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The Week Ahead: EU And US PMIs, Tesla & Facebook Results, ECB And US GDP

Published 21/07/2019, 08:16
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1. Conservative Party Leadership contest -23/7

The battle for the leadership of the Tory Party should be revealed on 23 July, and Theresa May is likely to attend her last Prime Ministers questions on 24 July, and then go to Buckingham Palace and resign as Prime Minister. Boris Johnson and Jeremey Hunt have both called for a renegotiation of the withdrawal agreement, and the prospect of a no-deal Brexit continues to loom over the markets. Mr Johnson is tipped to be the next leader of the UK.

2. Fevertree H1 -23/7

2018 turned out to be another successful year for Fevertree, a company that in the space of four years has become one of the UK’s leading exporters and producers of carbonated mixers. Full year revenues rose 40% to £237.4m, coming in above expectations of previous guidance of £236m, and up from £170.2m last year. The acquisition of US based Southern (NYSE:SO) Glazers wine and spirits has also helped boost profits, pushing revenues up sharply compared to 2017, as the transition to the Fevertree USA brand sets the company up to boost sales across the US. Since the publication of those numbers in late March the Fevertree share price has slid sharply lower to levels last seen in late 2017, as concerns over lower margins and the impact of the sugar tax has dragged on the wider sector. Sector peer AG Barr’s profit warning earlier this month appears to have spooked investors, with Britvic (LON:BVIC) also sliding lower. This week’s first half update from Fevertree could well prompt further investor uncertainty, with particular attention likely to be focussed on its profit margins, which did show a small decline at the end of last year, from 53.5% to 51.8%. The guidance will also be of interest with full year revenue expectations currently expected to come in at £279.6m, an increase of 17.8% on 2018.

3. Tesla Inc (NASDAQ:TSLA) Q2 - 23/7

The group posted a loss of $702 million in the first-quarter, which was far worse than the $301 million forecast that analysts had predicted, and revenue declined by 37%. The numbers broke the firm’s back-to-back quarterly profit steak. The $7,500 federal tax credit for purchasing an electric vehicle was cut, and that played a role in the decline in revenue. Tesla faces competition from Audi, Mercedes and Hyundai as all are entering the electric vehicle sector. At the start of the month, the group confirmed it delivered 95,200 vehicles in the second-quarter, which was a record level, and traders were expecting 91,000. The firm produced more than 77,000 vehicles in the first-three months. Tesla have a full-year target of between 360,000 and 400,000 vehicles to be delivered. It is encouraging to see that production levels are on the rise, but the company would have to at the very least, keep production at existing levels in order to reach the lower end of the of the full-year production target. Traders will be paying close attention to commentary in relation to production, and whether the target will be achieved.

4. French and German services and manufacturing -24/7

The two largest economies in the eurozone are enduring minimal growth and their respective services and manufacturing aren’t performing particularly well. The German manufacturing sector has been in contraction in 2019. Germany in the engine room of Europe, and the manufacturing industry in the engine room of the German economy. Trade tensions between the US and China have weighed on the global economy. Some traders are worried that President Trump will turn on the EU the same way he turned up the heat on China in terms of tariffs. The French economy is ticking along, but it only doing relatively well when compared with the German economy. The European Commission predicts that the French economy will grow by 1.3% in 2019, and the German economy is tipped to grow by only 0.5%. The services sectors in both France and Germany are in good shape and seeing as the German services PMI reading is in the mid-50’s, it is doing well by European standards.

5. US manufacturing -24/7

The latest manufacturing PMI report came in at 50.1, which tells us the sector barely expanded, and it the industry has been growing at a slower rate for over one year. The Chicago PMI report slumped into contraction territory, it first negative reading in two years. The latest ISM manufacturing report fell to a level last seen in late 2016, so it is clear the manufacturing industry across the board is cooling, and it is an aspect of the US economy is cooling. Recently we heard Jerome Powell, the head of the Federal Reserve, and left the door open to cutting interest rates, and when you at the sector you can why he is looking to cut rates. The latest PPI figures cooled from 1.8% to 1.7%, but the core PPI update held steady at 2.3%. The core figure is often viewed as a more accurate reflation of underlying demand, and it appears to be firm. The slide in the headline rate is mostly likely on account of softer copper and oil prices.

6. Facebook (NASDAQ:FB) Q2 -24/7

The social media giant had an impressive first-quarter. Average revenue per user came in at $6.42, topping forecasts $6.39, and revenue was $15.08 billion, which exceeded the $14.98 billion forecast. Daily and monthly active users were 1.56 billion and 2.38 billion respectively, and both were in line with forecasts. The firm took a one-off hit of $5 billion in relation to a fine from the Federal Trade Commission inquiry. In June, the group announced it was launching its own digital currency, Libra, and already it has attracted the attention of the Trump administration. President Trump said he was ‘not comfortable’ about the idea of the Facebook offering a cryptocurrency, and he said if they want to become a bank, the group must seek a ‘banking charter’. US Treasury Secretary, Steven Mnuchin, and the cautioned the digital currency could be misused, and the company is likely to come under scrutiny.

7. Metro Bank H1 -24/7

As far as share price performance is concerned, the first half of this year has been an absolute shocker for Metro Bank, its share price down over 70% since December 2018, having had to restate its accounts after the Bank of England pointed out that the bank had misstated the ratings of some of its its commercial property, and buy to let loans, which meant it had to raise another £350m of extra capital, on top of the £300m shareholders were tapped for in the summer of 2018. While management were able to successfully raise the extra capital, at a price of 500p a share, sending the share price sharply higher from lows of 477p in May, to just shy of 900p, the concerns over governance don’t appear to have receded, with the share price giving up all of those gains in the meantime. Senior management were able to navigate their way past a confidence vote at the recent AGM, however the bank continues to remain under investigation by UK regulators, with pressure increasing for management accountability for the whole sorry saga. Investors appear to have little confidence in Chairman Vernon Hill and this week’s first half update should give an insight into whether the bank has been able to restore confidence in its customer base, when there were queues outside branches in May as customers worried about the safety of their money. As far as banks are concerned having the confidence of your client base is crucial, and with the same personnel in place and no sign of contrition it rather begs the question as to why investors would get on board a ship that has already come close to hitting the rocks twice in the last 12 months.

8. ECB meeting -25/7

The ECB are tipped to keen interest rates on hold, and traders will be listening out for any clues about future monetary policy. Mario Draghi, the head of the central bank in June dropped a hint that lower might be lower, and the government bond buying scheme might be restarted. Mr Draghi is due to set down as ECB president later this year, so it was easy for him to drop clues about loosening monetary policy. The central banker cautioned that the downside risks have increased, and global trade tensions are a factor. The Federal Reserve seem to be laying the groundwork for lowering interest rates, should that happen it is likely to have a knock on effect on the euro ,and that in turn is likely to get a response from the ECB. Christine Lagarde, the head of the IMF, has been nominated to be the next head of the ECB, and it is believed that Ms Lagarde holds a dovish view. Given the change of leadership is in the pipeline, a major change to monetary policy is unlikely during the final few months of Draghi’s term.

9. Amazon (NASDAQ:AMZN) Q2 -25/7

In terms of earnings, Amazon are on a roll, as the group posted record earnings in the first-quarter, and it was the fourth consecutive quarter of record profits. Looking ahead to the second-quarter figures, the company predicts that revenue will be between $59.5 billion and $63.5 billion, and keep in mind the group posted revenue of $52.89 billion in the same period last year. The tech giant predicts that second-quarter operating profit will be between $2.6 billion and $3.6 billion, and that would be large drop off from the $4.4 billion registered in the first-quarter. The Amazon Prime service boasts two-day delivery, but the group wants to cut that in half to one-day delivery. The firm expects to take an $800 million hit in relation to the changes in the delivery time. The cost is likely to a be one off, and given how much disruption have caused in the retail sector, the move is likely to cause even more, and it will probably end attract more customers to the service. The stock has been broadly pushing higher throughout 2019, and a break above the $2,050 area, might put $2,100 on the radar.

10. Intel (NASDAQ:INTC) Q2 – 25/7

The share price took a knock in April on the back of the first-quarter results. The firm predicted that full-year revenue will drop by 2.5% to $69 billion, while analysts were predicting to $71.05 billion. The group hasn’t registered a drop in annual profit since 2015. The outlook did the damage to the share price as other aspects of the update were well received. EPS were 89 cents, which topped the 87 cent forecast, and revenue for the first three months was $16.02 billion, which marginally topped forecasts. Earlier this year the company said it was exiting the 5G smartphone sector, and it declared there was ‘no clear path to profitability. It seems that Intel are content for Qualcomm (NASDAQ:QCOM) to expand in that industry. The group will be carrying out a review of its ‘internet of things’ sector, and it appears as if it will focus on the data centre business – which is one of its strengths. In the first three months of the of the year, Intel conformed that revenue from the data centre division slipped by 5% ,and in this update traders will be paying close to attention to how the unit performed. The decision by the Trump administration to loosen the restrictions in relation to Huawei have helped Intel’s share price, along with other chipmakers.

11. US advance Q2 GDP -26/7

The US economy grew by 3.1% in the first-quarter, and the advanced reading of the second-quarter will be in focus as dealers feel it will give an indication what the Federal Reserve will do next in terms of monetary policy. Some pockets of the US economy are a little on the soft side, such as housing and the manufacturing, and a sharp cooling of economic growth could ramp up speculation that the US central bank will cut rates. The Fed interest rate decision will be revealed at the end of July, and there has been speculation of a rate cut. The size of the rate cut, and whether there will be more rate cuts later year is of much debate. The June non-farm payrolls report was a solid number and it came in much higher than expected, and that sparked chatter that the Fed would keep rates on hold in July. Jerome Powell said the report doesn’t change the Fed policy, but perhaps the GDP might.

12. Rightmove 1H – 26/7

Despite the cooling of house prices, and of profits from house builders, Rightmove continues to perform well. In March, the company released its full-year figures, and revenue and profit jumped by 9.8% and 11% respectively. The firm said it expects online advertising to keep growing, but it also cautioned that given the political uncertainty, the moves in the property market might be more extreme. UK property prices have come off the boil, and in some parts of the country, prices are falling. Recently, traders have become more concerned about the prospect of a no-deal Brexit, as Jeremey Hunt and Boris Johnson claimed the Irish backstop was unacceptable, and this might weigh on the property market sentiment. Rightmove, share price hit an all-time high in June, but has endured a sharp move lower since, and if the bearish move continues it might target 480p.

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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