Ahead of Wednesday’s update on US inflation, consensus estimates suggest that consumer price growth may have eased to 8.8% in July, down from June’s reading of 9.1%. In the UK, Friday’s Q2 GDP data will be the focus of attention. After the British economy expanded by 0.8% in Q1, growth is expected to have slowed, possibly slipping in to contraction territory.
OUR TOP THREE EVENTS FOR 8-12 AUGUST:
Wednesday – US CPI (July)
The US consumer price index (CPI) soared 9.1% in the year to June, registering a fresh 40-year high. However, core CPI, which strips out volatile food and energy prices, fell to 5.9% in June, down from May’s reading of 6%. In response to these persistently high levels of inflation, the US Federal Reserve raised interest rates by 0.75 percentage points for the second successive month at the end of July, lifting the target range of the federal funds rate to 2.25%-2.5%.
However, after Q2 GDP figures showed that the US economy shrank for a second consecutive quarter, meeting a commonly used definition of a technical recession, fears of stagflation now outweigh concerns over aggressive central bank tightening. Bond market prices have rallied while yields have fallen back.
In the short term, the Fed is likely to maintain its tough stance on inflation as it continues to hike rates until year-end, though projections suggest that rates could peak early next year. We’ve already started to see weakness in commodity prices, as well as in prices paid data, suggesting that headline inflation may have peaked in the short term. Estimates suggest that CPI for the year to July fell to 8.8%, with core CPI expected to rise to 6.1%.
Wednesday – Aviva half-year results
Despite having returned £3.5bn to shareholders in May, the Aviva share price hasn’t exactly set the world on fire. Since mid-May, the stock has flatlined amid challenges facing the major insurers. Part of the problem is related to higher used and new car prices, which have driven up the cost of claims for insurers. This may seem harsh on the likes of Aviva, which has a diversified business model. But concerns over margin erosion – no matter which area of the business is affected – tend to cause weakness across the board.
Investor sentiment aside, the business remains robust. Aviva’s Q1 trading update showed that UK and Ireland sales rose 2% to £8.4bn, with general insurance sales rising 5% to £2bn. The company said that it was on track to deliver on its full-year financial and dividend targets for the next two years.
Friday – UK Q2 GDP
The UK economy grew 0.8% in Q1, but GDP growth is expected to have slowed in Q2 as the steep rise in the energy price cap in April and various tax rises weighed on output.
We may even see a negative print. Monthly GDP data show that the economy contracted 0.2% in April, though this was offset by a 0.5% expansion in May. Nevertheless, estimates suggest that across Q2 economic output contracted by 0.1%.
Much depends on the jubilee month of June. Recent purchasing managers’ index (PMI) surveys have found that, despite rising costs, economic activity remains in expansion territory. And although retail sales edged lower in Q2, the Queen’s platinum jubilee in early June may have boosted the tourism and hospitality sector.
Recent GDP data from the likes of Spain and Italy have shown how tourism can be a positive catalyst for growth – with a cheap pound, the UK may have experienced a similar uplift. That could help the UK avoid a negative print for Q2, but it is likely to be a close-run thing.
With inflation running at 9.4% and set to go on rising, and with the Bank of England lifting interest rates by 0.5 percentage points to 1.75% yesterday, the economic landscape only gets more challenging in Q3.
MORE KEY EVENTS (7-12 AUGUST):
Sunday 7 August
China trade (July)
China’s monthly trade surplus grew to a record $97.9bn in June, as the reopening of the economy after weeks of Covid lockdowns saw exports rise 17.9% year-on-year to $331.2bn – their strongest level this year. Pent-up demand helped drive this rebound, so the July numbers are likely to more subdued, with exports expected to have increased 13.2%.
Imports are likely to be a different story. These are expected to remain soft, after we saw just a 1% gain in June as the ongoing restrictions of China’s zero-Covid policy continue to weigh on domestic demand.
Similarly, retail sales have been weak for several months now. Although demand has picked up to some extent as strict lockdown rules have been eased, the uncertainty around Covid is likely to limit demand in the near term. Forecasts suggest retail sales grew 4% in July, up from June’s 3.1% annual uptick.
Monday 8 August
Vroom Q2 results
US car retailer Vroom’s share price has fallen more than 80% this year. But, after hitting record lows just prior to the release of its Q1 numbers in May, Vroom’s share price appears to have found a short-term base. With so much negativity around the company, some sort of rebound was always a possibility, though the business still faces enormous challenges as it looks to turn a profit.
Q1 sales came in better than expected at $923.7m, while gross profits rose to $81.6m. Vroom’s biggest problem is overheads, as operating losses widened to $315.9m in Q1. The company said it expects to achieve between $135m and $165m in savings over the course of the rest of the year, with the loss of 270 jobs.
For 2022 the company said it expects to sell about 50,000 cars on the e-commerce side. We also saw the appointment of a new CEO, Tom Shortt, who used to be COO. Q2 losses are expected to come in at $0.75 a share.
Tuesday 9 August
InterContinental Hotels Group half-year results
IHG shares have seen a decent rebound after falling to a two-year low back in June. In Q1 the FTSE 100-listed hospitality company, which owns the Holiday Inn brand, reported that revenue per available room (RevPAR) rose 61% compared to last year, and was back at 82% of 2019 levels.
The Greater China region has proven to be a drag due to lockdown restrictions, and is likely to be an area of weakness in Q2 and subsequent quarters this year. The group’s struggles in China are apparent in occupancy rates, which by region were at 60% in the US, 50% in EMEAA and only 36% in Greater China.
The US outlook seems the most promising in terms of increased pricing power, with rates in the US business 4% ahead of 2019 levels in Q1, and likely to remain so despite concerns over the rising cost of living.
Coinbase Q2 results
Shares in cryptocurrency platform Coinbase are down more than 60% this year, as turnover in the crypto market has collapsed. In Q1 revenues slid to $1.17bn well below expectations of $1.48bn, and down versus last year’s $1.8bn. The company posted a loss of $430m and downgraded its guidance for Q2.
The collapse in crypto trading is evident in the company’s recent numbers. Retail trading was worth $177bn in Q4 last year, but fell to $74bn in Q1 as the tumbling value of assets such as bitcoin kept a lot of the retail market on the sidelines. The company issued a warning about the implications of possible bankruptcy in its Q1 earnings report, which didn’t exactly fill investors with confidence. Meanwhile, the SEC is investigating whether Coinbase’s cryptocurrency listings should have been listed as securities.
In more positive news for shareholders, the company received a boost last week when it announced that it was partnering with BlackRock to target institutional clients in the crypto space. Losses for Q2 are expected to come in at $2.27 a share.
Wednesday 10 August
US CPI (July)
See top three events, above
Aviva half-year results
See top three events, above
Deliveroo half-year results
Trying to gauge whether the Deliveroo share price has bottomed out seems to be an impossible task. Over the last year the shares have plummeted more than 70%, dropping below 100p in May in the aftermath of the Q1 numbers. At around 92p as of Friday, the shares are a long way off their IPO price of 390p in April last year. That said, the company has continued to grow over the last 15 months, and in March its full-year numbers showed that revenue rose 57% to £1.82bn. Unfortunately, losses also increased to £298m, up from £213m in 2020. Margins tightened to 7.5% last year, down from 8.7% a year earlier, as market and overhead spend rose by 75% to £628.7m.
On guidance, the company said it hoped to break even by 2024 on a full-year basis. On medium-term Gross Transaction Value (GTV), it expects to grow at circa 20% a year. Deliveroo has made great strides in signing deals with Amazon and Waitrose, helping to push Q1 GTV up to £1.79bn, a rise of 11% from the year-ago period. At the time, the company appeared confident of delivering GTV guidance of 15% to 25% for the year, with the second half of the year expected to be stronger than the first six month. This always appeared optimistic, given the economic backdrop. In July the company was forced to lower GTV guidance to between 4% and 12%, although EBITDA guidance was kept unchanged.
Disney Q3 results
Disney shares hit two-year lows back in July, despite a better-than-expected set of Q2 numbers. Those results showed that, unlike its streaming peer Netflix, Disney managed to grow its subscriber base. An increase to 137.7m subscribers, up from 129.8m, comfortably beat expectations, although revenues and profits across the wider business both fell short amid higher spending costs on programming for Disney+ and Hulu. Disney also earns revenue from its film studios, as well as from its holiday and theme parks business. These helped lift total revenue in Q2 to $19.25bn, though that was still below estimates of $20.1bn. On the plus side, the parks business posted a solid improvement, bringing in $6.7bn in revenue, and operating income of $1.76bn.
Looking ahead, Disney cited a potential hit of $350m due to the Covid-related closures of its Shanghai and Hong Kong theme parks. The company also warned on slower subscriber growth in the second half of the year as rising inflation squeezes consumer incomes. Similar to Netflix, Disney said it is planning an ad-supported tier of Disney+ in response to concerns over rising prices. Profits for Q3 are expected to come in at $0.96 a share.
Thursday 11 August
US PPI (July)
Having fallen back from its March peaks to 10.9% in May, the US producer price index (PPI) unexpectedly jumped back up to 11.3% in June, raising concerns that further inflationary pressure is building up in US supply chains. This was unexpected, given that there had been little indication of such pressures in prices paid numbers for the same month. Furthermore, core PPI, which excludes food and energy costs, fell to 8.2% in June, down from 8.5% a month earlier. Many will hope that this trend can extend into July and Q3.
There is some evidence that the June spike may have been a one-off, given recent sharp falls in prices paid numbers. This could see PPI slide back from June’s 11.3% to around 10.3%, with core PPI perhaps falling below 8%.
The more important question for investors and markets in general is how much further inflation can fall before finding a floor. That in turn raises questions for the Fed about where its “neutral” rate should be. It’s unlikely to be at 2.5%, which is the current upper end of the fed funds range.
Rivian Q2 results
That $78 IPO prices seems a long time ago now, with Rivian’s major shareholders Ford and Amazon taking huge write-downs on their stakes in the business over the past six months. On the day of Rivian’s Q1 earnings announcement the shares hit a record low of just below $20. Since then, we’ve seen a modest recovery as the company finally gets its car production underway.
In Q1 the company confirmed that it had built 2,553 vehicles and delivered 1,227 of them. Production was slowly stepped up during the quarter and management expressed confidence that this would see 4,000 vehicles produced in Q2. This will be the key test as we look to this week’s Q2 numbers.
The company says it has received 10,000 new pre-orders since raising prices in March. Q1 revenue came in at $95m, below expectations of $131.2m, as the firm reported a loss of $1.6bn, or $1.43 a share. The company reaffirmed its 25,000 target for annual vehicle sales, despite supply chain bottlenecks. The company is still spending significant amounts of money on new capacity and hopes to begin work on a new factory in Georgia this summer, which means quarterly losses are expected to increase to $1.60 a share.
Friday 12 August
UK Q2 GDP
See top three events, above
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Selected company results
|MONDAY 8 AUGUST||RESULTS|
|ITM Power (UK)||Full-year|
|News Corp (US)||Q4|
|TUESDAY 9 AUGUST||RESULTS|
|Coinbase Global (US)||Q2|
|InterContinental Hotels Group (UK)||Half-year|
|Legal & General Group (UK)||Half-year|
|Ralph Lauren (US)||Q1|
|Warner Music Group (US)||Q3|
|WEDNESDAY 10 AUGUST||RESULTS|
|Admiral Group (UK)||Half-year|
|Fox Corp (US)||Q4|
|Getty Images Holdings (US)||Q2|
|Walt Disney Co. (US)||Q3|
|THURSDAY 11 AUGUST||RESULTS|
|Capital & Regional (UK)||Half-year|
|Derwent London (UK)||Half-year|
|Payoneer Global (US)||Q2|
|Rivian Automotive (US)||Q2|
|Spirax-Sarco Engineering (UK)||Half-year|
|FRIDAY 12 AUGUST||RESULTS|
|Sonida Senior Living (US)||Q2|
Company announcements are subject to change. All the events listed above were correct at the time of writing.
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