. Quarterly revenue growth was 50%, only fractionally higher than the 49% growth posted in the previous quarter. The stock tumbled on the back of the update because, although the revenue numbers were very good, they weren’t amazing when compared to similar companies. Around the same time, Zoom Communications registered a 169% surge in quarterly revenue. Many companies saw a colossal jump in demand for their services amid the pandemic, but Slack wasn’t one of them. If the stock can’t reset its all-time high in the wake of the lockdown, when will it?

Bank of Canada rate meeting

Wednesday: In Canada, economists are not expecting any change to the current policy, with interest rates at 0.25% and weekly government bond purchases of CAD$5bn. The Canadian economy has held up relatively well during the pandemic. The unemployment rate topped out at 13.7% in May, and has been coming down since. Average wages have been falling too, which in the current climate can be seen as positive for the economy. This drop is probably down to lower income workers re-entering the workforce, with the average therefore falling. The June retail sales report showed huge growth at 23.7%, and the May update was revised higher to 21.2%. Before the pandemic kicked in, the Bank of Canada (BoC) typically paid close attention to what the US Fed did in terms of interest rates. Lately, the US central bank has made no major changes to its monetary policy, so that makes it more likely the BoC will not alter its own stance. The Canadian economy is heavily connected to the oil industry, which hit a five-month high in August: news which should help the country. 

China trade, CPI & PPI (August)

Monday/Wednesday: Lately, Chinese imports have been subdued, which suggests the recovery is tapering off. The exports component has been robust, but it's believed that personal protective equipment has been a large part of the figure, so demand outside of China is probably a lot weaker than the readings suggest. At the start of the year, the consumer price index (CPI) inflation rate was comfortably above 5%, so demand was clearly strong. The painful lockdown of the economy dented demand, but it has been recovering since the economy reopened. The recent low in the CPI rate was 2.4%, less than half that of the high achieved in the first quarter. Recently the CPI rate has risen, as domestic demand has increased. Reports from companies that operate in China, such as BMW and Burberry, have confirmed that demand has increased too. The resumption of commercial activity has seen the release of pent-up demand. Retail sales have also been improving. The producer price index (PPI) rate was barely in positive territory at the start of the year, and then it was dragged down to -3.7% in May, but it has risen since then. There has been a decent rebound in oil and metal prices in recent months, which has been a factor in the move higher in the PPI level. The industrial production metric took a knock on account of the health crisis, but its growth has been reasonably consistent in the last few months. Traders will be interested to see if the CPI and PPI rates continue to recover. 

Dunelm full-year results 

Thursday: In its fourth-quarter update in July, Dunelm announced that it expects full-year pre-tax profit to be £105 - £110m, which would be a fall from the £125.9m from last year. Full-year sales fell by 3.9% to £1.05bn. The health crisis prompted store closures, but the reopening process began in May. In the last quarter, online and home delivery sales surged by over 105%, offsetting the impact of the lockdown. It is estimated that social distancing and extra health and safety expenses are costing the firm roughly £150,000 per week. Technology costs are tipped to increase by £8m next year. Rising expenses is not ideal, but that is the price of doing business in this climate. The company said that it does not expect to tap into the Covid-19 corporate financing facility, and that sends out a positive message in relation to its financial stability. The retail environment remains uncertain, but at least Dunelm are well positioned to cope in changing circumstances. The stock has been driving higher since March so it appears that traders have high hopes for the announcement.  

ECB rate decision

Thursday: The ECB is likely to keep its monetary policy on hold, with a refinancing rate of 0% and deposit rate at -0.5%. The pandemic emergency purchase programme (PEPP) is likely to remain at €1.35tn. In June, the bank increased the PEPP by €600bn, and the timeline for running the scheme was extended until mid-June 2021. The ECB meeting in July was reasonably uneventful, although it was revealed the rate at which it was buying bonds has tapered off a bit. In late July, EU member states managed to broker a deal in relation to the €750bn coronavirus rescue fund. The old divisions of the bloc resurfaced, whereby southern states such as Italy and Spain wanted to have a very high proportion of the fund to be dished out as grants, while northern members like the Netherlands, Austria and Finland were pushing for a higher percentage of loans to be distributed. In the end, it was agreed that €390bn will be issued as grants, while the initial proposal was for €500bn. €360bn worth of low-interest loans will be issued. The so-called ‘frugal’ group, which included the likes of the Netherlands, will receive larger rebates, and that’s what led to the compromise. The ECB is likely to comment on the fact there was a cooling off in the latest services and manufacturing numbers from the major eurozone economies, in particular, Spain and France. The ECB is working on the basis that the ruling from the German constitutional court in regards to the bond buying scheme will not impact its stimulus package.

Morrisons half-year results

Thursday: Morrisons, like other supermarkets, saw a jump in activity at the height of the pandemic. In May, the firm revealed its first-quarter figures which covered the 14-week period from early February until mid-May. Like-for-like sales excluding fuel jumped by 5.7% in the timeframe, but in weeks 12 until 14, jumped by 10.8%. Morrisons announced that it was taking on 25,000 new members of staff to cope with the surge in demand. Workers were hired across the stores division, supply chain and online operation. It was announced that it would operate a click-and-collect service from almost 280 stores by mid-June. The group revealed its partnership with Deliveroo, whereby items could be delivered from 130 shops in as little as 30 minutes. In July, Kantar posted its report on the British supermarket sector. UK grocery sales increased by 16.9% in the 12 weeks until 12 July. Of the big four supermarkets, Morrisons outperformed as sales jumped by 17.4%, while Asda’s sales only increased by 11% – the slowest rate of the big brands. The online grocer, Ocado, recorded a huge rise, over 45%.

Peloton Q4 results 

Thursday: The stock price has enjoyed a bullish run lately as it has set all-time highs. The fitness group benefitted massively from the gym closures during lockdown. The firm sells spinning bikes for $2,245/£1,990, as well as treadmills for the US market at $4,295, and customers subscribe to classes remotely. The company listed on the stock market last September and the share price was largely range bound until March, when it took-off. The third-quarter update in May was well received, as revenue jumped by 66% to $524.6m, exceeding the $487.7m forecast. The loss per share was ¢20, while equity analysts were expecting the loss per shares to be ¢17. The company announced the loss was largely down to non-recurring legal costs. Subscription revenue jumped by 92% to $98.2m, and that equated to 19% of total revenue. The full-year subscription revenue outlook was upped to $1.72-$1.74 billion, up from between $1.53bn and $1.55bn. Over the past few months, the share price has pushed higher even though gyms around the world have reopened, so dealers are still clearly optimistic on the stock. It is possible that some Peloton clients will stay loyal to the service in light of paying such a high price for the equipment, but it is also likely that the company will be less optimistic in its outlook for 2021 as the surge in demand experienced in March and April is unlikely to be repeated. 

US weekly jobless claims 

Thursday: The US labour department has altered the way it measures the metric, so that it takes account of seasonal adjustments. Last week’s figures were well-received, as the jobless claims reading was 881,000 – the lowest since lockdown crippled the economy. The continuing claims update fell to 13.25 million, down from 14.49 million. Economists were expecting a reading of 14 million. It's clear the labour market is improving, albeit at a slow pace. The employment components of the latest ISM manufacturing and non-manufacturing reports showed small increases, but remain stubbornly low. 

UK GDP (July)

Friday: The UK government was relatively slow to lock down the economy, so the true impact of the shutdown wasn’t seen until April, the first full month of the lockdown. The economy contracted by 20%, the largest negative reading on record. Since then, things have started to improve, as sections of the economy have reopened. The May and June monthly readings were 1.8% and 8.7% respectively, though the economy was coming from low bases. Roughly speaking, economic output is 17% below the pre-pandemic level. Pubs reopened in July, along with restaurants, hairdressers and barbers, so the reading should reflect a sizeable rise in economic activity. Approximately 80% of UK economic output comes from the services sector and the services PMI report for July was 60.1 – its fastest rate of expansion in years, but once again, coming from a low base. The property market has been upbeat recently too. According to Nationwide, annual house prices increased by 1.6% in July, and Halifax said there was a 3.8% increase on a yearly basis.

US CPI (August)

Friday: The July reading caught some economists by surprise by coming in at 1%, a sizeable increase on the 0.6% that was posted in June, and the consensus estimate was 0.8%. The core level was impressive too as it was 1.6%, and that was a big rise on the 1.2% registered in June. The fact the core reading also jumped suggests that underlying demand is strong. At the recent Jackson Hole Symposium, Jerome Powell, the Fed chair announced the bank has changed its inflation policy to an average target of 2%, from a fixed target of 2%. As a reaction to the pandemic, the Fed has embarked on an extremely loose monetary policy, and such a move means that higher inflation is a risk. Mr Powell, said the Fed would be happy to allow inflation to run over 2% for ‘some time’. The time frame was left deliberately vague so they can change their policy as they go along. Seeing as the Fed are happy for inflation to overshoot the 2% mark, it suggests they feel that higher inflation is in the pipeline. It looks as if the central bank will be keeping interest rates close to zero for years to come, but they did make it clear they would be willing to change their policy should there be a big jump in inflation.       

Index dividend schedule

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

Monday 7 SeptemberResults
Dechra Parmaceuticals (UK)Full-year
Tungsten (UK)Full-year
Tuesday 8 SeptemberResults
ABM Industries (US)Q3
FeverTree Drinks (UK)Half-year
JD Sports (UK)Half-year
SeaChange Industries (US)Q2
Slack (US)Q2
Travis Perkins (UK)Half-year
Wednesday 9 SeptemberResults
American Eagle (US)Q2
Lakeland (US)Q2
MasterCraft (US)Q4
Navistar (US)Q3
S4 Capital (UK)Half-year
Tullow Oil (UK)Half-year
Thursday 10 SeptemberResults
Dave and Buster's entertainment (US)Q2
Dunelm Group (UK)Full-year
Morrisons (UK)Half-year
Peloton (US)Q4
Sportech (UK)Half-year
Friday 11 SeptemberResults
Ashmore Group (UK)Full-year
Hurricane Energy (UK)Half-year
Kroger (US)Q2

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


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