Watch our week ahead video preview, read our pick of the top stories to look out for this week (18-22 May), and view our key company earnings schedule.
In this week's video, UK chief market analyst, Michael Hewson, reviews the week's price action on the Germany 30, UK 100 and SPX 500, and looks ahead to the latest FOMC minutes, UK unemployment and industry data, as well as the latest results from M&S, Royal Mail and Burberry. He also looks at some of the key levels on DAX, FTSE 100, S&P 500, GBP/USD, EUR/GBP, EUR/USD and CMC USD Index.
UK ILO unemployment (3M) & claimant count rate (April)
Tuesday: The most recent ILO report for the three months to February posted a modest uptick to 4%, from 3.8%, but recent events have made these figures rather moot. Even accounting for the fact that nearly 6m workers have been furloughed, we’ve still seen reports of over 1m applications for universal credit in the last few weeks, which means that this month’s jobless claims for April are expected to show a huge jump from the 12,200 rise in March. With the lockdown starting towards the end of March, the next few months for UK jobless claims are likely to be a tidal wave of misery. With so many people losing their jobs, or likely to in the coming months, the main hope now is that we see the country come out of lockdown fairly quickly, without too many side effects. The reality is that when the dust has settled, the unemployment rate is likely to be much higher than it was a couple of months ago.
Walmart Q1 FY21 results
Tuesday: One of the few US retailers able to take on Amazon, Walmart shares hit record highs in April before slipping back a touch, though the shares are still close to the levels it closed at towards the end of 2019. It has proved to be remarkably resilient to the disruption caused by the spread of coronavirus, with its Mexico unit seeing a 15.4% rise in first-quarter profit at the end of April. As one of the US’s biggest retailers, it’s likely to have been hit by the various shutdowns across its store real estate, and while its online operations are on a par with Amazon, its profit margins are much thinner. Furthermore, staff costs are likely to be higher due to sickness, as we’ve seen from similar retailers that have performed well due to their positions as grocery retailers, as well as general retailers. Profit is expected to come in at $1.158 a share.
Marks & Spencer full-year results
Wednesday: Ever since M&S dropped out of the FTSE 100 towards the end of last year, the shares have continued to fall, hitting record lows of 74p in the middle of March. We’ve seen a modest rebound since then, but the road back is likely to be a tough one, given its position as a cross between a general retailer and to a lesser extent, a food retailer. In April, management took steps to shore up the balance sheet by cancelling the dividend for next year, saving £210m. The food hall side of the business has managed to stay open, which is likely to help cushion the blow from its other closed stores. The decision to cancel £100m worth of spring and summer wear may also have been a prudent move given recent store closures, and will ensure it doesn’t have a surplus of unsold stock, while government help is expected to unlock another £180m. Profits are likely to come in well short of the £420m forecast only a few weeks ago. Investors will be hoping that management can bring forward its agreement with Ocado to sell its groceries before the scheduled September delivery date, as it looks to bolster its online operations, for what is likely to be a move away from big clothing stores. Its new ‘never the same again’ strategy could be a precursor to a much smaller and nimble store footprint, with a much bigger online presence at the expense of fewer stores.
Target Q1 FY21 results
Wednesday: Like a lot of retailers, Target is likely to find itself coping with higher costs due to staff sickness as a result of coronavirus. In April, it warned of precisely this outcome, despite saying that same-store sales had increased 7% due to larger-than-expected online sales, while footfall at its retail stores was lower. The investment in multiple shopping options has helped Target, and will stand it in good stead when the US economy finally reopens, as consumers get used to drive-by shopping, where Target employees put their ordered products straight into the boot – or trunk – of their cars. The company has withdrawn its guidance for this quarter and the remainder of the fiscal year. Profit is expected to come in at $0.715 a share.
US Federal Reserve minutes
Wednesday: The last Fed meeting saw chair Jerome Powell pledge to ready new credit facilities to help the economy through the slump, and stave off any deflationary shock. The Fed’s outlook was gloomy, with the central bank committing to keep rates low until the economy was back on track. This week’s minutes should give us a greater insight into the discussions around the launching of various support programmes, including the newly-launched ETF corporate bond buying programme. There has also been chatter about the prospect of negative rates, with certain areas of the Fed funds market going into negative territory. This has prompted some policymakers to push back on the prospect of the US central bank leaning in that direction, although markets are increasingly pushing the Fed the other way. While policymakers have indicated they aren’t looking to implement negative rates, their insistence has been a little lukewarm. Wednesday’s minutes could give us greater insight, and if they really want to rule out the prospect of negative rates, they will need to push back hard against market expectations. We’ve already seen the damage negative rates can do in Europe. It would be foolhardy in the extreme to pursue a similar experiment in the US.
UK flash manufacturing & services PMIs (May)
Thursday: As bad as April’s purchasing manager indices (PMIs) were, it’s to be hoped that they were the bottom of the trough, as the economy absorbed the widespread shutdowns that affected economic activity either side of the Easter break. As some companies begin to restart operations with various rules to ensure social distancing, services activity in particular could start to pick up from the record lows of 13.4 we saw last month. Manufacturing is expected to remain the more resilient of the two, with little difference expected from April’s reading of 32.6.
Nvidia Q1 FY21 results
Thursday: Chipmakers have been one of the few areas that have done well over the past few weeks, and have been a key growth area for investors. Nvidia has been no different, hitting record highs this month. While most people know the company for its high-performance graphic chips, Nvidia also has a decent data centre business. Its gaming arm could see a slowdown if consumer confidence takes a while to recover. This is because, while video-game demand might increase, gaming-console demand may slow, given they are expensive bits of kit. This could make Nvidia’s share price vulnerable to a pull back if Thursday’s update falls short in any areas.
Burberry Group full-year results
Friday: It’s been a challenging 12 months for Burberry, having to deal with the disruption of its Hong Kong business for most of 2019, as well as the fallout from weaker Chinese demand and the spread of coronavirus this year. In November, the company took a £14m impairment charge. Management kept full-year guidance unchanged, as well as announcing a 14% increase in operating profit to £203m for the six months to the end of September. Revenue also rose to £1.3bn, but all of this now looks set to be knocked off course. In March, Burberry said retail sales in its Asia stores were down 40%-50% over the previous six weeks, with Q4 sales expected to be lower by around 30%. To mitigate some of this, the company has cut management salaries by 20%, and continued to pay its employees despite store closures. Its Castleford factory has continued to operate, manufacturing non-surgical gowns for the NHS, however it seems quite likely that both revenue and profit could come in short.
Royal Mail full-year results
Friday: Royal Mail has been one of the few organisations that has continued working throughout the Covid-19 crisis, albeit on the back of some modified working practices to ensure employee safety. If its parcels division doesn’t come out ahead of expectations, given the higher volume of online business since the March lockdown, it will be a disappointment, despite lowered expectations. Last May, Royal Mail cut its dividend in order to free up £1.8bn over five years, as management look to lower costs. This could prove problematic due to relations with the unions, who are likely to push back on automation. The departure of Rico Back as CEO might be a turning point in this regard though. Management need to reconnect with the workforce, and a new management team might be able to push through some of the necessary changes that need to be made for the business to stay viable. In November, the company had a target of £300m-£340m. This could be optimistic, particularly if its letters division underperforms due to the lockdown as widely expected, although its parcels area has the potential to offset this.
UK retail sales (April)
Friday: It’s been a difficult few months for the UK economy, including the floods in February, and March’s retail sales number (including fuel) was a shocker, sliding to a record low of 5.1% despite the lockdown starting quite late into the month. Friday’s April number is expected to be even worse, especially with everyone at home and not using their cars. Online sales may take up some of the slack, along with groceries, but the data is still expected to be very poor, with consumption likely to fall off a cliff.
Germany & France flash manufacturing & services PMIs (May)
Friday: As horrific as the April services PMIs were for both France and Germany, there is little expectation of a repeat of the record lows of 10.2 and 16.2. Any improvement is likely to be minimal however, given that there has only been a slight easing of some lockdown measures. While Germany has been the best of a pretty awful bunch, any improvement is still only likely to move modestly higher from April’s levels. Manufacturing has been a lot more resilient, though still with negative readings in the mid-30s.
Index dividend schedule
Selected UK & US company announcements
|Monday 18 May||Results|
|Quorum Health (US)||Q1|
|Tuesday 19 May||Results|
|Avon Rubber (UK)||Half-year|
|First Derivatives (UK)||Full-year|
|Home Depot (US)||Q1|
|Imperial Brands (UK)||Half-year|
|Intermediate Capital (UK)||Full-year|
|Speedy Hire (UK)||Full-year|
|Topps Tiles (UK)||Half-year|
|Urban Outfitters (US)||Q1|
|Watkin Jones (UK)||Half-year|
|Wednesday 20 May||Results|
|Analog Devices (US)||Q2|
|Bloomsbury Publishing (UK)||Full-year|
|Great Portland Estates (UK)||Full-year|
|Marks & Spencer (UK)||Full-year|
|Paragon Banking (UK)||Half-year|
|Severn Trent (UK)||Full-year|
|Thursday 21 May||Results|
|Agilent Technologies (US)||Q2|
|AJ Bell (UK)||Half-year|
|Hewlett Packard Enterprises (US)||Q2|
|Investec Bank (UK)||Full-year|
|NewRivew REIT (UK)||Full-year|
|Palo Alto Networks (US)||Q3|
|Pets at Home (UK)||Full-year|
|Tate & Lyle (UK)||Full-year|
|TJX Cos (US)||Q1|
|Friday 22 May||Results|
|Foot Locker (US)||Q1|
|Royal Mail (UK)||Full-year|
|United Utilities (UK)||Full-year|
|Young & Co Brewery (UK)||Full-year|
Company announcements are subject to change. All the events listed above were correct at the time of writing.