The week ahead: UK economic data, China GDP & Goldman Sachs results

Our chief market analyst, Michael Hewson, provides his thoughts and analysis on this week's events.

China: GDP, retail sales, industrial production
Tuesday: Recent PMI data suggests the Chinese economy slowed in Q1, despite a modest pickup in industrial production leading up to Chinese New Year in February. In terms of retail sales, the headline numbers have slowed this year, dropping below the 10% level that we saw through most of last year. At the end of last year the Chinese economy grew at 6.8%, well above expectations set at the beginning of 2017. This year Chinese policymakers have set a target of 6.5%, perhaps underplaying their ambitions in the same manner they did a year ago. Even so, recent data would suggest this figure is achievable. However, the timing of Chinese New Year in Q1 could prompt a reskew of the data as the first quarter comes to a close. 
 
JD Sports: full-year results
Tuesday: At the end of last month, UK sports retailer JD Sports announced it would be acquiring US sports shoe business Finish Line for £400m. If that was an indicator into how management viewed the outlook for the coming months, then it is safe to assume that this week’s full-year numbers will come in at the higher end of expectations. Management guided up profit expectations in their post-Christmas update for the second time in four months, as both its European and UK businesses boosted profits. The company has proved itself adept at picking up struggling businesses, integrating them into their business model and turning them around. Its outdoor division, which includes retailers Blacks and Millets, is likely to have done well through sales of winter clothes after the recent cold weather blast.

Associated British Foods: half-year results
Tuesday: It’s been a tough few months for UK retailers and Primark owner Associated British Foods has been one of the few winners in recent years. Its cut-price clothing has cannibalised the competition, as UK consumers continue to remain very price sensitive. At its post-Christmas update the company posted record sales, despite claiming that the warm weather in Europe at the end of last year held back its European numbers. As a result, we may well see a bounce back after the cold weather in the UK and Europe a few weeks ago. The problem for ABF has typically been its sugar business, with the retail business usually acting as a counterweight. Despite this outperformance on retail the shares are down over 20% in the last six months, suggesting market expectations around this week’s numbers may be on the low side.

Goldman Sachs & Morgan Stanley Q1 earnings
Tuesday & Wednesday: This week’s numbers from the two investment bank giants, Goldman Sachs (Tue) and Morgan Stanley (Wed), could go either way. The recent tax cuts may offer a long-term boost in profit expectations, while recent market volatility might have helped their trading revenues. Under normal circumstances the recent Fed rate rise should have boosted margin expectations in respect of a steeper yield curve. This is unlikely to have been the positive that markets had hoped given that the yield curve has flattened out, reducing the spread between short and long-term rates. Quite simply, markets aren’t buying the narrative of multiple rate rises and this will inevitably compress margins in the bond trading divisions.

Bank of Canada rate decision
Wednesday: Earlier this year the Bank of Canada raised rates to 1.25%, mirroring the US decision to raise rates at the end of last year. Having seen the Fed move again at its March meeting, many are speculating that the Canadian central bank could match this move in its latest decision this week. However, it doesn’t seem likely at this point, given some weakness in recent economic data. Despite this weakness, the Canadian dollar has been on a march higher in recent weeks as markets price in the higher oil price, despite concerns about a NAFTA deal being concluded. Recent housing data has pointed to a slowdown, which suggests that the Bank of Canada may hold off for now and adopt a wait-and-see approach. 

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