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The Week Ahead: Earnings; EU Summit; G20; UK Stress Tests; U.S. GDP, CPI

By CMC Markets (Michael Hewson)Market OverviewNov 23, 2018 16:53
The Week Ahead: Earnings; EU Summit; G20; UK Stress Tests; U.S. GDP, CPI
By CMC Markets (Michael Hewson)   |  Nov 23, 2018 16:53
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10 Things to Know for the Week Ahead

1. EU Summit 25/11

This weekend’s EU summit is expected to sign off the recent withdrawal agreement between the UK government and EU negotiators assuming that the deal hasn’t been completely dismissed by policymakers here in the UK, or doesn’t fall foul of pushback from countries like Spain and France who have sought clarifications to certain parts of the text.

We could also see the affirmation of the political declaration which would be the blueprint for the future relationship, which has grown from 7 pages to over 26 pages, but which in reality is a wish list on the part of both parties.

There is also likely to be some firming up of EU contingency plans in the event that the deal doesn’t get the required votes in the UK parliament, thus raising the risks of a “no deal” Brexit. This still remains a distinct possibility given that both 'remainers' and 'leavers' hate the deal, but we have yet to see a date for when any vote might take place.

2. UK Bank stress tests – 28/11

Brought forward from the 5th December in case of an early parliamentary vote on the Brexit deal, UK banks have been in the spotlight due to recent sharp falls in their share prices.

Fear of no deal has hurt the sector in the past few weeks and these tests will be a valuable indicator as well as insurance policy for investors to reassure them that the UK banking sector will be capable of riding out any number of Brexit scenarios. The share prices of RBS (LON:RBS), Lloyds (LON:LLOY), Barclays (LON:BARC) and HSBC (LON:HSBA) are likely to a particular focus along with CYBG (LON:CYBGC) and Santander (MC:SAN).

3. G20 Buenos Aires – 29/11

Relations between China and the US are likely to be under scrutiny at this week’s G20 meeting in Buenos Aires, when it is expected that President’s Trump and Xi Jinping are expected to meet under the auspices of trying to coalesce around some form of trade agreement.

Expectations have slowly been dialled down about a possible solution in the short term with the prospect that tariffs could well increase at the beginning of next year from the current 10% to an increased rate of 25%.

While deal expectations have been set to a low level an agreement to not implement the proposed increased rate at the beginning of next year could be described as progress.

4. US GDP Q3 – 28/11

This week’s latest Q3 update isn’t expected to differ from last month’s initial 3.5%, which was higher than expected. The better than expected number was helped by a build-up in inventories, possibly in an attempt to beat the implementation of tariffs at the end of September. This could well have consequences for a slowdown in Q4, however there has been little evidence of that so far.

5. Cyber Monday – 26/11

It’s been a rough year for retailers in both the US and UK with more winners than losers, however this month’s shopping weekend has the potential to make or break a lot of vulnerable players in the sector, who have spent most of this year struggling. The next six weeks could well determine whether we see further profit warnings in the early part of next year, following on from companies like Toys R Us and Sears this year, not to mention here in the UK with the recent woes of House of Fraser, Evans Cycles and Debenhams (LON:DEB), to name three.

6. US inflation, income and spending, Fed minutes (Oct) 29/11

US inflation is expected to remain steady, along with personal income and spending numbers for October, as the US economy continues to show little sign of slowing down materially.

The recent slide in oil prices is likely to offer a nice consumer boost into year end, and this week’s numbers aren’t expected to materially affect the calculus around another Fed rate rise next month.

The latest Fed minutes aren’t expected to be particularly market moving, however given recent comments from Richard Clarida, the new Fed vice chair on where he sees the Fed neutral rate, we might start to see some unease creep into the narrative when it comes to the speed and extent of the current hiking cycle. If we see signs of a softening of tone amongst some Fed officials then markets may start pricing out the prospect of multiple Fed rate rises in 2019.

7. Patisserie Holdings FY18 - 26/11

The suspension of Patisserie Valerie (LON:CAKEP) shares in October on the back of financial irregularities called into question the survival of the company after a £20m black hole was discovered in its accounts. As well as owing over £1.1m to the taxman there was widespread surprise that a company that had cash of £28m in its last set of accounts and was profitable should find itself in this situation.

At a shareholder meeting earlier this month board members came under fire from furious shareholders after being forced to back a rescue package of £15m worth of new shares while majority shareholder Luke Johnson also put £20m of his own money into the rescue.

This week’s full year numbers will be the first time that we’ll get to see how well the company has been doing in spite of the accounting irregularities.

8. Thomas Cook FY18 – 29/11

It’s been a challenging year for travel operators and airlines this year, buffeted by the 'Beast from the East' at the beginning of the year, and then by industrial action in Europe, as well as rising oil prices through the summer.

In September Thomas Cook followed on a profits warning in July with another warning that its profits for the year had been hit by the summer heatwave as people opted to stay at home rather than brave the airport chaos. As a result the companies have had to shave margins to entice people to book. Full year profits are now expected to come in at £280m, down from a previous £323m.

A weaker pound hasn’t helped matters making Europe more expensive, while this week’s full year numbers should give an insight into how well forward bookings for the winter season are coming along, at a time when Brexit uncertainty has started to rise again.

9. Dick’s Sporting Goods Q3 – 28/11

The US consumer has been shown to be much more resilient this year, and despite some of the problems in the retail sector some retailers have performed well, with Dick’s shares (NYSE:DKS) up over 20% year to date.

In its Q2 update Dick’s raised its full year guidance despite missing on sales as a slowdown in Under Armour (NYSE:UA) sales blunted their sales numbers. The company updated its full year guidance in August to between $3.02 and $3.20c a share, so any disappointment here could well see some profit taking kick in, while quarterly profits are expected to come in at $0.256c a share.

10. Abercrombie and Fitch (NYSE:ANF) Q3 - 29/11

On the flip side of the consumer ledger Abercrombie and Fitch has had a disappointing year despite evidence that same store sales of its own branded and Hollister branded garments showed a pickup in Q2. While the company made a surprise profit in its second quarter revenues were disappointing at $847m. Profits in Q3 are expected to come in at $0.208c a share.

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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The Week Ahead: Earnings; EU Summit; G20; UK Stress Tests; U.S. GDP, CPI

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The Week Ahead: Earnings; EU Summit; G20; UK Stress Tests; U.S. GDP, CPI

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