Read our pick of the top stories to look out for in the upcoming week (4-8 January), and view our key company earnings schedule.
Global manufacturing PMIs (December)
Monday: One of the bright spots in a quarter with a continued tightening of economic restrictions globally has been the resilience of the manufacturing sector, something which has eluded services. For the most part, the manufacturing industry is better able to implement the controls needed to manage any new restrictions. That doesn’t mean it's without its challenges, but nonetheless economic activity has managed to remain on the right side of the 50 level, and in expansion territory. The recent preliminary purchasing manager indices (PMIs) were encouraging for France and Germany, however that was before the stricter rules imposed mid-month by both governments. China in particular has led the way in this regard with a decent rebound in economic activity, largely due to avoiding a second wave of infections.
UK manufacturing & services PMIs (December)
Monday & Wednesday: The flash PMI data released in the middle of December was surprisingly encouraging, with manufacturing rising to 57.3, no doubt due to some pre-Brexit stockpiling. Services also managed to rebound a touch, coming in at 49.9, despite the tighter restrictions after November’s lockdown. If the planned social mixing over the Christmas period had been allowed, these numbers might have remained fairly resilient, however the government’s U-turn and rapidly-enforced Tier 4 restrictions could limit the extent of any economic rebound in the new year
Morrisons Q3 results
Tuesday: The first week of January generally tends to be a decent bellwether for economic activity over Christmas and new year, and this year is unlikely to be any different. The government had wanted to allow a certain amount of social mixing over the holiday period, but increased restrictions thanks to the spread of a new variation of the Covid-19 virus may curtail food expenditure. In the most recent Kantar numbers, UK grocery sales totalled £10.9bn in November, with Morrisons recording the biggest jump in sales with a rise of 13.7%. This is likely to continue over the Christmas period, though the limits on household mixing might constrain some of the overall spend over this festive period.
Next Q4 results
Tuesday: High-street retailers underwent another blow a week before Christmas, after a whole host of new areas in England went into tier 3 restrictions, with London and the south-east plunged into a newly announced tier 4. On the plus side, online shopping has held up well, with November's retail sales showing a 31.4% rise in digital sales. Next has always been strong in this area, and the business has had a decent recovery since the March lockdown clobbered its sales by 52%. Since then, Next has managed to upscale the picking capacity of its warehouse operations, improving the online business and delivery times, which had been suffering due to the extra workload.
In October, Next said full-price sales were better-than-expected in Q3, and that annual profit-before-tax was expected to come in at £365m, an increase of £65m on its previous estimate. There were several risk factors though and the retailer set out three potential outcomes in the event of further restrictions, estimating that a two-week lockdown would mean a 20% decline in sales. The worry at the time was that a two-week lockdown would be the starting point, and not an end point, and given recent events these fears have been realised. So the risks are very much to the downside on the profits scenario as we head into year end, though we could see the digital side come to the rescue.
US Federal Reserve FOMC minutes
Wednesday: The last Fed meeting of 2020 turned out to be a bit of a non-event, coming as it did against a backdrop of continued bickering on Capitol Hill about a new stimulus bill. The US central bank did make it clear that they remained determined to support the US economy through to and beyond 2023, as they continued their monthly $120bn bond-buying programme. This determination contrasted with the more optimistic outlook the central bank had on the US economy, as it upgraded GDP forecasts for 2020 and 2021. These upgrades didn’t exactly chime with the recent rises in weekly jobless claims, or the slump in retail sales. These minutes should give greater insight into whether there was any discussion about going further in terms of yield curve control, or other such measures to keep a ceiling on the long end of the yield curve.
Global services PMIs (December)
Wednesday: Some decent numbers from China and the US aside, the services sector has struggled globally over the past few months, and it seems likely to continue for a while yet. A sharp rise in coronavirus cases across Europe has derailed the optimism that characterised the summer rebound in economic activity in France and Germany. In last month's flash services PMIs there was a pickup in economic activity in both Germany and France, to 47.7 and 49.2 respectively, but with German chancellor, Angela Merkel, implementing tougher measures on 16 December, these latest round of numbers could evidence a deterioration. In November, France services dropped to 38.8, while Germany's slid to 46, with a figure below 50 indicating contraction territory.
Data from Spain and Italy could show a modest improvement, but a strong rebound looks unlikely given they face the same pressures as Germany and France. In November, services activity in both these countries slipped below the 40 level. With restaurants and bars in France set to remain closed until mid-to-late January, and Germany still in a state of hard lockdown, a recovery any time soon is hard to envisage, which means December is likely to record a fourth conservative month of contraction. Despite the positive vaccine news lifting the mood from a markets point of view, it's clear that there will be no similar uptick in economic activity until such time as restrictions are eased, perhaps sometime in the spring.
US unemployment rate & non-farm payrolls (December)
Friday: One of the most encouraging things about the rebound in the US economy in recent months has been the slide in the unemployment rate, from its peaks in April of 14.7%, to 6.7% in November. These figures do however disguise the fact that the participation rate has also fallen sharply, to 61.5%, from 63.4% at the end of February. This figure reflects the number of people who have stopped looking for a new role, and as such understates the actual number of people who are probably out of work. A more accurate measure is probably the underemployment rate, which currently sits at 12%, below the April peak of 22.8%, but still well above the low of 6.7% at the end of 2019. For several months now, there has been an underlying concern that the lack of a new US stimulus deal would start to act as a drag on the US economy. Up until the beginning of December this didn’t look like it was going to be an issue, with a fair degree of resilience among US consumers. However, this appears to be starting to change, after weekly jobless claims at the beginning of December rose from 716,000 to 885,000 in just two weeks.
An infection spike in the wake of the Thanksgiving break also appears to be weighing on US economic activity, with lower retail sales growth, while a weaker-than-expected November non-farm payrolls number also raised concerns. Expectations were for 480,000 jobs to be added, far more than the 245,000 which were actually added. There is a concern now that the non-farm payrolls reading for December could slide back into negative territory, as the winter months and rising infection rates weigh on economic activity. The slowdown in US jobs growth over the last few months has been quite stark, particularly since August when nearly 1.5m jobs were added. There were 672,000 jobs added back in September, and 610,000 in October, before the November figure at just 245,000. This is a sharp tap on the brakes, and December's number could be even worse as we close out 2020.
Marks & Spencer Q3 results
Friday: It has not been a great 2020 for Marks & Spencer, largely down to the fact that it has much greater exposure to general merchandise, which took the greatest hit in the March and April lockdown. However its food offering, along with the start of the Ocado deal, has already started to reap benefits, with a 47.9% increase in revenue from that particular channel, though it didn’t prevent M&S from slipping to a first-half loss of £17.4m. The one downside is that the Ocado agreement only covers a limited 700 home and lifestyle product lines, compared to 4,400 food lines, which suggests there could be scope to expand this to general merchandise. Friday's Q3 results should offer an insight into whether the deal has helped return the group to profit, to give M&S some much-needed Christmas cheer.
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 4 January||Results|
|No major announcements|
|Tuesday 5 January||Results|
|SMART Global (US)||Q1|
|Wednesday 6 January||Results|
|MSC Industrial Direct (US)||Q1|
|RPM International (US)||Q2|
|Simply Good Foods (US)||Q1|
|Thursday 7 January||Results|
|Acuity Brands (US)||Q1|
|Bed Bath & Beyond (US)||Q3|
|Conagra Brands (US)||Q2|
|Duck Creek Technologies (US)||Q1|
|Helen Of Troy (US)||Q3|
|Lamb Weston (US)||Q2|
|Micron Technology (US)||Q1|
|Schnitzer Steel Industries (US)||Q1|
|Walgreens Bootst Alliance (US)||Q1|
|Friday 8 January||Results|
|Marks & Spencer (UK)||Q3|
Company announcements are subject to change. All the events listed above were correct at the time of writing.