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The Week Ahead: Brexit Court Hearings; U.S. Payrolls; Global PMIs

Published 01/09/2019, 07:12
Updated 03/08/2021, 16:15

1. US payrolls – 06/09

Where is the bar for a Fed rate cut in September, and will it be 25bp or 50bps?. This week’s August payrolls report needs to continue the trend of decent jobs growth of circa 100k numbers with wages growth of around 3% to dial back any expectation that the Fed will cut by more than 25bps. Fed chair Jay Powell’s comments at Jackson Hole gave no indication that the Fed is even considering a 50bp cut in rates, despite pressure from President Trump to be more aggressive. If the economic data continues to hold up Fed officials are unlikely to be swayed away from their current stance of acting slowly in accordance with the data, particularly since most Fed officials remain split on when the next move is likely to happen.

2. Brexit Court hearings

Prorogation or suspension of UK parliament is set to be ruled upon in the coming days by various courts. Interim injunction has already been rejected with a full hearing on Tuesday in Edinburgh to consider merits of the case. Judge has requested a formal affidavit from the PM, on oath as to why he needs to suspend parliament. Another case will be heard on Thursday in a case brought by Gina Miller and joined by John Major, with the chances of success seemingly slim.

3. Global manufacturing PMI’s (Aug) – 02/09

Manufacturing has continued to struggle in August, though we have seen some flickers of an improvement in the flash PMI numbers, albeit from fairly weak levels. Pessimism still appears to be the prevailing sentiment in the sector, with any signs of a pick-up likely to be as a result of restocking inventory than anything else. New orders have continued to be an area of weakness, though the Chicago PMI has seen a pickup, while concerns remain in Germany where business sentiment is especially pessimistic.

4. Global Services PMI’s (Aug) – 04/09

The services sector has, thus far remained detached from the slowdown in manufacturing, however there are signs that the weakness in manufacturing is starting to trickle down into the services part of the global economy. In Germany the recent IFO survey suggested that services was now starting to show signs of weakness in the forward looking surveys. We haven’t seen much evidence of this so far in recent PMI surveys, however this could change given the recent escalations in the trade war narrative.

5. Bank of Canada rate decision – 04/09

The economy in Canada, thus far appears to be holding up fairly well, despite a weak payrolls report in July, which contrasted with the strength of the numbers in June. It remains highly likely that the Bank of Canada will hold fire on rates this month and only act once it sees what the Federal Reserve does later this month. Wages growth continues to look solid, and Q2 GDP was robust, which would suggest that the central bank is more than likely to adopt a watching brief, ahead of this week’s August payrolls report, which is due on the 6th September.

6. RBA rate decision– 03/09

The RBA is expected to cut rates again later this year, with the only debate being around the timing of such a move. It would be surprising for the central bank to move this week, ahead of this months Fed rate meeting. The latest economic data out of Australia hasn’t been too disappointing, and a move this month wouldn’t support a rate cut at this time. It is more likely we get a move next month, when we’ll get a better steer on what the Fed intends to do against a backdrop of a deteriorating trade picture, as higher tariffs kick in.

7. Restaurant Group PLC (LON:RTN) H1 – 03/09

When Restaurant Group paid £550m for Wagamama over a year ago, there were many in the sector who questioned the wisdom of a move, in a sector that has seen several high profile names close in the past few months. The departure of CEO Andy McCue earlier this year didn’t help, as investors fretted about management strategy. When the company reported its full year numbers earlier this year, it was notable that Wagamama showed a strong performance, a hopeful portend of things to come perhaps, which helped the company see an increase in sales of 2.8% in the ten weeks to March. If the trend that we saw at the end of last year continues into the first half then it could be argued that management’s policy of taking a step back to open up new growth opportunities was a justifiable risk. This optimism has certainly been reflected in recent share price performance with the shares up over 20% since those March numbers.

8. Dunelm Group PLC (LON:DNLM) - FY19 – 04/09

Not exactly a bellwether for UK retail which to all intents and purposes has had a difficult year thus far, however if the sector is looking for a role model as to how to deal with a challenging retail environment they don’t have to look too far. The shares are up over 50% year to date. In April the company reported like for like revenues increasing by 12.5% with on-line revenues a big factor in the outperformance, with a rise of 32.1% on the quarter, and a 34.4% rise financial year to date. In July the company reported that full year margins were expected to improve by approximately 160bps, while profits before tax were expected to come in between £124m and £126m, boosted by a buoyant homecare market. Net debt is also expected to come down from £123.8m in 2018 to £25.3m. This outperformance prompted the company to state that profits would be expected to come in above expectations for the current year. This week we’ll get to see how accurate this prediction has turned out to be.

9. Kroger Company (NYSE:KR) – Q2 20 – 05/09

One of the US’s key grocery store brands, based in Ohio, the company recently signed a deal with Ocado (LON:OCDO), in an attempt to take the fight to Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT). The company has also been investing heavily in revamping its stores and its on-line operations, and this has weighed on its recent numbers. In Q1 the company saw its profits come in above expectations, however same store sales slowed from Q4, raising concerns that the new strategy was finding it difficult to gain traction with consumers. The company kept its forecasts for 2019 unchanged at $2.15c to $2.25c a share, with same store sales set to come in above 2%.

10. Slack Technologies (NYSE:WORK) - Q2 20 – 04/09

Almost three months as a public company Slack is set to deliver its first quarter under the gaze of market scrutiny. Opening as a direct listing in June the company’s share price performance has been a little disappointing, even though it is still trading at a premium to its listing price of $26. The shares surged to as high as $42 before retreating. As yet the company remains a long way short of making a profit and investors will be looking for evidence that the solution it provides is generating the type of revenue growth to justify such a rich valuation. Full year revenues are projected to come in at $607m as the company looks to convince potential new clients of the merits of a program that sounds like a combination of e-mail, WeTransfer and a chat application rolled into one.

11. Zoom Video Communications Inc (NASDAQ:ZM) Q2 20 – 05/09

Another new entrant for investors to give a health check to, as it looks to justify yet another lofty valuation. The company came to market earlier this year, and has seen steady progress thus far, from its IPO price of $36, peaking at $107 in June. In Q1 sales more than doubled from the same quarter the year before. It ended Q1 with 58k customers as total revenue rose to $122m with most of that coming from the US. The company managed to report that cash flow was positive in Q1 and expects to see total revenue for the current quarter to come in at $129m with profits of $0.01c a share. The company said it expects to see total revenue for the year to come in at $535m at the lower end of expectations, and profits of $0.03c a share. With the shares currently up above $90 a lot of good news is already priced in, which means the potential for disappointment is quite high.

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