China Q4 GDP & retail sales
Monday: The Chinese economic slowdown is likely to become obvious in the coming week, with the release of Q4 GDP. At the end of 2018, trade flows slowed sharply as imports and exports slumped. New car sales slowed, along with sales of luxury goods and electronics. Whether or not this is related to the effects of the trade war with the US, the reality is that we are seeing economic weakness elsewhere in the global economy, which suggests that something more significant is unfolding. In particular, internal demand appears to be weakening on a month-to-month basis, and concerns about this may have been behind the decision to ease monetary policy earlier this month. While GDP is expected to be on the low side, industrial production and retail sales data are more likely to impact the market if there is further evidence of weakness, with retail sales already at 15-year lows.
World Economic Forum
Tuesday-Friday: A lot of time, effort and column inches will be given to the latest annual World Economic Forum in Davos, Switzerland, where CEOs, politicians, economists and other global influencers gather to discuss how to deal with the myriad of problems that affect global politics and business. Judging by the state of the world 10 years on from the financial crisis, and the dysfunctional state of global politics, the evidence suggests the annual event has struggled to achieve any real change.
UK unemployment & earnings (November)
Tuesday: Away from the politics of Brexit, the UK economy has been ticking along quite nicely, with unemployment at 42-year lows. Despite some evidence of a slowdown in business investment, and wails of anguish from the retail sector, wage growth has also started to outstrip inflation at an increased rate. The latest UK CPI inflation data showed that prices were rising at their slowest rate in two years, which is good news for consumers who have had to deal with a wage squeeze for the best part of two years.
Bank of Japan rate decision
Wednesday: No changes are expected from the Bank of Japan. In the most recent quarter the Japanese economy slowed quite sharply, and there has been little evidence since then to change that narrative, particularly since key data from Japan’s main export partners has shown that global demand is waning.
Ford Q4 results
Wednesday: The US carmaker has been in the news a lot this year due to its restructuring plans for its European operation, and resultant job losses in Germany, Spain and the UK. While it is inevitable that there will be Brexit-related excuses, the reality is that Ford has struggled for years to turn a profit in Europe; widespread global changes in emissions rules and a tougher trading environment have also taken their toll. Concerns over trade tariffs as well as slowing demand from China have forced all car companies to look at ways to save money. One possibility has been collaboration with competitors in an attempt to drive down costs. Talk of a partnership with VW is among some of the ideas being touted by Ford Europe CEO Jim Hackett, as the company looks to announce Q4 profits of $0.32c a share.
Germany & France flash PMIs (January)
Thursday: It seems likely that both France and Germany had a poor end to 2018, with French economic activity disrupted by the ‘gilet jaunes’ protests, while Germany could have slipped into recession at the end of 2018. This week’s January flash purchasing managers’ indices for manufacturing and services aren’t likely to assuage the concerns of those who feel that the European Central Bank (ECB) has misjudged the economic mood, and it seems quite likely that we’ll get a continuation of the trend that has been in place for several months now.
ECB rate decision
Thursday: It’s hard to overestimate how bad the ECB’s timing was in deciding to conclude its asset purchase programme at the end of last year. Since the confirmation of that decision in December, the outlook for European growth has slowed sharply, and both Germany and Italy are likely to be in a technical recession as of the end of last year. The ECB has insisted that it remains credible that we could see rates rise by “the end of the summer”, which many have construed as being Q4 this year. In reality, it seems more likely that the ECB will acknowledge that the economic picture has darkened, and as such will have to change its guidance accordingly by ruling out any possibility that rates will rise this year.
Restaurant Group - trading update
Thursday: Restaurant Group management raised a few eyebrows last year when they paid £550m for rival food restaurant Wagamama, at a time when the sector is undergoing significant cost pressures from rising wages and a more discerning consumer. The owner of Frankie and Benny’s has faced speculation that it may have bitten off more than it can chew, as short sellers pile in to bet against the business. The shares have slid over 20% since the highs in October, and while we’ve seen a modest rebound, 2019 is likely to be much more challenging than 2018. For the moment, though, the omens look positive, after Wagamama posted a 10% rise in like-for-like sales at the beginning of this year. Thursday’s post-close trading statement could reinforce this positive narrative, ahead of the company’s final annual results which are due on 6 March.
Thursday: Microsoft’s ability to re-orientate its business model away from its Windows suite of products has been one of the success stories of the last few years. The success of Azure – its cloud computing services division – as well as Office 365, saw revenue rise 47% in Q1, while margins also increased. It still remains behind Amazon in its cloud business, and there is some evidence that the pace of revenue growth is slowing. However, sales from its computing and gaming division have helped offset this, with Xbox console sales driving some of the strongest gains. On the gaming side, the upcoming Q2 sales will cover the Christmas period, which generally tends to be good for technology companies. Expectations are for profits of $1.09c a share, slightly down from the $1.14c in October.
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