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Market Outlook

The Week Ahead: UK CPI, US Fed minutes, Nvidia, Robinhood results

Read our pick of the top stories to look out for this week (16-20 August), and view our key company earnings schedule.

In this week's video, Michael looks ahead to the latest US Federal Reserve minutes, UK, US and China retail sales, as well as the latest numbers from Persimmon, Robinhood Markets and Walmart. He also looks at the key technical levels on the major indices as well as EUR/USD, GBP/USD and EUR/GBP

China retail sales (July)

MON 16: The jury remains out on how well the Chinese economy is actually doing, with retail sales showing signs of gaining traction in recent months, however there are sporadic signs of weakness starting to appear in some of the more recent data. In Q2 the economy performed slightly better than expected, while June retail sales rose by 12.1%, well above expectations of 10.9%, and only marginally lower than May’s 12.4%. The recent trade numbers for July showed that the Chinese economy got off to a weak start to Q3, as exports fell to their lowest levels this year. Demand for imports was also weaker, while the recent floods across China could also have impacted demand, along with rising Delta variant infections, which have prompted Chinese authorities to reimpose rolling lockdowns. These disruptions could also affect industrial production, which in turn could also see a slowdown from the 8.3% rise in June.

UK unemployment (June)

TUE 17: The picture for UK unemployment has been improving quickly over the last few months, a trend that has been no better illustrated than with the sharp decline in the claimant count rate since March, when it was at 7.2%. Since then, we’ve seen a sharp decline to 5.8% in June. The ILO unemployment rate for May saw a slight increase to 4.8%, which may be a consequence of some furloughed employees being released, although the scheme is still disguising the full effects of the pandemic. With the furlough scheme now starting to wind down, we should continue to see further convergence between the monthly claims' numbers and the ILO measure of unemployment.

For now, the outlook continues to remain positive despite the one-month delay to a full reopening as we move into the school summer holiday season, however we do need to prepare for a move back higher as furlough measures start to unwind. A lot of jobs that were around over a year ago may still not come back, and missing the June unlocking could be the final straw for some businesses. The Bank of England is much more optimistic about the labour market than it was at the beginning of the year, adjusting its outlook for unemployment to 5.2% for this year, and then down to 4.7% in the second quarter of 2022.

US retail sales (July)

TUE 17: US retail sales have been quite difficult to predict this year, up one month and down the next. Consumer spending was expected to decline by -0.5% in June but rebounded strongly by 0.6%. This suggests that the recovery in consumption is patchy at best and while the summer months have seen holiday and theme parks reopen, it's quite likely that this pattern will continue into September. On the plus side, the jobs market appears to be recovering strongly with 2m people returning to the workforce in June and July. There is little doubt that US consumer spending has been supported by the two fiscal packages in January and March, and continue to be so, although an improving economy is helping to push consumer confidence back to pre-pandemic levels. Whether this translates into another positive month for US retail sales remains to be seen, however the surprise rebound in June could be tempered by a modest slowdown in July, with expectations of a -0.2% decline, as higher prices deter discretionary spending.  

Home Depot Q2 results

TUE 17: Home Depot is another US company that has seen its share price go vertical in the last two years. In Q1 the US retailer picked up where it left off last year, with another big beat for profits and revenues as the trickle-down effect of US stimulus payments saw an increase in consumer spending. In Q4 last year revenues smashed expectations of $35bn, and they did the same again in May, coming in at $37.5bn, well above the $32.26bn in the previous quarter. Profits also smashed expectations of $3 a share, coming in at $3.86. Customer transactions also saw a big increase, rising over 19% to 447.2m. Despite this outperformance, management declined to offer any guidance for Q2, despite a year that has seen US homeowners spend huge amounts of money improving their homes. Despite a reluctance to provide guidance, forecast expectations for this quarter are for profit to come in at $4.40 a share.

Walmart Q2 results

TUE 17: In Q1 Walmart saw its numbers continue where they left off at the end of its previous fiscal year, with e-commerce sales continuing to drive the business forward. Last year full-year revenues hit $559bn as e-commerce sales rose in every single quarter. This continued in Q1, with another 37% rise helping to push total revenue to $138.1bn, helped to a large extent by the March stimulus payments. Profit also beat expectations, crushing expectations of $1.21 a share, coming in at $1.69, prompting the company to upgrade its full-year guidance. Same-store sales rose 6%, well above expectations of 0.9%.

As we look ahead to the Q2 numbers, there is a school of thought that suggests expectations could be a little too high, given the more subdued nature of US retail sales in recent months. Walmart has also been leveraging the increasing popularity of online services, announcing the launch of Walmart+ in Q3 last year, a new membership service to better compete with the likes of Amazon and its Prime service. As with other retailers, business costs have eaten into the top line as extra staff were hired to help clean stores, stack shelves and get online orders out of the door. In total the company hired in excess of an extra 500,000 people last year alone. Tougher comparatives from this time last year could also test shareholder confidence. Walmart is also looking to diversify away from retail and into healthcare, acquiring MeMD earlier this year as it looks to widen its scope into healthcare beyond basic in-store pharmacy services. Profits are expected to come in at $1.54 a share.  

UK CPI (July)

WED 18: There appears to be an increasing prospect that the UK consumer price index (CPI) inflation rate is heading towards 4% by the end of the year, if the Bank of England is to be believed, although most MPC members appear to think it will be temporary. There are signs of some dissent to this wider view, with external member Michael Saunders dissenting on the bond buying component of the recent policy decision, with deputy governor Dave Ramsden possibly not be too far behind him. CPI is already well north of the central Bank's 2% target at 2.5%, which means we look set to see further increases in the coming months. July's CPI reading is likely to see a slight fall to 2.3%, however the figure could just as easily move higher, probably driven by the delayed economic reopening.

Balfour Beatty half-year results

WED 18: Earlier this year, Balfour Beatty's share price touched a seven-year high, marking in some respects the completion of a turnaround plan that saw its shares plunge to a low of 146p back in 2014, when there was widespread concern about the company’s long-term future. Under the guidance of CEO Leo Quinn, the company has gone from strength to strength, focusing only on high-margin work, and maintaining a reliable and healthy cashflow. In August 2020 the company swung to a first-half loss as a result of pandemic-related disruption due to various site closures. By the end of the year this loss was reversed, with the company posting a pre-tax profit of £48m, reported its full-year results in March. This was still down from the £138m pre-tax profit in 2019, however the improvement was good enough to enable the business to be able to return the £19m it claimed as part of the UK government coronavirus job retention scheme. The company also reinstated its dividend, announcing a 1.5p payout.

Its UK business was the worst performer last year, posting an operating loss of £26m, so these half-year figures will be closely monitored for an improvement in this area. Its operations in Scotland have been particularly hard hit due to the restrictions there, while the resumption of work on HS2 is likely to help boost the numbers. More importantly, the company felt confident enough to reiterate a positive outlook for 2021 in May, forecasting that its construction and support services business would deliver an underlying operating profit close to 2019 levels of £172m. In June, the company announced the disposal of its 70% interest in its hospital redevelopment project in Vancouver British Columbia for £20m, while earlier this month its JV in Singapore won a £345m contract to build a new underground train station in Singapore.

Persimmon half-year results

WED 18: The housing market has been a major part of the recent recovery in the UK economy. Some would say it’s been too much of a factor, however house builders have been able to thrive despite higher costs as a result of Covid. In April Persimmon said it had made a strong start to the year, with forward sales 23% ahead of 2020 and 2019 as well. Levels of demand have been good, with the stamp duty tax breaks helping to push prices higher and drive activity. For the H1 of this year revenues are expected to come in at £1.84bn with 7,406 completions over the reporting period. Average selling prices also increased by 4.9% to £236,200, which is helping to mitigate the upward pressure on the cost base. Forward sales were slightly lower at £1.82bn, down from £1.86bn in 2020. Even with the paring back of the stamp duty tax breaks management appear optimistic about the long-term strength of the housing market, with the company expecting to commence work on 85 new sales outlets over the second half of the year. The company is also expected to announce its intention to split the 110p dividend into two payments one to be paid this month and the second in December.

US Federal Reserve minutes

WED 18: The recent Federal Reserve rate meeting saw the US central bank keep monetary policy unchanged keeping the level of bond buying at $120bn a month. The Fed did acknowledge that the economy had made progress towards the goals need to look at tapering but there was still some way to go. The decision was unanimous. On the question of what signified “substantial further progress” Fed chair Jay Powell was typically reticent, declining to offer much more than various banalities on the topic. Various Fed officials since then have offered conflicting views on what progress might mean in terms of the labour market, and while the last two payrolls’ reports offer optimism on the employment front that a tapering of bond purchases may come this year, that jobs data wasn’t available to FOMC members at the meeting at the end of July.  Powell did admit that discussions had begun on the mechanics of scaling back bond purchases when the time came, although there were disagreements on the split between MBS and Treasuries, with some arguing that mortgage-backed securities purchases should be scaled back faster, to take some of the heat out of the housing market. It is clear from recent comments from the likes of permanent board members Christopher Waller, as well as vice chair Richard Clarida that the Fed is much nearer to tapering now than it has been for some time and that it could come as soon as October, jobs data permitting.  

Nvidia Q2 results

WED 18: back in May, when Nvidia reported an 84% rise in Q1 revenue to $5.66bn and record profits of $3.03c a share, hopes were high that despite the uncertainty over its $40bn deal for ARM Holdings, the deal would eventually get waived through. Despite this uncertainty over the deal getting waived through the shares are back to within touching distance of the record highs of July, in the wake of the 4-1 stock split which took place on July 20th. The biggest revenue earners still came from the gaming segment with a 106% rise in revenues to a quarterly record of $2.76bn. Data centre revenue also saw a decent increase, pushing above $2bn, while data centre revenue rose to $372m. With this sort of sales growth, market expectations around future sales are already quite high, and with the UK government threatening to block the ARM acquisition there are downside risks in the short term, however even if the company fails in its bid to acquire ARM, the speed at which the company has moved into the data centre segment suggests a lot of additional potential on the revenue front given the explosion in web services over the last 12 months, as well as the global shortage of semiconductors which is likely to keep prices high in the short term. Profits are expected to come in at just over $1 a share, while revenues are expected to rise 60% year on year to around $6.3bn.   

Robinhood Markets Q2 results

WED 18: Robinhood’s IPO launch doesn’t seem that long ago now, and yet despite the fact it was the worst performance for an opening day IPO on the US market for a company of its size, the shares have seen a decent recovery. At one point the shares rose to as high as $85 before slipping back sharply on reports that some shareholders were looking to sell up to 98m shares. At its last set of numbers, the company posted a loss of $1.4bn in the first three months of this year, largely because of the $3.4bn of new debt raised in February, which it used in order to ensure the business met deposit thresholds required by the various clearing houses that handle the trading orders on its platform. It would appear that some of these investors who helped out in this February fund raising want to take some profit on their stakes, and lock in some profit. Robinhood’s monthly active users have more than doubled in the past 12 months, rising to 17.7m during Q1 of this year, and up to 22.5m towards the end of Q2, while revenues have risen from $277.5m back in 2019 to just below $1bn in 2020. The company expects to see revenues well in excess of 2020 this year, after seeing Q1 revenues of over $500m, while the company is expected to see a profit of $0.08c a share.   

Target Q2 results

WED 18: Target shares have gone from strength to strength this year, up over 40% year to date, with the business adapting to the challenges posed by the pandemic, building on the big gains seen through 2020 as well. At the end of last year, Target posted Q4 revenues of $28.3bn a rise of 21.1%, largely due to a good holiday season and stimulus payments. In Q1 Target was able to build on this with a rise in Q1 sales of 22.9% well above expectations of 10.1%, while revenues came in slightly lower at $24.2bn. Net income rose to $2.1bn, up from $284m in the same quarter last year, as shoppers spent more money on the likes of homeware as well as clothing, with average basket sizes rising 5%. The company also saw store and website traffic rise by 17%. It seems in little doubt that Target’s position in the middle of the US retail pack has seen it gain lots of new customers at the lower and upper end of the income stream in the US, as consumers spend their stimulus benefits. The most popular options for customers were click and collect, as well as home delivery, with sales on same day service rising over 90% over the quarter. Target also raised its outlook for Q2 saying that it sees operating margins of 7.9% with positive single digit sales growth over the rest of the year. Target has said it intends to invest up to $4bn over the next few years in new stores, and improve its ecommerce offering further. Profits are expected to come in at $3.4c a share, a big jump from Q1.

UK retail sales (July)

A lot of retailers will have probably nudged prices higher, as they look to claw back lost revenue from the various lockdowns. This could well hinder retail sales growth in July which has been patchy in the last month or so. In May we saw a decline of -1.3%, though this did come off the back of three successive monthly gains. We got a slightly better feel for spending in June, with a rise of 0.5%, while other retail sales surveys point to resilience in patches and weakness in other areas. The corresponding BRC retail surveys tend to give a fairly good correlation, although sometimes they do diverge. In June, according to the BRC survey showed UK retail had its best quarter on record with spending rising by 13.1% against a decline of 1.9% in June 2019/ With the school holidays starting in July and people being encouraged to holiday at home the delay in lifting travel restrictions could also act as a boost as more people book a domestic break instead. The recent BRC retail sales numbers were a bit of a mixed affair, but nonetheless still pointed to a fairly resilient UK consumer.

Index dividend schedule

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

Selected company results

Monday 16 August Results
No major announcements  
Tuesday 17 August Results
Amcor (UK) Full-year
Home Depot (US) Q2
Kaz Minerals (UK) Half-year
Krispy Kreme (US) Q2
Walmart (US) Q2
Wednesday 18 August Results
Balfour Beatty (UK) Half-year
Cisco Systems (US) Q4
Nvidia (US) Q2
Persimmon (UK) Half-year
Robinhood Markets (US) Q2
Target (US) Q2
Thursday 19 August Results
Estee Lauder (US) Q4
Macy's (US) Q2
Marshalls (UK) Half-year
Rank Group (UK) Full-year
Seadrill (UK) Q2
Friday 20 August Results
Foot Locker (US) Q2

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