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10 Things To Watch Next Week: BoE Financial Stability; UK GDP; China Trade; Ocado

By CMC Markets (Michael Hewson)Market OverviewJul 07, 2019 10:00
10 Things To Watch Next Week: BoE Financial Stability; UK GDP; China Trade; Ocado
By CMC Markets (Michael Hewson)   |  Jul 07, 2019 10:00
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1. Bank of England financial stability report, UK monthly GDP, manufacturing – 10/07

Having overseen a decent performance in the first quarter of this year, the second quarter looks set to be a much weaker affair.

Weak consumer spending, a manufacturing sector that is coming under pressure from a global manufacturing recession has seen economic activity slow as we head into the summer months. Concerns about global trade disruptions, whether they be Brexit related, or China, US related has also seen the services sector activity start to slow.

This week’s UK data for April is unlikely to shift the narrative in this regard, while the Bank of England is likely to reiterate it remains ready to support markets in the event of a no deal Brexit by the end of October, with the most likely move in policy likely to be a rate cut in order to mitigate any disruption.

2. Bank of Canada meeting – 10/07

Up until fairly recently the Canadian economy was looking a little on the weak side, with flat lining GDP and weak consumer spending. This prompted a pivot towards a more dovish position monetary policy wise, after a phase of raising interest rates.

In the past two months we’ve seen the Canadian jobs market undergo a bit of a renaissance with unemployment falling to 5.4% in May, a multi-year low, while wages have also started to push higher, at their fastest rate since March 2018.

This week’s decision is unlikely to see any change in policy given the current back drop, particularly with oil prices also looking strong, though central bank officials might well keep the door open for a cut if the US starts to cut rates in the months ahead.

3. China Trade – 12/07

The picture on China trade continues to paint an uncertain picture. With the implementation of new tariffs on both US and Chinese goods at the beginning of June we could see a further negative effect on the balance between imports and exports.

In April we saw a pickup in imports, after several months of declines. This proved to be a false dawn as May then saw a slide of 8%. With internal demand still looking weak exports have been more patchy, oscillating between positive and negative territory throughout most of this year.

In May we saw a modest rise of 1.1%, which suggests that June might slip back. For all the pessimism around manufacturing, services have been doing somewhat better, which suggests that aside from the gloom, with wages holding up and unemployment fairly low global demand is likely to be more sticky.

We should be aware that each months trade numbers are likely to be skewed by front running ahead of rises in tariffs. Fears of the US putting tariffs on the remaining $300bn of Chinese goods, in the lead up to the recent G20 could well also have prompted some front running.

4. Ocado (LON:OCDO) Group H1 19 – 09/07

One of the best performers on the FTSE 350 year to date, the Ocado share price has up over 50%, shrugging off concerns about its profitability after reporting a pre-tax loss of £44.4m in its last full year numbers earlier this year.

Rising sales have boosted investor expectations on future profits growth, with the latest being a new joint venture deal with Marks and Spencer (LON:MKS). This appears to have prompted the company off load its beauty business Marie Claire to Next (LON:NXT) for £8m as it looks to reorientate its business more towards food retail.

Despite being one of the best performers year to date the share price has struggled since the record peaks in April, largely over concern about the effects of a fire at its Andover distribution centre in February, which could well impact its ability to meet its longer term growth targets. Despite this the latest Kantar data showed that Ocado was the UK’s fastest growing supermarket in the 12 weeks to June 2019, with sales rising by 11.3%.

In February management said they were confident of achieving retail revenue growth of between 10% and 15% this year. It will be notable as to whether this guidance is adjusted to the downside.

5. Micro Focus International (LON:MCRO) – H1 19 – 09/07

Micro Focus has struggled for some time now having spent most of the last couple of years in integrating Hewlett Packard's (NYSE:HPE) enterprise software assets, which saw the company treble in size in a short space of time. These growing pains saw the company’s share drop sharply between 2017 and 2018, and revenues slow sharply.

Since the 2018 lows the share price has recovered over 50% of the way from its 2017 peaks, helped by buybacks, and expectations of a turnaround in the pace of revenue losses. In May the company said it expected to meet guidance for its first half results when it reports this week.

6. Superdry PLC (LON:SDRY)FY19 – 10/07

The Superdry share price has struggled for the most part of this year. Having sunk like a stone last year as management came under fire from founder Julian Dunkerton for their stewardship of the company, the shares managed to find a base at the end of last year. Since then they’ve broadly stabilised and traded sideways with the return of Dunkerton raising hopes that he can turn the business around.

In May the company followed up its two profits warnings from last year with another one. In the year to 27th April the company saw wholesale revenues rise 3.6%, however a poor Q4 undermined hopes of a much better performance overall. Online sales were also disappointing, rising a meagre 1.6%. Against such a weak backdrop investors will be wanting to know how Dunkerton intends to turn the business around and help the share price recover in what is becoming an ever tougher environment for clothes retailers.

7. Levi Strauss (NYSE:LEVI) Q2 19 – 09/07

When Levi Strauss IPO’d earlier this year it was one of those rare beasts, namely a new issue that was profitable, with a tried and trusted business model. That may help explain why the bump in its share price has been modest than a lot of its peers, whose share price rises have been driven skyward by hope rather than expectation.

When the company reported in Q1 profits came in at $146.6m or $0.37c a share on revenues of $1.44bn, with sales strong in both the US and Asia markets. The company maintained its full year outlook, and expectations are for a similar performance this quarter with the shares still modestly above their $17 IPO price.

8. Bed Bath & Beyond (NASDAQ:BBBY)Q1 20 – 10/07

Has been struggling with declining sales and falling revenues the shares are trading near record lows, with little indication of an improvement in the near term. E-commerce sales have been improving but not enough to compensate for falling sales at physical stores.

Gross profit margins have also been falling, with management hoping to arrest the slide, by removing lower margin items and not discounting as much. The company is still profitable, however there appears to be a concern that in cutting too many products that the business is hampering its ability to boost footfall.

9. Delta Airlines (NYSE:DAL) – Q2 19 – 11/07

In Q1 Delta returned $1.6bn to shareholders, with little sign that passenger demand was slowing, as it reported a record $10.47bn in revenue, while profits jumped to $730m. For Q2 the company expressed confidence that it could see revenues rise by over 6% from the same quarter in 2018. This optimism looks well placed after the company upgraded its profits forecasts to a mid-point of $2.30c a share, a few days ago.

Unlike its peers Delta doesn’t have any Boeing (NYSE:BA) 737 MAX’s in its fleet and this appears to be helping the company in terms of maintaining its market share in a competitive US market.

10. Deutsche Bank (DE:DBKGn)

There has been speculation that we might see further details about a turnaround plan for the troubled bank over the last few days. It is reported that management will be discussing measures over the weekend with details as soon as early this week. This may well be premature and investors may have to wait until 24th July when Deutsche releases its latest numbers.

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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10 Things To Watch Next Week: BoE Financial Stability; UK GDP; China Trade; Ocado

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10 Things To Watch Next Week: BoE Financial Stability; UK GDP; China Trade; Ocado

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