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The week ahead: global PMIs; BP and Disney results

Watch our week ahead video preview and read our pick of the top stories to look out for this week (3-7 August).

Michael looks at last week’s moves in US and European markets, and ahead to the US non-farm payrolls, Bank of England and Resrve Bank of Australia rate meetings. He also looks at the key levels on GBP/USD, EUR/USD, DAX and FTSE 100, and previews key earnings expectations for HSBC, BP, Cineworld and Disney.

Global manufacturing PMIs (July)

Monday: The manufacturing sector didn’t quite experience the lows in activity seen by the services sector at the start of the Covid-19 lockdowns, but there’s still been a significant impact in terms of jobs losses and cutbacks in investment in recent months. The rebound is expected to be steady given that while services sector activity has been quite robust, there are likely to be order backlogs which need to be fulfilled. Backlogs of existing products, such as unsold cars and other manufactured products, will need to be worked off before manufacturing can restart in earnest. There should be improvements from June’s levels, if the recent flash PMIs from the US, UK, Germany and France are any guide.

HSBC half-year results

Monday: The recent controversy around the Hong Kong national security law and Huawei has put HSBC at the centre of a number of political storms. The bank has been criticised by the US and others for appearing to endorse the crackdown in Hong Kong, while it has also been accused by Chinese media of assisting in the investigation into Huawei’s business practices. Some investors were already unhappy that the bank pulled its dividend in response to Bank of England pressure earlier this year, especially as 80% of its profits come from Asia. This response prompted some talk of moving its HQ from London to Hong Kong, however recent events presented a quandary. There appears to be a growing realisation that the bank may have to decide which way to jump if US-China tensions continue to escalate. This may call in question its US business, where there have already been reports of a disposal being lined up, as well as its HSBC UK retail business and First Direct brand. The bank is already in the middle of a big cost-cutting cycle, which was announced at the end of last fiscal year, setting aside £2.4bn in respect of non-performing loans at the end of Q1. This could rise by another £7bn over the rest of the year. 

BP half-year results

Tuesday: It was a tough June for BP, as it took a $15bn write-down on top of the announcement of 10,000 job losses across the organisation. These measures aim to bolster BP’s balance sheet against the sharp slide in oil prices, and avoid cutting the dividend. This write-down also came on top of the $4.4bn net loss it announced in April, a large part of which was down to a repricing of its inventory. Unlike its UK peer Royal Dutch Shell, BP has striven to keep its payout intact despite a much higher gearing and debt level. This seems odd, and also a little foolhardy, given the challenges facing the industry. At the end of June, the company also announced the sale of its petrochemicals business to Ineos for $5bn, in a further attempt to free up cash, as well as meet its target of $15bn of disposals by year-end. New CEO Bernard Looney is set to give more detail on how the company intends to make itself fit for a new lower-carbon economy, as part of a new long-term strategic carbon neutral plan, when the company updates the market this week. The sale of the petrochemicals business is likely to have been part of that plan, as it makes plastics and polymers for plastic packaging and bottles. He needs to be convincing, and it will be surprising if he doesn’t cut the payout, given that recent share price declines have seen it move well above 10%.

Disney Q3 results

Tuesday: The launch of streaming service Disney+ has been a success for the entertainment giant, with over 54m subscribers in the first few months following the international rollout. This is likely to have prompted a rise in revenue, assuming all those who signed-up paid to stay beyond the free seven-day trial. Disney’s biggest problem is around the closure of its theme parks, movie production and the length of time it may have to wait until it can reopen and restart. Even then footfall is likely to be much lower, as consumers avoid large-scale events in crowded places. Disney+ is unlikely to fill the gap given the small margins and the fact that it’s also one of the cheapest streaming services, with somewhat limited content. Any subscription boost from the lockdown is likely to be fairly short-lived, as Netflix indicated in a recent earnings announcement. Expectations are for revenue to come in at $17.5bn with profit of $0.91 a share. The revenue number in particular seems optimistic as this time last year, when all of their businesses were up and running, it only came in at $14.9bn.

Reserve Bank of Australia (RBA) rate meeting

Tuesday: With Australian interest rates already at record lows of 0.25%, there has been speculation that of more quantitative easing from the RBA in the event the economic picture deteriorates further. This now looks much more likely given the rising infection rate across the state of Victoria. The impact of this is likely to exert further upward pressure on an unemployment rate already at its highest level since 1999, at 7.4%, and is expected to move up to 9.25% by year-end. Despite this, there has been little indication so far that the RBA appears inclined to do more than it already has done in terms of supporting the economy, while the recent re-lockdown of Melbourne appears to have had little impact on slowing the recent spread of the virus. This may change in the coming days given the recent rise in the Australian dollar, which is now over 20% off the lows it set in March, as it gets dragged higher by the collapse in the US dollar. 

Global Services PMIs (July)

Wednesday: The recovery in services sector activity in July is expected to gain further traction with the release of the latest PMI numbers from Europe, Asia and the US. The flash PMIs from Germany, France and the UK two weeks ago would appear to bear this out, despite concerns about a second wave of infections. The biggest fear remains around the tourism sector for Spain and Italy, who rely so much on tourism in their services sector, and who are accelerating the reopening of their economies to try and generate some form of revenue this year. The recent quarantines imposed on Spain by the UK, France and Norway highlight these risks quite starkly, and could impact on the August numbers, rather than those released in July. The flash PMIs in showed a continuation of the improvements from June, and are expected to come in at 56.7, 52 and 56.6 respectively for Germany, France and the UK, though there could be upward adjustments. Spain and Italy are also expected to improve from 50.2 and 46.4 respectively in June.

Metro Bank half-year results

Wednesday: Having posted a £130m loss at the end of its last financial year, the new management of Metro Bank were probably hoping that this year would bring about a change of fortune. The departure of chief risk officer, Graham McGirr, a week before he was due to take up the role, only added to the concerns about the governance of the company as it seeks to restore trust under new CEO Dan Frumkin. In Metro Bank’s Q1 update, there was little change from its Q4 numbers, with a 1% decline in loans and a 1% rise in deposits. In June the bank announced it was in exclusive talks to buy unsecured lending company RateSetter, which specialises in car financing as well as peer-to-peer lending. This seems a risky move; such uncertain times come with a much higher degree of risk that these sorts of loans could go badly. The bank isn’t expected to return to profit much before 2022, and with loan demand set to remain weak, there is a risk the bank may have to set aside some provisions for non-performing loans as well.

Bank of England rate meeting

Thursday: There’s been a lot of chit-chat from various Bank of England policymakers about the likelihood of further rate cuts, either this week, or more likely at the September meeting. This talk of a potential rate move into negative territory may be the MPC’s way of keeping its options open when it comes to monetary policy, however it’s also extremely damaging to the UK financial sector, which makes up such an important part of the UK economy. 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 the desire to be seen to be doing something. For now there is scant evidence that the UK economy needs any extra support, and even if it were offered, consumers are unlikely to want to take on extra liabilities at a time of such great uncertainty, having repaid £16bn in consumer credit in the last four months, more than the entire sum borrowed in 2019. 

ITV half-year results

Thursday: When ITV reported its Q1 numbers in May we saw a 42% decline in advertising revenue, as large advertisers pulled back in the wake of the economic lockdown at the end of March, and through April. Q2 is unlikely to be any different, with the cancellation of several major sporting events, including Euro 2020, likely to be reflected in this quarter’s numbers. Despite having more viewers, ITV has had to run lots of repeats due to a limited number of new shows. ITV Studios, which traditionally picks up the slack, is also likely to disappoint given the shutdown of productive capacity due to social distancing constraints. ITV CEO Carolyn McCall said she would be looking at cutting another £60m of costs by year-end. The company appears to be getting some decent subscription numbers from the rollout of BritBox, and the addition of Channel 4 content to the streaming service in Q2 is likely to help. However this a small comfort as it tries to compete with the likes of Netflix, Amazon Prime and Disney+. The second half of this year is not expected to be much better, though there has been a pickup in advertising for holiday destinations in recent weeks.

Cineworld half-year results*

*Please note Cineworld's results updated has moved from Friday 7 August to Friday 21 August.

The recent decision by Cineworld management to back out of the $2.1bn Cineplex deal has prompted some controversy, and put the cinema chain at threat of legal action. The logic of the deal was already questionable even before the outbreak of the Covid-19 pandemic; Cineworld already had high debt levels due to the Regal acquisition in 2018 and the impact of weakening footfall. With their UK cinemas already being delayed in their reopening plans, the last thing Cineworld needed was major studios delaying a host of their summer films over concerns that no-one would go and see them. The US market in particular is in disarray, after US states reopened their economies too early, only to lock them down again. Disney has delayed the release of the latest Star Wars and Avatar films, while the new James Bond film has been postponed until November. It’s currently costing Cineworld almost $50m a month despite staff being furloughed, and the fear is that any further delays in terms of reopening, or film studios further delaying their latest releases, could see the business start to run out of cash.  

US employment report

Friday: After the loss of a record 20.7m jobs in April, the US labour market has enjoyed a fairly modest rebound, with 7.5m jobs coming back in May and June. This rebound was mainly down to furloughed workers returning to the workforce, helping pull the unemployment rate down from 14.7% to 11.1%. This month’s July non-farm payrolls report is expected to see another 2.6m people return to the labour force, in the process bringing the unemployment rate down to 10%. While this is welcome news, these job gains won’t reflect the events of the last two weeks. A host of US states have re-imposed lockdown measures, and the latest weekly jobless claims numbers start to edge back up again. Having bottomed out at 1.3m two weeks ago, these are now rising again with continuing claims back above 17m again. The big question is not whether the rebound in jobs can continue in July, but whether the secondary spikes in cases we’ve seen in the past two to three weeks prompts the recent rebound in the payrolls data to grind to a halt when the August numbers are released in September.

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 3 AugustResults
HSBC (UK)Half-year
Hyatt Hotels (US)Q2
Liberty Global (UK)Q2
Purplebricks Global (UK)Full-year
Tenet Healthcare (US)Q2
Tuesday 4 AugustResults
BP (UK)Half-year
Coca-Cola (US)Q2
Diageo (UK)Half-year
Direct Line (UK)Half-year
easyJet (UK)Q3
Match Group (US)Q2
Ralph Lauren  (US)Q1
Twilio (US)Q2
Walt Disney (US)Q3
Western Union (US)Q2
Wednesday 5 AugustResults
Etsy (US)Q2
GoDaddy (US)Q2
HSBC Holdings (UK)Half-year
Legal & General (UK)Half-year
Marathon Oil (US)Q2
Metro Bank (UK)Half-year
New York Times (US)Q2
Pinewood (UK)Half-year
Segro (UK)Q2
Starwood Property Trust (US)Q2
Western Digital (US)Q4
William Hill (UK)Half-year
Thursday 6 AugustResults
Aggreko (UK)Half-year
Aviva (UK)Half-year
Cabot (US)Q2
Caesars Entertainment (US)Q2
Choice Hotels International (US)Q3
Dropbox (US)Q1
Groupon (US)Q2
GW Pharmaceuticals (UK)Half-year
Hammerson (UK)Half-year
ITV (UK)Half-year
Mondi (UK)Half-year
Playa Hotels & Resorts (US)Q2
Serco Group (US)Q2
T-Mobile US (US)Q2
TripAdvisor (US)Q2
Yelp (US)Q2
Friday 7 AugustResults
Cineworld Group (UK)Full-year
Hargreaves Lansdown (UK)Half-year
Rightmove (UK)Half-year
Standard Life Aberdeen (UK)Half-year

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


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