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11 Things To Watch Next Week: Fed, BoE Rate Meetings; BP, Shell, Lloyds Earnings

By CMC Markets (Michael Hewson)Market OverviewApr 28, 2019 10:02
uk.investing.com/analysis/11-things-to-watch-next-week-fed-boe-nfp-bp-shell-lloyds-apple-earnings-200207635
11 Things To Watch Next Week: Fed, BoE Rate Meetings; BP, Shell, Lloyds Earnings
By CMC Markets (Michael Hewson)   |  Apr 28, 2019 10:02
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1. FOMC rate decision – 01/05

The US central bank has come under a fair amount of criticism in recent months from President Trump as a result of last year’s decision to raise interest rates on four occasions. While the Fed has called a halt to its rate hiking cycle, this doesn’t appear to have cut much ice with President Trump or his officials with some, including chief economic advisor Larry Kudlow, even calling for rate cuts, in the face of a slowing economy. This remains highly unlikely in the current environment with the US economy still growing in excess of 2% on an annualised basis.

This week’s decision will in all likelihood reaffirm the decision made in March to downgrade growth forecasts and also take the prospect of further rate rises off the table for this year. At the time the Fed was flying blind a little in the aftermath of the US government shutdown. Fed chair Jay Powell’s press conference will also be scrutinised for any indication as to whether he thinks the Fed may have been a little too cautious in their assessment of the US economy in Q1.

2. Bank of England rate decision/inflation report – 02/05

With the hunt set to begin in earnest for a replacement to Bank of England governor Mark Carney, there may be some questions as to who he thinks should replace him.

On the subject of policy there are a number of people who will be keen to glean how the central bank views the recent decision to delay Brexit, as well as the consequences that decision might have on future investment prospects for the UK economy. Thus far we’ve seen little indication that the economy is suffering any more or less than the economies of its European peers as a result of the slowdown in the global economy.

Domestically the UK economy is holding up well, though there are concerns about rising inflation and a weakening currency. This might raise the prospect, however unlikely, as to whether the bank thinks there is a risk that rates might have to rise to compensate.

3. US non-farm payrolls/wages - 03/05

Normal service was resumed for the US jobs markets in March after the surprise of a low February reading of 33k. A gain of 196k new jobs saw the unemployment rate fall to 3.8%, while wages growth cooled a little to 3.2%. These were still good numbers and this looks set to continue with yet another 185k jobs expected to be added in April, with wages expected to tick higher to 3.3%.

Overall these sorts of numbers are in the “goldilocks” range which is likely to keep the Federal Reserve happy that the US economy is ticking over nicely, not too hot and not too cold.

4. Global manufacturing PMI’s – 01-02/05

Given that it will be the May Day bank holiday week for Europe, we will see these numbers spread over two days, with little in the way of evidence that the global manufacturing recession that has been the hallmark of this year’s performance is showing signs of a pickup.

In the past month we have seen an improvement in the Chinese numbers, however this could simply be a case of playing catch-up after a February New Year slowdown.

In Europe the flash PMI’s from Germany and France did show a modest improvement, but given how poor March’s numbers were you would have to go some for them to be much worse. Italy, France and Germany’s manufacturing activity all contracted in March, and April is unlikely to be much different, though an improvement would be well received.

5. Whitbread (LON:WTB) FY19 – 30/04

Now divested of its Costa Coffee business, the owner of Premier Inn will now have to stand and fall on the back of its hotel business, but it does have the luxury of still having a good proportion of the proceeds of the £3.9bn, it received from Coca Cola burning a hole in its pocket.

This week’s numbers should be an open goal for Whitbread given the number of people in the UK expected to stay at home this year, and the great Easter weather that brought consumers out in droves on short breaks. Life is rarely that simple and low occupancy rates have been a problem in recent quarters, despite management integrating its restaurants into the hotels package which has helped drive up its revenues.

The move into the German market has also been progressing, however that is likely to need significant investment and that is likely to be a drag on profits in the short term. This won’t have been helped by a German economy that is slowing sharply.

6. Sainsbury (LON:SBRY) FY19 – 01/05

It’s not been a great year for Sainsbury CEO Mike Coupe having seen his plans for a merger with Asda fall foul of the UK regulator, he has also seen Sainsbury’s fall into third place, below Asda in the supermarket league tables, in terms of market share.

While this doesn’t include the sales numbers from its Argos business it does highlight how the rest of the sector has continued to lag behind Tesco (LON:TSCO), while the young pretenders of Aldi and Lidl continue to eat into their market share. The big challenge facing Sainsbury, as well as Asda, is what to do now that the CMA has confirmed its decision to kill the merger and how to take on the challenge facing it in terms of winning back its place as the number two UK supermarket in terms of market share.

With the shares at multi year lows and Coupe’s position as CEO under scrutiny more than ever management will need to reassure shareholders that they have a Plan B for the new financial year, at a time when food retail is set to become more competitive than ever. With profits and sales set to miss expectations shareholders might start to get restless if the share price falls below its 2016 lows and to levels last seen in 1989.

7. BP (LON:BP) and Royal Dutch Shell (LON:RDSa) Q1 19 – 01/05 and 02/05

Last week French oil giant Total (PA:TOTF) saw profits fall 4% in Q1 despite record production output and average crude oil prices of $63 a barrel. The fall in profits was attributed to a rise in debt servicing costs as well as lower natural gas prices. This could be a canary in the coalmine for BP and Royal Dutch Shell’s numbers later this week.

On the 1st May we get BP’s Q1 numbers and here expectations might need to be tempered. Earlier this year BP beat profit expectations, however its acquisition of BHP’s shale assets put its debt levels up to $44.1bn. This could be a problem in terms of higher costs with the share price up over 10% year to date.

Royal Dutch Shell on the other hand has a lower debt gearing, nonetheless its exposure to natural gas could see its profits hurt on that front, despite average oil prices above $60 a barrel.


8. Lloyds Banking Group PLC (LON:LLOY) Q1 19 – 02/05

For the most part of this year Lloyds Banking group shares have been rising steadily despite the bank probably being the most exposed to the prospect of a “no deal” Brexit outcome.

In April the shares hit their highest levels since May last year despite a weak end to its fiscal year. Investors appear to have finally woken up to the fact that the bank is in a fairly healthy state having posted a statutory profit of £4.4bn at the end of last year. The bank's biggest problem, if it can be called that, is likely to have been a slowdown in the UK economy in the first quarter as a result of ongoing Brexit uncertainty which will have in all likelihood slowed its lending in the first few months of the year.

Watch out for further provisions on its MBNA credit card portfolio as well as a change of outlook given that this year’s outlook was predicated on “a deal and smooth Brexit transition” for this year which would have seen the UK economy grow at circa 1-1.5%.

9. Indivior (LON:INDV) Q1 19 – 02/05

Last month Indivior shares plunged over 70% after the company was indicted by a US Federal Jury for fraudulent misrepresentation with respect to its Suboxone Film opioid treatment. The shares have managed to stabilise somewhat in the aftermath of that news however the outlook still looks bleak.

This week’s Q1 trading could well add some extra colour to this story, however the survival of the firm still remains a risk if the charges lead to the maximum $3bn fine being levied. If this were its only problem there might be light at the end of the tunnel, however sales from its other products have been struggling, due to competition from more generic rivals.

10. Apple (NASDAQ:AAPL) Q2 19 – 30/04

What to say about Apple that hasn’t already been said?

The company is a cash machine when it comes to selling its products, however it is now going into streaming services and looking to take on the likes of Netflix (NASDAQ:NFLX), Amazon, as well as Disney (NYSE:DIS). The big question is how much money is the company looking to spend.

It certainly has much deeper pockets than its rivals, however its core business still remains handset sales. Even Q1’s downgraded forecasts still showed revenues of $84.3bn despite weaker demand for its iPhones. Now that the company no longer provides a breakdown of handset and tablet sales it is becoming harder to detect whether sales growth in this market has peaked and is now a sustained move lower.

Services may well be able to take up some of the slack and has been doing so consistently for several quarters, and should continue to do so when Apple+ is added in the autumn. For this Q2 revenues are expected to be much lower between $55bn to $59bn, with a decline in margins after the company decided to adjust its prices lower to account for currency fluctuations in certain countries.

11. Alphabet (NASDAQ:GOOGL) Q1 19 – 29/04

At its last update at the beginning of February, Google parent company Alphabet saw revenues of $39.27bn at the end of last year, however an increase in costs caused the share price to slip back on the day, despite profits of $8.9bn. The increase in costs appears to be as a result of spending extra money in promoting its cloud and YouTube business.

Some of the higher costs came about as a result of its other business bets which doubled to $1.3bn over the course of the year, while the recent flop of the IPO of LYFT (NASDAQ:LYFT) is unlikely to have helped the mood given that Alphabet holds a stake in that business.

This week’s numbers should tell us whether Alphabet have had to continue to spend money in order to hold off Amazon (NASDAQ:AMZN), who are also spending big in cloud services.

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.

Original Article

11 Things To Watch Next Week: Fed, BoE Rate Meetings; BP, Shell, Lloyds Earnings
 

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11 Things To Watch Next Week: Fed, BoE Rate Meetings; BP, Shell, Lloyds Earnings

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