Watch our week ahead video preview, read our pick of the top stories to look out for this week (7-11 December), and view our key company earnings schedule.
Michael looks back at this week’s price action in the FTSE 100, S&P 500, EUR/USD and GBP/USD, as well as ahead to a possible EU-UK trade deal, the ECB rate meeting, China trade balance, plus Airbnb IPO, and Rolls-Royce Q3 update. He also looks at some key levels on crude oil, gold prices and the US dollar.
China trade balance (November)
Monday: The most recent China trade numbers continued the improvement that began in September, when imports rose 13.2% to their best levels this year. In October, this slowed a little but was still positive, rising 4.7%, half of the 9.5% that was expected. This was a little disappointing, however given the strength of recent PMI data, it seems likely that barring a second wave of coronavirus, China is set for a strong finish to the year. Exports have continued to do well in recent months, largely as a result of strong demand for medical PPE. There’s been a big improvement in Chinese domestic demand over the last couple of months, and this trend should be reflected in the November trade data. Particular attention will be on the import numbers, especially given that Golden Week happened in the first part of November, and recent data has shown that the services PMI has been a strong performer.
Ted Baker half-year results
Monday: When the clothing retailer announced in June that it was looking to raise over £100m at a discounted price of 75p, the Ted Baker share price tumbled, as the new management looked to rescue a business that’s fortunes have imploded spectacularly in recent years. In March 2018, the shares were up at over £30 each, however a raft of profit warnings, the departure of founder Ray Kelvin in controversial circumstances, and various stock accounting errors, have seen the shares fall sharply. Earlier this year, Ted Baker sold and leased back its head office in London for £78.75m, with £72m of that cash used to pay down debts.
Ted Baker has an uphill struggle in the current retail environment, however underlying profits in the last fiscal year did come in at £4.8m, despite various writedowns, while total revenue fell 1.4% to £630.5m. Gross margins are also above 50% at 55.6% as per its last annual report. On the plus side, Ted Baker’s store footprint is much narrower than a lot of its peers, and the business rates holiday will also help on the margins, while the company’s collaboration with Next has expanded beyond children’s clothes, to include lingerie and nightwear from May 2021. Its e-commerce business has been a bright spot, with a 35% year-on-year rise when it reported in July. New CEO Rachel Osborne seems to be very aware that digital is the way forward, and Monday’s first-half results are likely to be a decent arbiter of progress.
Brown-Forman Q2 results
Tuesday: It appears that peoples taste for Jack Daniel’s whiskey, as well as its new Tennessee Apple brand, has helped the Brown-Forman share price to continue to reach new heights over the past month. At the end of last year, the US market saw the best performance, with a net sales rise of 5%, and this outperformance continued in Q1 with US sales rising 3%. International markets also improved, rising 13%, however emerging markets dropped 20%. The wine and spirits giant pulled its guidance initially in the wake of the Covid-19 disruption. In July, the company paid a quarterly cash dividend of $0.1743 a share, and said it expects to be able to continue to do so, keeping intact a record of payouts dating back 75 years. Q2 profits are expected to come in at $0.50 a share.
Wednesday: After months of speculation, Airbnb looks set to pull the trigger on an IPO on 9 December, to start trading on 10 December, with a valuation expected to be in the region of $35bn. The timing appears curious given the huge hit to the travel sector as a result of the Covid-19 pandemic, and the fact that Airbnb;s revenue has fallen sharply from the levels seen in 2018 and 2019. The likelihood is that they could take some time to bounce back, even with all of the recent optimism over a Covid-19 vaccine.
Bank of Canada rate meeting
Wednesday: The Bank of Canada is having to contend with similar problems to the rest of North America, with a slowdown in hiring trends, and the prospect of tighter restrictions as we head into winter. In October, hiring slowed sharply to 83,600, from 378,200 in September. Friday’s November payrolls report showed that this trend continued to slow further. Interest rates are already at record lows of 0.25%, and the Canadian dollar close to its highest levels this year against the US dollar (USD/CAD). Central bank officials will be concerned about how to stem the rise against a greenback that is coming under pressure as a result of an expectation that the US Federal Reserve will look at further easing measures when they meet later in December.
Adobe Q4 results
Thursday: Adobe is another tech stock that has seen its share price hit record highs this year, due to the necessity of home-working during the pandemic. The company, home of the ubiquitous Adobe Reader app, as well as Photoshop and other digital marketing tools, has seen its revenue surge in recent months. It is already on course to easily beat last year’s annual revenue numbers of $11.17bn, helped by its diversified product mix. Adobe’s Q3 numbers saw its Digital Media business add 19% of that revenue rise. Its cloud business has also shown strong growth, in both tools for designing and publishing creative content, for photographers and graphic designers to products that deliver functionality in advertising, marketing and analytics. Q4 profits are expected to come in at $2.65, while total annual revenue is expected to come in at $12.8bn, an increase of 15% on last year.
European Central Bank rate meeting
Thursday: When the ECB expanded the size of its pandemic emergency asset purchase programme from €750bn to €1.35trn and prolonged it into the middle of next year, there was probably an expectation that any Q3 recovery would continue to the end of 2020. While there has been evidence of an economic bounceback since March and April, the economic lockdowns in France and Germany through November have increased the pressure on the ECB to try and fill the gap when it comes to a lack of support, as delays to the EU’s fiscal package are likely to extend into 2021.
On the plus side, manufacturing appears to be holding up fairly well. However, services PMIs are still well into contraction territory, with little prospect of a strong rebound due to the continuation of restrictions in France and Germany. While the ECB has gone to great lengths to insist that its monetary toolbox is still prepared to deal with the prospect of a double-dip recession, the rise of the euro and a weaker US dollar is not helping their cause (EUR/USD). This is a problem for the ECB, particularly given the absence of an imminent fiscal response from the EU, and while we could well see further easing measures, with talk of a further six to 12-month extension of QE, they are likely to be constrained by splits on the governing council, with a number of members pushing back against further large-scale stimulus measures. Thursday’s meeting is likely to be important in the context of trying to keep a lid on the euro, which is already flirting with the 1.2000 area, and multi-year highs.
Thursday: Will this be the EU Summit that finally signs off a UK-EU trade deal? Negotiations look set to come to a head in the coming days, with France threatening a veto if they don’t like the deal that is agreed. If France were to do that then there would be very little time to avoid a no-deal scenario on 31 December, with significant consequences for the French and UK economies. It could also poison the well for future negotiations, if France were to act in that fashion, and make future side deals in 2021 that much more difficult.
Ocado Group Q4 results
Thursday: This has been another decent year for Ocado, despite the embarrassment early on in the pandemic of having to close their website temporarily, and pull their shopping app to aid resilience in the lead-up to the March lockdown. In an attempt to bolster its finances during the summer, the company raised another £1bn in the form of a share and convertible bond placing so that it could speed up the upgrading of its current and future infrastructure to build additional capacity, not just here in the UK, but also at its partners in the US, France and Canada. In November, Ocado management said it expected full-year EBITDA to come in well above its previous guidance of £40m at £60m, helping to give Ocado's share price a bit of a lift-off before some sharp declines on the back of the positive vaccine news, as an improvement in economic conditions could see less demand for online shopping.
UK industrial & manufacturing production (October)
Thursday: While services still make up the majority of the UK economy, the performance of the manufacturing sector in recent months has been fairly positive. The sector has registered gains in every month since May, though the pace of expansion has slowed as we have headed into Q4. The third quarter was especially positive, after a post-lockdown rebound helped reverse some of the worst of the losses in Q2. Nonetheless, one thing the recent PMIs numbers have shown us is the resilience of the manufacturing and construction sectors, in comparison to the services sector which is much more exposed to tighter restrictions. Expectations for manufacturing and industrial production are for a continuation of the positive trend since May, however only a modest gain of 0.3% for both sectors is predicted.
Rolls-Royce Q3 results
Friday: In October, the Rolls-Royce share price fell to its lowest levels since 2004, after the company announced plans to raise extra cash to bolster its finances. The launch of a £1bn bond issue, as well as a £2bn 10-for-3 rights issue at a 41% discount to 130p, was eventually taken up by shareholders. The prospect of a vaccine has helped pull Rolls-Royce shares back up, in the hope that next year the economic gloom lift and air travel may start to return to much higher levels. The company has also continued to announce job losses, with fears another 1,400 could go at Barnoldswick, where the company makes the fan blades for its engines, with production shifted to Singapore. While the shutdown of the aviation sector is likely to mean another quarter of cash burn, it is important to remember that on a longer-term basis, the outlook is probably brighter. As part of the government's new energy plans, Rolls-Royce is part of a consortium to build 16 mini nuclear plants in the UK, while it is also working on a prototype engine that uses 100% sustainable aviation fuel.
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 7 December||Results|
|Coupa Software (US)||Q3|
|Stitch Fix (US)||Q1|
|Ted Baker (UK)||Half-year|
|Toll Brothers (US)||Q4|
|Tuesday 8 December||Results|
|Barnes & Noble Education (US)||Q2|
|Cantel Medical (US)||Q1|
|Thor Industries (US)||Q1|
|Wednesday 9 December||Results|
|Campbell Soup (US)||Q1|
|Oxford Industries (US)||Q3|
|Slack Technologies (US)||Q3|
|United Natural Foods (US)||Q1|
|Thursday 10 December||Results|
|DS Smith (UK)||Half-year|
|Friday 11 December||Results|
|Johnson Outdoors (US)||Q4|
Company announcements are subject to change. All the events listed above were correct at the time of writing.