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The week ahead: Fed, GDP, Sainsbury's, Dropbox

Watch our week ahead video preview (above), read our top nine events to look out for this week (5-9 November), and view our key company earnings schedule.

Chief Market Analyst Michael Hewson looks ahead to next week’s potentially market-moving events.

Reserve Bank of Australia rate decision
Tuesday: Last month the RBA left rates unchanged at 1.5% for the 26th month in a row, citing weak household consumption, despite further falls in the unemployment rate. Fears of a slowdown in China has weighed on some parts of the Australian economy, although Australian banks have announced increases to their own variable mortgage rates, which appears to be weighing on consumer spending power. Could the RBA react to the higher funding costs being felt by Australian banks, or will they hold pat as they have for over two years? A slowing housing market might prompt the RBA to be more dovish than normal, however it's unlikely they’ll offer any signs of a policy move in that direction.

Global services PMI surveys (Oct)
Tuesday: It’s big week for services purchasing managers' index (PMI) surveys, in light of concerns about a slowdown in the global economy, in this first glimpse of global Q4 economic activity. Recent data has shown that manufacturing activity has slowed considerably from the beginning of the year, though services has proved to be slightly more resilient. This trend needs to continue, where in France and China we have seen some improvement, but trade concerns remain a worry. This week’s October readings from Japan, France, Germany, Italy, Spain and the UK could reinforce these concerns, while the latest US data continues to get a lift from the tax cuts that came into effect at the beginning of the year.

US midterms & Fed meeting
Tuesday/Thursday: The results of the US midterm elections are likely to be crucial in respect of how the Trump administration conducts fiscal policy over the next two years. Republican successes could see further expansionary fiscal policy, while any setbacks are likely to mean policymaking becomes more difficult.  One of the reasons cited for last month’s stock market sell-off has been the rising prospect that the Federal Reserve is set to continue its aggressive rate-hiking sale into 2019. This week’s meeting is unlikely to temper that expectation, with a December rate rise still firmly on the table, while the Fed’s statement is unlikely to be much different to the September meeting. 

Marks & Spencer (H1)
Wednesday: For all of the problems in the retail sector this year, the fact that Marks & Spencer shares are only down a modest 7% is a little surprising given that profit fell by 62% in May’s full-year results. The store closure programme, which started last year, cost £321m in its last set of accounts and is likely to act as a continuing drag through to 2022, when the closure of 100 shops is expected to be complete. Last week Next reported an 8% fall in in-store sales, and given the problems at Debenhams and House of Fraser, this could be indicative of a wider malaise in the high street. The M&S food offering still remains a bright spot, though even here it’s getting squeezed as a result of the emergence of Aldi and Lidl, which has compressed margins in the food retail space. This is where we might see some good news however, as margins did show signs of improvement in last year’s annual numbers, as revenue rose to £10.7bn. This trend needs to continue in spite of all the other challenges the business is facing.     

China trade (Oct)
Thursday: The 10% tariff on $200bn of additional Chinese goods at the end of September could have significant effects on the Chinese trade surplus in October. Judging by recent US data in the other direction, the imposition of that extra 10% tariff doesn’t appear to have made much difference, though this first full month’s numbers will be a clearer gauge as to the full effect. Exports did jump to their highest levels since February in September, rising 14.5%. Imports slowed slightly, rising 14.3%, while a slowdown in manufacturing could put further pressure on imports in October.

Sainsbury’s (H1)
Thursday: The big four supermarkets have continued to see their share of the market come under pressure in the last few months, as Aldi and Lidl continue to chip away at their food retail monopoly. At the most recent Kantar survey Sainsbury’s saw its market share fall back to 15.4% from 15.8%, reinforcing the argument that it needs the Asda deal to remain competitive. With the CMA probe already underway, speculation is growing that the two companies may be forced to offload over 400 stores to push the deal through. This week’s half-year update should give us an insight into whether the loss of market share has adversely affected margins and overall sales.   

Dropbox (Q3)
Thursday: When Dropbox launched its IPO earlier this year, there was some scepticism that it deserved its $17 a share, $7bn valuation. In the aftermath of the launch, the shares reached a peak of over $42.50 to put aside those concerns with interest; however the shares have since halved from those frothy peaks. Even allowing for these declines, the company remains vulnerable to further losses in an extremely competitive cloud environment, where it has to compete with services like Apple’s iCloud and Microsoft’s cloud services. This means that in terms of pricing, it’s vulnerable to loss-leader pricing by its bigger rivals, who could choose to squeeze margins due to their bigger scale. The company has not yet moved into the black, but expectations are for a modest profit this quarter of $0.06c a share.
Walt Disney (Q4)
Thursday: Having lost out to Comcast on the Sky assets and allowing Twenty-First Century Fox to sell its remaining 39% stake in Sky for $15bn, it  appears to suggest that Walt Disney’s plans to expand its global outlook have taken a significant setback. Disney’s share price however suggests that the market has a different view. The price paid by Comcast was way too high and Disney was wise to step back, given that through its Fox acquisition it now has a 60% stake in Hulu, which has 20m subscribers. The company also has other strings to its bow, including parks and resorts revenues as well as Disney studios, which has seen the release of Solo, A Star Wars story, which bombed, as well as Incredibles 2, and Christopher Robin.   

Friday: The recent performance of the UK economy appears to show that, while still feeling the pressure from Brexit concerns, it’s continuing to perform well. Borrowing is down, while GDP growth appears to have remained steady, at or near to Q2 levels. Expectations are for Q3 GDP to come in at around 0.4%, as incomes start to catch up with and overtake inflation. The latest Bank of England inflation report saw the central bank straddle both sides of the Brexit coin. The Bank downgraded its forecast for Q4 GDP to 0.3%, but remain confident that Q3 GDP will come in at around 0.6%, with Brexit uncertainty likely to prompt businesses to defer investment expenditure into year end.

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Index dividend schedule

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Selected UK & US company announcements

Monday 5 November Results
Avid Budget Group (US) Q3
Cabot (US) Q4
Marriott International (US) Q3
Oasis Petroleum (US) Q3
Paramount (US) Q3
Tenet Healthcare (US) Q3
Tuesday 6 November Results
Archer Daniels Midland (US) Q3
Associated British Foods (UK) Full-year
Connect (UK) Full-year
Etsy (US) Q3
First Derivatives (UK) Half-year
GoDaddy (US) Q3
Imperial Brands (UK) Full-year
Match (US) Q3
Pap John's (US) Q3
Ralph Lauren (US) Q2
Wednesday 7 November Results
Dairy Crest (UK) Half-year
Groupon (US) Q3
Marks & Spencer (UK) Half-year
Office Depot (US) Q3
Rockwell Automation (US) Q4
Sophos (UK) Half-year
TripAdvisor (US) Q3
Twenty-First Century Fox (US) Q1
Thursday 8 November Results
AMC Entertainment (US) Q3
Auto Trader (UK) Half-year
BowLeven (UK) Full-year
Burberry (UK) Half-year
CenturyLink (US) Q3
Discovery (US) Q3
Dropbox (US) Q3
Halfords (UK) Half-year
Liberty Media (US) Q3
Lifetime Brands (US) Q3
National Grid (UK) Half-year
Renewi (UK) Half-year
Sainsbury's (UK) Half-year
Tate & Lyle (UK) Half-year
Walt Disney (US) Q4
Wincanton (UK) Half-year
Worldpay (US) Q3
Yelp (US) Q3
Friday 9 November Results
Castings (UK) Half-year
Starwood Property Trust (US) Q3
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.

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