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Market Outlook

The week ahead: US non-farm payrolls, global services PMIs; Zoom results

The Week Ahead: Michael Hewson brings you all the latest market news

Read our pick of the top stories to look out for this week (31 May-4 June), and view our key company earnings schedule.

Constellation Brands Q1 results

Tuesday: The closure of bars, pubs and restaurants has hit sales across all Constellation’s labels, even accounting for increased sales from supermarkets, off-licences and liquor stores. The company is also behind Corona beer, which initially saw sales fall over its name association with the virus, but has since seen sales recover.

In Q4, the US drinks producer recorded growth of 16% in its beer portfolio, up from 12% in Q3, helping to beat expectations on revenue and profit in the quarter. This is expected to slow a little in Q1 to about 8%, with Constellation also hoping to reap dividends from its stake in Canadian cannabis company, Canopy Growth, which reported a loss of $0.12 a share in the fourth quarter. In April, the company outlined that it hoped to achieve 2% to 4% in net sales growth for the beer and wine segment in the new fiscal year. Current consensus estimates are for profit of $2.40 a share for Q1.

EU flash CPIs (May)

Tuesday: Over the past few months, inflationary pressures have caused headline inflation to rebound strongly from the levels at the beginning of the year. While most of the headlines have been focused on the US and the big rebound there, we’ve also seen rises in Europe, albeit from very depressed levels. 

At the end of last year, headline the consumer price inde (CPI) was at -0.3%, but in April it came in at 1.6%. A large part of this rebound has been down to the base effects of last year’s sharp plunge in prices as a result of the various lockdowns, as well as emergency measures to cushion the economy. Some of these have now reversed, however there is still some evidence of rising prices which may well not be as transitory. The subsequent rebound in commodity prices are one such effect that should soon pass, however some may be more permanent. This week’s flash CPI numbers could well see another sharp rise towards the ECB’s inflation target of 2%, though core prices remain much lower, at 0.8% in April.

Zoom Q1 results

Tuesday: One of the big winners of 2020, Zoom’s share price hit record highs in October last year, and has seen some decent gains since it came to market at the end of 2019, at $36 a share with a valuation of $9bn. Since those heights, when the shares came within touching distance of $590, we’ve seen a slow drift back lower by over 40%. 

The biggest concern remains that its technology is easily replicable, and while it's profitable, it doesn’t really have any other strings to its bow. Zoom's competition, in the form of Webex, LogMeIn and Microsoft Teams, are starting to up their game, even if video comms aren’t their core offerings. Revenue has made some big gains, jumping to $2.65bn in 2021 from $622.7m the year before, and are projected to rise to $3.8bn in the upcoming fiscal year. 

UK consumer credit and mortgage approvals (April)

Wednesday: UK mortgage lending jumped to a record high in March of £11.8bn just prior to the Chancellor of the Exchequer extending the stamp duty holiday into the summer. Property prices and mortgage demand has remained strong over the last few months hitting levels last seen back before the financial crisis. 

Combined with a slowdown in consumer credit, which declined by -8.6% year on year, it appears that consumers are keeping their powder dry for when shops, pubs and restaurants finally reopen in April and May, and potentially going on a summer spending binge. March saw net repayments of £500m in March. This week’s numbers are likely to give an early indication of whether UK consumers are ready to start loosening the purse strings in preparation for a summer pick me up. We hear a lot about pent up demand so this week’s April numbers could well be an early leading indicator of that as we head into Q2.

B&M full-year results

Thursday: Some retailers have done better than others over the last 12 months, and B&M is one of those that has outperformed. In March, the value retailer upgraded its expectations for full-year profits, saying that they expected sales to come in close to the same levels as last year. The company upgraded their expectations for full-year EBITDA to between £590m to £620m, even after the repayment of business rates of £80m. Management were more cautious about the outlook beyond the gradual easing of restrictions due to concern of how consumer habits might change post lockdown.

Global services PMIs (May)

Thursday: The gradual easing of restrictions is slowly making itself felt in the latest PMIs and ISM reports over the past two months, albeit with some exceptions. The UK and US have seen the punchiest numbers in terms of an economic rebound, and this looks set to continue, probably on a slightly softer level than in April. This is because a lot of inventory restocking probably took place in preparing for the easing of lockdown restrictions. As such, once business reopens, there'll be a plateau as businesses reassess demand in the wake of a resumption of trade. 

One of the main takeaways from previous reports has been sharp rises in prices paid or input costs which for now don’t appear to be completely being passed on. Employment components have also seen a recovery as well, although business activity in Europe has been more subdued due to higher infection rates. Spain services saw a decent improvement in April, rising to 54.6, while Italy’s activity was more subdued at 47.3, due to various curfews and other restrictions.

Germany and France were also more positive, with France services activity the right side of 50 for the first time since August last year. UK services PMI is expected to see an improvement to 62.2 as more business reopen in May, while US ISM services expected to remain steady at 62.7.

GameStop Q1 results

Friday: Do the fundamentals really matter for GameStop? The stock has seen huge amounts of volatility since the middle of January, and short interest has reduced markedly from the beginning of the year when it was just shy of 71.2m shares at the end of 2020, to levels of 11m now. Away from the social media noise that has dominated the discourse around this company, GameStop has been struggling for some time, with falling sales as a result of online game stores cannibalising its market share. Quite simply mall shopping isn’t anywhere near as profitable at a time when games can be downloaded straight to your computer or console. Reddit day traders appear to have taken it upon themselves to come to the rescue of a tired brand, which is in desperate need of rejuvenating itself in the digital age. 

The company has taken steps to address this by bringing in several names from Amazon and Walmart, while Ryan Cohen becomes chairman on 9 June. GameStop has already closed 100s of stores in response to this changing dynamic, with the Covid-19 pandemic accelerating this process, and while all the free publicity over the last few weeks is likely to have boosted their sales in the most recent quarter, it’s not enough to just cut costs to sustain a tired business model. Revenues have been in decline since 2018 and Cohen will need to address that as well streamlining the business. Losses are expected to come in at $0.20 a share.

US non-farm payrolls (May)

Friday: Last month’s big miss on employment numbers caught everyone completely unawares. Lulled into a false sense of security by a bumper March number of 916,000, it was assumed there'd be a similarly positive report in April. What wasn’t taken into account was the enormously generous boost to unemployment benefits as a result of the March stimulus package, which meant in a lot of cases it wasn’t worthwhile returning to the labour force, hence the big miss of 266,000, while the March number was revised down to 770,000. 

These benefits are likely to act as a considerable brake on the US labour market until they expire in September, at a time when vacancies are already at record levels of 8m. This in turn could prompt an element of wage inflation, as employers attempt to entice workers back into employment by raising salaries. While this may work on some level, until the US economy has completely reopened, the jobs market may well struggle to return to normal and inflation could also start to rise sharply as well. Nonetheless this week’s May payrolls report is still likely to see a decent increase in hiring with around 600,000 jobs set to be added, while the unemployment rate is expected to slip back to 5.9%, after unexpectedly rising to 6.1% in April, after a surprise rise in the participation rate to 61.7%.      

Index dividend schedule

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

Selected company results

Monday 31 May Results
No major results  
Tuesday 1 June Results
Ambarella (US) Q1
Constellation Brands (US) Q1
Graham (US) Q4
Gooch and Housego (UK) Half-year
Medallia (US) Q1
Zoom Video Communications (US) Q1
Wednesday 2 June  Results
Bloomsbury Publishing (UK) Full-year
Cloudera (US) Q1
nCino (US) Q1
Smartsheet (US) Q1
Splunk (US) Q1
Thursday 3 June Results
B&M European Value Retail (UK) Full-year
Chemring (UK) Half-year
Crowdstrike (US) Q1
DiscoverIE (UK) Full-year
DocuSign (US) Q1
Duluth Holdings (US) Q1
Pennon (UK) Full-year
Sumo Logic (US) Q1
Tilly's (US) Q1
Workspace (UK) Full-year
Friday 4 June Results
Hooker Furniture (US) Q1

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


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