Watch our week ahead video preview, read our pick of the top stories to look out for this week (27-31 July), and view our key company earnings schedule.
Michael takes a look at the recent price action in equity markets, this week's US dollar weakness, and looks ahead to the latest Fed meeting, US and EU Q2 GDP, the latest numbers from Lloyds, Barclays and Shell, as well as Apple and Facebook. He also looks at the key levels on the FTSE 100, DAX, S&P 500, EUR/USD, GBP/USD and gold.
Next Q2 results
Wednesday: Retailers have had an awful time of it in recent months. Clobbered by changing consumer behaviour, the last straw for an already struggling sector came with the lockdowns caused by the coronavirus pandemic, which is now starting to manifest as hundreds of thousands of job losses. In January, Next expected that pre-tax profits would come in at £734m for 2020. In April the company revealed that sales of full-price clothing fell 52% in the three-month period from the end of January to April. The company also put 84% of its workforce on the government furlough scheme with the company admitting that full-year sales could drop by as much as 40%. Management have taken steps to conserve cash, including the suspension of the dividend, while the online business was closed for less than a month, so revenues have continued to trickle in. This quarter should tell us a lot about how well the business is faring and how far below initial expectations full-year profits will fall.
UK Banks – Barclays, Lloyds and RBS half-year results
Wednesday, Thursday, Friday: Over the last few years UK banks have struggled due to uncertainty over Brexit. However it has been concern over the coronavirus outbreak, and its long-term impact on UK consumers that has helped drive their share prices to new multi-year lows. The UK lockdown was the catalyst and unlike their US peers, the investment banking divisions of the likes of Lloyds and RBS have been pared back in the past few years, which means they have been much more exposed to the sharp contraction that came our way in Q2. While the likes of JPMorgan Chase and Morgan Stanley have thrived due to their investment banking operations, the backlash against so called ‘casino banking’ in the UK has meant that the less diversified UK banks have struggled in an extremely competitive UK market. The only reassurance is that the UK government appears willing to backstop any new lending to keep the UK economy on life support. Unfortunately, that’s unlikely to address the real problem, which is expected to be one of widespread loan loss provisions as consumers default on their existing debt obligations.
For now, the UK government furlough scheme is helping to cushion the falls in disposable income, however the thousands of job losses that have been announced in the last few weeks are likely to create a trickledown effect of loan restructurings and possible losses. In Q1 Lloyds set aside £1.4bn in respect of impairments with total losses expected to hit £4.9bn, which suggests we could see another sizeable chunk set aside this week. While all three of these UK banks are acutely vulnerable to widespread consumer defaults at least Barclays has other revenue streams from its investment bank, even though it also set aside £2.1bn of impairment provisions in Q1. Its investment division has started to perform better than expected in recent quarters, which in turn has helped mitigate any underperformance in its domestic retail operations. At its most recent trading update, profits did fall sharply, to just under £1bn, however the bank did see revenues rise by 20% to £6.3bn. It seems quite clear that the upcoming half-year UK bank numbers are likely to show that HSBC and Barclays numbers could be the pick of the bunch, with the main focus set to be on loan loss provisions.
Federal Open Market Committee meeting
Wednesday: No changes in policy are expected at this week's Fed meeting, however the FOMC may have concerns that the recent recovery seen in the US economy may be starting to falter in the face of a surge in coronavirus cases. There are mutterings of concern that a lack of inflation, as well as widespread business defaults could hamper any economic rebound in the weeks and months ahead. The most recent Fed minutes appeared to suggest that the FOMC was particularly concerned about this, and that Fed officials were leaning in a direction that was much more focused on employment, and letting inflation run hot before even considering a tightening of monetary policy. A willingness to be more relaxed about long-term goals regarding inflation guidance could be the type of monetary policy change which would send an even stronger signal that rates were likely to remain lower for longer.
EU and Germany unemployment numbers
Thursday: The latest unemployment numbers from Germany, and the wider EU, have proved to be fairly resilient, however these numbers are notoriously imprecise, as for the most part they don’t include workers who have given up, or are not currently looking for work. In May, EU Unemployment rose from 7.3% to 7.4%, a surprisingly small rise given how widespread the economic shutdown was during that month. Germany, on the other hand has seen its jobless claims rate rise sharply up to 6.4% in June from March’s 5%. This is unlikely to see any evidence of a slowdown in July even with lockdown restrictions being eased, with the slow recovery likely to speed up the process when it comes to further job losses across various sectors.
Apple Q3 results
Thursday: Apple’s fiscal year got off to a cracking start in Q1 posting a record net income and revenue of $91.8bn and $22.2bn respectively. Services showed another strong performance with $12.72bn of revenue, which suggested that Q2 was always going to fall short with the only real questions being by how much, and if streaming increased during the Covid-19. In Q2 revenues did slip to $58.3bn, however this was pretty much in line from the year before, and well below initial expectations set at the beginning of the year. iPhone sales saw further weakness with a 7% decline in revenue to $29bn, however services revenue increased by 16% to $13.3bn, and this should continue in Q3 with the increasing popularity of streaming services, over the past six months. iPhone sales have been in decline for a while now and in this week’s update we’ll get to see whether Apple’s launch of the new cheaper iPhone SE has been enough to slow this trend. This deviation away from the higher end is probably not surprising given the intense competition in the market, but it could well alienate some of its more affluent users who have paid a lot more for some of the same features now available on a smaller budget model, including the latest A13 bionic chip. The continued lack of a 5G model is probably less of an issue now, given the economic disruption taking place. However it is still an area in which they are behind the curve in creating a product, and it will be instructive to see whether the company offers any further guidance on the timeline of a 5G model.
AstraZeneca half-year results
Thursday: AstraZeneca has been in the news due to its involvement in the latest coronavirus vaccine project with Oxford University. The share price has traded at record highs in recent weeks as optimism over a vaccine that generates antibodies and produces T-cell responses has seen interest in the sector surge. April’s numbers saw revenues rise 17% to $6.35bn, with new medicines driving a lot of that improvement. All of its divisions reported decent revenue growth, while recent share price gains have been driven by optimism over successful delivery of a coronavirus vaccine or treatment. The big concern will be how much of the profit AstraZeneca will benefit from, with any new coronavirus treatment, given the sums of money being thrown at the problem.
Facebook Q2 results
Thursday: When Facebook reported in Q1, there was some concern that the coronavirus pandemic would hit advertising revenues hard as businesses cut spending to conserve cash. The markets don’t seem to be bothered by this: the Facebook share price hit record highs, despite the social media giant generating nearly all of its revenue through advertising. Profits still doubled from a year before, coming in at $4.9bn, or $1.71 a share, while revenues rose to $17.74bn. Despite a stellar set of numbers Facebook pulled its guidance for the rest of the year, while lowering its estimates for capital expenditure to $14bn to $16bn. A surge in on-line gaming, messaging and video calling saw active users rise 11% in Q1, a trend that is likely to have been replicated in Q2. The bigger concern as we head towards the latest earnings number is that expectations around Facebook’s user growth, as well as its underlying revenue numbers, could be too high. This week’s Q2 numbers will include the period where businesses took steps to cut costs as the various lockdown measures started to bite, and this could have an impact. The Q1 numbers only included the first three weeks of the lockdown, and there was evidence of a marked slowdown in ad spending from both big and small business, which is likely to ripple into the whole of Q2. This could mean that any impact on revenues could be greater than most estimates suggest. Profits are expected to come in at $1.39 a share.
Royal Dutch Shell Q2 results
Thursday: At the end of June Shell announced it would be taking up to $22bn in write downs as a result of the recent slide in the price of oil and gas prices. This came on top of the recent decision to cut the dividend for the first time since 1945. The cut was a surprise given Shell’s gearing is much lower than its sector peer BP. Nonetheless it speaks to a management that appear to be mindful of the longer-term effects of the recent shift towards renewables, and an acknowledgement that the future demand outlook for fossil fuels has shifted a lot, even before the coronavirus pandemic cut the legs out from global demand. Despite this quarter being expected to show that margins and demand have fallen sharply, the main attention for Shell is how they see the outlook and what further plans they have to shift the future business towards renewables. Shell has made progress in this regard in recently, last November they bought French floating wind turbine company Eolfi, and pledged to devote 10% of yearly spending to new energy projects by 2025. In light of recent events this percentage will likely have to rise.
US Q2 GDP
Thursday: This week’s first iteration of US Q2 GDP is likely to be quite an eye opener, after the -5% decline seen in Q1. While we have seen a modest rebound in the payrolls numbers since the huge decline seen in April, we still remain well short of February’s employment numbers. The rebound seen in consumer spending patterns has also been solid, however it is unlikely to disguise the big shock to the US economy that we saw towards the end of March, as well as April, and to a lesser extent in May. Expectations are for a -32.8% drop in output in Q2, with a large drop in personal consumption likely to account for the lion’s share of the drop in output.
BT Group Q1 results
Friday: A few months ago BT Group reported a big slide in profits, as well as suspending the dividend, sending the shares back to levels last seen over 10 years ago. This was long overdue given the challenges facing the business, with management citing Covid-19 as the main reason. The reality was that BT Group has been fighting a losing battle in terms of competing in a market that has seen its nearest competitors sign deals to improve their content, as well as their cashflow. In recent years BT has spent a lot of money to cement its place in not only the quad-play market, with its acquisition of EE, but also in pay TV, putting it in direct competition with Sky, who were recently acquired by Disney. The recent decision by the UK government to ask businesses to remove Huawei equipment over the next seven years is also likely to add to its longer-term costs, delaying the implementation of 5G rollout. On the flip side the delay will help in spreading those costs out over a longer period of time. BT’s crown jewels have been its Openreach division and outperformance here will need to continue for confidence in a recovery in the share price to be maintained as we move further away from the multi-year lows seen in May.
EU Q2 GDP
Friday: The first iteration of EU Q2 GDP is expected to see an even larger decline from the -3.6% decline seen in Q1. The recent agreement of a €750bn pandemic recovery fund by EU leaders is a welcome development in terms of a fiscal response, however it still remains small in comparison to the type of stimulus plan that Germany instituted for its own economy. As such while we can expect to see an even sharper contraction in Q2, the subsequent recovery for EU GDP over the rest of the year is likely to be uneven at best. This week’s Q2 release is expected to see a contraction of -30% for April, May and June.
Exxon Mobil Q2 results
Friday: Like most of the other major oil companies Exxon Mobil has been caught out by the collapse in the oil price in the last few years. Unlike its UK peers BP and Royal Dutch Shell, it has taken fewer steps to realign its business model away from its core oil and gas business and into the realms of green energy. Earlier this year the shares fell to their lowest levels since July 2002, just above $30 a share before rebounding to current levels. In Q1 the company posted its first loss in decades as a result of the plunge in crude prices below $0.00 as oil demand fell off a cliff, and the business took $2.9bn in write downs as a result of the fall in oil and gas prices. With near term demand set to remain weak, the company is expected to post a Q2 loss of -$0.64 a share, with the company following its sector peers in writing down its long-term price estimates for oil and gas prices. Management said they currently had no plans to cut the dividend from the current $0.87 a share, while slashing its capex budget to $23bn, with the biggest cuts coming in the Permian basin. The bigger long-term concern is the lack of management vision to deal with the changing demands of a global economy that wants to pivot towards renewables.
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 27 July||Results|
|Alliance Resource Partners LP (US)||Q2|
|Cathay General Bancorp (US)||Q2|
|TESSCO Technologies Inc (US)||Q1 21|
|TrueBlue Inc (US)||Q2|
|Franklin Financial Network Inc||Q2|
|Tuesday 28 July||Results|
|3M Co (US)||Q2|
|Avis Budget Group (US)||Q2|
|Denny's Corp (US)||Q2|
|Elementis PLC (UK)||Half-year|
|Greggs PLC (UK)||Half-year|
|Flagstar Bancorp Inc (US)||Q2|
|Harley-Davidson Inc (US)||Q2|
|Horizon Technology Finance Cor (US)||Q2|
|Moneysupermarket.com Group PLC (UK)||Half-year|
|MSCI Inc (US)||Q2|
|Northwestern Corp (US)||Q2|
|Pfizer Inc (US)||Q2|
|Reckitt Benckiser Group PLC (UK)||Half-year|
|Rockwell Automation Inc (US)||Q3|
|S&P Global (US)||Q2|
|Seagate Technology (US)||Q2|
|Shutterstock Inc (US)||Q2|
|Starbucks Corp (US)||Q3|
|Trustmark Corp (US)||Q2|
|Visa Inc (US)||Q3|
|Vivo Energy PLC (UK)||Half-year|
|Xerox Holdings Corp (US)||Q2|
|Wednesday 29 July||Results|
|Aston Martin Lagonda Global (UK)||Half-year|
|Barclays PLC (UK)||Half-year|
|BlackRock Capital Investment (US)||Q2|
|Boeing Co (US)||Q2|
|Boston Scientific Corp (US)||Q2|
|The Cheesecake Factory Inc (US)||Q2|
|CME Group Inc (US)||Q2|
|Equinix Inc (US)||Q2|
|Facebook Inc (US)||Q2|
|General Motors Co (US)||Q2|
|GlaxoSmithKline PLC (UK)||Half-year|
|Great Western Bancorp Inc (US)||Q3|
|Heathrow Airport Holdings Ltd (UK)||Q2|
|Lancashire Holdings Ltd (UK)||Half-year|
|LHR Airports Ltd (UK)||Half-year|
|Marriott Vacations Worldwide (US)||Q2|
|Morningstar Inc (US)||Q2|
|Next PLC (UK)||Q2|
|Paramount Group Inc (US)||Q2|
|Rio Tinto PLC (UK)||Half-year|
|Six Flags Entertainment Corp (US)||Q2|
|Steven Madden Ltd (US)||Q2|
|Taylor Wimpey PLC (UK)||Half-year|
|Tupperware Brands Corp (US)||Q2|
|The UNITE Group PLC (UK)||Half-year|
|Victoria PLC (UK)||Full-year|
|Thursday 30 July||Results|
|Alphabet Inc (US)||Q2|
|Anglo American PLC (UK)||Half-year|
|Apple Inc (US)||Q3|
|AstraZeneca PLC (UK)||Half-year|
|BAE Systems PLC (UK)||Half-year|
|Cigna Corp (US)||Q2|
|Comcast Corp (US)||Q2|
|Deluxe Corp (US)||Q2|
|Dunkin' Brands Group Inc (US)||Q2|
|Expedia Group Inc (US)||Q2|
|Ford Motor Co (US)||Q2|
|Hilton Grand Vacations Inc (US)||Q2|
|Hubbell Inc (US)||Q2|
|Kellogg Co (US)||Q2|
|The Kraft Heinz Co (US)||Q2|
|Lloyds Banking Group PLC (UK)||Half-year|
|Man Group PLC (UK)||Half-year|
|Mastercard Inc (US)||Q2|
|MGM Resorts International (US)||Q2|
|Molson Coors Beverage Co (US)||Q2|
|Morgan Advanced Materials PLC (UK)||Half-year|
|Northrop Grumman Corp (US)||Q2|
|Provident Financial Service (US)||Q2|
|Rentokil Initial PLC (UK)||Half-year|
|Shake Shack Inc (US)||Q2|
|Sirius XM Holdings Inc (US)||Q2|
|Standard Chartered PLC (UK)||Half-year|
|Stanley Black & Decker Inc (US)||Q2|
|World Wrestling Entertainment (US)||Q2|
|Zendesk Inc (US)||Q2|
|Friday 31 July||Results|
|Aon PLC (US)||Q2|
|BT Group PLC (UK)||Q1 21|
|British American Tobacco PLC (UK)||Half-year|
|Caterpillar Inc (US)||Q2|
|Colgate-Palmolive Co (US)||Q2|
|Exxon Mobil (US)||Q2|
|Fiat Chrysler Automobiles NV (UK)||Q2|
|Pinterest Inc (US)||Q2|
|Royal Bank of Scotland Group (UK)||Half-year|
|Shell Midstream Partners LP (US)||Q2|
|Under Armour Inc (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.