The week ahead: US rate decision; Tesla, BP, Lloyds, Barclays results

Read our pick of the top stories to look out for this week (26-30 April), and view our key company earnings schedule.

In this week's video, Michael reviews the latest price action and recent weakness in stock markets, and looks ahead to the Federal Reserve rate meeting, US Q1 GDP, plus UK banks' results from Lloyds Banking Group, Barclays and NatWest Group. He also previews the latest numbers from Apple and Tesla, as well as looking at all the key forex levels.

Tesla Q1 results

Monday: Last year Tesla only just missed out on meeting its target of selling 500,000 cars in a single year, helped by the extra capacity from its new Chinese factory. The company has done well in managing to post consistent profits on a quarterly basis over the past 12 months, though this has only been achieved by sleight of hand in the form of the sale of regulatory credits and energy storage sales.

Tesla made a profit of $331m in Q3, and $271m in Q4, though on car sales alone the company is still losing money. With a market cap in excess of the entire automotive sector, the Tesla share price has an almost cult-like status among devotees. However, questions are now being asked as to whether this sort of valuation can be sustained at a time when the likes of General Motors, Ford and Daimler are starting to ramp up their electric vehicle offerings, and have the ability to scale much quicker. Tesla’s share price has held up fairly well so far this quarter, but that appears to have more to do with CEO Elon Musk talking up bitcoin and extolling the virtues of cryptocurrencies as a means of payment, than for its ability to sell cars.

Gross margins fell to 19.2% in Q4, the lowest in 12 months, though on the plus side we did see positive free cash flow of $2.79bn. The company said it has delivered 185,000 vehicles in Q1, mostly Model 3 and Model Y. The Model S and X totalled around 2,000 deliveries in Q1, with the hope that production and deliveries can be ramped up further. Looking ahead, Tesla said it hoped to start producing its new crossover SUV Model Y at new plants in Austin and Brandenburg in Germany this year.

BP Q1 results

Tuesday: Having overseen a $5.7bn annual loss at the end of last year, BP CEO Bernard Looney set an ambitious target of cutting output by 1m barrels a day over the next decade, as well as growing renewable energy output by a factor of 20. He’s also looking at developing low-carbon technologies for carbon capture and storage to lower the company’s carbon footprint. BP’s deal with offshore wind company Equinor is expected to complete this year, and its Chargemaster business is expected to deploy over 1,000 charging points for Police Scotland. Its Lightsource business has also continued to expand, acquiring the responsibility for a 1.06gw portfolio across Spain, from RIC Energy.

As part of this reorientating process, the company has been divesting a few core assets to get its net debt down to more manageable levels. We’ve seen further progress on this front with the sale of a 20% stake in its Oman gas block programme for $2.6bn in February, bringing net debt down to £38.9bn, with the intention to get it down to £35bn by year end. In April, it was announced that this number could be reached by the end of Q1, with the addition of $1bn from INEOS, as well as $400m from the sale of an interest in Palantir, and $700m from the sale of a 49% interest in a controlled affiliate holding in the US.

BP also said that a strong trading performance in this quarter has been instrumental in helping to achieve this target. This sets the bar high for a decent set of numbers given that it was also suggested that BP would look at restarting share buybacks, subject to maintaining its investment grade rating. The resilience of the oil price this quarter will no doubt have helped, however with gasoline and distillate demand in Q1 set to be weak due to lockdown restrictions, investors will be hoping for indications of what other measures the company is looking to take to steer itself towards a greener future. BP’s share price has risen over 15% since those full-year results in early February.

Microsoft Q3 results

Tuesday: When Microsoft reported in Q2, the company posted a 17% rise in annualised revenues, driven by its intelligent cloud business, which rose 23% in revenue year-on-year. This outperformance saw quarterly sales rise above $40bn for the first time ever, to $43.1bn, while profit came in at $15.5bn, a rise of 33%. Microsoft’s web services product, Azure, which competes with Amazon’s AWS, had a particularly impressive performance with a 50% increase in sales. Personal computing also performed well, helped by the move to home working, as well as a new Xbox Series X and Series S, which recorded sales of $15.1bn. Microsoft said it expected demand for these new boxes to remain high, chip shortages notwithstanding, however they are chunky beasts relative to the old Xbox X and Xbox S’s, which may limit their appeal. Microsoft’s focus on its Microsoft 365 and Teams rollout has also seen a big jump in subscribers to 47.5m, a 28% jump. This week’s Q3 numbers will be a big test and it will be interesting to see if Microsoft can post another quarter of revenue in excess of $40bn. Profit is expected to come in at $1.77 a share.  

Lloyds Banking Group Q1 results

Wednesday: After outgoing CEO Antonio Horta-Osorio signed off with a decent set of numbers at the end of the last quarter, Lloyds’ share price has continued its slow move back towards pre-pandemic peaks, though it still has some way to go. Nonetheless, its Q4 numbers were encouraging despite concerns about how the current lockdown might affect its non-performing loan provisions, especially after the bank revised its loan loss provision lower in Q3.

These concerns proved to be wide of the mark, with Q4 provisions increased by £128m, taking the total set aside for 2020 to £4.2bn. While statutory profits were impacted by the effects of the pandemic and declined 54%, they still came in at £1.54bn. Net interest margins, while also lower, also showed signs of picking up and expectations were for them to remain steady above 240 basis points over the next 12 months. With the dividend also being reinstated and the outlook for this year becoming more positive, we could start to see some of the provisions that were set aside last year being added back, if the economy proves to be more resilient than initially projected. US banks have already started down this road, and while UK banks might be more hesitant, we should still see better results given the recent rise in longer-term yields, which have improved lending margins. Loan demand is also likely to be a key bellwether of business confidence.   

US Federal Reserve rate decision

Wednesday: When the Federal Reserve last met in March, its biggest concern was trying to balance the optimism of a strong economic rebound against rising expectations that the US central bank might start to look at tapering its bond purchase programme, or start to raise rates well before 2024, in the face of rising inflationary pressures. With another set of stimulus payments about to hit the doormats of US consumers following the March meeting, these were very natural concerns, and the big rise in March retail sales bore that out. The large jump in March’s non-farm payrolls has also shown that the US jobs market is in a much better place than was the case previously, so the economic picture has changed markedly since the FOMC last met.

Despite this, the messaging from Fed officials has been fairly consistent, and while yields have gone as high as 1.77%, they have since slipped back on a belief that the data from here on in is unlikely to be as good. This seems a little naive, and while the Fed will be pleased at how the economy is performing, and with another bumper non-farm payrolls report expected next week, they will be keen to temper any enthusiasm or foster any expectation of a change in stance. Even if Fed officials do alter their dot plots to signal a slightly earlier taper, it’s more than likely that the message will remain the same. This adherence to what the Fed calls “outcome-based guidance” is now part and parcel of the central bank’s new policy of not reacting to perceptions of a direction of travel, but waiting until both goals of higher inflation and full employment has been achieved.  

Apple Q2 results

Wednesday: Q1 generally tends to be a bumper quarter for Apple, however with the challenges facing the global economy over the past 12 months, there was some scepticism on my part they would be able to beat the record revenue of $91.8bn in 2020, with the iPhone responsible for 60.9% of that figure. With consumer spending in the US and Europe much weaker in the lead up to Christmas, it would have been an extraordinary achievement to get even close to $100bn let alone generate more. But Apple didn’t just hit $100bn, they obliterated it, with revenue of $111.4bn, an absolutely spectacular outcome, with the new 5G iPhone 12 accounting for $65.6bn, while profit rose to $28.7bn, and operating margins rose to 30.1%, driven by strong demand in China.

Despite these record numbers, Apple’s share price fell back and the shares are still below those record highs. It wasn’t just about iPhone sales in Q1, with a strong performance across its other businesses, as services contributed an ever-higher number on a quarterly basis, rising 24% to $15.76bn. Apple Watch and Mac sales and margins also increased. Services margins also increased to 68%, with investors speculating as to whether this sort of outperformance can be sustained. Apple seems to think so, with revenue projected to increase 21% this year alone, and with both China and the US seeing strong retail sales in the first part of this year, expectations around a strong Q2, which tends to be one of Apple’s weaker quarters, are quite high. This time last year Apple reported $58.3bn for Q2, while this year expectations are at around $77bn, with the new 5G iPhone expected to drive sales, along with the reopening of a lot of its stores which have been closed. Services are also expected to do well, with its new Apple One subscription likely to be a key focus, as it looks to take on Amazon Prime and other streaming providers. Profits are expected to come in at $0.98 a share.

Guidance for Q3 will also be interesting in light of the new products and upgrades announced earlier this month, with the launch of a new iPad Pro, an iPad Mini, a new iMac as well as AirTags, which are Bluetooth tracking devices which can be attached to other objects and then be located using the Find my App from another Apple device.

Facebook Q1 results

Wednesday: The Facebook share price has developed a Teflon-like quality for shrugging off negative headlines, with the shares hitting a record high earlier this month. Its Q4 revenue hit $28bn, despite concerns that it was becoming too political in how it dealt with some of the content on its platform. Being an arbiter of who can and can’t be on its platform, as well as what is considered acceptable, Facebook’s actions have generated a lot of heat in recent months.  These concerns prompted a number of advertisers to cut back spend on social media sites at the end of Q4 and into Q1, and these decisions could show up in a drop in revenue in the Q1 results, though the comparatives from last year may mitigate some of the impact.

Companies like Facebook are likely to come under increasing scrutiny from lawmakers, with increasing calls for regulation on the grounds they are purveyors of so-called “fake news”. Facebook warned of a tougher 2021, due to the slowdown in advertising revenue, as well as privacy changes in the latest iOS14. They also mentioned the risks around future regulation, with the company already facing two antitrust investigations, one from the Federal Trade Commission, and another from a host of local state attorney generals.

NatWest Group Q1 results

Thursday: It’s been a rollercoaster start for new CEO Alison Rose this year, as she looks to steer the rebadged bank into the next decade. While Rose has done a good job of giving the bank a makeover, unless you fix what’s under the bonnet, you’re still left with the same old banger underneath. In September last year, the NatWest share price hit fresh record lows, but the shares have since rebounded strongly to a post-pandemic high, as the prospect of a resumption of dividends and decent quarterly results showed that the pessimism priced into NatWest’s share price was probably a little overdone.

The bank set aside a total of £3.24bn in impairments for 2020, which was below expectations. On the wider concern regarding its margins, NatWest has the thinnest in the UK banking sector at 1 71%, and given how the yield curve has steepened over the last three months, we should expect an improvement here. The bank has been on a cost-cutting spree, cutting £277m in costs last year, while also announcing its departure from the Republic of Ireland, while the Northern Irish division of Ulster Bank will remain in the NatWest Group. With Brexit completed it was felt that the Ulster Bank operation was too much of a drag to be considered viable. There has been interest in the loan book, but as for the rest of the business, NatWest is struggling to give it away. Only a few weeks ago, the bank was fined €37.7m for serious failings in the Irish mortgage market. NatWest announced a dividend of 3p at the end of last year, with the intention to return at least £800m per year to shareholders until 2023. The shares have performed much better in recent weeks, rising nearly 10% in the past two months, though are still over 15% down from the 2020 peaks.

Royal Dutch Shell Q1 results

Thursday: Shell reported disappointing full-year figures in February, with an 87% fall in Q4 adjusted pre-tax profit. This has reflected in how Shell’s share price has performed since then, with only modest gains, despite a resilient oil price. What was particularly notable was a 39% fall in cashflow, as various lockdown restrictions translated into lower production volumes. In terms of debt levels, while the company has taken steps to reduce it from the levels a year ago when it was at $79bn, it edged back up in Q4 to $75.4bn, from $73.4bn at the end of Q3, pushing the gearing up to 32.2%. This is higher than 29.3% a year ago. All in all, we saw lower production volumes, reduced cashflow and a rise in net debt, so the hope is that Q1 will paint a more positive picture.

At the beginning of April, Shell announced that the winter storms in Texas would have a $200m impact on earnings, with refinery utilisation expected to be between 71% and 75%. The upstream effect is expected to account for $40m, with downstream accounting for $80m.The company has made progress in moving its business model away from fossil fuels, with the purchase earlier this year of Ubitricity, owner of the largest public charging network for electric vehicles in the UK, with a 13% market share. Shell already has electric charging points at 430 of its service stations around the UK, with this purchase expanding that network into street infrastructure, like lamp posts. But it needs to do more, and is under pressure to do so. Its recent climate plan received significant pushback from some shareholders, who said it doesn’t go far enough. Raising the dividend by 4% while cutting back on capex is questionable. It’s all very well trying to keep shareholders sweet in the short term, but when cashflow is tight and demand is difficult, there must be a better use of that cash.

US Q1 GDP (preliminary)

Thursday: This looks set to be a bumper number if recent data is any guide, though this first iteration may not be as good as markets might look at pricing in. With a lot of the March data likely to be missing, the figure will be susceptible to upward revisions in the coming weeks. Irrespective of whether this number is at the lower or upper end of expectations, the US economy is set to have started 2021 very much on the front foot, with expectations of an annualised expansion of 6.5%, with personal consumption expected to drive that with a 10.3% rise.

Amazon Q1 results

Thursday: Amazon has been one of the big gainers from the shift to home working over the past 12 months, and last year’s full-year results led to a big jump in revenue. In Q4 alone, Amazon reported revenue of $125bn, a rise of 44%, with retail e-commerce seeing a similar percentage rise of 43%. Earnings of $7.22bn blew away expectations for Q4, and $21.3bn for the year was an 84.1% increase on 2019. This was despite a huge increase in costs, with 175,000 new employees in Q4, as it expanded its grocery delivery capability by 160%. The increase in sales still managed to outstrip rising costs as a result of safeguarding measures for its staff, with total costs for 2020 coming in at $11.5bn for the year. Amazon Web Services has also driven some of the gains in revenue, accounting for $45.37bn last year, which when looked at through the prism of total revenue, is still quite a small slice of the overall pie. Its retail business still accounts for the lion’s share of total revenue, with a 37.6% increase from the previous year to $386bn.

Amazon is also ramping up its Prime Video offering in an attempt to take on Netflix, with recent reports that it’s spending $500m on a new Lord of the Rings TV series, while also adding Starz, Britbox and Discovery+ as add-ons. Q1 operating income is expected to come in anywhere above $3bn to as high as $6.5bn, with another $2bn of costs. The numbers are still expected to compare favourably to last year, due to the impact of a drag effect on last year’s shutdowns. Amazon’s guidance for Q2 will be key, with anything less than 20% revenue growth expected to be received badly. In the UK, Prime memberships saw another decent rise, with over 50% of UK households now Prime members. Revenue is expected to rise 35% to $102bn for Q1, with profit expected to come in above $5 a share.    

AstraZeneca Q1 results

Friday: AstraZeneca has taken a great deal of flak in recent months, somewhat undeservedly, over reported side-effects for its Covid-19 vaccine, which is said to cause rare blood clots in a small cohort of patients. This has prompted various European nations to put forward differing guidance in respect to who it is offered to. This uncertainty has translated into limited vaccine take-up and a third wave of infections in several European nations, as they wait for delivery of mRNA jabs instead. When AstraZeneca reported its annual numbers in February, it was notable that while profit after tax came in at $3.14bn, a decent increase on the year before, the investor response was somewhat underwhelming, as AstraZeneca’s share price drifted lower. There were some product shortfalls, however that is probably down to lower demand due to the pandemic. Brilinta revenue from its blood-thinning product came in short; however on most other products, revenue was above or in line with expectations. As far as this quarter is concerned, and this fiscal year, AstraZeneca expects total revenue to rise by a low-teens percentage, adding that it will be including revenue or profit impact from the sale of its Covid-19 vaccine in this quarter. The guidance didn’t include any impact from its recent acquisition of Alexion, which is due to close in Q3 2021.

Barclays Q1 results

Friday: Barclays has been one of the better performers for UK bank shareholders over the last year. Earlier this month the bank reversed all its post-pandemic declines, hitting its highest levels since late 2019 on the back of rising optimism over the health of the UK economy, as well as the outperformance of US investment banks and their recent strong numbers. As one of the few UK banks with an investment banking division, the failure of activist shareholder, Ed Bramson, to force the slimming down of the business has resulted in a much better outcome for the bank, given the recent increases in volatility and steepening of the yield curve. This hasn’t stopped Bramson from continuing to bang that particular drum, however he’s on much shakier ground by suggesting the bank goes down the Deutsche route, given the litany of problems there. Whatever his views about trading businesses in general, managed correctly they have helped the larger banks operate a diverse business model, as well as increase profitability.

This was reflected in its last set of numbers, when Barclays reinstated the dividend with a 1p payout as well as a £700m share buyback, despite setting aside over £4.8bn in non-performing loans. Pre-tax profit for 2020 fell to £3.1bn from £4.4bn, while investment bank profit rose to £4bn. CEO Jes Staley was also bullish about 2021, citing the prospects for the economic reopening. With US banks rotating capital out of their loan loss provisions, banks in the UK do something similar. Barring a setback in the form of a new variant or another lockdown, the outlook looks much brighter now than it did at the beginning of the year.   

US personal spending/income (March)

Friday: If the retail sales for March are any guide, then March’s spending number could be significant, with personal income also set to see a big jump, as the March stimulus payments hit people’s doormats In February, personal income declined -7.1%, after a 10% rise in January. The March stimulus payments are expected to see personal income rise by 20%, however regarding spending, the estimates appear to be much more conservative, with an expectation of a 4.2% rise, after a February decline of -1%. It could be that rather than go out and spend the stimulus money, a lot of consumers may have held back on spending; however, the huge jump in March retail sales would appear to belie that. What we do know is that the personal spending figures are likely to be very strong.

Index dividend schedule

Dividend payments from an index's constituent shares can affect your trading account. See this week's index dividend schedule.

Selected company results

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

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