Watch our week ahead video preview (above), read our top eight stories to look out for this week (18-22 February), and view our key company earnings schedule.
Chief Market Analyst Michael Hewson looks back at the equity markets' price action over the last few days, and looks ahead to next week's Fed minutes, UK wages data and the latest full-year numbers from Lloyds and Barclays.
Reckitt Benckiser full-year results
Monday: Despite being a steady staple of the FTSE 100 over the past few years, Reckitt’s shares have underperformed its peers, raising questions as to whether the business should be broken up in order to extract additional value from its component parts. The retirement of CEO Rakesh Kapoor, announced last month, might be the catalyst that drives this change. The business could split into two distinct areas: healthcare, and home and hygiene. The company’s growth in recent years has been driven by acquisition, the most recent being the purchase of Mead Johnson. However, recent missteps have hit the company’s reputation, including a cyberattack, a safety scandal in South Korea and the temporary shutdown of a baby milk factory in the Netherlands due to technical issues.
UK unemployment & average earnings (December)
Tuesday: One of the more surprising aspects of the UK economy in recent months has been the resilience of wage growth, despite mainstream media stories about job losses and economic slowdown, as we head inexorably towards the Brexit deadline next month. There is no doubt that businesses are holding back investment decisions – who wouldn’t in light of the current political paralysis – but so far unemployment levels are holding steady at multi-decade lows of 4%, while wage growth is at its highest level in a decade. This resilience is expected to have been maintained into the end of last year.
Walmart Q4 results
Tuesday: As one of the few US retailers that has been able to take the fight to Amazon in recent years, Walmart hit a bump in the road when it announced its Q3 numbers last October. The company has downgraded its earnings outlook for 2019, citing the impact of higher costs in its acquisition of India’s Flipkart for $16bn. It also warned that sales growth in its e-commerce division would be 5% lower in 2019 – a growth rate of 35%, below this year’s expected 40% rise. While this could merely have been a case of lowering expectations, the performance of Amazon in the last quarter serves to illustrate the competitiveness of the retail environment. Walmart’s share price hasn’t moved too far from where it was back in October, so investors will be expecting the company to comfortably meet its lowered expectations for Q4.
Cheesecake Factory Q4 results
Wednesday: It hasn’t been a great six months for the Cheesecake Factory. Its shares dropped sharply in August after the company announced that increased labour costs, including higher wages and overtime payments, meant it missed revenue and profit expectations in Q2. Some of these higher costs were also as a result of one-off legal expenses, and as such net income should show an improvement in Q4, after the Q3 numbers stabilised. Expectations are for $0.62 a share, unchanged from the performance in Q3.
US Federal Reserve minutes
Wednesday: The release of the latest Federal Reserve minutes could offer additional insight into the central bank’s significant volte-face in the last couple of months. Given the fairly hawkish December meeting, January’s contrast in tone, while widely signalled by various policymakers in the preceding days, was still surprising. As well showing a note of caution, policymakers suggested the recent rate-hiking cycle might be over, as well as being more flexible when it comes to balance sheet reduction. It appears the US central bank has realised, somewhat belatedly, that it’s also the world’s central bank, and at a time when global economic growth is weakening sharply, it could be part of the reason. This week’s minutes are likely to give an insight into how worried some Fed officials are about the global economy, as well as any negative effects from the US government shutdown.
Lloyds and Barclays full-year results
Wednesday & Thursday: It’s a big week for the UK banking sector, as Lloyds and Barclays release full-year numbers. The sector has been a serial underperformer over the past two years, despite largely emerging from the legacy of the financial crisis, with improved profitability last year. Both banks have cut jobs aggressively as banking becomes more digitalised, simultaneously improving profitability.
Of the UK banks, Lloyds is probably the most exposed to Brexit risks, and its share price performance reflects that, despite posting record profits of £3.1bn for the half year last June. In Q3 the bank added another £1.8bn to its pre-tax profit, on revenue of £4.69bn. It has also boosted its resilience to potential Brexit disruptions, though investors remain cautious ahead of next month’s deadline.
Barclays, on the other hand, has been at the forefront of some shareholder disquiet, with activist investor Edward Bramson pressuring management to sell the underperforming investment banking division. A £1.4bn US fine in the first-half put a drag on profit, pulling the H1 figure down to £1.6bn. However, Q3 profit came in at £1.5bn, up £400m year-on-year. Without various fines, profit would be well above £5bn, but the improvement in Q3 has raised optimism of a catch-up in the fourth quarter.
Germany & France flash PMIs (February)
Thursday: The collapse in economic activity from both Germany and France at the end of last year appears to be showing no sign of letting up, if the latest January purchasing managers indices (PMIs) are any guide. We have seen some flickers that economic activity in February might be picking up, though these have been more anecdotal than anything else. If concerns about a possible stagnation – or recession – dissipate, then this week’s February flash PMIs need to show signs of a pickup in economic activity. If not, calls for the European Central Bank to introduce new refinancing operations (TLTROs) are only likely to get louder.
Dropbox Q4 results
Thursday: When Dropbox launched its initial public offering (IPO) just under a year ago, there was scepticism around whether it deserved its $17 a share, $7bn valuation. In the aftermath of the launch, the shares did reach a peak of over $42.50, putting aside those concerns with interest. However, the shares have since halved from those frothy peaks, though they haven’t dropped below the initial IPO valuation. Even allowing for the share price falls, the company remains vulnerable in an extremely competitive environment, where it has to compete with the cloud services of Amazon, Apple and Microsoft, to name a few. This means that in terms of pricing it’s vulnerable to its bigger rivals, who could choose to squeeze margins. In November, the company surprised by beating expectations for revenue and profit, and this is expected to continue in Q4 with a profit of $0.08 a share.
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 18 February||Results|
|Anglo American (UK)||Full-year|
|McColl's Retail (UK)||Full-year|
|Reckitt Benckiser (UK)||Full-year|
|Tuesday 19 February||Results|
|Host Hotels & Resorts (US)||Q4|
|HSBC Holdings (UK)||Full-year|
|InterContinental Hotels (UK)||Full-year|
|Nomad Foods (UK)||Full-year|
|Wednesday 20 February||Results|
|Avis Budget Group (US)||Q4|
|Intu Properties (UK)||Full-year|
|Lloyds Banking Group (UK)||Full-year|
|Pinewood Group (UK)||Q3|
|The Cheesecake Factory (US)||Q4|
|Thursday 21 February||Results|
|BAE Systems (UK)||Full-year|
|Delphi Technologies (UK)||Q4|
|Domino's Pizza (US)||Q4|
|Heathrow Airport (UK)||Full-year|
|Heathrow Airport Holdings (UK)||Full-year|
|Hewlett Packard Enterprise (US)||Q1|
|KAZ Minerals (UK)||Full-year|
|Newmont Mining (US)||Q4|
|Rathbone Brothers (UK)||Full-year|
|Vitec Group (UK)||Full-year|
|Friday 22 February||Results|
|Cabot Oil & Gas (US)||Q4|
|Aberdeen Standard European (UK)||Full-year|