Market Outlook

The week ahead: UK GDP; AMC, Rolls-Royce, Bumble, ITV results

Read our pick of the top stories to look out for this week (7-12 March), and view our key company earnings schedule.

Michael looks back at the price action of the past few days, including the declines in US markets, the rise in yields, and the impact of rising crude oil prices. He also previews next week’s ECB rate meeting, and the challenges facing the central bank in trying to contain any fallout from the recent rise in borrowing costs. He also looks at the key technical levels for the Nasdaq, FTSE 100, DAX, crude oil prices and major currencies.

China trade balance (February)

Sunday: The Chinese economy finished 2020 on a strong note, its surplus hitting a record high in December. Exports rose by 18.1%, slightly down from November’s 21.1% but still better than expected, and the seventh successive month of growth. The strength was primarily as a result of the continued lockdowns in the rest of the world, which led to the export of PPE and other medical-related products doing well. As vaccines continue to be rolled out across the world, this trend may slow in the coming months.

The trade numbers for February cover Chinese New Year, which could boost the imports numbers, given they include the January period as well. With imports rising 6.5% in December, it would be very surprising if numbers weren’t strong this week, with expectations of a 15.8% rise. This bounce will also be skewed due to the comparison with February last year, when the Chinese economy was locked down due to coronavirus restrictions. Exports are also set to increase with a 41% rise year-on-year.

ITV full-year results

Tuesday: When ITV reported its first half numbers in August, both sides of its business were impacted as a result of the various shutdowns of the UK economy. Total advertising revenue for the period declining 21% to £671m, while broadcast revenue dropped 17% to £824m. ITV Studios revenues, normally an outperformer, dropped 17% to £630m as production capabilities were paused due to various lockdown measures. In Q3 this deteriorated further on a percentage basis, with a 19% decline to £902m.

Overall, there wasn’t that much to cheer. Advertising trends improved in July and August, notably with respect to travel companies advertising getaways, and car and indoor furnishing companies boosting ad spend. In order to preserve cash, the company pulled its interim dividend while saying it would continue to focus on reducing costs by £60m on a temporary basis, with a view to making around half of those savings permanent.

In Q3, the picture improved a little as production resumed, albeit with higher costs due to Covid-19 mitigation measures. Total advertising revenue improved slightly, down only 16% in Q3. In terms of the outlook the picture for Q4 was more optimistic with an expectation that advertising revenue would rise by 4%. While the return of sport to our screens will have helped boost ITV advertising revenues in the second half of the year, and Britbox revenues are likely to grow, it may be an uphill struggle for this terrestrial broadcaster unless advertising revenue shows evidence of a sustained pickup.

AMC Entertainment Q4 results

Wednesday: The problems being suffered by the cinema sector were already well documented even before the arrival of the pandemic. The challenges posed by new streaming markets were already making it hard to compete, and the closure of cinemas as a result of the economic lockdowns merely compounded those problems. While attention has been focused on the survival of Cineworld here in the UK, AMC Entertainment’s problems are no less serious, with the company seeing its revenue plunge 90.9% to $119.5m in Q3. While that’s an improvement on the $18.9m in Q2, it needs to be put in the context of the $1.3bn in the same period a year ago. The owner of the Odeon chain and IMAX cinemas posted a net loss of $561m in Q2, and $905.8m in Q3. This compares to a loss of $54.8m a year ago.

The continued postponement of the latest James Bond film 'No Time to Die', as well as the decision by Warner Brothers to release its 2021 film slate straight to streaming once again, throws into sharp focus the challenges facing the entire industry, even when a full reopen is possible. AMC’s deal with Universal to shorten the theatrical window to 17 days, with Universal giving the theatre a cut when selling directly to consumers, is helping boost its revenue numbers, but it’s not a silver bullet.

Despite this, the AMC share price has had a huge uplift in recent weeks, back to levels last seen in 2018, before the pandemic. However that’s not because of an improvement in prospects, its more to do with being caught up in the Reddit/GameStop saga which saw small investors try to squeeze short sellers out of the market, with the #SaveAMC hashtag trending on several online platforms. This share price surge did have one unexpected bonus, as it offered AMC the opportunity to raise another $304.8m by selling stock in January. This brought the total raised since December to $917m, which helps buy the business more time, as we look to an economic reopening towards the end of Q2. Expectations are for a loss of $4.09 a share.

Bank of Canada 

Wednesday: The Bank of Canada is having to contend with similar problems as the rest of North America, with a slowdown in hiring trends heading into the winter, and the prospect of tighter restrictions as the weather gets colder. At the end of last year hiring trends slowed sharply, with December showing the Canadian economy lost 62,600 jobs. This has been a sharp slowdown from the 378,200 added in September. In January the picture worsened with the loss of a further 212,800 jobs, though all of these were in the form of part-time positions. Full-time roles actually rose by 12,660.

This weakness in the Canada labour market gives the Bank of Canada a bit of a problem with rates already at record lows, and a Canadian dollar that recently hit three-year highs against the US dollar. On the plus side, if the US economy continues to improve at its current rate, the Canadian economy should get a decent uplift as a result. The rebound in oil prices is also acting as a tailwind for the currency. Central bank officials will be hoping that the loonie has hit its peak, so that financial conditions don’t tighten further. No changes are expected in monetary policy.

Bumble Q4 results

Wednesday: Bumble is another IPO that sprang out of the blocks when it was launched earlier this year. The online dating app made CEO Whitney Wolfe Herd a billionaire overnight, raising $2.2bn to initially value the business at $7bn. With 42m active users and a unique selling point of letting women make the first move, the app appears to have matched with investors, and the Bumble share price rose sharply in the first few sessions, pushing the value up to over $70, and value over $12bn.

The company has competition: Match Group owns platforms Tinder and Match.com, while Facebook is also looking capitalise on the growth in online dating apps. This week’s numbers will be Bumble’s first as a public company, and given that in the first nine months of the year it returned a $117m loss on revenues of $417m, it's unlikely we’ll see much of an improvement in Q4 when additional IPO costs are added in. Full-year revenues are expected to come in at $543m, a rise of 24% year-on-year.

US consumer price index (February)

Wednesday: The recent sharp rise in bond yields in the US suggests that some investors are concerned about upward pressure on prices in the weeks and months ahead. Certainly, the sharp rise in commodity prices is likely to have significant pass-through effects, putting upward pressure on prices in the shops, unless companies choose to absorb them. 

The recent cold snap in the US also drove energy prices up in February which hasn’t helped, however the main concern is as to whether these price rises are permanent or transitory. The fiscal stimulus payments should go some way to absorbing some of this, however even that is likely to be inflationary. In January, US CPI slipped back to 1.4% from 1.6% in December. This could reverse in the coming months, heading back towards the levels of a year ago when US CPI was at 2.4%. For now, the pandemic has had a deflationary effect, however the various measure of fiscal support look set to reverse that in the coming months, and the recent sell-off in US treasuries would appear to support that.

Churchill Capital IV Corp Q4 results 

Thursday: Spacs (Special purpose acquisition companies) have been in the news recently, and Churchill IV has seen a lot of share price volatility in its pursuit of Lucid Motors, a high-end electric vehicle maker backed by the Saudi sovereign wealth fund. 

While it trades like an equity, Churchill Capital is a shell company or financing vehicle, and rather than operating a business, it’s like a buffet where investors put money in and the Spac invests in fledgling businesses. With no financial track record to speak of, these types of companies are very difficult to value, which means investing in one is akin to taking a leap in the dark. 

Last week Churchill IV agreed a deal with Lucid to raise funds to expand its factory in Arizona, and help to bring its vehicles to market. The deal, which is set to generate $4.4bn in cash, values the Lucid business at $24bn. Churchill Capital IV shares plunged from recent highs near $60, however they are still up over 400% on the year.

ECB rate meeting

Thursday: Over the last 12 months the ECB has really been the only game in town when it comes to supporting the European economy, despite the lack of urgency from EU policymakers in taking fiscal actions of their own. They’ve not been helped by a weaker US dollar either, which has pushed the euro up above the 1.2000 level. This in turn has added to the deflationary pressure on an economy that has tipped back into recession, and is unlikely to recover much in terms of its services sector before the second half of 2021, due to tighter lockdown restrictions that have been in place for most of Q4 last year, and look to get extended into Q2 of this year.

One saving grace has been the manufacturing sector, which appears to be performing well. To offset the weakness in the struggling services sector, the central bank expanded its Pandemic Emergency Asset Purchase programme in December for the second time in 2020, from €1.35trn to €1.85trn, as well as extending it another nine months until March 2022. While this helps buy time, along with new loan programmes in the form of TLTROs, the ECB can’t act alone given it is already operating at the limits of its mandate. It needs help on a much bigger fiscal scale, which at the moment is only just coming in a fairly limited form in the form of the EU recovery fund, with only €390bn in the form of grants, a sum far too low to really make much of a difference.

While the ECB has gone to great lengths to insist that their monetary arsenal still has plenty of ammunition 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, nor is a sharp rise in borrowing costs, which could cause problems for the like of southern European countries with large debt burdens. The huge fiscal stimulus plan in the US is starting to prompt concerns of a sharp rise in real yields which central bankers appear to have been slow in pushing back against. With the Federal Reserve solely focussed on its role as the US central banker, it appears to have forgotten it is also the world’s central banker. The ripple out effect of the recent sharp rise in yields gives the ECB a real problem in trying to keep a lid on borrowing costs, and while there are localised measures to address the pandemic, the slow response in rolling out the vaccine in Europe is making life much more perilous for the fragile economies of Spain, Italy and Greece who are in the most economic need. With the damage from the pandemic likely to extend well into 2021, Europe really needs to get its act together, otherwise further economic schisms could open up further over the next 12 months.

Morrisons full-year results

Thursday: The first week of January generally tends to be a decent bellwether for economic activity over the Christmas and New Year period, and Morrisons was quick out of the blocks at the beginning of the year with a rise of 9.3% in like-for-like sales over the festive period, which augurs well for a decent full-year performance.

The digital business has been the main beneficiary over the past 12 months, with a Q4 rise of 24%, over the same period a year ago. This was helped largely by the Morrisons tie-up with Amazon, as well as the new relationship with Deliveroo. Costs have risen as a result of the pandemic, with Morrisons saying that these are likely to be higher by £50m by the end of the financial year, taking the total cost to £280m for 2020/21, due to the tighter restrictions since December.

Management still expects pre-tax profit to come in between £420m and £440m, before the £230m deduction from the repayment of business rates for the year 2020/21. On a more positive note, Morrisons is also expected to benefit from the decision earlier this month to extend its supply agreement with McColls for a further three years.

Rolls-Royce full-year results

Thursday: At one point there was some concern as to whether Rolls-Royce would be able to survive in the wake of the collapse in air travel as a result of the pandemic. With the company reliant for 50% of its revenue on aviation air miles, the company was facing a cash crunch. In October, the Rolls-Royce share price fell to its lowest levels since 2004, after the company announced its 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, and along with the progress on the vaccine rollout we’ve seen a decent rebound in the share price.

Rolls-Royce still isn’t out of the woods yet, announcing that it is likely going to have shut its factories in the summer for two weeks to help stem the losses. At its last trading update the company estimated a free cashflow outflow of £2bn. This is based on 2021 wide body engine flying hours of 55% of the levels of 2019, with an expectation of turning cash flow positive at the end of the second half of the next fiscal year. This seems a touch optimistic, given that air travel is unlikely to be able to return to any semblance of normal this year. And that’s even before allowing for the various cuts to headcount and any planned asset disposals. In 2019 annual revenues came in at £15.45bn, with half of that coming from maintenance and other after-market services. Rolls-Royce will do well to get anywhere near to half that number for 2020.

UK GDP (January)

Friday: Having gained 1.2% in December, the monthly GDP number for January is likely to be a sobering affair, given the tighter measures that were imposed at the beginning of the month. Services in particular are expected to take a hammering, and while the UK economy appears to have avoided the dreaded double-dip recession, the only unknown about the contraction we’re about to see in the first quarter of 2021 is how big it will be. The Bank of England estimates a contraction of 4% for Q1, which seems quite modest given that non-essential retail isn’t expected to return until 12 April. Index of services saw a 1.7% rise in December. This is expected to reverse in the latest numbers for January. 

UK manufacturing production (January) 

Friday: If recent PMI data is any guide, the UK manufacturing sector has been a rare ray of light among all the pandemic gloom. The sector, by and large, has managed to stay open despite  lockdown restrictions, the pity being it makes up such a small part of the UK economy. Since the end of the first lockdown, the sector has grown consistently every month since the declines a year ago that saw a 4.6% decline in March 2020, and a 24.4% decline in April. This trend of unbroken positive readings is expected to continue in January, despite the tighter restrictions with a rise of 0.8% while industrial production output is expected to increase by the same figure.

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 8 March Results
CarParts.com (US) Q4
Direct Line (UK) Full-year
Pearson (UK) Full-year
Shift Technologies (US) Q4
Stitch Fix (US) Q2
Tuesday 9 March Results
Barnes and Noble Education (US) Q3
Curaleaf (US) Q4
Dick's Sporting Goods (US) Q4
DFS Furniture (UK) Half-year
Dominos Pizza (UK) Full-year
Foresight Solar Fund (UK) Q4
ITV (UK) Full-year
John Menzies (UK) Full-year
Weyco (US) Q4
Wednesday 10 March Results
Build-A-Bear Workshop (US) Q4
Bumble (US) Q4
Campbell Soup (US) Q2
Fossil (US) Q4
Foxtons (UK) Full-year
National Express (UK) Full-year
Photo-Me (UK) Half-year
Skillz (US) Q4
Talos Energy (US) Q4
Tupperware (US) Q4
United Natural Foods (US) Q2
Thursday 11 March Results
22nd Century (US) Q4
DocuSign (US) Q4
Go-Ahead (UK) Half-year
The Gym Group (UK) Full-year
Phillips Edison (US) Q4
Ring Energy (US) Q4
Rolls-Royce (UK) Full-year
Savills (UK) Full-year
Tilly's (US) Q4
WM Morrison (UK) Full-year
WPP (UK) Full-year
Zuora (US) Q4
Friday 12 March Results
Eurocell (UK) Full-year
Hammerson (UK) Full-year
Kirkland (US) Q4
Saga Communications (US) Q4

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