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Market Outlook

The Week Ahead: US payrolls, Barratt, Melrose, Zoom results

Read our pick of the top stories to look out for this week (30 August to 3 September), and view our key company earnings schedule.

In this week's video, Michael looks back at the week's lacklustre price action and Jackson Hole symposium, and ahead to the US non-farm payrolls report, which is likely to be a bigger indicator of potential Federal Reserve tapering. He also looks at the key levels on a range of markets, including S&P 500, DAX, FTSE 100, GBP/USD and EUR/USD.

Zoom Video Communications Q2 results

MON 30: Zoom’s share price has lost ground since the record highs of October last year. Having been one of the big winners of 2020, we’ve seen a slow drift lower by over 40%. The biggest concern remains that its technology is easily replicable, and while it’s profitable, it doesn’t really have any other strings to its bow. Its competition in the form of Webex, LogMeIn, Skype and Teams are now starting to up their game, even if these applications aren’t their core offerings. Revenue jumped to $2.65bn in 2021 from $622.7m the year before, and is projected to rise to just shy of $4bn in the upcoming fiscal year. While there is no suggestion that the prospect of an economic reopening and a successful vaccine rollout will see business growth slow, there is a concern that the easy wins have been achieved and the road from here on in will be more challenging.

There is no doubt that Zoom has done well, and will have to invest more to improve its infrastructure and resilience. In light of these gains and the current valuation, there is a sense that while Zoom has been a big winner from the pandemic, questions need to be asked as to whether the company is worth its current valuation, with a market cap around the $100bn level. As the competition intensifies, the fledgling company could find it has to work that much harder to stand still, which is likely to continue to put the valuation under slightly more scrutiny. Q2 profit is expected to come in at $1.16 a share.

EU flash consumer price index (August)

TUE 31: The inflation outlook in Europe continues to look weak, with core prices still rooted down at 0.7%, despite headline CPI now at 2.2% and a multi-year high. . There are pockets where inflation levels are higher, Germany for example, however in Europe with its broad geographical footprint and divergent economies, the headline CPI rate is well below the likes of its peers in the UK and US, where rates are over double the EU rate. This is despite ECB policy rates sitting well into negative territory, and little sign that inflation will become any more durable than it has in the last 10 years. ECB president Christine Lagarde has said rates would rise once 2% inflation becomes sustainably into view, which suggests that it’s likely to be a long time before the ECB even considers going down a rate-rise path.

UK consumer credit & mortgage lending (July)

TUE 31: Last month showed UK mortgage lending hit a record £17.9bn in June, as UK consumers rushed to meet the tapering down of the stamp duty deadline on 1 July. At the same time, mortgage approvals fell back to 81,338, which would appear to suggest that the July lending numbers are likely to fall back sharply. Having seen May and June lending increase by almost £25bn as a result of this pull forward effect, we could see a similar outcome to what happened in April, when lending fell back sharply after a similar bump higher in March. While mortgage demand has been strong, unsecured lending has been much more cautious, with only modest growth in the last two months. Year-on-year consumer credit growth is down 2.2%, and is likely to remain cautious heading into August.

Brown-Forman Q1 results

WED 1: It’s not just Jack Daniels that appears to appeal to people’s taste for whiskey products, with Brown-Forman’s new Tennessee Apple brand helping the share price to perform well in recent months, after full-year sales rose 3% to $3.5bn when the company reported in June. It pulled its guidance initially in the wake of the Covid-19 disruption, however it did keep the dividend and went on to say it expected to continue to do so, despite the uncertainty. The sales of its Early Times, Canadian Mist and Collingwood brands also helped in improving the company’s focus on its best performing markets.

For Q1, Brown-Forman may have enjoyed a boost after the EU and US agreed to postpone a planned doubling of tariffs on American whiskey to 50%, which was supposed to take effect on 1 June. With negotiations ongoing for the complete removal of the current 25% tariff, the next 12 months could offer a significant boost to sales if a tariff removal is agreed. Management expects full-year 2022 results to see mid-single digit growth in underlying sales and operating income. Profit is  expected to come in at $0.39 a share.

US ISM manufacturing (August)

WED 1: The ISM reports tend to be decent bellwethers of the underlying strength of the US economy, not only in terms of employment, but also in terms of inflationary pressures, and domestic and overseas demand. For the last couple of months, there’s been increasing evidence of an improvement in employment trends, and a slight softening in prices paid from multi-year highs.

Manufacturing prices peaked at 92.1 in June, before softening to 85.7 in July, and US central bank officials will be hoping that this trend continues in August. Employment trends have also started to rebound after falling sharply in Q2. In July these improved to 52.9, with the hope that this will continue into August.

Barratt Developments full-year results  

THU 2: Having seen Persimmon post better-than-expected results a couple of weeks ago, the rest of the sector looks set to return similarly robust full-year numbers. House price growth has been strong this year, while the stamp duty tax breaks helped underpin demand. In July, Barratt upgraded its adjusted full-year profit-before-tax forecast for the current year, after total home completions rose 36.8% year-on-year to 17,273, only modestly below 2019 levels. The expectation remains to return to 2019 volumes by 2022, while average selling prices have risen in line with inflation, rather than by margin improvement.

Melrose Industries half-year results

THU 2: When Melrose acquired GKN in 2018, there was some concern that the company would hollow out the manufacturing base in areas like aerospace and automotive engineering. The private equity company was called a “short-termist asset stripper” by the Labour party, but  Melrose offered assurances that GKN’s manufacturing base would be safeguarded for at least five years. However, the pandemic appears to have upended a lot of that, particularly in aerospace.

In June, the company announced the completed disposal of Nortek Air Management for £2.62bn, while returning £730m to shareholders. It also said trading was in line with expectations, with a recovery in automotive and powder metallurgy, although shortages in semi-conductors were causing problems. The aerospace division is likely to remain a drag given the lack of pickup in flying hours since then. The Melrose share price has  struggled to rally significantly as a result of recent events, and we are still below this year’s highs from early January, although there’s been a bit of an uplift as a result of M&A activity surrounding Meggitt and Ultra Electronics.  

Berkeley Homes Q1 results

FRI 3: Berkeley Homes’ exposure to the central London housing market has meant that the company has struggled to keep up with its more suburban rivals, with price trends in London lower than the national average. Back in June the company reported a 2.9% rise in profit to £518.1m, above expectations that were guided in March, when management expected to deliver a similar profit to last year, of around £504m. Revenue increased 14.7% to £2.2bn, with the company selling 2,825 homes at an average selling price of £770,000. Forward sales guidance was left unchanged at £1.7bn, with the company saying it expects profit to remain steady over the next two years, while returning up to £280m a year to shareholders by way of dividends or buybacks. Berkeley’s share price has been treading water for the past few weeks, albeit near one-year highs, however the shares are still well below pre-pandemic peaks, with the entire sector having to absorb higher costs in labour as well as raw materials.

Global services PMIs (August)

FRI 3: The latest flash purchasing manager indices (PMIs) from both the UK and US indicated further weakness during August. The main reason for the fall in UK services activity is the continued after-effects of the so called pingdemic, which hampered the economic activity of employees who were self-isolating due to being “pinged” by the NHS Track and Trace app. Unlike in July, businesses were more optimistic over job creation rising, as the recovery picked up.

The services sector has been hiring at its fastest rates in 25 years, although costs are also rising, due to staff and supply shortages. In France and Germany, while the readings in both manufacturing and services were resilient, we continue to see evidence of weakening economic activity, albeit from a fairly high base. German manufacturing and services activity are still strong above the 60 level, with little sign that the recent flooding has hampered economic activity. One notable takeaway from all the reports was rising input costs, which for now don’t appear to be impacting supply chains, but are likely to in the coming months. Cost pressures remain notably high in both the UK and the US.

US non-farm payrolls (August)

FRI 3: There wasn’t much to dislike about the July jobs report, with strong gains of 943,000, as well as a decent upward revision to 938,000 for June, which sent the unemployment rate tumbling from 5.9% to 5.4%, while the underemployment rate also fell, from 9.8% to 9.2%. A rise in the participation rate was also well received, although it was modest, rising to 61.7%, still well short of the 63.4% pre-pandemic level. In the aftermath of last week’s Jackson Hole symposium, the prospects of a Fed taper seem a little clearer than they were a month ago. That doesn’t mean we’re any clearer on the timing of such a decision given the weakness in other US data, but nonetheless a decent job’s report this week could see splits on the FOMC become more noticeable. One of the major protagonists in the hawk’s camp, Robert Kaplan of the Dallas Fed, said he would pull back on a call for a taper if the data demanded it.

The labour market remains the key touchstone for US policymakers, and another strong August number would certainly up the ante in that regard, although expectations appear slightly more tempered for this month. New York Fed president John Williams is one of the members concerned about the lacklustre participation rate. The August report continues to come against a backdrop of elevated prices, and weekly jobless claims that are trending lower, with the mismatch between job openings and participation continuing to prompt some head scratching among Fed officials. How many of the 5m people no longer in the labour force and not reflected in the current participation rate will come back? How many have retired early or set up their own businesses? It seems too early to know, but we should get a better idea when the various emergency unemployment benefits expire in September, and schools go back, which means that people will need to go out and earn money, rather than rely on stimulus payments. The Fed can continue to talk about the merits of tapering as well as the possible timing of rate rises, but it can’t do anything about fiscal measures. Expectations are for a slight slowdown, with 750,000 new jobs expected to be added in August.

US ISM services (August)

FRI 3: Services is the more important component for the US economy, however as these numbers come out after the US non-farm payrolls, they won’t be able to guide us. These have also started to rebound on the employment side, although there appears little evidence that prices paid are slowing, last month hitting 82.3, and moving closer to its 16-year high of 83.5.

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 30 August Results
Zoom Video Communications (US) Q2
Tuesday 31 August Results
Bunzl (UK) Half-year
CentralNic Group (UK) Half-year
Crowdstrike (US) Q2
Ranplan Group (UK) Half-year
Wednesday 1 September Results
Brown-Forman (US) Q1
Churchill China (UK) Half-year
John Menzies (UK) Half-year
Johnson Services Group (UK) Half-year
Thursday 2 September Results
American Eagle Outfitters (US) Q2
Barratt Developments (UK) Full-year
Broadcom (US) Q3
Coca-Cola Europacific Partners (UK) Half-year
Docusign (US) Q2
Energean (UK) Half-year
EnQuest (UK) Half-year
Gem Diamonds (UK) Half-year
Gulf Keystone Petroleum (UK) Half-year
Headlam Group (UK) Half-year
Inspired (UK) Half-year
Oxford Industries (US) Q2
Melrose Industries (UK) Half-year
Mpac Group (UK) Half-year
Tilly's (US) Q2
Friday 3 September Results
Ashmore Group (UK) Half-year
Berkeley Group (UK) Q1
Eurocell (UK) Half-year

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