Watch our week ahead video preview, read our pick of the top stories to look out for this week (27 April-1 May), and view our key company earnings schedule.
In this week's video, UK chief market analyst, Michael Hewson, looks ahead to a trifecta of central bank meetings, as well as Q1 GDP from the US and EU, Germany unemployment, plus the latest earnings numbers from BP, Tesla, Sainsbury's, Apple and Amazon. He also looks at the key levels on the major indices as well as EUR/USD and GBP/USD.
BP Q1 results
Tuesday: The collapse in the oil price in recent weeks is likely to hit BP extremely hard. If the falling out between Russia and Saudi Arabia wasn’t bad enough, the slide in US shale prices is likely to have exacerbated the problems at its US operations. BP shares have slid to their lowest levels since the mid-1990s. With each passing week, BP’s acquisition of BHP Billiton’s share assets a couple of years ago looks more and more foolhardy. With demand falling as airlines cut capacity and people travel less, the longer-term outlook is likely to be constrained by the green agenda. While the company can cut capex in the hope of covering costs on a short-term basis, there have to be questions about the sustainability of a dividend yield which currently sits above 10%.
Tuesday-Friday: Over the last few years UK banks’ share prices have struggled due to concerns over Brexit, but it has been something completely separate that has taken them to multi-year lows. The implementation of the UK lockdown was the catalyst, and unlike their US peers, investment banking divisions have been scaled back in the past few years, which means they are much more vulnerable to the sharp contraction that is coming our way in Q2. The only reassurance would appear to be that the UK government appears willing to backstop any new lending that the banks need to do to keep the economy on life support.
Unfortunately, that’s not where the real problems lie. Consumer credit and provision for credit losses could be the real issue if we see widespread solvency issues for consumers as well as businesses in the coming months. While Barclays, Lloyds and RBS are all acutely vulnerable to widespread consumer defaults, at least the former has other revenue streams aside from its investment bank. However, Barclays’ investment division has started to perform better-than-expected in recent quarters, which has helped in respect of any underperformance in its domestic retail operations. At its most recent trading update, Barclays beat expectations on profit, revenue and ROTE, but did warn that 2020 was likely to be challenging. That seems an understatement now, and with all of the UK’s banks pulling their dividends in recent weeks to shore up balance sheets, all eyes will be on the banks’ ability to set aside provisions in respect of potential credit losses and loan defaults in the coming months.
Tesla Q1 results
Wednesday: Earlier this year, Tesla’s valuation soared to the point that it became the second most valuable car brand in the world, only behind Toyota. This was despite the fact that it sells fewer cars than companies like VW and Ford, and still hasn’t made an annual profit. The electric carmaker did set a record for the number of sales, helped in no small part by the start of production and deliveries from its Chinese factory. In its previous two quarters Tesla did generate a profit, however this wasn’t enough to offset losses in the first half of the year. In Q4 the company posted its highest ever revenue of $7.4bn. Tesla’s share price surged in January and February to a peak of $968, prior to a collapse in March when it slid to a low of $350, before rebounding to where we see it now, heading back towards the $800 level. Tesla appears to have avoided the worst effects of the coronavirus shutdowns given a recent announcement that it was able to deliver 88,400 cars in its first quarter, saying it had also been able to produce over 100,000 vehicles, before it was forced to close its plant in California on 23 March. The company has taken steps to cut costs by furloughing staff and cutting production, hoping to restart operations on 4 May. Original guidance for 2020 was to produce over 500,000 cars, however this target is likely to be difficult to achieve unless it is able to restart production sooner rather than later. CEO Elon Musk will be hoping that Tesla is able to repeat its trick of last year, where a poor first half was followed by a bumper second half of the year. The only problem with that is that the coronavirus pandemic may have other ideas.
US GDP (Q1)
Wednesday: With over 25m people filing for jobless claims in the past few weeks, Wednesday’s Q1 GDP number will be the first indication of how much economic damage the US economy is set to face in the coming weeks and months. Even then it will seriously understate what is about to come in Q2, given that the lockdown only came into effect in the middle of March. Despite this, the latest non-farm payrolls report still showed a huge decline of 701,000 jobs in March, a sharp reversal on February and perhaps indicative that US businesses were already gearing up for a big hit. Expectations are for a decline of 2.7% in the first quarter, with all of the weakness coming in March.
US Federal Reserve meeting
Wednesday: Recent Fed meetings have almost become a sideshow in recent months, with the US central bank preferring to act outside of its timetabled meetings, announcing market interventions outside of US trading hours. The last such action was on 9 April, when it announced a new $2.3trn programme to support Main Street. The bank also said it would expand the scope of its bond-buying programme to exchange traded funds that specialised in lower rated or junk bonds, though it will only be for companies that were investment grade until recently. This week’s meeting is unlikely to see anything new announced, though it will be interesting to see how US policymakers view the outlook for the next few weeks and months, in line with the huge rise in unemployment we’ve seen since the last emergency rate meeting in March.
European Central Bank rate-meeting
Thursday: What can the ECB do that it hasn’t already done with its new pandemic asset purchase programme? In recent comments, President Lagarde said the central bank was committed to doing everything necessary, within its mandate, to help the euro area through the current crisis. The problem is that the ECB is already at the limits of its mandate, certainly in terms of where interest rates are, and while the €750bn asset purchase programme will assist, it won’t help in terms of the structural reforms the region needs to survive an outright depression. The ECB has already expressed concern about an increase in non-performing loans across the euro area, urging the creation of a bad bank, something which markets are also concerned about given the widening spread differentials between German and Italian 10-year yields. Italy is still the euro area’s kryptonite, and a failure to deal with the problems here could be ruinous for the entire bloc.
Sainsbury’s full-year results
Thursday: Instinct tells you the lockdowns currently in place should be good for the food retail sector in general. In terms of product sales and turnover, that has undoubtedly been true, and with the sector also getting the benefit of the recent cut in business rates, there seems little chance that this part of the retail sector won’t be able to show better numbers from a year ago. What wasn’t realised until Tesco released its numbers recently was the impact on costs, as a result of hiring extra staff in order to keep the shelves filled, as well as to cover for employee sickness. In Tesco’s case this offset the benefit of the increase in sales, raising its costs by as much as £900m. It could be a similar story for Sainsbury’s, though the business could also benefit from increased sales from its Argos brand, as customers buy electronics and games to see them through the lockdown, as well as increased office furniture sales as more people work from home.
Germany unemployment (April)
Thursday: The last set of data from Germany showed unemployment levels steady at 5% in March. This is likely to rise sharply in April, and will be the first leading indicator in Europe as to the effect on the labour market of the lockdown measures imposed by governments across the region in response to the pandemic. Despite China’s lockdown in February, and the collapse in German exports, there was little tangible evidence of any impact on German unemployment levels in the last set of numbers. That seems unlikely to continue.
EU GDP (Q1)
Thursday: These Q1 numbers aren’t likely to show the extent of the economic damage that is likely to be wrought across the bloc in the coming months. Nonetheless, they will still show the beginning of a downward slide into a prolonged economic recession, given that the bloc was already showing signs of stagnation in the run up to the pandemic. The services sector was the one remaining pillar showing signs of growth across most of Europe. In the wake of the lockdown that pillar has been kicked away, and the economic survival of the euro now lies in the hands of EU policymakers and governments across Europe.
Apple Q2 results
Thursday: In the first quarter, Apple posted record net income and revenue of $91.8bn and $22.2bn respectively, helped by a decent performance at the end of last year. Services showed another strong performance with $12.72bn of revenue in Q1, and with the launch of Apple TV+ shareholders will be hoping for a continued increase in performance here, especially since recent lockdowns have seen a surge in streaming services. Sales of iPhones have been in decline for some time, and the recent economic disruption caused by Covid-19 could cannibalise sales even further at the higher end of its product range. This may explain Apple’s decision to launch the new iPhone SE this month, one of its cheapest ever iPhone models. This deviation away from the higher end is not surprising given the intense competition in the market, but it could alienate some of its more affluent users, who have paid a lot more for some of the same features now available in this smaller budget model, including the latest A13 bionic chip. The continued lack of a 5G model is probably less of an issue now given the economic disruption, however it’s still an area where Apple has yet to create a product. Given the continued economic depression, it will be instructive to see whether Apple offers any guidance for the rest of the year.
Amazon Q1 results
Thursday: Another global business unlikely to be adversely affected by current events in the global economy is Amazon, as more people not only shop from home by ordering online, but also use Amazon Prime to view films and TV at home. Even its food retail offering has seen orders rise sharply, as people order their shopping from home to avoid going out. Management has come in for criticism over how its workers are treated in relation to its warehouses and the new distancing rules, which has meant it has changed some of its rules on how quickly it’s able to shift its products. Web services still remains the company’s primary revenue earner, however with many workers now working remotely, revenue could fall back sharply in the face of large-scale small business shutdowns.
UK manufacturing PMI (Apr)
Friday: The manufacturing sector has held up better than other parts of the UK economy in some of the recent data, however even here there’s been significant economic weakness as a result of shutdowns. This is unlikely to change even if you include some manufacturers retooling to help in the production of PPE for healthcare workers.
Index dividend schedule
Selected UK & US company announcements
|Monday 27 April||Results|
|Tuesday 28 April||Results|
|Ford Motor (US)||Q1|
|Harley Davidson (US)||Q1|
|Rockwell Automation (US)||Q2|
|United Parcel Services (US)||Q1|
|Wednesday 29 April||Results|
|Allied Minds (UK)||Full-year|
|N Brown (UK)||Full-year|
|Standard Chartered (UK)||Q1|
|Yum Brands (US)||Q1|
|Thursday 30 April||Results|
|J Sainsbury (UK)||Full-year|
|Lloyds Banking (UK)||Q1|
|Friday 1 May||Results|
|Newell Brands (US)||Q1|
|Royal Bank of Scotland (UK)||Q1|
Company announcements are subject to change. All the events listed above were correct at the time of writing.