Market Outlook

The week ahead: UK & US retail sales; Royal Mail, easyJet results

Watch our week ahead video preview, read our pick of the top stories to look out for this week (16-20 November), and view our key company earnings schedule.

Michael looks back at the recent vaccine news and the effect on financial markets in general, and ahead to the latest retail sales from China, the US and UK. He also and previews earnings updates from Vodafone, easyJet, Royal Mail and Walmart, and looks at the key chart points on a range of instruments including EUR/USD, GBP/USD, EUR/GBP, FTSE 100, DAX, Nasdaq and S&P 500.

China retail sales (October)

Monday: Retail sales growth in China finally appears to be gaining some traction, after several months of caution and concerns about a second wave of Covid-19. Improvements in imports growth and recent services PMI data over the last two months suggests that the loss of confidence as a result of the February lockdown is slowly returning. While there’s been anecdotal evidence of improved demand in the auto sector as well as rising demand from the likes of Apple in their Chinese markets, other evidence has been slow to manifest itself. September was the first solid month of positive retail sales growth this year, with a rise of 3.3%, after a 0.5% gain in August. This looks set to improve further in October with a rise of 5% expected, though with the Golden Week holiday at the beginning of the month there could be a bigger jump. Year-to-date Chinese retail sales are still down 7.2%, so there is still significant room to play catch-up. Manufacturing has had a much stronger rebound, returning to 6.9% in September, returning to levels last hit at the end of last year, and is expected to remain resilient with expectations of 6.7%.

Vodafone half-year results

Monday: Vodafone’s July numbers showed that the business performed better than expected in Q1, despite revenues declining by 1.3% to just below €9bn. This drop was driven primarily by a fall in roaming and visitor revenues, not altogether surprising given the Covid-19 lockdowns. Fixed service revenues showed decent gains; however, it wasn’t enough to offset the drag from mobile revenue, with Italy and Spain showing the biggest falls. Management also raised their guidance for the year in the hope that its Germany and UK markets will act as a tailwind. Since then the share price has continued to drift lower, largely over concern around the performance in its Spanish and Italian markets, given the sharp rise in infection and hospitalisation rates in those countries. The business is also facing a squeeze from the likes of BT and Telefonica across Europe, as it struggles to improve its cash flow. Investors will be hoping that the recent decision to add Amazon Prime and YouTube Premium to their mobile entertainment plan, on top of Sky Sports TV and NOW TV entertainment pass, will help close the gap, and pull the share price back up from the lows of October.

EasyJet full-year results

Tuesday: Airlines have had a dreadful time of it in the last few months, with most struggling to maintain their cash flow while running their fleets, in some cases, at less than 30% of last year’s capacity. While some European airlines have gone cap in hand to their respective governments it has been notable that UK airlines haven’t gone down this route, though they have taken advantage of furlough money to stem their staffing costs. When Covid-19 first hit there was some optimism that once the lockdowns had lifted, air travel could recover about 50% of its capacity by the winter months. This optimism, while understandable, was always likely to be a little misplaced given that cold weather tends to coincide with a significant increase in colds, flu and other contagious diseases. These concerns were quickly realised in September when easyJet cut its capacity outlook for the rest of the year, while in October the company revealed it carried more than 9m customers in Q4, well below the 28m carried in the same period in 2019. This helped to generate £620m in revenues, a 73% decline on a like for like basis. 

Airline management were also forced to cut the capacity outlook again, saying they expected to fly 25% of planned capacity in Q1. Passenger numbers for the full-year are expected to see a decrease of 50% to 48m, with the cash burn in Q4 reduced to less than £700m, below the £774m in Q3. In terms of boosting its finances, easyJet has already raised another £435m in the last month by way of the sale and leaseback of 20 of its aircraft, as it looks to navigate its way through a challenging winter period. More staff members are likely be surplus to requirements, as easyJet has already said it is consulting on reducing head count by up to 30% and will take a £120m restructuring charge in this regard in the second half of the year. The group headline loss before tax is expected to come in between £815m and £845m.

US retail sales (October)

Tuesday: Retail sales in the past few months had a V-shaped rebound from the big declines in the first part of this year. Since then there’s been five months of solid gains with expectations fairly high that there could be a sixth month of growth. Despite the strength of the rebound in consumer sentiment there are still significant concerns about the US economy, given that there are still over 9m more American citizens out of work than was the case at the beginning of the year. Despite these concerns, the fact that the unemployment rate has come down so quickly to 6.9% ought to bode well towards end of the year. This surprising resilience in the labour market is expected to be reflected in another positive month of retail sales, with a gain of 0.6% expected, quite a bit lower than September’s 1.9%.

Walmart Q3 results

Tuesday: Walmart shares have been another big winner of the coronavirus pandemic. Having increased e-commerce sales by 74% in Q1, they went better than that in Q2 with an increase of 97%, as more customers stayed at home and ordered online. With the increasing popularity of online services Walmart CEO said that the company will look to build on these gains with some form of premium or membership service, similar to Amazon Prime. We could get some more detail on this as we look ahead to Q4. One of the main reasons for the big surge in Q2 was US consumers cashing in their stimulus payments from the US government, a factor that will not be present in this week’s Q3 numbers. Walmart’s business costs have also increased; in Q1 these rose by almost $1bn as the company employed an extra 200k people to help clean stores, stack shelves and get online orders out of the door. The company will also be realising a $1bn loss on the sale of its Argentina business. On the plus-side it has managed to sell its Asda operation in the UK for £6.7bn, drawing a line under an area of the Walmart business that has struggled to keep pace with the ever-competitive nature of UK retail.

Halfords half-year results

Wednesday: Halfords has done fairly well, despite the economic disruption of coronavirus, with the cycling part of the business a notable outperformer. In October, shares hit their best levels since early 2019 after the company raised its guidance due to strong performance in both its cycling and automotive divisions. As a result, expectations for full-year profits have already increased from the best-case scenario outlined by Halfords management back in July, when they offered a somewhat downbeat assessment for the year. In October, management said they expected H1 profits to come in above £55m, and in all probability eclipse last year’s full-year profits number of £55.9m. 

While the increasing popularity in cycling is set to see a big jump in sales, the automotive division is also likely to see some decent growth as a result of an increase in car journeys, prompting increased sales in batteries, bulbs, and wiper blades, while staycations led to higher sales of roof boxes and roof racks as people holidayed at home. There is likely to be some caution about the outlook for H2, particularly given that cycling popularity tends to wane in the winter months.

Nvidia Q3 results

Wednesday: Another US tech stock that has outperformed the wider market over the past few months, NVIDIA’s shares are up over 140% year-to-date, and near to record highs. This has been helped by a combination of outperformance in its data processor business, which has seen revenues surge, but also due to the higher demand for home computers as a result of the rise in home working. Revenues in Q2 increased 50% to $3.87bn, with management saying they expected this to increase to $4.4bn in Q3, plus or minus 2%, while profits are expected to come in at $2.56c a share. The recent rise in cryptocurrencies could also help boost demand for its chipsets as well, with bitcoin back near three-year highs. NVIDIA’s A100 GPU is used by the likes of Amazon, Google, and Microsoft in their respective cloud businesses, where demand has been strong, and is likely to remain that way as all companies look to boost their cloud capacity. Most people know NVIDIA for its high-performance graphics chips, and demand here has also been fairly robust. However there is a concern is that while video games have become more popular, gaming console demand could slow, given they are expensive bits of kit, and about to get more so with the launch of the new Xbox X and the PlayStation 5. This could make the share price vulnerable to a pull-back if this week’s update falls short in any areas. The recent deal to buy ARM Holdings for $40bn is also expected to help boost revenues in the longer term as the company looks to boost its investment in AI.

Target Q3 results

Wednesday: When Target posted its Q2 numbers back in August, it blew away expectations on all counts as its investment in online technology paid off in spades. Total sales climbed by 24.3% with profits rising to $1.7bn, or $3.35c a share, while revenues surged to $23bn, as the company cashed in on the fact that it was allowed to stay open throughout the lockdowns. Its kerb side pickup service rose 700% year on year, while online sales rose 350% over the same period, with the company adding 10m new digital customers. Electronics was a particularly strong area with strong sales of video games and home office items as more people worked from home. Clothing sales also picked up after a poor Q1. In terms of expectations for Q3 Target will be hard pushed to beat its blow out performance in Q2. In terms of its competition with Walmart, Target is still leading the way in the US retail sector with shares hitting new all-time highs last month. Profit expectations are for a more modest $1.56c a share.

Royal Mail half-year results

Thursday: Having hit record lows earlier this year of 120p, Royal Mail shares have embarked on a slow, steady recovery. However, they still remain some way short of their IPO price of 330p, which at the time saw politicians criticising the government for selling-off too cheaply. While the shares did indeed trade a great deal higher initially, the reality was that the shares were always way too expensive when compared to other organisations in its sector. It took a while for investors to wake up this fact, but wake up they did, with the management of the business also playing a part in the share price decline. Royal Mail’s biggest problem has been its higher cost-base relative to its peers as well as its loss-making letters division. Parcels on the other hand has the potential to make up for that now that so much shopping is now done online. Now that Rico Back has departed as CEO, the hope is that new management will re-engage with the work force and help push through further efficiencies to make Royal Mail work practices more in line with the 21st Century. The outlook for the business is much more positive now, with the company recently competing with Amazon for a £550m one-year contract to deliver 215k Covid-19 testing kits a day in the UK.

UK public finances and retail sales (October)

Friday: Public sector borrowing for September had a big rise of £35.4bn, bringing total borrowing for the year so far to just over £200bn. A lot is being made of the amount of money being spent, with concerns being raised in some quarters of how all of this will eventually be paid for. These are valid concerns and may well be behind some of the government’s recent missteps around funding certain areas of the economy, including quibbling over the costs of children’s school meals and regional lockdowns. The recent decision to extend the furlough scheme until March next year, in the wake of the lockdown of England for the whole of November is only likely to add to these costs. For now, markets aren’t overly concerned about this given the UK isn’t alone in facing these problems, with October borrowing expected to see another big increase.

There’s a more positive story for UK retail sales, with the consumer helping to drive a decent rebound in Q3. Since the lockdown in April there were five consecutive months of decent gains, however this could well be as good as it gets for retail spending as we head into year-end given recent steps by the government in re-imposing lockdown restrictions throughout certain parts of the country. In September retail sales increased 1.5%, however recent third-party studies have reported a sharp slowdown in the October numbers, which would suggest that October and the start of Q4 is likely to be a stark contrast to the optimism of Q3.

Williams-Sonoma Q3 results 

Friday: Another decent bellwether of the US economy is Williams-Sonoma, who specialise in a range of household cookware, bakeware and furniture. It is one of the biggest retailers in this space, and also owns the Pottery Barn and West Elm brands. Shares hit record highs in October after the business managed to shrug-off the store lockdowns to post a decent set of Q1 and Q2 numbers after a significant increase in online sales. In Q1 these rose by 30% and in Q2 rose again by 46%. Q2 profits also saw a big rise in revenues of 8.8% to $1.49bn, with e-commerce making up 76% of overall sales. While profits also blasted through expectations in Q2, the company suspended its full-year outlook due to the pandemic. This cautious approach prompted a modest but temporary pullback back in August, and as we head toward year end, consumer spending patterns could slow down, particularly as some of this year’s revenues may well have been brought forward due to lockdown. Profits are expected to come in at $1.49c 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 16 November Results
AECOM (US) Q4
Casper Sleep (US) Q3
Diploma (UK) Full-year
Vodafone (UK) Half-year
Whole Earth (US) Q3
Tuesday 17 November Results
Curaleaf Holdings (US) Q3
EasyJet (UK) Full-year
Gear4Music (UK) Half-year
Home Depot (US) Q3
Homeserve (UK) Half-year
La-Z-Boy (US) Q3
Walmart (US) Q3
Wednesday 18 November Results
Avaya (US) Q4
Halfords (UK) Q2
Metro (US) Q4
NVIDIA (US) Q3
Sonos (US) Q4
Target (US) Q3
Thursday 19 November Results
ESCO (US) Q4
Investec (UK) Half-year
Jet2 (UK) Half-year
Macy's (US) Q3
Post Holdings (US) Q4
Royal Mail (UK) Half-year
Workday (US) Q3
Friday 20 November Results
Foot Locker (US) Q3
Nationwide (UK) Half-year
Sage (UK) Full-year
Williams-Sonoma (US) Q3

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