Watch our week ahead video preview, read our pick of the top stories to look out for this week (14-18 September), and view our key company earnings schedule.
Our UK chief market analyst, Michael Hewson, reviews last week's sharp moves in equity markets, and looks ahead to the latest US Federal Reserve, Bank of England and Bank of Japan meetings. He also previews the latest UK unemployment and retail sales, US and China retail sales, and looks at what to expect from this week's Apple event. Michael also analyses the key chart points on GBP, USD and the euro, as well as the major indices and key chart levels on Next and Ocado.
China retail sales (August)
Tuesday: Retail sales growth in China hasn’t been the same since the country came out of lockdown at the end of February, though optimism over the July numbers had been increasing given recent positive data from the auto sector, as well as reports from the likes of Daimler and Apple about rebounds in their Chinese markets. This made it all the more surprising that retail sales in July declined 1.1%, showing that Chinese consumers remain nervous about coming out of hibernation. The last positive reading came at the end of last year, with a gain of 8% for December. Manufacturing has performed better, rebounding to its best level in almost a decade in July in official and private sector PMI data. Industrial production rose 4.8% in July, also slightly below expectations. The most recent trade data isn’t all that encouraging either, with imports underwhelming last week, declining 2.1%, missing expectations of a 0.2% gain. Expectations are for no change in retail sales, while industrial production is expected to rise by 5.2%.
Ocado Q3 sales
Tuesday: Ocado Group has had a number of problems over the years, but its share price has proved to be resilient, with new record highs in August despite the business not yet having posted a profit. Ocado’s strength lies in its unique technology, which has received a significant boost as a result of the coronavirus pandemic. Fires at distribution warehouses have put constraints on capacity, as well as costing the company more than £100m. However, the deal with Marks & Spencer is likely to see revenue increase: at the end of February the company said it expected to grow retail revenue for the upcoming year by 10% to 15%. In April, Ocado had to close its website to deal with increased demand from online traffic, while in June the company raised another £1bn in the form of a share and convertible bond placing, to make speedier infrastructure upgrades, £600m of which it plans to spend this year. In its half-year numbers, Ocado’s group revenue rose by 23.2% to £1.08bn, with retail revenue rising by 27.2% to £1.02bn, despite the website shutdown. Fees from its international business jumped by 58% to £73.7 million, helped by an increase in capacity in its French and Canadian business operations. These revenue gains came at a price, as earnings fell 36%, leading to a pre-tax loss of £40.6m. Will this week’s Q3 sales numbers build on a decent first half, with the M&S deal now up and running?
UK jobless claims & retail sales (August)
Tuesday/Friday: It’s becoming increasingly apparent that the ILO UK unemployment measure isn’t fit for purpose in the current environment, after it came in unchanged at 3.9% for the three months to June. It doesn’t include those who have yet to return to work from furlough, and as such aren’t classified as unemployed quite yet. On the plus side, at least two-thirds of staff who were furloughed are now back at work; however the final 2m or so people may find they don’t have a job to go back to if current social distancing guidelines remain intact into next year. We’ve already seen swathes of job losses announced over the summer from airlines, aerospace and the retail sectors, which will eventually start to show in the headline numbers. While companies like Amazon and Tesco are looking to recruit extra staff for their online and delivery operations, these aren’t expected to completely fill the gap. Last month, the claimant count for July rose by 94,400 and the headline claimant count rate rose to 7.5%, from 7.3%. More importantly, the latest data showed another 220,000 jobs were lost in the three months to June, bringing the total number of positions lost since March to 730,000. This trend could well have continued in July and August.
Adobe Q3 results
Abobe Systems is another tech stock that has seen its stock price propelled to record highs this year, due to the surge in home working. The company that is the home of the ubiquitous Adobe Reader app, as well as Photoshop and other digital marketing tools, has seen its revenue jump in recent months. It’s already on course to easily beat last year’s annual revenue of $11.17bn, helped by its diversified product mix of digital media, cloud and print and publishing. Its cloud business in particular has been growing strongly, with growth in tools for designing and publishing creative content, for photographers and graphic designers, and products that deliver functionality in advertising, marketing and analytics. Q3 profit is expected to come in at $2.41.
Apple product event
Tuesday: The latest Apple event will be closely scrutinised for details of new products, as well as various upgrades. There is speculation around upgrades to the iPad and Apple Watch, as well as the new iPhone 12. We’ve been waiting for Apple to outline its plans for a 5G model, but given the recent disruption caused by Covid-19, this deadline could slip. The success of the new iPhone SE may prompt Apple to focus more on the lower end of the iPhone market with the new iPhone 12, given the current global slowdown. Focusing its attention here, coupled with improved service revenue, does appear to have paid off in the short term, however the Apple TV+ product still needs significant investment to take on the likes of Netflix and Amazon in the longer term. Apple certainly needs to do a lot more to justify its current $2trn valuation, and while the recent share split has made the shares cheaper and as such, more readily available to so-called Robinhood traders, there is a risk that its current valuation isn’t truly reflective of the underlying fundamentals.
US retail sales (August)
Wednesday: July’s US retail sales painted a mixed picture of the US consumer, after a monthly gain of 1.2%, which was slightly below expectations, but an upward revision in June from 7.5% to 8.4% more than made up for that, while the control group measure which is used to calculate GDP, rose by more than expected to 1.4%. The data tells us little about the overall state of the US economy, apart from that it’s continuing to recover from the effects of the shutdown in April, albeit on a patchier scale than expected. The resilience of the labour market ought to bode well for August’s retail sales, however the expiry of the $600 a week unemployment top-up could impact spending patterns for this month, particularly since consumer confidence fell sharply to 84.8, its lowest level since mid-2014. Expectations for a gain of 1.3% appear a touch optimistic.
US FOMC rate-meeting
No changes in policy are expected at Wednesday’s Federal Reserve meeting, with the recent speech by Fed chair Jerome Powell still fresh in the memory. Mr Powell said the Fed was now looking at implementing a new policy of AIT, or average inflation targeting. This means that central bank policymakers would be prepared to tolerate prices rising above 2% for periods of time, to compensate for when inflation is running below target. How successful this will be remains to be seen, given that this isn’t much different to what central banks have been doing for the past 12 years, with the only difference now being that they are openly acknowledging it. These comments merely confirm the Fed is less concerned about its inflation mandate than the employment component. In reality, the Fed is somewhat of a hostage to events, whether it be a second wave or political gridlock over a second stimulus package. In recent comments, a number of Fed officials have been vocal about the prospect of more aggressive policy action. Lael Brainard in particular has been at the forefront of the recent change in policy, while Atlanta Fed president Raphael Bostic went even further, saying that the Fed was trying to do the best it can to support those who don’t have a position in the stock market. The meeting is likely to be geared towards refining the parameters of this new policy, without fundamentally altering the pre-election dynamics of the upcoming US election
Bank of Japan rate decision
Thursday: The most recent Japan GDP data showed that the Japanese economy contracted 7.9% in Q2, with household spending making the largest part of that contraction. Having spent most of the last 30 years keeping interest rates on the floor, and buying anything that isn’t nailed down, the Japanese central bank has struggled to fulfil its mandate in pushing inflation up to 2%. Recent events have merely exacerbated these problems, with central banks all over the world stretching their mandates to the limit. The Bank of Japan’s latest policy, a $1trn loan programme straight out of the Federal Reserve playbook, is the latest attempt by a central bank to help struggling firms over the coronavirus disruption hump. As it is, central bank policies over the last few years have created thousands of zombie firms across the world, with Japan leading the way in terms of a lack of competitiveness, according to the OECD. With the Bank of Japan’s latest loan programme set to last until next March next year, no changes in policy are expected, with the economic recovery in Japan looking a lot weaker than elsewhere across the globe.
Next half-year results
Thursday: 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 itself into hundreds of thousands of job losses across the sector. When Next reported in January, it expected that pre-tax profit would come in at £734m for 2020, a figure that was quickly consigned to the bin as the UK economy shut down. 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. When Next reported in July, Q2 sales showed a decline of -28%, a slightly better-than-expected performance, with the online and warehouse division starting to return to normal capacity. Online like-for-like sales actually showed a rise of 9% in Q2, with retail store sales unsurprisingly down 32%. Management said that for the second half of the year, they would be looking to augment and enhance the picking capacity in its warehouse operations in order to improve the online business, and especially delivery times, which have suffered due to the extra workload. Full-year profit-before-tax is now estimated to come in at £195m.
Bank of England rate-meeting & minutes
There has been a lot of chatter in recent months about whether the Bank of England would go down the negative-rate route. While Bank officials have been careful not to rule out the possibility of such a move, the reality is that it would be extremely damaging to the UK financial sector, which makes up such an important part of the UK economy. At least the US Federal Reserve has implicitly ruled out the prospect of such a move, perhaps mindful of the damage it has done in Europe and Japan. This impulse on the part of some central bankers to keep trying the same thing, even when it has been shown to have little to no impact, points to a lack of imagination, or wanting to be seen to be doing something even if any action taken is unlikely to help. For now, expectations are for no changes in monetary policy, given recent economic data has shown there is little evidence the UK economy needs it. Consumers don’t appear to be in any hurry to take on much in the way of extra liabilities, at a time of such great uncertainty. The most recent consumer credit numbers did show that consumers borrowed £1.2bn in July, having repaid over £16bn in the previous four months, more than the entire sum borrowed in 2019.
FedEx Q1 results
FedEx’s last set of numbers were a mixed bag, but that didn’t stop its share price from surging higher, despite annual revenue coming in below 2019 levels. While its residential business did well with the explosion in online deliveries, its commercial division was hit by the shutdown in the civil aviation sector. Additional safety measures led to the company incurring pandemic-related costs of $125m, which has seen its margins shrink from 6.4% in 2019 to 3.5% in 2020. Despite these extra costs,’ profit in Q4 still managed to beat expectations at $2.53, topping the $1.52 forecast, while revenue also rose, coming in at $17 4bn. Q1 profit is expected to be $2.52.
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 14 September||Results|
|Aspen Group (US)||Q1|
|City of London Investment (UK)||Full-year|
|Tuesday 15 September||Results|
|Ocado Group (UK)||Q3|
|Vectura Group (UK)||Half-year|
|Wednesday 16 September||Results|
|Advanced Medical Solutions (UK)||Half-year|
|Galliford Try (UK)||Full-year|
|Pan African Resources (UK)||Full-year|
|Thursday 17 September||Results|
|Haynes Publishing Group (UK)||Full-year|
|Hilton Food Group (UK)||Half-year|
|John Lewis Partnership (UK)||Q2|
|Kier Group (UK)||Full-year|
|Oxford Biomedia (UK)||Half-year|
|Supermarket Income Reit (UK)||Full-year|
|Friday 18 September||Results|
|No major announcements scheduled|
Company announcements are subject to change. All the events listed above were correct at the time of writing.